Biogaia AB

STO:BIOG B

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the BioGaia Q1 report 2018. Today, I'm pleased to present Managing Director, Axel Sjoblad. [Operator Instructions] Speakers, please begin.

[Axel Sjöblad, Managing Director]

Good morning, and welcome to this telephone conference for our quarter 1 2018 closing. I am here in Stockholm together with BioGaia's CFO, Margareta Hagman. Next slide, please. I would like to start with an executive summary of the first quarter, which, considering the strong second half of 2017 that we had was very good, we really had a good momentum right now. We saw strong sales growth in the Pediatric segment and a decrease in the Adult Health segment. But if we adjust for the technical transfer fee for know-how, education and launch preparations we received from Kabaya Ohayo in Japan in Q1 2017, also the Adult segment delivered good growth. I will come back to that a little bit later. We had strong sales growth of BioGaia Protectis drops, good development for BioGaia Protectis tablets, BioGaia Prodentis lozenges and BioGaia Gastrus tablets. We saw strong growth in the Americas, good growth in EMEA and a decrease in Asia Pacific, but also here, the comparison was affected by the technical transfer fee. Adjusted for this also APAC delivered good growth. We continued to invest in marketing activities and clinical studies, in line with our strategic plan.Next slide, please. In addition to the executive summary, I would like to highlight the following key events: first, our intensive launch work continues. During the quarter, we launched Protectis drops in India and in Myanmar. We launched Protectis drops with vitamin D in South Africa. We launched Gastrus in Greece. We launched Prodentis in South Africa, in Japan and in Sweden, Denmark, France, Belgium, and Netherlands together with Sunstar under the brand GUM PerioBalance. And finally, we also launched Protectis tablets with vitamin D in Sweden.Two new meta-analyses were published confirming the effectiveness of BioGaia's Probiotic in infant colic. We also reached an agreement with Abbott regarding sales of BioGaia Protectis tablets in China. And finally, after the end of the quarter, we increased our ownership in MetaboGen, we increased it to 62% and we are right now going through projects and studies and also possible synergies and our objective is to publish more information about MetaboGen before the summer holidays. Next slide, please. If we look at sales per segment and start by the total, we reached SEK 157 million, which was a strong first quarter. If we adjust for the technical transfer fee already mentioned, we grew by 18% excluding currency effects versus Q1 2017. I'm very pleased that we continue to deliver this type of growth after the strong second half of 2017 that I already mentioned, but even more important to me is the fact that our rolling 12 is growing by 18% if we exclude currency effects. We continue to take market shares. Our Pediatrics segment grew by 21% excluding currency effects and the growth was driven by continued strong sales of drops and good sales of BioGaia Protectis tablets. Revenue from Nestle was on par with Q1 last year. Looking at the rolling 12, we are up by 20% excluding currency effects, which is good. If we adjust the Q1 2017 number in the Adult Health segment for the technical transfer fee, our sales grew by 24% and this growth was driven by BioGaia Protectis tablets and BioGaia Prodentis tablets. Looking at the rolling 12, we are up by 29% excluding currency effects which is also very strong. In the Other segment, which is related to revenue from the collaboration agreement with Nestle, the numbers are decreasing according to plan and in line with the closing of [ projects ]. Next slide, please. The gross margin per segment remains on a high level. In the Pediatrics segment, we stay on par with last year in the quarter and are up by 2% in the rolling 12 comparison. In the Adult Health segment, we are back on a slightly lower level in the quarter since Q1 2017 was affected by the technical transfer fee in Japan. In the rolling 12 comparison, we are up by 2% which is a little bit higher than what we normally expect in the Adult Health segment. So that's also good. And in total, we are very happy with the 74% gross margin for the quarter and the 75% for the