Okay, as people are coming into the meeting, I want to say good morning, good afternoon, depending upon your location, and welcome to the first half earnings and strategic update for Kuros Biosciences. My name is Chris Fair, I'm the CEO, and I'll be joined by Daniel and Joost, CFO and founder, Joost, and President of Innovation, as we discuss the first half earnings update and a look forward. Next slide. This disclaimer will highlight, and you can read in its entirety when it's posted online, but this is a disclaimer that we will be discussing forward-looking statements. Next slide. We are extremely excited to announce our first half results as an organization. When we look back at the past six months of the organization, we have clearly positioned ourselves as a high-growth med tech business.
We have de-risked the business from our transition of the Fibrin-PTH platform, and as well as looking at our MagnetOs platform and, with recently published level I evidence, and our commercial execution, has been a tremendous first half of the year with 148% growth. So, much to be very excited about with the organization. When we look at the revenue increase in the first half of 2024 over the second half of 2023, again, impressive results, when looking at our MagnetOs sales. Total revenue rose by 148%, from CHF 12.9 million to CHF 31.8 million. Again, you know, from a continuous expansion and commercial execution, as well as focus of the organization.
In addition, we've done this while maintaining a strong financial foundation, and we have no debt in the organization. Our $4 million of Kuros EBITDA, adjusted for the Fibrin-PTH costs, as well as share-based compensation, again, ahead of plan. Again, testament to the commercial execution, as well as being fiscally responsible as an organization. We also believe with the $14.3 million in cash, we are securely financed for the organic path forward and do not see an immediate need for diluted financing. Next slide. When we look at the market share growth, and we look at the commercial rollout, we'll talk specifically about the United States first. In 2023, we initiated a plan, much of a western expansion in the United States.
We continue that expansion, and now when we look at our revenue, across the United States, we do see a balanced representation. And so now it's a little bit greater penetration in, in larger, metropolitan marketplaces and, and spreading the good word of, of MagnetOs. The clinical data that we've published, in The Spine Journal, which is the premier journal for orthopedic and neurosurgeons globally, due to its high rigor and, and its, its standards, has bolstered our position in the marketplace, with really the, the best evidence available for a synthetic bone graft material. We've trained over 400 surgeons through various outreach programs. Our independent sales agents have grown 25% from the second half of 2023 to 2024. We anticipate that continuing to grow as we expand into new marketplaces.
Our international market presence, which we're extremely proud of, 39% growth in the second half of 2023 to the first half of 2024. The investments in the production capacities, as we announced in the first quarter announcement, those are on track and moving forward so that we can keep up with the demand. When we look to the number of hospitals and the hospital penetration, again, supporting the trend of the revenue growth, it's we are growing both in surgeons as well as accounts, and hospitals that are ordering our product on a regular basis.
But with all of this great growth and great penetration of the marketplace, we are looking at only a 2.4% penetration amongst the surgeons, which truly tells us that there's so much more upside relative to where this product line can take us, and so continued growth. So we're very excited about the future as well. Next slide. When we talk about balance within the global landscape, in the United States, we're expanding westward and looking at balanced approach across the country. About 95% of our revenue comes from the United States. And in the United States, as a reminder, we sell through independent sales agents. These sales agents will sell our product and receive a commission, where we receive the end dollar revenue.
Outside the United States, in international marketplaces, we partner with distributors who purchase the product and resell it for us. And there, we have been commercialized in 16 countries, cleared in 22, with additional launches that are imminent. This is up from 11 countries that we were selling in last year. So again, tremendous growth, different challenges in the international marketplace, as we certainly can discuss, but globally expanding our footprint, using the data that we've been-- that's been published from Spine, but also the clinical success that surgeons are sharing amongst themselves. So very excited about the growth that we've achieved, but also so much more that we can do.
Next slide. Joost?
Yeah, thanks, Chris. Yeah, so our clinical and technological differentiation has continued to drive rapid growth. As you'll see here, in the first half of the year, we reached several important milestones. One, Chris already mentioned, the pivotal Level 1 clinical study with MagnetOs. The next slide, I show a bit more detail on that, but it showed or indicated that MagnetOs is superior over the gold standard, which is patient's own bone tissue. Next to that, we have reached several or obtained several FDA clearances, which means that now the entire MagnetOs portfolio has been cleared for interbody use in the U.S. And interbody use or interbody cages relate to about 50% of the 1.7 million spine procedures only in the U.S., so it's a huge opportunity there.
Next to that, we have also obtained standalone clearance for several of our MagnetOs products, which basically differentiates us not only from the competition, but also shows to surgeons that they do not need to use bone in combination with our MagnetOs product. And then last but not least, in line with the strategy that we set in the first half of the year, we have also expanded FDA clearances outside of spine, so in extremities specifically. And this non-spine area has increased the addressable markets to $3.9 billion annually. Next slide. So this is the MagnetOs study that has been published in Spine.
