Bactiguard Holding AB (publ)

Welcome to today's call on our interim report for the third quarter 2023. I will now dig deeper into the content and comment, not only on the figures, but importantly, on our new Sharpen strategy, which is also summarized in the theme of the Q3 report. As usual, I have Karin Jakobsson, CFO, with me, and we're available for questions after the presentation. Like always, I want to broaden the perspectives and look at the global healthcare issues we're facing and explain why I believe so strongly in what BacterGuard's technology can provide. One of the main challenges when using medical devices is biofilm. Look at this page. Biofilm is formed when bacteria and other microbes stick to the surface, making the bacteria more resistant to antibiotics. the patient's own immune system when biofilm is established the resulting infection is very hard to treat and sometimes not treatable at all and this means death putting it into another perspective some five million people died on multi-resistant bacterias in 2019 according to who and healthcare associated associated infections caused the u.s healthcare system some tense of billions of dollars annually. This is exactly why every medical device that's placed in the body for more than two days should be coated, obviously without coating. It's simply the safest approach to prevent medical device-related infections. Our coating technology is biocompatible and antibacterial. It repels bacteria rather than killing it, meaning that the good bacteria, those we all need, to stay healthy are also safe. I don't think we have highlighted enough how dangerous biofilm is, and we will, in alignment with our new strategy, bring more attention to this important issue in close collaboration with our licensed partners. And speaking about collaborations, one of our closest licensed partners is Zimmer Biomed, where we have numerous ongoing application areas. Zimmer has identified infections as a key strategic theme. You can see that on the blue logo in the right-hand corner, and has raised awareness around this in global healthcare conversations, most recently at the European Bone and Joint Infection Society in Switzerland. Biofilm in relation to orthopedic implantology was specifically in focus and described as one of the hidden threats. There's an article and a poster from the event accessible on our website, where Zimmer, not us, is explaining our coding technology and summarizing the clinical data across medical devices. It would be great if you can check it out. To quote Dr. Imran Khan, Senior Research Director at Zimmer Biomed, on stage at the conference, he said, There's a huge number of coatings, but very few are available to the doctors or commercially accessible. He stated that Bactigas coating is one of the very few in the world with solid clinical data showing a significant reduction to the incidence of medical device-related infections. And by preventing these infections, we depend less on antibiotics. which in turn helps fight against multi-resistant bacteria, AMR, one of the top global public health threats facing humanity. Clearly, endorsement by a partner is what matters the most. And tying this back to our Sharper strategy, the license focus will set the future opportunities free for Back to God from a mission, impact, and profitability perspective. Before we dig deeper into our new strategy, a few words about a study recently published in Scientific Reports. Scientific Reports belongs to the Nature publication family. The purpose of the study was to gather more data on the efficacy of our coating when it comes to reducing thromboinflammatory reactions and acute stent thrombosis. So what is thrombosis? It is coagulated blood that, if created within the body, creates strokes and evidently leads to lethal conditions. We conducted a study together with two leading institutions, the Karolinska Institute and the Swedish Royal Institute of Technology. The research methods used were both in vivo in pigs and in vitro with human and pig blood, and we applied two versions of our coating the standard one, the gold, silver, palladium, and a modified new one where we add neodymium. You might not know that we have two next-generation coatings already patented, one is neodymium and the other one is a combination of gold and palladium where silver is excluded. The study was made in a blind manner, meaning the operator did not know which stamp was coated. The effect was observed already after one hour in the pigs, where the coated stent group showed significantly decreased blood clot volume versus control group. The results show that our coating is effective also in reducing the thromboinflammatory reaction of an intravascular device. So why do we pay so much attention to clinical studies? There are so many different ideas regarding prevention infections in the world, but very few have evidence that backs their claims. One of the strengths of Back to Guard is solid clinical evidence. We continuously invest and improve our evidence by the day, which speeds up our licensed partner discussions and is a crucial part of our strategy ahead. As reported on October 5, we will now focus all our efforts on licensing activities. Our core offering will be to enable leading global medtech companies to bring medical devices with Back to God's unique coating technology to the market. We are fundamentally reshaping the company, moving from being a medical device production company to a knowledge and specialist organization. and to become a profitable high-margin business. The transformation process is in full swing. We are doving down on licensing and are expanding our collaborations with current partners, including having outsourcing discussions for the BIT products, our ETT, our CVC, and our Foley catheter. But it also includes putting in place a more structured approach