Q4 sales in line with our forecast but earnings lower. Sales were SEK3.2m (we forecast SEK3.3m) but operating expenses were higher, driven by 'Other external costs'. As a result, the operating loss of SEK24m was larger than our SEK16.7m estimate.

Sales growth ramping up. Episurf's number of users has increased steadily in recent quarters, and despite the increase coming from a relatively low base, we believe this is a good sign of the future uptake of the implant systems.

Customer base continues to grow, up by 26% YOY for Q4 and c37% YOY for 2023. The company had c134 active customers that purchased implants during the year. We find the largest short-term potential to be in the US, as the OUS customer base still represents c93% of its customers. The patellofemoral system approved in the US seems to be gaining traction, where clients are already performing one implant per week.

Continued expansion in US market. In addition to the patellofemoral implant system approved in the US, the company filed a 510(k) application for its second product in October - the MTP implant. The 510(k) process takes at least 90 days, but the final approval time depends on questions from the FDA. Hence, we expect the company to secure the clearance for the MTP product in H2 2024.

Cash should last until end-2024; we believe Episurf will need to raise additional capital this year. Our valuation includes a capital raise of SEK200m (and the corresponding new number of shares).

Fair value of SEK1.5-4.5 reiterated. We have marginally revised our short-term forecasts and reiterate our fair value, which factors in the potential dilution from a SEK200m capital raise.

Patrik Ling | DNB Markets | Equity Research Sweden
Email: patrik.ling@dnb.se