I should say this is an independently performed study, Level I prospective study, in 5 centers, where at one site of the patient, the gold standard product was placed, which is patient's own bone tissue, and at the other site of the spine, MagnetOs was implanted. Altogether, 91 patients were evaluated, and this showed that MagnetOs demonstrated 73% higher fusion rate compared to the gold standard autograft. So tremendous result. First time that this has ever been shown that a synthetic product like MagnetOs is superior to autograft. And next to that, it also shows that in a real-life patient population, including smokers, and here we had about 19% smokers, MagnetOs is not negatively affected. You can see in the bottom right that patients that were smoking had a reduction in fusion from 47% to 30%, whereas MagnetOs remained almost constant. So great data, and we're really excited about it. Next slide.
Yeah. So basically, also from my end, a warm welcome. As Chris already alluded to, we had a tremendous growth now in the first half of 2024. And, you know, what we also gonna show here and demonstrate is that, we also grow quarter-over-quarter, sequentially. So what you have seen, from Q4 to Q1 was about an increase of 1.6, and then another increase of, about 3.8 from, Q1 to Q2, which equates, I said, to a growth compared to last half year of, about... or prior year, half year of about 148% total revenue. On a constant currency basis, we even grew by 157%.
Important is also that we have been able to obviously increase the volume, so we almost tripled compared to H1 2023, and you know continue to see a growth trend similar to what we have seen in the path, but we'll talk about the forward-looking in the future. So basically, from a cash perspective, as Chris as well alluded to, is we have currently about CHF 14.3 million in the bank. We can now clearly confirm that we are securely financed. There's no need for external debt in order to finance the organic growth path as it is planned. We have also some plans, obviously, as we announced, ready to grow outside of spine.
And we have currently, as it stands, also the means to support that, but we'll talk about that also later on. In terms of ownership and shareholder, we were slightly able to increase the institutional shareholder base, but as you can see, this is a very stable, strategic shareholder community, and we continue to obviously do on the IR front a lot of activities where we also participate in a lot of investment conferences, and we'll continue to basically get to know across to the rest of the world.
If you then look at the segments, as discussed, MagnetOs grew over last previous half year, almost 160%, which again, is this seasonal pattern we have now also thrown out in the outlook. We will come to what around 60% means. This pattern we have seen 40%-60% is about stable, and again, it's a testament of the high-growth trend we are still in. If you look at the sales and marketing costs, they are now clearly coming down, which was the anticipation from the start. So we wanna keep that obviously well close below 60%. On a go-forward basis, we also see it about in that corridor.
This translates then basically in a fantastic EBITDA of almost 27%, which in essence helps us to fund all the other segments and is also now, for the first time, almost bringing the group to a cash flow break-even. If you look at Fibrin-PTH or pharmaceutical segment, as we indicated at the year-end, we're gonna discontinue this segment now. We have also been able to reduce the cost from our initial estimate, which was on the cautious side. Initially, we estimated that we will incur for the full year, roughly CHF 2 million-CHF 3 million, and we can now say that it will max come out at CHF 1.5 million-CHF 2 million. We will see certain catch-up. There was some time lag, which will eat some of the EBITDA in the second half.
But, overall, we are comfortable that we're gonna be able to compensate that to a certain extent. Then last but not least, the corporate functions or the G&A functions. Here, important to note is that, out of this proportion we see of roughly 22%, about CHF 1.8 million of that is relating to this one-off share-based payment effect we had out of the CEO transition. And, if you factor that in, then we are at the run rate of roughly 15-16% compared to revenue, which again is going in the direction we wanna have and is on track. At the same time, obviously, we wanna stress again that this is still a growth phase we are in, and we will continue to invest into different corporate functions.
So we need to build on investor relations, but we also build on legal and M&A activity. But, again, we will come to that also later on. But overall, obviously, there is a trend to invest into digitization and automation. Last but not least, and this is now the non-GAAP measure we have introduced. As you can see, the group EBITDA was roughly CHF 0.7 million. For the full year, it will also be a positive single digit. But if you factor out the non-cash effect, which almost equate to CHF 3 million, and the fibrin, which I said is a discontinued business in the long run, then we added, ended up at roughly CHF 4 million, which equates to 12.5% adjusted EBITDA margin. Again, a testament to the success of the company, and we will continue to obviously manage this, that we can further drive that up.
So when we look at the overall marketplace, from a spine market and then a non-spine market opportunity, by 2030, this becomes a $5 billion global spine and non-spine market opportunity. Currently, we're operating at, you know, again, if you look at our revenue base, and you look at our market penetration, with tremendous success year to date, and so over the past several years, there is a tremendous amount of upside for us to achieve. And so, as we look to the non-spine market opportunity of an incremental $1 billion and looking at our efforts in that, we will be investing resources, people, clinical studies, to ensure that we attack that marketplace as effectively as we have attacked the spine marketplace. So next slide.
