Bactiguard Holding AB
STO:BACTI B
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Bactiguard Holding AB
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Welcome to the Bactiguard Q3 2022 Presentation. [Operator Instructions] Today, I'm pleased to present CEO, Anders Goransson; and CFO, Carin Jakobson. Please begin your meeting.
Thank you, operator, and welcome to all our shareholders, investors, analysts and all others joining today's call. Today, we will share our Q3 results, which shows continued strong revenue growth as well as positive EBITDA even in light of the investments we're doing to set us up to execute on our long-term financial targets. We'll also spend time on our ongoing licensing projects, which are giving us a good momentum.
If we go to Page 2, and before we go into the financials, I just want to reiterate why Bactiguard's vision is so important. It is not surprising that demand for our products is increasing, considering the benefits that infection prevention can provide both for individuals and society at large.
Avoiding an infection, for example, in connection with orthopedic surgery or extended use of a urinary catheter or venous catheter could mean the difference between life and death. This has never been more important than right now, when we have a significant care gap after the pandemic, which creates a pressure on hospitals making sure beds are not occupied due to avoidable infections acquired in the hospital.
This topic has never been more current. And as we see on the left side of the slide is clippings from the last couple of weeks or months from Swedish newspapers, with multiple examples of patients that have acquired a new infection with severe consequences as biofilm form on a medical device used as part of their treatment. This is not rare cases. One out of 10 patients that enters a hospital acquires a new infection in the hospital.
The consequence of these infections are, of course, amplified by the threat of multi-resistant bacteria, referred to as a silent tsunami, basically when antibiotics no longer work on some of the microbes. Luckily here in Sweden, this is not yet very common. While in other parts of the world, multi-resistant bacteria is already very present in the [ tube set ].
So on Page 3. This is why I am so passionate and working together with the team here at Bactiguard to deliver on our vision: keeping people safe from infections. Our technology provides unique protection against infections, even those caused by multi-resistant bacteria. By itself, this should be enough reason to use our technology on everything that will be placed within the body for longer than 2 days in order to prevent the occurrence of biofilm, which could lead to infection.
There's an additional aspect to this. The reduced need for the use of antibiotics, which means we're playing a part in mitigating the risk of antimicrobial resistance.
We have, this year, accelerated 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.
And if we go to Page 4 and an overview of our Q3 financial results, we're starting to see a momentum in especially our license business which translates into a very good financial quarter. We had over SEK 66 million in revenue in the quarter, which is a growth of 46% from last year. We have, this year, a positive currency effect. And the underlying growth is 15% compared to quarter 3 2021.
The largest part of our revenue is from our license business, amounting to SEK 42 million in the quarter, a growth of 41% compared to last year. We also see growth in our own BIP portfolio, which grew 23% to SEK 16.3 million.
Our EBITDA is plus SEK 2.5 million in the quarter, even though we're investing into our focused growth strategy.
When we earlier this year announced a long-term revenue and profitability goals for 2026
[Audio Gap]
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 are early in our growth journey, and we're on track to deliver on our plan.
Finally worth noting is we had a positive operating cash flow of close to SEK 10 million in the quarter. Overall, a financially very strong quarter.
If we go to Page 3 -- Page 5 and look at the 3 engines of the license business, our most important revenue contributor, Becton Dickinson, who has exclusive right to sell urinary catheters with the Bactiguard technology in, for example, the U.S. and Japan. They delivered for the third quarter in a row a strong revenue, close to SEK 35 million, confirming that we're back to pre-COVID volumes of the business, which is amplified by the strong U.S. dollar.
We also have significant growth of license revenue from our 2 agreements with Zimmer Biomet as well as a development agreement with Dentsply Sirona. In total, SEK 7.5 million compared to less than SEK 1 million last year.
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 as well as small and growing royalties based on the sales of Zimmer Natural Nail, ZNN, Bactiguard trauma implants in especially Europe.
We also have fees for work performed on the development agreement with Dentsply Sirona.
