Bactiguard Holding AB
STO:BACTI B
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Bactiguard Holding AB
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Hello, and welcome to Bactiguard Audiocast Teleconference Q2 2022. [Operator Instructions] And today, I'm pleased to present CEO, Anders Goransson; and CFO, Carin Jakobson. Please begin the meeting.
Thank you, operator. Welcome to all our shareholders, investors and analysts and others joining us today. Today, I'm also joined by Carin Jakobson, who joined us a month ago as the new CFO of Bactiguard. We're delighted to have you on board. Welcome.
Thank you, Anders. I'm very pleased to be here.
In today's call, we'll share our Q2 results with continued revenue growth as well as continued investments to execute on our strategy. We will also deep dive into our expanding license business with a focus on the new agreement in the quarter with Dentsply Sirona, a leading company in the dental team.
If you go to the next page, before we go into our financials, I just wanted to reiterate why Bactiguard's vision is so important. The urinary tract infection was the beginning of the end for my friend. That's the heading of a letter to the editor in a local Swedish newspaper earlier this year, where the writer aims to point out the underinvestment in the Swedish health care system. He'd done so by describing a patient case. A good friend of his, in wintertime, slips and falls, gets immobilized and becomes temporarily bed bound. And among other things can't go to the bathroom, is therefore given a urinary tract catheter to support him.
So like many others, he then gets a urinary tract infection. Multiple antibiotic treatments follow. And sadly, he passes away a little bit more than a month after having his initial fall, but not due to the injury from the fall but due to the urinary tract infection. This is not a rare case. 1 out of 10 patients that enters a hospital acquires a new infection at the hospital, often caused by bacteria adhering to a surface of a medical device that are used to treat these patients. like a urinary catheter. This gathering of bacteria can lead to an infection and potentially in a worst case like this scenario, even death.
That is why I am so passionate about working together with the team here at Bactiguard to deliver on our vision, keeping people safe from infections on Page 3. With our unique Bactiguard technology, which prevents bacteria from adhering to the surfaces of medical devices, and therefore, we prevent these infections from occurring. That means we can prevent 7 out of 10 of these urinary tract infections that you would get with a normal catheter, and that is really impressive numbers. In addition, our technology is non-releasing, which means it is also very safe and biocompatible, while many of the alternatives out there are not biocompatible and even toxic materials.
We have this year started to accelerate our work to deliver on our vision with the aim to get our technology to more patients across the world through new licenses as well as through our own Bactiguard infection prevention portfolio.
If we go to Page 4 for an overview of the Q2 results. We had another strong quarter with close to SEK 60 million in revenue growing 30% from last year. We have this year a positive currency effect and the underlying organic growth is 30% compared to quarter 2 2021. The largest part of our revenue is from our license business, which was SEK 36.2 million in the quarter, a growth of 15% compared to last year. We also see strong momentum in our BIP portfolio, which grew 70% to SEK 15.6 million. I will share more details on what is driving this performance shortly.
Our EBITDA is minus SEK 3.8 million in the quarter, which is aligned with our growth strategy. When we earlier this year announced the long-term revenue and profitability goals for 2026, we announced that we will build the organization and initiate a number of growth initiatives. This will impact our EBITDA during this and next year, even if we plan to continue growing our top line. We're early in our growth journey, and we are on track to deliver on our plan.
if we go to Page 5 and look at the detail of our license business. If we look at our most important revenue contributor, Becton, Dickinson, who has exclusive right to sell urinary catheters with Bactiguard's technology in, for example, the U.S. and Japan. They are the market leaders in the U.S. with their infection control catheters. For the second quarter in a row, we see strong revenue from BD, confirming that we're back to pre-COVID volumes of the business. In the quarter, we also saw the first signing fee as well as the development fees on the collaboration with Dentsply Sirona, which I will come back to later.
For Zimmer Biomet, we see significant contribution from product development fees for the new agreement, but also a contribution from the initial term agreement, which delivers both contract manufacturing income, development fees as well as a small but growing royalty based on the sales of Zimmer Natural Nail, Bactiguard implants in Europe. We expect to see royalties to continue to grow in the coming quarters, but the real increase will come once the trauma implants are approved in the U.S.
As highlighted, the total license business grew with 15% and partly fueled by positive currency effects. So this is especially impressive in light of last year quarter, we had a $1 million milestone payment from Zimmer Biomet.
