[Post-IPO]⑧ Osteonic's Performance Falls Short of Estimates... "Will Next Year Be Different?"

[Asia Economy Reporter Yoo Hyun-seok] Osteonic, now in its third year since listing, has failed to meet the performance estimates presented at its entry into the KOSDAQ. Although it was expected to record over 30% annual growth in sales and operating profit, product supply to client companies was lower than anticipated. However, the company expects sales expansion to be possible from next year as its products obtain overseas certifications and enter markets such as the United States and Europe in the second half of this year.

Osteonic is a company titled as the first enterprise supported by the ‘Startup Leap Package Support Project’ jointly backed by the Ministry of SMEs and Startups and the Korea Institute of Startup & Entrepreneurship Development. It was established in 2012. The company independently develops and sells metal material products for orthopedic implants and biodegradable bio-composite material products. Its main products include CMF (cranio-maxillofacial) and sports medicine (joint preservation) products.

The lead underwriter, Kiwoom Securities, calculated Osteonic’s estimated net profit for 2020 at 8.3 billion KRW when determining the IPO price. According to the prospectus, "The biodegradable technology products evaluated by Kiwoom Securities as a technology evaluation agency currently remain at domestic sales, but between 2019 and 2020, European certification (CE) and U.S. Food and Drug Administration (FDA) approval for the biodegradable product line were completed, which will significantly increase overseas sales."

The initially proposed IPO price range for Osteonic was 5,800 to 7,500 KRW, but the final confirmed IPO price was 7,800 KRW, exceeding the upper limit of the proposed range. The institutional subscription rate was 442 to 1. In the subsequent public subscription for general investors, the subscription rate reached 998.83 to 1. Additionally, 922.9 billion KRW was gathered in deposits. Osteonic, which was successful in the public offering market, entered the KOSDAQ market in February 2018.

Despite its success in the public offering market, Osteonic’s performance did not grow as expected. Kiwoom Securities anticipated that Osteonic would achieve sales of 15 billion KRW and operating profit of 5 billion KRW in 2018, sales of 22.5 billion KRW and operating profit of 6.3 billion KRW in 2019, and sales of 30 billion KRW with operating profit of 10.4 billion KRW this year. This corresponds to an average annual growth rate exceeding 40%.

Osteonic’s sales and operating profit did increase annually, but the results were far from the expectations of the company and Kiwoom Securities. In 2018, Osteonic recorded sales of 9.1 billion KRW and operating profit of 100 million KRW. The gap rate between the forecasted and actual sales was 39.74%, and the operating profit gap was 97.29%. The company explained in its quarterly report that "the delay in concluding a basic contract for exclusive supply and sales of the Neuro system, a neurosurgical fracture fixation and reconstruction implant system included in the forecasted sales, caused a decrease in sales performance," and "operating profit also decreased due to lower-than-planned sales."

The same was true last year. In 2019, sales were 11.2 billion KRW with operating profit of 500 million KRW. The gap rates for sales and operating profit were 50.30% and 92.40%, respectively. A company official said, "The gap rate increased because the exclusive supply partner did not purchase as much as the annual plan."

In the first quarter of this year, Osteonic recorded sales of 2.3 billion KRW and an operating loss of 600 million KRW. Sales increased by 29.30% compared to the same period last year, but losses continued. Although sales increased, the performance was insufficient to achieve this year’s expected 30 billion KRW. The official stated, "Due to COVID-19, overseas sales in key regions such as Southeast Asia and South America have been sluggish," and added, "We are continuously monitoring the current situation."

However, the company expects sales expansion to be possible from next year. Osteonic is negotiating with Zimmer Biomet to enter key markets such as the United States and Europe with trauma product lines used in bone surgeries excluding spine, hip joint, and knee joint surgeries. The official emphasized, "Until now, we have not been able to enter main markets such as the U.S., Europe, and Japan," and added, "We expect to obtain CE and FDA certifications around the fourth quarter of this year."

This content was produced with the assistance of AI translation services.