All eyes on Q3 following a record Q2

Update | 31 July 2019

Share this note

Bonesupport delivered its best quarterly net sales (SEK37.3m) in Q219, with this third successive quarter of CERAMENT sales growth providing early confirmation that the commercially focused strategy is starting to deliver. The next two quarters will be key for the company in setting the trajectory for future sales potential. Q319, the first full quarter of exclusive US sales, should see first sales under major US GPO contracts, publication of full CERTiFy data driving adoption in trauma, and the expanded global commercial footprint being closer to full operation. With the growth trajectory yet to be established, we conservatively rebase our 2019 and 2020 revenue expectations to reflect a more gradual ramp in sales. We continue to view management’s target of 40%+ revenue growth from 2020 onwards as achievable and anticipate more detailed guidance at the Capital Markets Day planned for H219. Our revised Bonesupport valuation is SEK37/share (or SEK 1.92bn), down from SEK39/share (or SEK 2.03bn).

Year-end: December 31201720182019E2020E
Sales (SEKm)129.396.6176.7286.5
Adj. PBT (SEKm)(127.9)(173.8)(156.4)(85.7)
Net Income (SEKm)(128.9)(175.3)(156.7)(86.0)
EPS (SEK)(3.2)(3.4)(3.0)(1.7)
Cash (SEKm)533.4261.7109.111.3
EBITDA (SEKm)(98.1)(172.7)(152.9)(79.0)
Source: Trinity Delta
  • Global CERAMENT sales growth Europe/ROW revenue of SEK22.5m benefited from continued strong CERAMENT G/V performance, increased penetration in key geographies and indications with historically limited presence, and filling of sales vacancies. US sales grew 28% on Q119 to SEK 14.8m, despite replacing 6 of the 40 independent distributors due to underperformance. Momentum in market access was shown by a third major GPO contract win with Kaiser Permanente (690 medical offices, 39 hospitals, 23k doctors). GPO contracts coupled with completion of initial sales training and BONIFY launch should boost US sales from H219.
  • Early days in establishing the growth trajectory Bonesupport’s revenue growth trajectory is contingent on various factors. We conservatively rebase our near-term forecasts (having underestimated the time for a new distribution infrastructure to become effective) and update our model to reflect ongoing cost control. Longer-term, we continue to view CERAMENT G FORTIFY data in fractures in 2020, followed by FDA approval potentially in 2021, as key inflection points.
  • Continued progress on costs R&D spend should fall after H219 once FORTIFY is fully enrolled; two of the four early-stage pipeline programmes have been selected for further development. Q219 costs include a SEK11m exceptional connected to Zimmer Biomet inventory return; from May 23 Bonesupport has had exclusive US CERAMENT BVF marketing rights.
  • Slower forecast sales ramp lowers our valuation to SEK37/share Our updated forecasts flow through to our three-phase DCF model generating a SEK37/share (SEK1.92bn) valuation. Following a transition period with the implementation of a new strategy; H219 should provide a better indication of sales potential for 2020.


31 July 2019

Market CapSEK1,704m
Enterprise ValueSEK1,543m
Shares in issue51.8m
12 month rangeSEK9.7-35.5
Free float87.2%
Primary exchangeOMX Stockholm
Other exchangesN/A
Company CodeBONEX
Corporate clientYes

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.


Lala Gregorek
+44 (0) 20 3637 5043

Mick Cooper PhD
+44 (0) 20 3637 5042

Financials and valuation

Bonesupport’s Q219 net sales of SEK37.3m reached an all-time high (+32% on Q218; +14% on Q119), with both geographies delivering solid sales growth. Notably the previous peak in quarterly revenues was Q217 (SEK37.1m), prior to supply issues at Zimmer Biomet impacting US sales, and prior to implementation of Bonesupport’s current commercial strategy.

