Welcome to the Bactiguard Q3 2022 presentation. Afterwards, there will be a question and answer session. Today, I'm pleased to present CEO Anders Göransson and CFO Carin Jakobson. Please begin your meeting.
Thank you, operator, and welcome to all our shareholders, investors, analysts, and all others joining today's call. Today, we will share our Q3 results, which shows continued strong revenue growth as well as positive EBITDA, even in light of the investments we're doing to set us up to execute on our long-term financial targets. We'll also spend time on our ongoing licensing projects, which are giving us a good momentum. If you go to page two, and before we go into the financials, I just want to reiterate why Bactiguard's vision is so important. It is not surprising that demand for our products is increasing, considering the benefits that infection prevention can provide both for individuals and society at large. Avoiding an infection, for example, in connection with orthopedic surgery or extended use of a urinary catheter or venous catheter, could mean the difference between life and death.
This has never been more important than right now when we have a significant care gap after the pandemic, which creates a pressure on hospitals, making sure beds are not occupied due to avoidable infections acquired in the hospital. This topic has never been more current. As we see on the left side of the slide is clippings from the last couple of weeks or month from Swedish newspapers. With multiple example of patients that have acquired a new infection with severe consequences as biofilm form on a medical device used as part of their treatments. This is not rare cases. One out of ten patients that enters a hospital acquires a new infection in the hospital. The consequence of these infections are, of course, amplified by the threat of multi-resistant bacteria, referred to as the silent tsunami. Basically, when antibiotics no longer work on some of the microbes.
Luckily, here in Sweden, this is not yet very common. While in other parts of the world, multi-resistant bacteria is already very present and a true threat. On page three, this is why I am so passionate and working together with the team here at Bactiguard to deliver on our vision, keeping people safe from infections. Our technology provides unique protection against infections, even those caused by multi-resistant bacteria. By itself, this should be enough reason to use our technology on everything that will be placed within the body for longer than two days in order to prevent the occurrence of biofilm, which could lead to infection. There's an additional aspect to this. The reduced need for the use of antibiotics, which means we're playing a part in mitigating the risk of antimicrobial resistance.
We have this year accelerated our work to deliver on our vision with the aim to get our technology to more patients across the world through new licenses, as well as through our own Bactiguard Infection Prevention product portfolio. If we go to page four and an overview of our Q3 financial results, we're starting to see a momentum in especially our license business, which translates into a very good financial quarter. We had over SEK 66 million in revenue in the quarter, which is a growth of 46% from last year. We have this year a positive currency effect, and the underlying growth is 15% compared to quarter three 2021. The largest part of our revenue is from our license business, amounting to SEK 42 million in the quarter, a growth of 41% compared to last year.
We also see growth in our own BIP portfolio, which grew 23% to SEK 16.3 million. Our EBITDA is +SEK 2.5 million in the quarter, even though we're investing into our focus growth strategy. When we earlier this year announced the long-term revenue and profitability goals for 2026, we built the organization and initiated a number of growth initiatives. This will impact our EBITDA during this and next year, even if we plan to continue growing our top line. We are early in our growth journey, and we're on track to deliver on our plan. Finally worth noting is we had a positive operating cash flow of close to SEK 10 million in the quarter. Overall, a financially very strong quarter. If you go to page five and look at the three engines of the license business.
Our most important revenue contributor, Becton Dickinson, who has exclusive right to sell urinary catheters with the Bactiguard technology in, for example, U.S. and Japan. They deliver for the third quarter in a row a strong revenue, close to SEK 35 million, confirming that we're back to pre-COVID volumes of the business, which is amplified by the strong U.S. dollar. We also have significant growth of license revenue from our two agreements with Zimmer Biomet, as well as a development agreement with Dentsply Sirona. In total, SEK 7.5 million compared to less than SEK 1 million last year. For Zimmer Biomet, we see significant contribution from product development fees for the new agreement, but also contribution from the initial trauma agreement, which delivers both contract manufacturing as well as small and growing royalties based on the sales of Zimmer Natural Nail, ZNN, Bactiguard trauma implants in especially Europe.