So when we look at the organization and we look at the first half of the year, what we have set out to do and what we have informed our investors, what we were setting out to do, we have achieved and then some. We have developed an organization. We are growing from a top line, but also doing it in a fiscally responsible manner, where when you compare our results to industries, competitors out there and other benchmarks, we're clearly ahead of others. And this is a testament to our team that we've been developing. We're recruiting and retaining the best-in-class talent, and continue to do so. The business has been de-risked.
We have no debt, and nor for our organic path forward, we do not see a need for debt. When we look at the data, we are the first group to show from a synthetic biomaterial that we are better than the gold standard by a high factor. And so with the high growth coming from the U.S., the tremendous opportunity we have outside the U.S. and our commercial channel, we're extremely positive about the future. Being EBITDA and cash flow generating this early is also a positive and a testament to being focused on the fundamentals as an organization. So again, we're extremely excited about our results in the first half.
As far as the future and our path forward, we continue to see a pipeline of growth opportunity. I think that the, you know, as we set out, the goals from to be a $100 million business within 5 years, I think we stated that about 2 years ago, we're well beyond that clip, and so now it's, you know, where we set the mark going forward. I think the growth rates from a surgeon attainment, our sales agents, that will continue into the future, and the future's extremely bright, and the opportunity is even greater for Kuros. So with that, that'll conclude the formal presentation. I'll hand it over to Laura to handle any questions.
Yes, sure. Good afternoon also from my side, and thank you, Chris.
I apologize, there was this last slide. I forgot about this.
Yeah, I th-
Yeah
... I thought so.
Sorry about that.
Go ahead.
No, just briefly, I wanted to touch on the—you know, we've talked about the 60/40 split within revenue and where that comes from, having a predominantly our U.S. revenue base. The fourth quarter from a procedure tends to outpace the other quarters, and that's just how the healthcare system in the U.S. is set up. So we do see a blend of procedures leaning more towards the second half than the first half. On average, it's somewhere in the 40, 60, 43%-57% split. So when we look at our revenue, and we look at the go-forward basis, and we look at the first half revenue, we use that as an indicator on a go-forward basis. And that's the fundamental reason why we discuss about a 40-60 split.
It's procedure volume when you're a U.S.-based business, whereas 95% of our revenue does come from the U.S. So that is the explanation. I apologize for missing that slide. And then, again, we continue to, you know, look at a single-digit EBITDA, both unadjusted and adjusted for non-recurring and cash, non-cash items, and break even in cash flow for the first time as an organization. And that's tremendous for, you know, from a company at our size and our growth rate and our revenue, in our marketplace, it's unheard of to be at this stage this early. So again, a testament to the product, a testament to our people, and growing this business in the responsible manner. So with that, I'll turn it over to Laura. Apologize.
Okay. Thank you, Chris. So we will now start with the moderated Q&A session. I have prepared some questions on the H1 financials, but also, of course, on the strategy and the midterm outlook. And as usual, at the end, we will open then the floor for further questions from the audience. So maybe starting with the strong sales performance that you have shown in H1, which is really impressive, almost 160% growth in local currencies, and also the sequential growth every quarter with close to CHF 18 million in sales. Can you maybe give some more color on the growth pattern, especially after you released the MAXA data? I mean, what were the reactions, you know, in the market? Have you seen a further uptick even? Also, what is your estimate of the share of sales in the new interbody fusion indications that you have now across your product portfolio?
Great question, Laura. A couple things to note. The sales cycle process, if we're focusing on the domestic U.S. revenue, it tends to be around six months from initiation to use product to actually being able to use it. And that six-month pipeline timeline is affected by getting access at a hospital, being on a pricing contract, and getting through VAT committees and things of that nature. So we literally can look at our pipeline at six-month intervals. So all the work that was done in the effectiveness and the wins that we had in the first half of the year were really seeds that were planted in the second half of last year.
When we look at the effect of MAXA on our marketplace, we're going to see that on a go-forward basis. And so what it really has done for us in the short term has bolstered our position in negotiations with hospitals from a pricing and a positioning and showing, you know, other products that we can be equivalent, seen equivalent to for replacing in a hospital system. And so that and it also has helped from a reputational standpoint with getting new clinicians on board. Being published in Spine Journal is not something that's easy to do.
It is the premier journal for a reason, and so being able to be published, accepted and published in such a quick timeframe is really a testament to Professor Moyo's work, as well as the quality of the study and the quality of the technology. And so we're, you know, we believe that the results from that are yet to be seen. Again, we look at the pipeline, it seems relatively robust with the opportunities that we're growing into, just on the spine side, let alone the non-spine opportunities. So, we look at this pipeline, you know, relatively quickly. As relative to the interbody indications, it's much like the MAXA data in that it supports our positioning within the hospitals to show clearances that other products do not have.
