Dear Shareholders,

Just as anticipated, and communicated in the last interim report, 2022 started slow due to COVID-19 restrictions, primarily driven by the outbreak of the Omicron variant in late 2021. However, we were expecting an improvement in the operating environment during the latter part of the quarter. We can confirm that this happened as of mid-March 2022, and we ended the quarter with a new record of customers during a quarter. 41 surgeons ordered Episealer® implants during quarter, an increase of 25% from the previous record, and a 64% increase from Q4 2021. Naturally, and as expected, individual volumes were relatively low in Q1, however, we are now starting to see a proper increase in our customer base, and as volumes continue to normalise, the commercial growth will come. It’s not yet fully visible in our numbers, but we believe we are taking all the right steps with respect to commercialisation, clinical development, and product development.

  1. Commercialisation

As mentioned above, the single most important development is the increase in business activity during the latter part of the quarter. We are always focusing on driving revenues through the combined effects of an expanded customer base, increased volumes with each customer, and improved pricing. I think we are seeing positive development in all aspects now.

In the last report, I referred to our first interactions with customers in India. I can now confirm that the first physical meetings with Indian surgeons have been held, and the first Indian patients are under review for an Episealer® implant. Getting started with commercial activities in India would be a tremendous milestone for Episurf, and something that we have been looking forward to for quite some time.

We recently took a strategic decision to enter into a distribution agreement with Ideal Med in the UK. We are significantly expanding our commercial efforts through Ideal Med’s sales force. Ideal Med already has patient-specific knee replacements in its portfolio (total and partial knee replacements), so the Episealer® knee products complement its product portfolio very well. We are continuing to have a positive view of the reimbursement process in the UK market. The process is progressing; however, we must wait a little bit longer for a final decision.

Our commercial activities in Hong Kong have really suffered during the pandemic, but on a positive note, the Episealer® implants received national regulatory approval during the quarter. This means that post-pandemic commercial activities will be much easier to execute. During the quarter, we also secured reimbursement for Episealer® Talus in Belgium. Further, we have had our first serious look at the markets in Latin America during Q1 2021. We are currently reviewing the strategy for the region, as we have identified several interesting opportunities.

All in all, the updated commercial strategy is continuing to bear fruit. Main focus currently is to fully move Episurf into the commercial phase, and we must ensure solid progress every day.

  1. Clinical development

In March, Mr Paul Jermin (Robert Jones & Agnes Hunt Orthopaedic Hospital NHS Foundation Trust, Oswestry, United Kingdom) held a presentation on the Episealer® knee implants, focusing on clinical results and surgical technology, at the UK Biological Knee Society’s Annual Meeting 2022. Just as the quarter had closed, we announced that a clinical study on Episealer® Talus had been initiated at the Royal National Orthopaedic Hospital NHS Trust, Stanmore, UK. We can also confirm that the first UK patients in the EPIC knee trial were recruited during the quarter. Combining this with the recent distributor arrangement and the progress on the reimbursement process, we believe we are now moving forward in the UK at a reasonable rate.

The most important scientific congress this spring is without a doubt the ESSKA congress, held every second year. On the first day of the event, there will be a presentation on the Episealer® by Prof. Niek van Dijk and Prof. Peter Verdonk. Having two global key opinion leaders presenting our knee and talus technologies at this very important meeting is nothing but a success.

Regarding the EPIC knee trial, we are, of course, not satisfied with the recruitment activity. I can promise every one of our shareholders that our team is fully committed, engaged, and incentivised to get this started properly. We are continuously reviewing and executing various initiatives, and believe we will succeed with this trial, although patient recruitment to date is a disappointment.

  1. Product development

We recently announced that we completed a new 510(k) submission for the Episealer® Patellofemoral System. Following the first submission, we had discussions with the FDA on various aspects of our application filed at the turn of the year. The conclusion was that a new submission was the best way forward. This was done, and we have already received the information that our application now moves on to the next step (Substantive review). The Episealer® MTP-project is ongoing. As stated, we will communicate a firm timetable during 2022, and to date, we have no reason to change our ambition of submitting a 510(k) application in the interval Q4 2022 – Q2 2023.

Both of the above-mentioned projects have gone through an intense during Q1, and the related costs during the quarter amounted to SEK 3.0m.

  1. Concluding remarks

All in all, I was quite disappointed late 2021 and early 2022, as it felt like pandemic-related restrictions once again would impact our business in a negative way. However, improvements were identified late March and during April, and it will be interesting to see whether we can confirm this trend in the coming weeks and months. The normalisation of business volumes, combined with the positive receipt from new and existing customers following the pandemic, confirms my view that the Episealer® technology is here to stay. We continue to operate with an ambitious global agenda, supported by excellent clinical results, targeting an unmet clinical need of significant size. In our world, that is a formula for progress and success.

You might have seen that our focus on Australia has increased, and I would like to conclude with a few words from one of the first surgeons in Australia who the Episealer® knee technology was presented for. His response was simply that “this is the biggest unmet need in orthopaedics right now”. Episurf Medical has the solution to that problem.

A final word – Episurf does not have any commercial exposure to either Ukraine or Russia. However, the development is of course a human disaster, and our thoughts are with the population of Ukraine. We hope that Russia does the only right thing, and immediately ends this war.

Stockholm, April 2022


Pål Ryfors, CEO