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Welcome to the Bactiguard Q2 Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. Interim CEO, Thomas von Koch; and CFO, Carin Jakobson. Please go ahead.
Thank you, operator, and welcome to today's call, where we'll share our interim report for Quarter 2 2023. I hope you've had the chance to browse through the report as I will now give you a verbal presentation commenting on the figures, the profit warning we announced roughly a week ago and importantly, our strategic focus ahead. As usual, Carin Jakobson, CFO, and I are available for questions after the presentation. But before I dig into the figures, let's look at the world around us. As a background to why I believe so much in Bactiguard and why I believe every medical device, which are placed in the body for more than two days should be coated with our unique technology. And just to recap, bacterias grow on implants and devices in the body after 2 days. That's why the 2 days are so important. But first, a quick introduction of myself. I assumed the role as interim CEO end of May. This is my first quarterly report as a listed CEO. But as some of you know, I've been around this company for more than 20 years as the main owner together with Christian Kinch and a Board member. I've also had another life. I've been a partner of the private equity firm EQT, a firm, which I was part of starting in 1994. I was also the CEO of EQT for 5 years between 2014 and 2019. And just for transparency, I am a special adviser to EQT still. I'm proud to now also represent the leadership of Bactiguard, one of the very few companies in the world with the ability to significantly reduce incidents of Hospital-Acquired infections. And consequently, be part of the battle against multi-resistant bacterias, AMR, you're going to hear that quite a lot and one of the most important challenges human kind is facing in the years to come. You've seen this page before. It serves as the foundation of our strategy. Bactiguard has solutions to the issues and see vast opportunities in an $80 billion market. The focus on infections and AMR continues to accelerate on a global scene. And as I stated in my CEO comments, Europe is also taking a firmer stance with clear goals set to reduce the use of antibiotics. I saw -- I hope you saw that Europe intends to reduce antibiotic use by 20% in 2030, and we're going to help Europe accomplish that goal. But the fact that WHO estimates that more than 10 million people will die from infections caused by multi-resistant bacteria by 2050, it's nothing but unacceptable. And connecting this to our strategic therapeutic areas, medical device-related infections caused billions of dollars in health care expense, human suffering and thousands of deaths annually. The U.S. has somewhat different approach to health care associated infections or Hospital-Acquired or high and AMR than Europe. Preventing infections is a top priority in health care. Still 50% of all patients in American emergency hospitals take antibiotics preventively, meaning they get antibiotics when they enter the door of the hospital. And that's not sound. I think we cannot agree upon that. And even despite that, 3% of them will get Hospital-Acquired infections at the hospital. Nearly 700,000 patients gets high every year, out of which 70,000 die. Hospital-Acquired infections and more frequent use of antibiotics feed multi-resistant bacteria. In 2021, multi-resistant bacterias increased by 14% in American hospitals. There is, however, a slightly positive trend as deaths caused by AMR decreased between 2013 and 2019, which proves that infection prevention measures pay off. But still, the total cost of multi-resistance in the U.S. is around $55 billion annually. And just so you know, the U.S. healthcare providers are penalized and the worst of them are penalized and need to repay reimbursement if they don't take all preventive actions against Hospital-Acquired infections. All of this is not my data. This we find on the center disease control homepage. So please Goggle that up. The typical areas of Hospital-Acquired infections include bloodstream, urinary tract and ventilation pathways and surgical wounds. The infections are often related to medical devices used in these areas. And looking at Bactiguard we have product and solutions for all of these areas, and we are nontoxic, biocompatible and an antibacterial technology. And that technology is indeed because nobody out there