Good morning or evening, ladies and gentlemen, and welcome to this audio webcast on the Medartis 2021 full year results. We appreciate that you have taken the time to dial in despite the turbulent markets, but we believe we have exciting news to present. I'm joined by our CEO, Christoph Brönnimann, and our CFO, Dirk Kirsten. We will use the presentation slide deck, which was published this morning on our website, together with our press release and our annual report. In particular, I would like to draw your attention to the disclaimer on slide 2, which also applies to forward-looking statements made in this webcast. On the following slide, you can see today's agenda. At the end of the presentation, we look forward to answering all your questions.
With this, I would like to hand over to Christoph for his opening remarks and the key highlights of 2021.
Good morning, ladies and gentlemen. Thank you very much for joining us this morning for the full year 2021 results presentation. I'm very delighted to report that our top line, our sales has amounted to CHF 159.9 million, where we have been able to maintain the strong growth momentum of the first half throughout the entire year, despite a COVID-related slowdown at the very end of last year. The revenue growth amounted to 24.8 percentage points, which is on the basis of constant exchange rates versus prior year. All the regions have significantly contributed and grew more than 20%, especially EMEA contributed almost half of the total growth, and the Latin American region was the fastest-growing at 47%.
Our EBITDA margin was 17.2%, which was driven by the gross margin expansion and OpEx leverage, and both the sales and profitability exceeded internal expectations and our guidance. Our headcount rose by 7.5% versus prior year to a total end year of 684, where we have mainly added new jobs in the sales, but also in the development innovation department. The second half of 2021, we reported CHF 84.4 million sales. A further acceleration versus the H1 of 2021, where we have reported CHF 75.5 million of sales. We were able to continue the momentum, the strong momentum that we have started last year, despite a higher comparison basis of 15 percentage point in the second half of last year.
The full year performance was contributed and driven by all the regions and all the business units. EMEA region growing at 21.5%. The US especially maintains the momentum and grew at 28.9%. LATAM, I already mentioned at 47%, and also Asia Pacific maintains 21.6%, despite the lockdown mainly in the second half year of Australia. Our strongest business segment, the upper extremity, grew at 22%, lower extremity at 28%, and CMF with 35% exceeded our expectations. In the second half of last year, we have started to expand the sales force in the US significantly with investments in direct reps, but also onboarding indirect distributorships, and invested and continued to invest in training and education.
The KeriMedical portfolio, which was launched in the U.K., Germany, and Austria last year, has already contributed significantly to the growth and business development in our strongest segments in hand and wrist. Especially the strong performance by the TOUCH prosthesis, which is for the treatment of the CMC osteoarthritis, has exceeded our expectations in numbers of customers that we have been able to convert and gain with this new, prosthesis. We have also started our culture journey, which is what we believe the foundation of a high-performance culture and secure our success in the medium to long term. The average surgical caseload was slightly above 90% despite the slowdown towards the very end of the year, and we continue to assume that we will see a normalization of the caseloads in the coming months.
This morning, we have also announced the acquisition of Nextremity Solutions, which is an important acquisition for us. Nextremity Solutions is a privately held R&D and manufacturing company, which is based in Warsaw, Indiana. NSI is a great strategic and also cultural fit to Medartis, and we are now combining our sales organization with a highly reputable R&D and manufacturing company, which is specialized in the extremities. This acquisition provides a significant growth opportunities, and this is why we believe it is an acquisition as a catalyst for our U.S. business, and in the second step, also for the worldwide markets. Let me explain why we believe it provides access. It is a catalyst for our business. It provides access to a highly dedicated and experienced R&D team in the space of extremities, with strong relationships to U.S. design surgeons and industry thought leaders.
A complementary product pipeline complementary to the plates and screws portfolio that we already have. It gives us access to IP portfolio. Nextremity Solutions has a proven track record with more than 120 patents, a vast product knowledge, and modern expandable production base, which allows us to accommodate future capacity for future growth. It will allow us to accelerate the U.S. business, especially in the fast-growing lower extremities. We'll establish the R&D center and allow us to broaden our portfolio, especially in the lower, but later also in the upper extremities. It'll also allow us to address the local U.S. market needs. The addition of Nextremity Solutions will also have an impact on our headcount. We will add 87 new employees to Nextremity Solutions, which will bring our total up to 771 employees right now.
With those opening comments, I would like to hand it over to Dirk Kirsten, our CFO, for the financial and business review.
