Bactiguard Holding AB (publ)

Welcome to the presentation of Back to Guard's Q3 2024 report. I will go through the presentation together with my colleague Patrick Bach, our CFO, and open up for questions towards the end. Thank you all for dialing in today. Let's go straight into the overarching theme of the report. We are very pleased to announce profitability on an EBITDA level, both for the third quarter and year to date. This is a demonstration that our license focused strategy and business model that we embarked on late last year is working and effective. As you know, we also had some disappointing news in early October after the end of the quarter when Zimmer Biomet terminated the agreement covering multiple orthopedic product segments. The broad commercial potential in these segments was a key driver of our 2028 financial targets. Considering this and to further take the opportunity for reflection after last year's transformation work, we have decided to initiate a review of our financial targets. The outcome will be communicated in Q1 2025. Importantly, our partnership with Zimmer Biomet within the trauma segment remains in effect, and I will return to the Zimmer partnership later in the presentation. I wanted to give some brief overall comments on the financial development of the third quarter, and as usual, Patrick will review these in more detail later on in the presentation. Our total revenues for Q3 amounted to 73.9 million SEC, an increase of almost 50% compared to the same period last year. We report a positive EBITDA of 9.9 million SEC for the third quarter, which means that we turn profitable on an EBITDA level, not just for the quarter, but also year to date. The profitability was delivered from a combination of increased revenues where solid growth within the BD partnership was the main driver, as well as a disciplined approach to costs. Another highlight of the quarter was the good performance for the wound management portfolio. Overall, while we are humble about the challenges ahead and that we still have much to do, we remain committed to deliver EBITDA profitability for 2024. A quick recap of what Back to Guard does. Our unique infection prevention technology is an ultra-thin coating of the noble metals gold, silver, and palladium. We license the technology to global med tech companies and develop a different coating process for each medical device. The total quantities of the noble metals on any given device, however, are tiny. But when in contact with fluids, the galvanic effect creates something like an electric fence and results in the inhibition of microbe adherence to the surface of the devices. In the pictures in the lower right of the slide taken with an electron microscope, you can see the difference in bacterial colonization between an uncoated surface to the left and a back-to-guard coated surface on the right. The back-to-guard side shows significantly fewer bacteria colonizing, which reduces biofilm formation over time and leads to lowered rates of infection. Over the years, a wealth of data has been amassed, all pointing to the effectiveness of our technology. More than 100,000 patients have been part of over 40 clinical trials covering case reports to randomized controlled trials, and the results have been published in renowned peer-reviewed publications. Our studies cover various patient cohorts, continents and regions, and different therapeutic areas. In short, we know our technology works. The need for infection prevention is increasing due to the challenges in delivering effective healthcare globally. Sepsis, which I mentioned in my CEO statement, is merely one example of the importance of prevention. 50 million people contract sepsis when an infection goes astray and more than 11 million die each year. In addition, the demand for more effective and safe healthcare solutions is driven by economic and demographic developments, increased political unrest, conflicts, wars, and natural disasters. There are many unmet medical needs that come with these pressing global societal challenges, including sepsis, but also healthcare associated infections and antimicrobial resistance. The medical need also brings commercial opportunities for back to guard within our various strategic therapeutic areas. In fact, they drive home our mission to work with leading med tech companies to enable differentiated medical devices to be brought to the market. We see an increased interest in our infection prevention technology, and I will comment further on that shortly. Wound management clearly also represents a significant market size and growth opportunity, bearing in mind the positive Q3 momentum in our wound management portfolio. One year has passed since we embarked on the journey towards a sharpened license focused strategy around our coding technology. And we have been through a fundamental shift going from production and sales to becoming a knowledge specialist and license partnership organization. Reaching EBITDA profitability for 2024 already in the third quarter serves as excellent evidence that our strategy and business model are effective and that the transformation is well underway and making progress. Our overarching focus areas remain the same, license partnerships, strengthening the knowledge and specialist organization further, and growing our wound management portfolio profitably. I would like to take a deeper dive into the license-related green boxes. Our key priority is working in partnership with leading global medtech players, and this includes two core parts. Firstly, advancing current partnerships where the positive development of the relationship with BD is a great example, and which I will come back to in a few minutes. And secondly, by developing new license partnerships. We do this by delivering our competencies into our partnerships to develop processes and IP, demonstrate patient benefit, and enhance our partners' product differentiation. This relationship is a virtuous cycle. The more we understand