ANNUAL REPORT 2009
Artimplant’s Mission
Artimplant’s mission is to restore the health of patients by offering medical professionals degradable implants that help the body to heal.
About Artimplant
Artimplant is a medical technology company that restores health through the development, production and marketing of degradable implants that regenerate body functions and improve quality of life.
Our products are made from Artelon®, a biomaterial developed by the Company. Artimplant produces implants for the treatment of osteoarthritis in hands and feet, shoulder and other soft tissue injuries as well as oral and veterinary applications. The Company’s products are sold through licensees and own sales under
the Artimplant brand take place through agents and distributors.
Artimplant is a public company listed on the NASDAQ OMX Stockholm Exchange in the Small Cap segment and in the Healthcare sector.
N.B. This is a translation from Swedish. The Swedish version shall always take precedence.
Artimplant’s Mission 2
About Artimplant 2
2009 in Brief 3
When more than a needle and thread are needed 3
Statement by the CEO 4
The Medical Benefit of Artelon® Products 6
Business Overview 8
Five-Year Overview 10
Key Ratios 11
Board of Directors’ Report 12
Consolidated Statements of Comprehensive Income 17 Consolidated Allocation of Net Sales 17 Consolidated Statements of Financial Position 18
Consolidated Changes in Equity 19
Consolidated Statements of Cash Flows 20
Parent Company Income Statements 21
Allocation of Parent Company Net Sales 21
Parent Company Balance Sheets 22
Parent Company Changes in Equity 23
Parent Company Cash Flow Statements 24
Notes 25
Stock and Ownership 34
Auditors’ Report 35
Corporate Governance Report 36
Board of Directors 40
Senior Management 41
History 42
Annual Meeting of Stockholders 43
This Annual Report refers to the January-December 2009 financial year for the Artimplant Group and the Parent Company Artimplant AB (publ), registration number 556404-8394, with its registered office in Sweden, County of Västra Götaland, Municipality of Gothenburg.
• Net revenue doubled to SEK 24.0 million (12.1)*
• The net loss improved to SEK 18.6 million (22.6)
• Earnings per share improved to SEK -0.31 (-0.38)
• Product sales to end-customers and distributors multiplied to SEK 8.7 million (1.7) for the full year, equivalent to 37% (15) of product sales
• Sales of Artelon® Spacer improved to SEK 13.1 million (7.4)
• Sales of Artelon® Tissue Reinforcement rose to SEK 10.2 million (4.1)
• Goal to reach positive cash flow before changes in working capital, at a monthly basis, towards the end of 2010
• The Board proposes that no dividend be paid for 2009
• The first patients have been included in the clinical study for the treatment of osteoarthritis in the facet joints of the lumbar spine using an Artelon® implant
• The first dogs in a prospective study in the US underwent cruciate ligament reconstruction using Artelon® CCL
* Figures in brackets refer to the corresponding period last year.
2009 IN BRIEF
When more than a needle and thread are needed
Sportsmen and women often suffer from soft tissue injuries which are not given sufficient time to heal and with the risk of subsequent reruptures. A torn Achilles tendon can then be a major challenge to a surgeon.
Artimplant’s reinforcement product Artelon® Tissue Reinforcement functions in two ways. It reinforces and relieves the load on the delicate tissue and functions as a temporary scaffold into which the body’s cells grow and form new tissue.
The patient can commence rehabilitation to get back to the track, secure in the knowledge that the Achilles tendon has been reinforced in both the short term and long term.
This Annual Report refers to the January-December 2009 financial year for the Artimplant Group and the Parent Company Artimplant AB (publ), registration number 556404-8394, with its registered office in Sweden, County of Västra Götaland, Municipality of Gothenburg.
“
”Hans, last week I made a long-term follow-up of a rotator cuff surgery performed with your Artelon® patch on a 90-year old hypertensive diabetic lady. Before surgery she could hardly raise her arm, but now she waved in greeting from a distance. She also happily told me that she had done her hair the same morning.”
Dr Thomas Marberry, who works at Tulsa Bone &
Joint Associates in Tulsa, Oklahoma, describes how Artimplant’s reinforcement product Artelon® Tissue Reinforcement (ATR) has contributed to helping one of his patients. None of our earlier products have been as easy to use and no product has been used on such a broad front. It has the potential to improve the quality of life of hundreds of thousands of people in a large number of applications.
Precision and passion
Artimplant’s implant helps the body to heal itself.
Slowly but surely awareness and confidence in our unique solutions to medical problems is being built up among surgeons and patients. The products work for the customer, offering documented medical be- nefit. Our market strategy is based on own sales and sales via licensees. Bringing new product concepts to market requires both precision and passion.
Precision in the sense that you need to understand a new concept if the products are to be used on the right patient, using the correct surgical procedure and with correct post-operative treatment. Passion in the sense that the sales organization must be committed to selling the new treatment concept. The reward for us as a company comes when surgeons treat more and more patients, thus generating repeat purcha- ses.