Thank you, Christoph, and good morning everybody also from my side. Let me quickly lead you through our top line development as well as the P&L for the year 2021. As Christoph has mentioned, we have grown strongly in all regions. EMEA, where we have a strong market position, grew 22% at CER. Asia, the same level. Latin America grew massively with 47% versus a weak 2020. We are specifically proud that the U.S. is growing almost 30%, and thus our dedicated growth strategy and related investments are bearing its first fruits. In EMEA, all big three countries, Germany, France, and the U.K., grew strongly, especially after the normalization of the pandemic in summer 2021. Germany and also Austria have additionally benefited from the launch of KeriMedical products in their hand and wrist business.
Our newly built subsidiary in Spain was successfully launched and shows promising run rates towards the end of the year. We also saw good growth for most EMEA distributor markets. In the U.S., we achieved almost CHF 31 million, which is about 29% up versus prior year. This growth was in line with our expectations. Our U.S. organization has further strengthened its team and also launched the U.S. IBRA chapter. We are converting and growing customers with our own sales force, but also with so-called independent distributors. If you include their manpower as well, more than 160 extremity experts are now selling Medartis products across the U.S. We will continue to increase this number, especially in the context of the announced NSI acquisition. APAC was difficult in H2, but generated year-on-year growth of about 22%.
Medartis' largest regional market, Australia, was heavily affected by the pandemic during the entire second half of 2021. We observe the situation very carefully now as business activities are starting again. We are confident that our very experienced and strong team can accelerate run rate significantly again during 2022. Japan had a good finish in H2 after being affected by COVID in H1. The combined direct and indirect business grew more than 35% year-on-year. China is still small and up to good levels and thus contributes only little to the overall regional sales. Our distributor market showed good growth through the entire region. The region with the largest year-on-year growth was LATAM, mainly driven by Brazil. As you may remember, this region has been heavily affected by the pandemic in the year before.
However, after vaccination rates increased and business activities recovered, our team was able to materialize significant growth in H2, which leads to overall growth of 47% at CER for the full year. Also, let me make a couple of remarks on segment growth. Our largest business is with about 70% still the upper extremity business. This will change, especially in the U.S. after the announced NSI acquisition. We will specifically strengthen our foot and ankle business, which is a more selective business than the trauma case-driven upper extremity business. This is also reflected in the respective growth rates for 2021. Upper extremities grew 22%, lower extremities grew about 8%-28%, and our CMF business even grew 36% after we've introduced our MODUS 2 new generation in various countries.
In this segment, we've also systematically launched our CMX digital services, which are allowing very reliable treatment planning and surgical outcome. Now moving to P&L, a couple of points here as well. Starting with gross margin on page 14. We were able to increase it, although our product makes a slightly dilutive impact. When we sell more lower extremities, CMF or Keri, margins are lower than in other business segments. We can compensate this effect by growing faster in countries with above average gross margins, such as the U.S. or Australia. However, due to the lower growth of Australia in H2, the so-called country mix effect does not fully make up for the negative product mix gross margin effect. The overall gross margin improvement was mainly driven by efficiency gains in our production. For the full year 2021, we show a margin of almost 84%.
Moving to page 15 of our presentation on the cost side, the operating leverage, which is expressed by the OpEx to sales ratio, has started to improve our margin. While after the pandemic, we have significantly increased our customer activities again, as a percentage of sales, our costs have been slightly decreased. G&A has increased in absolute terms after including some larger projects, such as the MDR implementation, the creation of a European logistic hub, and related IT and logistic costs. Also, the launch of the Spanish subsidiary has led to some cost increases in this line. R&D includes also spending for IBRA, for which we launched the new U.S. chapter. It furthermore reflects a full development pipeline with various product launches to come in the future.
In our sales and marketing figures, we included also about CHF 5 million of commissions to distributors, which had been formally deducted from gross sales. We have reviewed this together with our auditors during 2021, and agreed to move these costs from discounts into OpEx. This reclassification increases the OpEx sales ratio technically for about 280 basis points. We will further improve our underlying OpEx efficiency continuously. Coming to EBITDA margin on page 16, this has now improved to 17.2%. Our slide shows that the impact from the above-mentioned reclassification of commissions on a like for like basis, the EBITDA margin was circa 15% in 2020, and it has now been improved about 230 basis points through 2021.
