Bactiguard Holding AB
STO:BACTI B
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Bactiguard Holding AB
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Good morning, and welcome all. I hope you are all well and safe and have had the opportunity of taking some time off this summer to recharge your battery, which I believe is very well needed. With me today, I have our very fresh, new CFO, Gabriella Bjorknert Caracciolo; and I also have Lina Arverud, who has been our acting CFO since I stepped up to the CEO in February, who will be participating in the call. So let's now turn to Slide #2. I would like to start with giving a global overview of how the health care system has been affected in the second quarter. As you very well know, there have been extensive lockdown in many regions. And to take a few examples. In India, there were 3 -- there have been 3 months of general lockdown and since then, there have been a regional lockdown. There's no travel between states and there's quarantine between states. And still, the pandemic is spreading very fast. Official numbers, talk about 2 million affected, but it's probably more like 20 million, and that has affected the way we can do business. In the Middle East, there have been extensive lockdowns throughout the region. Viral rates continued to stay high. But as of this week, private hospitals, which have been closed, are opening up. In China, where the outbreak started or the pandemic started, the economy was affected earlier, but there's also been earlier recovery. But there are regional outbreaks, as you've read about in various Chinese regions, most recently, now also in Hong Kong, which has led to to partial lockdowns and restrictions in travel. All of this has had a negative, of course, on economic activity. And you can see that China had most of the impact in Q1 and recovered in Q2. Whereas in the U.S., it's been escalating throughout Q2 and in Europe, the same. So the major economic declines and extensive lockdown, combined with the strict focus on COVID-19 patients and ICU treatment, has led to lower hospital admissions and utilization, and it has also postponed elective and nonurgent procedure. And that has, of course, had a negative impact on, in general, on medical device consumables that are non-COVID-19-related and also on things like orthopedic implants. With this development, the health care backlog is building up, and this doesn't go away. It has to be dealt with. We are seeing, and our partners are seeing sequential improvement starting in the second part of Q2 or towards the end of Q2, June and July, and the sequential improvement, for example, in the U.S., which is opening up. So let's turn to Page 3. In this perspective, I am pleased with our performance. The sales grew by 45% on a currency adjusted basis to SEK 48 million. This was driven by an increase in BIP sales, which were in line with a record quarter we had in Q4 2019 on the back of major deliveries to China. So the growth was driven by our extended portfolio of the products and also the integration of Vigilenz, which is providing strength and recurring revenues. Our EBITDA almost doubled, and we reached an EBITDA margin of 22% despite the fact that we had temporarily increased costs related to the integration of the recently acquired Vigilenz and to COVID-19 transportation costs, for example. We had a small negative net profit, but I'd just like to remind you that we depreciate quite substantially on our technology despite the fact that it increases in value over time as we expand our business, and we had a positive operating cash flow. Looking at the COVID-19 effects in the quarter. We can see that the demand for disinfectant has remained high. We have also seen improvement in states of our endotracheal tubes, which are used for COVID-19 patients. So the percentage of ETTs have actually increased. If we look at our licensing partners, BD and Zimmer, their business has declined in the quarter. BD's business declined by about 9%, but it's a very varied picture. They have increases in diagnostics tools and COVID-19-related products, but a decrease in general medical devices and equipment. For Zimmer, the decline was 38%, and it's entirely related to elective procedures. [ Diseases ], of course, don't go away, but they actually stay there, and there's a backlog to deal with. And as I mentioned earlier, there's been a gradual improvement from the end of Q2, which has remained in since July. Turning to Page 4 for some operational highlights. There's been a lot of activity going on. One of the first things being that we, as the only manufacturers that I know of, has actually proven that product, Hydrocyn aqua is effective against the new virus causes COVID-19. That led to an agreement with the Swedish online pharmacy, Apotea, and we are now in the process of establishing a new distribution channel that will cover the Nordic market to approach other pharmacies and set up long-term partnership.On the product side, we launched the catheter for patients in need of continuous temperature monitoring, ICU. We have also just yesterday announced that we have received an interim approval for our ETTs in Canada driven by COVID-19. Looking forward, we are continuing to strengthen the clinical evidence. So you will see that we have an increased cost for clinical studies in the quarter. This is essential in positioning us for the future and will be a great asset when we enter the new medical device regulation for Europe next year. We are also investing in sales and marketing. On the organizational side, you know that we issued new shares as part payment for Vigilenz. Christian Kinch became the Chairman at the AGM, and we have strengthened the management team with Gabriella Bjorknert Caracciolo as our new CFO. And I'd like to take this opportunity of introducing Gabriella. You can see some of her credentials on Slide 5, and I'm very happy to have her on board as she will add considerable strength and experience to this management team. So please, Gabriella, if you would like to say a few words about your stuff.
