CONTENTS
2007 in Brief 3
About Artimplant 3
Statement by the CEO 4
The Medical Benefit of Artelon
®6
Business Overview 8
Five-Year Overview 10
Key Ratios 11
Board of Directors’ Report 12
Income Statements 16
Allocation of Net Sales 16
Balance Sheets 17
Changes in Equity 19
Cash Flow Analyses 20
Notes 21
Stock and Ownership 29
Auditors’ Report 30
Corporate Governance 31
Board of Directors 32
Senior Management 33
History 34
Annual Meeting of Stockholders 35
N.B. This is a translation from Swedish.The Swedish version shall always take precedence.
• Net revenue increased to SEK 16.3 million (5.5)*
• Net loss improved to SEK 13.4 million (56.0)
• Net loss for the year, excluding non-recurring items, improved to SEK 11.8 million (38.9)
• Earnings per share improved to SEK -0.23 (-0.95)
• Cash flow before changes in working capital improved to SEK -9.6 million (-32.5)
• Sales of Artelon
®Spacer amounted to approximately 3,900 (2,750) units
• Artelon
®Tissue Reinforcement was granted FDA clearance for several new indications
• FDA clearance for two new Artelon
®Spacer products
• An agreement was signed with Small Bone Innovations for new resurfacing applications for the hand and wrist
• Biomet’s agreement for rotator cuff application was renegotiated to non-exclusive with retained commitments
• Over 6,000 patients were treated with Artelon
®implants up to and including 2007
* Figures in brackets refer to the corresponding period last year.
About Artimplant
Artimplant is a biomaterials company focused on solutions to problems in orthopedic and oral surgery.
We restore health through the development, production, and marketing of degradable implants that regenerate body functions and improve quality of life.
Our products, made from Artelon
®, meet unmet clinical needs and are marketed in a growing number of therapy areas. Artimplant produces implants for treatment of osteoarthritis in hands and feet, for shoulder and other soft tissue injuries as well as oral applications.
Artimplant is a public company listed on
the OMX Nordic Exchange Stockholm
in the Small Cap segment and in
the Healthcare sector.
Artimplant is a company of op- portunities with pioneering tech- nology. We have developed the material – Artelon
®– and we have products that work. The latest of these, Artelon
®Tissue Reinforce- ment (ATR), has the potential to be our first big seller.
In September, we were granted clearance to market ATR for sev- eral new indications in the USA and thanks to the fact that the implant can be used in so many different areas it could become as common in the everyday work of a surgeon as a needle and thread.
We are benefiting from the clini- cal experience acquired from established products and we are developing new solutions to medical problems with enhanced accuracy. The longer we have in- dependent responsibility for the development of products for the market, the quicker we can get our products to the patient. That’s who we want to reach – people who need our implants to regain lost body function.
Goals achieved
Artimplant develops solutions to medical problems in three areas:
• Resurfacing – products that help to create new joint surfaces
• Reinforcement – products that reinforce soft tissue
• Replenishment – products that replenish soft tissue and bone Looking back on our operational focus in the lead up to 2007 it is pleasing to note that our efforts have been successful.
Within Resurfacing we have been granted clearance in the USA to market two new Spacer products which will help create new joint surfaces in two of the joints in the thumb. In addition, we have signed an agreement with Small Bone In- novations, SBI, to develop further products for the hand and wrist.
As regards Reinforcement, Art- implant has been granted clear- ance to market ATR for several new indications on the American market. We have also produced a range of sizes for new indica- tions. The agreement with Biomet Sports Medicine has also been renegotiated, allowing Artimplant to seek other alternatives to ex- ploit the product concept.
We have also made headway with our Replenishment products and commenced market studies with Artelon
®Cosmetic for the replen- ishment of soft tissue in dental
applications. A new Artelon
®Bone Scaffold design was devel- oped during the year for bone re- plenishment in the upper jaw in conjunction with a sinus lift. It will be evaluated in clinical studies during 2008.
Sales
Artimplant’s aim is to achieve a high, stable growth in sales, which was unfortunately not realized in 2007. Biomet Sports Medicine has not kept pace with its com- mitments regarding sales support documentation and carrying out of clinical studies. Despite the lack of published data and sales support, almost 600 SportMesh™
were sold during the first year of the launch, which is a sign of the product’s potential. SportMesh™
is Biomet’s brand name for ATR.
SBI experienced a significant downturn in sales of Artelon
®CMC Spacer during the second and third quarters of 2007. In the Board of Directors’ Report further information is presented on the underlying reasons. My assess- ment is that the corrective mea- sures that had been implemented will prove effective in ensuring successful patient treatment and continued growth in sales. An important detail in this context is the fact that Artelon
®CMC Spac- er combines Reinforcement and Resurfacing in the same product.
The problems reported are related to the Spacer’s function in stabi- lizing the joint. Vital to this func- tion is that the product is allowed to become firmly attached before pressure can be exerted fully on the joint. Other Spacer products have the primary function of re- storing the surface of the joint and are thus easier to use.
The biomaterial Artelon
®makes us unique
Over the years many researchers have been interested in producing
STATEMENT BY THE CEO
a material with the same features as our patented Artelon
®but no one has made the same prog- ress as Artimplant. This makes us unique. Our long experience and clinical documentation extending over many years has also given us a vital head start over any com- petitors that may emerge.
On the day of the Nobel Awards, December 10, 2007, it was ex- actly 10 years since Professor Lars Peterson performed the first Artelon implant in one of his pa- tients. Our clinical studies extend that far back in time and to date more than 6,000 patients have been successfully treated with our implants. The vision is to offer millions of people improved qual- ity of life through our products, which support the body’s capac- ity to heal itself.
We now have implants for several different applications that are at the early market launch stage.
The most interesting areas from a clinical and business point of view still remain to be exploited.
