OssDsign

* Limited revenue diversification with only one product in one market
* Currently unprofitable with negative cash flow
* Not yet positioned to capture the greatest value in its large target market (more clinical data to support value proposition is needed)
* Dependent on key individuals for success at current stage of development

* High gross margins and scalable business model with minimal reinvestment needed for growth
* Benefits from secular tailwinds in spinal fusion market with products lasting over a decade
* Strong intellectual property and value proposition in a slow-moving, conservative industry (which acts in favour once established)
* Products contribute to greater good by improving patient outcomes in spinal fusion procedures

* Limited insider ownership, with management and board members not holding significant personal stakes in the company.
* Absence of a controlling owner with a long-term commitment, which could provide additional stability and strategic influence.

* Strong, visionary CEO with deep industry knowledge and commitment to long-term value creation, challenging conventional practices in the conservative orthopaedic industry.
* Clear strategic plan (ASCENT26) with consistent delivery on promises, particularly in sales growth and successful capital allocation through the Sirakoss acquisition.
* Transparent and effective investor communication, focusing on long-term business value drivers like GPO contracts, clinical data, and geographic sales diversification.
* Founder involvement from Sirakoss acquisition, bringing commercial expertise and incentivized by royalty and milestone payments related to Catalyst sales.

For the third quarter, sales amounted to SEK 6,481m (4,836) &#8211; an increase of 34% compared to Q3 2019. Comparing to Q2 of this year, sales grew by 66%. Very encouraing figures, we argue, as it shows sales have returned to levels before the corona crisis. Geographically, the EU made up some 62% of sales and the US some 38%. Going forward, we still expect the US to accelerate further and make up a higher percentage of net sales. We find support for this view in the fact that the US sales were up some 100% compared to the second quarter of this year. Moreover, the gross margin increased to some 73% (63%). The operating profit amounted to SEK -18,494m (-19,615m).
The cash position at the end of the quarter amounted to SEK 54,093m. Cash flow from operating activities during the third quarter was SEK -17,103m (-22,589). In early November, OssDsign raised SEK 65m, of which roughly SEK 50m finances the acquisition of Sirakoss. This would leave a net cash position of roughly SEK 67m (to read more about the acquisition and the directed share issue, see our <a href="https://www.redeye.se/research/797146/ossdsign-comments-on-the-significant-events">note on the significant events</a>). As we have argued for in <a href="https://www.redeye.se/research/792865/ossdsign-growth-set-to-accelerate">our initiation of coverage</a>, there is an underlying capital need for OssDsign going forward. With the acquisition, which requires OssDsign to pay an additional SEK 60m next year, the capital need will be greater than we had earlier anticipated. We still expect an equity issue in the coming six months.
Fair Value Range under review
In connection to the directed share issue, we made adjustments for the new number of shares (and slight increase of capital), which affected our fair value range. Our Base Case is currently at SEK 23 per share, though, we will shortly provide a more thorough take on the acquisition and its effect on OssDsign&#8217;s sales potential and its valuation.