We also have fees for work performed on the development agreement with Dentsply Sirona. If we go to page six and zoom in on the Zimmer Biomet trauma agreement. The launch of ZNN Bactiguard in Europe, Middle East, and Africa region is going according to plan. The markets showing the fastest uptake of the ZNN Bactiguard trauma nail are Italy and Germany, with great feedback and interest from customers. During the last s ix months, over 15 top-tier clinics in nine European key markets has been enrolled to participate into the ZNN Bactiguard clinical evaluation study. This is really top-tier clinics like King's College, Uniklinik Innsbruck, Kantonsspital Winterthur , Tygerberg Hospital in Cape Town, as well as all very well-known institutions. In addition to that, to further understand the true value added of our technology, Zimmer Biomet is also driving real-world evidence study.
The study is up and running in six different European countries and will over time create additional clinically relevant outcome data. During Q3, the work we're preparing new markets for the launch of ZNN Bactiguard devices continued according to plan. The regulatory efforts to approve Bactiguard implants in more key markets, especially the U.S., across the globe, is progressing well. If we go to page seven and look back a little bit on the history, right? As you know, our agreement with BD or C.R. Bard at that time was signed in 1990. The first Bactiguard-coated urinary catheter launched a couple of years later in 1994, and over the following 10 years, grew to become the market leader in the segment in the U.S., especially as clinical data was generated to support the value of our technology.
In September 2019, Zimmer Biomet and Bactiguard entered into a license agreement for trauma applications, i.e., nails when you have a broken leg or arm. In less than two years, Zimmer Biomet launched their trauma nail called ZNN Bactiguard in the EMEA region, and as mentioned, have already started the generation of clinical data critical for the long-term success of the product. The key priority for both Zimmer and Bactiguard is to get the trauma implants through the regulatory approval process and to patients in the U.S. This is progressing, but as you know, regulatory timelines are uncertain and hard to predict. In summary, we have two license partners with Bactiguard-coated commercialized products in the market.
The key events that will accelerate Zimmer Biomet trauma business in the future are, one, a U.S. approval, and two, if Zimmer Biomet decides to make this our technology an embedded feature in their trauma implants in some key markets. If you go to page eight and add in our two recent agreements to the slide. As you know, after over two and half years of very close partnership with Zimmer Biomet, in February this year, we decided to expand the license agreement to the majority of their portfolio, including reconstruction joints like hip and knee implants. This expanded agreement shows a true belief and confidence in the Bactiguard technology. This stamp of approval is of course important for us in discussions with other potential license partners. All the development work in the orthopedic implant area is going according to plan.
So far, we met all the milestones, and we have not had any setbacks. All in vivo projects done by independent research groups at different top universities has shown positive results, and the data clearly points in a positive direction. This is very promising and a clear evidence that our technology is a good match to the materials in joint prostheses as well as to the bone cells. In April of this year, we entered a new therapeutic area, dental, through the development agreement with Dentsply Sirona. Dental is one of our prioritized therapeutic areas, and this agreement is our first enrolled into this. It's a high-potential market in which we see our Bactiguard technology can make a real difference for patients. The development project with Dentsply Sirona is in a very intense phase, with a lot of different work being coordinated between us.
All research and development projects are progressing rapidly. Once again, we see clear, robust performance of our technology regardless of medical and anatomical application. Both of these development projects support our robust growth in new license revenue this quarter. Altogether, that means in the longer term, our technology will be usable in many more fields of application and will reach a greater number of patient groups. This will generate more and more differentiated revenue streams for us. If we leave license business and go to page nine and look at our own product portfolio. The combined BIP portfolio sales increased 23%, adjusted for currency effect, 11%. This is good growth, but below our ambition. At the same time, we have strong momentum in key markets like India, Nordics, and Malaysia, where we have invested behind our portfolio.
