Bactiguard Holding AB (publ) (BACTIB) Earnings Call Transcript & Summary

Welcome to Bactiguard. We are all going through an exceptionally challenging time at the moment with impact on businesses, economies but, most importantly, impact on people. None of us are unaffected. We're affected personally. Maybe we've even suffered losses in this viral pandemic that is spreading like a tsunami across the world. Therefore, I am very pleased to be able to address you, both current and potential new shareholders, ahead of the Bactiguard AGM today because preventing infections and saving lives has never been more important than today. My name is Cecilia Edström, and I'm the CEO of Bactiguard and will lead you through this presentation. Let's start by taking a snapshot of our business. Our business and our mission is to prevent infections, protect patients and save lives. Our business model is twofold. We have a licensing business where we license our unique technology to other medical device manufacturers. BD and Zimmer Biomet are the most prominent medtech companies in the world, and they are our partners. We also have a proprietary product portfolio for infection prevention consisting of consumables. Our business is growing, and our profitability is growing with it. And recently, we acquired our first-ever company. So we made our first ever acquisition. Focusing in on 2019, which seems a long way away now, but we are here to look at that as part of the AGM. In 2019, our business grew by more than 20%, and we delivered an EBITDA margin of over 30%, which is well in line with our financial targets. Our recurring license revenue from BD provides a very stable platform and generates around SEK 100 million every year. In 2019, we added substantial new revenues from Zimmer Biomet and BD for orthopedic trauma implants. And our own portfolio also grew but not at the same rate as the year before when we made the first breakthrough into China. So what happened? Well, we saw a lot of action in the fourth quarter, a major new order to -- from China. We saw increasing revenues from BD. We had accumulated increase in that business. We have the drive from Zimmer Biomet, and we delivered a very strong final year on the back of that. And for the first time, we reported a net profit on the bottom line. So we expected a very calm start to the year and end to the previous year, but what happened then? Well, we made our first-ever acquisition. Our former CEO, Christian Kinch, decided to resign as CEO and will today be proposed as the new Chairman of the Board. I was elected CEO, and our Chief Medical Officer was appointed deputy CEO. So we are clearly entering a new development phase. At that time, corona struck. So what happened to us? Did we stand still? Not at all. We completed the first acquisition in less than a month's time. At the same time, we refinanced the company with a 3-year loan. So we're well secured for the coming period. So what is Vigilenz? It's a company focused on infection control and wound care. Their product portfolio complements our product portfolio very well, and our footprints are also complementary. So we think this is a great acquisition. On March 4, which is 2 days later, we decided that we needed to help out China. China is our biggest market for our own portfolio. They suffered the first blow of the coronavirus. So we decided to donate products from our own portfolio and also from the Vigilenz portfolio to help support patients there. A couple of days later, we launched Hydrocyn aqua, a product that has shown to be effective in killing previous stems of coronavirus. It was part of the Vigilenz portfolio, so we decided to launch it in the Swedish market. So far, it's only been launched in Malaysia as a wound wash and in Sweden as a wound wash and as a disinfectant, and it has great potential. In the first few days after launch, we took orders of SEK 20 million for this product alone. And that was simply to the Swedish market -- or only to the Swedish market and included a big order to the Swedish police force to protect them when they're out in the streets. And compare that order of SEK 20 million to the overall turnover of Vigilenz in 2019, which was just over SEK 40 million, so it's quite sizable. To get those products to the customers in the Swedish market, we had to establish an air bridge, which we had up and running in just a couple of days. So we hired a private jet with pilots to bring the products back to the customers. Of course, this is not a sustainable long-term viable solution. We need to increase production capacity. We have a substantial production capacity in Malaysia, but we also need to establish production closer to home. So currently, we are building a production facility or we're building a machine and production line in this very facility to ramp up production to meet the demand for customers in Sweden and over time also in the rest of Europe. What happened next? Well, on April 1, we launched a new product in our own proprietary portfolio, an advanced urinary catheter, which combines continuous temperature monitoring with infection control, tailored to the most vulnerable patients who are in the ICU and when you need to control the temperature all the time. So I think it's fair to say that the COVID-19 crisis and pandemic has affected businesses in very different ways. If you look at demand, there's an urgent need for protective equipment. There's an