Welcome to the Bactiguard Q4 Conference Call. For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the speakers, CEO Anders Göransson and CFO Carin Jakobson. Please go ahead.
Welcome to all our shareholders, investors, and analysts in today's call. Today we will share our Q4 and 2022 results. Reflecting on the year, it has been a year of transformation for Bactiguard. In the beginning of the year, we launched a new focused growth strategy and set new long-term financial goals. Since then, we have invested in our organization to realize the full potential of our infection prevention offering, including signing and starting product development with two new partners during 2022, or in two new partnerships, I should say.
If we go to page three and look at 2022 in brief, first, we had a strong year with revenue increase of 42%, and in quarter four it was 57%. This is despite the bumper macroeconomics, post-COVID related issues still affecting healthcare systems in part of the world and everything. A very strong revenue growth.
During 2022, we have positioned us to capture future growth opportunities, both by reorganizing ourselves to create focus in the organization as well as strategic investments into capabilities and resources to deliver on our long-term goals. A key priority is to get our infection prevention technology to more patients through licensing and product development partnerships, but also through our own product portfolio.
The capability boost have focused on license sales, coating development, and regulatory capabilities. We also have invested in the commercial capabilities to drive our own product portfolio, as well as reorganizing our sales organization to align our resources with where the biggest potential is. We had a very successful year in licensing with two new partnerships delivering on our goal of 1- 2 new partnerships per year.
In February in 2022, we extended our partnership with Zimmer Biomet to cover the broader part of their portfolio, including joint reconstructions like hip, knee, and shoulder implants. This agreement has the potential to become Bactiguard's largest agreement ever so far once commercial products are developed and launched. In April last year, we entered into a development agreement including a license option with Dentsply Sirona, our first step into for us new dental area where infection is a large problem.
Both these partnerships have really increased our work in coding development as new materials and applications are being pursued. If we turn to our own product portfolio, sales for the year was lower than anticipated with only 9% growth in the year. We still see good traction in areas where we are investing, but I will come back with more detail around this later on.
To summarize 2022, it has been a very good year and the transformation of the company is progressing well, and we feel we're well positioned for the future, and we can already see the revenue traction from the expanding license business. Before we go into our financial, I just wanted to reiterate why Bactiguard's mission is so important and why we feel confident our infection prevention solutions are well positioned for the future. Let's go to page four. If you look at some of the key global macro trends, right?
First, rise of infection and increased use of antibiotic is a real threat to global health and modern medicine. This is fueled by the threat of antibiotic resistant bacteria, a silent pandemic where healthcare systems are slowly catching on to the need to proactively manage this. This is so critical because the fact remains one out of 10 patients worldwide are affected by healthcare associated infections.
E.g., you enter a hospital for treatment, and during your visit you acquire a new infection often caused by bacteria adhering to medical devices that is part of that treatment. Add to that the underlying demographic developments, an aging population, increasing lifestyle diseases like diabetes, increasing immuno compromised patients in the healthcare systems. The healthcare systems already have strained resources, and the importance of preventing disease and infections are becoming more and more important across the globe.
On the right-hand side, you see our five priority therapeutic areas, which we defined in our growth strategy to get more focus on where to pursue license partnerships. The markets we're going after are very large and showcase the potential of our technology. These are market size numbers in billions of US dollars. I will come back to that later. A large part of this potential is in most therapeutic areas in the United States.
In summary, infection prevention have never been more important, and our technology can really make a difference for patients and in the fight against antimicrobial resistance. Avoiding an infection, for example, in connection with orthopedic surgery or extended use of a urinary catheter, could mean the difference between life and death for the patient. If we go to page five, an overview of our strong Q4 financial results.
If we start with our revenue, we see a quarter of very strong growth, reaching an all-time high of SEK 72 million in Q4, a growth of 57% compared to Q4 last year. This is boosted by a very strong currency effect. Even when adjusting for that, the underlying growth is still strong with 23%. The largest part of our revenue is from our license business, amounting to SEK 46 million in the quarter. A growth of 88% compared to last year, and even when adjusted for currency effect, the growth is 58%.
