Cementing the foundations for growth

Update | 2 March 2020

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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 31201820192020E2021E
Sales (SEKm)96.6155.5263.1380.6
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)261.792.129.76.4
EBITDA (SEKm)(172.9)(156.4)(66.7)(2.3)
Source: Trinity Delta
  • US CERAMENT BVF sales return to prior peak The 40-strong distributor network (c500 sales reps) delivered a fourth consecutive quarter of growth with Q419 US net sales of SEK23.3m (+26% on Q319), in line with the prior peak in Q217 under the legacy distributor model. Growth in new customer acquisitions, and re-ordering from ‘heritage accounts’, has been steady. First orders from hospitals under the Healthtrust GPO contract (effective December 1, 2019) have been secured, ahead of expectations given standard three-to-four month GPO conversion lead times, and should benefit sales momentum in 2020 and beyond.
  • Addressing customer concentration in Europe FY19 net sales grew 40% to SEK87m despite Q419 (SEK23m, +23% on Q418) being impacted by ordering patterns at two large customers. CERAMENT G/V continue to perform well (86% of Europe/RoW sales). Customer dependency should reduce as direct markets (>84% of sales) have a broader client base geographically and by indication (eg Germany and trauma). ‘Revitalisation’ of distributor markets is planned.
  • Strong clinical and HEOR data support CERAMENT Building on the clinical and health economics outcomes evidence base is vital to driving clinician and payer uptake. CERTiFy data in the Journal of Bone and Joint Surgery should assist in driving adoption of CERAMENT BVF in trauma. CONVICTION, a major randomised controlled study of CERAMENT G/V in chronic osteomyelitis funded by the French Ministry of Health, could open this market and improve reimbursement.
  • Valuation raised to SEK43.3/share Updating our forecasts post-FY19 results and rolling forward our three-phase DCF valuation model, lifts our company valuation to SEK2.27bn or SEK43.3/share (previously SEK1.92bn or SEK37/share). Further upside could be unlocked by improved market access, development and expansion of the customer base, and potential US CERAMENT G launch in late-2022.


2 March 2020

Market CapSEK1,780m
Enterprise ValueSEK1,699m
Shares in issue52.4m
12 month rangeSEK19.5-40.2
Free float62.5%
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

Franc Gregori
+44 (0) 20 3637 5041

Financials and valuation

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.

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

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.

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.

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.

Exhibit 3: CERAMENT value generating milestones
Source: Bonesupport
Exhibit 4: Summary of financials
Source: Company, Trinity Delta Note: Historical adjustment of number of shares following 5:1 consolidation in 2017. Increase in loans in 202e and 2021e is an illustrative SEK15m drawdown each year under the SEK60m working capital facility from SEB.


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