Bonesupport Holding AB

STO:BONEX

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to the BONESUPPORT Q3 report 2018. Today, I am pleased to present CEO, Emil Billbäck; and CFO, Björn Westberg. [Operator Instructions] Please begin your meeting.

[Emil Billbäck, Chief Executive Officer]

Well, thank you very much operator. So this is Emil Billbäck, the CEO of BONESUPPORT. I would like to welcome you all to the quarter 3 2018 result call. I'm joined here today also by our CFO, Björn Westberg, and this morning, we'll take you through around 20 minutes run through the presentation and we'll finish off with a Q&A session.I will cover the recent business progress, and then I will hand over to Björn, who will cover the financials in more details. We'll go to the next slide, and before starting the presentation, I would like to draw your attention to the disclaimers that is covering any forward-looking statements that we will make today. If I could be assisted to go to Slide 4 please. So I would like this call by quickly recapping on the key takeaways from the successful Capital Markets Day that we hosted in Stockholm and London in September. During the presentation at these events, we discussed in detail the key attractions of BONESUPPORT as an investment and the conclusions from our strategic review. We also spent time on the most important part of our strategy that we need to execute to successfully generate further shareholder value. With CERAMENT BVF, CERAMENT G and CERAMENT V, we'll have a unique product offering, which is clearly differentiated and which delivers important benefits to patients, surgeons and payers. As I said in my Capital Markets Day presentations, I'm confident that CERAMENT G could be a game changer in the management of bone voids. This is based on its potential to both manage and prevent bone infections. Our attractive product line gives access to a sizable growing market of about 650,000 procedures per year, and to help us penetrate this market, we have built the industry's leading clinical dataset. We also have more important clinical and health economic data to come, which will further improve and provide our competitive position. We have a strong innovative pipeline, and this will allow us to launch a steady stream of new products, overall, in next several years. However, the strategic review identifies that we need to make significant changes and invest in our commercial platform. So in the recent months, we have undertaken several important strategic initiatives, which have greatly improved our ability to accelerate market penetration of our product, both in the U.S. and in EU. Now with this short introduction, I would like to talk more about Q3 performance as well as our strategic progress more in detail.Next slide please. So turning to our results. It is clear that the major changes that we have made to our U.S. commercial platform and the investment that we have made in our European sales team have impacted the numbers that we are reporting today. Overall, the Q3 sales was SEK 14.2 million. This is a decline of 56% versus previous year. The key reason for this was that we had no sales in the U.S. following our decision to terminate our distribution agreement with Zimmer Biomet. Now in the segment, Europe & Rest of World, sales increased with 29% to SEK 14.2 million. This much improved growth rate comparison to quarter 2 was driven by the success of our antibiotic-eluting products, which grew by 35% in the quarter. Over the summer, we also made some important changes to our senior management team, with the appointment of Håkan Johansson as CFO; and the decision to place Michael Diefenbeck in-charge of R&D in addition to his responsibilities for medical and clinical affairs. I'd like now to turn also to some of the key strategic initiatives, where we have made a lot of progress in quarter 3. I believe that successfully implementing these initiatives is crucial to achieving our goal of becoming a global orthobiologics leader. In the U.S., our new distribution network is now actively selling CERAMENT BVF, supported by an enlarged and more capable BONESUPPORT U.S. commercial team. In Europe, we're continuing to add sales reps in our key direct markets to ensure even further acceleration in sales growth. The quarter also signed an important deal with MTF Biologics, which will enable us to expand our U.S. product offering when we launch these products in first 6 months of 2019. We also gained approval for CERAMENT G in Canada, which we expect to launch in 2019.Next slide please. So I would like to provide you with some more details on the U.S. commercial platform. We have created a network of 25 distributors, which together employ 512 sales reps. We have been able to attract these high-quality distributors due to the proven sales success of CERAMENT BVF and the significant potential of the CERAMENT platform including CERAMENT G, a game-changing product, that