Slightly offset as other markets did not show as strong in Q3. We especially see our focus strategy and investment behind our own urinary catheter. The BIP Foley is paying off, and we have strong momentum. Also in our expanding wound care portfolio of wound rinses and wound gels, we see good momentum. We have continued very positive feedback from customers in great patient cases, for example, on diabetic foot ulcers. Very common chronic wound that in worst case can lead to limb amputations. We're continuing our investments of getting our product MDR approved as well as other regulatory approvals in global key markets. If you go to page 10. As you saw, our EBITDA is impacted by our investment into strengthening our organization to deliver on our strategy and our long-term financial goals.
I just want to iterate why we believe this is the right time to invest and fuel our goal. First, we have strong clinical evidence, which continues to be strengthened. It shows that Bactiguard coating is effective by reducing infections in multiple applications and on different materials. Two, we have, since the last year, capital to invest behind our focused growth strategy, and we're building the commercial and coating capabilities needed to deliver on our focus strategy. Also most importantly, the recent news in the quarter that the European Patent Office have approved a third-generation patent for our technology gives us even more long-term horizon to work towards. We believe even without a patent, we have a very strong IP protection with the know-how of coating different materials, the confidential Coca-Cola recipe of our concentrate. Now, with the patent protection prolonging up to 20
I think our two recent additions of license partnerships is a proof of the concept and shows the potential of our technology. With that, I would like to hand over to Carin to give us more detail on our Q3 financials. Over to you, Carin.
Thank you, Anders. Hi, everyone. I will talk you through the financials for the first nine months. Next page, please. Page 11. On this slide, we look at the revenue development in the rolling 12 months perspective. We are very happy to show that the development of our revenue is growing for the third quarter in a row and showing an all-time high. Both the license revenue as well as the BIP portfolio are growing as a result of our focused growth strategy. Starting with the license business, the blue chart bar in the chart. We have a robust platform in the recurring license revenue from BD, consisting of the license volumes and the royalty. Both these revenue streams vary slightly between quarters but are essentially stable on a yearly basis.
BD revenues have been consistently higher the last year than compared to prior year. We expect volumes to be stable on a pre-COVID level from now on. The BD revenue is growing 20% this quarter. Including in the license business are also revenue from contract manufacturing from Zimmer Biomet and the growing royalty corresponding to the Zimmer Biomet sales of ZNN Bactiguard implants. The royalty we'll see from Zimmer Biomet is received in two installments. One, when we manufacture the product, when we coat them, and one when the implant is sold. Continuing with the BIP portfolio, the green bar. The BIP portfolio shows a steady growth for the fourth quarter in a row, which is driven by the Nordic countries, India, and Malaysia.
As mentioned before, this is where we invest with our own resources. The main growth in these three areas are for our focused product, the Foley and the wound care portfolio. For this quarter, we also have a very good growth in the suture business. The yellow bar in the chart shows new license revenue and are connected to the non-recurring revenue stream that we have from the licensing business. That is before the products are launched. That can be different types of initial fees, project development fees, and as well as milestone payments, of course. This business is showing good momentum, and both the projects with Zimmer Biomet and Dentsply Sirona are progressing very well and according to plan.
For the quarter, the new license business revenue consists of revenue from the development agreement from Dentsply Sirona, which contributes with revenue from development work, and the Zimmer Biomet license agreement for orthopedic implants that was signed in February, which contributes with development revenues this quarter. The new license business, together with the recurring business that we have, are the foundation to continue the growth to meet the long-term goals. Anders will come back to this later on. Page 12, please. Looking at the financial overview for the first nine months of 2022, the total revenue for the period was SEK 189 million , a growth of 36%. That is an increase compared to the same period last year that was 48 million, where both the licensing business as well as the BIP portfolio are growing.
Adjusted for the currency effect, the net revenue growth was 12%. EBITDA for the first nine months was - SEK 5.3 million and an EBITDA margin of 2.9%. Last year, EBITDA was positively impacted by the milestone payment from Zimmer Biomet of $1 million. In addition, the EBITDA for this quarter was on the other hand SEK 2.5 million , which is an improvement from last quarter, a great quarter last year, and from the last quarter as well. As we have said earlier, we are investing significantly in capacity within our licensing business. And combine that with the investment in the BIP portfolio, it is significant. It is also for both manufacturing, product development, and a further improved sales and marketing capability.
