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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Welcome to the Bactiguard Q1 2024 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers. CEO, Christine Lind; CFO, Patrick Bach; and Board member, Thomas von Koch. Please go ahead.
Thank you, operator, and welcome to the presentation of Bactiguard's Q1 2024 report. This is Thomas von Koch speaking, the former CEO. I want to share a brief reflection before I hand over to our new CEO, Christine Lind; and Patrick Bach, Bactiguard CFO. They will go through the quarterly presentation and we'll be available for questions on the reports afterwards.
So Friday, 2 weeks ago, I formally handed over the CEO role to Christine, concluding an 11-month tenure leading Bactiguard. It's been a very intense and disruptive period with a strategic shift to focus on the license business was the most central change and going from being a production-based business to specialist and knowledge organization. I assumed the role last summer, little did I know, what was about to come. We now have set the right strategy and inspiring vision to become the global standard of care in preventing device-related infections.
Under the leadership of Christine and her team, I'm confident that Bactiguard become an instrumental company in the fight to protect patients from dangerous uncoated medical device products that today costs half of all hospital-acquired infections. I would like to express a big and warm thank you to the entire Bactiguard team. We are all chipped in a very dedicated way despite tough decisions and actions. You're such a high-caliber team. Once again, Thank you.
And on a personal note, being operationally responsible for Bactiguard has been very tough. We have separated from a lot of good and qualified people, which has not been fun whatsoever. With that said, though, it's been necessary when implementing our new vision and focused license strategy. I will do my utmost to support Christine and team in my upcoming capacity as Chairman of the Board, obviously, subject to the upcoming shareholders meeting electing me. I'm humble, but I'm upbeat about our future. With that, I'm handing over the show to Christine.
Thank you, Thomas. It is great to be here, and thank you all for dialing in to what is my very first Bactiguard quarterly report delivered on my second Thursday as the CEO. As I stated in the CEO comments, I am looking forward to working with our sophisticated Board of Directors, including with Thomas as the incoming Chairman as well as Christian Kinch in his new role as Senior Adviser. It is so valuable to have this full support. For those of you to whom I am new, my quick background, I have spent more than 25 years in and around the life sciences sector, including in CEO and business development and strategy positions as well as in investment banking at Merrill Lynch in New York advising biotech and pharma companies.
I am an American, hence a very American accent. I have lived in Sweden since 2015. And yes, I do speak Swedish. Turning more importantly to the Q1 2024 report. The key message that we want to relay is that the strategic transformation has been concluded, and I would like to provide more details on that. If you have followed Bactiguard for a while, you will recognize this slide. We first showed it in connection with the announcement of the sharpened license focused strategy in Q3 and I would like to go through it one last time to showcase what we have achieved in terms of the transformation and restructuring of the company.
Let us review these achievements by the articulated focus areas, starting with licensing. First, we have strengthened the organization both in terms of capabilities and ways of working. We are now working in a project-based manner with a partner relationship in focus with the aim to continue to strengthen long-term collaborations through teamwork and accountability for results so that Bactiguard is recognized as a true partner rather than being seen solely as a solution provider or a contract manufacturer.
Second, we have already enhanced the relationships with our current partners, in particular with BD, but also with Zimmer Biomet. I will come back to this a little bit later in the presentation. Third, we are intensely engaged in dialogue with new potential partners. However, given the new way we will report revenues, we will not provide more information on these new partners until we enter exclusivity partnerships. In other words, we will announce once we are closer to starting to generate revenues which we believe is more relevant from a financial perspective.