For Q219, Europe/ROW sales were SEK22.5m (+58% on Q218; +6% on Q119), with continued strong performance from the antibiotic eluting products CERAMENT G and V (+64% on Q218 to SEK18.8m) which account for 83% of sales in the region. Europe/ROW gross margin stood at 83.5%. US net sales were SEK14.8m, a 5.5% increase on Q218 (when Zimmer Biomet was the exclusive distributor) and up +28% on Q119 (the first full quarter of sales under Bonesupport’s direct distribution model). US gross margin was 90.5%. Gross profit for Q219 was SEK32.3m (Q218: SEK24.6m; Q119: SEK28.2m).

Disciplined cost control across the business was maintained alongside focused investment in initiatives to accelerate CERAMENT sales. Q219 R&D costs (SEK16m) and G&A spend (SEK10.5m) have stabilised at a lower level over the past three quarters, which management indicate is a reasonable proxy for future periods. We note that R&D costs are likely to fall further once the FORTIFY trial is fully enrolled in H219.

Sales expenses of SEK52.7m is not comparable to the same quarter last year for two reasons. Firstly, it includes the subsequent European sales force expansion and the establishment of the US direct distribution network. Secondly, US sales costs include a SEK11m exceptional connected to Zimmer Biomet inventory return from the previous US distributor. Since May 23, Bonesupport has had exclusive US CERAMENT BVF marketing rights. The exceptional was booked to sales expenses rather than COGS as returned stock is short-dated and not permitted for resale, but it could be used in product demonstrations. This non-recurring item was responsible for a wider Q219 operating loss of SEK47.8m (Q218: SEK37.8m; Q119: SEK39m) and net loss of SEK47.9m.

Q219 marked the third successive quarter of revenue growth; despite Q2 and Q3 typically being weaker quarters for sales (due to lower rates of surgery). However, it is still too early to accurately assess the likely growth trajectory of Europe/ROW and US sales as the new strategy is only 8 months into implementation and is still in the ‘build phase’.

Filling of vacancies in Europe has expanded the salesforce to 25 employees. Training is ongoing and a GM & EVP Commercial Operations EUROW is sought following the departure of the incumbent. In the US, GPO contracting has been ahead of management expectations, with three significant contracts and various smaller contracts already secured. These contracts are anticipated to have a significant impact on sales in 2020 and beyond. Ongoing performance evaluation of the 40-strong independent distributor network has resulted in turnover of 6 distributors as deliverables on sales and promotion activities were not met.

With the growth trajectory yet to be established, we conservatively rebase our 2019 and 2020 sales forecasts to reflect a more gradual ramp. In addition, we also moderate our expectations for admin and R&D spend over the same period. Exhibit 1 summarises the changes to key estimates.

Exhibit 1: Summary of changes to estimates
Source: Trinity Delta

These changes to our forecasts flow through to our three-stage DCF valuation model, which has also been updated with current FX rates (now SEK/US$ 9.4 vs 9.5 previously), last reported cash of SEK161m (as at end June 2019), and has been rolled forward to reflect the passage of time. Our updated valuation is summarised in Exhibit 2.

Exhibit 2: DCF-based valuation of Bonesupport
Source: Trinity Delta Note: Assumes USD/SEK exchange rate of 9.4 and 12.5% discount rate. The valuation is based on explicit cash flows to 2022, followed by a ten-year trending period, and a 2.5% terminal growth rate.

Bonesupport is planning a Capital Markets Day in late autumn, when we expect more detailed financial and operational guidance to be provided. This, in tandem with another quarter of sales demonstrating continued successful execution, is likely to prompt us to revisit our forecasts and valuation.

Q319 will be an important quarter for Bonesupport. It is the first full quarter of exclusive US sales, and first sales under major US GPO contracts should be delivered. In all regions, publication of full CERTiFy data (non-inferiority of CERAMENT BVF to gold-standard autograft) should assist in driving adoption in trauma, and with completion of initial training, the expanded global commercial footprint will be more established.

Exhibit 3: Summary of financials
Source: Company, Trinity Delta Note: Historical adjustment of number of shares following 5:1 consolidation in 2017.



Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2019 Trinity Delta Research Limited. All rights reserved.