we plan to launch in the U.S. by 2021, which shows these distributors based on their success with hardware from industry majors, their understanding of the orthopedic supply market in their local area, the quality of their sales reps and the relationships that they enjoy with key orthopedic surgeons. The sales reps of these distributors are in the operating theater with the surgeons every day, and this is a crucial factor in selling CERAMENT BVF successfully. With 512 sales reps now selling CERAMENT, we believe we are in a much better position than we were under the previous distribution agreement with Zimmer Biomet. So in parallel with building this strong distribution network, we have invested in expanding the BONESUPPORT commercial team, and this team now has the skill and the capacity to support our future sales target in the U.S. The team is currently focused on training the distributor reps and a much higher level of marketing activities to build the profile of BONESUPPORT brand in the U.S. orthopedic community. And finally, we have signed an important deal with Millstone Medical, who will handle all the logistics associated with getting CERAMENT BVF to our customers.Next slide please, Slide 7. So I would like, again, to reiterate the factors that led us to the important decision and to create our own commercial platform in the U.S. We will benefit from gaining access to the whole of our targeted market. Under the previous arrangement with Zimmer Biomet, CERAMENT BVF was only being sold to around 30% of the potential customers. We now also have the much better ability to drive sales as we establish our own direct surgeon relationships in all 4 of the key target indications we have, which is trauma, revision arthroplasty, foot and ankle surgery and orthopedic oncology. We also have benefits to our reported sales and net margins. Importantly, we have achieved this better sales and margin even after providing an attractive commission structure to our distributors and their sales reps. The slightly longer-term benefit from our new platform are our ability to introduce new products, to expand our offering to the surgeons, and having our own commercial capabilities in the U.S. was crucial to us signing recent deals with Collagen Matrix and MTF Biologics. We plan to launch products from these portfolios that will be complementary to CERAMENT BVF in mid-year 2019 -- sorry, in the beginning of 2019. The final significant benefit from our new commercial platform is that we can now build the platform for the expected launch of CERAMENT G in 2021 by ourselves. We're believing that realizing the significant sales potential of CERAMENT G in the U.S. is crucial to BONESUPPORT achieving its ambition to become a leading global orthobiologics player. So in summary, I'm extremely pleased with the changes to our U.S. commercial platform that we have made in the last 6 months, and I'm very confident that we will see a significant increase in both the sales and profitability of our U.S. business in 2019.Next slide please. So in Europe, we saw improved sales growth versus quarter 2. The quarter 3 sales increase in Europe was 29%, driven by the success of our antibiotic-eluting product, which saw an increase of 35%. Now while this is a strong growth rate, geographically, there are still a significant number of larger cities and regions across Europe, where our CERAMENT products generate limited or no sales. In addition, there are major indications such as trauma, where, again, our market penetration is very low, providing a further important opportunity for growth. The investments we're making in our European sales team is designed to address these opportunities. A key focus for our sales force expansion has been Germany. In Germany, we have added 3 sales reps since the onset of the program and we plan to add another 3 before end of this year. The 3 salespeople that we recently added are displayed with gray figures on the map to the right, and this is a map that I showed at the Capital Markets Day that we held in September. The investment that we're doing in Germany in the sales deployment reflect our desire to replicate the success we have already achieved in some of the major regions in Germany. We're also investing in other direct markets such as the Nordics and the U.K. And I would expect that we can deliver an uplift in sales growth in Europe during 2019 based on the sales force expansion. Alongside the increased sales activities, we have continued to invest in impactful market activities. Our key target audience is high-profile key opinion leaders, who practice at leading orthopedic hospitals across the region. A key event for BONESUPPORT in quarter 3 was the European Bone and Joint Infection Society Meeting, in Helsinki, in September. At this meeting, which is one of the most important meetings for surgeons, who are involved in treating patients with bone infections, a large number of