Bactiguard Holding AB

STO:BACTI B

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Bactiguard Q1 conference call. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Anders Goransson; and CFO, Carin Jakobson. Please go ahead.

[Anders Goransson, executive]

Welcome, everyone, joining in today's call, where we will share our quarter 1, 2023 results. I hope you had a chance to browse through the report, as I now will give you the variable presentation commenting on the quarterly figures and the strategic focus ahead. As usual, Carin Jakobson, our CFO, and I are available for questions after the presentation. Looking at Q1, it was a continuation of a very transformative 2022. We continue to invest in the organization as well as positioning Bactiguard to capitalize on the vast opportunities behind the global health care trends. We see positive effects of the transformation and remain focused on ensuring we have an organization truly equipped and geared for future growth. Go to Slide 2. And before we begin to the stats and figures of today's presentation, I want to put Bactiguard and our business into a broader context from an issue to market opportunity perspective. We see globally an increased interest and awareness of the importance of prevention, both in terms of hospital-associated infections and antimicrobial resistance. Let me give you a couple of examples of reporting and conversations over the last quarter. One is in early March here in Stockholm, a high-level confidence took place with a focus on combating the third of antimicrobial resistant. And it was hosted by the Swedish government as part of the ongoing Swedish presidency of the Council of the European Union. One of the key themes of this was prevention. And of course, Bactiguard represented as a part of the interactive presentation materials on what you can do with our technology. Second example is that much of the debate around antimicrobial resistant includes the need for new antibiotics to treat infections, but there is less buzz around how to actually avoid using antibiotics. So again, we're happy to see that the WHO in the recent published draft of people-centered framework for addressing AMR in the human health sector puts prevention as 1 of the 4 key pillars. And then on Prime Time, Friday night, a few weeks ago, the importance of preventing hospital-acquired infections made it to the major evening news program here in Sweden, as a [indiscernible], which reported on a hospital in Southern Sweden that had invested significant amounts to achieve cleaner air in their operation rooms. With aim to decrease infections. A great initiative that shows the importance of reducing hospital-acquired infections, but there is more one need to do as up to 60% of the health care associated infections is due to bacteria adhering to medical devices, such as catheters and implants. This is, of course, if you're using uncoated devices. Go to Slide 3, please. You may recognize this page from previous quarters, but the global macro trends remain the same and are as pressing as always. I know I've repeated this many times, but 1 out of 10 patients globally are affected by health care-associated infections, which means to enter a hospital for treatment and acquire a new infection while under care, often caused by bacteria adhering to medical devices that is part of the treatment. An interesting fact is that this relation is roughly 1 in 25 patients in the U.S. because it's a market where infectious and more importantly, prevention of them are taken much more seriously. I will come back to the importance of the U.S. later in the presentation. These trends are clearly gaining momentum on the agenda of decision-makers across the globe, which makes the potential for Bactiguard even brighter. On the right-hand side, you see the market opportunity for Bactiguard. Firstly, we target the market with our technology and solutions, which has a market size of USD 80 billion. Secondly, our key therapeutic areas are at the core of our growth strategy and where we focus our efforts, such as deepening current partnerships, for instance, like we did with Zimmer Biomet within Orthopedics and gaining new like our development agreement with Dentsply Sirona, our first inroad into the dental field.And at the center of all lives preventing infections being an important part of solving global health care issues. Clearly, the potential for our technology and solutions to make a real positive impact is huge for patients, for health care institutions, their budgets and for a healthier world. If we go to Slide 5 and dig into the financials of the first quarter of 2023. As I begin today's call, looking at Q1, it was basically a continuation of a very transformative 2022. We focus on strengthening the license business further. This is where our strongest potential lies and have a strong sense of urgency for transforming while also appreciating the longer-term character of our business model and how revenues evolve over time. I will revert to that in a few minutes. Revenue in the quarter was SEK 61 million, which was an increase of 11% compared to Q1 2022, though when adjusted for currency effects, it was down 4%. EBITDA for the quarter was minus SEK 6.6 million compared to minus SEK 4 million last year. Operating cash flow amounted to minus SEK 8.8 million for Q1 compared to minus SEK 12.9 million in Q1 2022. And finally, the key events in the quarter, which I'll come back to later as well. First, we appointed Mikael Sander as Head of Bactiguard product portfolio, and he joins Bactiguard management team. Zimmer Biomet achieved regulatory approval for the trauma orthopedic implant, ZNN Bactiguard in Japan, which is an important step towards the commercial launch in Japan. And that also means we now have 2 Bactiguard coated products approved in Japan. We launched our Wound Care products in the U.K. and Ireland. And as announced in January, we achieved a key regulatory milestone with our first MDR approval. MDR, which stands for medical device regulation sets new higher standards for medical devices in Europe. If you go to Page 6, please, and look at the financial