rolling 12. Next slide, please.We now look at sales per geographical market. In EMEA, sales were up by 7% in the quarter and growth was driven by strong sales to Eastern Europe where our partner, Ewopharma is doing a great job, as well as good sales to Sweden where as I said before, we are launching our Adult Protectis portfolio and also good sales to Turkey and to South Africa. In Italy, we are back to a normal situation, but when I speak about Italy, I would like to take the opportunity to mention that in Italy, we have agreed with our distributors to temporarily change back from the easydropper tubes to glass bottles for our drops. We do this because we had temporary disruptions in the tube production at one of our supplier's site and the fact that we could do this change in Italy actually gives us the opportunity to meet the total demand for both tubes and drops in all our markets and this tube situation will affect us during 2018 and to secure sales according to forecast in the countries where we sell tubes today, we will not launch tubes in any new market during 2018, but rather continue with glass bottles. For the rolling 12, growth was up at 18% (sic) [ 8% ] in EMEA.In Asia Pacific, if we adjust for the technical transfer fee, sales grew by 31% thanks to good sales in Japan, but it was also nice to see that sales started in India and also that they are growing in China even if this is still from a low level. The rolling 12 is up 43% which is mainly attributable to adult sales. In the Americas, sales were up 43% and here I'm very pleased both with the continued good development in Brazil and also the fact that we had strong sales to the United States where our close collaboration with our partners Gerber and Everidis really start to pay off. For the rolling 12, we're growing 30%, which is really good. Next slide, please.For the profit and loss, I start with the quarter. We have already talked about the sales. Gross profit was up 9%, operating expenses increased by 14% and it was driven by R&D activities, marketing activities and personnel expenses in line with our strategic plan for future growth. The operating profit is flat and this is flat since we changed accounting standard meaning that foreign exchange gains or losses on forward contracts are recognized in operating profit or loss. Had we not changed accounting standard, operating profit would have amounted to SEK 65.2 million, an increase of 17% with an EBIT margin of 42%. Looking at the operating profit for the rolling 12, it grew by 16% with an EBIT margin of 37%. Next slide, please.We add the balance sheet for your information and as you can see, it continues to be very strong and for the upcoming annual general meeting at 4:00 PM today, the board proposes a dividend of SEK 9 per share and a provision of SEK 2.7 million to the Foundation to Prevent Antibiotic Resistance that was started last year. Next slide, please. We add the cash flow for your information and I have no specific comment for this slide.Next slide, please. At last, I can conclude that I'm happy with our current progress and it also means, of course, that we continue to work according to our strategic drivers and the 5 drivers are: growth, customer focus, operational efficiency, innovation, and sustainability and if we specifically look at growth and customer focus, I'm very happy to highlight on the growth side that we are now continuing to roll out our new graphical profile in the [ countries ]. We actually have 70% of the sales today either BioGaia branded or co-branded BioGaia and the distributor, which is very good. We also continue to work according to the acquisition policy we have and now we can confirm that we increased our ownership in MetaboGen, which is very good and that also, of course, strengthens our strategic partnership with MetaboGen. When it comes to strengthening our presence in local markets, I'm happy to report that we are in 100 markets today, so this work goes very well. And finally, I want to highlight that we have started the BioGaia Academy that we worked very hard with putting in place last year. So we just received in Sweden, doctors from 14 countries from all over the world and had a very good kick off. With this, I would like to thank you very much for listening and Margareta and I are now ready to take questions. Thank you very much.