urgent need for consumables, and there's also an urgent need for various basic supplies that patients need in hospital care. That is a benefit to companies like Bactiguard, like Becton, Dickinson and Company, our partner, like Essity providing paper and tissue and to Mölnlycke providing wound care products. If you go to the other side, you can see that the demand for elective surgery has gone down quite drastically. And that affects companies like Stryker, Zimmer Biomet, DePuy Synthes momentarily. Of course, this will come back over time as people go for elective surgeries. But in the acute phase, they have been quite badly hit. So why do we say that infection prevention is an increasingly urgent global issue? I think it's very fair -- or evidence to look at the recent publication by The Lancet, which looked at how did the patients react in Wuhan in China. 20% of the affected patients who went into hospital care required care in the intensive care unit. And almost 60% of those were diagnosed with sepsis, both viral and bacterial. 1/3 of the patients have invasive products into their bodies, which is the kind of products that Bactiguard provides. 15% of them had secondary infections, and 50% actually of those who died had a secondary bacterial infection. So there's no question that infection prevention is much needed to patients who are severely ill. Add to that the antimicrobial resistance, which threatens to kill about 10 million people every year by 2050 if we don't stop this development. We home in on health care-associated infections. On average, 1 in every 10 patients who get treated at hospitals actually suffer from an infection, gets worse after entering hospital care than before they entered. This is quite scary. If you look at the ICU, it's about 1/3 of the patients. So the critically ill patients are more exposed. This means that health care-associated infections is the third highest cause of death, trailing cancer and cardiovascular disease. So what do we do about it? We provide the Bactiguard technology. It's a unique technology consisting of 3 noble metals: gold, palladium and silver. We could apply this coating, the combination of metals, to medical devices. And when those medical devices get in contact with fluid, it creates a galvanic effect or a micro current. Have you ever tried sticking your tongue on a battery like this? I will not do it now because it hurts. So I will stop me from doing that. Or have you touched an electrical fence? You don't want to hold on to it. It hurts, and you let go. That's exactly what happens to bacteria that enter the body. Normally, medical devices act like magnets to bacteria. They stick, they multiply and they create biofilm, which creates an infection. Bactiguard is unique before -- because the coating is permanently attached to the surface. It's efficient in reducing bacterial adhesion and infections, but it's also long-lasting because it doesn't release. And it's completely safe for the patient because it doesn't create any toxic effect or reactions to the body. So we think we're pretty unique in this. Do we have any proof that it works? Yes. We have substantial clinical evidence, I think more than most other medical device companies. The strongest is the fact that 200 million catheters with the Bactiguard coating has been -- have been used over the years, and there has not been a single adverse event. So I'm very confident in saying that it's completely safe. We also have a number of clinical studies that show that, on average, we can reduce urinary tract infections by 35% to 90% depending on the sample and where the study is performed. We also have evidence for our central venous catheters and our endotracheal tubes, although that is somewhat more limited. And we now also have very promising data on orthopedic trauma implants that we expect to be able to publish later this year. But we don't stop there. We have a number of ongoing studies, as you can see. I will not go through them in detail. But they are related to all products areas that we are active in. Homing in on our business model again. Just a brief reminder, we provide our unique coating to other medical device manufacturers who sell the products under their own brand names across the world. And then we have our own product portfolio where we originally had catheters for the urinary tract, the bloodstream and the respiratory tract, much needed by the COVID-19 patients. And now we've added a new portfolio through the Vigilenz acquisition through -- tailored primarily to wound care. So those complement each other very well because these are the areas of the body where they are applied that cause the highest proportion of the hospital-acquired infections. How do we sell it? Well, we sell our own product portfolio through distributors throughout the world. BD has exclusive rights to the U.S. and Japan. But for the rest of the world, we sell through distributors supported by our regional sales force. And you can see that we're pretty much all over the world. And the most recent addition is Southeast Asia where Vigilenz has a strong foothold. So we can expand by selling in market. We can also expand by cross-selling our products in Vigilenz' markets and vice versa. If we focus on our license partnership initially, I mentioned BD. It was originally a partnership with C.R. Bard that started in 1995. They have about 40% market share with Bactiguard-coated Foley in the