like us. As a reference, over 230 million Bactiguard coated catheters have been sold over the last 20 years in the U.S. thanks to the partnership with Becton Dickinson. And more importantly, zero negative incidents reported to FDA relating to our coating. We are safe. Since assuming the role as CEO, I have delved into every possible detail of the business. We could potentially negatively influence our business. This was a critical exercise to get the true and ugly picture of what we might sit on. And roughly a week ago, we announced a onetime adjustment of SEK 42 million impact in the EBITDA for this quarter or for Q2 and the full year evidently for 2023. I thought I'd give some more flavor to that announcement. 15% of the reservation relates to write-downs of inventories, meaning stock of devices and raw materials that are either outdated or where the shelf life is running short. 50% relates to other structural changes within the organization. And you might have seen that Anders Göransson have decided to leave the company announced that to me yesterday, that's within the 15%. But the bulk, 70% is related to accounts receivable overdue adjacent projects. And this relates to -- we have quite a large order to well lead in China, where we have had an issue with our third-party manufacturing partner [ Amsino ]
We are solving it, we hopefully have to speak, but we need to make a provision for that. And we also have had delivery issues when it comes to sutures. We have solved that now we hope with suppliers, but with that comes to accounts receivables that unfortunately are overdue and are in jeopardy. In addition -- and this -- I think it's important to highlight, when we struck the deal with Zimmer Biomet order trauma implants in 2019, we got $4 million upfront from them to become their partner. And our commitment to them was that we're going to provide work for free to up and take those trauma implants to the market. It's no secret that they have taken together with us a longer time to get the trauma implants to the U.S. market. And we have made a provision and assessed that our work to help them to get there amount to SEK 10 million. And since we do can quantify it fairly well, we have taken that provision. The deep dive into Bactiguard has shed light on our challenges. Once we are aware of them, we will be able to act firmly. And we are aware of them, and we do have plans how to deal with internal challenges we have. With the profit warning, we did a well-needed reset. It can help focus fully on the future opportunities. We are in somewhat of a perfect storm. And the reason why I say that, I'll come back to that later on, is that at the same time, Becton Dickinson is doing a onetime adjustment to the warehouse and the stocks that actually has been larger than we've done in the past. That hits us at the same time as we are getting our act together internally. We are laser focused on what we intend to do. So I feel actually quite confident despite these kind of ugly numbers I provided to you that this is the start of a new day and we do actually have quite good control of what we intend to do and how we're going to execute. So let's dig into the figures. And this is nothing I'm proud of. They are what they are, but these are reflections of the past. We have the -- we started with a high-level data. Looking at Q2 in isolation, total revenues were SEK 51 million, which was a decrease of 15% compared to quarter 2 2022. EBITDA for the quarter was minus SEK 56 million. However, you know that SEK 42 million of those are the onetime adjustment compared to minus SEK 7 million in Q2 2022. Operating cash flow amounted to minus SEK 20 million for the quarter compared to minus SEK 1 million in Q2. Well, it's evidently, this is nothing I'm proud of, and this will not be repeated, but we will remain extraordinary focus on strengthening the license business we talked about before. That is what's going to create gold for us in the future. And that's where our strongest potential lies within as well as getting our -- backing our product portfolio profitable.
It has always been an investment for us. We have always lost money within our own products because they've been under build up. But now we're going to turn the screw some more not because we're going to turn BPP into profitability faster than earlier anticipated. We had a number of important events during the quarter, which I will revert to in more detail later on the respective business section.