Later in the presentation, Patrick will elaborate further on the framework for the reporting of our various partnership stages. The next focus area is R&D and our coating technology. We have further institutionalized the entire R&D organization, processes and structure. We have kicked off the Billy Södervall Academy, although this is still in very early days, so I will not formally tick that off yet. Lastly, work is well underway on the production and laboratory facility in Markaryd, and we hope to have it and running sometime during Q2. Going forward, all coating materials production and development activities will take place in Sweden in one of our 2 facilities in Tullinge or Markaryd. Turning to the BIP portfolio. Importantly, we licensed out the foleys to BD, and the handover process of these additional markets is making great progress. We are in the final stages of winding down sales of owned medical devices. With the CVCs and ETTs, we are in conversations with potential partners, but it is still too early to report on, and it is important to note that we expect these activities to have very limited impact in 2024.
To summarize the financial impact of the strategic transformation, we are on track to deliver cost savings of more than SEK 25 million on a yearly basis. Separate from the licensing strategy, I would also like to emphasize our focus on growing the wound management business, consisting of both the wound healing offering of Hydrocyn aqua and a wide range of surgical sutures, including specialist sutures for cardiovascular and ocular operations. In its totality, this sharpened strategy is how we will be able to deliver on our vision to be the premier partner to leading Medtech companies, joining forces to redefine infection prevention and improve health worldwide. This is the last time we will address this slide. Q1 will be the last quarter characterized by the transformation, but we expect continued activity stemming from the transformation during the remainder of 2024 as we fully transition to the new strategy.
So let's dig into our business. Becton, Dickinson or BD, is one of the global market leaders within the urology therapeutic area. BD is our longest, strongest and closest partnership. In fact, we have been partners with BD since 1995, and over the years, more than 230 million Bactiguard coated fully catheters have been sold. No adverse events associated with the coating technology have been reported, and the product has generated more than USD 3.5 billion in additional sales per BD. With BD, we share common values and a commitment to always put patients first and have the ambition to make the world a healthier place.
As mentioned already in the Q4 presentation, the estimated market value of fully sold around the world is in excess of USD 1.5 billion annually, and is estimated to grow by around 5% every year. In the category of strengthening existing partnerships, BD is a perfect example. Late December last year, we signed an interim agreement granting BD, an exclusive global license excluding China, for Bactiguard coated foley catheters and an expanded long-term license agreement is expected to be signed during the first half of 2024. So what have we accomplished in Q1? Bactiguard obtained MDR regulatory approval in Europe for the coated silicone foley catheters. This marks an important milestone as it will support and accelerate BD's go-to-market strategy in Europe.
It is also a good example of Bactiguard capabilities as a specialist and knowledge organization, where our ability to navigate the rather complex European regulatory landscape has provided great value to our partnership. We also attended BD's Global Sales and Marketing Summit in the U.S., where our BD project leader held a presentation on how our coating technology is differentiated and benefits their urology and critical care portfolios. This is really important to repeat as the strength of our offering to our licensed partners is that the coating technology differentiates their medical devices in the market. So please keep that in mind.
Some 50 BD sales and marketing leaders from various markets listened in and engaged in a lively Q&A. A little fun fact in the photo to the right is Michael Brinkley. This is BD Star salesman of Bactiguard coated catheters in the U.S. Clearly, we have a lot of ambassadors within BD, and they are also a crucial part of the future potential for Bactiguard. In connection with the license agreement announced in December 2024 for additional markets for Bactiguard coated foleys, the transition is ongoing and making great progress. The transfer will continue throughout 2024 and during this period, either we or BD will ensure that the market demand is met.
With the new agreement with BD, we believe our historically stable partnership is now strengthened and is a growing one. I'll start with a short recap of our partnership with Zimmer Biomet. Zimmer is a global leader in the orthopedic therapeutic area, and our partnership involves 2 categories. The first signed in 2019 relates to Zimmer Biomet's orthopedic trauma implants for which Bactiguard received CE marking for the coated version in 2021. Today, this trauma nail system is called ZNN Bactiguard. In 2022, the partnership with Zimmer Biomet was expanded to cover multiple product segments, such as implants for various types of reconstructive surgeries.
