Episurf — Interim / Quarterly Report 2018

Apr 27, 2018

Episealer® surgery in Munich, Germany, April 2018. Orthopaedic surgeon Dr. Christian Kothny at the Clinic Dr. Decker

Interim Report, 1 January–31 March 2018

First quarter 2018 compared to 2017, Group

• » Group net sales increased by 135% to SEK 1.1m (0.5)
• » Gross order intake amounted to SEK 0.9m (0.7) an increase of 10.1%
• » Order backlog amounted to SEK 0.5m (0.5)
• » 34% growth in orders for Episealer® knee implants during the quarter with 39 (29) approved orders
• » Loss before tax amounted to SEK –13.3m (–19.0)
• » Earnings per share (weighted average) amounted to SEK –0.44 (–0.94)

Revenues and gross order intake

Significant events after the first quarter

• » Episealer® clinical outcome was presented at the 2018 world congress of International Cartilage Regeneration & Joint Preservation Society (ICRS) In Macau
• » Promising clinical results from use of Episealer® were presented at the annual meeting of British Association for Surgery of the Knee
• » Episurf Medical's knee products approved for marketing and sale in Spain
• » Episurf Medical entered into a distribution agreement in Hong Kong and established subsidiary In the US

Significant events during the first quarter

• » Episurf Medical continued regulatory preparations and industrial partnership discussions in the US
• » Episurf Medical received market approval in Israel and signed distribution agreement for the Israeli market
• » Episurf Medical announced that the company is in the final stages of the development of an ankle implant
• » Episurf Medical signed financing agreement of up to SEK 70m which was approved at the AGM April 9th, 2018
• » Episurf Medical received another patent approval in the US related to Episurf Medical's 3D-based damage assessment tool
• » Episurf Medical presented long-term financial and operating targets

Pål Ryfors, CEO

Message from the CEO Dear shareholders,

At the very end of 2017, the first peer-reviewed article with results from a multicenter study on the Episealer® knee implant was published. The primary objective was to assess implant safety profile, surgical usability of the implant and instruments, and implant migration. As previously communicated, the patient-related outcome measures showed good-to-excellent results, the surgical usability of implants and instruments was good and no implant migration was seen. Since then, additional clinical results from the use of Episealer® have been presented, most recently at two important clinical congresses; the annual BASK meeting (British Association of Surgery of the Knee) as well as at the annual meeting of ICRS (International Cartilage Regeneration & Joint Preservation Society). In the med-tech world, presentation of Episealer® data at clinical congresses is precisely what we need, in addition to publication of peer-reviewed articles in scientific journals. In this context, the last months clearly represent a break-through for Episurf Medical. We have several important milestones ahead of us when it comes to demonstrating the clinical performance of the Episealer®, and I encourage our shareholders to follow this development closely.

We are concluding an exciting first quarter and we have had a high level of activity across our business. Before accounting for the development in the first quarter, I would like to go directly to the core of what we are doing, by asking the question: Have we solved an orthopaedic problem?

Focal cartilage lesions in the knee joint for middle-aged patients, patients in the so called "treatment gap" are notoriously difficult to treat. There is no given or automatic healing process, instead, the end-point is all too often fully developed osteoarthritis and surgery with a total knee replacement. Millions of knee replacement surgeries take place every year and the forecasts for the future points to a significant increase in the need for knee replacements on a global basis. The most common treatment for focal

cartilage lesions is the biologic bone marrow stimulation procedure often referred to as microfracturing. Each year, an estimated 75,000 microfracturing procedures are performed in the knee joint in the US alone. If new cartilage is actually generated through microfracturing, this cartilage is made of a replacement tissue of lower quality compared to the original cartilage, leading to sub-optimal results. A high portion of these patients are subject to further surgical treatments within 2–3 years.

Our method is another way of dealing with focal lesions, and in our coming FDA study, we will compare the Episealer® technology to microfracturing. Already communicated results indicate that Episealer® performs better than microfracturing, and our 3 years' revision rate is less than 5%. When comparing published results for microfracturing with Episealer® results, our conclusion is that it is most likely that this study will show advantageous results for Episealer® at 24 months. Going back to the original question, whether we have solved and orthopaedic problem or not – it certainly looks very promising.