to teaming up with new partners and new application areas. I will come back to our license-focused business model in a few minutes. R&D and the coding development organization are key competencies. Our unique technology is at the very core of our offering. We continue to institutionalize, sharpen, and develop these activities. For instance, we have launched the backyard Billy Söderman Academy in Markerid to formalize knowledge sharing and have initiated a technology certification program, effective both within backyard and with our licensed partners. Simultaneously, we are facing out the bid portfolio, which means terminating production as well as discontinuing our sales force. This is obviously a gradual process and it's key right now to limit disruption for our distributors and ensure a smooth transition. However, This is obviously causing some frustration, but our strategy is to migrate the distributions to new homes, meaning new licensed partners taking over our products. The financial impact of the new strategy will, over time, negatively affect the BIP revenues by some 25 million annually. While we, at the same time, we will save more than 25 million SEK annually. Once the production and sales organization are phased out and the products are licensed out to a partner, a loss will quickly turn into a profit. Importantly, with a new strategy, we focus and repeat focus on license and thereby unleash the full potential of our unique infection prevention technology. and we increase patient reach by teaming up with leading global medtech companies. This is where the biggest potential lies for Backyard from a profitability and impact perspective. As part of our new strategy, we have also sharpened our vision. The ambitions are bold, we admit, and we want to become the global standard of care for preventing medical device-related infections. Our mission is to achieve this in collaboration with our current and future licensed partners. We will join forces with a common mission to redefine healthcare and improve health worldwide. And we plan to drive the conversation around global healthcare issues and increase awareness of the dangers of biofilm because it's dangerous. And shed more light on the nasty consequences such as healthcare associated infections, multi-resistant bacterias, and sepsis. With our new strategy, I would like to take the opportunity to explain our business model in more detail. This picture summarizes our activities and describes the partner journey from prospect meetings and pitching to full blown license partnerships with coated products in the market. It starts with targeting potential partners with new application areas. We base our pitches on data on unmet medical needs and related infection rates and share ideas on how our technology can add value to the partners offering and differentiate their products. The process follows a well-defined flow and once development agreement is signed, the pitch transforms into revenue generating partnership. For illustrative purposes, we refer to this as customer acquisition costs. Turning to the revenue generating side, we divide the partnerships into three types. Application development partners, exclusivity partners, and license partners. An application development partner is a development project where we test and trial devices and materials. And our coding development team works in close collaboration with a partner. And the outcome is uncertain until we reach a satisfying outcome. Looking ahead, there will be development projects that do not materialize, which is a natural part of our business. Dan Spicerola is an example of a current application development partner. An exclusivity partner is one step closer to becoming a licensed partnership, where the partner has an exclusive right to code a certain device, but has no products in the market yet. It can be pending, for instance, regulatory approvals. An example is Zimmer Biomet and the broader orthopedics portfolio, the knees, the hips, and the shoulders. And finally, we have licensed partners with coated ploys in the market, and this is where the main revenue generation lies. Examples are Beck & Dickinson with a folic catheter and Zimmer Biomet's trauma implant, ZNN Back to Guard, launched in Europe and soon Japan. Going forward, we will report revenues from the different partnerships separately to give you a better understanding of the financial impact of the various partnerships. Now turning to the Q3 figures, first showing high level data and clearly yet another disappointing quarter, but in alignment with expectations and previous communication. Looking at Q3 in isolation, total revenues were 49 million SEK, a decrease of 25% compared to Q3 2022. EBITDA for the quarter was minus 9.5 compared to 2.5 in Q3 2022. Operating cash flow amounted to minus 36 for Q3 compared to 3 million positive in Q3 2022. of this negative cash flow relates to the extraordinary provisions made in Q2. On the Q3 key event side, I would like to highlight the profit warning from July, where we announced that our EBITDA will be negatively impacted by 42 million SEC for the year 2023. The adjustments are of a one-time character and where the results of an in-depth review of financial items negatively affecting the business. And looking at key events after the period, we announced our shopping strategy on October 5th with full focus on licensing. And yesterday evening, we announced our updated financial goals with focus on profitability, growth, and application areas generating license revenues. We'll come back to the financial goals later in the presentation. Looking quickly at the financial overview for the period January to September, total revenues were down 11%, amounted to and the total amount ended up at 162 million SEK. As expected, both for the quarter and for the full period of our license business is severely