FamiCord AG (V3V) Earnings Call Transcript & Summary

So hello, everyone, and warm welcome again to the Poland Conference ON AIR to those who attended some further calls. And now I'm delighted to welcome FamiCord AG and the CEO, Jakub Baran. So he will be the last presentation but not the least. So now we are happy to see, yes, what FamiCord is doing. And yes, you will get us through some insights and the presentation, Jakub. So now the stage is yours.

Thank you. Thank you very much. Welcome, everybody, this time from our Warsaw office. I share my time between Leipzig and Warsaw. And I will tell you, walk you through a presentation of our company named FamiCord, which we believe is just something more than stem cell bank. So first of all, why we are here at Poland ON AIR? A few years ago, Polish company called Polski Bank Komórek Macierzystych did a cross-border merger with German listed company called Vita 34 AG. And Vita at the time was listed at Deutsche Börse, and we are listed at the Warsaw Stock Exchange. So at the time, Vita simply purchased PBKM, paying in shares and partially in cash. In fact, that transaction was a reversal takeover as PBKM was much larger company at the time and was by far the largest stem cell bank in Europe. After that merger, which is pretty rare, and we think it's rather even unique operations between mid-cap companies, between Polish and German stock exchanges, PBKM was delisted from Warsaw Stock Exchange, and now we are listed only at Deutsche Börse. And this year, we decided to change the name of Vita 34 AG into FamiCord AG as FamiCord is much better established name or brand name in Europe, operating in several countries via more than 30 companies. So what we are actually doing? So we are a stem cell bank, but we believe we are just more than stem cell bank. We are providing the access to the therapy by collecting of various cells and tissues after the baby is delivered. And we are testing those cells, processing them and freezing for future use, either for the child which we -- from whom we collected the cells or for the family members. And we simply believe it's a matter of time that kind of activity will become an integrated part of modern medicine, and it fits very well to recently very popular longevity topic. How our service looks like? So we are trying to address pregnant women or pregnant couples to -- parents to be via providing information, necessary information through social media, medical doctors, hospitals, pregnancy schools, baby fairs, printed materials, all possible channels, which allow to pass the message about possibility of banking stem cells. And then these families are signing the agreement with one of our companies across Europe. And after the baby is delivered, so baby is already safe, we collect cord blood, placenta, placental blood, cord tissue and amnion, for example. We can collect various types of cells after the child is born. Then these collected materials are transported to our laboratories across Europe, then they are processed, as I mentioned before, tested and stored in vapors of liquid nitrogen, could be kept forever. And then we release them in case there is a treatment required. So we are #1 in Europe at the moment, #3 in the world. And what it means we are #1 in Europe that we control roughly 55% of European market, and I will go to some details later on on this topic. We store more than 1 million samples of biological materials. We operate a network of 13 processing laboratories. You can see small red dots. So the newest one is opened in last year, 1.5 years in Dubai. And we have also some laboratories which are only for storage, one in Switzerland, one in Poland. We are also operating so-called CDMO centers. We cooperate simply with commercial clients for producing for their needs cells and advanced medicinal products for their clinical trials, so that centers are located in Portugal and Poland. And usually, in the country we operate, we are #1. It's rather exceptional that we are not #1. And at the moment, we are #1 in Portugal, Spain, Italy, Switzerland, Germany, Poland, Czech Republic, Hungary, Latvia, Lithuania, and we are #2 in the U.K., #2 in Emirates and #3 in Romania. And we have also a small office in Hong Kong, and the samples from Hong Kong are transported to our laboratory in London. That office in Hong Kong is like remaining of the acquisitions we did in the U.K., and that company called Smart Cells had an office in Hong Kong. In fact, our position in Europe is even stronger because 55% means we count entire Europe, and we are not everywhere. So in the countries we are present, we usually control on average 67% of the market. In Germany, we have monopoly. In Poland, we have more than 90%, yes, of market share. In several countries, more than 70%. So what it means? It means that if we like to grow, the market should grow or the prices should go or the market should go when prices should go up or we simply introduce new products or we develop geographically. So we are at the moment present in roughly 75% of Europe in terms of access to newborns. Some markets are not possible to enter like France where these kind of companies cannot operate under French law. It's restricted to publicly or state-controlled entities. However, in most of the countries, as you saw on the map, we are present either directly with our daughter companies or via network of partners, particularly in former Yugoslavia. Countries like Slovenia, Croatia, Serbia, Bosnia, Montenegro, Northern Macedonia, we are present with partners. These partners are also operating in some other markets. In terms of what we see as a priority, so obviously, Germany and Poland due to the sizes of the market and the number of newborns and potential we identified as the most interesting. In some markets, as I mentioned, we are not #1, and we like to be #1 as well. And particularly the focus is on the U.K. and Emirates at the moment where we believe it's a matter of time, we will become #1 from current #2 position. If you look at Europe, it's not really united Europe. So that's a map showing so-called penetration of stem cell banking service. And you can see countries where more than 5% of families are banking. It's Portugal, it's Cyprus, it's Romania, it's Hungary. You have mid-penetration countries, right, like, for