If we go to Page 6 and zoom in on the Zimmer Biomet trauma agreement. The launch of ZNN Bactiguard in Europe, Middle East and Africa region is going according to plan. The markets showing the fastest uptake of the ZNN Bactiguard Trauma Nail are Italy and Germany, with great feedback and interest from customers.
During the last 6 months, over 15 top-tier clinics in 9 European key markets has been enrolled to participate into the ZNN Bactiguard clinical evaluation study. This is really top-tier clinics like King's College, [ Uniklinik Ginsburg ], Kantonsspital Winterthur, Tygerberg Hospital in Cape Town as well as all very well-known institutions.
In addition to that, to further understand the true value added of our technologies, Zimmer Biomet is also driving real-world evidence study. The study is up and running in 6 different European countries and will, over time, create additional clinical-relevant outcome data.
During Q3, the work we're preparing new markets for the launch of ZNN Bactiguard devices continued according to plan. The regulatory efforts to improve Bactiguard implants in more key markets, especially the U.S., across the globe, is progressing well.
If we go to Page 7 and look back a little bit on the history, right? As you know, our agreement with BD or C.R. Bard at that time, was signed in 1990. And the first Bactiguard foley urinary catheter launched a couple of years later in '94 and, over the following 10 years, grew to become the market leader in this segment in the U.S., especially as clinical data was generated to support the value of our technology.
In September 2019, Zimmer Biomet and Bactiguard entered into a license agreement for trauma applications, i.e., nails, when you have a broken leg or arm. In less than 2 years, Zimmer Biomet launched the trauma nail called ZNN Bactiguard in the EMA region and, as mentioned, have already started the generation of clinical data critical for the long-term success of the product.
The key priority for both Zimmer and Becton is to get the trauma implants through the regulatory approval process and to patients in the U.S. This is progressing and, as you know, regulatory timelines are uncertain and hard to predict.
In summary, we have 2 license partners with Bactiguard commercialized products in the market. The key events that will accelerate Zimmer Biomet trauma business in the future are: one, a U.S. approval; and two, if Zimmer Biomet decides to make this, our technology, an embedded feature in their trauma implants in some key markets.
If we go to Page 8 and add in our 2 recent agreements to the slide. As you know, after over 2.5 years of very close partnership with Zimmer Biomet, in February this year, we decided to expand the license agreement to the majority of their portfolio, including reconstruction joints, like hip and knee implants.
This expanded agreement shows a true belief and confidence in the Bactiguard technology. This stamp of approval is, of course, important for us in discussions with other potential license partners.
All the development work in the orthopedic implant area is going according to plan. So far, we met all the milestones and we have not had any setbacks. All in vivo projects done by independent research groups at different top universities has shown positive results and the data clearly points in a positive direction. This is very promising and a clear evidence that our technology is a good match to the materials in joint prostheses as well as to the bone cells.
Then in April of this year, we entered a new therapeutic area, dental, through the development agreement with Dentsply Sirona. Dental is one of our prioritized therapeutic areas, and this agreement is our first inroad into this. This is a high potential market in which we see our Bactiguard technology can make a real difference for patients.
The development project with Dentsply Sirona is in a very intense phase, with a lot of different works being coordinated between us. All research and development projects are progressing rapidly. Once again, we see clear robust performance of our technology, regardless of medical and anatomical applications.
Both of these development projects support our robust growth in new license revenue this quarter. Altogether, that means, in the longer term, our technology will be usable in many more fields of application and will reach greater number of patient groups. This will generate more and more differentiated revenue streams for us.
If we leave license business and go to Page 9 and look at our own product portfolio. The combined BIP portfolio sales increased 23%; adjusted for currency effect, 11%. This is good growth, but below our ambition. At the same time, we have strong momentum in key markets like India, Nordics and Malaysia, where we have invested behind our portfolio, slightly offset as other markets did not show as strong in Q3.
We especially see our focused strategy and investment behind our own urinary catheter, the BIP foley, is paying off, and we have strong momentum.