So when they're looking to minimize the number of vendors in a contract, when we can walk in and say: "This product can be used standalone, here are the clearances in the interbody, here are the clearances in posterior, in extremities," et cetera, that helps us from a competitive advantage standpoint. So, and again, from a market share perspective, as the previous slides noted, we have single-digit market share, and so there's plenty of upside to grow from there, but that's really how we utilize the data from the FDA clearances and then, and also the MAXA data.
Okay, I think that's very clear. Then maybe on the sales outlook for this year, which you just explained with this H2 contribution of fifty-seven to sixty percent of sales. I mean, this basically implies up to CHF 80 million in sales for the full year. So partly maybe already answered by you, but anyway, so what gives the confidence to achieve this? It's still quite a big number, you know, in absolute sales to, yeah, to be delivered in the second half. And also, how should we think about the growth trajectory in the medium term, given the increasingly higher base that you will have?
No, thank you, Laura. And again, it... You know, we've been very busy, obviously. So I think that, you know, first and foremost, we are spending more time, and Daniel made this point earlier, investing into infrastructure as well as personnel to make sure we're tracking the revenue, the pipeline, understanding where the revenue is coming from, the number of surgeons we're onboarding, ensuring that they stay onboarded and continue to use the product. And so we are, you know, so we feel more confident when we look at our data on the daily, and we look at the pipeline of opportunities, how quickly those are transitioning.
And we are seeing those transition a little bit quicker over time, because, again, as you build up revenue and you build reputation within the marketplace, and people get the results that the clinical studies have bolstered, you get this wave of clinician support, and that just, You know, the best type of selling is surgeon-to-surgeon selling, when they're telling their friends and their colleagues, "Hey, I've been using this product and getting great results." And we're starting to really see that impact in the marketplace. And so, the confidence on achieving such numbers, by looking at the pipeline and looking at the, you know, where our revenue and the surgeons we've added just in the second quarter over the first quarter, gives us that confidence in the short term.
In the midterm, you know, clearly growing with a much, from percentage basis, it's difficult to continue to grow that percentage basis when your base gets much larger, right? So that's kind of an obvious statement, but I think when we really start looking at market penetration by surgeons, market penetration by just, you know, usage and indications in spine, we are gonna continue on that growth clip on a go-forward basis. I think the non-spine opportunity will also add fuel to that revenue growth. On the midterm, I think that what we'll see, you know, our transition into the non-spine marketplace in the short to midterm will be tremendous.
I think that, you know, one of the quick things we look at is we've already done a lot of heavy lifting into getting into hospital systems across the country, being put on the shelf and cleared as a spine indication. Now, with extremity indications, one of the simplest tactics to move forward with would be to really sell and market to physicians within those hospital systems. And so in the second half of this year, going into the first half of next year, those will be some of our immediate tactics, which we'll see uptick in the revenue. So we're extremely positive about the outlook going forward.
Great. So could you maybe update us on how many independent sales agents you currently have in the U.S., with how many sales reps, and also how much this will increase in the coming years?
So when we look at the percent, and I don't think we've disclosed total number of sales agents, but in the When we look at the percentage increase in the first half of this year from the second half of last year, we've increased it 25% on the number of sales agents. And just for the audience, each sales agent will have anywhere between 1 and, on average, 5 to 6 sales reps. So depending upon the location and depending upon their individual geography, that kind of will color how many feet on the street there are for us as an organization. The 25% pickup in the second half to the first half, we anticipate maintaining that cadence going forward.
And part of that is, again, as we mentioned before, in the U.S., we're expanding westward geographically, but now, now we're going a little bit deeper in each of those geographies, not just to, to, to paint the territory, but also to get the right people and to penetrate certain marketplaces. We may be selling in, say, in the city of New York City, but we may not have enough representation to touch on all points, so now it's a matter of continuing to, to deepen that, that reach. In addition, adding non-spine sales agents to the mix will also feed to that growth. So we can anticipate a 25% first half, 25% second half over first half, and that continued growth going forward, you know, into the near future.
Okay, thanks. Then, maybe outside of the U.S., sales seem to be picking up, although of course, they are still at a very low level compared to the U.S. So what is your strategy and maybe also your financial objectives here?
Outside the U.S., we use stocking inventory distributors, where we sell it at a cost-plus model. The revenue will always be different model than, say, in the U.S., where we receive end-dollar revenue and also take expenses like SG&A out. However, they purchase the inventory from us outside the U.S. and resell it. The challenges outside the U.S. are greater because each marketplace, each country, has its own set of individual rules, regulatory clearances, distributor engagements, finding the right partner, and you know, I have tremendous kudos to our team, you know, our dedicated team that is focused on the international efforts, from the sales to the marketing, as well as to the quality and every operations, and because each country is different.