overview in a little bit more detail, there's a couple of things to highlight. Total licensing business was up 8%, reaching SEK 39.4 million, and our own Bactiguard product portfolio was up 6% to SEK 16.3 million, though when adjusted for currency, both were slightly negative or flat. EBITDA for Q1 2023 was minus SEK 6.6 million, corresponding to an EBITDA margin of minus 11% compared to our last year's EBITDA of minus SEK 4 million. This is mainly impacted by lower gross margins and higher costs for personnel. We're in an investment phase, which we started last year when we kicked off our growth strategy and started our transformation journey. This work continued in quarter 1 2023, with increased focus on the license business related to technology development and regulatory but also within the BPP. Our depreciation costs are stable and mainly related to depreciation of our technology, leading to a net result in Q1 2020 of minus SEK 22.1 million compared to minus SEK 6.5 million last year. If you go to Slide 7 and look at our rolling 12-month revenue. You can see that over the last year, we have had a strong momentum in revenue growth and rolling 12-month revenues are at an all-time high, obviously supported by positive currency effects. Looking at the blue bar, which is our recurring license revenues from commercialized licensed products. The key driver here is BD, but you also have some initial contributions from Zimmer Biomet in the form of royalty on sales on their ZNN Bactiguard trauma implants in Europe as well as the contract manufacturing we do for that. The yellow bar in the chart is new license revenue and shows the nonrecurring revenue streams that we receive from our license partners, most often prior to commercialized products. We do significant development work before they launch a product. And it's not until commercial launch, we start receiving royalties. The development projects are different depending on the scope and complexity of the materials to be coded. These revenue streams also include exclusivity fields, milestone payments and development or other type of product-related fees.As you see in the yellow bar, the revenues from development projects are showing good momentum over the last year, both with Zimmer Biomet related to the broader portfolio beyond trauma and then Dentsply Sirona. It is important to bear in mind that the nature of our business is long term. Development projects and technology development take time and revenues suggest -- revenue also changed character over time from development and milestones revenues, the yellow bar to royalties, et cetera, in the blue bar once products are commercially. This is obviously key. I will comment on the revenues from our own Bactiguard product portfolio, BPP, the green bar on this page in a few minutes.Go to the next slide, please. In Q1, BD revenue was up 16% compared to last quarter on, including positive impact by the strong dollar. Revenues from our partnership with BD have been strong for 5 consecutive quarters, and they go price of 2 parts. First, concentrate for the manufacturing of coated catheters. And two, royalties based on the sold volumes. This is the fifth quarter in a row with very high concentrate shipments to BD, and they have now built a significant stock in-house, and we expect concentrate volumes to be lower in the coming 1 to 2 quarters. While royalty revenues is expected to be relatively stable. BD remains one of our biggest and most important strategic partner. Looking at the Zimmer Biomet trauma partnership with ZNN Bactiguard all is progressing well. The regulatory approval of ZNN Bactiguard in Japan was an important milestone, being a first step towards a commercial launch in a market where preventing infections is a high priority. The development project with Zimmer Biomet on the broader orthopedics portfolio is progressing according to plan and generated some development revenues in Q1. Compared to last year, it was significantly higher than as we received sign on and initial development fees, which will not appear to the same extent in 2023 as the development phase is now moving from coding development to evidence generation phase which Zimmer Biomet drives themselves to a larger extent. Development fees from Dentsply Sirona was above $1 million in the quarter compared to 0 last year as the agreement was only initiated in Q2 last year. The development project with Dentsply Sirona is progressing, but the initial development phase will take longer than both parties anticipated at announcement in April last year. Part of the reason is that the coding development for some of the materials are taking longer than initially planned. The new license business is a key building block, and together with the recurring businesses, the foundation to continue to grow to meet our long-term goal. If we go to Slide 9 and deep dive into our own product portfolio. Firstly, it's great to be able to announce Mikael Sander has been appointed head of Bactiguard product portfolio and a member of Bactiguard management team as of April. His focus will be on operational excellence within BPP and look at areas such as supply chain optimization, distributor and sales excellence, just to mention a few. Mikael brings Bactiguard a multitude of experience from the global med tech industry. Most recent before joining Bactiguard, he worked at Dentsply Sirona, where he was responsible for Dentsply's global digital implants business. Previously, we had other roles at Dentsply as VP sales, General Manager in North America based in Boston and VP of Business Development. In addition, he has experience for both commercial, supply chain and management roles in operations, finance and business developments at AstraZeneca and AstraTech.If we look at the revenues from BPP, we have a modest growth of 11% in Q1. With continued good momentum in India and the Nordics where we have invested, but it's not enough to offset lower performance in other markets. Clearly, we have not yet achieved the acceleration we wanted globally, but remain focused on strengthening our sales team structure and offering. Another highlight of the quarter was