In the first quarter, we continued our work in the US and we aim at submitting our IDE application during the second quarter of 2018. We are also progressing with our discussions with US as well as European study clinics and surgeons and a lead investigator site is likely to be appointed and communicated shortly. In the US, we are also continuing with our industrial partnership discussions concomitantly. We are approaching these discussions in a cautious way. We have a successful technology which is covered by an efficient and extensive IP portfolio, addressing a global orthopaedic problem of significant size. Clearly, this generates interest from the industry.

In the first quarter, we also performed a road show in Asia, meeting local distributors, Key Opinion Leaders and regulatory experts in India, Taiwan, South Korea, Japan and Hong Kong. We look back at this road show as a success, and we

will continue our work in the Asian markets. In Hong Kong, our technology is ready to be marketed and we have entered into a distribution agreement with a local distributor. Following the above-mentioned countries, the next step in Asia will be to look at the south east Asian countries, but this region is a second priority. During the first quarter, we also received approval to market our technology in Israel and in Spain. We are working with distributors in these countries and these markets are important in our longterm business planning. Preparing for the future through initiatives aimed at securing access to international markets through early regulatory work remains a key strategy for us.

Looking ahead, we are continuing the work on our ankle implant for the talus bone. We are meeting a solid interest from our counterparties as these lesions in the ankle joint represent a treatment gap, just like in the knee joint. We are also advancing rapidly in the development of our proprietary imaging product Epioscopy®. We are confident that our diagnostic tool represents a cutting-edge technology and with the help of artificial intelligence, we have taken significant steps in our product development. This product will not only represent an interesting business opportunity on a standalone basis, it will also reduce the production time and costs of our Episealer® implants.

Concluding remarks

During the first quarter, first-time Episealer® users performed surgeries in, among others, Antwerp, London and Stockholm. Every new patient surgery is of course equally important, but each numeric milestone – now well over 350 sold implants – increases the size of our patient base as well as our confidence and the confidence of our surgeons to whom we offer a unique and effective solution to a major clinical problem, for which few if any treatment alternatives exist. We can conclude that for a certain type of indication, we have solved a clinical problem, which is surely good news for both our patients and our shareholders. We have in the past reported our implant population benchmarks at intervals of 50, but we are now confident enough of our data base and growth prospects that we no longer see the need for such announcements, and we will in the future report our increasing patient population quarterly, as part of our regular company reports.

We are well-funded, we have just started to prove that our technology works and we are executing on our global strategy. We are in a strong position.

Stockholm, April 2018

Pål Ryfors, CEO

Business update and forward–looking statements

By the reporting date on April 27 2018, Episurf Medical's implants had been used in 312 surgeries. Another 45 orders are approved for surgery in the coming weeks. Episurf Medical's patients are experiencing significant improvements in pain and mobility. Furthermore, they are also experiencing a short recovery time. Out of the total implant portfolio of 312 implants, we now have 11 patients who have had their implants for more than 4 years and 88 patients have now had their implants for more than 2 years since the surgery date. During the first quarter, 45 surgeries

were performed with the Episealer® knee implant and we continued to make progress in all of our key markets. 39 orders were approved for surgery during the first quarter. We continue to note a demand for the Episealer® Femoral Twin implant as 64% of the surgeries performed in the first quarter were of this product. This clearly shows that there is a demand for treating the more elongated lesions and the Episurf technology and the Episealer® Femoral Twin implant meets this demand in a very good way.

Implant surgeries in quarter

Approved orders in quarter Number 29 39 0 10 20 30 40 Q1 2017 Q1 2018

Financial information

Group

Net sales and operating profit/loss

Group net sales amounted to SEK 1.1m (0.5) in the quarter. Loss before tax amounted to SEK –13.3m (–19.0) for the quarter. The result for the first quarter 2017 was negatively impacted by costs for former CEO Rosemary Cunningham Thomas of approximately SEK 3m.