I would also like to mention that in 2023, Zimmer Biomet had an overarching strategic theme called "Let's Talk About Infections", used at conferences and in various conversations. And Bactiguard attended many of these highlighting how our technology could prevent infections a critical topic within orthopedic procedures. Looking at how the trauma collaboration specifically has developed in Q1, the demand for ZNN Bactiguard continues to increase following the launch across European markets in 2023. The uptake is, however, at a slower pace than we originally anticipated but the interest and recognition among clinicians is strong, and the need for safe and effective infection prevention strategies is getting more and more attention.
The next important event is the launch of ZNN Bactiguard in Japan, which is still planned at the end of Q2. Here again, we understand it will take some time before sales should be expected to ramp up. It is important to bear in mind that successful launch and sales of new technologies and products within our industry takes time and persistence. Together with Zimmer Biomet, we are continuously moving forward. Interestingly, once the ZNN Bactiguard is launched in Japan, Zimmer will offer Bactiguard coated products in markets representing around 50% of their trauma sales. We are confident that infection prevention is a very important issue to health care systems. Bactiguard-coated products have strong clinical evidence, and thus, we know that our technology adds value. Now over to you, Patrick, to dig deeper into the financial results.
Thank you, Christine. I am very happy to present our Q1 financial results which indeed highlight the end of our strategic transformation and are in line with our expectations. Turning to the key 1 -- to the Q1 figures. We delivered total revenues of SEK 58.8 million, EBITDA of minus SEK 1.5 million and net loss of minus SEK 9.9 million and cash flow from operating activities of minus SEK 19.1 million for the quarter. Total revenue for the first quarter amounted to SEK 58.8 million, as mentioned, a decrease of SEK 2.4 million, corresponding to 4%, adjusted for currency effects of SEK 3 million revenue decreased by 9%.
EBITDA for the first quarter amounted to SEK 1.5 million, an increase of SEK 5 million and the EBITDA margin was minus 2.6%. Net loss for the first quarter was SEK 9.9 million [ loss ] versus SEK 22 million last year. Cash flow from operations for the quarter amounted to minus SEK 19.1 million. Note that, this is mainly due to change in accounts receivables of minus SEK 16 million, which are driven by outstanding amounts, not yet due in the quarter with our long-standing partners. As for key events in the quarter, first, as we announced in our year-end report, we have agreed with Dentsply Sirona, not to pursue the application development project further.
Secondly, Hydrocyn aqua received approval to start commercialization in India. And thirdly, Bactiguard obtained MDR approval for our coated silicone foley catheters, which will support BD's go-to-model strategy in Europe. As we are happy to report revenues this quarter in a new detailed split, I would like to recap our business model, which we introduced in connection with our Q3 report, and detailed in our year-end and annual report. Our pre partnership phase on the left-hand side and the partnership base on the right-hand side follows a well-defined road map and shows in a more relevant and transparent way, how we evolve our revenue-generating partnerships. Our revenues are generated across these 3 stages: application development partners, exclusivity partners and license partners. An application development partner participates in a development project where we test the coating technology to different medical devices, services and materials. Bactiguard's coating development [ wants a ] close collaboration with the partner here. Some application development projects will not materialize, and this is a natural part of our business. An exclusivity partner gets an exclusive right to apply our coating technology to a certain medical device but has no products in the market yet for instance, due to pending regulatory approvals. Zimmer Biomet and their broader orthopedics portfolio is an example of an exclusivity partner. The license partner has the right to market and sell medical devices with the Bactiguard coating technology in a certain region or globally. Most of our revenues are generated through partnerships at this stage. BD and Zimmer Biomet and their trauma implant ZNN Bactiguard are examples of these license partner revenue streams. Please note, all partnerships will not follow all these 3 stages and an agreement with a partner can generate revenues from the different phases and streams simultaneously.