presentations were based on BONESUPPORT's antibiotic-eluting products. This reflects really the growing recognition over the benefit that our product delivered both in the management of prophylaxis and in bone infections. A key presentation at this meeting covered the effectiveness of CERAMENT G and V across a wide range of bone infection indications, including trauma. More specific presentations focused on the bone remodeling properties of CERAMENT G and display of significantly better bone healing achieved when using CERAMENT G in a comparative study.Next slide please. A further reason for improving our commercial platform is the upcoming important clinical dataset that we're generating with the CERTiFy and the FORTIFY studies. These data are designed to enhance the competitive positioning of our products even further. The first data we expect to announce is the top line results from the CERTiFy study and that will come before the end of this year. CERTiFy is a very important study, as it is the first randomized level 1 clinical trial comparing a synthetic bone graft substitute, in this case, CERAMENT BVF, with autograft, in a tibial plateau fracture. So autograft, as you might know, is seen as the standard of care. And for this indication, particularly in the major European market, we hope to offer an alternative. In an autograft procedure, bone is taken usually from the patient's pelvic bone to fill the bone void. And if the CERTiFy study achieve its primary endpoint, meaning, showing that the CERAMENT BVF is noninferior to autograft, this would open up a significant commercial opportunity for BONESUPPORT as autograft still accounts for 25% of the procedures in the top European 5 markets and U.S. combined, as you can see on the chart. We plan a publication covering the full results from CERTiFy in quarter 1 of 2019, and we believe that this publication, which will provide more detailed findings, could lead to a major shift in the standard of care in patients, who currently receive autograft.Slide 10 please. The second major study that we're conducting is FORTIFY. FORTIFY trial is assessing CERAMENT G's ability to improve on the standard of care, management of patients with open fractures in the tibia. The primary endpoints here in the trial includes absence of deep infection at the fracture site and the lack of secondary procedures to promote fracture unions. BONESUPPORT intends to use positive data from the FORTIFY study to support at PMI, a premarket approval filing, for CERAMENT G to the FDA in 2020. The approval of CERAMENT G in the U.S. will be a major corporate milestone for the company as this would allow BONESUPPORT to create a new prophylaxis market for patients with complex trauma at high risk of infection. Health economic data will also play a key role in unlocking this market for CERAMENT G, given the significant human and financial cost that arise in the patient with complex trauma develops a bone infection. Now as you can see from the pie chart on the slide, positive data from FORTIFY will give access to a very significant opportunity. And it's also important to say that this market opportunity is currently not being pursued by any competitor given that no one else have a product with the same ability to deliver high concentrations of antibiotic directly into the bone void and at the same time have a bone remodeling.Next slide please. On Slide 11, we have outlined the 3 key areas, where we are focusing to ensure that we can realize the significant sales and value potential of the current lineup of CERAMENT products: the first is continuing to gain market shares from other synthetic bone graft substitutes, and we expect to accelerate this based on the ease of use of our CERAMENT product and the key benefits that they deliver, benefits which are being supported by growing body of clinical evidence as more and more surgeons are looking to publish on their experiences of using CERAMENT product. The second is taking share from the autograft segment. As I discussed earlier, when I covered the CERTiFy study, positive data could provide us with compelling arguments to persuade surgeons to adopt a new standard of care for the treatment of these patients. And the final opportunity, of course, is to create a new prophylaxis market for CERAMENT G for complex trauma patients that have a high risk of infection. These are all significant opportunities that require us to have the optimal commercial organization play. And we're building the reach and we're building the relationships with surgeons and payers that will allow us to leverage the clinical data that we're generating as effectively as possible. The size of these 3 market opportunities is a key factor in the investment that we have made in our commercial organization over the recent months. I've now completed my operational review and I would like to hand over to Björn, that will cover the quarter 3 financials in more details.