Look at the financial overview. Quarter 2, 2023, there are a couple of things to comment. Our license business is severely hurt by the decrease from BD. I will revert -- Becton-Dickinson, I will revert to that later in the presentation. And even though the backup product portfolio shows progress with a healthy sales increase, we need to focus even more on profitability. Worth reiterating is that we are in an investment phase, which we started last year will kick off our growth strategy and start our transformation journey to focus on license. I want to reemphasize the long-term character of our business model and that license revenues evolve over time. Starting with revenues on nonrecurring character, i.e., upfront fees, as we get paid for the R&D we commit to for our partners. And whilst commercialized transformed into recurring revenues, which we call royalties and license revenues. The blue bar shows growth in the last quarter. And for Q2, obviously, the BD is down just to the stock adjustment. The green bar shows the back to our product portfolio growing slow but steadily. The yellow bar shows nonrecurring revenues relate to different development projects ongoing. So let's jump into licensing here. So revenues from licensing amounted to SEK 25 million, around 30% below quarter 2 2022. And its Becton Dickinson's revenues that were lower than the last quarter due to unprecedented in-house stock adjustment. We actually did -- after COVID Becton Dickinson really stocked up and got back into normal ways of operating, but they overstocked. What we can see, and I think that's very, very important to have transparency, the number of catheters sold to patients is virtually stable. We know that this is a stock adjustment from their side. The bad news is that the indications for Q3 is that the stock adjustments will be even worse in Q3. And then we're going to be back on Q4 pre-COVID level in Q4. This might change a little bit, but I really would like to be very clear that unfortunately BD most likely it's going to be worse in Q3 versus Q2. Our, relationship with Zimmer Biomet is excellent, and I'm very pleased about that. We have massive interaction, and we have different collaborations and they're all making progress. They spend enormous amount of resources on our common projects. The different FDA processes are intense and what I meaned different, it's evident for trauma at also for the needs of hips and shoulders and also for our own products, as you know, the EPP and the CBC. But I'm sorry that I can't give you a transparent view of when we're through. It still remains uncertain. I will, though, as soon as I will know the pathway together with Zimmer, I will communicate that to you, and we will have much better insights during the fall of the pathway to the FDA approval.
And as reported in Q1, the initial phase of Dentsply Sirona development product is taking longer, but those tests and dialogues are moving forward. In general, we have scaled up our relationship building and now have substantial closer interactions with all our partners. I messed it previously a little bit Anders Göransson, who was the CEO up until mid-May step down as Global Head of Licensing, has decided to leave back to. Anders has played an instrumental role in defining our strategy going forward and we separate ways on good terms. We will recruit senior resources externally and allocate more resources internally within the overall ambition to build a world-class licensing team. And I would like to underscore also the great recruitment we did to our Board, Rick Kuntz, he is the former Chief Medical Officer and Chief Scientific Officer at Medtronic and has a vast experience of U.S. health care and evidently, this network is going to be crucial for our success. And the knowledge he knows about the FDA in the used market is -- will be for us priceless. Our Bactiguard product portfolio revenues, what's included there, that's the -- you see the products that the EPT, the CVCs, the foley catheters, it's wound care and it's also sutures amounted to SEK 19 million. So this is the positive part of our report. It's up 25% versus last year. We were affected with supply chain issues, as I mentioned, and also you see in reservation it comes to wound care and sutures. But what you see here, despite that the investments made over the last year is paying off. May and June were strong months for BPP, but we're still losing money. And that loss we will see to that we will fix here during the coming quarters. And our efforts are focused on increasing profitability, and we have appointed Mikael Sander, a very senior recruit from Dentsply Sirona to have the BPP effort and to get it back to where it should be to black numbers. Bactiguard Wound Care raised the bar during the quarter and had a specific section in special publication Wounds International coming Hydrocyn Aqua product line. We were also present at the EWMA you might call in Milan, Europe's leading Wound Care Conference. And they are actually now present in the U.K. with our wound care portfolio, and it's grown actually quite nicely from a very low level, though. In April, we launched a study where backlog coated central venous catheters compared with non-coated and catheters. The purpose of the study is to gain further clinical evidence that coated catheters efficiently prevent both infections but also thrombosis, which I don't think we have highlighted that we have that effect to reduce within our CVC catheter, and that is crucial actually in the treatment when using these kind of catheters to avoid it. This page summarizes the issues and focus areas. And I have already touched upon the majority of them today. They conclude the theme of our