The maybe surprising FX support came from a temporary rise of the US dollar from 0.88 towards 0.94 in H1 2021. This is when we generated the largest sales growth on a year-on-year basis. The Euro weakening only started in October, November 2021, but it is expected to have an impact on margins in 2022, especially if the Ukraine crisis will remain longer. On page 17, you see that our net profit increased from a small loss in 2020 towards about CHF 7 million profit in 2021. The improvement comes mainly from operating performance, while at the same time, an improvement of the financial result was compensated by tax expenses after a tax income in 2020. My last page summarize our solid cash position. Our operating cash return ratio increased to 13% in 2021.
We have continued to invest in implants and instrument sets in all of our growth markets. This is to fuel further growth. As you can see, cash was unchanged versus prior year and reflects 28% of our total balance sheet. This also gives us high strategic flexibility for acquisitions such as the today announced NSI transaction or any future acquisitions to come. Now with that, let me hand back to Christoph again.
Thank you, Dirk. Let me comment on our strategy and the key priorities going forward for this year. Our strategy remains unchanged. We are playing in a fast-growing extremities markets, which is still very attractive, which is mainly driven also by favorable demographics. Our key priorities for 2022 remain very consistent. Focus on the U.S. business, especially in light of the NSI acquisition, take the U.S. business to the next level. Second priority, continue to accelerate and broaden our innovation pipeline in terms of technology, but also geography. The third priority, evolving our corporate culture, as culture will play a foundational effect on our mid to long-term success. On the U.S. market, there are two focus areas. First one is the expansion of the existing business, and the second one is start with the integration and the preparation for the launch of the pipeline of NSI.
On the existing business expansion, we have initiated a significant sales force expansion in the second half of last year, where we are planning to double the sales force by the end of this year. Then also continue to expand until tripling in the year 2024. This also, of course, comes with the anticipated and planned launches of key technologies acquired by NSI. We also continued to invest in training and education, especially the IBRA chapter, which is now established in the U.S. We continue to onboard new faculties and also using KOLs, local and also on the global level in clinical research and technology validation. We will continue to invest in training and education and also in additional IBRA course offerings in the U.S., but also on a worldwide basis. The second focus points for the U.S. team is the integration of NSI / the product development.
The R&D center will be integrated and will be an additional center in addition to our Basel R&D center, with the core competency on plates and screws. We see significant synergies between the NSI R&D and the Basel R&D centers, especially getting access to key technologies in the lower extremity that will play a significant role in the growth opportunities. We are happy that we will be able to leverage the strength of two dedicated and innovation-driven companies going forward in the extremities market. Let me comment further why we see an acceleration of the U.S. growth through the acquisition of Nextremity. There is five reasons to it. First one, Nextremity strengthens our U.S. business through an experienced team with strong relationship to U.S. key opinion leaders and also design surgeons, and there is a strong cultural fit between both companies.
We gain access to product pipeline, which is highly complementary to the plates and screws portfolio of Medartis, and it also includes key technologies that fill a gap in our lower extremity portfolio. With the launch of those technologies, we believe we will add an additional sales potential of around CHF 150 million five years after launch, which will be in the year 2028. It also provides cross-selling opportunities. Giving surgeons a choice between the plates and screws and other technologies for indications, it expands the indications that we can cover, and it also provides a potential to launch those technologies in a second stage in a worldwide market.
Last but not least, with the U.S. manufacturing site, which is in the size of 6,500 sq m, a brand-new facility, we will have access to sufficient capacity to accommodate future growth. If we compare both companies, Medartis and Nextremity Solutions side by side, you will see how complementary both companies are. While Medartis has a reach in 50 countries on an international basis, Nextremity Solutions is dedicated to the U.S. market where we see the biggest growth opportunity. They are a dedicated development and commercialization organization with a focus and a huge experience in extremities. Nextremity Solutions does not have any sales, so we can ideally combine their R&D and manufacturing site with our sales organization. This is also why we continue to expand and have decided to accelerate the expansion of our sales force. The DNA of both companies is very similar.
Medartis is a technology and innovation-driven company dedicated to the extremities with strong surgeon relationships outside of the U.S. While Nextremity Solutions brings not only a track record of new technology development, but also a huge network of design surgeons and key opinion leaders, and has more than 300 years of industry experience in the R&D in trauma to build on. In product development, we will gain access to more than 120 patents. With the new R&D center now in Warsaw, we will be able to address US-specific market needs, but we will also be able to leverage the technology competence that we have here in Basel with Warsaw. Then the third step, even with the competence that we gain access to with the minority investment in KeriMedical last year in Geneva.