Financial position

Group cash and cash equivalents at end of period amounted to SEK 56.8m (127.3). The equity ratio was 88.9% (87.4). Group investments in intangible assets amounted to SEK 2.9m (1.7) for the quarter of which SEK 2.0m (1.0) are related to capitalised development costs, remaining investments relates to patents. Investments in tangible assets amounted to SEK – (0.0) for the quarter.

Human resources

Number of employees in the Group at end of the period was 25 (29).

Parent Company

Net sales and operating profit/loss

Group net sales amounted to SEK 0.1m (–) in the quarter. Loss before tax amounted to SEK –6.5m (–10.9) for the quarter.

Financial position

Cash and cash equivalents at the end of period for the Parent company amounted to SEK 47.2m (124.8). The equity ratio was 96.9% (93.8). Investments in intangible assets, capitalised development costs, amounted to SEK 2.0m (1.0) for the quarter. Investments in tangible assets amounted to SEK – (–) for the quarter.

Human resources

Number of employees in the Parent company at end of the period was 12 (14).

Transactions with closely related parties

Shareholder and Board member Leif Ryd has received consulting fees during the period of SEK 0.2m (0.2). Serendipity Communications AB has received consulting fees of SEK –m (0.1) and Serendipity Legal AB of SEK –m (0.0). Serendipity Communications AB and Serendipity Legal AB are related parties to Episurf Medicals largest shareholder Serendipity Ixora AB.

Episurf Medical's strategy rests on four key pillars:

Clinical and health economical data supporting the Episealer® technology

Large user base of orthopaedic surgeons and KOL's

Secure reimbursement and production enabling high margins

Technological and clinical relevance through a high degree of innovation

Share information

There are two types of shares in the Company. Each Class A-share carries three votes, and entitles the holder to three votes at the General Meeting and each class B-share carries one vote and entitles the holder to one vote at the General Meeting. Class B shares have traded on Nasdaq Stockholm's Small Cap segment since 11 June 2014 with the ticker EPIS B.

31 March 2018

A-shares	5,257,636
B-shares	25,291,859
Total number of shares	30,549,495
Total number of votes	41,064,767

The ten largest shareholders in Episurf Medical at 31 March 2018

	No. of A-shares	No. of B-shares	Share capital in %	Voting rights, %
Serendipity Ixora AB	4,601,519	0	15.1	33.6
JP Morgan Bank, Luxemburg	112,066	2,162,916	7.5	6.1
Försäkringsaktiebolaget, Avanza Pension	0	1,514,779	5.0	3.7
SEB London- Luxemburg, (SICAV Fond)	0	1,376,356	4.5	3.4
AMF Aktiefond småbolag	0	1,164,448	3.8	2.8
Pål Ryfors	0	1,016,393	3.3	2.5
Gile Medicinkonsult AB	279,945	142,954	1.4	2.4
LMK Forward AB	0	938,000	3.1	2.3
Swedbank Försäkring AB	0	726,946	2.4	1.8
Nordnet Pensionsförsäkring AB	0	716,692	2.4	1.8
Total, 10 largets shareholders	4,993,530	9,759,484	48.3	60.3
Summary, other	264,106	15,532,375	51.7	39.7
Total	5,257,636	25,291,859	100.0	100.0

Other information

Significant risks and uncertainty factors

Episurf Medical's material business risks, for the Group as well as for the Parent Company, are to obtain regulatory approval and market acceptance, the outcome of clinical studies, the ability to protect intellectual property rights, the possibility to obtain the correct reimbursement for the Group's products and dependence on key personnel and partners. The Company does not see any new material risks for the upcoming three months. For a more detailed description of significant risks and uncertainties, refer to Episurf Medical's annual report.

The Board of Directors and the CEO hereby give their assurance that the Interim Report gives a true and fair view of the business activities, financial position and results of operations for the Group and Parent Company, and describes significant risks and uncertainty factors to which the Parent Company and the companies included in the Group are exposed.