interim report quarter 2, but a strategy of bolstering licensing and U.S. go-to-market stays firm. There's not by coincidence that Becton Dickinson makes a fortune selling our coated catheter jointly in United States and in Japan and have not been that successful in the U.K. It's because how the U.S. market penalizes people that uses dangerous devices to put into the body, that just to underscore why do we focus on the U.S. market so much. With a profit warning, we did a well-needed reset and can now focus fully on fixing stuff and capture the future opportunities. What I've not touched upon yet is the very core of our offering, our unique technology. In parallel handling our challenges, we continue to developing how we apply infection preventing coating technology and existing partnerships to new license partnerships and new device areas. And this is the core skill of our firm. We all recognize this page. It reflects the strategic drivers towards growth and profitability. Our financial targets for 2026 stay firm and assume that the various license development products progress accordingly. Looking at the growth drivers in detail. It's no secret that the success of Zimmer Biomet is crucial for us reaching our targets. And the good thing also that we haven't had much more active interaction with Becton Dickinson lately. So actually I have some hopes that, that our relationship with them is going to be further enhanced, which, actually, will hopefully enlarge our relationship with them, not only to the Foleys, but also in the broader context of the product range. It is decreasing right now. But as I said, we have a good dialogue with Becton Dickinson, a very good one. We haven't had this close dialogue with them for many years. On the Zimmer Biomet, we anticipate significant growth in the future, and it will be triggered by the FDA approval of trauma implants, and we really hope and believe that they're going to make this an embedded feature within the trauma business line and evident that even bigger opportunity is when it comes to the knees, hips and joints with them. New license agreements in therapeutic areas will contribute to growth, both through initial nonrecurring revenues and importantly, royalties meaning recurring revenues once products are commercialized. And on our own portfolio, achieve profitability where we're not now and get the trials to more patients into key healthcare markets. Smaller M&A similar to vigilance, we have said this is gonna be a part of it, but I can say right now where we are, we are fixing our home base first before we would do any assessment of any additional M&A. Looking ahead, we'll put our core strength at the center of our transformation, which revolve around our unique technology and expertise in developing secure applications for a wide range of medical devices. And thus stating the obvious, I'm far from happy with the numbers you see today, and this will not become a habit. But the vast opportunities in strategic theoretic areas remain, and we have promising conversations with both current and new potential license partners. Again, this is where the greatest potential of backlog life. To end with somewhat higher note, we have a strong financial position despite these results and cash to invest in growth. We have strong and dedicated main owners, I'm putting myself in that category, and we are happy to support the company, come high and low tide. It's our firm belief that Bactiguard is a long-term investment opportunity in which you can be part of shaping the future of healthcare and creating a healthier world. And for us, it's not a question of if it's a question of when the breakthrough comes. With that, thank you, everybody, and I hand over to the operator for questions.
[Operator Instructions] The next question comes from Mattias Vadsten from SEB. Please go ahead.
The first one -- I appreciate the comment on the partnership with Zimmer. Obviously, a difficult question coming here, but when do you assess the next trigger to come there? I guess that will be trauma approval in the U.S. Yes, some comments on the next big trigger for that partnership to begin with.
Very relevant question, Mattias. Thank you for asking it. We -- [ good to know that ] we have intense and I mean, intense dialogues with the FDA together with them. And why do we have that intense discussion with them? Well, there is a fast path and there's a slow path to get approval in the United States, where the fast path is a 510(k), and that's a 6-month exercise. And there's a very slow path that's called PMA where we need to add a lot of studies before you can take the products to the market and get the approval. We have indications that we are going to hopefully go on the faster path, but I cannot say anything more than that. I will know and I will communicate to the market when we do know the path that Zimmer will embark upon, and that's going to happen during this fall. But we have a very good dialogue into a big exchange with Zimmer and they have a really tight dialogue with FDA. And the thing I could say is that when we get the approval for the trauma because it's when it's not an if question, the next products are going to be approved in -- are going to go on a faster path. We're going to be a more known entity to the FDA. So I'm quite optimistic regarding that. With that said, I'm sorry, I can't give you more transparency than you get a better indication during the fall.
I think that's a good answer. And then next question on the U.S. Where do you see the more sort of substantial opportunity in terms of product segments here. I think you have my guesses. And what approvals do you need, looking at, for instance, SBS or CDC, for instance?
