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 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (SEKm) | 129.3 | 96.6 | 176.7 | 286.5 |
| 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) | 533.4 | 261.7 | 109.1 | 11.3 |
| EBITDA (SEKm) | (98.1) | (172.7) | (152.9) | (79.0) |
Update
31 July 2019
| Price | SEK32.9 |
| Market Cap | SEK1,704m |
| Enterprise Value | SEK1,543m |
| Shares in issue | 51.8m |
| 12 month range | SEK9.7-35.5 |
| Free float | 87.2% |
| 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
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.
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.
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.
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