OssDsign – USA bone regeneration pureplay

Introduction

Neck and spine problems will be on the rise in the future. We stare down into our smartphones all day and spend too many hours sitting (with bad posture) in front of our computers (old post for more on this link). OssDsign has a very interesting product, in a small but important niche of this market. The product has high gross margins and is used in spinal fusions.

In short:

Market Cap: 630 MSEK / US$60m

Explosive Growth: Newly launched bone graft product (My estimate 100 MSEK run-rate in sales)

High margin: Gross margins should be 80%+

Large total market: Total market estimated above 1.25bn USD for USA only.

In this same spine space, I have taken a position in Zimmer Biomet spinoff ZimVie, which is targeting the newer technology of disc replacement. OssDsign is trying to bring innovation to the old and current gold standard of care, spinal fusion. OssDsign believe so much in their newly launched product that they are willing to close their previous main business line and fully focus on the new. At the same time, in a poor market environment for micro caps, the company managed to raise a substantial amount of cash from investors. Even more impressive was that this direct share issue was done around the current share price, so dilution happened at quite “fair” levels for existing investors. The product has 80-90% gross margins and has potential to be used in a large number of surgeries. All-in-all this is a high risk, high reward case where the odds of bringing this product to market is much higher than for Pharmaceutical products as there is no need for Phase 1/2/3 studies to launch the product.

Spinal fusion

Spinal fusion patients are usually in tremendous pain and have often suffered for many years before a surgery is decided as the last option. Fortunately like many medical procedures, spinal fusions success rates have increased tremendously over the past 30-40 years and evolved from one of few bad options to the gold standard of care. Due to poor results of this procedure in the (far) past, it still has a quite bad reputation. The Spinal fusion procedure can simplisticly be explained as to remove the disc between two bone segments and then trigger the two bone segments to grow together (fuse) into one solid segment. Except the surgeons expertise in performing the steps of surgery, the most crucial component for the success of a fusion is to get as high confidence as possible that the full fusion will happen. Although outcomes have improved a lot over the years, that the fusions does not happen or partially happens, is still the weakest link of this surgery.

This is what OssDsign is trying to solve with their Catalyst bone graft material, where the idea is that the graft fills the void of the disc and triggers bone growth. The product sells at an ASP of about 2500 USD and depending on surgery different volumes of the product is needed. Together with two main competitors OssDsign have a bit of a first mover advantage here in a new generation of products coming to market increasing the interest from doctors to move to a synthetic solution instead of the other options available to them.

Although hard to exactly estimate, around 500 000 spinal fusion surgeries (lumbar and cervical) are done each year in the US. So with some quick math’s of 2500 USD of OssDsign product per surgery the market size OssDsign is competing for is about 1.25bn USD. With an aging, obese population the number of surgeries just keeps growing. Given the rapid increase of spinal fusions, a both efficient and cost effective solution for creating stable fusions of the bone is highly desired by surgeons. As a small company out of Sweden, it might seem far fetched that they would win the US market. But together with 2 other players (where one is also a small company) they are the only ones seeing FDA approvals and all indications so far seems positive towards a chance to win a decent market share in this segment. The upside for OssDsign even at 5-10% market share is very substantial as this is a high margin product. Let’s try to dive deeper into this topic.

History

OssDsign listed in 2019 for 27.5 SEK per share and today it trades around 6 SEK per share, not a great outcome. What the company has done historically is unusually irrelevant though. The company you are purchasing as of today, is vastly different to what was listed in 2019. How come the company has changed it strategy so drastically and quickly? OssDsign listed as a 3d printed cranium implant company with a titanium-reinforced calcium phosphate plate. I don’t think the company necessarily done anything wrong in launching this product into the market, the problem, I believe, is that its just too niche. Yearly sales have roughly doubled since pre-IPO from some 20 to 40 MSEK. Although it could probably scale further, there is not enough patients in need of these type of cranium implants to really deliver shareholder value from this one product. In the hot “free money” era, OssDsign then decided to expand its produce range by an acquisition. OssDsign recently announced that they will abandon (in best case find a buyer) the cranium business and fully focus on their spinal fusion product Catalyst (which was the acquisition they made). Below is a timeline of the Catalyst product. Press read more..

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