Also in our expanding wound care portfolio of wound rinses and wound gels, we see good momentum. We have continued very positive feedback from customers and great patient cases, for example, on diabetic foot ulcers, a very common chronic wound that in worst case can lead to limb amputations.
We are continuing our investments of getting our products MDR approved as well as other regulatory approvals in global key markets.
If we go to Page 10. As you saw, our EBITDA is impacted by our investments into strengthening our organization to deliver on our strategy and our long-term financial goals. I just want to reiterate why we believe this is the right time to invest and fuel our growth.
First, we have strong clinical evidence, which continues to be strengthened. And it shows that Bactiguard-coated is effective by reducing infections in multiple applications and on different materials.
Two, we have, since the last year, capital to invest behind our focused growth strategy, and we're building the commercial and coating capabilities needed to deliver on our focused strategy.
But also most importantly, the recent news in the quarter that the European patent office have approved a third-generation patent for our technology gives us even more long-term horizon to work towards. We believe, even without a patent, we have a very strong IP protection with the know-how of coating different materials, a confidential Coca-Cola recipe of our concentrate. But now, with the patent protection prolonging up to
[Audio Gap]
I think our 2 recent additions of license partnerships is a proof of the concept and shows the potential of our technology.
With that, I would like to hand over to Carin to give us more detail on our Q3 financials. Over to you, Carin.
Thank you, Anders. Hi, everyone. I will talk you through the financials for the first 9 months.
Next page, please, Page 11. On this slide, we look at the revenue development in the rolling 12-month perspective. We are very happy to show that the development of our revenue is growing for the third quarter in a row and showing an all-time high, and both the license revenue as well as BIP portfolio are growing as a result of our focused growth strategy.
Starting with the license business, the below chart -- bar in the chart. We have a robust platform in the recurring license revenue from BD, consisting of the license volumes and the royalty. Both these revenue streams vary slightly between quarters but are essentially stable on a yearly basis. And BD revenue has been consistently higher than last year when compared to prior year. And we expect volumes to be stable on a pre-COVID level from now on. And the BD revenue is growing 20% this quarter.
Including in the license business are also revenue from contract manufacturing from Zimmer Biomet and growing royalty corresponding to the Zimmer Biomet sales of ZNN Bactiguard implant. The royalty we receive from Zimmer Biomet is received in 2 installments: one, when we manufacture the product, whereby we coat them and once when the implant is sold.
Continuing with the BIP portfolio, the green bar. The BIP portfolio shows a steady growth for the fourth quarter in a row, which is driven by the Nordic countries, India and Malaysia. And as mentioned before, this is where we invest with our own resources.
And the main growth in the 3 areas are for our focus products, the Foley and the wound care portfolio. But this quarter, we also have a very good growth within the suture business.
The yellow bar in the chart shows new license revenue and are connected to the nonrecurring revenue stream that we have from the licensing business. And that is before the products are launched. That can be different types of initial fees, project development fees and as well as milestone payments, of course. This business is showing good momentum. And both the projects with Zimmer Biomet and Dentsply Sirona are progressing very well and according to plan.
For the quarter, the new license business revenue consists of revenue from the development agreements on Dentsply Sirona, which contribute with revenue from development work, and the Zimmer Biomet license agreement for orthopedic implant that was signed in February, which contributes with development revenues this quarter.
The new license business, together with the recurring business that we have, are the foundation to continue the growth to meet the long-term goals, and Anders will come back to this later on.
Page 12, please. Looking at the financial overview for the first 9 months of 2022. The total revenue for the period was [ SEK 189 million ], a growth of 36%. That is an increase compared to the same period last year that was [ SEK 48 million ]. But both the licensing business as well as the BIP portfolio are growing. Adjusted for the currency effect, the net revenue growth was 12%.
EBITDA for these first 9 months was negative SEK 5.3 million and an EBITDA margin of 2.9%. Last year, EBITDA was positively impacted by the milestone payments from Zimmer Biomet of USD 1 million. In addition, the EBITDA for this quarter was, on the other hand, SEK 2.5 million, which is an improvement from last quarter, [ this very ] quarter last year and from the last quarter as well.