Thank you, Cecilia, for the introduction and also for the well -- warm welcome, and hello, everyone. So my name is Gabriella Bjorknert Caracciolo, and I joined Bactiguard this Monday. And I'm super happy to be here. I have more than 20 years' experience from the financial industry, and I have also been working in many functions. And of course, Bactiguard is a very interesting company, and with the ongoing pandemic, operating in a highly relevant industry as well. So all in all, I'm super excited to join the team and also to support the future growth journey. So it's going to be an exciting journey, I believe.
Thank you, Gabriella. We will move to Page 6. Before we take a deeper look at our financials and recent developments, I'd like take a closer look at the COVID-19 effects in the industry, both in the near term and in a little bit longer perspective. So we can move to Page 7, please. What we have seen since the outbreak in March is an increase from disinfectant, protective gear and diagnostics. There's been an increasing demand and temporarily -- temporary shortages. There's also been strong demand for equipment by ventilators and ICU equipment. On the negative side, there's been a significant decrease in hospital admissions for non-COVID-19 patients. And elective procedures and noncritical treatment has been put on hold, which has led to accelerating backlog. There's also been lower demand for medical devices and consumables. So looking forward what will happen in the near term will be very much affected by how the virus resurges. If will there be outbreak coming back? Will there be a second wave? And how will the the states and the health care systems react to this? Of course, also the availability of effective vaccines will have an impact, but we don't expect that to happen in a major way until sometime next year. Turning to Page 8 for a more long-term effect. The pandemic has actually put infections at the front of our mind in a major way. It has been getting higher and higher on the agenda over the years linked to the antimicrobial resistance that now is on everybody's mind. Patients are aware of their own responsibility of protecting themselves, but they are also cautious in seeking other health care, which is, of course, accelerating the backlog. Public financings are under pressure. Resources of care, this will lead to shift -- driving the shift to digital and home-based care in a faster way than perhaps would have been done otherwise. And of course, prevention is better than cure. So we can prevent the infections from spreading, there's no need for cure. So we believe that this will lead to an increased need for infection protection. We also believe that the behavior changes will remain after the pandemic subsides. We will be creating a new normal. You all know that hospital-acquired infections lead to complications and longer hospital stay, 4 to 6 days on average. And this absorbs bed capacity in the hospital. So when dealing with the backlog, this becomes an important aspect, getting the patient in for treatment and getting them out of the hospital as soon as possible. Home care environment, where we will do more of our home care, are more difficult to control, and therefore, infection protection will also be needed. This creates opportunities for us, both in expanding sales of our own portfolio, but also in signing new applications for licenses agreements. Turning to Page 9. We have a scalable business model based on the Bactiguard technology that we apply to license agreements, now with BD and Zimmer and a few others and also our own product portfolio. And you can see it expanded quite significantly with the acquisition of Vigilenz. Not only are we in the areas, the urinary, the blood stream, the respiratory areas, but we've also added advanced disinfection and wound care. This will provide a better base for growth. We will have more recurring revenues that we can fall back on, and we will have more potential for growth going forward. With that, I'd like to hand over to Lina to go into a more deep dive into the financials that we've seen in the quarter. So I think we can move straight to Page 11.
