Earnings Call: Q4 2020

Feb 4, 2021

Thank you, operator, and a warm welcome, everyone, to this conference call. Let's go to Slide number 2 please. Let me start by saying that 2020 has been an exceptional year globally as well as for BactiGuard and me personally. A year ago, we announced our first acquisition ever. I took over the role as CEO after 6 years in the management team. And then Corona developed into a pandemic, the worst ever in modern times. To date, COVID-nineteen has affected more than 100,000,000 people and close to 2,300,000 has died from the virus. These are terrible numbers and behind every number there's a human being, family and friends who all suffer. And this was totally unexpected at the beginning of last year. We thought it would fly over in a blink of time and dealt with. But to put it in context, there's also the silent tsunami of antimicrobial resistance that can have an even greater impact on infection prevention. And infection prevention has never been more important than today, and we are convinced that it will be a vital component in future health care. Let's go to next slide please. Yesterday, we announced that I will be stepping down as CEO of BactiGuard this year. It wasn't an easy decision, but I have been part of the executive management team for 7 intensive years, And it has been an incredibly exciting time, both for me and for Vastigard. In that period, we have created value for patients, our partners and our shareholders. When I joined Vastigard in 2014, just before the IPO, we were a privately owned company with a few B2B customers and just at the beginning of our international expansion. We have now grown from being a small company with a market cap of about SEK 1,000,000,000 to midcap company on the Nasdaq stock on stock exchange with a market cap, which is 5 times higher. Today, we have an almost global market presence, some of the world's leading medtech companies as our licensing partners, a broader product Nursing Partners, a broader product portfolio and a promising B2C business after the acquisition of Vigilance. So let me start with the acquisition of Vigilance. Why did we do it? We wanted to get control of the CE Mark for orthopedic implants when there was a handover or the The prior owner wanted to hand his company over. This CE Mark paves the way for the agreement we signed with Dima Biomet in 2019. And we have now, just as of last month, secured the CE mark also for Simba BioMet. And I think that's a great achievement. So we, Bactriguard, now have the CE mark for our own orthopedic implant called Waterstone. And we also have a CE Mark for Zimmer Biomet Trauma. But there was more to it. We got better market coverage, particularly in Southeast Asia. We got our own sales force in Malaysia, which is driving recurring sales and as I mentioned, a broader product portfolio. Hydrocene, which is an effective or was an effective and alcohol free wound care solution that we also developed into an effective disinfection in record time and launched on the Swedish market when there was a shortage. So we set up an air bridge and managed to secure supplies to the Swedish police when there was the severe shortage at the outbreak of COVID-nineteen in March. We also got an interesting portfolio of sutures and other wound care products that already contribute to recurring sales There's potential for more. What else have we done? We have strengthened the management team with experienced leaders, marketeers and salespeople. And we have added competence to the executive management team. Stefan Graf, our Chief Medical Officer, joined us about 1.5 years ago, and we have really increased our push on the clinical evidence and most importantly, getting it out there and using it. And that has added Thanks to the company. Just after the summer, Gabriela Caracciolo, our CFO, joined us, She has contributed greatly to business development, both in Greece and in the Middle East. Satish Subramaniam is Chief Operating Officer. He's been with the company for 13 years, primarily in Malaysia. He's now heading up operations globally, but he's also a valuable member in the licensing business and that he has excellent experience in tech transfers and how to make production work, both in our facilities and in our partner's facilities. Most recently, we required recruited Pietra Karl is our Marketing and Communications Officer and Peter Rodkris is our Head of Global Sales. All of these leaders bring experience in creating profitable growth. They add strategic and operational expertise, And that is incredibly important for Baktegrad's continued global expansion. It will increase the speed in our sales development, and it will make BactiGuard more visible and thereby influential. The goal is to make our product the obvious choice for infection prevention and standard of care globally. With this platform in place, I am convinced that Maxiball is better equipped than ever to take advantage of increased global demand for infection prevention. Therefore, I have concluded that the time is right