affected by the stock reduction efforts done by BD. And even though the BPP figures show an increase of 28%, the long-term profitability remains an issue. Total cost for the quarter decreased due to lower cost of material, but for the January to September period, costs increased. The major part is obviously the 42 million adjustment from the profit warning, but also our personnel costs increased by 10 million SEK. Post our strategic overhaul, the operating cost will evidently decrease. Looking at the role in 12 months revenues we have two quarters in a row with decreasing sales due to the recurring license revenue drop. The non-recurring revenues relate to our application development projects and exclusivity partners that I talked about earlier. Partners that eventually will become licensed partners. Note that these revenues will by its nature vary from quarter to quarter. We will report revenues from the different partnerships separately, as just described earlier, with development revenues, exclusivity revenues, and license revenues. We believe this will give a clearer and more transparent picture of the revenues and how they evolve over time. Revenues from licensing amounted to 21 million for the quarter, around 51% below Q3 2022. which is in line with our expectations and relates to the BD stock adjustment. We expect BD levels to be back on pre-COVID levels soon, and we foresee more normalized licensing revenues already in fourth quarter of 2023. We are currently in tight dialogue with all our current license partners, not only to deepen our business relations further, but also discussing and outsourcing or outlicensing collaboration on the various big products. As already described, we are very close with Zimmer Biomet in a variety of areas, and the partnership is continuously developing. The rollout of ZNM bacteria continues across Europe and now moves from a soft launch to a full launch underpinned by Zimmer Biomet's strategic theme, which they preach in conferences, let's talk about infections. CNM Bactigal will be commercially launched in Japan during 2024. The FDA process on the broader orthopedics portfolio is obviously slower than we have hoped for. And even though it's frustrating that the process takes time, thorough preparation, including clinical studies, will facilitate future registrations of the entire product portfolio And it is our best guess that Zimmer-Biden will obtain FDA approval early 2026. Back to your portfolio reported total revenues of 25 million SEC for Q3, an increase of 51% compared to Q3 2022. Even though the BIP portfolio had strong Q3 sales of 7 million, Q3 2022 was four, the long-term profitability issues remain. However, we anticipate that once the BIP production and sales organization are phased out and the products are out licensed to a partner, then BIP becomes licensed deals and thereby profitable. The products that we are searching for a new home for are the CBCs, the ETTs, and the FOLIs. And as stated earlier, we're having fruitful discussions with our partners, and we're confident that we will have a solution in place in the not too distant future. Back to God's wound care, wound management portfolio, Hydrosyn Aqua and sutures are not affected by the new strategy. Wound management is operated as a separate unit, and we will continue our efforts to market Hydrosyn Aqua. Back to God's cleaning and healing solution for chronic and complicated wounds. For Q3, wound management had sales of 80 million SEC. In Q3, the equivalent number was 13 in 2022, an increase of five. The new financial target, as announced yesterday evening, reflects what the board of directors and the executive management team considered to be reasonable mid-term expectations of back-to-guard given our new strategic direction. The targets are anticipated to be achieved following capacity and competence buildup within our licensing business and with the assumption that the licensed business and partnerships evolve accordingly. In essence, the targets are the same and relate to profitability and growth, but the EBITDA target is increased to 500 million SEC given that licenses have a much higher margin than a products business, while we will measure net sales and have a target in excess of a billion SEC. We prolong the time horizon until year end 2028. In addition, we replace the strategic goals of one to two new license agreements per year with a target related to application areas in license partnerships, which means having products in the markets. Measuring this will give a better understanding of how we make progress in terms of expanding our technology. But even more importantly, our updated targets reflect how much we believe in the long-term potential of back-to-grass coating technology. As I've stated many, many times before, medical devices that stay in the body more than two days should be coated because they're dangerous. And the value of uncoated medical devices sold today is around 100 billion. So obviously, we do not lack opportunity and potential. With that, time to conclude. Our technology is antibacterial, it's biocompatible, and it's safe. We want it to be available to all patients in need across the globe. This is embodied in our new vision of becoming a global standard of care for preventing medical device-related infections. Our mission is to be the premier partner for leading medtech companies joining forces to redefine healthcare and improve health worldwide. This is the foundation of our strategy, and we are now focusing, and I mean focusing, on our efforts to capture the opportunity. In Q4 2023, revenues will normalize, And during 2024, we will achieve profitability. With that, thanks for listening. We're now ready for any questions you may have.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. The next question comes from Mattias Vadsten from SEB. Please go ahead.