If we go to Page 6, as you know, our agreement with Becton, Dickinson or C. R. Bard at the time, was signed in 1990, and first product launched a couple of years later in the U.S. and over the following 10 years, grew to become the market leader. In September 2019, Zimmer Biomet and Bactiguard entered into a license agreement for trauma applications. In less than 2 years later, Zimmer Biomet launched their trauma Nail called ZNN Bactiguard in Europe. The launch in Europe and other parts of the world is progressing well with a focus on large trauma centers that also are part of the Zimmer Biomet evidence generation plan for the implants.
It's overall very positive customer feedback, but also generating a lot of interest with key opinion leaders. The next point to see the business accelerate are: One, the U.S. approval; and two, if Zimmer Biomet decides to make this an embedded feature in all their trauma implants. The key priority for both Zimmer and Bactiguard is to get the trauma implants through the regulatory approval process and to patients in the U.S. This is progressing. But as you know, regulatory timelines are uncertain and hard to predict. I cannot comment further on the estimated timelines for the trauma implants at this stage.
Over 2.5 years, we worked very closely and in partnership with Zimmer Biomet. They got really good insights and understanding of the potential of our technology. Therefore, in February this year, we decided to expand the license agreement to the majority of their portfolio. including reconstruction joints, e.g. knee and hip implant. It is fair to say it will take multiple years before products in this new agreement will be regulatory approved and start generating royalty income. Though if Zimmer would decide to quote a significant part of the product portfolio, currently generating USD 6 billion of sales, the potential royalty income could be significantly higher than the one we have from the BD license income every year, right, up to 10x bigger than that or even more. This has significant long-term potential.
The expanded agreement shows a true belief and confidence in the Bactiguard technology. And this stamp of approval is, of course, important for us in discussion with other potential license partners. And then in April of this year, we entered a new therapeutic area, the dental area, There was a development re-invented by Dentsply Sirona. Dental is one of our prioritized therapeutic areas, and this agreement is our first inroad into this. It is a high potential market in which we see our Bactiguard technology can make a real difference for patients.
If we go to Page 7 and recap the details of the agreement we signed on April 8 this quarter. In the initial development phase, which is approximately 1 year, we can generate development and milestone fees of up to $0.9 million. If they use option to enter into a license agreement, we can generate another $1.1 million in milestone payments continued on regulatory approvals.
Finally, as in our other license agreement, it would generate royalties on net sales once commercialized. The royalty levels are aligned with other agreements and are in the low to mid-single-digits depending on the claims supporting a potential product. This is an exclusive global agreement addressing a segment of the dental treatment market valued at $1.2 million.
If we go to next page and see why Dentsply Sirona is such a strong partner in the dental field. They are the largest global infrastructure dentistry and have a complete range of products for dental practices. They are the key player in many of these segments. And for example, on the right-hand side, you see the global dental implant market shares where they're the third largest player with 13% global market share. Based on this, we see Dentsply Sirona as the right partner as we're now entering the dental field, which is an area we see our technology to make a real difference by keeping people safe from infections.
To summarize, we have in the last 2 quarters, significantly strengthened and broadened our license collaboration, we are confident for the continued execution of our focused strategy. If we leave the license business and go to Page 9 to look at our own Bactiguard Infection Protection, the BIP portfolio.
As mentioned, total sales increased by 17%, including positive currency effect. We see our focused strategy and investment behind our own urinary catheter, the BIP Foley is paying off. For example, we focus on the wound care market, we focus on elderly patients, an area where our technology really makes a difference. We see more than double growth compared to last year in the quarter and second strong quarter in a row. This gives us confidence for the future. This growth is driven by strong momentum in key markets like India, Nordics and Malaysia, where we have invested buying the product and have our own sales force. In those markets, we focus on education and working with key opinion leaders to create a demand of our BIP product that enables us to enter and also win tenders from hospitals.
In our expanding wound care portfolio, we see good momentum as we see the broader portfolio of wound rinses and gels is fueling growth in key markets and the broader portfolio also support us in tender situations. We have continued very positive feedback from customers. We believe strongly in the product and the potential of it in the wound care market.
We also see continued interest and growth in our central venous catheter as well as our endotracheal tubes, which have triggered a lot of KOL interest based on our study we published last quarter. As you might remember, the study showed a reduction of infections with 53% in severely ill patients, for example, if you're incubated due to severe COVID, once again, confirming the effectiveness of our technology. But it also shows the importance of continuing strengthening our body of evidence around our technology, both around our effect, but also around our safety.