Stockholm, 27 April 2018

Dennis D. Stripe Wilder Fulford Board chairman Board member

Christian Krüeger Leif Ryd Laura Shunk Board member Board member Board member

Pål Ryfors CEO

The information in this interim report has not been reviewed by the company's auditors.

Consolidated income statement

SEKm	Jan–Mar 2018	Jan–Mar 2017	Jan–Dec 2017
Operating income
Net sales	1.1	0.5	2.5
Other operating income	0.1	0.1	0.6
Total operating income	1.1	0.5	3.1
Operation expenses
Other expenses	–6.9	–8.3	–28.8
Personnel costs	–7.1	–10.3	–31.3
Depreciation	–0.9	–1.0	–4.2
Total operating expenses	–14.9	–19.6	–64.2
Operating loss	–13.8	–19.0	–61.2
Financial items
Financial income	0.5	0.0	0.1
Financial expenses	–0.0	–	–0.0
Results from financial items	0.4	0.0	0.1
Loss before tax	–13.3	–19.0	–61.1
Tax on income for the period	–0.0	–	–0.0
Loss for the period	–13.3	–19.0	–61.1
Net loss attributable to:
Parent company shareholders	–13.3	–19.0	–61.1
Earnings per share before and after dilution are consistent with the rules in IAS 33	–0.44	–0.94	–2.18
Average number of shares	30,549,495	20,158,496	27,987,331

Consolidated statement of comprehensive income

SEKm	Jan–Mar 2018	Jan–Mar 2017	Jan–Dec 2017
Loss for the period	–13.3	–19.0	–61.1
Other comprehensive income for the period:
Other comprehensive income that may be reclassified subsequently to profit or loss for the period, net of tax	0.0	0.1	–0.0
Total comprehensive income for the period	–13.3	–19.0	–61.1

Consolidated balance sheet

SEKm	31 Mar 2018	31 Mar 2017	31 Dec 2017
ASSETS
Non-current assets
Intangible assets
Capitalised development costs	8.7	5.0	6.8
Patents	9.4	9.0	9.3
Total intangible assets	18.1	14.0	16.0
Property, plant and equipment
Equipment	0.2	0.4	0.2
Total property, plant and equipment	0.2	0.4	0.2
Total non–current assets	18.3	14.4	16.3
Current assets
Inventories	1.6	1.2	1.7
Trade receivables	0.7	0.4	1.0
Other receivables	1.9	1.5	1.2
Deferred expenses and accrued income	1.8	1.9	1.8
Cash and bank balances	56.8	127.3	71.3
Total current assets	62.8	132.3	77.0
TOTAL ASSETS	81.1	146.7	93.3
EQUITY AND LIABILITIES
Equity	72.1	128.3	85.6
Liabilities
Non-current liabilities
Non-current liabilities	0.1	0.0	0.0
Total non-current liabilities	0.1	0.0	0.0
Current liabilities
Trade payables	3.5	9.0	2.5
Other liabilities	1.9	2.3	1.4
Accrued liabilities and deferred income	3.5	7.1	3.8
Total current liabilities	8.9	18.4	7.7
Total liabilities	9.0	18.4	7.7
TOTAL EQUITY AND LIABILITIES	81.1	146.7	93.3
Equity ratio, %	88.9	87.4	91.7
Equity per share, SEK	2.36	4.20	2.80

Consolidated statement of changes in equity

	Attributable to equity holders of the parent
SEKm	Share capital	Other contributed capital	Reserves	Accumulated deficit incl. loss for the year	Total equity
Opening equity 1 January 2017	4.8	237.0	0.6	–193.7	48.7
Total comprehensive income
Loss for the year			–0.0	–61.1	–61.1
Total comprehensive income			–0.0	–61.1	–61.1
Transactions with shareholders
New share issue, net after issue expenses*	4.4	93.3			97.7
Options issued to staff				0.3	0.3
Total transactions with shareholders	4.4	93.3		0.3	98.0
Closing equity 31 December 2017	9.2	330.4	0.6	–254.6	85.6
Opening equity 1 January 2018	9.2	330.4	0.6	–254.6	85.6
Total comprehensive income
Loss for the period			–0.2	–13.3	–13.5
Total comprehensive income			–0.2	–13.3	–13.5
Transactions with shareholders
Options issued to staff				0.1	0.1
Total transactions with shareholders				0.1	0.1
Closing equity 31 March 2018	9.2	330.4	0.4	–267.8	72.1

* Issue expenses amounts to SEK 11.8m according to IAS 32.39.