A very strong license revenue quarter. Our BIPs sales was lower than anticipated and actually declined year-over-year in Q4, as we had a weak quarter in some markets that normally are very strong in Q4, as well as some supply issues in our suture business. I will come back to this later. Our EBITDA is minus SEK 1.1 million in the quarter, a significant improvement compared to the loss of SEK 12 million in Q4 2021. As you know, our EBITDA are impacted by the investments into our focused growth strategy.
When we announced the long-term financial goals for 2026, we also announced that during 2022 and 2023, we will build the organization and initiate a number of growth initiatives. This will impact our EBITDA also during this year. We are early on our growth journey, and we're on track to deliver on our plans. Finally worth noting is we had a positive operating cash flow of SEK +3.1 million compared to negative cash flow of SEK 12.8 million in Q4 2021.
Worth highlighting is that we in Q4 have done a reorganization to align our resources with our priorities. As part of that, we have added our Chief Quality & Regulatory Officer, Fatima Stensvad Flodin, to the management team, and moved Sathish Subramaniam to the critical role of Chief Technology Officer, where he will work closely together with our license officer and medical officer to bring our technology to more customers through existing and new license partnerships.
These changes in our organization will strengthen us to continue executing on our growth strategy. If you go to page six and look at the three engines for the license business. We look at our most important revenue contributor, Becton, Dickinson, or BD, who has ex-exclusive right to sell the urinary catheters with Bactiguard technology in the U.S. and Japan. We're back to pre-COVID volumes of the business, which is amplified by the strong USD, bringing the revenue to close to SEK 39 million, a growth of 65% compared to Q4 the year before.
We also have significant growth on license revenue from our two agreements with Zimmer Biomet, as well as a development agreement with Dentsply Sirona. In total, SEK 7.4 million compared to SEK 1.1 million last year. As a reminder, with Zimmer Biomet, we have two agreements. One for trauma implants entered in 2019, where the current revenue is mainly attributable to contract manufacturing and royalty for Bactiguard-coated trauma nails produced for and mainly sold in Europe.
During 2022, we met our goal of 1-2 new license partnerships. In February last year, we expanded the collaboration with Zimmer Biomet to their broader portfolio. In April, we entered into a development agreement with Dentsply Sirona in the dental field. Both of these development projects are progressing and contributing significantly to our top and bottom line in Q4. If we go to page 6 and zoom in on the Zimmer Biomet trauma. The launch of ZNN Bactiguard in Europe, Middle East, and Africa region is going according to plan.
The markets showing the fastest uptake are still Italy and Germany, with continued positive feedback and interest from customers. During Q4, the work with 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 across the globe is progressing with a focus on getting a US approval, which when achieved, will be a key milestone.
As I mentioned in our last earnings call, Zimmer Biomet is investing a lot behind strengthening the evidence of the clinical benefit of coated orthopedic implants. Currently, four different studies are being initiated across leading trauma centers in Europe. I wanted to highlight a publication that was published online in the paper Antibiotics in November last year. You can read more about this on our homepage, where you also can find a link to the full publication that can be downloaded for free.
This was the first in-man clinical study with Bactiguard-coated trauma implants. This study is based on our own trauma implants that has been launched in Malaysia since 2019. It's a case series of 35 severe trauma patients. For example, after a motorcycle crash where you've broken your lower leg and caused a so-called open fracture.
Open fractures are where the fractured bone protrudes through the skin, leading to a wound, and therefore an increased infection risk. According to the literature, the infection risk in similar healthcare settings would be between 12.5% up to close to 30%. The study showed that only three out of 35 patients developed an infection, an infection rate of only 8.6%. In addition, all these three infections were resolved by antibiotic therapy, and no side effects were recorded in the study.
The study concluded that a Bactiguard-coated titanium nail can prevent infection and facilitate bone union achievement in patients undergoing surgery for severe open fractures. Clinical evidence is a key competitive advantage for us, which is why studies of our technology are crucial. They give both healthcare givers and takers concrete evidence that Bactiguard's coating is efficient.