And if we go to Page 10, we see a recent publication in Nature's Scientific Reports, which looks at the blood comparability of the most common used central venous catheter, i.e. this is devices you put into your bloodstream, right? This in vitro study reinforced the safety and bio-comparability of CVCs coded with the Bactiguard technology. This is especially important as patients receiving a central venous catheter often are already quite ill and frail.
The study also highlighted that a CVC chlorhexidine/silver, which is the most common coated catheter, is the least blood compatible, which confirms the potential of our CVC in the coated CVC market, a market worth over $1 billion globally, where there is a need for an effective and safe technology.
If you go to Page 11. As you saw, our EBITDA is impacted in the quarter by our investments into strengthening our organization to deliver on our strategy and long-term financial goals. I just want to reiterate why we believe this is the right time to invest and fuel the growth, right? We have strong clinical evidence, which we continue to strengthen over the last year, showing that the Bactiguard coating is effective by reducing infection in multiple application areas, but also is very biocompatible and therefore, safe.
Second point, we have the capital to invest behind the goal and to fuel our strategy. And part of that is building the commercial capabilities needed to deliver on our focused strategy, but also our recent news that the European Patent Office intends to approve a new patent for our technology, gives us even more long-term horizon to work towards. We believe we have a strong IP protection with the know-how of coating different materials, the secret Coca-Cola recipe of our concentrate and now with a patent protection until 2039.
Finally, I believe our two recent license partnerships is a proof of the concept and shows the potential of our technology, and it's why we're investing behind the strategy. With that, I would like to hand over to Carin to give us more detail on our Q2 financials. Over to you, Carin.
Thank you, Anders, and hi, everyone. I will take you through the financial. Page 12, please.
On this slide, we look at the sales development as in a 12-month perspective. Recapping on the last 2 quarters, we see revenue streams increasing for both the licensing business as well as the BIP portfolio as a result of our focused growth strategy.
Starting with the licensing business, the blue bar in the chart. We have a solid platform in the recurring license revenue from BD where volumes vary slightly between the quarters but are essentially stable on a yearly basis. And we can see the volumes are back on pre-COVID levels.
The revenue from BD shows organic growth this quarter of 30%, taking into account the currency effect. License volume and the royalty fees are both continuously steady where royalty is depending on the BD Foleys reaching the end customers. Including in the licensing business is also revenues from contract manufacturing for Zimmer Biomet and a small but growing royalty corresponding to the Zimmer Biomet sales of ZNN Bactiguard implant.
Continuing with BIP portfolio, the green bar in the chart. It is very encouraging that the BIP portfolio shows growth for the third quarter in a row and which is driven by the Nordic countries, India and Malaysia. The yellow bar in the chart shows new license revenue and is connected to the nonrecurring revenue streams that we have for licensing business before products are launched. That can be different types of initial fees, project development fees as well as milestone payments. For this quarter, the new license revenue consists of revenue from the new global development agreement with Dentsply Sirona, which contributed with both an initial fees and revenues from development work, but also revenues from the expansion of the Zimmer Biomet agreement that was signed last month where we do development work. This, together with the recurring business, are the foundation to continue the growth to meet the long-term growth.
Page 13, please. Looking at the financial overview for the first half year. The total revenue for the period was SEK 115 million. That is an increase compared to the same period last year with SEK 17 million, which corresponds to a growth of approximately 30%, where both the licensing business as well as the BIP portfolio are growing.
Adjusted for currency effects, the growth was 13%. The EBITDA for the first half year was negative SEK 8 million. and the EBITDA margin was negative 6.8%. The investments we are doing are building a platform to accelerating the growth in the long term. The focus is on license product development, regulatory approval, patent and brand protection, higher production capacity and an expand license and sales organization. And these activities are impacting the EBITDA negatively at this point. I will also point out that the EBITDA was positively impacted by the milestone of USD 1 million from Zimmer Biomet for last year, which we're comparing with. The net result for the first half year 2022 was minus SEK 30.2 million, which is SEK 7.6 million lower than last year.
Page 14, please. Now looking at the cash flow and the liquidity slide. Today, the company has a strong cash situation due to the share issue that we closed last year and the loan from SEB. To have this financial position is a fundamental for the focused growth strategy and enable us to invest to meet the long-term goals. As you can see from this slide, the cash flow from operating activity varies quarter-to-quarter, which is driven by the milestone payment from license partners but also due to seasonal variances in business performance. This quarter, the cash flow from operating activity was negative SEK 1.8 million but improved compared to the prior 2 quarters. Overdraft facility from SEB is SEK 30 million, of which none is used as of today, and total cash and overdraft facility was SEK 232 million.