Hello. Thanks for taking my questions. I have a few this time. First would be around the BPP sales that to me looks quite strong in quarter three here. So first one is probably quick. If you could quantify how much was the BIP portfolio also in H1 that you did for Q3?

That's a good question. I don't have the numbers for H1 when it comes to the BIP portfolio. As we mentioned here, it was seven.

for the q3 numbers I don't unfortunately Matias have the bit number for the first half but it was substantially weaker that I know that's perfectly fine can get back to that later the next one around here is you know if you could give us a sense on the extent to which strong performance in wound care as we saw here in q3 and other areas can compensate for this sort of next year and you know any color on the pace of which the 25 million annual revenue are phased out I appreciate if it's difficult to give a guide on but some thoughts at least would be would be very helpful I think no happy to Mattias there's no secret that we're going through quite a an overhaul in the entire back to guard

also leading to the change strategy. We are very much focusing on the wound care separately with that said doesn't mean it doesn't take attention. And we had some low hanging fruits to fix with our Malaysian operation. You see part of the effects of that in the very strong performance of Q3 from Malaysia. I would like to say though that it's partly due to delivery issues in the past when it comes to sutures. With that said, the underlying growth for the sutures and the wound care from a Malaysian perspective is very healthy. And I would not be surprised if the wound care business will fill the hole made from a sales perspective of the BIP portfolio leaving us next year in its entirety. So we have a strong, we have a little bit of a nugget over there, but it's a totally different business. And we're really shaping it up as we speak. And quite optimistic about it, actually, particularly the Southeast Asian side and our manufacturing plant, which we're brushing and shaping up. I don't know if that gives you an answer, but to really give you a flavor, major major overhaul of the entire company which is ongoing right now and become quite a long bit regarding that and that actually makes me quite optimistic about what the future will provide that's uh i appreciate the color there uh on the big portfolio sorry to remain there but you know when do you in your internal budget subspeak assume they are

sort of phased out entirely then? Do you have an estimate in terms of timing?

Yeah, I do think we're going to need to keep, when it comes to the market, Q4, Q1, it's going to be phased out and we're working day and night to find license partners for this. it's actually quite attractive uh we have lost a lot of money within the past 10 years that's no secret with that said we also have scientific creative scientific evidence that backs our products we're simply just too small we don't have the distribution machine to be able to capitalize upon it i would actually say it's we have discussions ongoing already some advanced some less advanced in finding new homes for it and it's a little bit of a Smash is a big word, but it's actually quite attractive for license partners to take over a portfolio that has all the licenses to operate in the market. So we're optimistic that we're going to find new homes to them very soon, and also not to evidently upset our distributors and customers too much to actually forward the platoon to a big multinational instead of taking over these products. And I'd like to reiterate, we have ongoing discussions as we speak, some quite progressed, some less progressed. But in the very near future, we would like to turn a loss making proposition into a profitable licensed business.

