Hello, everyone, thank you for joining this phone conference with short notice. My name is Mattias Perjos, I'm the CEO of Getinge, and with me, I have our CFO, Lars Sandström. The reason for the call is the press release that we issued about half an hour ago regarding some additional quality and supply changes impacting our Earnings in Q2 and the full year of 2023. If we can please move to the next page, number two, we will start the conference. We have experienced during the month of May and early June here, some additional quality and supply issues in our Acute Care Therapies business area, and this is specifically related to the two product categories, Cardiac Assist and Cardiopulmonary.
As a consequence of these quality and supply disturbances, we will have a negative impact of roughly 400 million SEK on an EBITDA in the Q2 of 2023. We also expect this impact, of course, to be visible in the full year results of 2023. We can move to next page number three , please. Just to give you a little bit of background and recap some of the history here. If we go back to 2013 and 2018, we were in a phase where we had received a corporate warning letter for one part of Getinge, the Maquet part of Getinge.
This came from a number of acquisitions that Acute Care Therapies had done, or what is now called Acute Care Therapies, it was then called Maquet, had done. This brought warning letters into to Getinge. These warning letters weren't resolved quickly enough and not acted upon in a compliant manner, which then in different steps, led to the consent decree in 2015. The first phase of remediation was not effective, so this is something we had to restart in 2017 and 2018, with a more holistic approach to remediation and focusing more on the root causes of the quality problems. One outcome of this was that we implemented an overarching quality management system for Getinge, something that the company hadn't had before.
In parallel with the implementation of a quality management system, we also started emphasizing much more quality culture and the quality skills of people working in the system. We can move to page number four, please. We take a few steps forward into 2019 and 2022. We had slower progress when it came to some of the remediation work during COVID, there was a lot of focus, obviously, on the ventilated part of the business, part of the ECMO and some segments in life science as well. Of course, a lot of headwinds in other parts of our businesses. A lot of moving parts during COVID, which didn't help the progress in these two product categories that we're talking about today.
We were gradually improving the way Getinge works with quality in Acute Care Therapies, moving more towards continuous improvements and the way a company should work in a healthy quality environment. The delays, though, during COVID-19 had some impact when it came to remediation. It had some impact on the supply chain as well, and something that's been visible for a bit over a year now. That's added complexity in the remediation and the improvement work in Cardiopulmonary and Cardiac Assist. One of the consequences of this was that Datascope, the business for our intra-aortic balloon pumps, received a warning letter and was also moved into the consent decree. We can then move to the next page, number five, please.
The more recent history here, if we go to last year and the current year, one effect of having a new quality management system is that you pick up more things from complaints from customers and other types of deviations. We also have new people in our businesses. We have a new president of Acute Care Therapies, and we have a new Executive Vice President of quality since last year. As part of this process, we are identifying further product quality issues and also a more than expected extensive product maintenance backlog. We're in addressing this in full swing. There's a need for urgent action, of course, to be in full compliance.
We, in addition to the CE mark suspension on the balloon pumps, we also have the CE marks suspended for our ECMO consumables, the HLS and the PLS kits. The core products that are affected by the quality and supply chain disturbances, they are medical necessity products. For the most part, we can continue to deliver these, but it's under special processes that are a bit more cumbersome and complex than normal. In parallel with the supplying products to patients, because of the medical necessity, we are working in parallel to address some of the remaining quality issues and make sure that we fulfill all regulatory requirements for these product ranges. We can move to the next page, number six, please.
In May and June of this year, we've had a couple of additional issues popping up. We have the packaging issue for our Quadrox-i oxygenators, for example, and this is similar to what you've seen for the HLS and PLS kits, where there is a risk for or breach of the sterile barrier in the packaging if it's not handled with care. We have a global ship hold in place for this product now, and it's expected to be for the remainder of this year or the beginning of 2024, when a new packaging design is expected to be implemented, and this needs to be followed then by regulatory approver as well.