to hand over to a new CEO who can set the bar and really accelerate the growth in the coming 5 year period and take Maxigar to the next level. I'm incredibly proud of what we've achieved and I will be happy to hand it over when the time is right. I will stay on until the right leader has been round, and I will continue on the board and add to the Batgirl's continued growth. I think you will also have seen that the nomination committee has proposed that Thomas van Poetsch become Chairman of the Board and that Kristin Gietje will take the role as Deputy Chairman. The 3 of us have been working very closely over the past 7 years, and I'm confident that we will continue to do so going forward. Now let's turn to some financial highlights on the next slide please. What frames what we achieved in Q4 is that we saw recovery. We saw recovery in the license business with BD, not to the level we had last year when it was exceptional. But business is approaching normal levels, although this quarter, they were 30% lower than the corresponding quarter last year, which was a stellar quarter. Normally, we say that EED generates about SEK 100,000,000 Swedish a year, so SEK 25,000,000 is a good estimate of the normal level. We got additional license revenue of just over $9,000,000 from Welly. The first Recurring, you could say, license revenue from them under the contract we have with them. Last year included revenues from Waleed for catheters of CHF 16,500,000. So that makes up for The most of the difference is in bit sales. We had a recovery in the bit sales not compared to last year, but in terms of sequential improvement vis a vis Q2 and Q3, which have all been affected by COVID-nineteen, Lower usage of consumables when the focus has been on COVID-nineteen patients, but also on the postponement of elective surgeries, which has affected both us and our licensing partners. So all in all, on a reported basis, they were down by 7% but a mere 2% on a current Italy adjusted basis. If we look at the year as a whole, We came in more or less at par with last year. We were about 2% down on a stable currency level. And I think that is quite an achievement given the pandemic around us. Last year, we had a major boost from the license revenue with CimabioMed, which is showing both in sales, but most importantly, in EBITDA CA and profitability, which really boosted that. But I think we can I'm not Happy about the results, but I am pleased that we were able to sustain a decent level given the challenging business environment. So let's move on to the next slide and look at the operational highlights. The CE Mark for orthopedic trauma implants that we received in January is the major breakthrough. And as it paves the way for launch in Europe and the Middle East in the first half of this year. This will add to recurring license revenues in the years to come. BD's business is returning to more normalized levels and I'd come back to that and that also improved our revenues in the quarter. The fact that we received Our first order for coating concentrate from Welllead is also a milestone. They have made great progress in preparing for registration of locally produced products. We are making progress in our own business. And it is looking positive that we will be able to file for registration shortly and move into the next phase of that partnership. Looking at the BactiGuard portfolio for infection prevention. We Continue to keep focus on rollout of products in Europe, the Middle East and India. Of course, we are still This is by the lower utilization of regular health care, but we are using the time now to prepare for when the health care sector opens up again to deal with the backlog that has been built over the year. So we are preparing. We are on the platform electronic platform in India. We are establishing digital channels. We are focusing private care providers as well as governments. And I'm confident that the work we are investing in now will pay off in the months and the years to come. Some recent developments is that we have a new distributor for the BIP portfolio in the same. They have a very good package of combining ventilators with our PTs, which are used for COVID-nineteen patients, but also of CVCs for intensive care. And they've already, Having placed an order in December, already placed another order this quarter. We have also launched HydroSyn in Greece, both for disinfection and we will also roll out wound care and Gabriela has been very instrumental in that process. And as I mentioned, we've strengthened both the sales and management team and through to the new Global Head of Sales. Let's move to the next slide, please. So you're all aware of our licensing partnership. We have licensing partnerships with BD, CimabioMed and we're leading. With BD, we have had recurring sales, stable recurring sales for many years. With Simba Biomet, we are just entering that phase and looking forward to continuing our expansion with the partnership. With World Wide, we are also entering the phase of generating recurring revenues