example, Greece or Slovakia. You have countries with penetration between 1% to 3% like Poland, Italy, Spain, Switzerland. And you have countries with low penetration, Germany, Czech Republic, Austria, and countries with almost no penetration. As I mentioned, France, there are practically no collections. So it means that you have to apply different strategies to each market because they are simply different. Either regulatory framework is different, so you may have obviously European directives, which are binding, but at the same time, in health care, you may have local laws. And it is common that there are plenty of local laws. Particularly in Germany, the law is very or extremely strict or it is very complex in Spain when you have autonomic regions of Spain where you have to apply separate licensing processes. There are also different behaviors of consumers. Some of them value family, more in the south of Europe. Some of them are more precautious in taking decisions, which is more north. In some countries, societies are spending money for private health care, while in the others like in the Nordic countries, spending privately money for health care is not so common. So you expect paying high taxes that the government with national insurance provides you everything, while in south of Europe or Eastern Central Europe, society tends to pay for private health care services. So all these aspects create this diversity, which is good and bad. It's good because it builds barriers to enter because you need to understand all these specifics to get to Europe. So we don't have U.S. players. They failed. They tried to enter. They failed. We don't have Chinese players. But obviously, it costs more to maintain different marketing strategies, different tools because you have to adjust to the local requirements. The market is in major phase, I would name it. 15 years ago, we had roughly 150 players in that field in Europe. And as you can see here, over those 15 years, it got consolidated. So 5 years ago, we had 100 players or less than 100 players. Today, I estimate it at 60, maybe 55. And I predict that sooner or later, we'll have maybe 40, maybe even less, maybe even 30 players across Europe. And nobody besides us is really pan-European. We have a few companies operating in more than 5 countries, very few, and some players operating in 2, 3 countries. We did roughly 30 M&As. So we developed via M&As. And that was both at original Vita 34 site and PBKM. Vita did roughly 5 M&As, PBKM did 25 M&As, so all together 30 M&A. So we are partially responsible for that consolidation process. Some other players, they simply ceased the activity, they stopped the activity, some of them bankrupted, like in any other industry, you may face this kind of situation. And as this is very niche market, it is normal that you cannot operate because there is not enough money in that market for such a number of players. The industry was hit by obviously kind of black swans. Our former European competitor called Cryo-Save bankrupted very badly in 2019 for various reasons. But that scandal hit the industry because if you store stem cells of your child, you expect they are kept in the bank forever, it's safe, nothing may happen. And unfortunately, it happened, and that hit more than 300,000 families. And we moved all these samples to Warsaw from several locations. So we protected those samples, but the trust was gone. So that was really very, very difficult time, and there are still some remainings, particularly in heads of authorities, doctors, they remember someone bankrupted, yes. So it's a question mark whether that industry is trusted. We had COVID-19, which we hit -- which hit us, in fact, in 2020, where we had limitations in access to the hospital. Hospitals, we had issues with visiting parents, obviously, schools of pregnancy or schools of virtual [ close ] and so on and so. And also the way we had to operate was different, and a lot of our effort moved from off-line activity into online activity. It's good and bad because it's now more costly to be digital that -- to be digital 10 years ago because everybody is there. So there is a competition for the attention of the families. And then we had obviously Russian war in Ukraine, which had indirect impact on consumer mood particularly in Germany, uncertainty, market fragility and this kind of negative factors. But they are all gone. So there are some remainings. Everybody is used to war in Ukraine. It simply continues. It will stop, it's a matter of time. But when, nobody knows, but there is a war. And we don't think it has a major impact in most of the European countries. The only exception is probably Germany. What we cannot change and will not change is lowering number of newborns. So we are facing that issue across developed countries everywhere. So we are like in Japanese 20, 25 years ago. Is that important? Yes and no. Because maybe you remember, I mentioned what is the penetration ratio, so 2% is European average. So 98% of people are not banking stem cells. So is it important, the number of children going down? Yes, it is. But I believe the potential of growth is enormous even with that lowering trend. Particularly, if someone has one child or couple have one child, they tend to spend more for this child than if they would have 2 or 3. So what is also crucial from our perspective is number of therapies. I mean more therapies with stem cells means more confirmation, it makes sense to keep stem cells for future. And there are several opportunities and several threats at the same time, obviously some strengths and weaknesses. But what we can see that there is a growing number of clinical trials with use of stem cells worldwide. Europe is behind, is China and U.S. and developed economies in Asia being frontrunners. Europe is waiting or looking at the others. There are -- I will give some examples from the press and from media and from some authorities to be more precise on what's going on in terms of development of therapies. We see certain interest of certain group of doctors, but from the other perspective, obviously, there are some doctors saying, "Okay, it was a nice topic 20 years ago, but it's not anymore. There are alternative technologies," and so on and so. I think it's like in all medicine. Everything takes