We don't expect the Quadrox oxygenator to be labeled as medical necessity, so this is a difference compared to the HLS and PLS kits and partly also the intra-aortic balloon pumps and the balloons themselves. We also had some additional quality issues in our intra-aortic balloon pump consumables business. There's been a supplier issue in the Q2 regarding the insertion kits for the balloons. We believe we've found the root cause of this, and we do expect to start delivery globally in the second half of 2023. It's obviously a setback compared to what we had expected when we entered into 2023. We also have quality and supply issues still with the intra-aortic balloon pumps themselves.
We had additional supply chain shortages in the month of May and also in June. Also here, we have now identified the root cause of this. There are solutions in place, but because of lead times in getting tooling and getting up to a steady production rate, we expect this to be only gradually resolved during 2023. We expect to deliver small pumps of batches of pumps now to customers from the end of this quarter, so really, as we speak. We have a number of field actions ongoing as well, and these are expected to be resolved by late 2023 or latest in the beginning of 2024, and again, followed by a regulatory approval.
With that, we can move to the next page, number seven, please. Just wanted to provide a little bit more details on the expected timeline for resolving the main issues that we see now in Cardiac Assist and Cardiopulmonary. The Quadrox oxygenator, as I mentioned, there is a new packaging solution designed. It's under implementation, and we expect this to be finalized towards the end of this year, beginning of next year, and then have a regulatory approval for this in the beginning of 2024.
On the ECMO consumable side, so HLS and PLS kits, we depending on how we're able to resolve the packaging issues that we have already communicated before, we may need to prolong the medical necessity use for CE markets under Article 59 and the Medical Device Regulation. We are expecting to continue the work on implementing the new packaging solutions for this and getting regulatory approval in the beginning of 2024. On the intra-aortic balloon pumps, we have field actions ongoing, and we expect to resume global shipment in the second half of 2023, but this will be gradual.
It's still not completely unconstrained, and in parallel, we are working through the remaining quality deficiencies on our pump business. On the intra-aortic balloon pumps themselves, we sent a response on the temporary CE mark suspension, and we expect the reply back here within short, but that timeline is not completely under our control. We have ongoing field actions here, as I've mentioned, and we expect these to be resolved latest in the beginning of 2024. Hopefully that provides a little bit of an update on the expected timeline to resolve both supply and quality issues within our two product categories, Cardiac Assist and Cardiopulmonary. With that, we can move to the next page and move over to the Q&A part of this conference call.
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 Anchal Verma from JP Morgan. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. This is Anchal Verma from JP Morgan. I'm on David Adlington's team. I have a few, please. Firstly, the SEK 400 million EBITA impact in Q2, are you able to quantify or shed any color on the impact in Q3 and Q4? And, on this part, could you also please share how much of the SEK 400 million EBITDA impact is from lost revenue versus additional costs? That's question one. Then question two, would be, can you please share if there are any other product categories that could potentially be impacted over the course of this year from quality or supply challenges?
Yeah, thank you for the question. On the rest of the year, it's not possible for us to guide right now. As I've mentioned in the presentation, I think we will be able to gradually reduce the impact of this, it's not possible to say today the full year impact of these quality and supply shortages. When it comes to what is lost revenue and that impact on the profit and what is other costs, we cannot break this down and communicate externally either. I can say that there's a rather big component of having to scrap products that have been produced earlier. They make sure that they don't reach the market.
That's a big portion of the cost now in the Q2. There's also a quite a bit of additional cost for resources involved in solving these problems as well. In addition to this, there is some revenue and gross profit loss with this also. We don't see, and on the last part of your question, we don't see any risk for other product areas being impacted by any quality or supply chain shortages at the moment.
That's clear. Just to understand, there will be a follow-on drop-off impact in Q3 and Q4, but it's difficult to quantify that at the current moment?
Yes, that's correct.
Okay. Lastly, if I could just push you a bit on the resolution of the packaging and quality challenges that should be completed by end 2023, H1, 2024, but that would be followed by regulatory approval. From a regulatory standpoint, can you just shed some light on the steps and stages you need to go through to receive the regulatory sign-off? What would be the timeline for the regulatory approval?