Sales
In 2009, Artimplant doubled its net sales, primarily through own sales, which rose from SEK 1.7 million to SEK 8.7 million. In the USA this takes place via regional agents, who as a rule operate in their own state. The sales representatives are often present during the operation and assists the surgeon. During the year we replaced the sales management team in the USA and contracted several new agents. We also increased our market presence with a new distributor in Scandinavia and several new distributors in Europe. Our strategically important market establish- ment is beginning to result in an increase in sales, with better prerequisites for ensuring correct pro- cedures, broader use of the products and improved conditions for a more rapid launch of new products.
The theme for 2010 is to train and motivate our new sales organization, which is vital to future sales growth. It takes time to train new sales staff and it takes time to educate the market in new treatment concepts. In the future we can see a stable custo- mer base and increased acceptance of Artelon® for different orthopedic requirements and thus sales on totally new levels compared with at present. If we are to achieve our goal of a positive cash flow by the end of 2010, it will be vital that the rapid growth in Artimplant’s direct sales in the USA continues.
The agreement with Biomet Sports Medicine, which sells ATR under its own brand, was revised during the spring. Artimplant took over Biomet’s responsibility for post-market studies and in doing so acquired better control over the studies. Our experience shows that it is better that Artimplant deals with clinical
”I am convinced about the commercial potential embodied in our technology.”
documentation and establishes contact with referen- ce clinics than if this is done by the licensee. Running clinical studies requires focus and specialist know- how that can be difficult to generate in a large orga- nization that did not developed the product initially.
Biomet’s sales were stable during 2009. The larger the player is on the market the more crucial it is that the sales team has the support of published studies. We are therefore not planning any major growth at Biomet before positive ATR studies have been published.
Small Bone Innovations (SBi) is working continuously to ensure correct use of Artelon® CMC Spacer. Unfor- tunately, there are still repercussions on the market as a result of incorrect use during the initial post-launch period. This incorrect use harmed the reputation of the product, primarily on the US market. Negative pu- blished case reports reduced sales during the third and fourth quarter of 2009. Artimplant and SBi will work during 2010 to publish data from a long-term follow-up of successfully treated patients. In coope- ration with SBi, Artimplant is also developing a new Artelon® CMC Spacer which is based on the same textile design as ATR and which is expected to con- tribute to increased user-friendliness. The agreement with SBi was renegotiated at the beginning of the year, making it non-exclusive, and Artimplant’s margin has improved. Artimplant has continued to regard SBi as its preferred partner for Spacer sales in the USA.
Business development
The focus of the Company’s sales strategy is to build up a market presence and achieve a positive cash flow using existing products. Other product areas which Artimplant has begun to exploit offer conside- rable market potential. Product development opens up further opportunity to increase sales of both established products and completely new products.
We are focusing our development on our three pro- duct concepts where we have identified synergies and long clinical experience.
Within Resurfacing (formation of new joint surface) we are working on the second-generation Spacer for the hand as well as new products for the treatment of the facet joints of the lumbar spine and for knee joint osteoarthritis. Within Reinforcement (reinforcement of tissue) we are acquiring greater experience of soft tissue reconstruction in new areas, such as the knee joint and hip joint. In time this will present the oppor- tunity to broaden the range of indications for ATR that can be actively marketed. We will also document soft tissue reinforcement and cruciate ligament prosthe- ses for dogs. Within Replenishment (augmentation of tissue volume), a study is in progress to provide a basis for product approval for bone replenishment in the upper jaw. With limited means we are eva- luating new applications for the Company’s unique
Artelon® platform where a successful outcome within one area is sufficient to cover the investment made by Artimplant’s stockholders.
Basis for future growth
What do we have ahead of us? Let us make a brief summary. Artimplant was founded to develop a cruciate ligament prosthesis – the most demanding challenge to be found in orthopedics. The result was the biomaterial Artelon® but as yet no commercial prosthesis. The next challenge was to restore function in joints affected by osteoarthritis. More than 10,000 products sold is a major success although it is also an extremely difficult area. ATR was launched as a third product concept. Here we have a product that has proved to have all the prerequisites to be a win- ner. Further product concepts, such as the treatment of osteoarthritis in the facet joints, underscore our endeavor to become an orthopedic company working with joints and reinforcement of soft tissue. And after almost 15 years of development we feel that we are well on the way to becoming a profitable company with the potential to generate a yield for our stock- holders.
Introducing pioneering medical products is difficult and requires passion and precision. Our experience of licensees over the years has been mixed. We are working constantly to optimize business relationships at the same time that we are increasing our own presence on the market. Artimplant will continue to optimize the Company’s sales organization to increase sales and lay the foundation for the optimal launch of new products.
With a growing share of own sales, a focus on clinical documentation that contributes to supporting sales and a number of exciting development projects in the pipeline, I view Artimplant’s future with confidence.
I am convinced about the commercial potential embodied in our technology. The challenge is of course to generate the revenue to increase at a sufficiently rapid rate. I would like to thank all our employees and business partners who work extremely hard every day to bring our products to market and incorporate added value into our projects.
At the same time I would like to thank all our stock- holders who have contributed with financing.
Hans Rosén
STATEMENT BY THE CEO
The body has a unique capacity to heal al- though sometimes conditions must be created for the healing process to take place. Imagine an implant that provides support for healing tissue, forming a scaffold on which to grow, giving the newly formed tissue the opportunity to mature and become functional.
