It’s crunch time for BoneSupport, one of Europe’s most shorted stocks
Casing the joint
For reasons most of us will hope to never find out, BoneSupport is an interesting company.
The Swedish group develops and commercialises bio-ceramic bone grafts. Its core product, Cerament BVF, is an injectable plaster that fills skeletal voids and hardens into a substitute for the host bone within six to 12 months.
BoneSupport’s existing market is stable but small: about 7,200 patients received Cerament BVF implants last year, giving the company around a 25 per cent share in extremities (meaning big stuff like limb loss and fractures that have failed to heal).
Much more important for the investment case are the second-generation products, Cerament G and V, which add slow-release antibiotics. Infection-led bone conditions are much more common than extremities — US doctors do about 3.2mn graft procedures each year — so broader approvals are steadily opening up the company to bigger markets.
The next-gen Cerament formulations combat infection by eluting antibiotics over 28 days. Unlike pills or an IV drip, slow-release targeted antibiotics promise to go to exactly where they’re needed then hang around in sufficiently high concentrations for a much longer period.
Cerament G, having gained US regulatory approval in 2022, is used widely to treat osteomyelitis (bone infections). BoneSupport is now pushing to broaden access to the drug for treating trauma, complex infections and in arthroplasty (joint remodelling).
It’s expensive stuff, at approximately $5,000 per 10ml for US hospitals. But trial data published between 2016 and 2018 was convincing enough to justify Cerament G being prescribed in the US on temporary Medicare reimbursement codes designed to improve access to breakthrough treatments.
All six sell-side analysts who cover BoneSupport have “buy” recommendations. The company’s own guidance shoots for organic growth this year of between 33 and 36 per cent. There’s no near-term funding uncertainty. There’s no overhang of shares needing to be sold. So why is the Nasdaq Stockholm-listed stock among the most heavily shorted in Europe?
One idea to have caught the attention of hedge funds is that next-gen Cerament might not work as claimed.
A paper to be published in the Journal of Bone and Joint Surgery argues that pivotal trials of antibiotic-loaded ceramic bone grafts used flawed data. A team of researchers from Denmark say results were “driven by serial dilution rather than release” — meaning the original trials involved a lab experiment that started with a very high concentration of antibiotics, then gradually substituted the solution for water over days and weeks until the strength fell below the minimum requirement.
Lab testing does not reflect real-world conditions, the Danish researchers claim. In their pre-clinical studies using mice, the antibiotic-infused grafts had released more than 99 per cent of their antibiotic load within 24 hours. They allege that the original evidence of long-lasting benefit is explained by trial design alone, whereas their results show the infused grafts offer no advantage over pills and IV.
The paper’s authors include founders of Precision Antibiotics, a Danish start-up that’s developing its own local antibiotic delivery system. Funded by Novo Nordisk Foundation, it builds on a separate 2024 study that found Cerament G had eluted 95 per cent of its payload after 24 hours.
BoneSupport said by email that the Danish study “differs substantially from the intended clinical use of Cerament G, which is indicated for use in bone and designed to support bone healing while delivering local antibiotics”:
In the study, the material was placed in soft tissue, without the containment and bone contact that are essential to its clinical application. This does not reflect how Cerament G is used in clinical practice.
Pre-clinical models are common in the early exploration of new technologies, used to help explain or predict effects in the human body before being replaced, in later stages, by clinical studies conducted with the product used as indicated. Over the past decade, BineSupport's focus has been on generating clinical evidence and documenting patient outcomes in clinical practice.
This has resulted in more than 340 clinical studies covering more than 3,000 patients, validating and demonstrating the clinical (in-vivo) benefits that Cerament G provides.
Questions about Cerament’s efficacy aren’t just for investors. BoneSupport’s antibiotic-infused grafts were used last year in more than 12,000 procedures in the US and a further 4,600 in Europe and the rest of the world, Stifel analyst Ed Hall estimates. Sales of the next-generation treatments have been growing at 40 per cent a quarter, the company said in a second-quarter presentation.
We’re writing about all this today because, for BoneSupport shareholders and the hedge funds betting against the company, there are two big events on the immediate horizon.
The US Food and Drug Administration will decide by October on whether to approve Cerament in its V formulation for treating bone infection. Cerament V has been available in Europe since 2023, so a negative decision would be a surprise, but with the FDA last month having pushed back the decision timeline and requested more data, it’s not beyond the bounds of possibility.
Clinical trial results due imminently have the potential to be even more significant. Oxford university researchers are expected to deliver findings from a seven-year trial — known as Solario, which stands for Short Or Long Antibiotic Regimes in Orthopaedics — at this week’s European Bone and Joint Infection Society conference in Porto.
Adults being treated for bone or joint infections are ordinarily given a course of standard antibiotics that lasts at least four weeks. The length of treatment risks promoting antibiotic resistance, as well as causing all sorts of side effects and rattling up the total costs. Solario studies whether patients who had antibiotics seeded in their wound during surgery can get by on seven days or fewer of standard drugs.
Positive results could support much broader use of BoneSupport products for reasons of safety and cost. BoneSupport’s current short position is equivalent to around 27 days of average volume, so any short squeeze triggered by positive headlines might be dramatic.
What exactly the trial can show is already a matter for debate, however. Both arms of the trial received antibiotic-infused implants during surgery, meaning it’s not a conventional test of drug efficacy.
We can’t learn much by comparing surgery failure rates under two dosing regimens if one of the drugs isn’t doing what’s expected. It’s a bit like a survey about Hawaiian pizza. Asking whether people like pineapple will tell us the marginal preference for pineapple, but it won’t tell us about the ham. We’ve no way to know from the survey alone whether ham adds or subtracts value to the pizza. The relationship between ham and pineapple is undetermined.
Would the Solario trial have progressed on the same design if the concerns highlighted by the Danish research had surfaced sooner? How have these fresh doubts about the usefulness of antibiotic-infused implants affected the chances of Cerament G and V being approved for new indications? It’s no more than a tail risk on current evidence, but if it does transpire that patient safety has been put at risk because of flawed trial data, where might the buck stop?
As indicated by the pizza example above, we at Alphaville are not qualified to take a side on any of these questions. We’re just interested to see how one of the European market’s most polarised short stories shakes out. One way or another, it promises to be a lively week.