I think the regulatory approval is a bit out of our hands time-wise. I think what we have in our own control is the design of new packaging, which we have more or less completed. It's different versions of packaging for different sub-product categories here. We have, we believe, viable solutions identified. It's under implementation now. The thing that takes time is usually the aging of products. They need to be aged and then be tested under real conditions, so to speak. That is the main bottleneck and the main reason it takes time from the time point where you've identified the new packaging solution until you can apply for the regulatory approvals.
That's very clear. Thank you.
Thank you.
The next question comes from Rickard Anderkrans, from Handelsbanken. Please go ahead.
All right. Good afternoon, and thank you for taking my question. First one, can you shed some light on how we should think about losing any business here? Have you seen any signals of, you know, losing to competition? I understand it's a bit different in the different categories, but if you could break it down, how we should think about the sort of, lost revenue vis-a-vis lose, so permanent versus more temporary loss of revenue to competition from this? Thank you.
I think there is some loss of revenue associated with this, partly because we're restricted when it comes to new tenders, for example. That's one impact. Of course, also, when we don't have a CE mark, you have some customers who, when it's possible, prefer to use other products. Part of the SEK 400 million impact is because of lost revenue due to this. I would not say that it's dramatic. We do think it's recoverable, given that when it comes to the clinical performance of the products, both in cardiopulmonary and in cardiac assist.
On the Cardiopulmonary side, we do still have a competitive gap, we believe, to competition, and we can clearly see from customers that they have a preference for our products. We, we believe, the losses that we're experiencing right now will be recoverable. When it comes to the balloon pumps and the, and the balloons, we have a significant market share here as well. The, again, feedback from customers is that they do prefer to use our products where possible. We, we do believe the losses here are more or less recoverable as well. There is an impact from this in the Q2. We do expect that to be part of the impact in Q3 and Q4 as well.
All right, no clear signals that you have been losing from the already installed base, so to speak?
Not that we can see or quantify today.
Perfect. Last question, please. The work with Getinge's quality control program started already back in 14, 15, prior to you joining Mattias, including the large remediation. Could you help us, you know, if 1 is not yet started and 10 is sort of a complete work through, where would you say that the company is on the journey to raise its quality control right now, sort of a scale of one to 10 there?
I think it is very difficult to give an average for Getinge in this regard. You should remember that we're now talking about two of our product areas. In many others, we have a completely clean way of working with quality. We had in as late as last week, we had inspections with zero findings in some of our other sites. A large portion of the company is healthy and have a good way of working with quality. What is different in Cardiopulmonary and Cardiac Assist is that the problems were deeper from the beginning. We've also had issues with, I think, partly competence, in the wake of the implementation of the overall quality management system.
Especially when it comes to the balloon pump business, it is a product that is fairly old now, and it's a little bit more challenging to address the concerns that pop up. I can't give you a one to 10 rating. We have some areas of Getinge that are 10, and we have some that are quite a bit lower, and specifically than these two areas, too.
All right, thank you. That's all from my end. Thank you.
Thank you.
The next question comes from Kristofer Liljeberg from Carnegie Investment Bank. Please go ahead.
Thank you. A few questions, trying to understand what has happened, after you have, you know, downplayed the financial impact from all of this quite a bit. First, this Quadrox-i product, how much is annual sales for that one?
The annual sales is around SEK 200 million, if I, if I remember correctly, it's in that vicinity.
Okay. Of the other factors that has getting worse, what would you like to, you know, highlight being the major thing? Because it seems pretty dramatic that you suddenly will have, like, a SEK 400 million negative effect in a single quarter after previously having said that there would be no negative. Yeah -effects at all.
No, we've not said that there will be no financial effect. We've said that they've not been material, and each issue on its own has not been material either. That is still correct. One of the main changes that we've seen in the Q2 is this high level of scrapping of products as we've gone through inventory that is on the shelf. This one of cost now that we've taken during Q2 is one significant thing that has changed since last time we talked about results and projections.