and educate the market about our technology and its ability to mitigate infection risk, the more interest we see in our technology platform, the stronger our partnerships become, enabling us to continue developing our competencies and so on and so forth. In this context, I would like to revisit our business model, which we introduced in connection with the Q3 report last year. The green section is clearly the most important from a revenue generation perspective. Our revenues are generated in three categories, application development, exclusivity fees, and license revenues. Our work to deliver partnerships begins earlier, however, in the beige part of the figure. As I noted before, we are seeing increased interest in our infection prevention technology from global med tech players, and we are currently exploring the application of our technology across the strategic therapeutic areas. Our R&D team is currently engaged in early stage testing in collaboration with potential partners in various therapeutic areas. We are testing the performance of our technology on different medical devices, materials, and surfaces. This early stage testing and even full application development projects are best executed in a confidential manner, and we are committed to safeguarding competitive advantages for our partners, particularly at this stage of the partnership journey. Additionally, some application development projects will materialize and some will not. This is a natural part of our business. In accordance with our business model, we are announcing partners once the early stage projects convert into exclusivity and license partnerships. We believe this gives a more relevant view of when meaningful revenues from the partnerships will kick in. Now let's turn to more on our license partnerships. Looking at the quarter in isolation, the solid growth in revenues from BD was the main driver of our positive EBITDA. We have had three stable quarters and now see growth. Reviewing the collaboration both over the last nine months and through the third quarter, we are extremely pleased with how the partnership has developed. We now have a truly global approach and are working even more closely together on the expansion of back to guard coded Foley catheters into both existing and new markets. Our collaboration has transitioned into a strategic partner cooperation and back to guard now engages with BD across the entire value chain from technology through go to market. Here in our photo, you see a recent example of this collaboration with Back2Guard's BD project leader to the left and a BD representative to the right jointly at the Urology Week event organized by the Swedish Urological Association in Norsköping, Sweden. Importantly, the evolution of the relationship with BD demonstrates how our licensed focus strategy is proving ourself. It is a global approach in close partnership and it is growing. BD's success is Back2Guard's success. Returning to Zimmer Biomet, the termination of the agreement covering multiple orthopedic product segments in early October was clearly a disappointment. While Zimmer Biomet are strong believers in the importance of infection prevention and in our technology, they informed us that they were not prepared to commit to a more complex and lengthier US FDA pathway than originally anticipated when the agreement for these segments was signed back in 2022. We are now in dialogue with Zimmer Biomed to detail the near-term responsibilities and analyze the longer-term impact of the termination. While the termination was a disappointment, Back to Guard now fully owns the rights and is free to seek additional partnerships within orthopedic segments outside of trauma, where our agreement with Zimmer Biomed does remain in effect. Within the trauma setting, infection rates are significantly higher than, for example, in elective reconstructive procedures. And consequently, the need for infection prevention is more pressing. In the partnership, we are working together on, among other things, regulatory processes in Europe and in the U.S., and we are continuing to support the commercialization activities for the ZNN back-to-guard trauma nail, especially in Europe. A highlight in Q3 was the way Zimmer Biomet presented our technology at the European Bone and Joint Infection Society's conference in Barcelona. A trauma implant placed in an interactive glass cylinder illustrated the mode of action. Your finger represented the microbes touching the cylinder, and the light effect demonstrated the prevention of the attachment to the device. Zimmer Biomet also arranged a KOL event on infection prevention measures for meta implants highlighting our technology. The event in Barcelona is yet another example of the continued commercial collaboration between back to guard and Zimmer Biomet within trauma. Here in the final photo is our Zimmer Biomet alliance manager and our CMO with colleagues from Zimmer Biomet. Separate from the technology licensing focus, we continue to grow in the wound management portfolio. The product portfolio had a strong third quarter and continued its trajectory of profitable growth. These pictures are from this past weekend, where we participated in the Global Wound Conference in Selangor, Malaysia, organized by the International Wound Infection Institute. Additionally, a few days ago, the results of a randomized study with Hydrosyn Aqua were published in the British Journal of Surgery. The study showed that the using Hydrosyn Aqua solution in peritoneal and wound lavage reduced overall surgical site infections by 58% and superficial surgical site infections by 72%. These significant results further enforce the efficacy of Hydrosyn Aqua in infection prevention. In addition to Hydrosyn Aqua, our wound management portfolio consists of a wide range of surgical sutures, including specialty sutures for cardiovascular and ocular operations. And with that, I will hand over to Patrick Buck, our CFO, to go through our financials in more detail.