Why this is important is, of course, the global market for orthopedic trauma devices, which is expected to grow. It currently is between $8 billion-$9 billion globally, and by 2030, it's expected to be $16 billion. Our infection prevention technology can make a real difference for patients there. Just imagine the positive impact using more coated orthopedic nails would bring to weaker patients, like elderly, which for example might have slipped in the winter and gotten a hip fracture, which is very common in here in Sweden, among other places.
Let's leave our license business and go to page eight and our own product portfolio. As you know, our own product portfolio consists of our coated catheters, for example, Foley catheters for the urine, central venous catheters for the bloodstream, and endotracheal tubes for the airways. Secondly, it consists of our wound care portfolio of wound cleansers and gels. Finally, our sutures, which are mainly sold in Southeast Asia.
Let me be transparent and say we're not happy with the performance in Q4, where sales were lower than anticipated and even declined from Q4 in 2021. During Q4, as part of our larger reorganization, we also restructured our sales organization, and this did impact some regions, and that is where we see bad performance in Q4, especially in regions which normally are strong in Q4, like the Middle East. In addition, we were impacted by some supply issues for our suture business, impacting the top line in Q4.
However, during the year, we have done strategic investments into our commercial offering, especially on the wound care side. We're entering 2023 well-positioned to accelerate growth, focusing our wound care business as well as our recently MDR-approved Foley Catheter business. Let me just spend some time on the Medical Device Regulation, MDR, and how important it is for us, as we in January of this year got our first product approval, which also means our whole quality management system is now MDR-approved.
The new MDR regulation was announced in 2017 but adopted in 2021, and it's to ensure that only non-harmful equipment is used on patients in the European market. What that means is that products are scrutinized in the MDR process and audited to higher standards of quality and safety. Gaining the MDR approval for the BIP Foley Catheter is a first step, an important achievement for us, as it is a formal acknowledgement of our work on quality and safety. This will pave the way also for future product approvals.
Also is a quality stamp on our quality and safe products and technology. As mentioned, while Q4 was lower than we wanted on total, at the same time, we have continued strong momentum in key markets like Nordics, India, and Malaysia, where we have invested behind our portfolio and have put more sales forces behind the products. Our expanding wound care portfolio of wound cleansers and gels, we continue to get very positive feedback from customers and great patient cases.
For example, on diabetic foot ulcers, a common chronic wound that in worst case can lead to limb amputations. Just for your info, hot from the press, we have recently launched brand-new sales material with a focus on wound healing, a unique indication we have, so we feel well-positioned to accelerate sales.
We can see that our focus strategy and investments behind our own urinary catheter, the BIP Foley, is paying off, and we have continued strong momentum. With that, I would like to hand over to Carin to give us more detail on our Q4 financials. Over to you, Carin.
Thank you, Anders, and welcome everyone. I'll take you through the financials. On this slide, we are looking at the rolling 12 months revenues and EBITDA. We are very happy that our rolling 12 months revenues are growing for the fourth quarter in a row, and also this quarter are at an all-time high. If we started looking at the license business, which is the blue bar in the chart. Our main revenue stream is a recurring license revenue from BD, comprising of sold concentrates and royalties depending on the sold items.
They both vary between the quarters, but are essentially stable in volume on a yearly basis. BD volumes have been constantly higher all 2022 compared to 2021, but we have to expect them to stabilize on a pre-COVID level. The revenue from BD shows a growth of 65% this quarter, volumes have increased, the revenue is also impacted by the strong dollars that we have seen compared to 2021. Including in the license business is also revenue from the contract manufacturing for Zimmer Biomet that we handle for them.
The royalty corresponding to the Zimmer Biomet space of ZNN Bactiguard Implant in Europe. If you continue with the BIP portfolio, the green bar in the chart. The BIP portfolio shows a decline in revenue for the quarter compared to 2021, sales are up with 9% compared to on the full year rolling 12 months. The growth is mainly in the regions where we have our own resources, like India, Nordics, and Malaysia.
The growth is mainly in our own product, in the Foley, the product that we just talked about, that we got the MDR with. The yellow bar in the chart shows the new license revenue and are showing the non-recurring revenue stage that we receive from our license partners before products are launched. Anders mentioned, we are doing development work for our licensing partner before they launch products in the market that will generate royalties.