Reinforcement of tissue
When soft tissue parts, such as ligaments, are seriously injured or if the patient has poor tissue quality due to repeated ruptures, it is beneficial to reinforce the tissue. Ruptures in ligaments around the shoulder, the rotator cuff, are one of the most common causes of reduced movement of the arms, making it difficult to perform normal daily activities are such as putting a fork into your mouth, putting a plate into the cupboard, washing your hair or driving a car. In addition, there is often chronic pain and in- creased pain intensity when the shoulder is exposed to pressure, for example when you are asleep and turn over on to the painful shoulder.
There is a certain degree of scepticism among ortho- pedic surgeons to surgical repair of the rotator cuff in older people as the tissue is often delicate due to changes that come with age. The risk is that after undergoing surgery the patient quickly incurs a new injury to the rotator cuff. Artelon® Tissue Reinforcement offers an opportunity to reinforce the repair and at the same time facilitate new ingrowth of the body’s own tissue. An 81-year-old man from the Stockholm area was one of those who had the opportunity to test the benefit of surgery, using ATR as a reinforcement, to deal with a rupture of the rota- tor cuff. Following the operation he has no pain, he can sleep at night, he can wash his hair himself and he had no problems driving. He even managed to paint his summer cottage without any help which was totally unthinkable before the procedure.
When the cruciate ligament is torn it cannot be repaired. Artelon® has been used successfully for reconstruction of the cruciate ligament in dogs. The main benefit is that it is reproducible, minimally invasive and the anatomy of the joint can be retained, which is an advantage for the veterinary surgeon, the animal owner and the dog. The aim is to achieve immediate joint stability to bring about an early return to functionality without pain and limping and to preserve stability in order to minimize the develop- ment of osteoarthritis (wearing down of the joint surface). Artimplant has previously published sci- entific experience of this application from different animal models as well as extensive clinical studies that show that the material functions very well in the demanding knee joint application. Further studies on dogs are planned in the USA to build up a scientific base for use of the product.
Restoring the joint surface
Many people take for granted being able to perform normal daily activities such as holding a pen, open- ing a door, buttoning a shirt and walking normally.
These are activities where people with osteoarthri- tis experience problems every day due to pain and reduced strength and movement. The reason is that the surface of the joint, which comprises cartilage, is exposed to a considerable pressure and has been worn down, resulting in bone rubbing against bone.
The surgical treatment methods that have been avail- able to date for osteoarthritis in the thumb base and base of the big toe are arthrodesis or the removal of part or the whole of the bone, thus limiting movement and affecting the patient’s anatomy.
Artimplant has developed a portfolio of implants with patients suffering from osteoarthritis as the target group. During surgery, the damaged tissue is removed and replaced by an Artelon® implant into which the body’s own cells can grow and form functional, cushioning tissue. The anatomy is thus retained,
offering good conditions for regaining a functional joint with reduced pain and retained strength, stabil- ity and movement.
In day-to-day life we are highly dependent on our thumbs, particularly the thumb on the dominant hand. Wear and tear (osteoarthritis) in the thumb base joint generally causes pain even when just slight pressure is exerted on the thumb – when, for example, lifting something or when doing needle- work or turning a key in the door. As our day-to-day activities vary, the symptoms that present them- selves in conjunction with thumb base osteoarthritis also vary from one person to another. In a Swedish study of Artelon® CMC Spacer each patient stated before surgery which activities he/she wanted to do but which caused pain. During the follow-up period, three years post-surgery, each patient was given the opportunity to evaluate how he/she managed the specific activities that previously caused problems.
The results were very encouraging as it emerged that the pain in conjunction with the activities the person chose had decreased significantly or disappeared completely. Artelon® CMC Spacer was launched in 2005 and since then the product portfolio has been developed to include further joints in order to restore functionality and to relieve pain in the hand, wrist and foot.
Augmentation of tissue volume
It is painful to take tissue from the gum and some- times there is insufficient tissue to create the neces- sary volume. In oral surgery there is a need to recre- ate soft tissue to fill out the defects in the front upper jaw, both to recreate function and esthetics. Using Artelon® offers the opportunity to increase the
volume of tissue without having to resort to a connec- tive tissue transplant. This opens up the possibility of treating patients with defects in a gap for improved esthetics and functional design of a dental bridge. For patients with dental implants, the esthetics can be improved by increasing the soft tissue volume around the implant to prevent shadow formation above the implant crown. The surgical procedure is simpler to perform in the fact that no incision in the gum needs to be made. In doing so, the treatment period is short- ened and post-operative problems for the patient are reduced.
Artimplant is leading the way in the development of orthopedic implants that create the conditions neces- sary for the body to heal itself. The concept can be applied to a broad range of clinical needs, which have the potential to offer many patients significant advan- tages. All products are manufactured from Artelon®, Artimplant’s own biomaterial, developed in-house.
The products are designed and developed with specific properties, such as shape, strength, flexibility and pore size, to match the clinical requirements for the application in question. Each implant is tailored to initially provide support for the ingrowth of the body’s own tissue, which gradually matures into functional tissue. Artimplant has developed three product concepts which satisfy the demands for treating osteoarthritis, to reinforce soft tissue and to build up tissue volume (Resurfacing, Reinforcement and Replenishment).