For Resurfacing there is potential in the treatment of osteoarthritis in the knee joint and osteoarthri- tis in the facet joints between the vertebrae in the spine. There is considerable, closely related po- tential within reconstructive and cosmetic surgery for our Replen- ishment concept on the head and face. For Reinforcement and ATR the potential for design and ap- plication development is virtually unlimited.
Market focus
It is not enough to have unbeat- able technology to create suc- cessful products. To achieve full medical benefit and successfully treated patients it is also neces- sary that the correct group of pa- tients are treated using a surgical procedure that is adequate and that the rehabilitation instructions
are followed. To develop this and achieve full market impact, close collaboration with leading clinics is required. This interaction ulti- mately leads to published clinical data and references, which are a prerequisite for complete success in the product launch phase. In October 2007, Kauko Haapasaari was brought in as head of mar- keting. His primary undertaking is to develop Artimplant’s market concept and improve sales.
Under the medical leadership of Professor Lars Peterson, Artim- plant commenced the task of es- tablishing ATR at reference clinics in Europe and the USA.
The head of Artimplant in the USA left the company during the year. The process of finding his replacement commenced dur- ing the fall and is expected to be completed during spring 2008.
New agreements
In September, Artimplant cleared the obligation to pay future roy- alties for the basic patent for Artelon
®. The inventor was previ- ously entitled to five per cent of the Company’s license revenue from product sales.
During the year, Artimplant nego- tiated new and amended agree- ments with our two largest part- ners in the USA. In December, SBI acquired the right to the Re- surfacing concept in all joints in the hand and wrist. Together with SBI, Artimplant will also develop new products during the com- ing years. The license agreement with Biomet Sports Medicine was renegotiated to non-exclusive status but with retained commit- ments on their part. At the same time, we granted Biomet the right until further notice to sell ATR for all indications that have now been cleared, which they are doing under their brand name
SportMesh™. Artimplant’s mar- keting department has supported Biomet by producing campaign material for the sales force. It is pleasing to see improved sales on the American market, which is also a key objective for 2008.
Prospects for 2008
Our most important objective for 2008 is the continued increase in sales of ATR and Artelon
®CMC Spacer in the USA and Europe. A vital activity is to establish a new American sales management with a focus on introducing ATR at reference clinics in the USA.
Clinical documentation of exist- ing products and the develop- ment of new product concepts are also important initiatives for the future. An ongoing aspect of Artimplant’s operations is se- curing product registrations and signing agreements with external business partners.
In terms of sales I would say that it would be sufficient for ATR to make a real breakthrough for Artimplant to be highly success- ful. Success is also measured in terms of the number of people who receive help in living a bet- ter life thanks to our implants. We will not be satisfied with just one of our products conquering new ground. We will not relent in our efforts until all potential indica- tions for Artelon
®have been ex- ploited and products for as many indications as possible have been launched.
We have an exciting and reward- ing journey ahead of us. Thank you everyone for making it possible.
Hans Rosén, CEO
STATEMENT BY THE CEO
THE MEDICAL BENEFIT OF ARTELON ®
HElping tHE bOdy tO HEAl
The development of Artelon
®commenced at the end of the 1980s with interdisciplinary collaboration between leading ex- perts within orthopedics, cell biology, polymer technology and textile technology. The starting point for their work was a set of requirements based on clinical needs which no material on the market could meet. The most important requirement was the capacity to function as a temporary scaffold for ingrowth into the body’s own tissue. The material should also be tissue- friendly and offer mechanical strength and elasticity equivalent to the body’s own tissue.
During the 1990s, Artelon
®underwent pre-clinical tests pre- scribed by the authorities without any problem. Its good tissue- friendliness was later confirmed in clinical studies on patients and in clinical practice. To date, the material covers over 6,000 patients with a follow-up period of up to 10 years. Experience shows that only in exceptional cases does Artelon
®induce a reaction from surrounding tissue.
Permanent implants have the disadvantage that many patients need to undergo further surgical procedures to remove the im- plant when it becomes worn or has performed its task. This in- volves extra discomfort, risks and cost. A temporary, degradable implant must retain its mechanical properties until the body’s own tissue has been replenished. Extensive studies have shown that the degradation time for Artelon
®more than satisfies the original demands. After four years the strength is halved and after six years the material no longer offers any support.
An important objective during the development of Artelon
®was that the material should function as a scaffold for the body’s own tissue, thus creating conditions for the body to heal. This objective has also been achieved. Studies in animals and pa- tients indicate ingrowth of the body’s own cells. The actual cell type depends on the tissue in the immediate vicinity of the im- plant, such as connective tissue, cartilage or bone. It is impor- tant to also note that studies have indicated ingrowth of blood vessels that supply the newly formed tissue with nutrition.
The Artelon
®implant also functions as temporary reinforcement for different types of tissue which for some reason have weak- ened. This could involve a damaged articular capsule, a liga- ment which has been torn, a tendon which has been ruptured or muscle fiber which has been exposed to too much pressure and has subsequently ruptured. The mechanical strength in the Artelon
®implant is therefore crucial. Even in this respect it has been possible to produce the desired features. This has been achieved by combining the Artelon
®fiber’s mechanical proper- ties with optimal textile techniques in the form of, for example, knitting and weaving.
The body’s own tissue is elastic to a varying extent, which means that when pressure is released it reverts to its former length and shape. The skeleton is also elastic to some degree.
To stimulate the healing process and contribute to the forma- tion of the correct type of tissue it is very important that the implant has a level of elasticity which is similar to the body’s own tissue. Studies of Artelon
®products have demonstrated elastic features which are similar to those in the soft tissue of the body, such as tendons and ligaments. This offers conditions for good, long-term treatment results.