As we have said earlier, we are investing significantly in capacity within our licensing business. And combine that with the investments in the BIP portfolio, it is significant. It is also -- it's for both manufacturing, project development and to further improve sales and marketing capabilities. This is to transform Bactiguard and will affect profitability over the next year, while we expect a rapid acceleration of profitability after that.
The net result for the first 9 months 2022 was negative SEK 38.7 million which is SEK 5.3 million lower than last year.
We see changes in the macro -- impact of the macro events on the results. COVID is still having a large impact on China. But for the rest of our markets, it's not -- almost back to pre-COVID. Also, we have seen very little effect on our financial performance from the Russian war against Ukraine as we have neither suppliers nor customers in that area.
We do see indirect effects from the war, such as energy cost increasing in Sweden. It has not yet impacted the company's financial performance significantly as most of our production takes place in Malaysia where the situation is very different. We also will see increased interest cost on our loans from SEB which will impact the company negatively.
But on the positive side, we have already mentioned we are seeing the U.S. dollar strengthen which has a significant impact on our financial situation.
Page 13, please. Now looking at the cash flow and liquidity slide. This quarter, the cash flow from operating activities was SEK 9.9 million. And today, the company has a strong cash situation which we are very happy for. This is due to the share issue that we closed last year and the long-term SEB. To have this financial position is fundamental for the focused growth strategy and enable us to invest to meet the long-term growth.
As you can see from this slide, the cash flow from operating activity varies quarter to quarter, which is driven by the milestone payments from licensing partners, but also due to seasonal variances and business performance.
We do have an overdraft facility as well from SEB of SEK 30 million, which is -- of which none is used as of today and total cash and overdraft facility was SEK 238 million.
And that was all for me. Back to you, Anders.
Thank you, Carin. Before we finish, let's go to Slide 14, where I want to highlight the 3 key growth drivers in our fight against infections and why we have set ambitious financial targets.
Our technology provides unique protection against infections, even those caused by multi-resistant bacteria. This is why we believe our technology should protect everything that will be placed within the body for longer than 2 days in order to prevent the occurrence of biofilm which could lead to infection. That is the underlying rationale why we believe we can significantly accelerate our growth, by protecting more people from infection.
There are 3 key drivers. First, the basis for our growth is our existing license contracts with BD and, especially Zimmer Biomet, where we anticipate significant growth in the future once a U.S. approval of the different implants and especially if it becomes an embedded feature in some key product lines.
Secondly, we see new license agreements in our focus areas which will contribute to our future growth, both through exclusivity fees, development and milestones and especially royalties once products are commercialized and launched. Depending on the product area, time to market can sometimes be quite rapid.
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 market, especially the large ones with high health care spend and where infections create significant problems, either by multi-resistant microbes or the risk of being sued for causing a new infection.
If we go back to the existing license agreements and to highlight the potential of the Zimmer Biomet collaboration. Zimmer Biomet is a leading orthopedics company and they operate in a market worth $28 billion and has sales of more than $6 billion in that market, mainly hip and knee and trauma and other type of implants.
It is fair to say it will take time before all the key type of implants will be regulatory approved and start generating royalty income. But if Zimmer would decide to coat a significant part of the product portfolio, the potential royalty income could be significantly higher, in many multiples of the current BD license income per year. That's where the potential of our business lies.
As we started this session with, we are 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 invested in Bactiguard and that we're building the momentum to deliver on our 2026 financial goals.
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] Our first question comes from Mattias Vadsten at SEB.
Sorry if I repeat anything here, I missed the first 5 minutes or so of the call. But I have a few.
On BIP sales, I mean, nice to see the continued year-on-year growth. But if we look to the quarter-over-quarter development, it's a bit cautious if you compare it to the SEK 50 million you had already in Q1. And I guess COVID has been less and less of a headache throughout the year here. So what is the main sort of reasons for it not coming up here in Q3? Is there any seasonality or something that we should be aware of? Or how would you describe that?
