Earnings Call: Q4 2020

Feb 11, 2021

Hi and welcome to Oz Design's webcast for the year end reports. My name is Nils Johansson. I am from Finrite TV and I will moderate this webcast. With me to do a presentation, I have CEO, Morten Henneveld. If you have any questions to Morten, please send them in via the form on the right hand side of the web page and I will try to bring them up with Morten after the presentation. With that, I leave the word over to you, Morten. Good morning, everyone, and welcome to Us Design's 4th quarter and full year webcast. My name is Morten Hinneveld, and I'm the CEO of Astesign. I'll take you through today what I believe is a strong performance in both the quarter and the full year. And I'll also talk to some of the key milestones we've reached that will allow the company to scale and accelerate growth in the future. After I've presented the results and the key highlights, we will finish with questions. As normal, we have a disclaimer when we do this presentation. In case there are any new people to Ostezine, I just want to quickly recap what Ostezine is really about. We operate in the orthopedic industry historically with a focus on craniumaxillofacial, which we also abbreviate as CMF. And now, of course, also recently, we plan to enter the Ortho Biologics. But the common theme is that we offer Regenerative Solution. That is our focus. We are headquartered in Uppsala in Sweden. And today, we are approximately 50 employees, and we operate in more than 10 markets globally. We've seen significant growth year on year Of approximately 50% since we started commercialization. And we've now sold more than 1,000 implants of our key product, cranial personalized PSI, Cranium PSI, and we operate with a fully patented and reimbursed portfolio across all markets. But the story of Fast Design is really about identifying and solving unmet clinical needs. Since the company was founded in 2011, the key focus has been on developing, improving and then bringing a technology platform and solutions to the market that result in better patient outcomes. And we've succeeded in this, as you will hear a little bit later, and not just by a small margin, but actually by a long range. But before we go into the result, I just would like To set the scene for the environment which we operate in today because, of course, with COVID-nineteen, it challenges the running of a business. I do think, however, that we've shown very significant resilience and strength as an organization to both cope with COVID-nineteen, but also navigate the challenges it poses in the market. If we first look at Europe, we've seen quite a mixed picture With Germany, for instance, being fairly open to operate, whilst the UK has been under severe restrictions throughout. Common for most markets, however, was that the Q2 was very difficult. The Q3, we saw a gradual opening of the markets, But unfortunately, we also saw a severe retraction again in the Q4 and in some cases, actually more severe Dan Wissol in the Q2. It means that access to hospital was restricted and also we saw elective surgeries almost come to a complete stop For the U. S, the picture is quite different. The surge in cases has continuously increased throughout the year, but the impact on the state level has varied With, for instance, the East Coast and the New York area being more open, while states like California, Texas and Florida have been under very severe restrictions. In general, What we've seen is that the increasing number of cases and hospitalized patients have resulted in elective surgeries being significantly reduced or stopped. And actually, access to hospitals in many places have been prohibited. For Japan, of course, we are not selling there today. But as we previously communicated, we're preparing for the launch in Q4. Well, unfortunately, we saw a significant increase in cases and that peak with the introduction Of a state of emergency on the 7th January 2021. So I think it's important to view the results And the performance we have against this backdrop. On a positive note, what we have seen is that as soon as restrictions lift, There are patients who need to be treated and now actually more than ever because of the backlog that is being built up and there is a clear demand for our product. And I'm very proud actually to lead an organization who so relentlessly work with surgeons even remotely under very difficult circumstances To go above and beyond to treat patients. And I think this is also where our offering becomes extremely important because In addition to the great implants we are bringing to market, what we are also bringing out is that we have a digital solution called our customer communication platform to work with our customers. And that means that we've been extremely well geared actually to handle some of the challenges of not If we turn to the results for the Q4, we reported a revenue of SEK 6,600,000, Which equals a 37% growth year on year when you clench for FX effects. It's also a 4% increase on the 3rd quarter Despite further restrictive measures and lockdowns. Sales was primarily driven by Europe, with Germany and France showing extremely great results despite the fact that we actually saw in Germany some fairly severe restrictions coming back Towards the second half of the quarter. U. S. Came in at EUR 2,300,000, which was down on prior year and also Q3, And that is just a direct result of more cases being canceled. But let me be clear here, we expect a lot more from the U. S. As soon as things normalize. The net profit came in at minus €23,200,000 which Better than prior year. And of course, the net profit was positively impacted by the fact that we've postponed a number of investments Due to the pandemic. Sales for the full year ended at €24,900,000, Which is a very impressive 49% growth