Cash flow statement

SEKm	Jan–Mar 2018	Jan–Mar 2017	Jan–Dec 2017
Operating activities
Operating loss	–14.2	–19.0	–61.2
Adjustments for items not included in cash flow
Depreciation	1.3	1.0	4.2
Employee stock option expenses	0.1	0.0	0.1
Interest received	0.5	0.0	0.1
Interest paid	–0.0	–	–0.0
Cash flow from operating activities before change in working capital	–12.4	–18.0	–56.8
Change in working capital
Decrease/increase in inventory	0.1	–0.1	–0.6
Decrease/increase in trade receivables	0.3	0.2	–0.4
Decrease/increase in current receivables	–0.6	–0.0	0.3
Decrease/increase in current liabilities	1.1	6.8	–3.9
Change in working capital	0.9	6.9	–4.6
Cash flow from operating activities	–11.5	–11.1	–61.4
Investing activities
Investments of intangible fixed assets	–2.9	–2.4	–7.4
Investments of property, plant and equipment	–	–0.0	–0.0
Cash flow from investing activities	–2.9	–2.4	–7.5
Financing activities
Issuance of warrants	–	–	0.1
New share issue	–	98.5	97.7
Cash flow from financing activities	–	98.5	97.8
Cash flow for the period	–14.4	85.0	29.0
Cash and cash equivalents at beginning of period	71.3	42.3	42.3
Cash and cash equivalents at end of period	56.8	127.3	71.3

Income statement, Parent Company

SEKm	Jan–Mar 2018	Jan–Mar 2017	Jan–Dec 2017
Operating income
Net sales	0.1	–	0.2
Total income	0.1	–	0.2
Operating expenses
Other expenses	–3.0	–7.7	–17.5
Personnel costs	–3.1	–2.9	–11.1
Depreciation	–0.5	–0.3	–1.4
Total operating expenses	–6.6	–10.9	–30.0
Operating loss	–6.5	–10.9	–29.7
Financial items
Financial income	–	0.0	0.1
Financial expenses	–0.0	–	–0.0
Loss from net financial items	–0.0	0.0	0.1
Loss before contribution and tax	–6.5	–10.9	–29.7
Loss before tax	–6.5	–10.9	–29.7
Tax on income for the period	–	–	–
Loss for the period	–6.5	–10.9	–29.7

Parent Company statement of comprehensive income

SEKm	Jan–Mar 2018	Jan–Mar 2017	Jan–Dec 2017
Loss for the period	–6.5	–10.9	–29.7
Other comprehensive income for the period:
Other comprehensive income for the period, net of tax	–	–	–
Total comprehensive income for the period	–6.5	–10.9	–29.7

Balance sheet, Parent Company

SEKm	31 Mar 2018	31 Mar 2017	31 Dec 2017
ASSETS
Non–current assets
Intangible assets
Capitalised development costs	8.7	5.4	7.1
Total intangible assets	8.7	5.4	7.1
Tangible fixed assets
Equipment	0.1	0.2	0.1
Total tangible fixed assets	0.1	0.2	0.1
Financial assets
Shares in group companies	91.3	55.3	78.3
Long-term receivables from group companies	14.3	9.5	20.0
Total financial assets	105.5	64.8	98.2
Total fixed assets	114.3	70.4	105.5
Current assets
Short term receivables
Other receivables	1.4	0.8	0.5
Prepaid expenses and accrued income	1.1	0.9	0.8
Total short term receivables	2.5	1.8	1.3
Cash and bank balances	47.2	124.8	62.5
Total current assets	49.7	126.6	63.8
TOTAL ASSETS	163.9	197.0	169.3
EQUITY AND LIABILITIES
Equity	158.8	184.9	165.3
Liabilities
Long-term liabilities	0.0	0.0	0.0
Total long–term liabilities	0.0	0.0	0.0
Current liabilities
Trade payables	2.0	7.8	0.9
Other liabilities	0.9	1.4	0.6
Accrued liabilities and deferred income	2.2	3.0	2.5
Total current liabilities	5.1	12.2	4.0
Total liabilities	5.1	12.2	4.0
TOTAL EQUITY AND LIABILITIES	163.9	197.0	169.3