I think it's a combination of things. Overall, I think we see good momentum but especially in those markets where we are putting more resources and focus and we see we get really good traction.
In some of the other markets, which are sometimes more seasonal, like the Middle East, et cetera, we have had a relatively weak quarter, right? And that impacts the total growth.
But if we look at the markets where we do want to grow, we see continued strong growth. But as we also stated, right, the growth is not at the level we want it to be and we aim it to be. And it's, of course, something we will take actions to accelerate further.
Perfect. Otherwise, I mean, if you look on the commercial operations now in these countries, you have invested quite a lot that we've spoken about before. Do you see everything being in place now? Or is it still a lot of activities that you should do going forward? Or some players there would be interesting as well.
So what we see is it's not about adding more resources. But of course, activities need to continue. And it is really getting more and more patients, more and more centers focusing on infection prevention, converting normally non-coated products to our products, right? So the activities need to continue, but it's not about adding more resources. We don't see that is what's needed.
And also, of course, I think the success in the markets where we are having more resources gives us better insights and makes us better in managing our other distributors, so we do believe we can also get acceleration through them over time.
That's very good. And we can follow the number. I know that Zimmer is growing somewhat quarter-over-quarter, of course. But sort of, what would you say, so to speak, is the main risk to Zimmer not negotiating to go for a conversion strategy really according to your thoughts and discussions?
Well, of course, our preferred option would be they went in and first converted on their business. But of course, for them, a key point of having our technology, it gives them a differentiated product and enables them to grow their trauma business, which is one of their strategic objectives, right? So of course, they're also going into new centers which might take longer before it translates into significant sales. But of course, having that success is critical for them to really see they get the value out of the technology they want to get.
So I think, yes, of course, I would prefer to go 100% commercial strategy, but that's maybe not realistic. But I do see them focusing more on that. But the real tick to look for, right, is launch in the U.S. and potentially having this -- our technology as an embedded feature in a product line in key markets, right? That's the 2 big ticks when royalties really will move, I would say.
Yes. And just on the strategy there, do you think -- do we see a higher price for the coated trauma implants versus the common conventional trauma implants? Or how is the thinking on that perspective?
No, no. So it is, of course, a significantly better product and that enables you to take a higher price, and that is really the strategy we see, right? Of course, it then depends on the market how significant that price premium can be. Where some markets are more cost sensitive, meanwhile others, you can take a higher price. And sometimes maybe that also links into the how common multi-resistant bacteria or something like that, which actually a consequence of an infection becomes much bigger potentially for those patients and enables you to get a higher value for the product you're selling.
Perfect. And my last one will be negotiations with new potential partners. I mean we have seen you have struck a few already this year, so we know that. But do you see negotiations increasing through the year given that COVID is less of a headache for those companies and the sort of, yes, the general product development part of those businesses has come up? Or is that what you still continue to see?
We see continued interest in our technology, right? And we do see companies that maybe during COVID had other focuses now having able to focus more on product development. But of course, some companies are also more impacted by the current situation in the market which then slows it down. A lot of companies is now spending a lot of time on MDR and all those that work for their portfolio.
But I would say, overall, we see the continued interest in our technology from many potential license partners. So I would say we have -- we're not as impacted as during COVID from holding back the focus in product development in potential license companies.
Perfect. And maybe last one on the MDR, as you spoke about. How are you stacking up versus the deadline there? Just some flavor on that.
No, it's progressing well, right? We have submitted multiple of our products already and have some of them very long time ago. So we do see we're in a good time from a time line perspective.
But also, just as we noticed, it's a lot of work, it's a lot of investment and time required to get an [ MDR ], which we also see them from many of the license discussions, other companies are struggling with as well.
So potentially, the time lines might shift, but we don't see that's needed for us to make it in time.
[Operator Instructions] We have no further questions at this time. So I'll hand back to the speakers.
Thank you, operator. And thank you, everybody, for joining the call, and look forward to talking to you again in 3 months. Thank you, everybody. Bye.
Bye-bye.