Perfect. Just to confirm, when it comes to the central venous catheter and the endotracheal as well, you are not engaging in working for, because I understand the US is a major opportunity for you in this category, of course. I mean, we said that with Foley today, but you are not engaging in any FDA sort of applications in this respect. That's the work of a potential partner, so to speak.

That's right. That's right. That's the work of a potential partner. With that said, We are very qualified when it comes to regulatory expertise, particularly when it comes to our coating. So we will be partnering with the partner in helping them, but evidently it's going to be on their expense. But that's part of the package we're providing to our licensed partners. We're not only providing coating, we're providing expertise in how to get it approved by the regulators. We're providing evidently marketing expertise, the do's and don'ts. and we're evidently helping them in setting up the manufacturing capabilities to make it on scale. All those capabilities we have and those are the capabilities we're really focusing and doubling down on as we speak to become a true partner, not only a supplier of concentrate to them.

Thanks so much. Moving on, the next one is on I mean, what visibility do you have on Q4 here? If you could give us any direction to when there are more normalized inventory levels. I guess it's a tough question.

No, it's not a tough question, Mattias. We have very good visibility and it's going to be normalized in Q4.

Okay, and that means pre-COVID sort of levels? Yes. Perfect. uh the next one uh i have three questions on simmer perhaps take them one by one um first one being how how negotiations are progressing with the fda and it's a base case it's an approval towards maybe the latter part of 2024 or yeah what are you hearing from from simmer yeah we are we have a very very close relationship with them as

evidenced by them actually, as you see, even writing research reports of our technology, which I think is the biggest testament to their belief. And they are intense pre-sub discussions with the FDA. They have several meetings lined up. They are also, they would like to create even more clinical evidence. They have studies ongoing in Europe. And I would like to be very clear that our expectation for the FDA approval is Q1 2026. That's become quite clear to us. That's later than we hoped, but it is what it is. With that said, I would like to underscore the soft launch of our products in Europe has been very soft. but now they're doing a hard launch where they have these conventions where they bring orthopedic doctors in and they talk about, let's talk about infection. And what they're talking about there is actually our combined product, their product we are coating. So they have a hard launch now in Europe. So we have hopes for that. And also when it comes to Japan, which is the third largest healthcare market in the world, they are approved. and they will launch during 2024. So positives and negatives. The negative, later approval in the United States, what we expected, but we promise to be very transparent and really drill down to get a resume on this. The positive news is Japan open for business, and they're taking this very seriously. And as a side note, the champion of our collaboration with Zimmer was COO and now became CEO of Zimmer. He has a history of working with our coating at Bard. So this is top agenda for them and for us. And I think, I don't know if we have 20 work streams together with them as we speak. So we're tying in on all levels. They're very pregnant. With that said, we are also disappointed when it comes to the Q1 2026.

I think that's a very good answer. Just a small follow-up. Which countries in Europe is the trauma implant available today, the COVID one?

All countries are available from market perspective, but the big country for them right now is Italy and Germany. and they already have very good indications in the products that's been in patients to date, but evidently the quality of those retrospective studies are not sufficient to go to the FDA and get an approval. But they're very, they're progressing in patients with very good results already today, which evidently just reinforces our collaboration.

Perfect. The last one on Zimmer, if you could, sorry if I missed this during the call, but if you could elaborate a little bit on the split of the 9 million SEC sale this quarter and whether that should approach the first half level again in Q4 or if it should stabilize somewhat above that level that you had in the first half of the year.

The $9 million is the minimum royalty payment actually for 2022. And you should say maybe you should have accounted for that before. But we have some discussions with them to sort everything out. So it relates to 2022. And we're going to have an equivalent discussion about, because they have guaranteed payments to us for the exclusivity, which ramped up every year.

Perfect. Next one relates to operating expenses. By excluding one-offs and depreciation and amortization, it stabilized in Q3, which is good to see, actually being down a few millions. Based on how you see it, is this remaining stable or Q4 before falling some 10 to 50 million next year? Or how do you see it? Any comments or thoughts?