Thank you, Cecilia. Good morning, everyone. And let's start in Page 11. This chart illustrates the sales growth and profitability in a rolling 12-month perspective. Sales growth continued a positive trend in Q2, reaching a growth of 46% in the quarter. Even though COVID-19 had a negative effect on the license revenues in Q2, we had a solid platform in the recurring business license revenues from BD, our licensed partner since 25 years. Those are shown in the bottom of the chart. Revenues from BD varies a bit between quarters that is essentially very stable. Sales of our own product portfolio are growing, here shown in the green bar. 2019, it was in line with the year before. And in 2020, growth accelerated as an effect of adding products to our BIP portfolio by acquiring Vigilenz, and we thereby received a more stable development in the rolling 12 months perspective.The yellow bar show the new license revenue, which is a bit lumpy initially, that will generate royalties and become more stable in the long run. In Q3 2019, we added a substantial new revenue streams through the license agreement with Zimmer Biomet for orthopedic trauma implant. The positive trend in EBITDA is shown in the line, and the positive trend is an effect of good revenue development during the last year, which also is explained by the new license agreement and growth in our own product portfolio. Rolling 12 months' EBITDA margin for the period ending June 2020 reached 33%. Turning to Page 12. Looking at the financial overview. We had revenue of just about SEK 48 million in Q2 2020. We reached an EBITDA margin of 22% compared to an EBITDA margin of 13 -- 17%, sorry, last year same quarter. The net profit for the period was slightly negative with SEK 0.3 million. The depreciation of our technology is around SEK 6 million each quarter, which does not affect cash flow. And the value of our technology increases in value when we sign new license agreements and increase our own product portfolio. In the year-to-date figure for 2020, the net profit loss is 11 -- minus SEK 11.4 million. Minus SEK 10.9 million of this loss is an accounting effect from the set of issue, which was the partial payment of the acquisition of Vigilenz earlier this year. This set of issue has to be reported as a forward contract according to IFRS. This means that this loss of minus SEK 10.9 million in the year-to-date figure is purely accounting and has no cash flow effect. Operating cash flow was positive in Q2 with SEK 3.6 million, following payments from the increased order take in Q1. Turning to Page 13. We have sort of [ graph ] over -- showing the revenue distribution from different business lines. In the past, the bulk of revenues has come from license revenues related to BD. For full year 2019, just below 60%. That is by focusing of increasing the sales of our own product portfolio and adding new license business, we are gradually decreasing dependency on BD. In Q2, sales from big products were higher than license revenues for the first time ever. And next page, please. On this page, we have an overview of our cash flow and liquidity. We have a healthy cash position of SEK 16.3 million and an overdraft facility of SEK 30 million. At the end of the period, the overdraft facility was unused. In Q2, new shares were issued as partial payment for the Vigilenz acquisition. And with that, I'll hand over to Cecilia Edstrom.
Thank you, Lina. Moving on to Page 15. I'm confident in saying that we are well on our way towards fulfilling our financial targets. We are in a tough environment and the near-term developments are a bit difficult to predict given how COVID-19 develops over the months to come and how governments decide to respond to. If we look at the short-term comparison, we had a healthy margin of 22%. And we had a significant growth in the quarter, 45% organically. If we look at the rolling 12-month perspective, we have actually exceeded our EBITDA margin target, and that's related to new license agreements that drive strong profitability. And our strategy is same, we will continue to work on adding new license agreements in the years to come, at least 1 every year and to expand growth of our own product portfolio. With that, I'd like to conclude on Page 16. We had a strong growth in earnings development in Q2. But I am confident in our growth strategy. I am also aware of what's going on around us, and we have very tight focus on both growing the business but also in controlling the cost. Our broader debt portfolio and our increased market coverage has strengthened our ability to create recurring revenue. So the acquisition of Vigilenz was very strategic. It increases our capacity and strength to develop new business and it increases our market coverage and it increases our portfolio. So we have a stronger platform to pull back on. COVID-19 has affected us all. There's no doubt about it. It has had global economic and health care-related impact that are essentially negative for most of us, but it will also open up new opportunities and create a new normal that will remain beyond the pandemic. And I am confident that it will mean that infection protection will be at the front of our mind for a long period of time. In the near term, it actually also created some some clear opportunity in that the European regulatory framework, MDR, that was meant to be implemented in May of this year, has been pushed out by a year. And this is meant that we will be able to use the CE mark we already have for orthopedic trauma implants and reach the market, Europe, together with Zimmer earlier than we expected. So this will mean that we will move our positions forward. We have products that cater to the needs of patients, both in the near term and in the longer term. Our technology is very well positioned, and that is both effective and safe for patients. And we can operate either through license agreement or through our own portfolio. We have strong clinical evidence that we understand the importance of expanding it to new application areas and to new markets. Therefore, we continue to invest in it. We have a very committed management team. We have a committed Board of Directors, competent Board of Directors, and committed major shareholders. With that, I'd like to conclude that we are well positioned to execute on our growth strategy. With that, I'd like to hand back to you, operator, for any questions.