In summary, it can be seen that an interdisciplinary initiative under the guidance of Artimplant has been particularly suc- cessful. It has resulted in a material and products that offer unique features for the treatment of a range of diseases and injuries by supporting the body’s capacity to heal.
REgEnERAtiOn Of jOint suRfACEs in
COnjunCtiOn witH OstEOARtHRitis (REsuRfACing) Thumb base osteoarthritis is a common disease which is often extremely painful and also leads to reduced hand function. In the initial stage of the disease patients are treated with, for example, cortisone. The most common subsequent surgical procedures are ligament plastic surgery or arthrodesis, methods that involve changing the anatomy of the hand and that the thumb loses some of its function. At present there are no other forms of implant treatment that are equivalent to treatment with Artelon
®CMC Spacer and Artelon
®STT Spacer, where the anatomy of the hand remains intact.
The first patient received a CMC Spacer in 1999 and since then around 5,000 patients had been treated. It is from the treatment of thumb base osteoarthritis that Artimplant has acquired its most extensive clinical experience of Artelon
®. It shows that the procedure offers good thumb stability and good, long-term pain reduction on condition that the correct surgical procedure is used and that rehabilitation takes place in such a way that the implant is given the opportunity to become attached.
Regeneration of the surface of the joint in conjunction with osteoarthritis in the CMC joint
The STT joint, which is between three of the bones in the wrist, is also often affected by osteoarthritis. As with thumb base osteoarthritis, this condition could cause a great deal of pain and loss of function. It is estimated that at least 25% of patients with thumb base osteoarthritis also suffer from osteoarthritis in the STT joint. Artimplant STT Spacer is used for the treatment of wear in this particular joint.
Wrist fractures often lead to complications. One of these is osteoarthritis in the surface of the joint between the distal radius and the ulna (DRU) in the forearm, nearest the wrist.
Osteoarthritis in the DRU joint often leads to wrist pain, restriction of forearm rotation and reduced grip strength, limiting the patient’s daily activities, such as pouring water into a glass or opening a door. Common forms of treatment for osteoarthritis in the DRU joint in the wrist are removal of part of the ulnar head or carrying out an arthrodesis, which reduces the functionality of the arm. Artimplant’s DRU Spacer can instead offer pain relief and improved functionality for this relatively small group of patients.
A considerably more common disease is osteoarthritis in the joint in the base of the big toe, Hallux Rigidus, or stiffening of the big toe joint. Mobility in the MTP joint in the big toe, the metaphalangeal joint, in most cases decreases and is often accompanied by increased pain. Ultimately, joint mobility is lost entirely. Pain, difficulty exerting pressure on the foot and a loss of balance can lead to serious handicap for the person afflicted.
Patients are mainly treated with analgesics and anti- inflammatory drugs and in Sweden it is estimated that around 1,500 people undergo surgery each year. Results using present surgical methods are regarded as being less than successful.
Examples of established surgical methods are cheilectomy, a method involving removal of part of the articular head, arthrodesis or replacement of the joint with a prosthesis.
Artimplant’s MTP Spacer has been cleared for the treatment of osteoarthritis in this joint and even if experience to date is quite limited the first results look promising and indicate that the use of the MTP Spacer could in the future result in patients being relieved of pain and regaining their physical functionality.
The fact that Artelon
®has been shown to work in regenerating the surface of four of the body’s joints is strong evidence that it is possible to develop Artelon
®Spacers for the treatment of osteoarthritis in other joints.
REplEnisHMEnt Of ORAl sOft tissuE (REplEnisHMEnt)
With an ageing population more and more people will suffer from medically disrupting oral soft tissue defects. With the method of treatment available today tissue needs to be transplanted from the gum to augment defective soft tissue.
This requires surgery in two places and is often painful for the patient. In addition, it is not uncommon that patients have insufficient tissue for a transplant. Artelon
®Cosmetic has been developed to replenish defective oral soft tissue. Experience to date is very promising on condition that the implant is placed sufficiently deep under the mucosa to avoid infection.
REinfORCEMEnt Of wEAkEnEd sOft tissuE (REinfORCEMEnt)
A product with considerable potential is Artelon
®Tissue Reinforcement (ATR). It has been cleared as ”reinforcement of weakened soft tissue”, which is a very broad indication.
There have been good results in conjunction with treatment of soft tissue injuries in the shoulder, serious muscle ruptures, ruptures of the Achilles tendon, fallen arches, malpositioning of the finger joints in people suffering from rheumatism as well as repeated dislocation of the shoulder. It could be said that ATR can be used as a repair patch when the patient’s soft tissue is insufficient for a reconstruction or when temporary reinforcement is required.
THE MEDICAL BENEFIT OF ARTELON ®
Repair of the Achilles tendon with the aid of Artelon® Tissue Reinforcement
ARtiMplAnt in bRiEf
Artimplant is a biomaterials company focused on solutions to prob- lems in orthopedic and oral surgery. We restore health through the development, production and marketing of degradable implants that regenerate body functions and improve quality of life. Our products, made from the Company’s biomaterial Artelon
®, which has been developed in-house, are marketed in a growing number of therapy areas. Artimplant produces implants for the treatment of osteoarthritis in hands and feet, for shoulder and other soft tissue injuries and for dental applications.
businEss MOdEl
Artimplant’s business model and future revenue flows are based on the exploitation and development of the technology platform Artelon
®, from which different medical applications are being devel- oped within orthopedics and odontology. Product development and production are conducted by Artimplant. To market the Company’s products, Artimplant has to date signed exclusive global licensing agreements with different players on the market. These agreements form an important base for the Company’s business operations.
Artimplant develops operations aimed at marketing and verifying future product concepts on domestic markets and at reference clin- ics. This puts Artimplant in a better position when negotiating with different players on the market and at the same time other distribu- tion channels and direct sales can be evaluated in parallel. Artim- plant’s potential to increase its profit margin and in the long term reinforce the Company’s market position are thus improved.