time to develop. So it's -- in our case, everybody believed that 20, 25 years ago, stem cells will cure everything. It's not the case. They are simply good for a certain treatment of certain diseases; for some, not. Sometimes your own cells cannot be used. Because you have genetic disorder or genetically based disorder, you cannot use your own cells to treat yourself, yes, but maybe you can paradoxical use the cells of the family member which is not sick. There are obviously threats, regulatory issues. Europe is becoming more and more bureaucratic, which is a problem for everyone, not only for us. But there are also some other things which may positively bring us up. I mean we have hundreds of thousands of families being our clients, right? Child, mother, father, sometimes grandparents, all of them usually pretty well educated. It's middle class, usually our client is middle class, so it's a perfect client. So maybe we can sell to them more products. I mentioned about some news from stem cell treatment area. And for example, cord blood, so collected as a main actual product for us, got a formal approval in Q2 in Australia as a tool or a medicine to treat cerebral palsy, and it took 15 years to get that approval. It's not yet in Europe. But what it means, I mean cerebral palsy cannot be cured fully, but stem cells in cord blood are helping enough to convince the authorities in developed country. Yes, you should have them and use them in case you have child with cerebral palsy. And cerebral palsy is pretty common disease. Common means roughly 0.5% of children might develop it, and it's pretty common already. So a number of clinical trials is going on. In various areas with various stem cells, safety is very, very high. In terms of efficacy, we will see. There are also some other news which are important. Stem cells, first of all, could be used even after 15, 10, 20, 25 years of storage. And that was confirmed at patients. So there were question marks several years ago. Will these cells be viable after so many years? Yes, there are. And there is also another thing which is very important, expansion technology. Standard cord blood portion is not sufficient for any adult. It's usually for the teenager or child of body weight between 30 or 40 kilograms. So we have cord bloods which are applicable or useful for adults, and some of them are for small children. But there are recently big steps because FDA approved expansion technology. So number of cells is not a problem anymore, so you can simply expand cells and have them enough for any kind of recipient. And recently, it's really last week, and then there is a positive opinion. We are now verifying whether this is a formal decision or just a positive opinion at the moment of European agency for medicine for similar technology from an alternative provider in Europe available. And for other cells from cord tissue, placenta or amnion, there is no problem with multiplication. We have all this technology, so there is no problem with the limit of number of cells. I mentioned a little bit about countries of focus, Germany and Poland, but there are also others. Yes, I mean, Spain. Spain is very special for one thing or for many things actually. But Spain used to be the largest market in Europe in the past before the crisis in 2008, financial crisis, let's say. And now it's been developing. And very recently, it's 1.5 years ago, the highest court of Spain confirmed that every citizen has the right to bank their own cord blood or cord blood of his or her child. That was not allowed. I mean that was allowed in private hospitals and in some regions of Spain. Now it's allowed in all Spain. So it means a relatively large country of European Union is now, let's say, fully accessible for our services, which was not the case 1.5 years ago. And another country is Turkey. Obviously, inflation is a paining thing there, but it's a large country, 85 million almost, yes, 83 million of citizens with a lot of newborns and with frequent use of cord blood because of sickle cell anemia and beta thalassemia, which are diseases very specific for that region. So it's a very well-accepted treatment tool by the doctors. Gulf region, I think it's not coincidence, we opened the lab there. I mean the rich country or wealthy countries of the region are getting more and more open for various services. We've been there for 20 years, yes, but we opened it up because we see also growing interest in banking as well in cellular therapies. And the government in UAE is very open for this kind of initiatives, let's say, and that regards as well to Bahrain, to Qatar, Kuwait. Saudi Arabia is a very special case, yes. So we are very passive there. I think we need a local partner to get in. And Portugal used to be one of the largest markets in Europe in terms of penetration. I mean before the mentioned crisis, financial crisis 15 years ago, it was -- penetration in Portugal was 14%. It dropped, and it's now more or less stable, and we believe Portugal still as a base for growth particularly that we have a lot of historical clients there. It's not a matter of only selling product to the new clients but also a matter of selling new products to existing clients. So we have a few interesting revenue streams. I mean clients are choosing 2 options. Either they pay for collections of stem cell testing processing and they prepay for storage. So you can see that in 2024, roughly 59% choose that option. Payment upfront means that they prepay for a certain period of time for storage for 5, 10, 18, 25 years depending on the country, while the others are paying first fee for collection testing and freezing of stem cells, and then they pay annual subscription. And you can see that we had last year EUR 21 million from annual subscriptions already. So it's growing number of clients, and churn is below 1%. So they usually pay even more, they pay more and more because we have the right to increase the storage price by inflation. And there are no movements to the other bank practically because there is always a risk related with transporting of frozen sample. Something may happen physically, yes. So -- and there is -- the gain is too small, say, I don't know, EUR 20 per year or something. To risk the sample makes no sense. So people are simply continuing payment. On