Bonesupport’s commercially focused strategy has delivered a second successive quarter of record sales, with net revenue of SEK 39.1m achieved in Q319. It was the first full quarter of exclusive US sales (with first sales under major US GPO contracts), and there was a solid performance in Europe/RoW despite lower scheduled surgery rates in osteomyelitis over the summer. Ongoing commercial efforts in the US should benefit from the Healthtrust GPO win, while near-term publication of full CERTiFy trauma data for CERAMENT BVF should have global impact. Management remains on track to deliver 40%+ revenue growth from 2020 onwards, and we maintain our Bonesupport valuation of SEK37/share, or SEK 1.92bn.
| Year-end: December 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (SEKm) | 129.3 | 96.6 | 158.2 | 271.7 |
| Adj. PBT (SEKm) | (127.9) | (174.9) | (158.0) | (84.5) |
| Net Income (SEKm) | (128.9) | (176.4) | (158.7) | (84.8) |
| EPS (SEK) | (3.2) | (3.4) | (3.1) | (1.7) |
| Cash (SEKm) | 533.4 | 261.7 | 109.3 | 2.5 |
| EBITDA (SEKm) | (98.1) | (172.9) | (154.8) | (84.8) |
Update
18 November 2019
| Price | SEK32.3 |
| Market Cap | SEK1,678m |
| Enterprise Value | SEK1,559m |
| Shares in issue | 52.0m |
| 12 month range | SEK17.1-35.5 |
| Free float | 87.3% |
| Primary exchange | OMX Stockholm |
| Other exchanges | N/A |
| Sector | Healthcare |
| Company Code | BONEX |
| Corporate client | Yes |
Company description
Bonesupport is a Swedish ortho-biologics company focused on developing and commercialising a pipeline of unique injectable drug eluting bioceramic bone graft substitutes based on its proprietary CERAMENT technology.
Analysts
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Table of Contents
A key component of Bonesupport’s commercially lead strategy is to leverage clinical and HEOR (health economics outcomes research) to build key opinion leader (KOL) and payor support. Recent developments on this front include:
In summary, a single stage procedure using CERAMENT G or V to treat osteomyelitis is better for patients and for hospitals/healthcare systems. It reduces patient stays in hospital (by one-third or five days on average) after surgery and reduces hospital readmissions within the following two years, translating into significant cost savings to payors.
To recap, CERAMENT BVF is available in the US and many Europe/RoW markets, while CERAMENT G and V are currently only available ex-US. Bonesupport is seeking a Premarket Approval for CERAMENT G in the US; to support this the company is conducting a 230-patient randomised pivotal clinical trial, FORTIFY, conducted under an Investigational Device Exemption. FORTIFY began recruiting in May 2017; in August 2019, the company confirmed that patient enrolment is behind schedule by 6-9 months. As prior guidance was for recruitment to complete by end-2019, the expectation is that the trial will now be fully recruited during H220. Given the 12-month patient follow-up, PMA submission with the FDA is now anticipated in late-2021, with potential approval in 2022.
Bonesupport’s Q319 net sales of SEK39.1m broke the previous quarterly sales record of SEK 37.3m set in Q219. It was also up 275% on Q318, although the quarters are not directly comparable: no US sales were booked in Q318 as former US distributor Zimmer Biomet ran down its inventory prior to expiry of its exclusivity in October 2018. Both the US and Europe/RoW showed solid sales growth, demonstrating that Bonesupport’s commercially focused strategy is starting to deliver.
Europe/RoW Q319 sales were SEK20.7m (+45% on Q318; but down 8.4% on Q219, reflecting seasonality in scheduled operations). The higher margin antibiotic eluting products CERAMENT G and V continue to represent the majority of sales, accounting for 84% of revenues. Europe/RoW gross margin was 84%. US net sales were SEK18.5m, up 25% on Q219. No US sales were reported in Q318 as former US distributor Zimmer Biomet ran down its inventory ahead of the expiry of its exclusivity period in October 2018. Since May 23rd 2019, Bonesupport has had exclusive CERAMENT BVF marketing rights in the US; thus Q319 was the first full quarter of sales through Bonesupport’s distributor network. US gross margin for Q319 was 91.4%. Gross profit for Q319 was SEK 34.3m (Q318: SEK 11.7m; Q219 SEK 32.3m).
On the expenses side, Bonesupport continues to balance cost control with directed investment into accelerating CERAMENT sales. Sales expenditure of SEK 39.5m has been broadly consistent over the past four quarters (adjusting the Q219 figure for the SEK 11m exceptional from product returns from Zimmer Biomet). G&A of SEK 10.9m has also been relatively stable during 2019 and is significantly lower than in Q318 (down 38%). R&D costs for Q319 were SEK 17.4m and are expected to decline once the FORTIFY study is fully recruited.
The Q319 operating loss was SEK 32.7m (Q318: SEK 57.1m loss; Q219: SEK47.8m loss) and net loss of SEK 33.2m. Net cash at end-September 2019 stood at SEK 119m.
Q319 marked the fourth successive quarter of revenue growth; although as Bonesupport is still in the ‘build phase’ of the implementation of its strategy, there remains some uncertainty surrounding the likely growth trajectory of CERAMENT sales in Europe/RoW and the US. In line with our conservative approach, we have made tweaks to our 2019 and 2020 sales forecasts to take into account emerging trends from Q319 (in particular re-balancing the share of CERAMENT BVF vs CERAMENT G/V sales in Europe/RoW) and management commentary regarding the likely timing and impact of US GPO contracts wins. Exhibit 2 summarises the changes to key estimates.
Changes to our forecasts flow through to our three-stage DCF valuation model, which has also been updated with the new timeline for CERAMENT G approval in the US, last reported net cash of SEK119m (as at end September 2019), and has been rolled forward to reflect the passage of time. These updates broadly net off; hence our SEK37/valuation remains unchanged. Our updated valuation is summarised in Exhibit 3.
Additional reporting periods demonstrating continued successful execution, as well as more detailed financial or operational guidance, would likely prompt us to revisit our forecasts and valuation. We view the progress made in US market access with GPOs, and the European sales organisation being fully staffed as providing important momentum, as well as providing a solid platform to leverage emerging clinical data and HEOR.
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