I'm happy to say evidently we're in the midst of trade union negotiations. It's a dramatic cut of personnel in Sweden, given that half of our business has taken, I would say, actually 70% of our time, God forbid, We're going to terminate. We have notice periods that we're going to pay, but we don't see any more extraordinary expenses being cured. We have the 42 already made, as you know, in Q2. That should cover the events we're going through right now. It's no secret that the expenses will go down. Otherwise we wouldn't have done it. We have highlighted 25 million of annual cost savings. And we said even more. And the reason why we say more, there's a lot of activities with external consultants and the likes that are not going to happen next year because we don't have a product portfolio. So there's a lot of action and things we're not going to pursue since we don't have a product anymore next year. The 25 million, full effect of the 25 million, you're going to see Q2 next year. Perfect. We also have, well, almost all effects. We will have to, because we have products in the market, we need to keep some QA reg resources to be able to support the products we have in the market, even if we don't sell them. But you're going to see effects coming virtually every quarter from now to the second quarter. And as I said, and I would like to be very clear on that, we will be in the black next year, for sure.

Perfect. The last one relates to the updated strategy. You instead now highlight 10 application areas in license partnership with products in the market. So yeah, the question relates to, I assume, I hear you are forward leaning on CDC, of course, and the track, but what other areas do you see? Do you see any low hanging fruit, so to speak, or which areas are you most excited about today?

Yes, that's a great question, Mattias, actually, because there's no secret that the Zimmer approval in the US has taken much longer time than we thought. And I think they thought implants are staying in the body a long time. So that's probably the most cumbersome approval you can get. You have other products maybe within the dental space that are pretty quick to the market. So one can't just say, oh, all filings are going to take five years. It really depends on which product. And evidently, on our own products, we have tons of studies and what have you that's going to come to the benefit to the licensed partners of those. So the obvious one is our own products. I would be very disappointed if they don't have a home during next year. Very disappointed. So that's three different areas. And then we have evidently, and for you to clarify our metric, we have BD. Sorry, BD is going to be part of the foliage. Sorry about that. So we have three with BD. We have four with trauma, Europe and Japan. And then we have the hips, the joints, the knees and the shoulders. That's another three. So that's seven. So then you see our target is not that impossible to reach. We actually only need the products in the market in three other areas until 2028 approved. And that's That's a bar. I cannot take poison on anything, but it's for sure reachable. So this is not fantasy.

Thank you very much for all answers. Thank you.

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

We have a written question in the chat, Thomas, and that reads that you made 20% of your staff redundant. Are there any other changes that you expect and how will this affect the bottom line?

We have lowered the water level in the bathtub. And now we're focusing on license. And as I said, I think 70% of the attention of this company, unfortunately, has been on our own products to fix them. Now 100% of our effort is going to be on license. And when that happens, evidently, visibility is going to be close to 100%. That's going to lead to further changes. We're going to recruit some people and maybe some other people within the firm we will separate from. But we're taking it step by step. But really the bottom line effect, the 25 we say in excess of 25, it's going to be in excess of 25. But we don't want to promise more than we have visibility for right now. But with all those actions, we're going to retire. There's a lot of additional expense that's going to leave the system in 2024. Thank you.

That was the only one we had in the chat. I think you can conclude, Tomas.

Thank you very much. As you hear, if life would be easy, it wouldn't be any challenge. We have gone through a very, very, very thorough change of our business. The biggest change we've ever done since inception. We're going for where we really provide value add. That's our technology. We have zero value add in manufacturing. I think we proved that we have zero value add in sales of our own products. We are not the best in the world. We are, I would claim, the only option to address an issue that kills millions and millions of people every year due to biofilm. And the biofilm, I talk to you right now, you will start reading about that in newspapers in the coming years. It's an unmet medical need. There's been no cure for it. And we have at least part of a solution to that issue. And that I will leave you with that. So it's not an if question, it's a when question, but evidently for us to prove to you. Thank you.