With these good preconditions and successful expe- rience as a base, Artimplant is continuing to develop new solutions to medical problems to the delight of both doctors and patients.
THE MEDICAL BENEFIT OF ARTELON® PRODUCTS
Artimplant in Brief
Artimplant’s mission is to restore the health of patients by offering medical professionals degradable implants that help the body to heal. The Company develops, produces and sells degradable implants that restore body functions and improve the quality of life. Artimplant produces implants for the treatment of osteoarthritis in hands and feet, shoulder and oth- er soft tissue injuries as well as oral and veterinary applications. The Company’s products are sold through licensees and own sales under the Artimplant brand take place through agents and dis- tributors. Products made using Artelon®, have been used clinically for over 12 years and thousands of patients have received implants. Artimplant is listed on the NASDAQ OMX Stockholm Exchange in the Small Cap segment and in the healthcare sector.
Business model
Artimplant’s business model is based on the exploi- tation and development of the patented biomaterial platform Artelon®, from which implants in different clinical areas are being developed. Product develop- ment, production, clinical studies, central market- ing documentation and sales training are handled by Artimplant. Sales and local marketing take place primarily in the USA and Europe through the following channels:
• Global/regional license agreements, at present Small Bone Innovations
• Global OEM agreements (private label), at present Biomet Sports Medicine
• Regional or local distribution agreements
• Direct sales through agents
Product portfolio and market
Resurfacing – Restoring the joint surface
Artelon® CMC Spacer, Artelon® CMC Spacer Arthro and Artelon® STT Spacer are products for the treat- ment of thumb base osteoarthritis. The products can be used from an early stage when keyhole surgery can be employed, which means that patients can be treated earlier in the course of the disease than would normally be the case today and also at a later stage when both the CMC and STT joints need to be treated.
Artelon® DRU Spacer is a product for the treatment of osteoarthritis in the wrist. Wrist fractures often lead to osteoarthritis in the surface between the distal radius and the ulna (DRU). Artimplant estimates that approximately 100,000 patients can be treated in the hand and wrist with Artelon® Spacer each year.
The products are marketed mainly in the USA (not Artelon® DRU Spacer) and the EU.
Artelon® Spacer in the hand and foot
Achilles tendon repair with Artelon® Tissue Reinforcement Rotator cuff repair with
Artelon® Tissue Reinforcement
Artelon® MTP Spacer is a product for the treatment of osteoarthritis in the joint in the base of the big toe.
The primary indication is Hallux Rigidus, or osteoarth- ritis of the big toe. Artimplant estimates the number of patients who can be treated with MTP Spacer at approximately 100,000 per year. The product is marketed in the EU.
Reinforcement – Reinforcement of tissue
Artelon® Tissue Reinforcement is intended for reinforcement of weakened soft tissue parts, which is a broad indication within which the surgeon can use the product to treat soft tissue injuries from the foot to the shoulder. Each year, around 300,000 rotator cuff operations are performed in the USA. The primary indication is patients with large and extensive rotator cuff injuries. Another indication is reconstruction of the Achilles tendon in conjunction with chronic injuries or reruptures. The product is also marketed for the treatment of tendon injuries around the knee- cap, biceps and quadriceps. The product is marketed in the USA and the EU.
Replenishment – Augmentation of tissue volume Artelon® Cosmetic is a product for the augmentation of soft tissue in the oral cavity. The product is used for the augmentation of tissue around a dental implant or to attach a dental prosthesis. At present, soft tissue is commonly taken from the patient’s gums and transplanted to the front of the upper jaw. With no similar implant available on the market, it is difficult to estimate the size of the addressable market. The product has been cleared for marketing in the EU and is being sold to a limited number of clinics in Sweden and Italy.
Product development
Resurfacing – Restoring the joint surface
The Artelon® implant has demonstrated its capacity to restore a pain-free, functional joint surface in four joints affected by osteoarthritis in the hand, wrist and foot. The mechanical pressure on the surfaces of different joints varies although there is considerable evidence that Artelon® can be used to create a new, functioning surface in other joints. Experience from previous applications and the potential to tailor the properties of the Artelon® implant create the potential to develop new products to satisfy demands in new applications. Development of the second- generation Artelon® CMC Spacer is in progress and an agreement has been reached with Small Bone Innovations to develop implants for additional joints in the hand.
There is a considerable medical need for treatment of osteoarthritis in the facet joints in the lumbar region of the spine. The current treatment options are arthrod- esis or cortisone injections. The results of arthrodesis are often unsatisfactory and this form of treatment is avoided if possible. At present, the market for facet joint implants is virtually non-existent although it is expected to increase rapidly. It is estimated that more than 50 per cent of patients with chronic back pain can attribute the pain, either wholly or in part, to damaged facet joints. During 2009, Artimplant, together with one of the world’s leading spine clinics, commenced a clinical study with Artelon® Spacer for facet joint osteoarthritis.