over the previous year and a result that I am personally very satisfied with against the backdrop Of the pandemic. Net profit ended at SEK 82,800,000, which is in line with previous years, And we finished the year with a net cash position of €49,000,000 which was positively impacted by the €65,000,000 directed share issue We did in relation to the acquisition of Cerro Cos. If you look at the sales development over the year, it's very clear that the demand for our product is strong. And the high momentum we saw in Q1, of course, came to a halt in Q2 due to COVID, but then we made an impressive recovery in Q3 And we actually managed to maintain that momentum and even increase that momentum slightly despite even more restrictions. So when I look back at 2020, as you can also see on the chart, it surely was a roller coaster ride in many aspects. To some of the very important events that happened in the Q4. To start off, we had another peer reviewed article published in the prestigious Journal proceedings of the National Academy of Science. The research that was published describes the capacity of osteosine's implant concept And the proprietary ceramic materials ability to regenerate and restore large cranial defects With a composition similar to those of a native skull bone. These results are in line with previously published clinical data on the technology, But it's important for us because it's another robust set of clinical data that supports the previous findings to the uniqueness of our technology. And it now means that our technology and our clinical outcomes is now described and published in more than 10 peer reviewed articles. You've heard me talk about before was the acquisition of Cirocost in November, which marked the start of a transformative journey And a first step to broaden Oste Science position in the orthopedic market. With access to the large and fast growing Orthobiologics We will now enter a space that is highly attractive, that has high margins And scalability potential. And I can tell you the integration of Cerro Cos and the preparation for launch It is growing absolutely according to plan. We are well underway. And as previously communicated, we expect the first sales in the second half of twenty twenty one. I was also particularly pleased to see the support we received from both existing and new investors from Sweden and abroad for this acquisition, but also the strategy that it signaled when we raised the €65,000,000 in a directed After we closed the year in January, we also announced updated outcome data on the use of Ostezynas cranial PSI In 1055 cases and after medium follow-up time of 21 months, The rate of infection leading to implant removal was 2.1%, which is consistent with the low levels previously presented. Again, I just would like to remind you here that most literature in this field show an average expectation rate above 10% and sometimes even at 50%. So what we've shown here is very clear clinical superiority and it now also means that It's done in a cohort that spans across all geographies and more than 180 hospitals. And I think now we can safely say That this data sets the industry standard when it comes to implants for cranial reconstruction. On preparing the business for future scale and growth. And another key milestone was the move into our new Corporate Headquarter in Uppsala. The facility also includes much more modern but also larger production facilities, Which received approval from the regulatory authorities in December. And the move to these new facilities will not only allow us To meet higher demands, but it will also allow us to accelerate our R and D efforts to further build Our innovative position in the market. So as we look ahead and as we move into 2021, We do it as a different company that comes in with a much stronger growth platform and even more robust clinical data. And in 2021, we do have some very important milestones, which we'll be achieving. As we've said before, we're going to launch BoneGraph substitute we acquired from Syrokos in the second half of twenty twenty one. We now also update our view on Japan. And because of the state of emergency we're seeing right now, We are already training and have trained Muronaka. We do have surgeries ready, more or less. But given the fact that it's a state of emergency and the lockdowns that we see, we think it's realistic now that the we are able to launch in Japan And also, as previously communicated, we do intend to raise further capital in 2021. And with that, I would like to thank you all for listening to the presentation, and I'll hand back to the operator for questions. Thank you, Morten. We've got several questions. We move into the Q and A. First question, you report a strong growth in Germany. Can you talk a bit more as to why Germany stand out like this? Yes. I mean, I think as an organization, we have a strong Sales team in Germany, and I think that's, of course, a prerequisite for getting good results. But I think more importantly, in the context of COVID, I think Germany is a really good proxy for what we can see and what we expect and should expect In other markets because contrary to many other markets, Germany did actually remain open The majority of 2020, at least from a health care perspective, meaning that the impact on Elective surgeries wasn't as profound as we saw in other markets. So there were simply more surgeries. And with more surgeries, we also know there is a demand for our products. So I think to a large extent that explains the very high growth rate that we are, of course, very in Germany. Thank you. You published updated post market surveillance here in January. How important is this Dat Data for you. That data to us is absolutely vital. As a fairly young company coming to market with novel technology, the most important