top of that, we can see this is EUR 21 million I mentioned before, existing clients are bringing us extra cash. It could be that they, for example, prepay for next period of time because they have some money, and they -- instead of paying yearly, they like to prepay or we had thousands of contracts of clients who prepaid in the past, and these contracts are finishing now. So last year, we simply needed more cash because we have in some M&A discussions we finalized this year, so we decided to squeeze a little bit our existing client base, and simply, we generated more cash because we needed that. There is a -- so you can see a growing amount of purely recurrent revenue paid annually. And on top of that, there is an expected extra cash we generate from existing clients in the form of prepayment. And here, on the right side, you can see the number of finished contracts in prepayment. That gap here comes from the fact that, yes, 20 years ago, Vita changed the policy, and instead of offering 20 years of storage in the price, it switched to 25 years of storage in the price. So that means that we have a drop, but then the number is growing up again. So there are good perspectives. And storage fee, as you can imagine, we have very limited cost of keeping of these samples. So we spent all -- practically all the costs. So it's only a matter of liquid nitrogen, obviously, space, electricity is not a cost here, some validations and obviously licensing, and so there are much more indirect costs than direct costs. But overall, we are using the stream from subscription or recurrent revenue to get more clients, more and more. So it's a paradox. If we would stop acquisition of new clients, our results will improve immediately, but we prefer to have them more and more and to have these amounts even bigger and bigger. I mentioned placenta banking. We can also collect placenta. That is practically a bit new service because we started in '21 only in Switzerland, then we rolled it out to Gulf region, then Poland, Romania, Italy, and the next countries are in a queue. And placenta is more natural. If you ask from the person from the street, what is placenta, everybody knows. If you ask cord blood, almost nobody knows, yes. Why we did not start from placenta? Because there is no standard therapy with stem cells from placenta, but there is enough science and enough medical data to offer that kind of service. So there are other experimental applications which were not there 10 years ago. We got first license for placenta in 2014 in Poland or '15, and we resigned from that because we did not have enough proof at the moment we have them, yes. And we see great interest of our clients. Between 25% to 30% of clients are choosing also placenta banking. And it's also better understood by midwives. So they are much more in favor of storing placenta than cord blood sometimes because some midwives say that as much cord blood as possible should flow to the newborn, which is actually not the case, but that kind of thinking sometimes exists. So with placenta, there is no issue. And what it gives us obviously is also more money because we have margin. I mean we have some obvious building blocks. We like to have better sales and operational excellence. We are growing number of subscriptions, so there is the snowball effect. Obviously, that it was mentioned that we like to have simply higher value of each client in long term, so increase our CLTV and obviously reduce the cost of acquisition or CAC. We have more and more clients prolonging finished contracts so it is additional revenue or profit. And also, we have some first experience in CDMO, so B2B relationships, so also providing cells or medicinal product from sales for B2B partners. In such a case, we are organizing donors, yes, volunteers. They are donating various types of tissue, isolate cells, we manipulate them, and then we sell the product to B2B partners. And all of this obviously is to increase the value of the company for our shareholders. And our ambition is to become the bank of obvious choice. So even if we are #1 today, I would not say we are bank of obvious choice, first choice, yes. In some countries like Poland, it is like that. In Germany, it is like that. We have monopoly there, right? But in some countries, there are some competitors, as mentioned. And I would not say that for all the families, we are the first choice and obvious choice. So in terms of the size, so we just confirmed our outlook for this year. We expect between EUR 85 million to EUR 95 million revenue and EBITDA between EUR 8.7 million to EUR 10.3 million. We are rather optimistic for year 2025, and our just published results brought attention of investors. As you can see, our share price was under certain pressure, which was interesting because we've been improving our results last 8 quarters in a row, but there was no reaction of share price. Actually, it went down, and suddenly, since a few weeks, we saw a growing interest with much bigger trade of shares, 3x average or 5x average per day. So someone is simply buying shares. And it exceeded current target price in one of the research, which is available for our company. Our target price was at EUR 6.50, and we are over EUR 7 at the moment. I don't probably need to go much through our financial results last year. So we are mostly focused on EBITDA. So last year, we improved our EBITDA a lot, yes, by almost 60%. Revenue grew 7%. You can see signs of controlled cost in G&A, which grew 0.7%. Marketing and sales is proportional. So we simply did pretty well. But what is, I think, more interesting, I will show you maybe that is H1 results. So we grew revenues 15%. EBITDA grew 36% from continued activity. We turned to profit. And here, it's a tricky thing because we are operating under long-term contracts. So IFRS 18 is applicable. So our results are not that easy to understand from financial point of view, honestly, because we have long-term obligations. So our balance sheet is unproportionately big for the size of the company. But I believe that investors simply appreciated what happened, and our cash position lowered because we finalized M&As in Slovakia and Czech Republic, buying up to 95% of shares in 2 entities there. So thank you very much for your attention. I hope that it was interesting.