[Björn Westberg, Chief Financial Officer]

Thank you, Emil. Let us turn to Slide 13. The reported sales in the quarter decreased by 56% to SEK 14.2 million, which led to a decrease of 28% in the first 9 months in 2018 to SEK 23.5 million. This outcome in the third quarter after softer -- no sales in North America in Q3, they returned to much softer sales growth in Europe & Rest of World. I will provide more information on these regional developments in the following segment slides.Slide 14. Reported no sales in North America in the third quarter. This is due to Zimmer Biomet's decision to cancel its orders following the termination of our U.S. distribution agreement for CERAMENT BVF in May. The first 9 months of 2018 sales in North America declined 54% due to U.S. canceling our distribution agreement -- stopping our U.S. distribution agreement and harvest supply issues led by -- or events faced earlier in the year.Slide 15. Sales in Europe & the Rest of the World increased by 29% in the quarter, compared to Q3 2017 and amounted to SEK 14.2 million. The growth in Europe was 29% in the second quarter. Our investment in our sales team allowed us to increase our greater growth in the second quarter. The sales in our 5 direct sales countries in Europe accounted for 84% of the total sales in the segment. Sales in the rest of the world also grew by 29%. In calendar year, CERAMENT G and CERAMENT V sales increased 35% in the quarter and 77% in the first 9 months of 2018. Overall, sales in the region in the first 9 months' period increased 19% to SEK 43.6 million. Slide 16, in the third quarter, we reported much higher operating loss of SEK 57.1 million. This is due to the absence of reported sales in North America and a significant increasing cost in the third quarter. Sales and marketing cost increased significantly due to the investments we made in our commercial platform in both the U.S. and Europe. In North America, cost rose by 44% driven by the growth in our sales administration and more marketing activities. In Europe & Rest of the World, we reported an 18% increase in selling expenses. This is also an investment for the years to come, facilitating strong growth from 2019 and beyond. Q3 R&D expenses amounted to SEK 16.4 million, a 28% increase, of which SEK 5.7 million were employee costs. This increase was due to strengthening of our development function. In addition, North America R&D expenses increased by 34% to SEK 6.3 million and are mainly related to cost connected to the FORTIFY study. Administration expenses amounted to SEK 17.5 million, an increase of 58%, of which employee costs amounted to SEK 11 million. The employee cost consisted of SEK 4.1 million, related to share incentive programs; SEK 2.6 million related to bonus and other salary costs for resigning CFO; and SEK 4.3 million related to other personnel costs. Other costs amounted to SEK 6.5 million with the increase being due to various projects and restructuring in the U.S. Slide 17. There are 2 figures that I'd like to draw your attention to. These are our gross margin, which were -- is up 91% in the quarter despite the significant decline in the sales we have reported in the third quarter. We are confident that we can maintain a high gross margin and a much higher sales -- level of sales we expect to generate in the future. And we also expect our sales growth of 40% per annum after 2019 and beyond, and a much stronger growth in 2019. We're also in good position cash-wise, as we believe that this level would take us through to profitability. I would now like to hand you back to Emil to conclude the presentation.

[Emil Billbäck, Chief Executive Officer]

Yes, thank you, Björn. So if you can please go to the final slide of the presentation, which is Slide 19. So on this slide, I have set out the multiple value creating milestones that we expect to see over the next 3 years. So the investments that we have made in the U.S. commercial platform is a crucial enabler for the journey ahead. This has put us in a strong position to deliver the sales of CERAMENT BVF, but also to launch successfully a number of new products in the first half of 2019. In Europe, we are confident that our expanding sales organization can continue to grow the sales of our antibiotic-eluting product by a combination of better geographic reach and increased penetration of important indications such as trauma. Our European sales team is well positioned to leverage the positive data from the CERTiFy study that we expect to announce before the end of 2018. So overall, the significant strategic initiatives that we have implemented in the last several months have put BONESUPPORT in a much stronger position to achieve our corporate goals. We expect to deliver significant sales increase in 2019, as we will see the benefits of our new U.S. commercial platform, and in particular, we believe that we can grow after that 40% per year from year 2020 and forward as we successfully execute our strategy. We are well-funded to reach profitability, and I'm confident that we can deliver significant shareholder value over the next 12 to 18 months. And finally, as you know, this will be Björn's last quarterly conference call, as he's moving on to a new job. I would personally like to thank him for all the support he has provided me since I became the CEO. Without Björn's high level of commitment, we would not have been able to execute the multiple strategic initiatives that we believe are crucial to BONESUPPORT's future success. I would like to wish him well in his new job, and thank you so much, Björn. With that, we conclude our presentation and we would like to open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Kristofer Liljeberg from Carnegie.

[Kristofer Liljeberg-Svensson]

First, could I ask you about Slide #7? You have the point there about the net margin and you mentioned the figure 15% to 20% of gross sales. Is that the improvement versus the previous agreement with Zimmer? Or is that what you will pay to your new distributors?

[Björn Westberg, Chief Financial Officer]

This is Björn here. That's an improvement compared to the...

[Kristofer Liljeberg-Svensson]

And then is it possible, I guess, it's still early days, but is it possible to say anything about the initial work here with the new distributors ramp-up in sales. Anything you could say?