Now turning to our new actual revenue split for Q1. Total license revenue amounted to SEK 35.1 million, a decrease of SEK 4 million corresponding to 11% adjusted for currency effects. Revenues from BD amounted to SEK 28 million, a decrease of SEK 8 million corresponding to 23%, adjusted for currency. Worth noting is that Q1 2023 was another record year for BD, who is building up stock which were subsequently downward adjusted during Q2 2023. Revenues from Zimmer Biomet amounted to SEK 3.2 million, an increase of SEK 1.4 million. Revenues from the Wound Management portfolio amounted to SEK 12.7 million, an increase of SEK 1.6 million. Revenues from our BIP portfolio amounted to SEK 6 million, this is an increase of SEK 1 million, and the growth is primarily due to the portfolio's end-of-life sales in connection with the discontinuation that we have announced in connection with the transformation.
Other revenues amounted to SEK 4.9 million, a decrease of SEK 0.6 million. Currency effects in this quarter amounted to SEK 2.8 million. So total revenue for the first quarter amounted to SEK 58.8 million, a decrease of SEK 2.4 million. Adjusted for total currency effects of SEK 3 million, our revenues decreased by 8.8%. Now turning to our operating costs and cash flows for Q1. Since Q3, we have focused on our strategic transformation and as communicated, we are on track to deliver cost savings, exceeding SEK 25 million on a yearly basis following the transformation.
Costs for raw materials and consumables for the first quarter, amounted to SEK 11.5 million, a decrease of SEK 2.7 million, corresponding to 19%. Other external costs amounted to SEK 18.8 million, a decrease of SEK 4 million corresponding to 19%. Personnel costs amounted to SEK 29 million, an increase of SEK 2.9 million, corresponding to 9%. Other operating expenses related to currency exchange losses amounted to negative SEK 0.7 million. In total, our operating expenses or OpEx amounted to SEK 48.8 million, which is a decrease of SEK 4.8 million corresponding to 9%.
Cash flow from our operating activities for the quarter amounted to minus SEK 19.1 million. This is mainly due to changes in our current receivables of SEK 16 million which is driven by outstanding amounts not yet due in the quarter with our long-standing products. Cash flow from investing activities amounted to SEK 6.2 million and this is mainly attributable to investments in our new sites and in digital systems. Cash flow from the financing activities for the quarter amounted to minus SEK 6.3 million, which is mainly due to amortization of loans of SEK 3.8 million.
In total, cash flow for the quarter amounted to negative SEK 31.6 million and total cash and cash equivalents at the end of the period amounted to SEK 95.8 million. With that, I'm happy to hand over to you, Christine.
Thank you, Patrick. So time to wrap up. You have seen this slide many times before, but it is truly crucial when putting our infection prevention technology into perspective, both from a financial and societal impact perspective. On the left-hand side, the demand for more effective and safe health care solutions is clear, driven by economic and demographic developments as well as the unfortunate increase in political unrest, conflicts wars and natural disasters. There are clear unmet medical needs with global societal challenges, including health care-associated infections and antimicrobial resistance being as pressing as ever.
Notably, prevention strategies are according to the World Health Organization, one of the most important factors to solving these issues. Turning to the right-hand side, why I'm fully aware of the challenges Bactiguard has had in the past, our top priority ahead is to truly seize the USD 80 billion opportunity presented within the strategic therapeutic areas that are key for our infection prevention technology and wound management. With the licensing focused strategy, both revenues and margins are expected to increase for Bactiguard as we expand the use of our infection technology globally through partnerships. We are set to scale up in a cost-effective manner and create profitable and sustainable growth for the future. And with that, we are now ready for any questions you may have either on the line or in the chat. Operator?
[Operator Instructions] The next question comes from Kristofer Liljeberg from Carnegie.
I have 2 questions. First, if you could give any update on the new extended collaboration with BD on a global scale. Secondly, if I look at what you report now as license partner revenue, SEK 32.4 million. If I adding up BD sales and the similar sales that you wrote about in the text, that's SEK 31.2 million. So I just wonder where the rest is on that line.
