Dear Shareholders,

During the first quarter, our transition towards a higher degree of distributor sales continued. Of course, this change has affected our sales negatively in the short term, but it is the right step to take to reach out on a broader scale and create the conditions for growth globally. We have aimed for a significantly lower cost base, and our personnel costs amounted to SEK 8.5m (11.8) during the first quarter, which is SEK 3.3m lower than the corresponding period last year. Adjusted for accounting technical effects from share-related programs, personnel costs amount to SEK 8.1m, which on a comparable basis is SEK 3.8m better than the previous year. Furthermore, we have a not inconsiderable share of regulatory costs, which we estimate will decrease significantly after 2024. Despite undergoing this transition, growth continues, and we are now positioning ourselves for continued growth through a distributor-focused organization. We ended the first quarter with a gross order intake growth rate of 41% on a rolling 12-month basis, and we continue to grow our customer base and improve our pricing, although the big lift we’re aiming for is still ahead of us. We are expecting a continued cost reduction and a continued revenue increase.

Recently, we reached our potentially largest commercial milestone to date when we entered into a distribution agreement for the Episealer® Patellofemoral System with Performance Orthopaedics of the Carolinas, Inc., an exclusive distributor for DePuy Synthes Reconstruction products for North Carolina and South Carolina. DePuy Synthes is the orthopaedics company of the Johnson & Johnson group, a global orthopaedic market leader and a company we admire, naturally. The company has a reported market share of 15% within the global Knee reconstruction market, and independent distributors account for a significant share of DePuy Synthes’ US sales force. We have been in touch with Depuy Synthes at various levels for several years, and it has been clear that we must establish ourselves within their distributor organization. We believe this is of great importance to us as it is our first agreement of this kind, and our understanding is that distributors within Depuy Synthes rarely bring in external products in their assortment. This agreement shall be seen as a start, and I am pleased to have attracted this type of distributor less than six months after the first US surgeries. The agreement covers regions with a population of approximately 16 million people. We aim to expand our distributor network in the US with additional distributors from the Depuy Synthes organization, and I can confirm that we have ongoing discussions with several parties.

In the US, much time was spent during the quarter following up on the first surgeries and evaluating the first efforts among our distributors. It is very pleasing that several patients have already returned for an Episealer® treatment on their other knee. Limited cartilage and bone lesions, which we focus on in our markets outside the US, are often found in a knee. In developed osteoarthritis, it is significantly more common for the patient to have similar problems in both the left and right knee. This creates opportunities for us. In the latter part of the quarter and the beginning of Q2, we have seen more new customers ordering implants, and we continue our dedicated work in the US.

During the first quarter, the evaluation of Episealer® Knee continued in one of Germany’s and also Europe’s largest hospital chains. After a 2-year follow-up within the group with very good results, an expert group decided to expand the evaluation of Episealer® Knee evaluation to include more clinics. This is a crucial step in obtaining full approval within this hospital group, which would be a significant milestone for us. We do not have complete insight into what process we can expect or the timetable for this, but it is clear that there is a great interest in our technology and we aim to reach to full approval.

Our regulatory process for our big toe implant (Episealer® MTP System) has continued in full force during the start of the year. We learned a lot during our recent successful 510(k) process (Episealer® Patellofemoral System), and are now working hard to achieve our goal of reaching 510(k) clearance with subsequent market launch in the US in 2024. We look forward to updating our investors on this process going forward.

At the start of the second quarter, we announced a partially secured rights issue of up to SEK 120m, with warrants that can provide up to an additional SEK 48m. Conditional upon the rights issue being successfully completed, we will also adopt a financial target to reach annual sales of SEK 150-200 million in the medium term, at which point we expect to become cash flow positive. This transaction is an important step as we are continuing the execution of our global strategy with full force.

Stockholm, April 2024


Pål Ryfors, CEO