[Operator Instructions] We have a question from Mattias Vadsten from SEB.
Congrats on a strong quarter once again here. Obviously, a lot of information to digest this morning. The first one from me, would you want to disclose what share of the SEK 25 million BIP sales that is Vigilenz? And what share is previous BIP sales, respectively?
Yes. Thank you, Mattias. As you will be able to see from the report that we presented in the -- further back in the report that Vigilenz generated just over SEK 10 million in the quarter. And I will not comment exactly on -- actually just over SEK 11 million. I will not comment on exactly how the original BIP portfolio developed, but there was growth in the quarter. You all know that it was at a relatively low level last year, but there has been growth in the original base portfolio as well as in the Vigilenz business and of course, also in different sectors.
My next question relates to Zimmer Biomet. So firstly, elaborate or at least provide some more flavor on their launch strategy for Bactiguard orhopedic trauma implants. And if not, at least from your perspective, do you think it makes sense to wait and do the initial launch in the U.S. where the market presence is the strongest for Zimmer Biomet?
Now I'd like to share a bit more detail on our cooperation. It is a very strategic and important partnership for us in that we enter an area where the implant will be permanently placed in the body. So it's opening up new applications for us. We do have an -- have concluded a clinical study that will be published later this year. The delay of MDR has created opportunities in Europe. I cannot comment exactly on the launch strategy for Zimmer Biomet, but what I can say is that there's good traction in our corporation despite the fact that they have taken -- had some challenges with the delay of elective procedures. But I'm confident in the fact that they continue to invest in innovation for the benefit of [indiscernible] outcomes. So I'm positive about the developments in this cooperation. And even though there have been challenges related to COVID-19, it also open up opportunities.
Yes. So from your -- if I can just ask once again. From your perspective, I mean, do you think it would be sort of challenging for them to do the initial launch in Europe instead of doing the initial launch in the U.S. early 2021, I guess?
Well, there's 2 different regulatory frameworks, the CE mark we have, then that's more in our hands. The way the regulatory process runs in the U.S. is not really in our hands. So we are very focused on driving the development in what we can control, and then we will run the other process in parallel. It's difficult to say exactly what the timing will be as a different regulatory framework, but I remain confident that we will move forward. And the fact that we have the clinical evidence, the fact that we will be able to reach the market in Europe sooner than expected, will be a strength.
[Operator Instructions] There are no further questions registered. I hand back to the speakers for any closing remarks.
Thank you, operator. I'd like to conclude by saying that I'm very proud of the team I have around me. Despite challenges in the quarter, we've been able to drive growth. I'm also very proud that we've been able to integrate a strategic acquisition into our company remotely because we've had to do it at a distance. So there have been challenges in the quarter, but we have been able to grab opportunities and reorganize in order to drive the business forward. And we have used the time in lockdown in various regions to prepare for the markets opening up again. So we are -- is determined to grab the business opportunities that lie ahead of us, both in the near term and in the longer term. So with that, I like to conclude, say thank you. And for any follow-up questions, you are more than welcome to contact me, Lina or Gabriella. Thank you.