This is to transform Bactiguard and will affect profitability over the next year while we expect a rapid acceleration on profitability after that. The net result for the first nine months of 2022 was negative SEK 38.7 million , which is SEK 5.3 million lower than last year. We see changes in the macro impact of the macro events on the results. COVID is still having a large impact on China, but for the rest of our markets, it's almost back to pre-COVID. Also, we have seen very little effect on our financial performance from the Russian war against Ukraine, as we have neither suppliers nor customers in that area. We do see indirect effects from the war, such as energy cost increase in Sweden.
It has not yet impacted the company's financial performance significantly, as most of our production takes place in Malaysia, where the situation is very different. We also will see increased interest costs on our loan from SEB, which will impact the company negatively. On the positive side, we have already mentioned we are seeing the US dollar strength, which has a significant impact on our financial situation. Page 13, please. Now, looking at the cash flow and liquidity slide. This quarter, the cash flow from operating activities was SEK 9.9 million. Today, the company has a strong cash situation, which we are very happy for. This is due to the share issue that we closed last year and the loan from SEB.
To have this financial position is fundamental for the focused growth strategy and enable us to invest to meet the long-term goals. As you can see from this slide, the cash flow from operating activities vary quarter to quarter, which is driven by the milestone payments from licensing partners, but also due to seasonal variances and business performance. We do have an overdraft facility as well from SEB of SEK 30 million, of which none is used as of today. The total cash and overdraft facility was SEK 208 million. That was all from me. Back to you, Anders.
Thank you, Carin. Before we finish, let's go to slide 14, where I want to highlight the three key growth drivers in our fight against infections and why we have set ambitious financial targets. Our technology provides unique protection against infections, even those caused by multi-resistant bacteria. This is why we believe our technology should protect everything that will be placed within the body for longer than two days in order to prevent the occurrence of biofilm, which could lead to infection. That is the underlying rationale why we believe we can significantly accelerate our growth by protecting more people from infection. There are three key drivers.
First, the basis for our growth is our existing license contracts with BD and especially Zimmer Biomet, where we anticipate significant growth in the future once a U.S. approval of the different implants, and especially if it becomes an embedded feature in some key product lines. Secondly, we see new license agreements in our focus areas, which will contribute to our future growth, both through exclusivity fees, development and milestones, and especially royalties once products are commercialized and launched. Depending on the product area, time to market can sometimes be quite rapid. Thirdly, our own product portfolio of infection prevention catheters and wound care products, where the focus is to get our products to more patients in key global healthcare markets, especially the large ones with high healthcare spend and where infections create significant problems, either by multi-resistant microbes or the risk of being sued for causing a new infection.
If we go back to the existing license agreements and to highlight the potential of the Zimmer Biomet collaboration. Zimmer Biomet is a leading orthopedics company, and they operate in a market worth $28 billion and have sales of more than $6 billion in that market, mainly hip and knee and trauma and other type of implants. It is fair to say it will take time before all key type of implants will be regulatory approved and start generating royalty income, though if Zimmer would decide to coat a significant part of the product portfolio, the potential royalty income could be significantly higher in many multiples of the current BD license income per year. That's where the potential of our business lies.
As we started this session with, we are passionate about working together as a team at Bactiguard to deliver on our vision, keeping people safe from infections. We hope we have highlighted to you why you should be invested in Bactiguard and that we're building the momentum to deliver on our 2026 financial goals. That was all for us. Thank you for taking the time to listen to us. Operator, we're now ready for any questions on the line.
Thank you. If you wish to ask a question, please press 01 on your telephone keypad. Our first question comes from Mattias Vadsten at SEB. Your line is open.
Hi. Thank you very much. Sorry if I repeat anything here. I missed the first five minutes or so of the call, but I have a few. I mean, on BIP sales, nice to see the continued year-on-year growth. If we look to the quarter-over-quarter development, it's a bit cautious if you compare it to the SEK 50 million you had ordered in Q1. I guess COVID has been less and less of a headache throughout the year here. What is the main sort of reasons for it not coming up here in Q3? Is it any seasonality or something that we should be aware of, or how would you describe that?