These development projects can look very different depending on the scope and complexity of the materials to be coated. These project revenues, like work hours, are reported as new license revenue together with different types of initial fees and milestone payments. The current development projects are showing good momentum in both the project with Zimmer Biomet signed in February and then to Dentsply Sirona for getting well and contributing with both regulatory revenues and development work.
The new license business together is a very important building block, together with the recurring business are the foundation to continue the growth to meet the long-term financial goals. If we now look at the financial overview of 2022 compared to 2021. Bactiguard had a strong year. The total revenues for 2022 was SEK 253 million, a growth of 42%. In the local currency, the growth was 16%. The license business, as we have talked about, is the main driver with 43%, and the BIP portfolio grow with 9%.
EBITDA for 2022 was negative SEK 6.4 million, corresponding to an EBITDA margin of 2.5%, which should be compared to last year's EBITDA of negative SEK 7.2 million, corresponding to an EBITDA margin of - 4%.
Just to mention, just a reminder that last year's EBITDA was positively impacted by the milestone payment of $1 million from Zimmer Biomet trauma contract that we got. 2022 was an investment year where we kicked off our growth strategy and where we had increased capabilities within regulatory and now getting our first product, the Foley catheter, MDR approved. Within commercials, we had two new development projects as well as strengthen our technology business development team.
The transformation of Bactiguard will continue to affect profitability over the next year, while we expect profitability to accelerate after that. The net result for 2022 was negative SEK 52.9 million, which was SEK 5.9 million better than last year. We see changes in the macro events, and as China now is opening up and the rest of the market is almost back to pre-COVID, the increase as well as the indirect as well as the direct effect of the pandemic is fading out.
Also, we see very little direct effect on the financial performance from the Russian war against Ukraine, as we have neither suppliers nor customers in the area. We do see indirect effects from the war, such as energy costs increasing in Sweden, which has not yet impacted the company's financial performance significantly, as most of our production takes place in Malaysia, where the situation is completely different. We will see increased indirect cost in our credit facility from SEB, which will impact the company negatively.
On the positive side, we have already mentioned, we have seen the US dollar strengthen, which has significantly impact our financial results. We're now looking at the cash flow and liquidity slide. We have strong financial position with total cash and overdraft facility of SEK 231 million , shown in the gray and green bars in the chart. The investments we have made in the company, and we continue to make, are not only impacting EBITDA, but also our cash.
We are strong in our financial and have cash, which is fundamental to deliver on the focused growth strategy that enable us to do the necessary investments that will put Bactiguard in a better position to capture growth opportunities across our therapeutic areas and focus markets such as the U.S. , and to deliver on our long-term financial goals. Now looking at the cash flow from the operating activities, the line in the chart.
The cash flow from operating activities varies like significantly quarter to quarter, which is a result of large milestone payments from license partners and other non-recurring payments related to the new license business and our development projects. Also, of course, seasonal variances in business performance. This quarter's cash flow from operating activity was SEK 7 million compared to negative SEK 11.6 million last year. Now back to you, Anders.
Thank you, Carin. If we go to the next page 14, to summarize this. As highlighted, our EBITDA is impacted by our investments into our organization to deliver on our strategy and long-term goals. We now have many of the critical prerequisites in place to accelerate our growth. I just want to iterate why we believe this is the right time to invest and fuel our growth. First, we have strong clinical evidence that continues to be strengthened, like the Bactiguard-coated trauma implants I talked about earlier.
We also show we can meet the very high standards that regulatory bodies are setting on us, like the new MDR approval. We have the capital to fund our growth. As Carin showed, we have a very strong financial position. We have strengthened our organization and built and broadened our commercial capabilities for continued expansion. We have allocated more resources to coating business and product development. We have reorganized our sales organization and strengthened our commercial offering.
During the year, the European Patent Office approved our third generation patent for our technology, giving us even more long-term horizon to work towards. We believe we have a very strong IP protection with the know-how of coating different materials, our confidential recipe to our concentrate, as well now with patent protection until 2039. Finally, I believe our two recent additions of license partnerships is a proof of the concept and the potential of our technology.