Manufacturing, I mentioned we'll now have sufficient capacity to accommodate for future growth. Let me quickly give you an overview why we see such a big opportunity, especially in the lower extremity market in the U.S. The U.S. extremity markets covers about 50%-60% of the global market. We're looking into about a roughly $2 billion U.S. foot and ankle market. Medartis has been strong from a portfolio perspective in the fracture fixation, which is the lowest segment with plates and screws. The hallux valgus and bunions are sometimes treated also with our screws and plates, but Nextremity Solutions will give us now access to a much larger part of the hallux valgus market and also of the flat foot PCFD and hammertoe market. Those are the three main indications where we'll be targeting our portfolio in the lower extremities.
With those comments, I would like to hand back to Dirk to give you more details on the transaction.
Thank you, Christoph. First of all, let me summarize the transaction terms. The total purchase consideration for NSI is up to $70 million. However, only $40 million will be paid upfront. The remaining $30 million are subject to timely delivery of product launches and the achievement of top-line targets until 2025. For key employees and top management of NSI, we have structured equity incentive programs which are partially linked to their ongoing employment with Medartis, but also partially linked to the achievement of top line according to a commonly agreed business plan. The structuring of the acquisition reduces the risk of overpaying for acquisitions of new technologies, but it gives also an attractive upside to the shareholders of NSI. The financial impacts of the acquisition can be summarized as follows.
First of all, we expect substantial incremental sales to be generated from the new product launches. Our expectation is that from 2028, about $150 million additional sales can be achieved on top of the strong growth which we anyway foresee to come from our already existing US business. Those product launches and resulting sales are planned for Q1 2023. NSI has a product development pipeline which is ready to commercialize already within the next 1-3 years. Following the acquisition, we have decided to further invest into our US commercial platform. Next to sales and marketing, we'll build up dedicated training education for lower extremities, but also invest into further product development, our infrastructure and supply chain, and expand the existing manufacturing to support global growth.
The acquisition itself and the mentioned investments will lead to a temporary margin dilution in the next three years. Afterwards, we are confident to return back to at least current margins or above, but on a clearly higher absolute level. The transaction is expected to be completed during H1 this year. It does not require any antitrust or other approvals. We plan to integrate NSI into our existing Medartis processes and the infrastructure, for example, in IT or supply chain, and this is planned to be until the year-end. Management from both teams is highly synergetic and has complementary skills. We believe that the very entrepreneurial spirit of NSI will be a strong added value for our entire group, not only in R&D. Regarding financing, as mentioned before, as of thirty-first December, we carried CHF 82 million in our balance sheet.
Thus, we can fund the acquisition fully out of existing cash. Future milestone payments are in line with expected cash flow generation. Additional external financing might be considered opportunistically also to remain high strategic flexibility for future transactions. Now with that, let me hand back to Christoph and the outlook for 2022.
Thank you, Dirk. For the full year guidance in 2022, barring any unforeseen circumstances. Also, the timing of a full recovery from the pandemic is still uncertain in some geographies. We have seen a slowdown, but we still believe and we assume that those markets will come back to more normal business conditions in the coming months. Based on these assumptions and excluding the NSI acquisition and currency effects, Medartis anticipates organic sales growth at constant exchange rate of around 20% in 2022, and an improvement of the underlying EBITDA margin of approximately 1 percentage point. The new NSI pipeline products are projected to generate annual sales of around CHF 150 million in five years after the initial launch. For 2022, the planned investments in connection with the NSI acquisition will temporarily reduce the EBITDA margin by 5-6 percentage points.
After 2022, profitability will improve, and from 2025 onwards, the acquisition will be accretive in the company's profitability. Okay. With this, I would like to hand it over back to Fabian.
Yeah. Thank you, Christoph. Thank you, Dirk, for the presentation. This concludes our presentation. As customary, we will first answer the question from the phone bridge and then hopefully seamlessly move to the question in the webcast. To anonymously pose a question, please use the Q&A field in the lower right corner. Sandra, operator, please can we have the first question from the phone?
The first question comes from Dylan van Haaften from Bryan, Garnier. Please go ahead.
Good morning, everybody, and congrats on beating on organic growth. Very strong stuff.
