Bonesupport has, over the course of 2019, laid the foundations for its commercially driven strategy to deliver accelerating growth of its CERAMENT platform. It is targeting 40+% annual revenue growth from 2020 as it seeks to affect a paradigm shift in the way that bone voids are treated. Q419 was the third consecutive quarter of record sales, with FY19 net sales of SEK155m up 61% on FY18. US quarterly sales have returned to their historic peak and client conversions under GPO contracts bode well for US sales momentum. In Europe/RoW antibiotic eluting products continue to show impressive growth (+45% y-o-y). Compelling clinical and health economics data will add further impetus to commercial efforts, with various studies supporting future reimbursement discussions (CONVICTION and SOLARIO) or regulatory approvals (FORTIFY). We upgrade our Bonesupport valuation to SEK43.3/share, or SEK2.27bn.
| Year-end: December 31 | 2018 | 2019 | 2020E | 2021E |
| Sales (SEKm) | 96.6 | 155.5 | 263.1 | 380.6 |
| Adj. PBT (SEKm) | (174.9) | (158.3) | (74.1) | (11.5) |
| Net Income (SEKm) | (176.4) | (161.1) | (74.4) | (11.6) |
| EPS (SEK) | (3.4) | (3.1) | (1.4) | (0.2) |
| Cash (SEKm) | 261.7 | 92.1 | 29.7 | 6.4 |
| EBITDA (SEKm) | (172.9) | (156.4) | (66.7) | (2.3) |
Update
2 March 2020
| Price | SEK34.0 |
| Market Cap | SEK1,780m |
| Enterprise Value | SEK1,699m |
| Shares in issue | 52.4m |
| 12 month range | SEK19.5-40.2 |
| Free float | 62.5% |
| 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
Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041
Bonesupport’s Q419 net sales doubled in the space of 12 months, delivering a record SEK46m in net revenue vs SEK23m in Q418. Net sales were SEK155m for FY19 (+61% on FY18). Gross profit for Q419 was SEK41.1m (Q418: SEK19.6m) and SEK135.9m for FY19 (FY18: SEK81.5m).
Both US and Europe/RoW showed solid sales growth, although performance in the US was stronger. US quarterly net sales have steadily and sequentially increased from SEK4.2m in Q418 (the first quarter of activity) to SEK23.3m in Q419. US net sales for Q419 were up 26% on Q319 (SEK18.5m), the first full quarter of sales through Bonesupport’s distributor network as exclusive CERAMENT BVF market rights were regained on May 23. US Q419 net sales of were also in line with the prior US sales peak in Q217 under the legacy Zimmer Biomet distributor model. US net sales were SEK68m for FY19. US gross margin stood at 94% for Q419, and 92% for FY19.
Europe/RoW Q419 sales of SEK22.9m were up 21% on Q419, and up 11% on Q319 (a traditionally weak quarter for surgeries). The trend for stronger performance of the higher margin antibiotic eluting products CERAMENT G and V continued, with Q419 sales of SEK19.7m (86% of Europe/RoW revenues) up 23% on Q418 and 14% on Q319. FY19 net sales for Europe/RoW was SEK87.4m (+40% on FY18), of which SEK73.9m (+45%) was CERAMENT G/V. Europe/RoW gross margin was 84% for Q419 and FY19.
On the expenses side, Bonesupport is emerging from a period of intense, albeit directed, investment into initiatives to accelerate CERAMENT sales growth, with disciplined cost control in other areas. Underlying quarterly sales expenses have remained broadly consistent during 2019 (adjusting for a SEK11m exceptional from product returns in Q219, and SEK2.3m in marketing spend delayed to Q419 from Q319). Sales commissions have grown in line with revenues. G&A of SEK11.6m for Q419 reflected the impact of share-based compensation and was marginally higher than the SEK10-11m quarterly range for the rest of the year. R&D costs for Q419 were SEK18.5m, with declining expenditure on the FORTIFY study following full recruitment likely to be partly offset by SOLARIO study related costs. As mentioned earlier, costs associated with the new CONVICTION study will be met by the French government, although Bonesupport will contribute in the form of a modest grant.
The Q419 operating loss was SEK38.6m (Q418: SEK45.0m loss) and net loss of SEK40.8m. The FY19 operating loss was SEK158.1m (FY18: SEK174.4m loss) and net loss of SEK161.1m. Net cash at end-December 2019 stood at SEK 81.7m. In January 2020, Bonesupport announced that it had secured an up to SEK60m credit facility with Skandinaviska Enskilda Banken (SEB). This is structured as an overdraft facility with a twelve plus twelve months maturity. This facility provides flexibility and financial headroom for Bonesupport to continue to invest accordingly in pursuing its growth strategy.
FY19 was the first full financial year of Bonesupport’s growth strategy. Significant progress has been made in the ‘build phase’ of the implementation in both the US (eg establishment, training, and optimisation of the distributor network; impetus in securing GPO contracts etc) and Europe/RoW (eg staffing and deployment of the European commercial organisation particularly in the UK, Germany and Nordics). Over the coming quarters, the likely growth trajectory of CERAMENT sales globally should start to become more apparent. Various trends are emerging (eg CERAMENT BVF vs CERAMENT G/V sales in Europe/RoW), and we refine our sales forecasts to reflect these and the likely impact of the faster than expected GPO customer conversions. Exhibit 1 summarises the changes to 2020 estimates; we publish 2021 estimates for the first time in Exhibit 4.
These changes, coupled to rolling forward our three-stage DCF valuation model to reflect the passage of time and updating last reported net cash and shares outstanding, lift our valuation to SEK43.3/share vs SEK37/share previously.
Demonstration of continued successful execution, and more detailed financial or operational guidance, would likely prompt us to revisit our forecasts and valuation. A planned Capital Markets Day should provide more detail; we highlight future value generating milestones in Exhibit 3.
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