the launch of Bactiguard Wound Care in the U.K. and Ireland.The U.K. is one of the leading wound care markets in the world. We're investing in Wound Care to build a market position. There's a lot going on. For example, in April, in the specialist publication Wounds International, there was a deep dive on the Bactiguard wound care product line and how it works to improve wound healing. This publication is very timely in light of EWMA, European Wound Management Association's Annual Congress, which is the biggest wound care event in Europe, which takes place next week. We will have a large presence, which includes hosting 2 scientific symposia on wound management as well as gathering our second global Wound Care Advisory Board with leading wound care specialists from key markets across the globe. It's really exciting times for our Wound Care portfolio. And finally, the very important MDR approval of the Latex-bacatheter, which we obtained already in January. This approval is not only a product approval, it manifests that Bactiguard quality management system fully compliant with the reduced MDR standards. This is true the competitive advantage for us, both in licensing and for future big products, regulatory approvals. If we go to Slide 10 and look at our financial position. The key point is that we have a strong financial position, which enable us to do the investment necessary to enable growth in our strategic therapeutic areas and focus markets. As you can see in the chart, we have a total cash and overdraft facility of SEK 217 million. The cash flow from operating activities, which is in the line in the chart, was minus SEK 7.7 million in Q1 compared to minus SEK 11.9 million last year. The cash flow from operating activities varies quarter-by-quarter, which is a result of large payments, sometimes nonrecurring from license partners as well as seasonal variances and business performance. If we look at our key priority for 2023 on Page 11, we have divided them into 5 areas: first, strengthen our license business, which means both deep and current and initiate new partnerships. We continue our efforts to further strengthen this the license business, which is where the biggest potential for Bactiguard lies. The pipeline of potential license partnership is strong and the goal to sign 1 to 2 license agreement per year stays firm. Technology. This means developing how we apply our unique infection preventing coding technology in existing partnerships as well as to develop our technology into new license partnerships for new device areas. PPP, as stated earlier in the presentation, we are on this priority, where Mikael Sander joins us to really take next steps towards operational excellence within the Bactiguard product portfolio. And last but not least, the U.S. focus, which we have defined in 2 areas. First, further develop our go-to-market strategy for our technology in the U.S., either through collaborations with current or future license partner or with distribution partners. And most important for us and our highest priority is to gain FDA approval for more products coded with Bactiguards infection prevention technology. What we've done to address is that during the year, we have strengthened our internal expertise within FDA approval procedures. We have initiated multiple processes for multiple products with different FDA departments. And aim is to define the best pathway and the regulatory package required for each device. Depending on the outcome of those discussions, we will get more clarity on time lines. This combined will be both key drivers and prerequisites for achieving our future growth and profitability. And if you go to the next slide, you can see that we have 3 key growth drivers to deliver on our long-term goals. First, the basis for our growth is our existing license contract with BD and especially Zimer Biomet, where we anticipate significant growth in the future triggered by 2 key events. First, once the U.S. approval of trauma implants, and especially if Bactiguard becomes an embedded feature in some key product lines. Secondly, we see new license agreements in our focus hours, which will contribute to our future growth, both through initial nonrecurring fees, but most importantly, royalties once products are commercialized. Thirdly, our own product portfolio of infection prevention catheters and wound care products, where the focus is to get our products to more patients in key global health care markets, including the U.S. Finally, we're not excluding small M&As, similar to the acquisition of vigilance in 2020 to further accelerate our growth and provide effective and safe infection prevention across the globe. Our financial goal is aggressive. Yes, but the opportunities we're going after are vast. The priority areas have an $80 billion market opportunity, as mentioned in the beginning. Our board vision is to champion a healthier word by preventing infections, and we generally believe that we Bactiguard can make a real difference and be part of solving some of the toughest global health care challenges. Before handing over to the operator, I would also like to acknowledge an initiative driven internally in the aftermath of the earthquake in Turkey and Syria in February where we were able to donate critical products like central venous catheters and tackle tubes and our wound care parents to help aid the people in need following the disaster. And I wanted to thank our staff members that were involved and went above and beyond to make this happen. Thank you. With that, thanks for listening, and I'll now hand it over to the operator, and Carin and I are ready for questions on the line.

[Operator]

[Operator Instructions]

[Anders Goransson, executive]

If we don't have any questions, don't hesitate to reach out to us directly, and we'll take those offline.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Anders Goransson, executive]

So if there is no questions, don't hesitate to reach out to me or Karen and we'll take those offline. But with that, I want to thank you for joining today's call and look forward to staying connected going forward. Thank you, everybody.