Thank you, Christine. I am very happy to present our financial results for Q3 and the nine month period year to date. In short, we deliver positive EBITDA and demonstrate that our license-focused strategy and business model is effective. At the same time, we will review our 2028 financial targets due to CIMA's termination of the orthopedics agreement. As Christine mentioned, the potential in these segments was a key driver of our financial targets and the outcome of our review will be communicated in Q1 2025. Now turning to our actual revenue split for Q3. In the quarter, our total license revenue amounted to 47.5 million SEK, an increase of almost 27 million. Adjusted for currency effects of minus 4 million, our license revenues increased by almost 150%. Revenues from BD amounted to 33.3 million SEK, an increase of more than 24 million. This increase mainly pertained to the stock adjustment made by BD during Q2 and Q3 last year. Revenues from SIMR Biomed amounted to 10.7 million SEK, a decrease just under a million. And these revenues consist of license revenues from royalties, including minimum royalties and application development revenues. Notably, most of the SIMR revenues are related to the continuing trauma agreement. Revenues from the wound management portfolio amounted to 17.9 million SEK, an increase of 0.4 million corresponding to 2% without currency effects. Revenues from our BIP portfolio amounted to just under 2 million SEK, a decrease of more than 5 million. The BIP portfolio will continue to decrease as our inventory deplete and we cease production. Other revenues amounted to 6.6 million and within this we saw total currency effects of 4.6 million SEK. So in Q3 our total revenue amounted to 73.9 million as Christine mentioned, an increase of 24 million and almost 50 percent. While for the nine-month period from January to September, our total revenues amounted to 193.6 million, increase of almost 32 million, adjusted for positive currency effects here of 7.6 million, our total revenues increased by 15%. Now looking at our net sales. So overall, net sales grew driven by solid growth in our license revenues. In Q3, net sales amounted to 67 million, an increase of almost 22 million, corresponding to 48% growth. For the first nine months of the year, net sales amounted to 179 million, an increase of more than 33 million, corresponding to 23% growth. As mentioned, we see growth in our license revenues as well as the world management portfolio, while we see the continued phase-out of the BIP portfolio. Now turning to EBITDA development, as Christine mentioned, we are very pleased to announce profitability on EBITDA level, both for the third quarter and for the nine month period year to date. EBITDA for the third quarter amounted to 9.9 million, an increase of just over 19 million, and the EBITDA margin was 13%. The improved Q3 result mainly pertained to the increase in total license revenues while keeping costs under control. EBITDA for the period January to September amounted to 9.6 million, an increase of more than 81 million. And the improved result year to date obviously mainly pertained to the SEC 42 million provision made in the second quarter of last year, in connection with the increase in total license revenues we see year to date, as well as the decrease in total operating expenses. Now turning to operating expenses and cash flow. Cost for raw materials and consumables amounted to minus 6.9 million, a decrease of almost 4 million. Other external costs amounted to minus 27.8 million, an increase just over 6 million. Personal costs for the quarter amounted to minus 24.9 million. Other operating expenses amounted to minus 4 million, a small increase of 0.9 million. And in total for Q3, our OPEX amounted to minus 56.9 million, an increase of 7.1 million. Year to date for the nine month period, we see our total OPEX amounting to 153.5 million and a decrease of 31.6 million or just about 17%. So all in all, we are on track to deliver the cost savings exceeding 25 million SEK on a yearly basis. as previously communicated following the strategic transformation last year now turning to cash flow so cash flow from our operating activities in q3 amounted to a positive 8.3 million cash flow from investing activities was minus 2.9 and cash flow from our financing activities was minus 3.9 million. In total for the quarter, total cash flow was positive 1.6 million. Year to date, total cash flow amounts to minus 20.5 million. And all in all, cash and cash equivalents at the end of September and the end of the period was 106.4 million SEK. Now with that, I'm happy to hand it over to you, Christine.

Thank you, Patrick, for that review of our solid financial position. Before wrapping up, I'd like to revisit our priorities go forward, where maintaining focus remains a key component. We continue to work relentlessly on advancing our current partnerships, where BD serves as an excellent blueprint for successful global collaboration, growth, and mutual benefit, and as evidence of our Sharpen strategy. Simultaneously, we are increasing interactions and early stage testing of our infection prevention technology with potential partners on various medical devices in our strategic therapeutic areas. And once converted to application development projects, we will announce the license partnerships to the market. We also continue to build and strengthen our knowledge and specialist areas, including our core competencies within R&D, medical, and regulatory affairs. This will enable us to continue to deliver future partnerships in our therapeutic areas where there is a strong unmet medical need for infection prevention. As always, we also remain focused on driving profitable growth in our wound management portfolio. We have come far in our transformation. The positive financial development reflected both in our revenue growth and in our positive EBITDA serves as clear evidence that our strategy and business model are effective, and we will continue to work to deliver profitability and sustainable growth. we have many of the building blocks in place including an experienced and dedicated team who will deliver on our new strategy and drive towards our vision of becoming the global standard of care to prevent infection medical device related infections we remain committed to profitability for 2024 while we are humble about the challenges ahead and that we still have a lot to deliver I am optimistic about our path forward and thrilled to be able to deliver a profitable quarter and year to date. With that, we would like to hand over to the operator to open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.

The next question comes from Mattias Vadsten from SEB. Please go ahead.

Hello. Thanks for the presentation. First of all, I guess it would be helpful to hear sort of what makes you confident that Zimmer are in it for the long term related to the trauma implants. I guess the effort to reach a broad commercial launch has taken time there as well. And also to that question, I think, What can you share on timing on FDA approval for backyard coated trauma implants? Should we read this press release on SIMR that it experienced a slow development here and that the delay to the regulatory timeline on trauma implants is reasonable to think of? That's the first one.

Hi, Mattias. Thank you for those questions. Excellent. In terms of our collaboration with Zimmer in trauma, we definitely continue to work together here within the trauma area, as I noted, both in terms of the regulatory pathway, but also in collaborating on the commercial development forward in the markets. And we do see continued commitment here. We also know from Zimmer's own comments to the markets how much they believe in the technology and how important infection prevention is to them. It is one of their banners on a corporate basis as well. In terms of the timelines to FDA approval, one of the things that we should note, of course, is that the infection rates are higher in trauma than they are in other areas, which does lead to an increased ability to be able to demonstrate effect in this particular category. We do not, however, have an updated timeline in terms of FDA approval in these categories. And so I am not able to communicate anything different there.

And that's clear. And then just looking at the 24 million through license revenues from royalties, exclusivity revenues and application development revenues, as you write about in the report regarding SIMR. Could you just give a more detailed split here and also confirm how much of that is related to the expanded agreement and trauma respectively? That's the next one.

Thank you, Mattias. As I understand your question, it is regarding the total revenues booked for CIMR. and how that relates to the different agreements. Is that correct?

That's correct.

Very well. In total, we have for the period of the first nine months recorded revenues for CIMR within both license revenues, exclusivity revenues and application development partnership revenues. As we have communicated before, the accounting principles and how we report the revenues here relate to the activity and to the stage of the partnership. We can, however, for each agreement, report revenues in the different categories. And as we have stated before, The majority of the revenues that we recorded under the orthopedics agreement was recorded as exclusivity revenues or milestone revenues. We do not in the report have an actual split of all the revenues that we have received from CIMR. But I think if you dive into the three different sections of the license revenues, you will see that we have for CIMR recorded revenues in both license category. the exclusivity category and in the application development revenue category this year.

Thanks for that. It sounds like it is a minor part then from the expanded agreement. And then the next one, how would you describe the development with BD in the quarter, let's say Are the volumes we see above the normal levels making it reasonable to project lower quarters ahead? Or is this the new normal, let's say, according to your understanding? That's the next one.