So, the traction we've received moving from 11 markets into, you know, approaching 20 countries this year alone is a huge accomplishment. So, you know, where would we like to see the OUS revenue contribution? I think over in, you know, in the midterm, we'd like to see that climb to about 10% contribution of our revenue. And we are extremely excited about the progress in the countries that we're entering into, and in the transition that's happening. And when we think about the product in general, outside the U.S., there are limitations on what products from a bone grafting can be used. There are limitations on whether cadaveric tissue can be used, you know, in each given marketplace, just due to safety concerns or due to religious reasons or whatever they might be.
There's also even bans in certain marketplaces on advanced biomaterials such as BMP, where they're not available. So a product like ours, which is proven, as an advanced biomaterial for bone grafting, that is synthetic in nature with no human tissue, is really ideal for OUS marketplaces. And so we are seeing that uptick, and we're seeing that excitement, and now with the published data in a global journal like Spine, that is really assisting our efforts. And so, again, tremendously excited about outside the US and the progress we've made in such a short period of time is, again, a testament, but not to the market, but not just to the market, but also to our team, who are focused on it.
Okay, so a part of your strategy, as you just explained before, is to enter into non-spine markets. I think combined, you said it's a $1 billion market opportunity, and you can leverage your existing footprint. So, what is your initial experience with this strategy? And also, how much revenue, or are you already generating revenue, coming from these incremental indications?
So we announced in the first quarter our intention to enter this marketplace, and you know, as an organization, historically and to this day, we remain a very focused and methodical organization on how to do things the right way, ranging from, you know, how we build from a science and product development portfolio that Joost will talk about, as well as our commercialization strategy. So we announced in the first quarter that we would enter the non-spine marketplace, and in the second quarter, we started doing deploying resources, you know, interviewing KOLs, looking at the marketplace, identifying the right opportunities to where a position, say, our clinical studies. And so we'll have future announcements in the very short term of our progress.
Our revenue to date is relatively de minimis at this point in time, so it's completely all upside to the revenue that we're seeing today. What we have seen is that there is a need for a product that is proven, a product that has the qualifications that ours does. And when we speak to surgeons, it's making them aware of the clinical data, especially in when we start talking about the data of MAXA in smokers, and we start talking about vascularly challenged patients and extremities, there's a tremendous opportunity there for us. So, we're extremely excited about this. We're deploying resources, and as we move to the second half of this year, into next year, we'll start to see a revenue uptick.
And as I mentioned before, I think the easiest thing for us to do from a tactical standpoint is, as we've already entered hospital systems and gotten on contract, expanding our usage from spine users to non-spine users within a hospital system, we don't have that six-month waiting period. And so then it's just a matter of identifying the right physicians to partner with, and the right sales agents and moving forward. So, in essence, we should see a faster uptick in the non-spine marketplaces, where we're already in there as a spine product.
Okay, thanks for that. So new product development is a key of your strategy. Please, could you walk us through your various projects that you have on the MagnetOs family, but also maybe other interesting developments, and also, what are your expected timelines for the launch?
I'll go ahead and let Joost handle that.
Cheers, Chris. Yeah, so we continue to innovate with our MagnetOs portfolio, that includes developing devices and formulations which are suitable for new applications and minimally invasive surgical approaches. I think we mentioned that before. And there we expect already the first launch of a new product in the first half of next year. Next to that, we are, and we also mentioned that, I think in Q1, we are exploring new osteopromotive platforms using our surface technology for other implants and devices, which have a huge potential value. These studies are obviously we followed a staged approach.
First, scientific, we are scientific-based, so, evaluate in the lab, then we go to preclinical studies, which means animal studies, and ultimately, we go to clinical and human studies, followed by, regulatory clearance or regulatory approval. So those technologies or those new, product, technologies are now in the animal stage, so that will take some time before they will be commercial.
Okay, and maybe just to follow up on that, so this H1 '25 launch that you mentioned, this minimally invasive formulation, this would be for spinal fusion, I guess?
Yes.
Yeah. Okay, but it would be like a MagnetOs new formulation in a prefilled syringe-
Yes.
or how should we envision that?
Yes, that will be a MagnetOs for use in minimally invasive surgery. So you know, you need a certain device to allow the product to be inserted in and around the spine.
Okay, but it would not include this device? It would be just a formulation.
No, it's the entire thing. So, so-
Oh, it's the entire thing.
Yeah.
Okay.
Yeah.
Okay, and then the new product you mentioned, you said like the new surface technologies for devices. Would this also includes that you would also then do the hardware by yourself, or would it require a partnering with another company? That's the first part of the question. Then the second one, you say it's now in animal testing, so when could it be ready for launch?