U.S. and Japan, a lot of clinical evidence. And it's become standard of care, and that's what we aim to achieve in other markets as well. Well Lead Medical is our partner for China. They currently are a distributor selling our urinary catheters there. But over time and before too long, they will start manufacturing locally produced products under their own name, consisting of our full range in the portfolio of the 3 catheters. So that process is ongoing. Vigilenz, I've already talked a lot about. But the partnership we've had with Vigilenz, which resulted in a CE Mark for orthopedic trauma implants, paved the way in 2019 that we made with Zimmer Biomet. Because with that CE Mark, the stamp of approval, the quality, the safety issue, we were able to sign up one of the biggest manufacturers in the world. Smartwise Sweden here, down on the left, is a smaller enterprise but nonetheless interesting. It has a very advanced vascular injection catheter that can deliver cells to damaged parts of the body, for example, after a heart attack or a stroke and repair that tissue, or deliver chemotherapy straight into inoperable cancer tumor without sustaining any side effect. They've struck a deal with AstraZeneca a couple of years ago. And we see that this will have good potential for the future, but it lies a few years ahead. So what does the market potential look like? In the middle of this chart, you see the global market for our 3 products, the catheters. It's about $2 billion a year, the total market. So you can see that we've only scratched the surface. If you add to that, the market for trauma implants, that's a global market of $7 billion. Now Zimmer Biomet has about 14% market share, so they don't cover all of that, but it's still a sizable market. And we can expand also into other orthopedic implants, which is several times bigger, close to $15 billion. The wound care market is more diversified, of course, but it's nonetheless a very sizable potential market. And you can see a whole host of new potential applications where we can either go in, sign up with major players or niche players, sign license deals or develop new products to add to our own portfolio. So what's our strategy? Well, our strategy, as I mentioned initially, is to protect the vulnerable patients from infections, improve their quality of life and save lives. So our growth strategy is based on expanding our in-market presence, increasing the usage at every hospital, every ward for all those vulnerable patients. It's to strengthen the clinical evidence to add to what we already have to show that we are effective in many different applications and add a few new markets. But we have a relatively good footprint at the moment. So it's not a major expansion plan into new markets, but we need to add 1 or 2 more sizable European markets. Add to that, adding 1 to 2 new license deals per year. We've effectively done that since 2015 with the exception of 1 year, and we don't intend to stop here, and then to broaden our portfolio to expand into new areas, sign new partnerships and potentially also selectively make acquisitions like the one we did to find -- if we find companies of strategic fit that complement our portfolio and footprint. What I'm equally proud of is the fact that our business actually contributes to the UN Sustainability Goals for 2030 where fighting antimicrobial resistance is at the top of the agenda. So if you can prevent infections, you can reduce hospitalization time, you can reduce the use of antibiotics and you can help to manage the burden in the form of spread of multiresistant bacteria. To sum up, we are clearly entering a new development phase. Infection prevention has never been more important today. We have an expanding, escalating viral epidemic that adds to the burden of the antimicrobial resistance. And I think it's fair to say that we all know somebody who has been affected, and this is a situation that we would like to help combat. We can't do it alone, but we want to make our contribution. The first-ever acquisition we made of Vigilenz provides access to the global market for wound care, which is sizable. It adds to our portfolio and it also adds to our footprint. We see that there are many more opportunities for entering new license partnerships. You saw a list of them, but there are many areas where we see that our technology could bring benefits in infection control but also by being tissue-friendly as we have seen that the risk of thrombosis may be reduced by using products with the Bactiguard coating. And that is something we are exploring at the moment. So our growth strategy is clear: expand our own portfolio, add new license applications and add new applications as we go along that's fit with us strategically. We have a very committed management team. We are all shareholders and so are our Board members, some more than others, and they have vast experience, which adds a lot to the business. We've added medical competence, both to the management team and to the Board. So in 2020, we are a much stronger company than we were just a year ago. And compare that to many years ago, we've made a great progress over the past year under the leadership of my predecessor, Christian Kinch, and others. We are now entering a new development phase with the mission to prevent infections and save many more lives. And I'm very happy and honored to be leading Bactiguard on this journey. Thank you.

