Getinge AB (publ) (GETIB) Earnings Call Transcript & Summary

Welcome to Getinge Press Conference 2022. [Operator Instructions] I will now hand over the word to CEO, Mattias Perjos. Please begin your meeting.

Great. Thank you very much. And thanks, everyone, for tuning in with short notice. We can -- I will do a bit of a background information up here in just a few minutes, and then we can move very quickly to Q&A. So if we move directly to Page #2, please. So the background here for the news today and this call is that Datascope, which is a subsidiary of Getinge and the manufacturer of life-supporting medical devices, such as our intra-aortic balloon pump, which are sold globally, we received a warning letter in 2019 from FDA related to findings in the organization's procedures and processes. And then there was a follow-up inspection lasting from November 2021 to January 2022, and the findings from that inspection from FDA was that our operations are still not fully in compliance with the existing quality management system and the related processes. So the conclusion here that we've been informed by the FDA is that they would like to include Datascope in the consent decree. We can move to Page #3 then and briefly discuss the consequences from this news. So the important first step is, of course, that we're continuing to, with full force, go through the ongoing actions and address the findings from the initial inspection. And among other things, implementing a new operational quality organization with new leadership integrated in the business operations. For those of you who are familiar with the consent decree as such, I think one of the changes we did back in 2015 was to move to a completely centralized quality organization. So this is a step to balance this and move leadership closer to and more integrated into the business operations. We will also submit a plan for further improvements to FDA in January 2023. This is in accordance with standard procedure. And also I wanted to update you on the cost for Datascope's improvements activities since 2018. If you remember, we self-identified a lot of these problems back in 2017 and started remediation program. And up until today, this has been at a cost of about SEK 500 million. The additional costs related to improvements going forward are not expected to be material on top of this, but it does mean that we will remain with a heightened cost level for the operations in Datascope. And very importantly, of course, is the Datascope's product will continue to be available for customers as well. So with that brief update, I think we can move to the Q&A part of this call.

[Operator Instructions] And our first question comes from Erik Cassel from ABG.

You moved production from NAVA and therapy to Wayne in 2018, I believe, and I believe it's now a pretty substantial site for cardiovascular. Could you provide any information on how much of sales are actually dependent from Wayne now and how this could impact volume throughput increases going forward?

It's correct that we have moved the operations from [ Maquet ] into Wayne. I think the total volume produced -- sales volume produced by the operations in Wayne is around SEK 4 billion, the announcement today.

The next question comes from Oliver Reinberg from Kepler Cheuvreux. We move over to Kristofer Liljeberg from Carnegie.

Two questions. First, could you maybe spend a little bit more time describing how this could happen despite the heavy investments you have done in recent years or I think the last 5 years to be above the quality organization and quality systems? That's the first one. And then when it comes to your margin target here, does that assume, if you look a few years ahead of us, assume that those costs would come down related to the consent decree?

Okay. If we start with the first question, Kristofer. So the company already operates now under a compliant quality management system. That was not the case when all this started, so a lot of the initial work has been to put this in place. But notwithstanding the best efforts here, the company hasn't been fully able to comply with the quality management system and the related processes. They're, I mean, partly competent reasons for this and partly due to the interpretation of how to use the quality system and the related processes. And there's also been a bit of impact on the global pandemic when it comes to supply chain in terms of materials, resources and logistics, which has slowed down the process a bit as well. So those are the main reason for this taking now longer than expected in the first place. When it comes to the margin target for the longer term to 2025, we were never expecting to be done with the remediation until the end of next year anyway. So that part of this was kind of factored into. If it prolongs beyond 2023, that will mean a little bit of additional cost compared to the information we had when we issued the target, but then that should not be substantial to the way there's seasonality.

So based on today's news, you still expect the same cost for 2023 as you expected before?

Yes, there will be some additional costs when it comes to paying for an independent external or third-party auditors, medium controls and so on. But they are -- in the scheme of things looking at the overall cost for the mediation program, they're not material.

The next question comes from Oliver Reinberg from Kepler Cheuvreux.

