Dear Shareholders,

It is exciting times at Episurf Medical. For several years, Episurf has been a pioneer in our orthopaedic niche, and we believe we are well positioned to take the next step and become a leader. There isn’t much disagreement in the industry about the fact a new standard is needed for the treatment of focal cartilage and bone lesions in the knee. However, it has not yet been clear which treatment alternative will become that standard. Several recent scientific publications have discussed the treatment gap, the challenges in treating this patient group, and various treatment alternatives. We are very pleased that the Episealer® has been highlighted as a promising technology for the future given the early clinical success and low revision rate. The Episealer® implant represents a new alternative for the treatment of a patient group that previously has been difficult to treat, and it is very encouraging that this is generating more and more scientific interest.


More and more surgeons include the Episealer® in their treatment algorithm in Europe, and the 500th surgery was planned during the first quarter. This was a significant milestone for us. Orthopaedic surgeons, authorities and other industry participants all want to see long term data in larger patient populations. We can confidently say that we have reached a critical mass in the number of patients treated, meaning that we expect the confidence in the Episealer® to benefit from a rapidly increasing supply of reported clinical data available. Eleven patients have now had their implant for more than five years, and four patients have had the implant for more than six years. The clinical results continue to look good, and we look forward to seeing the reliable clinical results demonstrated in larger patient populations.


During the quarter, we also concentrated on our important work in the US. Following the approval from the FDA in December 2018 to initiate a clinical trial in the US, we are now focusing on the necessary administrative steps before patients can be enrolled. We recently received Institutional Review Board approval which allows us to enroll patients at all US investigational sites, and we have recruited a terrific group of surgeons. Clinical trial agreements are currently being negotiated, and we look forward to communicating more shortly.


On our important ankle implant project, we are still awaiting CE-approval. In the meantime, we continued to strengthen our IP protection for the Talus implant and surgical tools. We already have IP protection for the Episealer® Talus technology; however, ankle surgery comes with specific challenges, and we strengthened the IP protection by a new important US patent on our surgical guide for ankle surgery. Further, we recently announced that Prof. Niek van Dijk joined the Episurf Clinical Advisory Board. I wholeheartedly agree with our founder Prof. Leif Ryd that we could not have hoped for a more skilled surgeon to join our team. Prof. van Dijk is one of the most eminent figures in ankle surgery globally, and we are thrilled that he has decided to work closely with Episurf Medical on our unique Talus implant.


Looking at our financial statements, we are increasing our revenues simultaneously as we are lowering our staff costs and other expenses, despite the fact that our investments in the US clinical trial are increasing. In the quarter, we took a one-time non-cash charge of SEK 0.7m related to the cancellation of a financing agreement with L1 Capital. We are educating surgeons across Europe on the Episealer® technology, and we are investing in this process. In June, we are arranging yet another Masterclass which has been fully booked with 45 European surgeons coming to Stockholm learning about the Episealer®. There is an intense activity when it comes to clinical studies as you will see from the summary at the end of this statement. All the above represents the kind of investments that we must undertake at this point, and I am happy that we are improving on revenues and expenses while doing this.


In the last months, there have been some important developments for Episurf Medical. In late 2018, our then-largest shareholder Serendipity Ixora announced that they were planning to wind up their operations, and in this process, distribute their holding in Episurf Medical to the fund holders. Around the same time, we also announced that Niles Noblitt, the founder and previous Chairman of global market leader Biomet (now Zimmer Biomet) had invested in Episurf Medical. A few days ago, the Board of Episurf announced that it intended to execute a rights issue, targeting SEK 98,3 million. In summary: the Serendipity shares have now been distributed to the fund holders which has increased our shareholder base; we have gained a large US investor with unparalleled industry experience; and we are taking the steps needed to raise capital for the next important steps in the Episurf journey. We are determined to reach our goal of establishing the Episealer® technology as a new standard with the orthopaedic industry, and I believe we are taking all the rights steps. I hope you want to continue to support us for this journey, but first, I wish you a happy Easter.

Stockholm, April 2019


Pål Ryfors, CEO


Summary of clinical studies of the Episealer® technology