Statement of changes in equity, Parent Company

SEKm	Share capital	Develop ment fund	Other contribut ed capital	Loss brought forward	Loss for the period	Total equity
Opening equity 1 January 2017	4.8	1.1	235.8	–110.4	–34.1	97.2
Comprehensive loss for the period
Loss for the year					–29.7	–29.7
Disposition according to AGM
Loss brought forward				–34.1	34.1	–
Development fund		3.5		–3.5		–
Total comprehensive loss for the period		4.5		–148.0	–29.7	67.5
Transactions with shareholders
New share issue
net after issue expenses*	4.4		93.3			97.7
Warrants			0.1			0.1
Total transactions with shareholders	4.4		93.5			97.8
Closing equity 31 December 2017	9.2	4.5	329.3	–148.0	–29.7	165.3
Opening equity 1 January 2018 Comprehensive loss for the period	9.2	4.5	329.3	–148.0	–29.7	165.3
Loss for the period					–6.5	–6.5
Disposition according to AGM
Loss brought forward				–29.7	29.7	–
Development fund		1.8		–1.8		–
Total comprehensive loss for the period		6.3		–179.4	–6.5	158.8
Closing equity 31 March 2018	9.2	6.3	329.3	–179.4	–6.5	158.8

* Issue expenses amounts to SEK 11.8m according to IAS 32.39.

Cash flow statement, Parent Company

SEKm	Jan–Mar 2018	Jan–Mar 2017	Jan–Dec 2017
Operating activities
Operating loss	–6.5	–10.9	–29.7
Adjustments for items not included in cash flow
Depreciation	0.5	0.3	1.4
Interest received	–	0.0	0.1
Interest paid	–0.0	–	–0.0
Change in non-current liabilities	0.0	–0.0	–0.0
Cash flow from operating activities before change in working capital	–6.0	–10.6	–28.3
Change in working capital
Decrease/increase in current receivables	–1.1	–0.4	0.1
Decrease/increase in current liabilities	1.1	1.6	–6.6
Change in working capital	0.0	1.2	–6.5
Cash flow from operating activities	–6.0	–9.3	–34.8
Investing activities
Investments of intangible assets	–2.0	–1.0	–3.7
Changes in financial assets	–7.3	–3.5	–36.9
Cash flow from investing activities	–9.3	–4.5	–40.6
Financing activities
Issuance of warrants	–	–	0.1
New share issue	–	98.5	97.7
Cash flow from financing activities	–	98.5	97.8
Cash flow for the period	–15.3	84.7	22.4
Cash and cash equivalents at beginning of period	62.5	40.1	40.1
Cash and cash equivalents at end of period	47.2	124.8	62.5

Notes

Note 1 Accounting policies

The interim report for the Group has been prepared in accordance with IAS 34 Interim Reports and the Annual Accounts Act. The interim report for the Parent Company has been prepared in accordance with the Annual Accounts Act.

The Group's accounting policies are unchanged from the previous year.

Capitalised expenditures for development of products

Expenditure for development, where research results or other knowledge are applied to achieve new or improved products or processes, is recognised as an asset in the Statement of Financial Position only if the following conditions are satisfied:

• 1) It is technically possible to complete the intangible asset and use or sell it,
• 2) The Company intends to complete the intangible asset and use or sell it,
• 3) The conditions to use or sell the intangible asset are in place,
• 4) The Company demonstrates how the intangible asset will generate likely future economic benefits,
• 5) There are adequate technological, economic and other resources to complete development and to use or sell the intangible asset, and
• 6) The expenditure relating to the intangible asset during its development can be measured reliably

Directly related expenditure that is capitalised mainly consists of expenditure from subcontractors and expenses for employees.