Sorry, my line was dropping off before. Three questions if I may. Firstly, just understanding the operational process now going forward when Datascope is included in this kind of consent decree. I think back in 2015, you talked about that you cannot proactively promote these kind of products going forward and that also clients have to sign kind of notification they are aware of the fact that the facility operates on a consent decree. Is that not something that also now is related to the inter-aortic balloon pump business? Second question, have you heard any feedback from the FDA with regard to the kind of packaging activity, the kind of medical device feed action that you've done for ECMO therapies? And the third question, do you believe that this kind of proceedings have any kind of implications for the timing when you can expect the kind of approval of your covered stent PMA?

Yes. When it comes to the operational processes, I'm not aware of any additional requirement because of this change. So if there is still, I have to come back to you, but I'm not aware of anything on top of what we're already doing there. When it comes to the packaging deficiencies that we've had for the ECMO products, that is unrelated to FDA. This has to do with the investigation from the prosecution in Baden-Baden in Germany. We've done a lot of progress on the packaging. We've improved the packaging, but it's not fully tested yet, and there is no conclusion on this. So in essence today, there is no additional news except that we've invested a lot of time and effort in finding solutions for this. And when it comes to the covered stent PMA, I'm not aware of any link according -- based on this today. So if there is, we would have to update you later on this.

Okay. Understood. But can you just confirm, so you can still proactively market your inter-aortic balloon pump business?

Yes. The FDA has not placed any restrictions on us. In practice though, we have severe supply chain issues and a big backlog of pumps, so we're not really proactively marketing this anyway. Now we're really spending all our energy in trying to remediate the products and get the whole operations into a compliance state and then resolve the bottlenecks to just be able to supply the kind of base demand without any new promotional products. So not we're not aware of that exactly.

Okay. But once this kind of bottlenecks are being solved, your understanding is that you're able to promote it again afterwards.

Yes, correct.

The next question comes from Victor Forssell from Nordea.

First question, just related -- if I understand it correctly, that the other 2 sites in the U.S. that were under the same consent decree are not sort of seeing the same sort of expectations that you did for Datascope here in recent time and also that they will not be impacted by, well, today's news. And then secondly, if there is possibility to provide some more feedback on what points that FDA actually want you to improve on. Any sort of more granularity regarding your discussions with them and what's required in this action plan that you intend to submit, that would be helpful as well.

Okay. Thank you. The first part regarding the sites and then linkages between them, we are not aware of any leads based on the current -- of today's announcement and that any of the other sites will be impacted from this. That's not something we are aware of. And to be a bit more specific, there's a handful of items we're working through now based on the latest feedback from FDA. It has to do with complaint handling. It has to do with the speed of resolution when it comes to [ CAPA ] processes. And there is some human use interface issues, for example, when it comes to docking the product into the cards to charge the batteries. There is -- we've detected some risk that the user may think that the card -- the inter-aortic balloon pump is charging when it's actually not because it hasn't docked properly. So those are some examples of things that we are working through now.

The next question comes from Kristofer Liljeberg from Carnegie.

Just a follow-up on this is bottleneck in production you talked about. How long has that been ongoing? And what's the reason for the bottleneck?

It started in the -- in Q2, I would say. We started to have severe problems when it came to certain parts for delivering the balloon pumps. And for the vast majority of the problems are related to electronic parts, sometimes the older generations of components that haven't been prioritized and ramp-up of suppliers, and we've also had some issues with the quality of deliveries from suppliers.

And just to confirm, when you would get enough components and supply is working again, what's announced today will not have any impact on the potential sales growth for the balloon pump business?

No, we've not been informed of any restrictions on serving existing or new customers with balloon pumps when we are able to work unconstrained from a supply perspective.

And based on this being part of the consent decree, do you think it will take longer to fix the bottleneck in production? Will that have any impact?

No, it's essentially the same work. So it's more about how FDA will follow up and audit and monitor the progress. I think we agree with FDA that the work required is the same as before. So from that perspective, there is no new impact from the FDA.

[Operator Instructions] No further questions at this time. I hand over to you, Mattias, for any closing remarks.

Okay. Good. Thank you. There's no additional summary or information from my end. Thanks again for taking time with short notice to attend this call. If you have follow-up questions again, please contact our Investor Relations. So with that, we close the call, and I wish you a good rest of the day. Thank you.