Q4 earnings were below our forecast, but there were clear positives in the
report including a growing customer base and the first distribution agreement
in the US (for the recently cleared patellofemoral implant system). We have
made only minor forecast changes and reiterate our fair value of SEK3.3-9.3.

Q4 earnings softer than expected. Q4 revenues were SEK2m (c35% below our
estimate of cSEK3.1m) and EBIT was cSEK-23.6m (c19% below our forecast of cSEK
-19.8m). Higher than expected operating costs related largely to the intense
work related to the 510(k) process for the patellofemoral implant system. The
end-Q4 cash position was cSEK155m, marginally below our cSEK157m forecast.

Customer base grew c72% YOY in Q4 and c52% in 2022. This is good as
orthopaedic surgeons typically like to test a product before they decide
whether to use it more routinely, so a higher number of surgeons who have
tested one or more of its products is important.

First distribution agreement signed in US for patellofemoral system. The
company received its 510(k) clearance late last year and has now signed its
first distributor agreement in the US (local distributor in the Minnesota
area). We believe more such agreements will be signed as the marketing
strategy is to use freestanding distributor organisations rather than building
a proprietary organisation. In our forecasts we have assumed the company will
pay a c30% distribution margin to its US distributors.

We expect focus on commercialisation in 2023 onwards. With the company's
portfolio of personalised implants approved in many markets, we expect
increased focus on commercialisation in the coming years. It has already
partly restructured its European organisation and should continue to build a
US distribution network for the patellofemoral implant. Also, it reiterated
that the 510(k) application for the MTP implant (for the big toe) should be
filed this year and - if things go as planned - be launched in the US in 2024.

Recruitment for EPIC knee trial still a challenge. Recruitment to the PMA
trial for US approval of Episealer knee implant system still faces recruitment
challenges. The company is trying to speed up recruitment and now plans to
file for PMA approval in 2026. Hence, we include first revenues from the
Episealer system in the US in late 2027e.

SEK3.3-9.3 fair value reiterated. We believe the growing customer base is
promising and the company should sign more distribution agreements for the
patellofemoral system in the US and hence focus on commercialising its
products.
Patrik Ling | DNB Markets | Equity Research | Senior Analyst Healthcare
DNB Bank ASA
Regeringsgatan 59 | Stockholm | Sweden
E-mail: patrik.ling@dnb.se| www.dnb.no
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