Other development expenditure that does not satisfy these criteria is expensed when it arises. Development expenditure previously expensed is not recognised as an asset in subsequent periods. The group has assessed all the above criteria to be fulfilled during the period, the costs for development that has been incurred is therefore activated.

Note 2 Transactions with related parties

Shareholder and Board member Leif Ryd has received consulting fees of SEK 0.2m (0.2).The Board Chairman, Dennis D. Stripe has received SEK –m (0.1) as compensation for the work during the year as working Chairman.

Serendipity Communications AB has received consulting fees of SEK –m (0.1), Serendipity Legal AB of SEK –m (0.1).

Glossary

Approved orders: Orders which have been approved for surgery, are in production and will be invoiced.

Arthritis: see Osteoarthritis.

Arthroscopy: Inspection of the inside of a joint with the help of an arthroscope. An instrument is introduced through a small cut to investigate the inside of the joint and possibly correct any problems (a type of keyhole surgery).

Artificial intelligence (AI): The theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.

Cartilage: The smooth, rubbery layer of shiny, white connective tissue that covers the end of bones at the joints. This tissue allows movement with low friction.

Cartilage defect of grade III (ICRS scale): Lesion through the cartilage, exposing the bone.

Cartilage defect of grade IV (ICRS scale): Lesion through the cartilage and in the underlying bone.

CE marking: CE marking is a manufacturer's or importer's declaration that a product meets the EU's fundamental health, environmental and safety requirements. The product in question undergoes a conformity assessment by a Notified Body, which decides whether the product fulfils the applicable product requirements in the EU. A CE mark means that the manufacturer or importer has the formal approvals necessary to market and sell the product in the European Economic Area.

Cobalt: A chemical element commonly occurring in metal alloys used in knee prostheses.

Cobalt chrome: A metal alloy mainly consisting of cobalt and chromium, commonly occurring in metal alloys used in knee prostheses.

CT scan: X-ray computed tomography scan, a medical imaging technique where a series of x-ray images allows the user to get three-dimensional image data of the patient.

Debridement: Removal of damaged tissue.

Degenerative origin: Conditions in which the cells, tissues or organs deteriorate and lose function. In degenerative joint disease, the deterioration is due to wear, tear or breakdown of cartilage.

FDA: US Food and Drug Administration.

Focal cartilage defect: A cartilage defect in a well defined area.

Gross order intake: Gross order intake represents the aggregated value of Episealer orders recevied and approved by responsible surgeon during the relevant period.

Hyaline cartilage: Natural articular cartilage.

Hydroxyapatite: A mineral that is the major component of human bone tissue and the main mineral of dental enamel and dentin.

Indication: In medicine, an indication is a valid reason to use a certain test, medication, procedure, or surgery.

Invasive treatment alternative: Treatments that require a surgical procedure.

Investigational Device Exemption (IDE): An exemption that allows the investigational device to be used in a clinical study in order to collect safety and effectiveness data.

KOL: Key Opinion Leader, prominent and opinion-leading surgeon.

KOOS: Knee injury and Osteoarthritis Outcome Score, a questionnaire used to assess the patient's opinion about their knee and associated problems.

Microfracture: A surgical technique that can be used in treatment of focal cartilage defects (not extensive osteoarthritis) in an attempt to stimulate the growth of new cartilage.

Mosaicplasty: A surgical technique for treatment of cartilage and underlying bone defects where cylindrical bone and cartilage plugs are harvested from less weight-bearing surfaces of the knee joint and inserted into the damaged area.

MRI: Magnetic resonance imaging, a medical imaging technique where images acquired using a strong magnetic field allows the user to get three-dimensional image data of the patient.

Order backlog: Order backlog represents all orders that have been booked but where no revenue has been recognized.

Orthopaedics: The medical specialty that focuses on injuries and diseases of the body's musculoskeletal system. This complex system includes bones, joints, ligaments, tendons, muscles and nerves.