over time, but they will continue to be a bit more lumpy. And we have a lot of Projects and dialogues ongoing. I am a bit disappointed that we weren't able to fulfill our target of signing 1 to to new licensing deals in 2020. The fact is that the investment Capacity of our potential partners has been affected in the short term by COVID-nineteen. And it also means that the processes are a little slower. But I am confident that the dialogues we have at the moment and The clinical activities we are engaged in, for example, vascular stent, will pay off and will pave the way for new licensing deals going forward. Let's turn page and look at the recent developments in BD. You may have seen that they recently issued a positive profit warning of improved performance and outlook. Their revenues were clearly ahead of expectations last quarter. They haven't reported yet. They will report tomorrow, but they've given out some preliminary figures. This was driven by COVID-nineteen team testing, which grew tremendously. But they also saw higher revenues in all their other business segments and say that they see greater resiliency in both elective and routine procedures. As regards the interventional segment where there's the urology product, including the regarding products for infection prevention, they saw high single digit growth. And that is encouraging for us because it gives a positive outlook for more normalized bactiGuard license revenues in 2021. Although I must say that the beginning of the year can still be affected due to that there's a 1 quarter delay in us in the license revenue. Let's turn to Page 8. Semi Biomet. I already mentioned that we received the CE certificate or CE mark and that came in January. So we're now preparing for production, which will start in the spring at our facility in Malaysia, and that will start generating recurring revenues. This is for Europe and also when they're registered for the Middle East. When the products are launched and commercialized, that will give us royalties and recurring revenues. As regards the U. S, the registration process goes on in parallel. And you know that we have 2 milestones linked to that posted, €1,000,000 each. 1 will be at the submission to the FDA and 1 will be once the approval is in place. This is an estimate of when that could potentially happen. Of course, nothing is set in so that we will be able to submit this year and then get the approval sometimes around the turn of next year. And that will then pave the way for U. S. Commercialization and recurring royalties. Let's turn to the next page. Looking at our vision of signing 1 to 2 new Business agreements every year. The areas you see highlighted in red or framed in red are the areas which are closest at hand. The first one is to use the data we have and the experience we have in orthopedic implants of various kinds. Another one is dental implants, which is very close to orthopedic implants and where we have a great Asset and Peter Rodquist is our new Head of Global Sales who has spent almost his entire career in the Dental segment. Coronary events, we have ongoing clinical trials at the Karolissa University Hospital that we expect conclude this spring. And some interesting data should come out of that, both primarily in terms of the ability of our coating to reduce the risk of thrombosis, and that would also benefit other vascular applications such as dialysis. Let's turn to the next page please. So we now have a much broader product portfolio for prevention and also for best treatment to our consultations. We have the disinfection product, which are preventive. They are regulated by the fireside regulation, which is different than the medical device regulation, which you can see affects our other products, the Wound Care products, the Wound Management products and the consumable devices. The fact that they lie under different regulatory framework, it's one of the reasons why it's taking a bit more time to get that rolled out. But we will, in parallel, focus on expanding the wound care portfolio and, of course, our own products for infection prevention. So with the CE mark for the orthopedic implant, we are now cleared until 2024 until we have to go for MDR. Let's turn to Page 11, please. If we look at our current market presence and product mix, you know that BD has the exclusive rights to urinary cathodes in U. S. And in Japan. We are beginning to expand the product coverage in all the areas where we are. In Europe, we primarily sell the Vaxigod portfolio of catheters, but we've started introducing the disinfection session, and we are in the process of rolling out the Advanced Wound Care portfolio in select markets. In India, we sell the full portfolio of catheters and we are also there focusing on expanding the Advanced Wound Care Portfolio. Southeast Asia. We have great potential in expanding with the Bank2Gard portfolio and vigilance' territory with our own sales force. And in China, the focus is on the urinary catheters, but then also to get the approvals for locally produced