I think it's a combination of things. Overall, I think we see good momentum, but especially in those markets where we are putting more resources and focus, and we see we get really good traction. In some of the other markets, which are sometimes more seasonal, like the Middle East, et cetera, we have had a relatively weak quarter, right? That impacts the total growth. If we look at, you know, the markets where we do want to grow, we see continued strong growth. As we also stated, right, the growth is not at the level we want it to be and we aim it to be. It's of course something we will take actions to accelerate further.
Perfect. Otherwise, I mean, if you look on the commercial operations now in these countries, you have invested quite a lot, as we've spoken about before. Do you see, you know, everything being in place now, or is there still a lot of activities that you should build going forward, or some place in there would be interesting as well?
What we see is, it's not about adding more resources, but of course, activities need to continue. As it is really getting more and more patients, more and more centers focusing on infection prevention, converting normally non-coated products to our products, right? Activities need to continue, but it's not about adding more resources. We don't see that as what's needed. Also, of course, I think the success in the markets where we are having more resources gives us better insights and makes us better in managing our other distributors. We do believe we can also get acceleration through them over time.
Okay.
That's very good.
We can follow the number and note that Zimmer is growing somewhat quarter-over-quarter, of course. Sort of, what would you say, so to speak, is the main risk to Zimmer not negotiating to go for a conversion strategy, really, according to, you know, your thoughts and discussions?
Well, of course, our preferred option would be if they just went in and first converted all their business. Of course, for them, a key point of having our technology is it gives them a differentiated product and enables them to grow their trauma business, which is one of their strategic objectives, right? Of course, they're also going into new centers, which might take longer before it translates into significant sales. Of course, having that success is critical for them to really see they get the value out of the technology they want to get. I think, yes, of course, I would prefer to go 100% commercial strategy, but that's maybe not realistic. I do see them focusing more on that.
The real tick to look for, right, is launch in the U.S. and potentially having this, our technology as an embedded feature in a product line in key markets, right? That's the two big ticks when royalties really will move, I would say.
Just on the strategy there, do you think, you know, do we see a higher price for the coated trauma implant versus the common conventional trauma implant, or how is the thinking on that perspective?
No, no. It is, of course, a significantly better product, and that enables you to take a higher price, and that is really the strategy we see, right? Of course, it then depends on the market, how significant that price premium can be. Where some markets are more cost sensitive, meanwhile others you can take a higher price. Sometimes maybe that also links into the how common multi-resistant bacteria are or something like that, which actually a consequence of an infection becomes much bi gger potentially for those patients and enables you to get a higher value for the product you're selling.
Perfect. My last one would be negotiations with new potential partners. I mean, we have seen you have struck a few already this year, and we know that. Do you see negotiations increasing through the year given that COVID is less of a headache for those companies and the sort of, yeah, the general product development part of those businesses has, you know, come up? Is that what you still continue to see?
We see a continued interest in our technology, right? We do see companies that maybe during COVID had other focuses now having able to focus more on product development. Of course, some companies are also more impacted by the current situation in the market, which then slows it down. A lot of companies is now spending a lot of time on MDR and all those that work for their portfolio. I would say overall, we see a continued interest in our technology from many potential license partners. I would say we're not as impacted as during COVID, from a, you know, holding back the focus in product development in potential license companies.
Perfect. Maybe last one on the MDR as you spoke about, how are you stacking up versus the deadline there? Just some flavor on that.
No, it's progressing well, right? We have submitted multiple of our products already and have some of them a very long time ago. We do see we're in a good time from a timeline perspective. Also just as we noticed, it's a lot of work, it's a lot of investment and time required to get the MDR, which we also see then from many of the license discussions other companies are struggling with as well. Potentially the timelines might shift, but we don't see that's needed for us to make it in time.
Thank you very much. That's all from me.
Thank you, Mattias.
As a reminder, to ask a question, please press zero one on yo ur telephone keypad. We have no further questions at this time, so I'll hand back to the speakers.
Thank you, operator, and thank you everybody for joining the call and look forward to talking to you again in three months. Thank you.