In Q219, total revenues were SEK37.3m, surpassing the previous peak achieved in Q217 (SEK37.1m), when Bonesupport was selling through an exclusive distributor, Zimmer Biomet, in the US. US business segment revenues were SEK14.8m (up 28% q-o-q, 6% y-o-y). Bonesupport has secured new GPO contracts including with Kaiser Permanente, and is actively monitoring and updating its distributors (six were replaced in the quarter). Europe/RoW sales grew by 6% q-o-q and 59% y-o-y, where CERAMENT G/V is still performing well. Bonesupport is now looking to its R&D projects, having decided to focus on CERAMENT plus bisphosphonate and CERAMENT plus DBM. Our valuation is virtually unchanged at SEK1.70bn or SEK32.8/share (vs SEK33.1/share).
Written by
BONESUPPORT |
On track to reach profitability |
Q219 results update |
Pharma & biotech |
1 August 2019 |
Share price performance
Business description
Next events
Analysts
BONESUPPORT is a research client of Edison Investment Research Limited |
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In Q219, total revenues were SEK37.3m, surpassing the previous peak achieved in Q217 (SEK37.1m), when Bonesupport was selling through an exclusive distributor, Zimmer Biomet, in the US. US business segment revenues were SEK14.8m (up 28% q-o-q, 6% y-o-y). Bonesupport has secured new GPO contracts including with Kaiser Permanente, and is actively monitoring and updating its distributors (six were replaced in the quarter). Europe/RoW sales grew by 6% q-o-q and 59% y-o-y, where CERAMENT G/V is still performing well. Bonesupport is now looking to its R&D projects, having decided to focus on CERAMENT plus bisphosphonate and CERAMENT plus DBM. Our valuation is virtually unchanged at SEK1.70bn or SEK32.8/share (vs SEK33.1/share).
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
129.3 |
(127.1) |
(3.22) |
0.0 |
N/A |
N/A |
12/18 |
96.6 |
(174.1) |
(3.45) |
0.0 |
N/A |
N/A |
12/19e |
199.9 |
(142.9) |
(2.75) |
0.0 |
N/A |
N/A |
12/20e |
298.9 |
(81.2) |
(1.53) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
28% revenue growth in US q-o-q
In Q219, US (CERAMENT BVF) revenues were SEK14.8m (up 28% q-o-q and 6% y-o-y, Exhibit 2). These continue to be from a mix of new and legacy accounts, with an increasing number of re-orders. Management indicated that around 70% of US sales are via GPO contracts, but provided no further breakdown of revenue at this time (Q219 was the second full quarter in the US with an independent network of distributors). Europe/RoW revenues of CERAMENT G/V (Europe) were SEK18.8m (up 4% q-o-q but 64% y-o-y; Exhibit 3), while CERAMENT BVF grew 16% q-o-q and 39% y-o-y. Q319 revenue growth could be supported by new GPO contracts signed this quarter, including Kaiser Permanente, and the recent publication of further level IV evidence, a case series of 51 trauma patients.
US opex increasing, but savings in Europe/RoW
Adjusting for the SEK11m provision negatively affecting the Q219 operating loss, operating costs for the business as a whole have been relatively flat over the past few quarters (SEK40.4m in Q418, SEK43m in Q119 and SEK40.9m in Q219). We leave our medium- to long-term forecasts unchanged as we see the initial US sales rebound as a good start, and costs are within our estimates. Net cash flow in Q219 was negative at SEK45.3m (vs negative SEK43.6m in Q119). According to our model, the company should still reach break-even in 2021. Current cash and cash equivalents are SEK173.1m and total debt is SEK11.9m.
Valuation: SEK1.70bn or SEK32.8/share
We value Bonesupport at SEK1.70bn or SEK32.8/share versus SEK1.73bn or SEK33.1/share previously, largely unchanged due to lower net cash that is partially offset by rolling our model forward. Key near-term catalysts include an update on sales under the independent distributor network in the US at the Q319 results, publication of the full CERTiFy results (H219) and health economics data in Q319.
Q219 on track, best quarter ever in terms of revenues
28% q-o-q revenue growth in US, but high opex
Q219 net sales of CERAMENT BVF in the US were SEK14.8m, vs SEK11.5m in Q119 (6% growth y-o-y and 28% growth q-o-q). This represents the third quarter (second full quarter) that Bonesupport has had its own distributor network (Exhibit 1). This revenue growth is likely due to increased commercial efforts in the US. We could see some sales from the Group Purchasing Organisation (GPO) contracts signed in earlier quarters (management previously guided that sales would be seen two to three months after signing a GPO contract).
With regards to the customer base, management has not provided a more detailed breakdown for the time being, except that the percentage of sales through GPO contracts is around 70%. In Q219, Bonesupport made progress in securing further GPO contracts, including with Kaiser Permanente, which has 690 medical offices and 39 hospitals (the impact could be seen Q319). A GPO is an organisation that contracts with hospitals to help them achieve savings when purchasing medical equipment and supplies. The GPO can decide which products a hospital is allowed to use.
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Exhibit 1: Bonesupport’s US quarterly sales (LHS) and 12-month rolling sales per segment (RHS) |
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Source: Bonesupport |
Bonesupport booked a one-off loss of SEK11m in Q219, which was related to product returns from Zimmer. This had no cash effect for now and the final amount will be agreed with Zimmer in Q319. Operating costs for the business as a whole have been relatively flat over the past few quarters (SEK40.4m in Q418, SEK43m in Q119 and adjusted SEK40.9m in Q219), whereas the operating loss has been narrowing since Q318 due to revenue growth (Exhibit 2). Bonesupport is still investing in expanding the organisation, hence the US business is still in the early stages and not yet in a steady state. Management indicated in the Q219 Q&A that operating costs could increase due to current vacancies in the sales and marketing team that will be filled later, as well as commissions that will be paid. R&D and administrative costs should remain at around the same levels as the previous three quarters.
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Exhibit 2: US segment profitability (adjusted for one-off SEK11m provision in Q219) |
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Source: Edison analysis of data from Bonesupport quarterly segment reporting. Q219 operating costs and operating loss adjusted for the SEK11m provision for Zimmer orders |
Optimising European business to reach profitability
Europe/RoW revenues of CERAMENT G/V (Europe) were SEK18.8m (up 4% q-o-q, but up 64% y-o-y), while CERAMENT BVF grew 16% q-o-q and 39% y-o-y. According to management, growth in CERAMENT G/V was due to broader and more frequent use, mainly among the existing customer base. Level IV evidence continues to mount in the form of case series – a series of 51 trauma patients was recently published by an orthopaedics centre in Manchester, demonstrating a reduced infection and amputation rate.
Some cost savings appear to have been made in the Europe/RoW business, demonstrated by the reduction of 11% in operating costs relating to this segment in Q219 (SEK15.1m) vs Q119 (SEK17.0m). Coupled with growing sales, this resulted in a profitable Q219 (operating profit margin of 17%), see Exhibit 3.
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Exhibit 3: Europe/RoW segment profitability |
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Source: Edison analysis of data from Bonesupport quarterly segment reporting |
In the Q219 results, management continued to guide to overall revenue growth of 40% after 2019, and that Bonesupport is well funded to reach profitability. Following the Q219 results, our model is in line with this timeline.
Valuation
We value Bonesupport at SEK1.70bn or SEK32.8/share versus SEK1.73bn or SEK33.1/share previously, largely unchanged due to lower net cash offset by rolling our model forward. We leave our estimates unchanged as we believe the company is on track to meet our FY19 numbers, assuming overall revenue growth of around 40% per quarter through Q319 and Q419. While this growth rate might look somewhat ambitious, the recent pick-up in US sales and the solid Q219 performance bode well for the company. Costs are also within our projections. Our DCF model uses a 10% discount rate and includes a forecast period until 2028. The terminal value assumes a long-term 2.0% growth rate.
The main near-term catalysts for the share price include publication of the full results of the CERTiFy study expected in H219, publication of the health economics study data in Q319 and an update on sales under the independent distributor network in the US at the Q319 results in November 2019. Results of the FORTIFY trial are expected in 2020.
Exhibit 4: Assumptions, projected cash flow and DCF valuation, SEKm
2019e |
2020e |
2021e |
2022e |
2023e |
2024e |
2025e |
2026e |
2027e |
2028e |
|||
EBIT* (risk adjusted) |
(143.9) |
(82.1) |
30.7 |
165.7 |
223.9 |
258.7 |
267.8 |
273.2 |
276.0 |
277.4 |
||
Tax** |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
D&A |
1.8 |
5.7 |
5.0 |
4.5 |
4.1 |
3.9 |
3.7 |
3.6 |
3.5 |
3.4 |
||
Change in WC |
(17.9) |
(9.4) |
(12.8) |
(33.3) |
(14.4) |
(10.2) |
(2.8) |
(1.8) |
(1.3) |
(0.9) |
||
Capex |
(2.3) |
(2.0) |
(2.1) |
(2.1) |
(2.1) |
(2.1) |
(2.1) |
(2.1) |
(2.1) |
(2.0) |
||
Operating FCF |
(162.3) |
(87.8) |
20.7 |
134.8 |
211.5 |
250.4 |
266.6 |
272.8 |
276.2 |
277.9 |
||
NPV (SEKm) |
||||||||||||
Free cash flows FY19-28e |
684.6 |
|||||||||||
Terminal value (2.0% growth rate assumed) |
856.8 |
|||||||||||
Total NPV |
1,541.4 |
|||||||||||
Net cash (last reported) |
161.2 |
|||||||||||
Valuation |
1,703 |
|||||||||||
Valuation/share (SEK) |
32.8 |
|||||||||||
Discount rate |
10.0% |
|||||||||||
Tax rate (long term) |
22% |
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Source: Edison Investment Research. *EBIT here includes risk-adjusted cash flows associated with CERAMENT G launch in the US in 2021. **Tax loss carry forwards (SEK604m as end-2017) offset taxes during our forecast period.
Exhibit 5: Financial summary
SEK'000s |
|
2017 |
2018 |
2019e |
2020e |
|
December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
129,301 |
96,623 |
199,935 |
298,891 |
Cost of Sales |
(16,871) |
(15,157) |
(29,990) |
(44,834) |
||
Gross Profit |
112,430 |
81,466 |
169,945 |
254,057 |
||
Research and development |
(60,636) |
(66,064) |
(66,064) |
(66,064) |
||
EBITDA |
|
|
(98,116) |
(172,847) |
(142,088) |
(76,454) |
Operating Profit (before amort. and except.) |
|
(98,486) |
(173,664) |
(143,112) |
(81,284) |
|
Intangible Amortisation |
(799) |
(740) |
(778) |
(849) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(99,285) |
(174,404) |
(143,890) |
(82,133) |
||
Net Interest |
(28,600) |
(465) |
196 |
56 |
||
Profit Before Tax (norm) |
|
|
(127,086) |
(174,129) |
(142,917) |
(81,228) |
Profit Before Tax (reported) |
|
|
(127,885) |
(174,869) |
(143,694) |
(82,077) |
Tax |
(1,007) |
(1,536) |
(1,536) |
(1,536) |
||
Profit After Tax (norm) |
(128,093) |
(175,665) |
(144,453) |
(82,764) |
||
Profit After Tax (reported) |
(128,892) |
(176,405) |
(145,230) |
(83,613) |
||
Average Number of Shares Outstanding (m) |
39.8 |
51.0 |
52.6 |
54.1 |
||
EPS - normalised (SEK) |
|
|
(3.22) |
(3.45) |
(2.75) |
(1.53) |
EPS - normalised and fully diluted (SEK) |
|
|
(3.22) |
(3.45) |
(2.75) |
(1.53) |
EPS - reported (SEK) |
|
|
(3.24) |
(3.46) |
(2.76) |
(1.55) |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
87.0 |
84.3 |
85.0 |
85.0 |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
8,591 |
9,771 |
24,716 |
22,143 |
Intangible Assets |
5,244 |
5,511 |
6,019 |
6,311 |
||
Tangible Assets |
3,099 |
3,885 |
18,322 |
15,458 |
||
Investments |
248 |
375 |
375 |
375 |
||
Current Assets |
|
|
588,093 |
316,370 |
173,525 |
96,677 |
Stocks |
22,079 |
23,681 |
32,866 |
36,850 |
||
Debtors |
20,678 |
18,683 |
27,388 |
32,755 |
||
Cash |
533,367 |
261,468 |
100,733 |
14,534 |
||
Other |
11,969 |
12,538 |
12,538 |
12,538 |
||
Current Liabilities |
|
|
(145,725) |
(47,321) |
(52,499) |
(52,499) |
Creditors |
(47,105) |
(47,321) |
(47,321) |
(47,321) |
||
Short term borrowings |
(98,620) |
0 |
(5,178) |
(5,178) |
||
Long Term Liabilities |
|
|
(173) |
(289) |
(8,249) |
(8,249) |
Long term borrowings |
0 |
0 |
(7,960) |
(7,960) |
||
Other long term liabilities |
(173) |
(289) |
(289) |
(289) |
||
Net Assets |
|
|
450,786 |
278,531 |
137,493 |
58,072 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(95,060) |
(168,652) |
(155,786) |
(81,612) |
Net Interest |
(11,737) |
(822) |
196 |
56 |
||
Tax |
(737) |
(2,151) |
(1,536) |
(1,536) |
||
Capex |
(3,037) |
(1,609) |
(2,323) |
(1,966) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Financing |
504,833 |
0 |
0 |
0 |
||
Other |
8,686 |
(45) |
(1,286) |
(1,141) |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
402,948 |
(173,279) |
(160,735) |
(86,199) |
||
Opening net debt/(cash) |
|
|
(31,799) |
(434,747) |
(261,468) |
(87,595) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
(13,138) |
0 |
||
Closing net debt/(cash) |
|
|
(434,747) |
(261,468) |
(87,595) |
(1,396) |
|
Source: Company accounts, Edison Investment Research |
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Research: Healthcare
Interim results highlight the momentum at Laboratorios Farmacéuticos ROVI, as both H119 operating revenue (21% y-o-y to €177.5m) and EBITDA (99% y-o-y to €26.5m) grew by double-digit percentages. The focus on new, proprietary products continues to benefit ROVI, as evidenced by the ongoing success in rolling out its enoxaparin biosimilar (Becat) in Europe. Becat sales grew fourfold y-o-y to €36.5m and continue to aid ROVI’s expansion of its low molecular weight heparin (LMWH) franchise (H119 revenues: €81.7m vs H118: €57.2m). ROVI has upgraded its revenue growth guidance for the year to high double-digit growth from low double digits. We value ROVI at €1.33bn vs €1.17bn previously.