products. And in Brazil and Mexico, the primary focus is on our conference call. So this gives us opportunities for cross selling, using and leveraging our sales force, but also starting not only from the health care sector and BTD, but also to BTD. So the focus is on Approaching More Pharmacies. And I was pleased to hear that we are now rolling out Hydrogen through several pharmacies in the Swedish market, and we will continue to do so in the months to come. Of course, the world has been affected by lockdown and reduced intensity of care, but I get encouraging signals for the sales team that we are overcoming some of the challenges with this through communicating digitally. And The backlog has to be dealt with, so that gives good opportunity. Page 12, please. I mentioned Peter Rolquith, who is our new Global Head of Sales. He joined us this Monday. So he's very fresh, but he really started already. He has a great background from leading medical companies and a true international back He's been working in all parts of the world ranging from the Far East in South America. This time it's very well connected. It's a track record of delivering profitable growth, so this will be a great position to the team. And then as I mentioned, he has been spending most of his time in the dental area, which will also be positive for our licenses. So before I hand over to Gabriela, let's go to Page 13. I am confident This team that we have recruited over the past couple of years is very strong and dedicated and will pave the way for continued profitable growth for Aptivat. So let's go over to Gabriela and some more financials. Thank you, Cecilia. Next slide, Page 15. So good morning, everyone. On this slide, you can see our business model. The core strength of BactoGuard is our Technology, which can be used for a variety of medical applications. We have 2 business areas, the licensing business And our own BactoGuard products for infection protection, also called the big portfolio. To the left, you can see the license business. We license our unique technologies to other medical device manufacturers. This business generates up front revenues of timing referred to as new license revenue. And then we receive royalty on the actual sales going forward. To the right, we have the big portfolio with our own products of medical consumables for infection control. With the acquisition of Vigilance, we have added 2 new product lines for disinfection and wound care. Our product portfolio is sold mainly through distributors. And now with the new sales strategy, we are further strengthening sales with our own sales force in the Nordics in addition to Southeast Asia. Next page, please, Page 16. As Cecilia has mentioned, We still see the COVID situation impacting our revenues. Here we look at the sales development of profitability in a rolling 12 months perspective. To summarize the Q4, we have an EBITDA of SEK 4,900,000. In Q3 and Q4, license revenues from BB as well as big sales were negatively affected by COVID-nineteen. Sales growth recovered from Q3 drop, but compared to the same period last year, sales declined by negative 7% and currency adjusted negative 2%. Starting with the licensing business, the blue bar in the chart. Even though COVID-nineteen had a negative effect on license revenues in 2020, we have A solid platform in the recurring license revenues from BD, our licensed partners since 25 years. Revenues from Didi vary slightly between quarters, but are essentially stable on a yearly basis. In Q4, we also have received license revenues from Wellid of SEK 9,400,000. Sales of our own portfolio is steadily growing, here shown in the green bars. During 2020, we have added products to our BactiGuard product portfolio by acquiring vigilance and thereby accelerating sales and receive a more stable development in the rolling 12 months perspective. To mention a few highlights, we have stable and recurring sales in the Middle East, a region where we have a long term presence. We are also very excited that we are launching hydrocene disinfection to the pharmacist in Greece and later also the hydrazine wound care. The yellow bars show the new license revenue, to you, which is lumpy in nature and connected to deal making process. During 2020, we did not generate any major new license revenue. However, the strategy of establishing 1 or 2 new licensing deals per year remains the same. Shown as a curve in the diagram, the drop in EBITDA 12 month rolling trend is mainly due to lower revenue. Next page please, Page 17. Looking at the financial overview and the 4th quarter, the revenues totaled SEK 55,600,000. The revenue drop compared to same quarter last year totaled SEK 59,800,000. For the full year, revenues SEK186 1,000,000 slightly lower than previous year, SEK193,900,000, a decrease of negative 4% and currency adjusted negative 2%. This year, we have additional revenue From the acquisition of VGLO and an extended active product portfolio compensating for the lower license Revenue from BD almost 17% lower than last year. This