The other thing that has changed is that we have had a couple of new supply issues when it comes to both our balloon pump business and partly also Cardiopulmonary, which has delayed deliveries both on hardware and on consumables. This is also additional news, in addition to things like the Quadrox-i announcement that we did some time ago, and in addition to the packaging challenges that we have announced quite some time ago now as well, and some additional resources when it comes to adding this or fixing these problems. It also relates to the volume that we talked about with a couple of other questions on this call. We have under absorption in both parts of the business as well. When you add all that up, it reaches up to SEK 400 million.
Okay, the supply issues, I think that was the reason you were already when you reported Q1, you were pretty cautious on the Q2, right?
Yes, correct.
To talk about that effect.
Yep.
Already.
Yes, correct. Yep, correct.
What the SEK 400 million negative effect, when you were talking cautiously about the Q2, how much of those SEK 400 million did you expect to happen in the Q2?
I can't. We don't guide on that. What you should remember is that, it was mainly related to hardware then, and we were expecting gradual ramp up there, and that has been slower, when it comes to the hardware delivery. Then, of course, when you have disposables now hurt, both on CA and CP, that gives a significant volume and mix, and of course, then a margin impact out of that. That is what is hurting more.
The scrapping of products, could you explain that a little bit more? What products specifically, what components of these two products, and what is the reason for that happening now and not previously? Thank you.
Yeah, we've had to go through and do manual inspection. This is related to, for the most part, the HLS and PLS kit for ECMO products. We've had to go through and do manual inspection of everything that's been produced. In that process, there's been a number of deficiencies found, which means that we've had to scrap the products. So this is probably the single biggest impact of inside the SEK 400 million.
Is it because of the packaging or something with the product?
No, it's the packaging, yeah.
Okay, this problem has been much more common than you thought previously?
No I think we have raised the bar significantly here to ensure that we are absolutely certain, and that's part of the whole remediation and the dialogue, to really make sure that the FDA, et cetera, are comfortable with the solution that we have set up. So, we have absolutely zero tolerance on anything on the packaging.
Okay. Thank you.
Thank you.
The next question comes from Gianmarco Bonacina from EQUITA. Please go ahead.
Afternoon. A couple of questions from me, please. First is on 2024, can you quantify if there will be still an impact? I guess you said that, clearly you expect a regulatory approval in 2024, so expect, probably you could have still some headwinds. In the following year, 2025, do you expect this to be fully recovered? Thank you.
Yeah, thanks for the question. We do expect this to be as a gradual result during 2023, but it will not be fully resolved when we enter 2024. We do expect some headwind because of these two issues in these two product areas, also in the beginning of 2024. By 2025, yes, we definitely expect to be out of this and back to normal operations.
Sorry, just a quick follow-up. In the second half of the year, the gradual improvement in terms of this headwind, it could be, let's say, versus this SEK 400 million, can we expect maybe something, SEK 300 million per quarter, or would you say it would be very minor? At this time, we can expect SEK 400 million per quarter in the next couple of quarters.
No, I certainly don't expect SEK 400 million per quarter. It should be a gradual improvement, but I cannot quantify that improvement today.
Thank you.
I think if you, if you think about it in terms of the, the scrapping, we have gone through now, what we had on stock, so I think that effect should disappear. Of course, there is a volume and mix impact that will stay with us in the second half of the year, and we will have a heightened level of cost to address some of these remaining quality and supply chain issues as well. These are the main factors remaining with us, second half of 2023.
The next question comes from Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Good afternoon, quick question from my side, if I may. Mattias, you talked in your prepared remarks that you can continue to sell in some kind of areas, but under restrictions. Can you just provide some kind of color, what are these restrictions? Can you give us any kind of idea, how should we think about the ECMO consumable sales progressing? Sales of consumables were SEK 100 last year. This kind of restrictions would imply that you can still say, sell around 70%, just to get any kind of color here. Secondly, on the guidance, can you just confirm, I assume this SEK 400 million will not be booked as a one-time item, or will you take that out?