Thank you, Kristofer. I'll take your first question on the collaboration, and we'll ask Patrick to respond to the license revenue question, if that is okay. On the BD collaboration, it is a good relationship, of course, even closer today than it was in the past. I think it is beneficial that we are moving from having been a competitor to them in other markets to being a partner, which is good for the relationship even in the already existing markets in the U.S. and Japan.
In Europe and our other new markets, we do need to remember that the approvals are Bactiguard's. The product is Bactiguard's. The sales material and the sales force was Bactiguard's, and we are in a transition period where it is ongoing, but it does take time. We are also very happy to have had the MDR approval in Europe as we do believe that this will help BD ramp up. So all in all, the collaboration, I think, is going very well to date. And of course, the partnership feels stronger than ever. And on the license revenues?
Could I ask a follow-up? So the BIP sales you had in the quarter, if I remember, SEK 6 million or so, that will go to 0, more or less. And instead you would get a higher royalty from BD coming quarters.
Kristofer, this is Patrick Bach. Just to answer your question regarding the BIP sales. The total BIP sales is what we have announced earlier that we are discontinuing. We have announced that this will impact our revenues with up to SEK 25 million, whereas we said we -- at the same time, we're reducing costs exceeding SEK 25 million. During this year, we will see BIP sales until we have fully transitioned all the foley markets to BD. So depending on that transition, we will see in the coming quarters as well, perhaps some [ new ] portfolio of sales. But our expectation is that this will obviously continue to decrease.
Okay. But when do you expect some meaningful impact on the BD line from royalties in new markets outside Japan and U.S.?
As we have communicated, the out-licensing of our BIP portfolio, including the foleys to BD, but also the other products will have a limited effect in 2024.
Okay. And the other question on the license partner revenue line?
Yes. Yes. So your question was in addition to BD and Zimmer, which drove the revenue in the license partner revenue stream?
Yes, exactly. If I add those 2, that's lower than the SEK 32.4 million reported on that line.
Yes. In that bucket, we have license revenue from all our license partners. And as we have previously communicated, we do also have a license partnership which will lead for our foley catheters in China.
Okay. That makes sense. But could I just ask you, is all the Zimmer revenue booked in that line?
Our total Zimmer revenues for the quarter were SEK 3.2 million in general and also for this quarter, the Zimmer revenues do split into both license partner revenue stream, the exclusivity in partner revenue stream and also, to some extent, the application development partner, revenue stream.
Okay. So we have no idea how much of Zimmer is true underlying royalties and how much is just nonrecurring then?
We have reported the total amount for Zimmer. Yes, we have not specified in the report, the detailed split on those 3 categories for Zimmer [ revenue split ].
But -- could you give some color on that? Because I guess, ramping up those Zimmer revenues will be extremely important for you to have any channel of reaching the financial guidance or the medium-term guidance. I think it's a very important metric.
Yes. As Christine mentioned, Zimmer are rolling-out in Europe as we speak and also expected to launch in Japan in late Q2. So the revenues that we recognize for Zimmer includes both the in-market sale royalty, it includes also minimum royalties, and it includes exclusivity fees in terms of annual exclusivity fees and milestone fees, the nature of these revenue streams do differ over the year. And -- they differ also with respect to the timing of when we recognize this, and that's why you will see some fluctuations over the year in the Zimmer revenues.
And Kristofer, from a qualitative standpoint, we can repeat, as Patrick said, that the European launch is ongoing. Interest from clinicians is very high. And what we're hearing is that once a clinician is converted to Bactiguard they don't go back. Conversion of the rest of the market, of course, does take time but we are quite confident in the enthusiasm around the Bactiguard products in the market.
But they are still -- have they [ still ] only launched one of the many trauma products with the coating in Europe?
Yes. It is the ZNN Bactiguard that is the launched product.