Osteoarthritis: Osteoarthritis is type of joint disease that is characterised by loss of joint function with varying destruction of joint cartilage and the underlying bone.

Osteochondral autograft procedure: See Mosaicplasty.

Osteochondral defect: Cartilage and underlying bone defect.

Premarket Approval (PMA) application: FDA's process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. A successful PMA submission results in US market approval of the device.

Principal investigator (PI): The person who is responsible for the scientific and technical direction of the entire clinical study (for example, for all sites of a multisite study).

Prosthesis: An artificial device that replaces a missing or injured body part, such as artificial arm or leg. The term prosthesis is also used for certain of the implants that are used to repair joints, such as hip and knee prostheses.

Traumatic damage: Damage caused by an outside force, such as fall injuries.

VAS: Visual Analogue Scale, a psychometric response scale which is used as a pain scale in questionnaires.

Episurf Medical

– a unique solution for every patient

EPISURF MEDICAL WAS FOUNDED IN 2009 on a commitment to offering people with painful joint injuries a more active and healthy life through customised treatment alternatives. We put the patient in the centre of the design of implants and surgical instruments. By combining advanced 3D imaging technology with the latest manufacturing technologies, we are able to adapt not only each implant to the patient's injury and anatomy, but also the surgical instruments used. In this way, we can ensure that each patient receives treatment that is perfectly suited to his or her anatomy and, thus, ensure a faster, more secure, and better individualised treatment for a more active and healthy life.

A proprietary web-based IT platform for individualised design and surgical pre-planning

Episurf Medical's scalable μiFidelity® system has been developed for damage assessment, surgical pre-planning and cost-effective patient customisation of implants and associated surgical instruments. In a first step, the company's main focus is on early stage arthritic changes in the knee joint.

Three different knee implants with a focus on early stages of arthritis

Episurf Medical currently has three types of individualised implants on the market.

• » Episealer® Condyle Solo for the treatment of localised cartilage and underlying bone defects on the femoral condyles of the knee joint.
• » Episealer® Trochlea Solo for the treatment of localised cartilage and underlying bone defects in the area behind the patella (the trochlea area).
• » Episealer® Femoral Twin for the treatment of elongated localised cartilage and underlying bone defects both on the femoral condyles and in the trochlea area of the knee joint.

Episealer® Condyle Solo Episealer® Trochlea Solo

Episealer® Femoral Twin

Individualised surgical instruments

Every product is delivered with our surgical drill guide Epiguide®. We also offer a surgical drill guide, Epiguide® MOS, that is designed for use in mosaicplasty surgery for treatment of cartilage and deep underlying bone defects in the knee joint.

Patents and patent applications

The generation of new intellectual property and the ongoing maintenance of current IP is of paramount importance for Episurf Medical to ensure that Episurf Medical's proprietary, existing technologies and future innovations are well protected. In total Episurf Medical has approximately 120 patents and patent applications worldwide, distributed over more than 22 patent families.

» Episurf Medical's head office is located in Stockholm and the company has an in-house sales organisation in Europe.

» The share (EPIS B) has been listed on Nasdaq Stockholm since June 2014.

Financial calendar

Interim report April–June 2018	20 July 2018
Interim report July–September 2018	26 October 2018
Year–End Report 2018	8 February 2019

This is a translation of the original Swedish interim report. In the event of a discrepancy between this translation and the Swedish original, the Swedish interim report takes precedence.

This information is information that Episurf Medical AB (publ) is obliged to make public, pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out below, on 27 April 2018 at 08.30 (CEST).

IR contact

Pål Ryfors

CEO Phone: +46 (0) 709 623 669 e-mail: pal.ryfors@episurf.com

Veronica Wallin

CFO Phone: +46 (0) 700 374 895 E-mail: veronica.wallin@episurf.com

The following analysts follow Episurf Medical's development:

Erik Penser Bank Analyst: Johan Lochen

Redeye Analyst: Anders Hedlund

Episurf Medical AB (publ) Corp. ID no. 556767-0541 Karlavägen 60, 114 49 Stockholm, Sweden www.episurf.com