[Operator]

[Operator Instructions] The first question comes from the line of Kristofer Liljeberg from Carnegie.

[Kristofer Liljeberg-Svensson]

I have a few questions, first one on the strong growth in America. Is it possible to speak out, well at least talk a little bit more about what's going on now in the U.S. that finally seems to be growing a little bit better? Also, if you could comment a little bit more about the launch in Japan from the partner that happened during the [ what demand ] and how that's going? And also what type of impact do you expect to see on sales from the manufacturing issues with the easydrops, do you think you will be able to fully compensate that with the glass bottles or not?

[Axel Sjöblad, Managing Director]

Thank you very much, Kristofer, for good question. If we start with Americas, it is our 2 or actually the United States, it is our 2 partners Gerber's and Everidis that have ordered well from us. Gerber is rolling out in most of the pharmacies now in the U.S. and Everidis is focusing more on [ amafone ] which we are also happy about. So this I think gives us a good presence both in the brick-and-mortar business, but also on the e-trade. And they have started to order well and we also have additional orders coming in the next quarter. So we are happy with the development in the U.S. right now. When it comes to Japan, our Japanese partner as we have said before, launched the yogurt and the launch has not fully met the expectation that our partner had, but it is above the expectations we had on the BioGaia side. So from that point of view, it is good. They have also started to sell our product and then especially Prodentis and that is off to a good start. When it comes to the manufacturing challenge we have with the tubes, the activity we have taken with Italy, I think will lead to a no effect when it comes to reduced sales and the fact that we will be able to meet the demand. And the reason that we decided to do this in Italy is that both NOOS and Italchimici [ also ] Recordati, our partners in Italy has strong sales forces and they can really use the medical marketing activities to continue to promote our products, but as I write in my Managing Director's comments in the press release, we will also support them if necessary with marketing support. So as a whole it should not affect our drop sales for the year, but there will be a different mix between the tubes and the glass bottles.

[Kristofer Liljeberg-Svensson]

Don't you have a premium price on the tubes?

[Axel Sjöblad, Managing Director]

No, it's basically the same. We will not [ re-launch ] it.

[Kristofer Liljeberg-Svensson]

Okay and in Japan you said you were happy with the launch, but the partner had expected more. Does this mean that they are sitting with I guess you don't have any inventory issues here, but how does it work with the raw material they are [ buying ] could we see some negative impacts from this in the coming quarters?

[Axel Sjöblad, Managing Director]

No, it is rather that the sales have not taken off as high as they expected. So there is no inventory issue.

[Operator]

[Operator Instructions] We have a follow-up question from Kristofer.

[Kristofer Liljeberg-Svensson]

I'll take 2 more then. One is if you could comment more about the upcoming launches in China and India where you signed some partner agreements during the first quarter and also if you could just remind me what you said about the investments in the Foundation?

[Axel Sjöblad, Managing Director]

Okay. When it comes to India, we have launched now with Dr. Reddy's, and that is the partner that we are very happy with, a large professional pharma company, which has put a lot of efforts into the launch of our drops. Actually, they were just visiting us at the Congress here in Europe in Bari, and they came over with 18 key opinion leaders, pediatricians as well as 2 persons from their own organization, and they are now rolling out in region after region in India. So this is still in the beginning of the launch. When it comes to China, our sales with our partner, Sunflower, is growing but from a low level. And then as I said, we have also signed a contract with Abbott for tablet, but Abbott will not start to sell until we have the regulatory order registration from the authorities. So here we are waiting for that.

[Kristofer Liljeberg-Svensson]

And the ramp-up in India, how quickly could this become a meaningful amount of sales if you compare maybe with what's happening in Brazil some years ago?

[Axel Sjöblad, Managing Director]

Yes.

[Kristofer Liljeberg-Svensson]

And then I had a question about the Foundation as well, the investments you are doing there.

[Axel Sjöblad, Managing Director]

Yes. Sorry about that. I will come back to the Foundation, but just to close India first. I think that we are very humble now, it is we are really in the beginning of the launch. It looks good right now, but I will not start to talk about another Brazil. We have to wait a few more quarters before I can -- and I will have to come back to that a little bit later, but it's a good start. Then when it comes to the Foundation, this is the independent foundation that we started last year and if it's approved by the Annual General Meeting, BioGaia will invest SEK 2.7 million into this foundation and then, of course, the Foundation will use this money to support persons or projects that work against the antibiotic resistance.

[Operator]

[Operator Instructions] There are no further questions registered at this point. I'll hand the conference back to you.

[Axel Sjöblad, Managing Director]

Well, then Margareta Hagman and I would like to thank you very much for listening and wish you a good day. Talk to you soon again. Bye now.

[Operator]

Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect.