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?