Sales take place through
• Licensing via exclusive global agreements, at present with Small Bone Innovations (SBI)
• OEM agreements (private label), non-exclusive and global, at present Biomet Sports Medicine
• Regional or local distribution agreements
• Direct sales of products pROduCt pORtfOliO Orthopedics
Artelon
®CMC spacer is a product for the treatment of thumb base osteoarthritis. The operation can be performed under local anesthetic and takes less time than conventional surgical methods.
The product is intended primarily for the early phases of thumb base osteoarthritis, which means the patient can be treated earlier in the course of the disease than would normally be the case today.
The product is marketed mainly in the USA and the EU.
Artelon
®CMC spacer Arthro
The use of keyhole surgery is increasing throughout the world, par- ticularly in the USA. To satisfy the needs of the market Artimplant has developed a CMC Spacer that can be applied in the thumb base joint using keyhole surgery. The product has been cleared for marketing in both the USA and Europe although the majority of sales are expected to take place on the US market.
Artelon
®stt spacer is intended for another of the thumb base joints, the STT joint. With Artelon
®STT Spacer more patients with osteoarthritis in the thumb base joint can be treated using Artim- plant’s tissue-preserving concept. The product is marketed in the EU and the USA.
Artelon
®dRu spacer is a Spacer for the treatment of osteoar- thritis in the wrist. Wrist fractures often lead to complications and there could be osteoarthritis in the surface between the distal ra- dius and the ulna (DRU). Osteoarthritis in the DRU often leads to wrist pain, restriction of forearm rotation and reduced grip strength, limiting the patient’s daily activities. With Artelon
®DRU Spacer the forearm can function naturally. The product has been cleared for marketing in the EU.
Artelon
®Mtp spacer is a product for the treatment of osteoar- thritis in the joint in the base of the big toe. Hallux Rigidus, or osteoarthritis of the big toe, is a very common disease. Mobility in the MTP joint in the big toe, the metatarsophalangeal joint, in most cases decreases and is accompanied by increased pain. Ultimately, joint mobility is lost entirely. Pain and difficulty exerting pressure on the foot often lead to a serious handicap for the person afflicted.
Experience of Artelon
®MTP Spacer is to date relatively limited al- though early treatment results are promising and indicate that the use of the MTP Spacer will be a major success. The product has been cleared for marketing in the EU.
Artelon
®tissue Reinforcement (AtR) is intended for the ”rein- forcement of weakened soft tissue parts”, i.e. a very broad indica- tion. The product can almost be described as a ’repair patch’ that is available in different sizes. ATR can be used when the patient’s soft tissue is insufficient for a reconstruction or when a temporary reinforcement is required. We have seen good results in conjunc- tion with treatment of, for example, soft tissue injuries in the shoul- der, serious muscle ruptures, ruptures of the Achilles tendon, fallen arches, malpositioning of the finger joints in people suffering from rheumatism as well as repeated dislocation of the shoulder. The product is marketed mainly in the USA and the EU.
Odontology
Artelon
®Cosmetic fulfils a medical need in patients who have lost teeth. In order to fit dentures or bridges and/or support the upper lip, soft tissue is currently taken from the patient’s gums and transplanted to the front of the upper jaw. This procedure is very painful and in certain cases access to the tissue is insuffi- cient. Another interesting market is for customers with titanium implants where the screw is visible through the gums or becomes visible due to the gums sinking, which is known as black triangu- lar disease. Artelon
®Cosmetic, for augmentation of soft tissue in oral applications, is currently being documented in close coopera- tion with, among others, the Brånemark Clinic in Gothenburg and the Faculty of Odontology at Göteborg University. The first patients have shown good results. The product has been cleared for mar- keting in the EU.
tHE MARkEt fOR ARtiMplAnt’s pROduCts
The implant market is at present one of the largest and most rap- idly growing markets in medical technology. Demand is continu- ing to increase due to the aging population. Better financial cir- cumstances and greater demands for quality of life over a long and active life-span are other reasons. The market is also being fuelled by technological achievements and a better understand- ing of the functions of the body. The rapid growth for implants is related, apart from demographic and technological aspects, to health-related financial potential created by the biomaterials with improved quality of life for the patient. Degradable implants, which function as support during the time the body heals, are expected to take market shares from traditional ’spare parts’ which replace joints or other body parts.
Artimplant works mainly within the orthopedic segment in the treat- ment of osteoarthritis and soft tissue injuries as well as odontology.
Orthopedics Osteoarthritis
Osteoarthritis is one of the primary causes of disability or invalidity.
In 2005, 46 million people in the USA were estimated to be afflicted by osteoarthritis. According to the Arthritis Foundation, osteoar- thritis and related disorders cost the American economy almost USD 128 billion each year. Estimates show that by around 2030 almost 67 million Americans, 25% of the population, will be suffer- ing from osteoarthritis.
BUSINESS OVERVIEW
Two of the most common forms of arthritis are osteoarthritis and rheumatoid arthritis, where osteoarthritis is the most common. Os- teoarthritis mainly affects joints which support the weight of the body, such as the hip, knees and lower back. It also affects the neck, the thumb base, the big toe and the small finger joints.
soft tissue injuries
Injuries to tendons are very common. An estimate from the Ameri- can market in 2003 shows that approximately 781,000 tendon and ligament ruptures were repaired by sutures or replaced using tis- sue from the patient. Some 80% of the market is within the shoul- der, hip and knee. The remainder is made up of the hand, wrist, foot and ankle.
Damage to the rotator cuff is a common cause of shoulder pain and disability. It is a problem that occurs in both young and old.