[Emil Billbäck, Chief Executive Officer]

Yes, what we can say is that we believe we have meticulously executed our plan. We have been somewhat more successful than anticipated in recruiting good people to our organization in U.S. and also to identify and sign up very strong distributors. I think we have to realize that in the end of October, what took place was a very intense set of activities where we were traveling around the U.S., training, meeting the distributor reps, going through customer list, making sure that product kits were in place. So I cannot report on any sales, of course, because it doesn't belong to quarter 3. But what I can share with you is that they were progressing very well and that should be very promising for 2019.

[Kristofer Liljeberg-Svensson]

But these 25 distributor companies, have they all now started to sell?

[Emil Billbäck, Chief Executive Officer]

All 25 distributors have reps that have started to sell. Not all of the reps have been fully trained in how to use the product. There are some states where -- which are quite much less populated and -- but in all the big metropolitan areas, we have held product trainings. Those trainings started with the first distributors already in August and they're ongoing. So they keep going now until the end of the year.

[Kristofer Liljeberg-Svensson]

But doctors that has been used -- loyal to their product, how soon you think you will be able to capture the sales?

[Emil Billbäck, Chief Executive Officer]

I don't want to speculate in that, Kristofer, but what I would like to share with you is that the team we have in the U.S. consists, of course, of a central marketing function, then we have 8 regional business managers that have been working side by side with Zimmer Biomet's reps for more than a couple of years. So they have a very good understanding on who the customers are. And I think the key parameters on how quickly these physicians, the surgeons will switch to BONESUPPORT depends on how much inventory they might have in the specific clinic product on the shelf or how many products are sitting in the inventory with the hospital or possibly even at Zimmer Biomet. So Zimmer Biomet can continue to sell the product, but nonexclusive-basis up until May next year.

[Kristofer Liljeberg-Svensson]

And do you have any view or guess about this inventory situation?

[Emil Billbäck, Chief Executive Officer]

I do not. But what we have displayed is that they haven't -- Zimmer Biomet hasn't purchased anything since we terminated the contract in May.

[Kristofer Liljeberg-Svensson]

Okay. Last question and related to the U.S. Are you willing to speculate how long time it will take until you are back at previous U.S. levels in sales?

[Emil Billbäck, Chief Executive Officer]

I think anyone with experience of having done the moves that we're doing in the U.S.; and for me, it's the fifth or the sixth time that I'm doing such a move; we all know that sales in the beginning will be quite volatile. But the securing factors here is that we get the right distributors, which we have, as well as that we have a very good understanding of the customer base. But I'm not willing to give a time to when I think the sales will be back. It will be shown in due time.

[Kristofer Liljeberg-Svensson]

So Europe, we noticed that the sequential improvement in growth rate. But is there a typical seasonality in Europe in the third quarter due to the summer months, meaning, we should see further acceleration in the fourth quarter?

[Emil Billbäck, Chief Executive Officer]

What we can say about seasonality is that quarter 3 and quarter 4 are always a bit -- they are the strongest quarter of the year, but that's the same for every year. So growth rate, of course, you compare to previous year. We also know that the summer months can have quite some volatility to them. We see very strong uptake of the antibiotic-eluting products. They continue very strong, especially with some major clinics that we have won. So we're very pleased with this result, but think we can aim even higher going forward.

[Kristofer Liljeberg-Svensson]

And then finally on the gross margin. I thought that the BVF product in the U.S. had higher gross margin than CERAMENT G in Europe, but that doesn't appear to be the case. Can you confirm that? And also on Björn's statements about gross margin being higher going forward, should we look at this third quarter margin, well, the level in third quarter as a good estimate for what it'll look like, the gross margin to have.

[Björn Westberg, Chief Financial Officer]

I can comment on these 2 questions. So regarding the gross margin, I mean, 91% is a very high gross margins. And as you know, I've said before, that we should be above 85% percent, and announcement to speak that, so probably something in between there moving forward. Then if you look on the Q3 gross margin, it's on a higher end. And as you know when we invoiced the Zimmer Biomet, we invoiced, sort of, already a price, which is much lower than end-user price. And so therefore, the gross margin is still good, but not equally good compared to CERAMENT G and CERAMENT V in Europe. If you compare it to CERAMENT BVF in Europe, it's better than in the U.S. anyhow. So the impact here you see, but that is mainly due to the high level sales of the antibiotic-eluting product.