There -- it's a little bit combined. So what Zimmer is doing with FDA now, and that's why we're so tight with them. We'll have also repercussions of the coming filings with the FDA. So the faster path we get with Zimmer, the faster path would high likely we're going to get on our other products. So it's no secret, and I can be open about that. We have dialogues now about the ETP, the CDCs as we speak. And I don't want to get your hopes up too much, but I cannot withhold my optimism that the initial discussions we have with several different vendors that could become our partners are very, very positive. And the reason is that I mentioned that quickly in this conversation. The healthcare providers not taking all preventive actions against Hospital-Acquired infections are now the 10 worst in hospital care infections in the United States get the reimbursement repaid or taken back. So that's why the products when approved in the United States as the Becton Dickinson's have shown with our Foley catheter well approved, we expect them to get a large part of the market. And so do the partners we talked to regarding that. But it's evident in our own product portfolio that's next in line. Mattias.
Good. And I think I will move on here. I mean the -- I would say the quarter-over-quarter increase in BPP sales look quite good, at least if we compare it to the development last year and into this year, do you see any reason not to expect the sequential improvement also sort of going forward in the upcoming quarters?
No. I don't see that reason. And the reason is simple. Normally, we have had a history of lumpy monthly results and sales. Now we have more continuous sales level, which, evidently, gives me a lot of comfort. So I am optimistic given that we now resolved the sutures issue in Malaysia that despite normally weaker summer months that we're going to have stronger summer months when it comes to BPP ahead than we usually have. Have we cracked the code? Partly in some countries, India, particularly. We have also improving a take-up in Sweden, slow but sure. We are working with the BPP portfolio in a much more systematic way today that's going to take away the lumpiness or the volatility in the sales going forward. Volatility will remain, but to a much lesser extent and the trajectory is quite clear. I would like to highlight, though, and that we've gone through in depth, in detail. Some of these products are highly profitable for us, some are less profitable for us. So we will steer the sales force to the more profitable products.
And then my next one a little bit difficult. And I appreciate if you don't answer it, but the accrual of account receivable overdue. I understand it's both distributors and license partners, but if you could shed some light on how much is related to sort of vigilance distributors? And how much is due to old orders from Well lead? And if you could update us on the partnership with Well Lead? That's the last one for me.
Yes. I don't want to be too specific on that question, but I can answer you in general. When it comes to partnership of Well Lead in China is something we haven't spent much time on in these conversations lately. But I would like to highlight our uniqueness in China. We are the only coated catheter approved by the Chinese FDA. For Well Lead, we are very, very important going forward for them to differentiate their offering to the market. They are a true OEM with very low margins. We have a tight dialogue also with them. The mess up we have had with [indiscernible] currently manufacturers like Chinese catheters is being resolved as we speak. But China is -- we haven't talked about it a lot, is actually a little bit of a hidden gem, and we have a very intense dialogue with Well Lead how to actually cement our relationship even forward, even more going forward. I don't want to give you any projections regarding China. I can just conclude so we are the only coated category approved in China and getting approvals in China is virtually not impossible, but very, very hard. It's a true asset. So we are doubling down on that discussion. But to give you comfort, though, we own the license in China. So either we agree with Well Lead, which we think we will, because they've partner, but we're also flexible given that we have our own license in China. But we have a good...
Good. The last one was just, I mean, I heard everything you said about the headwind for Q3. But for Q4, did I understand correctly that you will see more sort of pre-COVID levels already for Q4?
That's what we see today.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
First of all, thank you for listening. And I have to apologize on behalf of Bactiguard to provide Q2 to you today. We are -- and like analogies, we are both at sea and it's stormy weather ahead of us. But you know what, I see together with management team, a very clear blue sky, not that tested away from us, and we have the pathway through that. So despite this gloomy message you get today, I'm actually very uncharged, optimistic. And I can tell you, we're all -- when it comes to the management team, we're all aware where we are and what needs to be done, and we are all over it. So I really hope I can come with some really positive surprises in not-too-distant future. So thank you for listening.