Let's go to slide 15, where I want to highlight the key growth drivers to deliver on our 2026 financial goals. As highlighted earlier, the need for infection prevention have never been greater, and our technology provides unique protection against infections, even though 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.
We are aiming to do so through a couple of 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 the US approval of the different implants, and especially if it becomes an embedded feature in some key product lines.
We see new license agreement in our focus areas, which will contribute to our future growth, both through exclusivity fees, development of milestones, and especially royalties once products are commercialized and launched. Depending on the product area, time to market varies. Worth highlighting is that during 2023, the development agreement with Dentsply Sirona, the aim is to enter a full license agreement.
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. We're not excluding smaller M&As, similar to the acquisition of Vigilenz in 2020, to further accelerate our growth and provide effective and safe infection prevention across the globe. You may find our financial goals aggressive, but if we go to page 16, I want to highlight one of the reasons why we have set these targets.
The largest MedTech market in the world is without hesitation the U.S. From our perspective, it's even more important, as it's a market where infection prevention is a high priority, and you get penalized if you cause infections. We see a great potential for Bactiguard's offering of infection prevention solutions and products. Getting our technology to the US market is very critical, both for our own product portfolio, but of course, also for our current and future license partners.
The entrance barrier is, of course, the product approval by the FDA. Currently, the only approved Bactiguard-coated product is Becton Dickinson's urinary catheter, which is the key driver of our current revenues. As you all know, approval of ZNN Bactiguard trauma implant is critical to accelerate growth. I can't give any further indication of timing, but once achieved, it will be a landmark event. We have our own product portfolio, like our endotracheal tubes and central venous catheters.
We have, during last year, started the discussions with FDA on how we can get our products approved and are working intensely to submit them for approval once appropriate pathway have been agreed with FDA. The go-to-market strategy is still under evaluation if we go via a license partner or distribution partner in the end. We wanted to highlight this as getting Bactiguard products approved and commercialized in the US market is what we will be needed to significantly bend the curve for our growth trajectory. We go to page 17.
2022 was the year we kick start our growth strategy, and we have delivered a very strong revenue growth. We've met our goal of 1-2 licensed partnerships per year. We have invested in our organization to strengthen our capabilities, but also to position ourselves for strong growth. In addition, the global healthcare macro trends present significant opportunities and the potential to make positive impact with our infection prevention offering is huge.
We have only started our transformation journey, but we have good momentum and energy in the company to deliver on our plans. If we go to the final page, we want to highlight that our infection prevention technology was recognized as one of the most important Swedish life science innovations of all time in Life Science Sweden.
We're very proud of making it on a list together with other great Swedish innovations like Losec or the Walker. I think this once again confirms the uniqueness and potential of our technology. With that, thank you, investors. Tie it back to our team for great collaboration during the year. That was all for us. Operator, we're now ready for any questions on the line.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Mattias Vadsten from SEB. Please go ahead.
Hi there. A few questions from me today. I think we can start with BIP sales. Of course, you had some supplier related issues in Q4 and some reorganizations. Can you explain how, you know, the organization in, for example, Middle East, what the restructurings are? Is it mainly the addition of sales staff or what more in practical terms are you doing? Also explain if there are other areas where those initiatives have been taken. That would be the first one.
Yeah. Let me start with that. I mean, as you mentioned, right, we have some supply issues on our sutures which impacted the top line, but the key impact and the bad Q4 sales was driven by very low sales in regions that normally are very strong in Q4, right? They're quite yearly order pattern, and that is one is Middle East. Middle East has been an important market for Bactiguard historically, but if we look forward-looking, it's still a great potential in the market, but maybe not where we should have most of the resources.
What we've done is we actually reduced our resources in that region to invest them in different places. That's what the reorganization have done, and to some extent, probably also impacted the Q4 performance from that perspective.
Okay, good. If we look on sort of, BIP and the BIP product sales going forward, you know, can you just outline the main drivers for the growth rates in 2023 onwards from here? I mean, it was strong in the first nine months, 2022, but maybe a slow end. What are the main drivers going forward that you identified to grow that?