[Kristofer Liljeberg-Svensson]

So the gross margin you will have now with new distributors in the U.S. will be lower than CERAMENT G in Europe?

[Björn Westberg, Chief Financial Officer]

No, no, no. I am not talking about the cancelation done. But before that's done, we will count the gross sales in U.S. So we'll come closer to these kinds of numbers going forward.

[Kristofer Liljeberg-Svensson]

But what's the reason -- but why should the gross margin not be -- is high then going forward?

[Björn Westberg, Chief Financial Officer]

Yes, I think, as I mentioned, it will be close to that gross margin, but we also have been in [ dissect ] of the new products coming in there as well in the next year. And we haven't -- will expect high gross margin with these new products. So I would take [ place ] that level.

[Operator]

Our next question comes from the line of Franc Gregori from Trinity Delta.

[Francesco Gregori, Research Analyst]

A couple of quick questions. Obviously, the U.S. sales were not unexpected, but did you find anything that was unexpected, something like stock being returned or stock block in your supply chain? The first question. The second one following on from what Kristof was asking earlier, can you give us a feeling for what your sales cycle looks like? What I'm trying to get a feel for is how long before the new reps in Europe are actually contributing fully. And importantly, in the U.S., for the new distributors. Is this something that we should wait a couple of quarters before judging? Is it something that will take a year or so? And the last question I have is assuming that the clinical data is positive, when can you actually start using that in your marketing material? Can you do it as soon as you publish the top line data? Or do you have to wait until it's published into a journal?

[Emil Billbäck, Chief Executive Officer]

Yes. Franc, I start in sequential order. What -- has there been any unexpected events over the last period in terms of ramping up in the U.S.? Not really, Franc. The -- I would say the only experience -- the only unexpected probably, we attracted slightly better distributors than maybe we had hoped for and also more distributors. So there was a big attention for CERAMENT and high appetite and enthusiasm for the total potential. But there hasn't been any stock returns or any unexpected events that otherwise have changed our plan. When it comes to cyclicity, when hiring orthopedic sales reps in Europe, if those are experienced and have an existing network, if they take over existing accounts, well, then you, I mean, of course, immediately, you see traction. If you bring new accounts, it takes about 6 months to go through the approval process of the hospital and to have the physicians test and trial the product and then make a summary of the results. So in 6 months, you should start to see new accounts from new sales reps in new territories. In terms of the U.S., it's a very diverse picture. And as you know, when I introduced myself a couple of months ago, I lived and worked 4 years in the U.S. and worked in the orthopedic field, and some distributors will be able to pick up sales immediately, where they have big customers that are existing and that are using CERAMENT and maybe are buying the hardware products or other products that the distributors anyhow carrying. In other states, it will take a bit longer. And if you look at areas where we have historically had quite low penetration such as populated states, such as Florida and California, it usually takes about 6 months and then sale starts to ramp up. So it's the same basic period of time before you start to convert customers that previously maybe haven't used CERAMENT. The final question you had, Franc, was on the clinical study, CERTiFy. We are meeting the principal investigators at the end of next week, and after that, we will see what kind of top line results that we can release. That will be most likely done in December. And immediately, when we have released such material, it can be used by the salespeople in the material. And the full picture, though, will be given in late quarter 1 when we publish the entire dataset.

[Operator]

Our next question comes from the line of Jonas Peciulis from Edison Investment Research.

[Jonas Peciulis, Analyst]

So to follow up -- a follow-up question on performance in Europe, I think you mentioned there is some potential seasonality effect. But looking from historical perspective, the rebound -- year-on-year rebound seems quite substantial, even though, you mentioned that there's potential for even higher growth rate. But my question I guess would be, would you attribute this rebound in Q3 year-on-year to the changes you're implementing in the commercial organization in Europe? Or those changes actually could have an effect in the future -- additional effect in the future.

[Emil Billbäck, Chief Executive Officer]

Yes. It's a good question. Thank you, Jonas. We have recruited quite a few salespeople since we announced we will start the program, but those effects are not really visible in quarter 3 yet. So what we see in quarter 3 is rather somewhat short-term gains from a much more intense market activity that we have. So we have had several activities around Europe that have won a couple of new accounts, and that's the result you see in quarter 3. The effect of the new sales reps is more anticipated to the beginning of 2019 as it has a slightly longer lead time before you see that effect kick in.

[Jonas Peciulis, Analyst]

Okay. Great, that's clear. Second question on the portfolio expansion. So you mentioned that the new addition from Collagen Matrix and MTF partnership should basically come as soon as first half next year. I mean when that is approaching is obviously the question of the commercial potential of these new products will be, sort of, in the spot line. So probably it's still early for you to guide on the -- actually, commercial potential, but then from high level perspective, your goal is -- is your goal to offer to physicians, surgeons to -- basically, the one-stop shop product offering? Or you actually, sort of, want to have [indiscernible] this to your sales, just [ so you know ] use.

[Emil Billbäck, Chief Executive Officer]

No. You're absolutely correct when you'd mentioned the one-stop shop. There are certain indications where the surgeon have many considerations to do on the trauma, for example, or on the wound and the bone void. And in such case, many different products are used, and we want to make sure that we can partner with a surgeon and offer him a package or a solution kit that fits the specific indication he's treating. So it's way too early to say what will be the effect of these new products, but I can assure you that these products will have sales by themselves, but they will also facilitate the sales of CERAMENT in the U.S. So it's a synergistic package.

[Operator]

Our next question comes from the line of Sten Gustafsson from ABG.

[Sten Gustafsson, Analyst]

A few follow-up questions here on the U.S. First of all, have you identified all the old users at the various hospitals? And have you been able to reconnect with those orthopedic surgeons? And that's my first question. The second one would be, if you expect the 25 distributors to sort of build up their own inventory now in Q4? Or will you report end-user sales? Only if you could clarify that, that would be very helpful. And then my last question is on your targets. Do you think you will be able to reach the 40% sales growth CAGR on the existing products? Or do you need the new product that is just mentioned here from Collagen Matrix and MTF to contribute to that growth target?

[Emil Billbäck, Chief Executive Officer]

Okay. Yes, thank you very much, Sten, I will answer your questions in the same order you addressed them. So in the U.S., it's difficult for me to go into the exact details what has happened now over the last couple of weeks, especially since this is the quarter 3 reporting. But I really appreciate that all of you have a great appetite to understand what's going on in the U.S. The regional managers we have, have worked side by side with Zimmer Biomet for a couple of years, and they are very well aware of the key users. There might be users also that we haven't visited on a regular basis. But we have, for 2 years in the U.S., had a CRM system in place, a customer relationship management system in place, where all the -- we register our customers like any med-tech company would do. So we have a very good understanding of those. And the distributors that we have signed up, they are very well-connected. And within their region and within their state, they are, even before we signed them up, they're very well aware of which surgeons are heavy prescribers and heavy users of CERAMENT. Every distributor had to provide us with a marketing sales plan and we had to -- we approve the plan before we sign the contract. So we have made a handshake in agreement on exactly what has to happen with which surgeon. That's probably as much as I can say on that topic. The 25 distributors will not build any inventory themselves. We are working with Millstone, which has distribution hubs across all of the U.S., and we will register sales when a surgeon orders a product or use the produced. We will register end-user sales and you can see the distributors as promoters, but they will not build any inventory by themselves. And the final question was regarding our target with the guidance that we have given to grow with 40% after 2019. And the 40% is a combination of the CERAMENT product and as well as the new products we will launch. We don't share. That's still it. But of course, a clear majority of the focus and the clear majority of the growth will come from CERAMENT and, specifically, the antibiotic-eluting products. I think you should see the new products more as complementing a solution kit almost as service articles. We are very committed also to make a success with these products, but CERAMENT is our core asset and that's the product that we're pushing.

[Operator]

Our next question comes from the line of Niklas Elmhammer from Jarl Securities.

[Niklas Elmhammer, Senior Analyst]

Most of my questions have been answered, I guess. I will just come back to the new product launches, the collaboration with MTF and Collagen Matrix. The [ amount to ] is to establish leading clinical evidence. So do you have the sufficient clinical evidence to support these launches? Or is it something you need to work on? Also, if possible, if you could provide us some maybe idea of position in terms of pricing of these new products?