And also can you just confirm when you expect to provide a kind of new guidance for this year, but probably also midterm? Last question, please, on life science, because obviously we have seen a kind of profit warning in the space today, which points to the fact that the stocking will last long, that there's also generally softer demand. Can you just provide on the back of this also an update, what you see in terms of demand profile in your life science space? Thanks so much.
Yeah, thanks, Oliver. I'll try to remember all the questions here. When it comes to the restrictions, it is rather complex because it varies on depending on geographic market and product categories. What we mean by that is that for example, for the HLS PLS kits, there is a special way of special process of handling these, of labeling the products, for example. We are restricted from participating in new tenders and so on. The demand drop here is not that significant. It's been more actually supply chain constraints because of this improvement work that we have been working through.
I can't detail it out more per product category, because it varies a lot per geography here, so, and product group. When it comes to that covered the ECMO sales, I think. When it comes to the IAC question, we've not decided to classify anything as IACs as of today. It's we expect this to be booked in the P&L as normal. On the life science bit, we obviously follow and see the same type of market dynamics as Sartorius as well. We had factored in more of that, I think, into our already released guidance here. I think when it comes to our top line guidance, if you combine everything, we've decided to maintain it, but we are likely to end up in the lower range of the top-line guidance for 2023.
Thank you. If I may just follow up. When you do not expect any kind of significant change in the demand for ECMO consumables, that means the kind of sales will only be slightly down compared to last year. Is that a fair understanding?
No, sales will be significantly down compared to last year, but not because of lack of demand, but because of our inability to supply, has been the main challenge so far. It is a weaker market compared to what it was before COVID, when we saw a 15% type of growth. It's still a growing market.
Okay, you have the supply issues also on the consumable side of ECMO?
Yes, both on consumables and hardware, we've had supply restrictions here because of quality and supply chain in the Q2. This, we expect to be able to gradually remove during the second half, similar to on the Cardiac Assist side of the business.
Okay, perfect. Thanks so much, Mattias.
Thank you.
The next question comes from Virendra Chauhan from AlphaValue. Please go ahead.
Hi, Mattias, Lars. Thanks for taking my question. Quick one. One, what percentage of the SEK 400 million impact is coming from the scrapping of your stock, which I understood from your comments? Number two, what do you define as immaterial financial impact? Which was the, you know, comment or the statement in the earlier releases related to the packaging issues as and when they were flagged. Lastly, were the issues identified in-house or as a part of a third-party regulatory inspection? Those are 3 from my side. Thank you.
Yeah. Can you repeat the which issues you do you refer to when you ask whether they were identified by ourselves or a third party?
The issues regarding the packaging, specifically.
Okay.
The stock as well. The scrapping of stock as well.
Yep. Okay. Yeah. The packaging bit originates from the whistleblower call or the whistleblower that we had in January of 2022. That's from an external. Since then, the additional issues that have popped up there are from our own investigations and our own findings. Your first question when it comes to the SEK 400 million and the scrapping part, I just can only say that it's the biggest individual item, but we can't quantify it in specific SEK.
Okay. Just a quick follow-up. You're saying it is the biggest component, and in response to an earlier question, you also mentioned that you have mostly gone through all of the stock that was to be reviewed, and hence, it shouldn't pop up in the next couple of quarters. Is that a fair understanding?
We have gone through most of the stock, as I said, it should definitely be a smaller impact. There's always the risk with the supply chain and transportation and the way things are handled, that we may have scrapping. We are scrutinizing now packages on arrival to our own sales and service companies in a more stringent way than we have before as well. We believe the bulk of this is behind us, but we can't rule out cost also in coming quarters.
Okay, thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much. thanks for tuning in, and, if you have additional questions after this, feel free to channel them through our Investor Relations. Once again, thank you, so much for tuning in with short notice. Have a good rest of the day.