Thank you, Cecilia. So everyone on the webcast, if you want to send any questions, please use the envelope, and we will read them out loud. So I think I would like to actually kick off the Q&A session, Cecilia, with a question about trying to actually get some of your business intelligence about the situation with the COVID-19. You have global intelligence about what's going on and trying to understand what's coming next and what role will Bactiguard play.

That's a very interesting question. COVID-19 is a very cheeky virus. It was seen initially as a respiratory condition, which it still is, but it takes many shapes and form. And our colleague, Stefan Grass, our Chief Medical Officer, has actually been working in one of the COVID-19 intensive care units at Karolinska a couple of days a week. And well, it's fair to say that the patients are very sick. Those who get into the ICU are all intubated. They are treated for a long period of time, which means that they're more exposed then to secondary infections and sepsis. But it also looks as if they are exposed to pulmonary issues that they may have a higher risk of having small strokes. So it is a very potent virus, and it's difficult to see which ways it's taking. But what I do know is that our products, which are all used by patients in the ICU, the Foley, the central venous catheters and endotracheal tubes, can actually help alleviate the burden on the immune system.

Interesting. And you've done your first acquisition ever and really speedy integration with what's going on with the pandemic. So you launched Hydrocyn here in Sweden with new production and everything. I think all of us are pretty curious to understand about the capacity and what's coming next in Europe when it comes to Hydrocyn.

We started with the production capacity we have in Malaysia. So we're moving up there in capacity. We added shifts to be able to meet the demand. Of course, with the movement restriction orders we see and the transportation challenges, we could gear it up to some rate. Now we are ramping up capacity here in this very facility to be able to supply not only the Swedish and the Malaysian market with this product but to expand beyond and hopefully also, fairly soon, get to retail, to be able to sell to you and I. So that it's not just to big corporate customers or hospitals. So we can ramp up quite quickly. We took orders of SEK 20 million. So we will -- we've kept a rather, I should say, staggered approach or stepwise approach to move up with the production capacity to also then increase business. So we will go beyond as soon as we have ramped up the production capacity, which will be in a few weeks from now.

A few weeks from now. Okay. So -- and I mean, your first 100 days as a CEO, pretty high activity level. So another thing we are thinking about is, of course, what's coming in the next 100 days.

Who knows? There have been many surprises in the first 100 days, to say the least. I think one of the challenges is that the pace in the business has been so intense, but what is clear is that it's put infection control on the agenda. And we will use this wisely to expand our portfolio, to expand sales, to access new customers and expand gradually to really make infection control standard of care. And this will take time, but we will use this opportunity where it's been highlighted, put at the top of the agenda, to access the people who are the decision-makers and who actually see the need.

Looking forward to it. So we have the AGM starting within shortly. I have no more questions coming in here on the email. So I think I would like to hand over to you, Cecilia, for concluding remarks.

Thank you. Yes. As I mentioned, these are exceptional times. We are meeting digitally and that, of course, has its limitation, but I have the advantage today of being able to address both current and potential new shareholders. So it gives advantages. It also creates challenges in a leadership management. We meet digitally. But it's given me a kickstart to my leadership and the management team, which I'm very grateful for. We have a lot of work to do, and we have to focus on the things that really matter. And we will move forward with Bactiguard, follow our strategy, integrate Vigilenz. And hopefully, if any one of you get hospitalized, I hope and trust that you will ask for a Bactiguard catheter and/or that it actually is part of the scheme so that you are better protected. Thank you.