Thank you so much for your presentation, Jakub. You were so passionate talking about FamiCord.

So ladies and gentlemen we are now open for your questions. [Operator Instructions] But now we have virtual hand from Tim. So Tim, you should be able to speak now.

Can you hear me?

Yes.

Yes.

Great, great, great. So Jakub, I didn't get to ask you this question last week. Can you -- sorry, it's more technicality, but can you comment on the extraordinary expenses you had in Q2 from the M&A transaction? Because the SG&A was a bit -- quite a bit higher in Q2. That would be helpful. And if I calculate it correctly, the EBITDA relief of CAR-T not being in the continued operations would be about EUR 0.5 million per quarter. Is that roughly...

Slightly more, slightly more, yes, but similar, yes. So two things. I mean obviously, I mean that M&A was not an easy M&A because we had even court cases in Czech Republic and Slovakia with our majority shareholder at the time. So it took us really like 1.5 a year to agree. So this is why I mentioned we started generating cash already last year to be ready because I was rather positive. But that means if the discussions are already at the court and then you have tough discussions among the lawyers that we spent unproportionally a big amount of money for lawyers. So let's say, a few hundred thousand euro, I can say that range went to lawyers. So it is in our G&A. And most of the costs were -- occurred in actual -- no, I don't know whether most, but at least, I think, 35%, 40% was spent this year. And another thing, we also -- we spent a lot for head count not only because we extended our Board in Germany, we hired a new Board member responsible for sales, but also in our other positions. So we have a lot of open recruitments. And that was extraordinary, and that goes to G&A. So that's, I think, the answer to the question, right?

Yes. Can you remind me what the rollout for the placenta product is? I remember that you said in the presentation, you now have approval in Germany or you are close to approval.

No, no...

Okay, not quite.