Bactiguard Holding AB (publ)

Welcome everyone joining in today's call where we will share our quarter one 2023 results. I hope you had a chance to browse through the report as I now will give you the verbal presentation commenting on the quarterly figures and the strategic focus ahead. As usual, Karin Jakobsson, 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 back to guard to capitalize on the vast opportunities behind the global healthcare 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 two. And before we dig into the stats and figures of today's presentation, I want to put back to guard and our business into broader context. from an issue to market opportunity perspective. We see globally an increased interest in 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. is in early march here in stockholm a high-level conference took place with a focus on combating the threat of antimicrobial resistance and it was hosted as 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 bacteria was 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 resistance includes the need for new antibiotics to treat infections, but there's 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 one of the four 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, Rapport, which reported on a hospital in southern Sweden that had invested significant amounts to achieve cleaner air in their operation rooms with the 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 healthcare 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 three, 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 one out of 10 patients globally are affected by healthcare associated infections, which means you 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 one in 25 patients in the US because it's a market where infections and, more importantly, prevention of them are taken much more seriously. I will come back to the importance of the US later in the presentation. These trends are clearly gaining momentum on the agenda of decision makers across the globe, which makes the potential for BacterGard even brighter. On the right-hand side, you see the market opportunity for BacterGard. Firstly, we target the market with our technology and solutions, which has a market size of 80 billion US dollars. 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 Sima Biomed within orthopedics, and gaining new, like our development agreement with Dents by Serona, our first road into the dental field. And at the center of all lies preventing infections. being an important part of solving global healthcare issues. Clearly, the potential for our technology and solutions to make a real positive impact is huge for patients, for healthcare institutions, their budgets, and for a healthier world. If we go to slide five and dig into the financial of the first quarter of 2023, As I began today's call, looking at Q1, it was basically a continuation of a very transformative 2022. We focus on strengthening the licensed 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 61 million SEK, 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 6.6 million SEK compared to minus 4 million last year. Operating cash flow amounted to minus 8.8 million SEK for Q1 compared to minus 12.9 million SEK in Q1 2022. And finally, the key events in the quarter, which I'll come back to later as well. First, we appointed Michael Sunder as head of BacterGard product portfolio, and he joins BacterGard's management team. Simibiamet achieved regulatory approval for the trauma orthopedic implant, CNN BacterGard, in Japan, which is an important step towards the commercial launch in Japan. That also means we now have two BacterGard-coded products approved in Japan. We launched our wound care products in the UK 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 six, 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 39.4 million SEK, and our own back-to-guard product portfolio was up 6% to 16.3 million SEK. Though, when adjusted for currency, both were slightly negative or flat. EBITDA for Q1 2023 was minus 6.6 million SEK, corresponding to an EBITDA margin of minus 11%, compared to our last year's EBITDA of minus 4 million SEK. This is mainly impacted by lower gross margins and higher cost 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 one, 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 2023 of minus 22.1 million SEK compared to minus 6.5 million SEK last year. If we go to slide seven 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. Look 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 Cimebiomet in the form of royalty on sales on their CNN backyard trauma implants in Europe, as well as the contract manufacturing we do for that. The yellow bar in the chart is new license revenues. and shows the non-recurring revenue streams that we receive from our license partners, most often prior to commercialized product. 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 products are showing good momentum over the last year, both with Sima Biomet related to their broader portfolio beyond Trauma and Dentsupply Sirona. It is important to bear in mind that the nature of our business is long term. Development products and technology development take time and revenues are generated and increased over time. 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 launched. Resilience is obviously key. I will comment on the revenues from our own backyard 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 one, including positive impact by the strong dollar. Revenues from our partnership with BD have been strong for five consecutive quarters, and they comprise of two 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 one to two quarters, while royalty revenues is expected to be relatively stable. BD remains one of our biggest and most important strategic partners. Looking at the semi-environment trauma partnership with CNN Back to Guard, all is progressing well. Regulatory approval of CNN Back to Guard 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 SemibioMed 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 then 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, with which similar biomet drives themselves to a larger extent. Development fees from Densify Serona was about one million in the quarter compared to zero last year, as the agreement was only initiated in Q2 last year. The development project with Densify Serona is progressing, but the initial development phase will take longer than both parties anticipated at the 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 licensed business is the key building block, and together with the recurring businesses, the foundation to continue the growth to meet our long-term goal. If we go to slide nine and deep dive into our own product portfolio, Firstly, it's great to be able to announce Mikael Sander has been appointed head of Back2Guard product portfolio and a member of Back2Guard's 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 to Back2Guard a multitude of experience from the global medtech industry. Most recent, before joining Back2Guard, He worked at Dentsupply Sirona, where he was responsible for Dentsupply's global digital implants business. Previously, he held other roles at Dentsupply 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. We'd 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 Bacterial Wound Care in the UK and Ireland. And UK is one of the leading wound care markets in the world. We're investing in wound care to build the 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 Bacterial Wound Care product line and how it works to improve wound healing. This publication is very timely in light of EUMA, 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 two 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 BIP Foley catheter, which we obtained already in January. This approval is not only a product approval, it manifests that Baktergaard's quality management system fully complies with the rigorous MDR standards. This is truly a competitive advantage for us, both in licensing and for future BIP 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 217 million SEK. The cash flow from operating activities, which is the line in the chart, was minus 7.7 million SEK in Q1 compared to minus 11.9 million SEK last year. The cash flow from operating activities varies quarter by quarter, which is a result of large payments, sometimes non-recurring from licensed 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 five areas. First, strengthen our license business, which means both deepen current and initiate new partnerships. We continue our efforts to further strengthen this, the license business, which is where the biggest potential for Back to Yard lies. The pipeline of potential license partnerships is strong, and the goal to sign one to two license agreements 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're on this priority where Michael Sander joins us to really take next steps towards operational excellence within the backyard product portfolio. And last but not least, the U.S. focus, which we have defined in two areas. First, further develop our go-to-market strategy for our technology in the U.S., either through collaborations with current or future license partners or with distribution partners. And most important for us and our highest priority is to gain FDA approval for more products coded with bacteria infection prevention technology. What we've done to address this 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 the 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 timelines. 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 three 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 Sima Biomet, where we anticipate significant growth in the future triggered by two key events. First, once the US approval of trauma implants, and especially if Bacterial becomes an embedded feature in some key product line. Secondly, we see new license agreements in our focus areas, which will contribute to our future growth, both through initial non-recurring fees, but most importantly, royalties once products are commercialized and launched. 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 healthcare markets, including the US. Finally, we're not excluding smaller 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. Are financial growths 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 bold vision is to champion a healthier world by preventing infections. And we genuinely believe that we back to guard can make a real difference and be part of solving some of the toughest global healthcare 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, endotracheal tubes, and our wound care products 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 now hand it over to the operator. And Karin and I are ready for questions on the line.

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

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

So if there is no questions, don't hesitate to reach out to me or Karin 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.