How old are-
Just a question in terms of Nextremity. Could you help us understand first, what the earn-outs are based on? Second, if you believe your portfolio is, let's say, quote unquote, "complete" in the lower extremity segment. The third one, just help me understand in terms of if all the products will be launched in 2023 and how the Nextremity cost base will evolve, let's say, over the next two years.
That was difficult to understand.
Dylan, your voice was a bit low. Just to repeat the questions if I can. What are the earn-outs for the extremity for the $40 million? What are they based upon? The second question, Dylan, please correct me if I'm not repeating you correctly. Is the portfolio in lower extremity post an extremity now complete or is there still some gaps open? The third question was on the products in 2023. It's all coming at the same time. How will the cost base evolve?
That's perfect. Sorry.
Dylan, I take the one on the earn-out. As I've said, we do pay $40 million up front, and then the total combined milestone payment in the earn-out is $30 million. Now, from that, the majority is linked to the timely delivery of product launches. What we've done together with NSI is agreed on a business plan with the milestones when is which product to come, when is it being launched. If we can make that, they're getting a milestone payment for each of these launches. Number one. On top of that, we're looking at sales and also the achievement of a commonly defined and agreed business plan.
Hopefully we'll be able to achieve the sales target which we've defined in 2025, and then this would also give them some additional upside. That would be the question on the earn-out, hopefully.
Okay. On the completion of the portfolio, I think it closes significant gaps that we currently have. As our portfolio, as you remember, consists of plates and screws, which is mainly focused on the correction and fixation of bone osteotomies or fractures. Now, adding the technologies of NSI will broaden the indications, especially in the hallux valgus, in the flat foot, hindfoot corrections, which will allow instrumentations and technology that simplify those procedures, increase the accuracy and the outcome for the patient, and also gives the surgeon a choice of treatment. With this acquisition, we broaden the number of indications that we can cover. But to be honest, complete, we will never be complete. There will always be an evolution in how indications are treated, how accuracy, especially in osteotomies and revision is made.
It will give us a significant increase now in the indications that we can cover. On the launches, we will certainly not launch all the products at the same time, first of all. The launches will be scattered throughout. We will start in 2023, and we are planning to launch the key projects, which are in the pipeline now, beginning 2023 throughout the year, but it also will take into 2024 and 2025. It will be a scattered launch, because also once you launch products, you also need to make sure that the sales force gets the education and the focus. The dilution of the sales by launching too many products at the same time would be detrimental.
Excellent. That answers my questions on extremity. Just one more question on market trends. Am I correct in asserting that trauma is more or less sort of back to normal in terms of case volumes, maybe more or less between sort of 5% of where we were in 2019? There's still quite substantial pent-up demand in CMF. Could you maybe help me understand sort of how that compares to sort of 2019 pre-COVID? How much you're still feeling from COVID impacts to your business, specifically the elective segment?
Mm-hmm. Well, I think overall caseload is estimated slightly above 90%, which is trauma. You're right, trauma has to be treated. There is very little trauma cases delayed. I think what also plays into a reduction of the trauma cases, especially during the lockdown, is the reduced mobility and leisure activities of the patients. This is why we have also seen a reduction in trauma cases overall. As lockdown measures has been lifted throughout the year, the caseload in trauma has been probably close to normal. The elective procedures are the ones that have been postponed or stopped or reduced twofold to reduce and maintain capacity in the ORs and in the nursing staff in the hospitals to treat COVID patients.
Second, there was also reluctance of the patients to undergo non-essential elective surgery. I think those are two effects that we're overlaying. In the last year we have not experienced a coordinated lockdown like in 2020. As an example, Australia, which has been an enormous growth momentum until mid of last year of growing even above 40%, Australia has gone into a quasi lockdown beginning of July, August, which is basically still ongoing today. Now, all the elective procedures in Australia have been put on hold. They're now coming back on as we speak. In the mid of February, they have started. We will see, and we expect a pent-up demand in elective procedures in Australia this year. Good.
Thank you, Christoph. Operator, can we have the next question, please?
The next question comes from Daniel Jelovcan from Mirabaud. Please go ahead.
Yeah, good morning, gentlemen. Also three questions from my side. The first one is from NSI. So it must be logical that we can expect an FDA approval later this year when you launch in Q1 2023. That's quite obvious, I guess. In what area will that be? Will it already be a major launch in hallux valgus or bunions, or will it cover a small indication? Maybe I take just one after the other.
Okay. Thank you for your question. All products are 510(k), or require 510(k) approval. There's a regulatory, the normal regulatory pathway in the US. The first products are submitted and will receive FDA approval on time. The first two launches will be key technologies in the area of hallux valgus, you're right. The second one will be in the correction of flat foot mid and hindfoot corrections.
Okay. What about launches, let's say, in the single digit, million potential, or can we imagine that?
Any launch has an uptake which normally you plan for about 2-3 years to get the momentum and to get the run rates to the levels which we expect. All in all, what we expect from the launches from NSI to deliver an additional CHF 150 million five years after launch, starting in 2023, ending in 2028. There's an additional CHF 150 million expected from the NSI pipeline, which is now currently to be prepared for launch.
Okay. Thanks.
It's not a linear.
It's a hockey stick.
Yo, that's the other extreme. Hopefully it goes fast and not just a hockey stick.
Understood. The second question, it's quite an unusual setup of this NSI. I mean, a young company, no sales, but already an own manufacturing setup, which is obviously good for you. Why have they chosen this setup? Also related to this, I mean, in the end, you saved some CapEx, I guess, to establish your U.S. operation. Now you have it.
Mm-hmm.
How much CapEx actually did you saved, kind of?
Well, let me answer the following. It's a very good setup that fits perfectly to us as Medartis as it is very synergistically. We have the sales organization built with our portfolio. Now we get a fully dedicated R&D and manufacturing site to it. That basically allows us now to build a fully fledged medical device company in the largest U.S. orthopedic and extremity market. I think that's very fortunate. Second, back to the roots of NSI. NSI has always been dedicated to extremities. They have a passion for innovating and delivering commercializable solutions. Their focus was on the pure innovation and development of system which they have sold to the industry as like a third-party development suite or boutique, if you will.
About a year ago, they have decided to do an integration and also add manufacturing in Warsaw, Indiana, which was a manufacturing site in Warsaw. They're now offering, besides the development, also the manufacturing as a third-party manufacturer. That was the setup that we looked at, and we came to the conclusion that not only the pipeline and the technologies are a great fit, but it always gives us an opportunity to build a second production site next to Basel or in addition to Basel. Overall, you can also take into account, of course, that we would have to build a manufacturing site of our own that would be probably in a very similar investment range as NSI now is.
Okay. Last question.
Daniel.
The owner-
Daniel, can I just interrupt? Because there was also a question from, on the webcast exactly on the same topic on CapEx. Can I just bring that in, because it-
Sure.
It fits very well now. Dirk, could you give us a sense, you know, how the CapEx will develop in the coming years, if possible?
Yes. I think we need to differentiate. When we talk about CapEx, there are two elements about CapEx. The one is what we put into manufacturing, which in the past we've been extremely efficient here in Basel to develop that. Then what we also have in CapEx is what we call the set investments and the instruments. In line with the growth, also opening new countries, coming up with new products. This CapEx has been the majority of our total CapEx. Now, having said that, if you go back to page 19 in our presentation, there was about CHF 16 million which we spent. You may want to take that as a percentage of growth, then also multiply that with whatever the growth expectation for the next years, and probably that gives you a good indication.
When we talk about NSI and their manufacturing, however, for the coming product launches, we will need to expand, we will need to invest into further machines, into the infrastructure there. There will be also a little bit of CapEx to come. We see this also impacting the gross margin for the next 2, 3 years before the gross margin can then even become stronger than what it is today. We're also going here through a slight dip. Does that answer your question, Danny?
Yes, excellent.
Thank you.
The small third question. Small third question is, who was the owner? Just management, or was there private equity involved?
The owner was a group of surgeons who had founded the company some years ago, then brought in a relatively broad number of investors from the industry, being very close to management. Of course, management has also invested. We have about, I would say, 60%-70%, which are what I would call the founders, management and friends and family. We also do have a couple of other investors which I would more categorize as financial investors or retail investors who also own. Overall, the company has more than 140 shareholders, so it's a quite diversified cap table.
The company really was developed, founded, and driven and really brought to where they are right now, by the founders and by oral surgeons who saw the need for the products and wanted to support that.
Thank you, Dirk, for your answer. Can we have the next question from the telephone line, please?
The next question comes from Chris Gretler from Credit Suisse. Please go ahead.
Thank you, operator. You know, I also wanted to come back to this acquisition. I understand correctly, this is essentially a contract development and manufacturing company in orthopedics and extremities. Basically, could you elaborate what is actually the current sales base? If I look back, you know, as you mentioned, you know, there was work for the industry. How does this work now? Does this company get a royalty for this past work and how that is structured as well? Going forward, is there some commitments to other parties in the industry? I guess, you know, this company has been having contracts with other potential customers and done some development work for them. Could you maybe elaborate on this topic, please?
I'm happy to comment on the question. Nextremity has distribution agreement for some of the technologies, not all of them. For some of the technologies that they have developed and sold to third parties. Over time, we will certainly assure and hold up to the distribution agreements which are in place. Over the midterm, we'll certainly strive to use the capacity for ourselves.
As I add to that, because you asked specifically for that, it's a privately held company that has never announced any sales figures publicly, and that's the reason why we're also not, you know, doing this at this point of time. Sorry.
Yeah, I understand. Obviously, I mean, you know, it looks as no product on the market, but still will have sales. You know, it will be for us interesting to, you know what kind of, you know, sales assumption we have to put in, you know. On the cost base, can I just, you know, proportionally kind of calculate, you know, cost per employee, you know, as from your end and then kind of translate to Nextremity to get a sense about, you know? Or is there something else to consider?
You mean cost savings? Did I understand that correctly?
No, the cost base. I mean, the 87 people.
Well, a lot of the 87 people is in manufacturing and production. We do have a highly experienced R&D team. We have some other functions in regulatory QA, and we have management there. I think Christoph said it before, this transaction is highly synergistic. We have a high interest to maintain these people or to even build up the team there. I wouldn't expect any cost savings or anything from the transaction.
No, I was talking about the cost.
If you look at the. Say again.
I was talking about the cost base. What's the cost base of these 87 people?
We haven't disclosed that, Christoph.
Yeah, that's why I'm asking. You know, maybe you could disclose it in the form of this call, maybe. You know.
I give you a hint.
I understand if you don't want to disclose it.
I give you Christoph, I give you a hint. The hint would be, if you look at what the margin dilution, the expected margin dilution for 2022 will be, and we said 550-600 basis points, something like this.
You calculate it with the overall sales expectation for 2022, you probably get to a number which is in the area of about CHF 10 million. That more than answers your question.
Yes. Actually, this brings me to another question on, you know, the sales force expansion, you know. You know, you mentioned, I think as part of your prepared comments, and I got that correctly, that you are planning to double this, you know, and then to triple this by 2024. If I look at your slides now, the slide with, you know, kind of the number of sales people. I think that goes from 162 to ten-
Slide 22.
22.
Yeah.
Is that basically? You know, that's direct and indirect. You know, could you maybe just explain, you know, kind of these two comments and the slides?
Yes. We have a hybrid sales force. That means we employ direct sales reps that we normally keep in high-value territories, which is more or less, most of the time it's urban regions in the U.S. We complement the sales force with independent distributors. We have a total sales force at the end of 2020 in the range of 80-100 sales reps, all in total, direct and indirect. Now, as we scale, it is much more economical and also faster to scale using independent distributors, especially as we build the lower extremity business, especially as we expand our upper extremity business.
What we have started now is an acceleration adding independent distributors in the second half of last year, which we ended with roughly about 160 sales reps, direct and indirect in combination end of last year. For this year we will continue to add selected direct reps but also independent distributors. That will bring us to roughly about 210. Now we need to make sure we can train them, that we get the sets to them in the course of the year so that we are prepared for the launches then beginning of 2023.
with the launches expected, in addition to what we have in our pipeline through Nextremity, we will continue to expand the sales force with up to what we believe at the right number would be as of today, with about 300 reps by the end of 2024. That is about the plan aligned with the launches through NSI.
Oh, okay. Yeah, I understand. The tripling refer to 2020 then. Okay.
Mm-hmm. Okay.
The other question is just on, you know, these products, you know. Is there, you know, a technological advantage or what kind of is the, let's say, the unique selling point of these, you know, new products? You know, you mentioned in hammertoe, flatfoot.
Mm-hmm.
Et cetera. How looks hallux valgus in order to, you know, you know, gain share? I guess there are some existing already product on the market. You know, so maybe if you could elaborate on that.
Certainly will be implants, but it's also when I speak of technologies, it also includes the instrumentation. The approach, the view that we take is on the entire procedure. We wanna give technology in the hands of the surgeons that he can make those procedures very repetitive and very efficient. Those are procedures, especially in the lower extremities, that are performed by podiatric surgeons, by orthopedic surgeons, and most of them are getting more and more into ASCs. The idea, the requirements there are highly efficient, standardized, with a good outcome.