Many patients suffer from osteoarthritis in the knee joint. It is estimated that one in two Americans will suffer a knee injury, which ultimately leads to osteo- arthritis in the knee joint. A knee joint with a high degree of osteoarthritis is treated by implanting joint prostheses made of metal, which have a limited lifespan. There is a considerable number of patients who are too young for a procedure involving a metal prosthesis. They could benefit from an Artelon® product.
In 2008, Artimplant commenced a proof-of-concept animal study to demonstrate that Artelon® can pro- vide support in restoring a functional surface in the knee joint. The results of the study were compiled during 2009 and show that Artelon® has good pros- pects for functioning in the envisaged application.
Reinforcement – Reinforcement of soft tissue The most common orthopedic disorder in dogs is cruciate ligament injuries. Artelon® CCL is intended to restore a functional knee joint in dogs in con- junction with cruciate ligament reconstruction.
Together with its American distributor BioMedtrix, Artimplant estimates that each year around 300,000 dogs in the USA undergo surgery for this indication.
An American study on Artelon® CCL is in progress and it is planned that all dogs in the study will undergo surgery during 2010.
Replenishment – Augmentation of tissue volume There is a considerable need in oral surgery to augment both soft tissue and bone volume.
Artelon® Cosmetic for the augmentation of soft tissue in the oral cavity has been launched at a limited number of clinics. A study is in progress on Artelon® Bone Scaffold for the augmentation of bone in the upper jaw to facilitate the fitting of a dental implant. All patients in the study have undergone surgery and have been fitted with a dental implant.
The long-term function of the product will be followed up during 2010.
BUSINESS OVERVIEW
STATEMENTS OF CASH FLOWS 2009* 2008* 2007* 2006* 2005
Cash flow from operations -15,529 -17,357 -15,632 -33,190 -28,393
Cash flow from investment activities -229 -590 -3,832 -2,292 -3,301
Cash flow from financial activities - - - - 84,603
Cash flow for the year -15,758 -17,948 -19,464 -35,482 52,909
Cash and cash equivalents as of Jan 1 31,371 49,240 68,704 104,186 51,277
Translation of foreign liquid assets - 79 - - -
Cash and cash equivalents as of Dec 31 15,613 31,371 49,240 68,704 104,186
STATEMENTS OF COMPREHENSIVE INCOME 2009* 2008* 2007* 2006* 2005
Net sales 23,998 12,114 16,275 5,571 8,143
Cost of goods and services sold ** -4,328 -4,194 -2,603 -616 -482
Gross profit 19,670 7,920 13,672 4,955 7,661
Other income *** 451 1,359 305 263 163
Research and development costs ** -14,995 -15,502 -14,722 -43,177 -26,959
Selling costs -17,049 -11,688 -9,134 -12,090 -9,608
Administrative costs -5,729 -5,195 -5,343 -7,183 -8,613
Other costs *** -861 -1,209 -408 -298 -77
Operating loss -18,513 -24,315 -15,630 -57,530 -37,433
Interest income and other financial income 311 2,284 2,251 1,841 1,211
Interest expense and other financial expense -431 -602 -71 -330 -22
Net financial items -120 1,682 2,180 1,511 1,189
Loss after financial items -18,633 -22,633 -13,450 -56,019 -36,244
Taxes - - - - -
Loss for the year **** -18,633 -22,633 -13,450 -56,019 -36,244
STATEMENTS OF FINANCIAL POSITION 12/31/09 * 12/31/08 * 12/31/07 * 12/31/06 * 12/31/05
Total fixed assets 3,501 6,680 10,006 10,214 32,314
Total current assets 26,997 40,309 59,606 72,863 107,702
of which cash in hand and at the bank 15,613 31,371 49,240 68,704 104,186
Total assets 30,498 46,989 69,612 83,077 140,016
Total equity 23,853 41,965 64,249 77,614 132,846
Total provisions and non-current liabilities 65 20 52 353 245
Total current liabilities 6,579 5,004 5,311 5,110 6,925
Total equity and liabilities 30,498 46,989 69,612 83,077 140,016
* Consolidated financial statements, including Artimplant USA, Inc. 2006-2009. The figures for 2005 only cover the Parent Company Artimplant AB.
** Impairment of product development expenses brought forward are included in 2006 to the amount of KSEK 17,118. Since 2006, depreciation of product development expenses brought forward is reported as R&D. A recalculation has been made for previous years.
*** In 2008, Artimplant switched to reporting Other income and Other costs separately. A recalculation has been made for previous years.
**** Concurs with the comprehensive income for the year
KEY RATIOS Amounts in KSEK
2009 2008 2007 2006 2005
Equity per stock unit, SEK 0.40 0.71 1.08 1.31 2.24
Equity per stock unit after dilution, SEK 0.40 0.71 1.08 1.31 2.24
Loss per stock unit, SEK 0.31 0.38 0.23 0.95 0.73
Loss per stock unit after dilution, SEK 0.31 0.38 0.23 0.95 0.73
No. of stock units in issue at year-end 59,244,790 59,244,790 59,244,790 59,244,790 59,244,790 Average no. of stock units in issue during year 59,244,790 59,244,790 59,244,790 59,244,790 49,370,659 No. of stock units in issue after dilution 61,346,566 60,793,246 60,446,582 60,348,628 61,107,012
Cash flow per stock unit, SEK -0,27 -0,30 -0,33 -0,60 0,89
Dividend per stock unit, SEK 1) - - - - -
Market price, highest, SEK 3.17 4.25 7.55 9.80 9.15
Market price, lowest, SEK 1.37 1.55 3.10 2.79 4.29
Market price as of Jan 1, SEK 1.64 3.32 3.66 8.45 6.50
Market price as of Dec 31, SEK 1.89 1.64 3.32 3.66 8.45
Return on equity, % Neg. Neg. Neg. Neg. Neg.
Return on capital employed, % Neg. Neg. Neg. Neg. Neg.
Return on capital, % Neg. Neg. Neg. Neg. Neg.
Equity/assets ratio, % 78 89 92 93 95
Proportion of risk capital, % 78 89 92 93 95
Interest-bearing liabilities None None None None None
Interest coverage ratio Neg. Neg. Neg. Neg. Neg.
Financial net assets 15,613 31,371 49,240 68,704 104,186
Capital expenditure
Research and development 2) - - - 480 1,587
Patents and brands 215 471 3,236 646 574
Machinery and equipment 25 129 627 1,165 1,141
Number of employees
No. of employees as of Dec 31 25 28 25 28 27
The impact of dilution has not been reported in those cases where dilution would have resulted in an improvement in the key ratios.
1) For 2009, the figure refers to the proposal by the Board of Directors.
2) Investment in product development according to IAS 38. With effect from 2007, product development expenses are not capitalized.
Stockholders’ equity per stock unit
Stockholders’ equity divided by the number of outstanding stock units.
Stockholders’ equity per stock unit after dilution
As above, but recalculated to reflect full exercise of call options.
Earnings per stock unit
Profit or loss for the year divided by the average number of outstanding stock units during the period.
Earnings per stock unit after dilution
As above, but recalculated to reflect full exercise of call options.
Cash flow per stock unit
Cash flow for the year divided by the number of outstanding stock units.
Return on equity
Profit or loss, expressed as a percentage of average adjusted equity.
Return on capital employed
Loss after net financial items plus financial expenses, expressed
as a percentage of average capital employed. Capital employed refers to the Statement of Financial Position total less non- interest bearing liabilities including deferred tax on untaxed reserves.
Return on capital
Operating profit plus financial income as a percentage of the Statement of Financial Position total.
Equity/assets ratio
Equity expressed as a percentage of the Statement of Financial Position total.
Proportion of risk capital
Equity plus untaxed reserves expressed as a percentage of the Statement of Financial Position total.
Interest coverage ratio
Profit or loss after net financial items plus financial expenses, expressed as a percentage of financial expenses.
Financial net assets
Cash and bank balances less interest-bearing liabilities.
Company information
This Annual Report covers the financial year January- December 2009 for the Artimplant Group with the Parent Company Artimplant AB (publ), registration number 556404-8394, with its registered office in the county of Västra Götaland, Municipality of Gothenburg and Artimplant USA, Inc., a wholly owned subsidiary registered in Delaware, with its office in Lansdale, Pennsylvania, USA hereinafter collectively known as Artimplant, the Company or the Group. Since January 2006, Artimplant has filed consolidated accounts for Artimplant AB and Artimplant USA, Inc. The Group’s primary operations are carried on in the Parent Company whilst the subsidiary is a pure sales company.
Artimplant develops, sells and manufactures degrad- able implants that help the body to heal. The Company produces implants for the treatment of osteoarthritis in hands and feet, shoulder and other soft tissue injuries as well as oral and veterinary applications. The Company’s products are sold through licensees and own sales under the Artimplant brand take place through agents and distributors. Further information about the Company’s operations can be found in the Business Overview section on pages 8-9. The Parent Company has been listed since 1997 on NASDAQ OMX Stockholm and its stock is now traded in the Small Cap segment and in the healthcare sector.
Sales
Net sales almost doubled to SEK 24.0 million (12.1). The net sales for the fourth quarter of 2008 include a positive effect of SEK 1.3 million from a transition to reporting license revenue in the quarter during which it is generated instead of with a delay of one quarter. Using the same comparison base the increase was thus more than a doubling. Net sales derived primarily from product sales and 63% (85) of revenue originated from licensees and 37% (15) from direct sales via agents and Artimplant’s local distributors.
Since the launch of Artelon® thousands of patients have been treated with Artelon® implants. During the fourth quarter an exclusive distribution agreement was signed with Nordic Medical Supply (NMS) for the distribution of Artimplant’s orthopedic products in Scandinavia. NMS is the market leader in orthopedics in Scandinavia with approximately 14 sales representatives in the region.
Emerging Medical Group LLC (EMG) was appointed as the new sales management team for Artimplant USA and during the fourth quarter commenced the build-up of an expanded distributor network. Around 15 new agents have been contracted. The training of these agents be- gan in January 2010 and sales commenced at a number of new hospitals. Artimplant is represented in the majority of the states in the USA through more than 30 agents. In Europe, Artimplant has continued to establish operations via distributors. Own sales during the year have increased five- fold to SEK 8.7 million (1.7).