needs to be put in context where bleeding volumes 2020 needs to be compared with 2019 with additional orders at the end of that year and also in addition negative currency effects. The acquisition of Vigilance shows that we now have a more stable underlying list, and we are reducing our dependency upon individual customers and markets. EBITDA margin for the 4th quarter was 9%, hit by higher costs, mainly explained by higher freight costs due to the average and inventory write downs. We reached an EBITDA margin of 14% for full year compared to 32% last year. The license revenue of around SEK 29,000,000 from SUMR Biomet in 2019 has a large impact. The full year net result of negative SEK 37,000,000 is related to depreciation of our technology by SEK 25,000,000 a year according to plan. Furthermore, the value of our technology increases in value as we sign new license agreement and also when we have increased sales of our own product portfolio. In addition, we have Technical accounting effect of SEK10.9 million linked to the acquisition of Vigilance was the set off as reported as the forward contract. Neither the depreciation nor the set off impact the cash flow. Now turning to the next page, Page 18. As you can see in an overview of our cash flow, I should start by mentioning that in Q2, new shares were issued as part of the payment for the acquisition of Vigilance. For the Q4, we had a positive cash flow of SEK 3,900,000, But compared to 2019, significantly lower due to the similar biomet license payment. We have a credit facility of SEK 30,000,000 and at the end of the year, we have utilized SEK 8,900,000. Available liquidity, including credit facility amounted to SEK 31,000,000 compared to SEK 52,900,000 previous year. As a result of the effects of the pandemic, the terms of the loan agreement with STB were renegotiated in January 2021. With regards to covenants and the overdraft facilities, now increased to SEK 45,000,000 from previously SEK 30,000,000. Other terms are unchanged. Next page, please, Page 19. To summarize, we stayed committed to our financial targets. Average revenue growth of 20% per year Over a 5 year period to 2025, EBITDA margin of at least 30% at the end of the 5 year period. And the long term goal is to achieve a dividend of 30% to 50%. Forward looking, We are optimistic and convinced that our technology will play an important role for infection prevention when addressing the COVID backlog of selective surgery. With that, back to you, Susylia. Thank you, Gautr Jelle. Let's go to Page 20. We have a very clear growth strategy based on providing effective and safe infection prevention to both health care providers and consumers. Our ambition is to create recurring license revenues and to sign new with our current partners, but also to sign new agreements with new partners across many application areas. With the products we now have in our portfolio and our partners' portfolio, we have products both for short term and permanent use. And that is a great advantage as we have Substantial clinical evidence, we have the CE mark. So as the regulatory requirements increase, we will have a competitive advantage vis a vis competition. We are expanding our product portfolio. We're also expanding our market coverage and focus on cross selling its entire portfolio across our footprint. So let's go to the final slide, Slide 21, for some conclusion. Infection prevention has never been more important than today in creating a global and sustainable development. Infection is critical when no effective cures are available and vaccines are not available or scarce. The global rollout of vaccines that we are now seeing will have a positive effect on our societies and also on our everyday life, Not least, to bring health care back to more normal activities because currently cancer is under diagnosed, Elective surgeries are not taking place, and this has an impact on our lives and on the quality of life that we live. Of course, the speed of the rollout and the risk of Future mutations and new outbreaks makes the near term development difficult to assess and a bit uncertain. At the same time, the global health care backlog must be managed. And in the Stockholm region alone, it is estimated that it will take 2 years to deal with the pent up need. If you add to that complications in the form of infection, it will take even longer. So infection Prevention is not only a strategic matter for BactiGuard. It's also central component in future health care and one of the most important sustainability issues of our time. With our platform In place, I am convinced that MaxiGuard is better equipped than ever to take advantage of the increased global demand for infectious prevention, and there are great opportunities ahead. Thank you. And over to you, operator. Thank We have a question from the line of Matthias Verstin from SEB. Please go ahead. Hi. Thank you for taking my questions. On Well, the first that ordered coke in concentrate in the quarter. Two questions here. When do you expect The locally produced catheters