That means by simplifying the procedure, by giving instrumentation that makes the procedure, especially in osteotomies, where you do a correction of the axis and the rotation is repetitive and predictable, that makes the difference at the end for the patient, for the outcome. The key is not only a plate or a screw or an intraosseous compression device to fix the bone, but also to give a simple to use instrumentation that allows the surgeon to make the correction exactly as he planned it. That's what we believe. Well, what we say, that's the differentiation, not only the implant but also the instrumentation. That's why I'm speaking of key technologies.
Hmm. Okay. I got that. The implants are, you know, reasonably, kind of dedicated to the instrument. You know, so I cannot use, you know, just some other implants other than your instruments potentially.
No. That's exactly the compatibility. If you look at some of the instruments, they perfectly match with our plates and screws. For example, if you look at the Lapidus procedure, which is a correction for the treatment of hallux valgus, we already have a Lapidus plate, and we also have screws. That gives the surgeon the option to use screws only or in combination with the plate. But some surgeons prefer to use a staple, for example, a 19-O staple, or they may use an intraosseous compression device. Those instrumentations are compatible. Besides the plates and screws, we're also getting products or implants that allow the same to achieve the same as by using plates and screws. This gives the surgeon not only
A simplified standardized procedure, but it also gives him a choice in the implants that he wants to use in order to hold that compression.
Okay, good. Well, we'll watch that, you know, with interest. Thank you.
The next question comes from Edward Riva from ZKB. Please go ahead.
Yes, good morning. Thank you for taking my question. It would be mostly about net working capital. I remarked on the report that in particular payables and receivables were multiplied by two, but still kind of similar. Could you give a brush-up or an idea how this will evolve in the future? Thank you.
The question for Dirk, huh?
Yeah, I can take it. Good morning. On the receivable side, we are happy to support the growth of some countries, especially in the new countries. You've heard we've invested a lot in the set and in the investments there, also for instruments or getting the implants, especially also in the U.S. It also means that we've supported it from accounts receivable perspective. Same thing, for example, in Latin America. Same thing also in some parts of Europe, especially also during the Corona crisis. Having said that, we're more looking at the credit quality of our receivables, which is outstandingly good. Don't have any credit risks there, any material credit risks there.
We're happy to support some of the growth in the countries, especially in the young countries and the new countries, also worth putting working capital in it. It goes along with inventory, which is also sometimes kept locally. We've also implemented the European hub following the MDR. That has increased a little bit the inventory level. Overall, we would keep it at the levels which we are as a percentage of sales. For example, when we now launch a couple of new products, it also means that we have to increase our inventory levels again in the U.S., that will slightly have an increase on the overall working capital.
It's a very balanced approach, on the credit side, looking at the receivables, which is a very good thing, and then also on the inventory side. Did that answer your question?
Yes, it did. Could you do a last mention of the payables as well?
Payables is very volatile. I wouldn't spend too much time on this one. It's also sometimes including tax payable, other payables to third parties. This number is a little bit volatile. It depends on when we buy into our inventory. I wouldn't pay too much attention to the volatility, which is of course that number. There's nothing specific in this number.
Got it. Thank you very much.
I think we have time for one more question.
Okay, sir. The last question for today's call is from Daniel Jelovcan from Mirabaud. Please go ahead.
Sorry again, me. Just on NSI, is there also potential that you can leverage that to EMEA? Or have the European surgeons a different philosophy?
Very, very good question, Daniel. Thank you. Yes, in the second step, we will globalize or, bring those technologies in other markets as well. We will certainly have to get it through the regulatory pathway of MDR. That will take some time. There are some technologies which are probably more like for the U.S. market, as they may have a different philosophy, but there are technologies that we certainly will globalize as well.
Okay, great. Thanks.
Does that answer the question?
Operator, if you don't have any questions, then we will. Is this the case or is there anybody in the queue left?
So far there are no more questions, sir.
Perfect.
Thank you.
We just reached a full hour. We would like to thank you very much for your excellent questions and your interest, of course. Before we terminate this webcast, let me draw your attention to our annual report on slide 33, which contains our first-time sustainability chapter and our update on their vision and mission statement. Our upcoming investor events are listed on page or slide 34. Our AGM is due on April 6. We of course would like to see you at one of these events. For now, I wish you a pleasant good day and goodbye.
Thank you very much for your time and dialing in. Have a great day.
Thank you.