Next page, please. The global outlook. Finally, COVID-19 continues to affect global trade and including shutdowns in China and continued restriction in some parts of the world. The development in the near future is therefore still difficult test for us. And regarding the situation in Ukraine. This does not have a direct impact on the Bactiguard operation as the company has no business or suppliers in Russia, Belarus or Ukraine. If it is impacting the world's economy more, it will have a greater impact. We continue to monitor the macroeconomic situation closely and continuously evaluating the operational and financial effects of it. And with that, back to you, Anders.
Thank you, Carin. We go to next page. As we started this session with, we're passionate about working together as a team at Bactiguard to deliver on our vision, keeping people safe from infections. We hope we have highlighted to you why you should be investing in Bactiguard and that we're building the momentum to deliver on our 2026 financial goals.
If we look at the 10 key reasons, right? Addressing infections multi-resistant bacteria is key for the U.S. global sustainable development goals. And we have a great technology to do so, which is both effective and also safe. We have a growing body of clinical evidence that our technology works, and there is a huge market potential in our focus area. We have a clear focused growth strategy to accelerate from our unique market position. We already have a broad portfolio of existing approved products, but especially we have a very scalable license basement. We're now investing to deliver on our growth ambition. And finally, we have a strong base of long-term owners and a very dedicated management team also have acquired options in the quarter in Bactiguard, creating an even more motivated team.
That was all for us. Thank you for taking the time to listen to us. And operator, we're now ready for any questions on the line.
[Operator Instructions] We have a question from the line of Mattias Vadsten from SEB.
Yes. Nice to see -- I mean, big sales getting continued momentum at least on a year-on-year basis. I guess there are markets that are yet to come out of the real impact of COVID, suggesting sort of further improvement ahead. But at the same time, as you mentioned, we are seeing new COVID [ surge ] emerging in many markets. So I just would want to comment on to what extent this has been hitting you in recent weeks or currently? Is it difficult with access to customers and so forth right now?
Thank you, Mattias. It's a very good question. I think it's a little bit early to draw conclusions. But basically, what I can say is we don't really have signals that this is impacting us yet, except from China, where our partner is significantly impacted. So there, we have seen it, and it does impact us. But otherwise, it hasn't impacted us to this extent.
Perfect. And then my next one, I mean, if you look on ZNN trauma implants in Europe with Zimmer, you see a pick up from a low base. I mean we know the real inflection point is like would come with the U.S. approval, but do you expect any sort of boost if it turns out COVID have less of an impact and then maybe a better ability for you to interact or Zimmer to interact with customers to convert from sort of conventional implants into COVID implants. Is that a fair assumption?
Well, I think we will see continued traction with the ZNN Bactiguard in Europe, right? And it will continue to grow quite rapidly. An established company like Zimmer Biomet, who already have established relationships, especially with these big trauma centers that they're targeting, I don't think will be negatively impacted by COVID, but we should assume they will continue with the launch as per plan.
And the next question comes from the line of Hans Bostrom from Trinity Delta.
I just have a question regarding your investment plans, and you enumerated some functions such as regulatory impacting and so forth that you saw opportunities to enhance. I just wondered, which of these are the most consumptive of capital money that's invested? Also, do you -- have you provided any type of guidance as to how you see your profit margin develop over the next couple of years as a result of these investments?
Thank you for the question. Regarding the later part, we have only given guidance on our long-term financial goals in 2026, where we say we will have over SEK 1 billion in revenue and SEK 400 million in EBITDA. So that's the only guidance we've given. Regarding the earlier part of the question, it's in multiple areas we're strengthening the organization. But of course, one is product development together with our license partners. To get their products coated and ready to the market is, of course, going to take some of our resources. We're also getting paid for it, but it is increasing our costs. Of course, strengthening our commercial approach and how we go to market and how we communicate our messages is also taking more resources, but it will also require more people on the ground, right? So salespeople. So that's part of the -- where we're investing. And then currently, with the implementation of MDR, we are investing quite a lot in regulatory and quality resources to ensure our products will be MDR, but we're also looking into new markets where regulatory resources is required to enter. I hope that answered your question.
As there are no further questions, I'll hand it back to the speakers.
Well then, I just want to thank everybody for taking the time to join the call. and hope you all get a great summer and look forward to connecting again in the fall. Thank you, everybody. Bye.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.