Yeah. So very good question, but so basically, it's in the first stages, eh? So there could be several iterations that are required before it's shown that the topography works. So we have to evaluate that first, and whether we will develop our own device or use others or existing devices that still needs to be determined.
Okay. Thanks for that. So maybe, yeah, staying with the product innovation or the clinical studies, you still have a couple of clinical studies on the way, on your MagnetOs products, where you compare them to other competing products. I think this includes bone grafts, but also cell-based bone grafts, such as cell-based products, and if I remember correctly, even the Medtronic's Infuse or another growth factor. So, when might all this data be available?
Yes. So should we realize that we are doing prospective and retrospective studies, and some of those studies, most of the prospective studies actually are investigator led, so they're not sponsored and not done by us. And several of the competing products that you mentioned will be done in those types of studies, so they're not driven by us. We know about them, and we support with our MagnetOs. So we already have several studies purely based on MagnetOs, retrospective studies, which a couple of them have already been submitted for publication. That should allow actually first publications already this year. Some of the other studies, comparative studies, retrospective and prospective studies, the first data will be there first half of next year and continuing that. All these studies are in different stages of...
Mm-hmm
... of progress. So it will be the coming years that we will have a continuous line of results or data that we can put out.
Okay. Maybe then I would like to come back to the financials for Daniel. Question: so in H1, you achieved an adjusted EBITDA margin of 12.5%. I think MagnetOs on standalone basis was even 27%. So now you also updated your guidance for this year for the single-digit EBITDA, both adjusted and unadjusted. And to me, this implies a flat margin or maybe even a slightly lower margin, H2 versus H1, despite the higher revenues. So is there anything kind of unusual in the H1 numbers that I should consider? For example, I noticed that the sales marketing ratio fell quite below 60%. I think your initial target range was 65%, and I think the R&D piece you already mentioned before. I think I would like you to walk us a little bit through the building blocks of the guidance and also the assumptions on the cost base.
Yes. Yeah, so as said, our assumption currently is that we will, you know, land somewhere in the 10%-12% adjusted EBITDA range. You know, if you look at what is in this P&L, which is either non-recurring or non-cash, then you have two items which we already, you know, adjusted in the EBITDA. One is the, as said, the Fibrin-PTH cost, which we will see at a total of CHF 1.5-2 million. So if you look at current expenses, which is, let's say, around CHF 400, you will see another, you know, CHF 1.6 max going into the P&L, right?
So this will eat some of the EBITDA, but then obviously, what we also will see continuing is the share-based payment expense. As said in H1, we had roughly CHF 3 million. If you look at it from a recurring and non-recurring perspective, total is about CHF 4.5 million-CHF 5 million, somewhere there, where we see it. Again, this would factor in the recurring and the non-recurring. And you know, if you consider all of that, then I think a range of CHF 10 million-CHF 12 million is about reasonable. So now, having said that, if you go to the building blocks, you know, the growth margin is not a miracle. I think we always said that it's somewhere in the range of 90% at the gross margin.
Sales and marketing cost, I said our target is that we keep that around the 60%, which we are currently trending towards. We were even a little bit below that, that's correct, in H1, roughly 58%. But, as Chris alluded to, we obviously wanna continue to invest in growth, and we also wanna invest into growth outside of Spine. And this will, you know, mean that we have to, invest into personnel as well, and will, to a certain extent, a little bit increase it. If you look at R&D from a run rate perspective, we are somewhere in between 7%-9%. And there I just look at the MagnetOs, business now, and then we have QA, RA, between 2%-3%.
G&A, I said, we have a run rate of 15%-16%. If you know, if we continue like that, obviously, with the sales growth, we should further bring that down, but that's about the building blocks we are looking at right now. This would lead us to this positive single-digit unadjusted and adjusted EBITDA.
Okay, thanks. Very clear. So given the progress you have made, which I think is also ahead of the plan, so what level of sustainable profitability do you expect medium term? And also maybe how should we think about the margin development progression over the next few years? On a group level, maybe I have to add.
Yes. I mean, our target is to obviously, you know, catch up with the benchmarks. As Chris alluded to, we are still in this high-growth phase, which means that, you know, we will continue to invest into systems, but also personnel. So one of the things we are currently tackling is a new ERP system, which is fundamental to automate the full value chain. And, you know, obviously, if you follow a SaaS model, you're not able to capitalize that, so it will flow into OpEx, as an example. So things like that, you know, we'll continue to invest.
And that said, we also need to invest into functional expertise, which means that we will continue to invest into people and insource people, given, you know, we, to a certain extent, worked with an outsourcing model in several aspects, right? So things like that, we continue. What we also continue, obviously, is the production capacity needs to be increased, I mean, which is obviously a good problem to have for a CFO and a CEO, right? So basically, what we are currently looking into is, how can we further expand, you know, the production facilities outside of the current building we are in.
So there is, you know, an opportunity, which we are looking into, in several aspects, but in the end, that's certainly also something we need now to factor in, given the growth trend we see. So having said all of that, you know, we see potential definitely to further improve the EBITDA margin. But let's say this adjusted EBITDA margin of 10%-12% will probably grow slightly over the next two, three years. That's about the target we currently have.
Okay, thank you. Then on the operating cash flow, you said that you expect to be around break-even this year.
Mm-hmm.
So what is here your assumption for the CapEx and also the net working capital, requirements going forward? And also, as you approach it, that's a little bit of housekeeping question, but nevertheless, as you approach the profitability, do you have any tax loss carryforwards to use?
Mm-hmm.
And also, what is the tax rate we should assume in the future?
So, if we start with net working capital, we see roughly, you know, consistent investment in comparison to sales of roughly 20%. We need to further invest into net working capital. This is obviously always, you know, an upfront investment, which then obviously turns into cash flow. At the same time, I said from a CapEx perspective, you know, we are, we are growing out of the structure we are currently in. We have mentioned at the beginning of the year that we had to do minimal CapEx so far of well below CHF 1 million for additional ovens. But we now see again that, you know, this will hold for a certain time, and then we outgrow that again.
So this will mean that, we will certainly spend more than this rough CHF 1 million CapEx we had on a yearly basis. And this will, in the next 2-3 years, grow, to, overall, over this next three y- to four, 2-3 years, yeah, CHF 5-6 million, somewhere there. So on a yearly basis, we, we haven't looked at the timing, but, we will certainly have to invest, more into, facility. That's clear. I mean, if you just look at Atlanta office, they're running out of space now in the very near future, and, things like that, we just need to continue to grow, in, in that respect, which again, is a good thing to have. Then last but not least, your last question was, can you remind me?
The tax loss carryforward-
Exactly.
-and the tax rate.
Yeah. So, the tax rate in the U.S. is roughly 27%. The U.S. is acting as a limited risk distributor, which is, you know, kind of, you know, normal, benchmark approach. So we leave about five, three to five percent, which is a traditional benchmark, from a tax perspective. So this is the only country where we currently pay cash tax. In the Netherlands, we have the IP box, as you probably know, which, basically lowers the cash, the tax rate to 19%. And there we can more or less make use of all the, the recognized, deferred tax assets. So we also not paying there currently any tax.
What's then left is the unrecognized tax loss carry forward, which equaled at the year-end roughly CHF 40 million, which translates into an asset of about CHF 8 million. We are currently looking into you know tax structures, how we can make use of that. I mean, you know, as when we moved into Switzerland, the first reason was not tax, but obviously we look into what kind of tactics we can apply there to make use of that. Because you know as you probably know some of it will forfeit in the foreseeable future. But that said, that would be the target. Currently, the tax rate, you know, we apply on a go-forward basis is somewhere in between 19%-20% on a blended basis.
Okay, thank you. Then, I'm almost at the end of my questions before we open up. So maybe just on the funding situation, this looks very solid. You had CHF 14 million cash at the end of June. You also said that you are well-funded to pursue your organic growth path. Now, I'm just wondering if you would perhaps share your thoughts on potential external growth opportunities. Is this something you already look at, or is it something you might consider in the future? And if so, what areas might be of interest?
Yeah. So, I mean, I can say something about the financing strategy, and then I will pass it on to Chris. I said, you know, the 14.3 million clearly gives us sufficient cash to run the organic growth path. And as I alluded to already in my part, you know, it will also allow us to look into potential technologies which, you know, compensate or basically enlarge our product offering. So that's certainly an option we are looking into. We obviously will build up some BD M&A function internally and externally. But that said, currently, we are still in at that stage where we explore the situation and the landscape and... Yeah, with that, I hand over to Chris.
Thanks, Daniel. I think that, you know, when we look at how this organization has been built from a commercialization and profitability perspective, and we compare against our peers, it's doing things in a fiscally responsible way. You know, you'll see some companies that will sacrifice profitability for high-level growth. We have been able to achieve both. We've been able to achieve a high level of growth, but doing it in a fiscally responsible manner. When we talk about non-organic type growth opportunities, we're going to do it in the same methodical way.
We're gonna be very selective about the technologies that we entertain, and the types of technologies we think, you know, from the reputation that we've built within the community, that represents our values, that are scientifically sound, that are musculoskeletal driven, and so, and biologically focused. So I think that we've initiated those efforts. I think as Daniel alluded to, we are going to invest in some BD resources internally and externally to continue to move towards that. We are, as an organization, rare. We have no debt, especially in this day and age, no debt, high growth, and profitable. And so that allows us to be a really good partner for another technology that might make sense for our sales force. So we're excited about that opportunity as well, and we'll be investing in that. But it's early stage and early days relative to that opportunity.