The risk of rotator cuff injury increases with age as the rotator cuff muscle and tendon tissue lose some of their elasticity and blood supply and in doing so become more prone to injury. Rotator cuff injuries are common among people who pursue sports and among people with physically demanding jobs.
Approximately 300,000 rotator cuff operations are performed each year in the USA. This is a growing market segment within both pri- mary and follow-up treatment. Many patients who have undergone a rotator cuff repair require further treatment because of rerupture.
By using Artelon
®Tissue Reinforcement many of these repeat op- erations could probably be avoided.
The Artimplant product, synthetic Artelon
®Tissue Reinforcement, today competes mainly with five other products, all manufactured from collagen of animal or human origin. These competing prod- ucts are GraftJacket from Wright Medical Technology, Restore from DePuy Orthopedics, CuffPatch from Biomet, TissueMend from Stryker and ZCR Patch from Zimmer.
defects in oral soft tissue
Many patients suffer from unbecoming gum defects, such as con- cavities, a lack of papillae in conjunction with implants, gaps or congenital soft tissue defects. The Company knows from contact with clinics that there is considerable interest in the indications for which Artelon
®Cosmetic are intended. The Company is not aware of any other implant for soft tissue plastic surgery in an oral envi- ronment.
bone resorbtion in the upper jaw
A prerequisite for anchoring a dental implant into the jaw is that there is sufficient bone volume. Bone replacement material allows stable anchoring of the dental implant even in areas where the bone volume has been reduced. The number of patients who lack sufficient bone of their own is increasing as the average life expec- tancy increases.
The market for bone replacement material in an oral environment is governed by the demand for dental implants and fixed prostheses.
The implant market is growing steadily by 20% per year. In Sweden, it is estimated that approximately 120,000 dental implants will be fitted in 2007. It is estimated that some form of bone tissue replace- ment is used in 20-30% of the dental implant cases. The target indication for Artelon
®Bone Scaffold, augmentation of bone vol- ume, in conjunction with a sinus lift in the upper jaw, is estimated to represent approximately one-tenth of this market.
pROduCt dEVElOpMEnt
Regeneration of joint surfaces (Resurfacing)
The Artelon
®implant has demonstrated its capacity to regener- ate a functional joint surface in four of the joints in the body. The mechanical pressure on the surfaces of different joints varies al-
though there is considerable evidence that Artelon
®can be used to create a new, functioning surface in other joints.
An agreement has been reached with Small Bone Innovations to develop the implant for several joints in the hand. Discussions have been conducted with other bodies to, for example, produce an im- plant for osteoarthritis in the jaw joint.
There is a considerable medical need for treatment of osteoarthritis in the facet joints between the vertebrae, primarily in the lumbar region, as this is a very common cause of severe chronic pain. The surgical procedure that is currently available is arthrodesis. The results following such a procedure are often unsatisfactory, which means that the procedure is done as a last resort. Preparations are in progress, together with one of the world’s leading back clin- ics, to conduct a clinical study of the resurfacing concept using Artelon
®for facet joint osteoarthritis.
Many patients suffer from cartilage damage in the knee joint. For minor injuries it is possible to treat this with the person’s own carti- lage cells. A knee joint with a high degree of osteoarthritis is treated by implanting joint prostheses made of metal. Between these two groups of patients there is a significant group whose injuries are too serious for a cartilage cell transplant and who are too young for a major procedure involving a metal prosthesis. Artimplant intends to examine whether this large group of patients could be treated using the Artimplant Resurfacing concept.
Reinforcement of weakened soft tissue (Reinforcement) Artelon
®Tissue Reinforcement (ATR) is a product that offers con- siderable potential. In its favor in particular is the fact that it has already been cleared for marketing with a very wide indication both in Europe and the USA. The list of conceivable indications could be very long. To date, the product has mainly been used by orthopedic surgeons and hand surgeons although there are very good precon- ditions for future use within several surgical specialties, including plastic surgery and general surgery. Artimplant is now facing the task, together with practitioners in different surgical specialties, of documenting surgical techniques and treatment results for a whole series of indications.
Replenishment of bone for attachment of dental implants (Replenishment)
The market for dental implants is growing steadily. One problem for many patients who would like treatment using a dental implant is that they do not have sufficient bone to attach the titanium screws that hold the dental implant in place. Artelon
®Bone Scaffold was developed for bone replenishment in order to be able to fit dental implants into the upper jaw. The first generation of this Artelon
®product was withdrawn from the market as a result of the fact that the newly formed bone was in several cases insufficiently stable to permit durable fixation of the titanium implant. The reasons for this were clarified during 2007 and both the product and the treatment instructions had been modified in order to optimize the conditions for bone ingrowth. A clinical study is planned to start during the second quarter of 2008 together with a dental practitioner who has extensive experience in this area.
Replenishment of soft tissue in the face (Replenishment) With positive experience of Artelon
®Cosmetic in soft-tissue plastic surgery in an oral environment, Artimplant is planning to develop products made from porous Artelon
®for replenishment of soft tis- sue in the face within reconstructive surgery.
Artelon
®as a bearer material
A further identified area of use for Artelon
®is as a bearer of other biomaterials, active substances and cells. During 2007, an external body commenced evaluation of Artelon
®as a bearer of cells in the treatment of chronic diseases.
BUSINESS OVERVIEW
2007** 2006** 2005 2004* 2003 CAsH flOw stAtEMEnts
Cash flow from current operations -15,632 -33,190 -28,393 -27,416 -28,328
Cash flow from investment operations -3,832 -2,292 -3,301 -3,907 5,810
Cash flow from financial operations - - 84,603 14,650 59,040
Cash flow for the year -19,464 -35,482 52,909 -16,673 36,522
Liquid assets as of Jan 1 68,704 104,186 51,277 67,950 31,428
Liquid assets as of Dec 31 49,,240 68,704 104,186 51,277 67,950
2007** 2006** 2005 2004* 2003
inCOME stAtEMEnts
Net sales 16,275 5,536 8,229 4,804 1,225
Cost of goods and services sold*** -2,603 -616 -482 -921 -1,225
gross profit/loss 13,672 4,920 7,747 3,883 0
Research and development costs*** -14,722 -43,177 -26,959 -32,327 -13,878
Selling costs -9,134 -12,090 -9,608 -8,276 -7,637
Administrative costs -5,446 -7,183 -8,613 -6,847 -6,417
Share in profit/loss of subsidiaries - - - - 775
Operating loss -15,630 -57,530 -37,433 -43,567 -27,157
Interest income and other financial income 2,251 1,841 1,211 1,228 771
Interest expenses and other financial expenses -71 -330 -22 -33 -40
Share of profit on disposal of operations - - - - 9,966
Write-down of participations in subsidiaries - - - - -13,739
net financial items 2,180 1,511 1,189 1,195 -3,042
loss after financial items -13,450 -56,019 -36,244 -42,372 -30,199
Taxes - - - - -
loss for the period -13,450 -56,019 -36,244 -42,372 -30,199
07-12-31** 06-12-31** 05-12-31 04-12-31* 03-12-31
bAlAnCE sHEEts
Total fixed assets 10,006 10,214 32,314 37,936 53,254
Total current assets 59,606 72,863 107,702 54,068 70,922
of which cash in hand and at the bank 49,240 68,704 104,186 51,277 67,950
total assets 69,612 83,077 140,016 92,003 124,176
Total restricted equity 77,913 132,966 168,542 126,020 141,569
Total retained loss -13,664 -55,352 -35,696 -42,081 -30,199
total equity 64,249 77,614 132,846 83,939 111,370
Total provisions and non-current liabilities 52 353 245 - -
Total current liabilities 5,311 5,110 6,925 8,065 12,806
total equity and liabilities 69,612 83,077 140,016 92,003 124,176
FIVE-YEAR OVERVIEW amounts in KSEK
* IFRS applied with effect from 2004.
** Consolidated financial statements, including Artimplant USA, Inc. 2006-2007. The figures for 2003-2005 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 are reported as R&D. Previous years have been recalculated as follows:
2005, KSEK 6,053 was transferred from cost of goods sold to R&D and in 2004 KSEK 3,827 was transferred from cost of goods sold to R&D.
2003 was not affected.
KEY RATIOS amounts in KSEK
DEFINITIONS
2007 2006 2005 2004* 2003
Equity per stock unit, SEK 1.08 1.31 2.24 2.13 3.10
Equity per stock unit after dilution, SEK 1.08 1.31 2.24 2.13 3.10
Loss per stock unit, SEK -0.23 -0.95 -0.73 -1.12 -1.21
Loss per stock unit after dilution, SEK -0.23 -0.95 -0.73 -1.12 -1.21
No of stock units in issue at year-end 59,244,790 59,244,790 59,244,790 39,496,527 35,896,527 Average no. of stock units in issue during year 59,244,790 59,244,790 49,370,659 37,696,527 24,928,144 No. of stock units in issue after dilution 60,446,582 60,348,628 61,107,012 40,829,867 37,229,867
Cash flow per stock unit, SEK -0.33 -0.60 0.89 -0.42 1.02
Dividend per stock unit, SEK
1)- - - - -
Market price, highest, SEK 7.55 9.80 9.15 15.40 8.83
Market price, lowest, SEK 3.10 2.79 4.29 3.67 2.11
Market price as of Jan 1, SEK 3.66 8.45 6.50 7.60 3.77
Market price as of Dec 31, SEK 3.32 3.66 8.45 6.50 7.60
Return on equity, % neg neg neg neg neg
Return on capital employed, % neg neg neg neg neg
Equity/assets ratio, % 92 93 95 91 90
Proportion of risk capital, % 92 93 95 91 90
Interest-bearing liabilities Inga Inga Inga Inga Inga
Interest coverage ratio, times - - - - -
Financial net assets 49,240 68,704 104,186 51,277 67,950
Capital expenditure:
Research and development
2)- 480 1,587 2,889 4,440
Patents and brands 3,236 646 574 367 1,456
Machinery, equipment and fixed assets under construction 627 1,165 1,141 651 61
No. of employees as of Dec 31 25 28 27 26 24
The effects of dilution have not been reported in those cases where they would have resulted in an improvement in the key ratios.
* IFRS applied with effect from 2004.
1)
For 2007 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 before extraordinary items, 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 balance sheet total less non-interest bearing liabilities including deferred tax on untaxed reserves.
Equity/assets ratio
Equity expressed as a percentage of the balance sheet total.
proportion of risk capital
Equity plus untaxed reserves expressed as a percentage of the balance sheet 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.
BOARD OF DIRECTORS’ REPORT
COMpAny infORMAtiOn
This Annual Report covers the financial year January-December 2007 for the Artimplant Group with the Parent Company Art- implant AB (publ), registration number 556404-8394, hereinaf- ter called Artimplant or the Company, with its registered office in the county of Västra Götaland, Municipality of Gothenburg.
The Group comprises the aforementioned Parent Company and Artimplant USA, Inc., a wholly owned subsidiary registered in Delaware, having its office in Lansdale, PA, USA. 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. 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 on the OMX Nordic Stock Exchange Stockholm in the Small cap segment and in the Healthcare sector since 1997.
sAlEs
Net sales increased to SEK 16.3 million (5.5) and consisted mainly of revenue from product sales with associated license revenues (72%). The remaining 28% of net sales refers to an one-off payment of SEK 3.2 million for a new license agree- ment with Small Bone Innovations (SBI) and milestone pay- ments from SBI in conjunction with FDA clearance for Artelon
®STT Spacer and Artelon
®CMC Spacer Arthro. Since Artelon
®was launched more than 6,000 patients have been treated with Artelon
®implants. Sales of Artelon
®Spacer increased during 2007 to approximately 3,900 (2,750) units. SBI’s customers have carried out certain inventory build-up prior to the year-end.