to be registered in China. And the second one, As only concentrate was ordered now, does that mean that they will order also catheters shortly, given that it was quite some time ago now. Thanks. Thank you, Matthias. On the first question, Our ambition is to have the first product registered by the end of this year. It will take some time and some work, but that is our expectation and what we are working on. And that would be the This is as we are there, also can reference to the products which are currently available in the market. As regards when they need to place a new order, I can't make any forecast on that. Healthcare in China has also been affected by COVID-nineteen even though they saw an earlier recovery than the rest of the world did. It is now coming back in China and the regions around Beijing have been affected recently. But it seems to be contained. We will see how it develops. But I can't give any forecast on when they will place the next order. But what I can say is that the two agreements run-in parallel. So whenever there is a need for a capacity for the locally manufactured products are approved, as they will place orders for backing up gases. Thank you very much for I was on mute. Thank you very much for that. My next question is regarding the launch hydrocene in Greece, it's great news. But can you elaborate on further launches? I mean, what market Are you prioritizing in that process? And what does it take for you to get the product registered? Yes, I'll try to give a good explanation on that one. As You know in Sweden, we have launched the disinfection. As of now, Disinfections are based on hypochlorous acid. It hasn't been approved by the EU. So we're working on a Swedish permit to sell a salted as ham disinfection. The same goes for Greece. So Until it has been approved by the EU as handover inspection, we will have to seek local registrations in each market. That's why it's taking a little bit of time. As regards to the Wound Care portfolio, which is also based on hydroquin. That is CD Mark's product and we have that's available so we can roll that out to various markets. There are ongoing discussions in several European markets. And we will come back to that as soon as they materialize. We're also rolling it out in the Middle East where they are making local registrations. In some markets, they are already registered, and we expect that to start moving in the first half of this year. And also for Southeast Asia, Hydrosine has primarily been launched or sold as a wound care solution in Malaysia. As potential in expanding it to the other markets in the region and also introducing the business section. And there are also ongoing discussions in India. Perfect. Thank you for that. And my last question is on Zimmer and Trauma Implants. What does it take to establish that agreement that You know the same setup with the agreement with Didi. I mean So meaning what I mean by that is that Zimmer only then order the coating concentrate and then apply it themselves, to be clear on that? No, what happens initially, and that I wasn't clear enough on that, what will happen This year and for some time is that Zimmer will send their implants to us We will post them in our facility in Penang, which is also FDA approved. So that could also be used for U. S. Launch, if needed. Then when the time is right, we will do a technology transfer to their release, but that requires some preparations and some investments. So the fact that the MDD regulation was Sorry, MDR regulation was pushed out a year in time, meant that we could use the opportunity of using our CE Mark. But we could also utilize our own facility as we are the legal manufacturer of these products and get a much faster time to market. And we could also reduce the investments required at their end for the initial phase. Okay. And yes, that was I understand it as well. But the timing and when this transfer can happen, do we talk then around 2024? Or Is that a fair assumption? We expect that it will happen before 2024 when they at least that they will look at it before 2024 when MDR will be affected. But we could potentially still be contract manufacturers for them under their CE Mark. So it depends on when volumes ramp up to a level where they think that now we will integrate want to integrate it in our own facilities to get economies of scale. Okay. Thank you very much. That was all from us. Okay. Thank you. And as there are no further questions, I'll hand it back to the speakers. Thank you, operator, and thank you all for listening in. It has been a couple of turbulent days for me in particular, but I am confident that this is right for Bakker Gardens for me. I will, in due time, hand over the helm to somebody else. But until then, I will stay at the helm. I will continue to work in the best interest of patients in order to protect them and save their lives, but also in the interest of back to the guard and our shareholders, and I'm fully committed to contributing to Accelerated Growth. So thank you, and we'll speak soon again.