thing is that you can prove that it has Equal or ideally a better effect than what's already on the market. And I think what we've shown here is that compared to much of the literature, as I said, we're actually seeing that we are significantly outperforming what else is out there in the market. So it is absolutely vital for us and it's very fundamental To our future that we keep building clinical data. And this, of course, doesn't stop just with the post market surveillance, but it is a very important element. Thank you. And what should we expect in terms of sales from Bonegraft? Yes. Thanks for the question. As we said, we're not guiding specifically on the sales per product area. What we are saying is that the integration of 0 costs is going really well, meaning that we stick to what we Previously communicated that we expect 1st sales in the second half of twenty twenty one. Thank you. And a couple of questions, but the main part of the question is, how will you finance the rest of the Siracost deal? Yes. No, I fully understand the question, And I also understand curiosity and interest in it. At this point in time, that's not something that I can comment further on. Of course, We are looking into it, and we will come out with more information around that once we are ready. Thank you. We're moving on. Do you think your products could be useful in the future for the veterinary segment? That's a really good question. And the short answer is yes, it is absolutely on our radar. We know And we are actually in dialogue also with the institutions because we know there is a real demand For products like ours in the veterans affairs. So absolutely, yes. Thank you. And a couple of question from Alexander Vival at PENSA. He starts with saying good morning. How did the monthly sales Mentluk. In Q4 2020 and how has it started Q1 2021? So we're not giving sales numbers away on a monthly basis. I think what we saw was a In the beginning of Q4, we saw a continuous build actually into November as well. But then we also started to see the impact of some of the lockdowns and in particular the cancellations Whereas Healthcare Systems starting to reach peak points in terms of ICU beds and so on. So 2021, that's not something that I would like to comment on right now other than, of course, what we're seeing is that the Whatever you call it, a second or third wave, of course, we see that in many markets extending into Q1 now. I understand. Is the year on year growth in Q4 2020 primarily driven by new or existing customers? Again, that's not something we're not going to disclose any operational aspects relative to our customer base. Getting new customers in general is difficult when You are prohibited from actually meeting those. So we do see a larger share coming from more from the existing base than new, but we have also managed to get some new customers in. But I can't give away any specific split here. Thank you. And where do you see the personnel costs and external cost for 2021. Sorry, did I hear correctly, 2021, you said? Yes. Where do you see the personnel cost and external cost for 2021? Again, we are looking at Q4 in 2020, and I think that's what I will stay commenting on. We do have some plans coming into next year, but we'll talk more about that as we get into Q1 reporting and so on. I'm not going to comment on our budget right now. I understand we move on to questions from Rickard Andekrans from ABG G Sundal Kalia. First question is, how are things progressing with finding a distribution partner in France? Yes, I know it's something that we've talked a lot about, and I think actually it's been slightly misunderstood. Stord, we do have a distribution partner. We have an agent. I think what you referred to, Rickard, is the discussion that We had with another distributor and that's still going on. I think what we're also seeing with the current agent right now who's really, really doing a good job And growing France from little to a significant volume that we are going in France. So I I actually don't think it's meaningful anymore to talk about that other distributors. We will be looking at a distributor or potentially other agents. But As such, we are live in France. We have an agent who's doing really well and we're extremely happy with that. Thank you. Second question from Ricard then. What's the regulatory rollout status for Oste Cyan Cranial and Oste Cyan Facial? I mean, we, of course, are thinking about some of the other things. We will come back later in Q1 With a somewhat updated view on some of these things. Right now, we need to launch cranial in We need to launch Cranio in Japan. That's absolutely important. We also know that We have an osteoconductive claim, for instance, on our cranial plaque, which, of course, we'll also to get on our premium PSI in the U. S. So I think that's That's what I can say about that at this point in time. Thank you. And can you talk about the commercialization, clinical trial road map for OZCO3 ZP putty. At this point in time, that's not something again, we'll come back in due time and we'll share some more insight So some more insight as to that. We do have a very clear plan with a number of key components. We'll be starting, among other things, a clinical trial as soon as we launch. So more will follow on that one, but I think it looks premature to talk about that now. But of course, we have a very clear line of sight to what we want to do. I understand. Then we move on Oscar Bergman from Redeye. First question, what are the biggest risks with the Siracos acquisition? Yes. I mean, you can list a long, long list of risks when you do these kind of things. I think the key thing is we have a product that have shown Very, very strong clinical data, actually in what we call the Bowden model, which is the RABIT Study that was done