Great. So thank you very much, Chris. I will now open up the floor for further questions from the participants. So if you want to ask a question, you can either raise your hand and we will unmute you, and then you can ask your question. Or alternatively, you can also maybe you have already sent a chat to my colleague, Serge, who will then ask on your behalf. So over to you, Serge.
We had a few questions, so maybe I can start with the first one. Could you please discuss the competitive landscape as some of the players, the question mentions explicitly, BONESUPPORT indicated that they want to go into the spine by next year. Any comments to that? Thank you.
Certainly. When we look at the technologies, say, BONESUPPORT, which is an excellent company in its own right, they're market adjacent, really not a competitive marketplace to us... using a cement for fusion procedures is not something that's normally done, and so they are market adjacent. You know, they, they're talking to spine surgeons using a cement product or non-spine surgeons using a cement product, not an advanced bone grafting material like ours. So it's market adjacent, it's not market competitive. And antibiotics, I'm sorry, you know, with their cement. So, again, not a direct competitor to the company, but certainly in the same marketplace.
Okay, thank you. There's, I think, a follow, or let's say, a question which you touched upon in some areas. As the market for all-orthobiologics looks rather fragmented, would you expect more consolidation here? Is Kuros an M&A target, or the other way around, would you be interested in buying competitors?
Yeah, I think, you know, as we just addressed, you know, looking at the right M&A opportunities for us to acquire would have to make sense. We wouldn't be interested in combining companies with similar products, right? So I think we'd be looking at spreading our category. We believe we have best-in-class advanced biomaterials for fusion. I think looking at market adjacent opportunities for growth, utilizing our infrastructure would make the most sense from an M&A perspective. Relative to us being a target for acquisition, I can't comment on that. I don't... I think that that is one of the things where, you know, we're not in control of that. We're gonna continue to grow this business, and if that becomes attractive to somebody else, so be it, but we're just gonna grow this business the best we can.
Thank you, Chris. There's another question, more on the guidance. Isn't the revenue guidance just very low for H2 with your 60/40 pattern, as you have increased the sales reps on the one side, and it does take six months for those sales reps to get productive? In addition, you said you wanna continue to increase number of sales by 25% in H2. Does that imply a reduction of the productivity of your sales force, or how would you comment that?
So there's a little nuance there, right? So when we talk about a 60%-40% split, that's relative to the procedure volumes that we see in the United States, and so that ends up driving revenue. So if we have existing customers, and they do 60% of the procedures in the second half, then the 40%, that will see a lift in our existing revenue. When we talk about the 6-month pipeline, that's bringing a customer, a surgeon, or hospital on board, and then sometimes you may be working with a surgeon in hospital A, but hospital B is not on board. It will take 6 months to get that account up and ordering, and so that's where that 6 months comes in.
From a timeline perspective on how we actually go about getting our customers, when we engage a sales agent, and then we take that sales agent and we train that sales agent, then they find a customer who becomes interested, then it adds 6 months. So there's a 6-month timeline that is related to once we have interest in a customer, but it starts well before that with the pipeline, with the sales agent. So when you start stacking that up, the 6 months is actually a little bit longer when we start adding sales agents. You can't achieve the future numbers without incrementally increasing your sales agent base, and 'cause that gets you access to the customer. So there is a bit of a change. So I think the question is a valid question.
It is not a, you know, certainly not a collapse in efficacy of sales as indicated, but it's really showing that there is a long timeframe from getting a sales agent on board, to getting an interested customer, to getting it through the hospital. The six months just refers to that last segment.
Thank you. And there's one more. Are collaborations with other players an option you consider to further speed up the market penetration for the MagnetOs family? For example, in additional indications where you have no interest in your own, for example, dental, applications or trauma mentioned here.
So I think it's something we would consider, so long as it's not something that would take focus off the core business. I think that, you know, we are focused in the musculoskeletal space. We certainly are aware that technology can be used in dental, other applications, but right now, with the early days of market penetration in musculoskeletal, we still see a lot of opportunity to focus our efforts there. So, you know, as to not dilute the efforts of that, if a partnership were to present itself that was beneficial to the shareholders and the company, we would consider it, but it's not something we're focused on. We are focused on growing our market share within spine and kicking off the non-spine efforts and doing that in a fiscally responsible manner.
That's all from my side. Handing back to Chris, I guess, for concluding remarks.
Thank you, everybody. I wanna say thank you to Laura and Serge and team for hosting this. I also would like to say thank you to all of our team members globally for their efforts in the first half. We have seen a tremendous uptick as an organization. The future is extremely bright for our company. We have many more achievements to reach this year, as well as in going forward in non-spine marketplaces, and we're excited. And so, again, I wanna say thank you to everybody who spent the time to hear our story today, and thank you to Joost and Daniel, and all those who are putting this together. With that, I will conclude and say to each of you, have a good afternoon and rest of your day.