Sales of Artelon
®Spacer during the second and third quarters of 2007 did not match Artimplant’s expectations. The correc- tive measures implemented by SBI had an impact in the form of increased sales during the fourth quarter. A new surgical procedure has been established. This offers more stable fixa- tion which will ensure reduced post-operative pain. SBI’s rapid market penetration means that more than 700 customers have purchased Artelon
®Spacer. The majority have only performed a few operations and have not yet acquired the full experience required to continuously ensure a positive clinical result. The use of Artelon
®CMC Spacer is a tested and successful form of treatment for thumb base osteoarthritis.
During the third quarter, SBI introduced Artelon
®CMC Spacer Arthro for keyhole surgery and Artelon
®STT Spacer onto the American market. Artimplant does not expect any major sales of these products before SBI has conducted clinical studies together with American surgeons. SBI estimates that 10% of hand surgeons in the USA work with arthroscopic surgery.
Compared with the market for osteoarthritis in the STT joint, Artimplant estimates that approximately 25% of the patients who are diagnosed with osteoarthritis in the CMC joint also have osteoarthritis in the STT joint.
In December, SBI acquired the right to the resurfacing concept for joint applications in the hand and wrist which SBI had not already licensed. The sale gave Artimplant KUSD 500 as a one- off payment. The agreement also means that Artimplant will develop, at SBI’s expense, Artelon
®Spacer for three new joints.
Artimplant manufactures the products and receives payment in the form of a fixed and variable amount. At the same time, an option was signed which gives Artimplant the right to sell product registrations for existing Spacer products to SBI for KUSD 400.
Sales of Artelon
®Tissue Reinforcement (ATR) as reinforcement for soft tissue injuries take place partly through Artimplant and partly through Biomet Sports Medicine (Biomet) under the brand name SportMesh™. Sales to Biomet’s customers during 2007 amounted to almost 600 units. During the fourth quar- ter of 2007 Biomet was granted a non-exclusive right to sell SportMesh™ for new indications cleared by the FDA in Sep- tember 2007. This gives Biomet the opportunity to address a much larger market, which is expected to increase their sales of SportMesh™ considerably. The existing agreements for the rotator cuff application has been renegotiated in such a way it is now non-exclusive, with retained commitments for Biomet.
This gives Artimplant the opportunity to exploit all product ap- plications for ATR alongside Biomet. The medical experience from the patients were being treated with ATR is positive in all applications that are being tested. There has been stable growth in sales despite the lack of published clinical data. The market for ATR is also considered to be significantly larger than for Artelon
®CMC Spacer. Artimplant commenced market- ing activities for ATR in Europe during the fall. A consultancy agreement has been signed with Professor Lars Peterson, who together with Artimplant’s new sales management has com- menced the build-up of European reference clinics with the aim of creating a scientific and commercial base for continued market penetration.
AppROVAls And pROduCt lAunCHEs
In September, Artimplant was given the clearance to market ATR for new indications in the USA. The clearance offers the opportunity to market the product on a considerably larger market than previously. Examples of new indications that can be marketed are the reinforcement of all tendons in the rota- tor cuff in the shoulder as well as tendon injuries around the kneecap, biceps, quadriceps and Achilles. Previous clearance in the USA limited the marketing of the product to one tendon
0200 400 800 1,000
600 1,200 1,400
2006Q1 Q2
2006 Q3
2006 Q4 2006 Q1
2007 Q2
2007 Q3
2007 Q4 2007
number of Artelon
®spacer sold to customers
of the rotator cuff in the shoulder, the supraspinatus. Biomet thus has the opportunity to market SportMesh™ fully for rota- tor cuff injuries, which was not possible previously. During the second quarter, Artimplant was granted FDA clearance to mar- ket two new Spacer products in the USA, Artelon
®STT Spacer and Artelon
®CMC Spacer Arthro. The products were launched in the USA by SBI during the third quarter.
Two minor market studies for Artelon
®Cosmetic for the re- plenishment of soft tissue in dental applications commenced in the middle of 2007. The studies are being conducted by the Brånemark Clinic in Gothenburg and at the Faculty of Odontol- ogy at Göteborg University.
During 2007, Artimplant developed a new design for Artelon
®Bone Scaffold for bone replenishment in the upper jaw in con- junction with a sinus lift.
ARtiMplAnt’s finAnCiAl REsults 2007
The operating loss improved to SEK 15.6 million (57.5) Net loss for the year improved to SEK 13.4 million (56.0). Exclud- ing non-recurring items, earnings after tax improved to SEK -11.8 million (-38.9). Non-recurring items can be attributed to severance costs amounting to SEK 1.6 million in the second quarter of 2007 and the impairment of product development costs brought forward during 2006 amounting to SEK 17.1 mil- lion, see also Note 5. The net result for the year has not yet been affected to any material extent by exchange rate fluctua- tions. Earnings per stock unit for the full year, including non- recurring items, amounted to SEK -0.23 (-0.95).
During the fourth quarter the Company carried out further de- velopment of product calculations, the allocation of joint costs to departments as well as adjusted inventory values according to a new calculation. The proportion of joint costs allocated to production has increased and the proportion to research and development has decreased. Compared with the earlier product calculation, inventory as of December 31, 2007 was revalued upwards by SEK 1.3 million. See also under Account- ing principles/Inventory.