Artelon® Spacer is a product for the treatment of thumb base osteoarthritis in a number of joints in the hand and foot. Sales revenue from Artelon® Spacer during the year amounted to SEK 13.1 million (7.4). The licensee, Small Bone Innovations (SBi) accounts for the majority of the sales. As
of January 1, 2009, Artimplant renegotiated the agreements with SBi relating to Artelon® Spacer.
• The agreements have been amended to become non-exclusive.
• Artimplant’s margin per sold unit has increased significantly.
• Sales undertakings on the part of SBi have been reduced.
• The geographical area in which SBi is permitted to sell has been limited.
• Artimplant has undertaken to support SBi with clinical studies regarding Artelon® MTP Spacer.
• The agreement which gave Artimplant the right to sell and SBi the right to purchase existing product
clearances has been terminated.
During the third quarter of 2009, sales of Artelon® CMC Spacer fell following reports of unsatisfactory treatment outcome. This is due to a small number of cases which occurred during the immediate post-launch period when the user instructions were not followed. This led to the publication of two case reports in the Journal of Hand Surgery. SBi and Artimplant are at present working on corrective communication to surgeons, comprising the publication of data which confirms the medical efficacy of the product and highlights the importance of compliance with user instructions.
Artelon® Tissue Reinforcement (ATR) has been cleared for general reinforcement of soft tissue injuries. It is sold non- exclusively by Biomet Sports Medicine as SportMesh™.
Artimplant’s total sales revenue from ATR and Sport- Mesh™ during the year was SEK 10.2 million (4.1). Biomet Sports Medicine accounts for the majority of these sales.
During the year Artimplant’s own sales via agents and sales through local distributors reported the highest rate of growth and thus constituted an expanding proportion of the Company’s total sales of this product group. Artimplant’s ongoing activities, such as market studies and case reports are crucial to the continued increase in market penetration.
Artimplant and Biomet Sports Medicine revised the exist- ing license agreement during the year whereby the par- ties agreed that Artimplant would take over Biomet Sports Medicine’s responsibility to clinical studies and that at least two studies regarding the product ATR/SportMesh™
would be conducted. These studies refer to the treatment of rotator cuff injuries and Achilles tendon ruptures. The revised agreement came into effect on April 1, 2009.
Artimplant’s payment for products sold now comprises a fixed price, which is invoiced on delivery to Biomet Sports Medicine.
Product and business development
The Schulthess Clinic in Zurich is conducting a clinical pilot study with Artelon® implants. The aim of this study is to document safety and user-friendliness in the treatment of painful osteoarthritis in the facet joints in the spine with Artelon®. Pain relief with this treatment will be investigated and the patients will be followed up over a two-year period.
The Schulthess Clinic commenced the study during the second quarter when the first patient was enrolled. Patient inclusion in the study is ongoing.
Artimplant and Tulsa Bone & Joint Associates, Tulsa, Oklahoma, USA, are running a post-market study of ATR for patients with tears in the rotator cuff tendons. The study comprises approximately 20 patients. The final patient underwent surgery in October, whereupon a one-year follow-up commenced.
Artimplant is investing in a number of studies involving Artelon® MTP Spacer. A Swedish investigator-initiated, multicenter study is in progress on the treatment of stiff big toe (Hallux Rigidus) using Artelon® MTP Spacer. The final patient underwent surgery in May, whereupon a one- year follow-up commenced. A further investigator-initiated study commenced in Finland in September. The product satisfies an obvious clinical need as at present there are no good treatment methods available for these patients.
A post-market study has been conducted by the Brånemark Clinic in Gothenburg regarding Artelon® Cosmetic for replenishment of soft tissue in dental applications.
The study results which confirm the function of the product are currently being compiled.
In 2008, the Swedish Medical Products Agency gave the go- ahead for a study of Artelon® Bone Scaffold with the aim of securing regulatory clearance for the product. The product will be used for bone replenishment in the upper jaw in conjunction with the fitting of dental implants. The study is
being conducted in co-operation with Swedish oral surgery experts. All patients in the study have now undergone sur- gery with Artelon® Bone Scaffold and have received den- tal implants. The long-term function of the product will be followed up during 2010.
During the year, Artimplant commenced two contract development projects for SBi. One project aims to develop a second-generation Spacer product for the treatment of thumb base osteoarthritis. The second project aims to de- velop a product for stabilization of the joint between the navicular bone and the lunate bone in the hand.
Knee joint osteoarthritis is a very common disorder and its incidence increases with age. More extensive injuries in elderly patients are normally treated by means of a prosthesis whilst for younger patients there is no good treatment alternative. During the fourth quarter of 2008, Artimplant commenced a proof-of-concept animal study to assess whether Artelon® can provide support in restoring a functional surface in the knee joint. The results, which were compiled during the fourth quarter of 2009, indicate that Artelon® has good prospects of functioning in the en- visaged application. The Company will make a decision re- garding the next phase during 2010.