as basis for the 510 clearance. We have a product that actually performs in line with BNP2, which Very high seller in the U. S. And it's actually outperforming all the synthetic bone grafts. So we have a lot of faith in that. We think that It's a product that really can have a large impact in the U. S. Market. But of course, we haven't commercialized yet. And once We go into the market, we'll learn a lot more. So I think that's probably, as I see, the biggest risk to that, that The market is a little bit slower than what we would like it to be, but it's not what we expect. Thank you. 2nd question from Oscar. What have you done in order to consider Siracos as being well underway in terms of integration and so on? I mean, there are many aspects when you buy a product, right? CERO cost was pre commercial. So Of course, you need to integrate the 2 business from not other thing, but also from a regulatory standpoint. So that's, of course, something that we are doing. We are also working diligently on setting up A scale in the production to make sure that we can also meet demand. But then, of course, the key thing here is The go to market and the targeted approach to specific surgeons Who we think are the best to work with initially when you launch a product like this. So those are some of the key themes that we're working on at least. Thank you. And last question from Oskar is what can be expected in terms of volumes from Japan once it opens back up? I understand the curiosity and it sounds like a broken record here. I mean, We are at this point in time, we're not guiding any specific revenue from Japan. As I've also said in previous sessions, it's going to be a gradual buildup. And of course, it is a distributor setup, Which means that this is sharing on the revenue here. But it is it will be a gradual buildup. It will be a gradual roll as soon as we launch. So I think it's premature at this point in time, given the fact that we haven't launched yet, to start giving away. I think once we have some more data, some more traction in the market, I think we can talk to also some of the projections. Thank you. We really got a lot of questions here, so we will not be able to answer all of them here, but I'll make sure more than get them by email. I can answer them in that way. But I go back to Alexander Vival from PENSAIR and a question from him that is, any comments on other operating expenses, SEK 1.8 million in Q4 2020. No, but I think 2020 was a special year. And of course, when you do an acquisition, that also means that you're paying fees To a number of advisers in order to carry on that transaction. So I think what we saw in 2020 is actually because of the pandemic. We postponed a number of planned investments. We also scaled Back on activities, I mean, naturally, you're not participating in events. We're not traveling as much. So I think those Some of those things were coming in, but then that was, of course, offset by some of the larger strategic things we did last year, which I talked To the key milestones, one being the acquisition of 0 cost and the other one being the move of our production side, which of course is also driving Some extra regulatory costs. Thank you. And last question from Alexander. Any details on other liabilities on the balance Cheet. No. I mean, we when you buy a company, You also need to book it correctly on the books. And I think there are some technicalities Tif, to relative to liabilities and also how the transaction was carried through whereby there were some loan notes To Sarah Costa, we simply had to pay off as part of the proceedings and that flow through Auerboeks. I think that's the simple explanation to that. Thank you. And I will run this up with 2 more questions, Sundan. You'll get the rest of the questions by mail. So another question from Richard and Ekans. In the slowdown in the U. S. Is the slowdown in the U. S. Primarily related to your exposure to university hospitals, which has been hit harder by restrictions than private clinics. I I mean, I think the answer is going to be a little bit of a yes and no because we do have customers, as we said, both in university clinics but also outside. I think it's been less around the type of customer actually than it has been around where you operate. So By and large, for instance, New York has been going at a fairly good speed. We've actually built up further on the business During 2020 in New York, whereas we've seen some of our stronghold areas, very important states like Florida Being very difficult to operate in both in university hospitals, but certainly also in private practices. So I think that's the best way to look at it, that it's been more state impacted actually than it has been On a customer level. Thank you. And final question from Rick at the Den. What was the sales delta across key markets going into October versus going into December. Well, that's going to be a sweeping generalization when you look at a delta across different markets. So I think that's a little bit difficult to assess. But I think when you look at it, take Germany that came in high, That did slow down a little bit towards the end because of the further restrictions, but came in very high. For the U. S, that was a little bit it came down a little bit, but not by that much. So I think I don't see we see huge swings in the delta. I think that's the short answer. But as you also saw on the rolling 12 month, there was A slight contraction towards the end of Q4. I think that's the way to think of it. Thank you, Morten, for the presentation and for the answers. That was it for today. And if we haven't bring your questions up here, I will make sure Morten get it by mail and can answer it that way. So thank you, Morten, and thank you to all the listeners and viewers. I hope to see you all again soon. Bye.