[Emil Billbäck, Chief Executive Officer]

Sure, Niklas. The product that we are bringing from MTF and Collagen has been done, because the surgeons many times has a certain preference for which products he wants to use. So these products are not new within their category. So for MTF, the product is a demineralized bone matrix. This segment of DBM has an annual sales in total in the U.S. of about $150 million to $170 million per year. So the surgeons will be very well familiar with the technology and the category. What we add is when our distributor reps is in the operating theater, they will have a full portfolio. They will have a full bag and they can service and help the surgeon in all the different steps of the procedure, and that's how it adds value. But we don't have to do any clinical studies or there's no further evidence that has to be generated, specifically for these concepts. The products that we are sourcing and that we will launch in the beginning of -- for the first 6 months of 2019 will be sold at a premium price. CERAMENT is a premium product and our solutions are labeled as premium. We offer service and an augmented products well beyond only the technology and that's why we are charging a premium for all our services and all our products. Nevertheless, the gross profit or the margin for the new product will be, of course, slightly less than what we have on our CERAMENT product.

[Operator]

Our next question comes from the line of Lala Gregorek from Trinity Delta.

[Lala Victoria Gregorek, Research Analyst]

I have a couple of questions for you, which are basically clarifications if they haven't already been discussed. Firstly, on the European gross margin, am I correct in assuming that the current level is something that you believe to be sustainable? Secondly, looking at data reimbursement, et cetera, a note that the French osteomyelitis trial is not now going ahead. That was something that I was aware was connected to reimbursement. So I was wondering what your strategy now is in -- in that territory. And then lastly, coming up for very exciting times would be imminent publication of CERTiFy data before the end of the year. With respect to the fuller dataset, is that something that you'd be looking to publish in a journal or present at a conference? What are your plans for releasing the more complete dataset there? And you've mentioned previously how that will feed into, I guess, the training and sales side of things. You also mentioned a number of KOL publications that would be coming through as case studies over the coming months.

[Emil Billbäck, Chief Executive Officer]

Yes, thank you very much, Lala. I think, Björn, if you address the gross profit, then I will cover the French study and the CERTiFy.

[Björn Westberg, Chief Financial Officer]

Yes, Lala. So we believe this cost model in Europe is sustainable, so -- and as you see that we have a very high growth rate of the drug-eluting products. And I think that, of course, is a major contributor to today's cost model. So the answer is yes. Emil?

[Emil Billbäck, Chief Executive Officer]

So when it comes to the French osteomyelitis study, when we started the strategic review in March, April of this year, there were a lot of considerations that we took into the picture and we fine-tuned and revised our strategy. And eventually, we've come to the decision that when it comes to chronic osteomyelitis, we have an industry-leading dataset. And when we look at the French study, we felt that it was actually a bit repetitive to what we already had proven. In addition to that, the specific regulations and demands from the French authorities made this study, I would say, overwhelmingly big. And we decided that it doesn't any longer fulfill our logic of return on investment, why we decided to stop that specific study. And we have other data both currently available as well as on the way, where we feel we can more or less leverage the same kind of argumentation. So we will bring that forward instead to the French authorities in due time and apply for such reimbursement. The CERTiFy study is really the first of its kind. So we will be very selective to find a high-quality journal, medical and scientific journal, that would be willing to publish these results. And once we have them, of course, this will be a major thing for us that we will hold several local, regional and national meetings to spread what we hope to be positive results, but we can already share some of the results before the end of this year and it will be immediately carried by some of the salespeople as well to potential customers. And there's a lot of decision that is waiting for the results of CERTiFy, because they have been aware that this study has been going on for quite a while and it's completely unique in its kind.

[Operator]

[Operator Instructions] As there are no questions registered at this time, I hand the call back to you, speakers. Please go ahead.

[Emil Billbäck, Chief Executive Officer]

So I would like to thank, everyone, for taking the time this morning to listen to our presentation of the quarter 3 results. As we mentioned, we made significant strategic inroads. We registered strong sales in Europe & Rest of the World, and we are excited about the journey to come. So thank you, everyone, for today, and goodbye.

[Björn Westberg, Chief Financial Officer]

Thank you, goodbye.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.