Investments during 2007 amounted to SEK 3.8 million (2.3), of which SEK 3.2 million (1.1) refers to intangible assets. SEK 2.8 million of intangible investments refers to the settlement of a royalty agreement with the holder of the basic patent for Artelon
®. As the agreement was terminated as of January 1, 2007, full-year depreciation of this patent investment purchase took place during the fourth quarter.
Cash flow before changes in working capital improved to SEK -9.6 million (-32.5). A combination of an increase in revenue and cost control contributed to current operations making use of considerably less capital than the previous year. The net cash flow was SEK -19.5 million (-35.5). At the year-end liquid funds amounted to SEK 49.2 million (68.7).
EVEnts AftER tHE yEAR-End
No events of material significance occurred after the year-end.
futuRE pROspECts
The Company does not issue any sales or earnings forecasts as the majority of the Company’s products have been recently laun- ched. Artimplant has the following operative direction for 2008:
• Continued increase in sales of Artelon
®CMC Spacer and Artelon
®Tissue Reinforcement in the USA and Europe.
• A new American sales management will be established with a focus on introducing Artelon
®Tissue Reinforcement at a number of reference clinics in the USA.
• Artelon
®Tissue Reinforcement will be introduced at a number of reference clinics in Europe.
• Establishment of sales of Artimplant products through distributors in the Nordic region.
• Development of products for soft tissue reconstruction in the CMF area (Cranio-Maxilliofacial/head and face) will commence.
• A new Spacer product will be developed together with SBI.
• A multicenter study will be commenced for Artelon
®MTP Spacer.
• Completion of post-market studies regarding Artelon
®Cosmetic for soft tissue replenishment in dental applications.
• Commencement of a study regarding Artelon
®Bone Scaffold for bone replenishment in the upper jaw.
Artimplant’s business operations are based on exploiting the Company’s unique biomaterial platform Artelon
®. Signing agreements with other parties and receiving product regis- trations is a natural, ongoing part of this business. There is considerable interest in Artimplant and the technology the Company controls. The largest orthopedic areas, hip, knee and spine, offer very exciting market potential, which has yet to be exploited by Artimplant.
BOARD OF DIRECTORS’ REPORT
ORgAniZAtiOn And HuMAn REsOuRCEs
Artimplant is certified according to ISO standard 13485 for med- ical device products and works systematically to improve quality.
Human resource development takes place through regular ap- praisal discussions, in-house exchange of know-how, the devel- opment of skills and expertise as well as preventive health care.
The Company works continuously to improve the working envi- ronment and fire protection and did not have any occupational injuries or incidents during the year. The number of employees as of December 31, 2007 was 25 (28), of whom 12 (12) were women and 13 (15) men. The staff turnover in 2007 was 19.2%
(23.3). Absence due to illness was 3.3% (4.5) and of the total number of hours absent due to illness, 26.5% (14.0) referred to absenteeism due to illness longer than 60 days. Further informa- tion is available under Note 2.
EnViROnMEnt
The Company’s activities have only had a negligible impact on the environment. The Company complies with legislation and guidelines for those chemicals that are part of operations. En- vironmental permits have been secured for the use of organic solvents. The Company is also affiliated to the REPA Regis- ter and this satisfies the requirements regarding recycling of packaging materials.
stOCk And OwnERsHip
The Company did not hold any of its own stocks during 2007.
For a presentation of the number of stocks, quota value, option programs that could lead to dilution, right to the Company’s assets, ownership provisions, etc. can be found in Note 2 in the section Stock and ownership, and in Note 10.
RElAtEd pARty disClOsuRE
The Company has not been involved in any transactions with related parties other than the remuneration and other ben- efits received by Directors and senior management reported in Note 2.
Guidelines for remuneration to senior management for 2007 and the proposal by the Board of Directors for 2008 are dealt with in Note 2.
lEAsE AgREEMEnt
The Company has one major operational lease with Platzer for an office, production premises and laboratory in Västra Frölun- da at Hulda Mellgrens gata 5. The agreement is valid until June 30, 2010 and is renewed automatically for five years if notice of termination is not given within 12 months of cessation of the lease. The rent is adjusted according to the Swedish Consumer Price Index. At the year-end the Company had the following commitments pursuant to this agreement.
• The cost of premises which falls due for payment within one year is KSEK 2,978
• The cost of premises which falls due for payment later than one year but within five years is KSEK 4,467
MAtERiAl futuRE Risks
Risk is a natural part of business operations and it is part of the day-to-day work of the Artimplant management to handle, prevent and limit risks and restrict the damage that could nev- ertheless arise. The following are a number of the risks which Artimplant wishes to highlight in particular.
With 6,000 patients treated with Artelon
®implants and up to 10 years’ clinical experience we have a base for the biocompat- ibility of the material and that the first product concepts actually work. The level of risk falls even further in line with the increase in medical experience.
Artimplant has one production location and would thus have difficulty supplying products to its customers if a significant dis- ruption were to occur, e.g. fire. The Company has business in- terruption insurance which will compensate in part for this risk.
Should any of Artimplant’s largest customers experience a dis- ruption this could have a considerable impact on Artimplant’s revenue. With more customers and a broader product portfolio, the risk exposure will decrease in the years to come.
It is in the nature of the business that there is a risk of lawsuits and claims for damages linked to the Company’s product li- ability. In addition, there is always a risk that the Company could be drawn into patent disputes or disputes regarding other in- tangible assets, falsification etc. To compensate for these risks the Company has taken out global liability insurance which cov- ers in particular product liability. The maximum compensation amount payable under the insurance is adjusted In conjunction with the increase in sales volume, particularly in the USA.
BOARD OF DIRECTORS’ REPORT
president senior management
Finance and Administration Medical Affairs Quality Assurance
Product Development Production and
Logistics Sales and
Marketing 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: 19
Senior high school: 2
PhD: 4 <30: 4 >50: 4
41-50: 6
31-40: 11