For me, so first, right, we need to keep the base and that's what didn't materialize because of the supply issues and the sales in the Middle East, right? We didn't keep the base. What I see is growth, especially in our Foley, where we have strong momentum, where we put resources behind, we see the momentum, and we're now taking those learnings to really get that momentum into other markets across the globe.
Also the wound care, where I think it's important to highlight that 2022 has been a year of launch and getting distributors in place, where we now see we are set for actually accelerating the wound care growth as well outside the Southeastern Asia, where it has been very strong. I think if the two key drivers will be the wound care and our Foley.
Good. Just a follow-up on the wound care. Where are these products available now for customers that via distributors?
So, uh-
What regions?
Yeah. In large part of Southeast Asia, it's available. It's partly in. We actually also have some sales in South America. Of course, in the Nordics, we've launched it. It's available in Germany, in Spain, and we're shortly, we'll be entering the U.K. as well. That's a quite interesting market, as it's one of the most important wound care markets in the world. We're also available in Austria, other markets across Europe. We're not available everywhere in Europe, and I think that's part of our focus strategy, is to get it available in more markets as well.
Perfectly clear. Thank you. In terms of new license revenues, I mean, they've obviously been becoming less lumpy lately and more stable, as we have seen. Based on my calculations, the main part of the license and development fees with the expansion agreements with Zimmer and with Dentsply Sirona have been taken now. Going forward, should we, as such, expect new license revenues to be a factor of future regulatory clearances in each respective category? Are there still development phase, you know, with the development phase?
The-
Will those still have an impact going forward?
It's a very good question, right? We have actually, in the later years, changed our approach on how we set up the contracts, right? Going forward, we do expect. We are actually able to invoice all our development costs going forward, which will, of course, contribute to development revenues going forward as well. It's also some key milestones, and some of them are big regulatory milestones like FDA approval, et cetera, that will trigger, of course, payments.
Also in some agreements, we have smaller milestones that kick in as different development steps are met. As I would say the answer is the big swings is gonna be in key regulatory milestones, but we do expect continued development income also in the coming years. It, of course, depends on how much development work we progress, how many different products, et cetera, for example, Zimmer Biomet chooses to pursue at the same time, and that type of thing.
Yeah, good. The next one would be, you know, we're fairly up to speed on Zimmer. We've spoken about that. With Dentsply, how are things progressing here? You know, does your discussion so far support it becoming a licensed partnership, or how do you see this discussions that you have?
It is a development product. Just like Zimmer for the recon business is a development product, right? It's about testing the coating on the surface, making sure you get the micro adhesion, that you get the right properties of the product, and then that you can build a technical file to get it approved. We're progressing well. I think one important thing is, of course, it depends a little bit on how broad or how narrow you take it to market, which might impact the development timelines.
I think what we've seen so far is that there is... The case is still there, right? We haven't find anything contradicting that our coating wouldn't work in the dental area, which is what this is about, right? Testing in a different environment where, compared to where we are currently present, right?
It's not too different from our endotracheal tubes, which is also going through the mouth into your respiratory system. It's, of course, a very different environment in the mouth, which we need to get the test finalized and done. So far, nothing saying we don't see it working in that environment.
Okay, good. The last one here from me now. OPEX increased again in Q4 with 34%, adjusted for amortization. If you hold this level, this Q4 level in 2023, I guess you have some 10%-15% OPEX growth also for 2023. Is this fair, or do you expect to even increase the OPEX level that you had in Q4 for the quarters that we have now in 2023? Just an approximate thinking here, what you see in your budget and so on.
I think your assumption is relatively correct. I think the big swing is a little bit on how much development work and therefore how much expertise we need to actually bring in extra to be able to deliver on some of those development work. That could be a big swing compared to some of the regulatory work, et cetera, with the partners. Overall, I think that's a relatively good... We're not expecting huge continued increases, but we are, some areas we're still building up and strengthening, especially on the license and coating development side.
Perfect. Thanks so much for answers to all the questions here.
Very good, Mattias. Any more questions from your side?
There are no more questions at this time, I hand the conference back to the speakers for any closing comments.
I wanna finalize with thanking you all for joining the call and looking forward to 2023, continuing our transformation and growth journey. I hope you're off to a great Thursday. Thank you, everybody.