Thank you very much, Mattias. We, as communicated, are pleased to see the growth in our total license revenues, which is driven by the partnership with BD, that's fully correct. I think as we have consistently communicated, it is very important for us to see the stability and growth in the BD relationship. We have before this quarter reported what we felt was three stable quarters of BD revenues. I think it's fair to say that this quarter we see a solid growth in the BD revenues, which is obviously a testament to the global and strengthening of the relationship we have with BD. Whether it's a new normal for us going forward, I think we have to prove that in the coming quarters. But we remain confident in the continuation and the growth of the relationship with BD.

Thank you. I think I will have to jump back in the queue.

Thank you, Matthias. The next question comes from Ludvig Svensson from Carnegie Investment Bank. Please go ahead.

Yeah, hello and thank you for taking my questions. Regarding their wound management portfolio and its steady growth, what are your next steps for further expanding of this area, you would say?

Strategically, I'll be happy to answer that question and then I'll ask Patrick to comment on it financially as well. As you noted, we do see solid growth in the wound management area. These remain in our core markets and we would expect that we continue to focus on, I guess I'll call it one foot in front of the other type of growth in this category where we will attempt to grow profitably. The expansion is certainly about us continuing to highlight the benefits of the product in the market in the way demonstrated that we showed one of the publications, for example, on the benefits of the Hydrosyn product line itself. And we do see Hydrosyn as a key growth driver for this portfolio. Patrick, if you would like to comment more.

Yeah, just to second that, I think what we have communicated previously, which is still the case, is that we are focused on delivering profitable growth for the wound management segment. So the run rate we see for this quarter is a positive growth, although the comparable year for Q3 last year was also a strong quarter. We continue to focus on driving growth in the wound management business. And as Christine said, we want this to come from the from the strategically important products such as Hydrosyn. And we are focused and careful in in the expansion of new markets. So we continue to grow profitably.

Great. Thank you. That was everything that I had for the moment.

Thank you. Thank you.

The next question comes from Mattias Vadsten from SEB. Please go ahead.

Yes, hi. Two follow-ups from me. I think when we look at OPEC's good cost control, and it's been like that this year, I'm appreciating you would not comment on details around the development for 2025 just yet, but There is a lot going on, it seems, in the organization in terms of projects. So could you share some comments on how you internally say plan resources, et cetera, for the future to give us a little bit better understanding, more structurally? That's the next one for me.

Yeah, thank you, Mathias. You're absolutely correct. It has been and it will continue to be a focus for us this year to demonstrate that we have the OPEX under control as well as also having a focus on the cost of goods. While we do that, we want to grow profitably. So we also at the same time want to make sure we are making the right investments into the business. As you will see from our cash flow statements, we are still making relevant investments into the business and we will continue to do so. The important balance for us is to invest in the business while we still grow profitably. And that is what we remain committed to in 25 as well.

So it is reasonable to see a higher OPEX 25 versus, let's say, 24, given that sales seems to be growing and you have a lot of projects going on. Can you give some flavor to that?

Yeah, I think the flavor that I can certainly give is that we will continue to make the right investments into the business as we see them in front of us. but we will still be committed to delivering profitable growth and a continuous growth in our profitability. So I cannot comment specifically on how the OPEX will look like a year from now, but we remain committed in our journey and our path towards profitability while still investing in the business.

I will additionally highlight to add an answer to that question that while we do, of course, continue to invest in the competencies in the specialist and knowledge organization, we do this on pace with developing new potential strategic partnerships.

So the aim, of course, is always to invest in a way that we expect to deliver future revenues with as well. so that this is the way that we're taking the approach to the investments in our people and our competencies.

Good. I think that's pretty clear. Thanks for that. And then the last question from me today would be if you could update us also on the status with Wellid. Also maybe give us an update on the activity with them and maybe when they place the last order. with you.

Thank you, Mathias. We have our existing collaboration with Wellead for the China Foley market. We remain confident about the opportunities in China long term. And yes, we have this year recorded revenues from the partnership with well lead and we have also done that in this quarter okay thanks for the presentation and the answers thank you matthias as a reminder if you wish to ask a question please dial pound key 5 on your telephone keypad

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you again, everyone, for dialing in to today's quarterly report. As we mentioned, we are always pleased to have everyone with us on each of our calls, and we continue to commit to deliver in quarters forward. Looking forward to seeing you next time. Thank you.