The next question comes from Mattias Vadsten from SEB.
First one on Dentsply Sirona, not to pursue the application development project further. It was announced in Q4, of course, what happened in Q1. My question is if you remain as update in this segment for the infection prevention technology. And if you have already today -- sort of negotiations with further players ongoing? That's my first one.
Thank you, Mattias. It's a great question. And yes, we are as confident in the coating technology in the dental arena as we were before. We do have, I'd say, multiple discussions ongoing. And I guess I liken it a little bit to synchronized swimming, which to say that there'll be lots of effort here, but the market will only get to see the part above the water. So when we actually announced the collaboration and exclusivity agreements with our partners, whereas all of the vigorous swimming under the surface will not be announced. But rest assured, it is ongoing, and we do believe quite a lot in our technology in this area.
And then I think Wound Management products developed well in 2023 and some growth here in Q1. I mean in this segment, what's in your view is there for a reasonable growth rate ahead in, let's say, coming years? And then if there are -- if you see any trigger points with sort of a new market launch or let's say, further -- some further products coming online or anything to support a boost in sales growth for that sort of segment coming years? That's my next one.
Thank you, Mattias, Patrick here. I appreciate the question into the Wound Management portfolio. Wound Management includes both our Hydrocyn product and also our sutures business. Wound Management is a business that we expect to grow and to grow profitably. So we do expect growth rates from the Wound Management going forward as well. In Q1, we saw almost 12 -- we saw SEK 12.7 million in sales and 14% growth and as mentioned, we do expect continued growth and profitability from the wound management business going forward. As we stated as an event in the quarter, in India in early February, we did receive approval to start commercialization. So obviously, we do expect sales from India in this year and from a base of nothing. So we do expect some growth there. But overall, for the Wound Management business, yes, this is growing now, and we do expect continued growth and profitability from that business.
Good. And then in terms of the royalty revenues here in Q1 and also Q4, is that representing normalized figures for this agreement in your view? And then it has, of course, been volatile in recent year and also during COVID for understandable reasons. Is it fair to assume, let's say, a more stable development ahead? Or will we always have those kind of stocking effects when it comes to that agreement? That's my last one.
Appreciate the question. Indeed, we have seen fluctuations in the past year, which hit us indeed in Q2 and Q3 of last year. As we communicated in Q4 of last year, we saw BD levels being back on track and the volumes and the activity we have with BD in Q4, but also continued here in Q1 shows us that we expect that this will continue to be on a stable and solid level. We don't expect any major fluctuations but of course, we are subject to BD sales and to their production. But overall, we are very confident about the potential and the collaboration with BD going forward.
Good. Maybe one more question for me as well. To follow up on the earlier question about BIP sales, how that will be phased out. Would you say is it -- fair to assume it's about 0 when you exit year or [indiscernible] in Q4? Or how should we see it?
As we have communicated, our strategic intent was to out-license the foleys to BD, which we have done for Europe and globally, excluding China. At the same time, we have been the producer, and we have stock levels, and we have customers that are demanding the product. As Christine touched upon, we are in the transition phase. And -- while we are handing over the license to BD, we also want to make sure that our existing demand is being met. And of course, that our inventories run down. So this is a process that we carefully handle. And you can expect that we will sell, obviously, less [ BIP ] products. But depending on this handover, we will see BIP sales in quarters to come. We cannot say exactly when we will see the last BIP sale but this is in development that we expect.
Okay. Good. But let's say, you are not producing anything more in this. So it's only the inventories that will be sold.
We have, as part of the transformation, discontinued the portfolio, which includes also shutting down our manufacturing in Malaysia [indiscernible] that is planned for this year. So we will discontinue production. We will not produce more, so to say, after 2024. Hence, we will deplete inventories in, in that product, yes.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you, operator, and thank you, everyone, for listening in today to our Q1 2024 call. We look forward to seeing you again in the near future.