In cooperation with Swedish veterinary experts, Artelon® has been used successfully in the treatment of cruciate
BOARD OF DIRECTORS’ REPORT
Product Concept Intended use Product Explore Develop Market Introduction
Established
Resurfacing Osteoarthritis in the thumb base joint
Artelon® CMC/STT Spacer
Osteoarthritis in the big toe joint
Artelon® MTP Spacer*
Osteoarthritis in the facet
joints of the lumbar spine Facet Spacer
Osteoarthritis in the knee
joint Knee
Resurfacing
Reinforcement Soft tissue reinforcement for the repair of e.g. rotator cuff and Achilles tendons
Artelon® Tissue Reinforcement
Knee ligament reconstruction in dogs
Artelon® CCL
Replenishment Soft tissue augmentation in
the mouth Artelon®
Cosmetic*
Bone augmentation in the
upper jaw Artelon® Bone
Scaffold
Artimplant’s products and projects can be viewed in four phases: concept evaluation/proof-of-concept (Explore), product development and documentation for market registration (Develop), launch and post-market studies (Market Introduction) and a product established on the market (Established).
* Not cleared for sale in the USA
ligament injuries in dogs. By using Artelon® as an arti- ficial ligament (Artelon® CCL) conditions are created for the body to restore a functional ligament. An investigation with a one-year follow-up of the surgical results will be concluded during 2010. Positive results from the study will create an important basis for future market penetration.
In cooperation with American veterinary surgeons and Artimplant’s distributor BioMedtrix, Artimplant has planned a prospective investigation with Artelon® CCL in the USA. Prior to the study a biomechanical evaluation was conducted. The evaluation has led to further refinement of the product design and surgical procedure. The first dogs then underwent surgery as part of the CCL study. Inclusion is proceeding according to schedule. The plan is that all dogs will undergo surgery during 2010 after which there will be a one-year follow-up. Successful study results are vital to the planned launch of Artelon® CCL in the USA.
During 2009, Artimplant also evaluated the use of Artelon® for soft tissue reinforcement of, among other things, the Achilles tendon in dogs. The results from a small case study in the USA have been compiled for presentation at a scientific symposium. Marketing has commenced on a small scale and ten or so centers have indicated an interest in participating in a multicenter study.
Artimplant’s financial results and liquidity 2009
The gross margin for product sales, excluding an inventory impairment of SEK 0.4 million, was 85% (64). The inventory impairment is the result of a lower sales outcome than expected for Artelon® Spacer. The gross margin has been affected positively compared with the previous year by rene- gotiated license agreements and lower production costs.
The net operating loss improved to SEK 18.5 million (24.3).
The net operating loss includes a non-recurring inventory impairment of SEK 0.4 million, in cost of goods and services sold, and a non-recurring impairment of patents of SEK 0.3 million in research and development costs, as well as non- recurring items related to personnel changes to the amount of SEK 0.8 million in selling costs. The operating costs for the full year, excluding the cost of goods and services sold and the above non-recurring items, was SEK 4.3 million higher than the corresponding period the previous year.
This can be attributed mainly to payment to agents and a new sales management team in the USA.
The net loss amounted to SEK 18.6 million (22.6), includ- ing a negative exchange rate change of SEK -0.5 million (0.0). Earnings per stock unit improved to SEK -0.31 (-0.38).
Investments amounted to SEK 0.2 million (0.6), of which
SEK 0.2 million (0.5) referred to intangible assets. Total cash and cash equivalents at the year-end amounted to SEK 15.6 million (31.4). The total cash flow for the year improved to SEK -15.8 million (-17.9). The total change in working capital was SEK -0.9 million (1.1). The increase is mainly in accounts receivable and accrued income.
Events after the year-end
There were no events of material significance after the year-end.
Future prospects
The plan is for the Company’s growth during 2010 to be achieved through increased Company sales of existing products within orthopedics. Artimplant’s direct sales in the USA will account for the majority of the growth in sales, which are expected to increase gradually as new agents begin selling and building up confidence in Artimplant’s products in each sales district. The Company does not provide a forecast of the rate at which the sales will increase although the Company works towards the goal of reaching positive cash flow before changes in working capital, on a monthly basis, towards the end of 2010.
In the event operating capital, primarily accounts receivable, requires financing, a capital credit facility of SEK 8 million is available. As of the date of this Annual Report this capital credit facility had not been utilized. If the facility is utilized a chattel mortgage will be issued for the same amount as collateral as well as the customary terms and conditions regarding operational development.
Artimplant’s business operations are based on exploiting the Company’s unique biomaterial platform Artelon®. The orthopedic areas hip, knee and spine offer the greatest market potential. Artimplant intends to continue investing in projects in these areas at the same time that the scientific base is reinforced for cleared products, which offers support for increased sales.
Organization and human resources
Artimplant is certified according to the quality manage- ment standard ISO 13485 for medical device products, and works systematically to improve the quality of both person- nel and products. Human resource development takes place through regular appraisal discussions, in-house exchange of know-how, the development of skills and expertise as well as preventive health care. The Company works continuously to improve the working environment and fire protection and did not have any occupational injuries or incidents during the year.
<30: 1 Gender distribution
All employees Gender distribution
Senior management Gender distribution
Board of Directors Level of
education Age distribution
Men: 12 Women: 13 Men: 4 Women: 2 Men: 3 Women: 2
University: 20
Senior High school: 1
PhD: 4 >50: 7
41-50: 7 31-40: 10
