Dear Shareholders,

In 2018, Episurf has enjoyed positive trends in almost every aspect of its operations, and in several of our regions we can say with confidence that we have established commercial businesses. By the fourth quarter of 2018, Episealer® implant orders were arriving at a rate of one per working day, and show every sign of continuing to accelerate.

» The order book amounted to SEK 1.5 million during the fourth quarter 2018, representing an increase of 64% compared to the fourth quarter of 2017.
» The development is driven by the German market where the growth in the fourth quarter 2018 amounts to about 187% compared to the fourth quarter of 2017.

Despite the positive development above, our growing order book still only scratches the surface of the potential for Episurf’s products.


We are following our strategy, and we are taking the necessary steps

Successfully growing a new product category in the medical technology industry means keeping many balls in the air at the same time. We must of course continue to reach out to the market to expand the reach of our products to a growing list of customers. To support these efforts, we need to perform directly or sponsor clinical studies, whose results are essential to enter and grow in key markets. We also must continue to improve our products and processes to successfully scale for growth and prepare to meet future opportunities and challenges. As well, we devote resources to preparing to seek entry to the major markets of North America and Asia. But we are encouraged by continual improvements in our business environment, and the excellent clinical results and growing acceptance of our products.

Orthopaedic surgeons are naturally conservative, and different customers will adopt new technologies at a different pace, but they all seem to agree that Episurf Medical’s targeted patient group lacks adequate treatment alternatives. It is our view that given the performance of the Episealer® implant, our technology can bridge this treatment gap.


“By the fourth quarter of 2018, Episealer implant orders were arriving at a rate of one per working day, and show every sign of continuing to accelerate.”


The proof of concept
Although it is still early in our journey, we have reached our goal of becoming a standardised part of the treatment algorithm with certain customers. We are generating revenues, and orthopaedic surgeons are repeatedly ordering Episealer® implants. There are peer-reviewed results available and our groups of patients who have gone longer than 2, 3 and 4 years since surgery have now grown to 162, 71 and 23 respectively. We believe that the strong results we have seen will be repeated in larger clinical trials and that the performance of the Episealer® will continue to show good results over many years for these patients. At this point, we see no obstacle to continuing to grow thebusiness to a much larger scale in all important markets. We are closely monitoring the revenue per customer and the figures are highly encouraging.


The success factor
Most importantly, our success depends on demonstrating the strength and performance of the Episealer® technology in published peer-reviewed clinical studies.
» The Episealer® technology is now involved in several clinical trials. In 2019, we expect results from the large European multicenter study that is ongoing, involving 100 patients and 11 surgeons in 7 European countries.

» It was recently announced that an investigator-initiated clinical study was started at the Julius Wolff Institute at the Charité University Hospital in Berlin. The study will follow up patients who have undergone an Episealer® procedure during 2015-2017. This study is particularly interesting for two reasons: first, because this is the first comparative study of the Episealer®, and, second, because we expect to see results already in 2019.

» There are also other clinical studies ongoing in Sweden and in Belgium.

The establishment of a larger clinical pipeline and the future flow of results from these studies are critical success factors for growth. When summarizing the clinical studies that are ongoing, or are about to start in the near future, it adds up to about 350 patients involved in various clinical studies of the Episealer® technology. In our opinion, this is a very strong figure.


The last piece of the puzzle

While the clinical activities in Europe have increased, the largest anticipated clinical study is the one planned for the US. At the end of 2018, the US FDA (Food and Drug Administration) approved our application to initiate a clinical trial in the US for the Episealer® knee implant. This was a significant milestone for us, the culmination of a three-year effort. The results from the study will later form the basis for our PMA application for market approval in the US. The so-called IDE (Investigational Device Exemption) study is designed as a prospective, multicentre, randomized and controlled trial. The study will be conducted both at US and European clinical centres. It is aimed to show non-inferiority in clinical status improvement at 24 months as compared to microfracture, the surgical standard of care technology. Further, the study aims to show superiority in return to weight-bearing compared to microfracture. 180 total subjects will be randomized at a 2:1 ratio to either the Episealer® group or the control group.

We are enthusiastic about this study, which is to be referred to as the EPIC Knee study. Site recruitment is currently ongoing, and the first enrolment can be performed once ethical approvals are granted by the hospitals. We are expecting the first surgery to take place during Q2. Combined with the comprehensive ongoing clinical activities, this large, comparative, prospective multicentre study feels like the last piece of the puzzle.


“The establishment of a larger clinical pipeline and the future flow of results from these studies are critical success factors for growth.”


Next steps
In the coming year, we will seek to drive new orders and continued growth by engaging with our customers with compelling clinical evidence as it emerges. To date, we have needed to rely on anecdotal evidence and one small clinical study with 10 patients. Understandably, the market has been asking for more evidence, and we will finally be able to respond to this demand. We continue to consider new applications for our core technologies, and, are disappointed that CE-approval has not yet been granted for our ankle implant; we hope to be able to update investors and the market on this project in the near future.We will continue to prepare for the US market, carrying on with our clinical trial in the US, but also assessing partnering opportunities that could speed our entry into that crucial market.

We are continuing to benefit from efficiencies in our European business, while we are increasing investments in our US project. Since early 2017, we have decreased the staff size approximately 20%, and we will continue to ensure that we run the business as efficiently as possible.


The strong shareholders

During the fourth quarter, we were happy to announce that we had executed a directed share issue to Mr Niles Noblitt, making him one of our largest shareholders. Mr Noblitt is one of the founders of Biomet (now a part of orthopaedic global market leader Zimmer Biomet), and we are very pleased that he has accepted an appointment as Senior Advisor to Episurf.

In the directed issue, previous shareholder Rhenman Partners, together with several other investors, chose to increase their ownership share. In addition to Rhenman Partners and Niles Noblitt, we are pleased to have as shareholders such renowned institutional investors as Öhman Fonder, AMF, LMK and Stena Sessan. We also have significant ownership by the founder and management of Episurf Medical, as well as about 3,500 retail investors. We are very proud of our large and high quality shareholder base, and are grateful that they share our confidence in the future of the company.

Our recent directed share issue was executed at about the same time as it was communicated that our largest historical shareholder, Serendipity Ixora, had decided to wind up its operations and distribute its holdings to its own shareholders. This distribution will take place during 2019, and we will communicate more once we know more about the specific timetable of this process. We want to thank Serendipity for their support for almost 10 years. Serendipity was the first investor in Episurf Medical, and they have been instrumental in helping the company to its current position with a commercialised technology in Europe and an FDA approved clinical strategy towards an FDA approval. We look forward to welcoming the shareholders of Serendipity Ixora as new direct shareholders of Episurf Medical.


Stockholm, February 2019


Pål Ryfors, CEO