Corporate Research Bactiguardresearch.sebgroup.com /corporate Important.All disclosure information can be found on pages 40 – 42 of this document Corporate Research Bactiguard NOT

research.sebgroup.com/corporate Important. All disclosure information can be found on pages 40 – 42 of this document

Corporate Research Bactiguard NOT TO BE DISTRIBUTED IN, OR TAKEN OR TRANSMITTED INTO, THE UNITED STATES, CANADA, JAPAN, AUSTRALIA OR IN ANY OTHER JURISDICTION WHERE TO DO SO WOULD BE UNLAWFUL.

Initiation of coverage Healthcare Sweden 23 April 2018

The infection controller Healthcare associated infections are costly and can be fatal, so preventing them is crucial – an example is Bactiguard's antibacterial coating for catheters. Licensing income generates stable revenues and Bactiguard's strategy to focus more on its own sales of BIP products has potential to grow significantly but may take time because competition from larger players is fierce. With this research report we initiate coverage of the stock.

Preventing healthcare-associated infections Globally, about 10% of hospitalized patients develop a healthcare associated infection which normally adds four to six days to their hospitalization. Patients in intensive care units are especially at risk and treatment of some infections is very costly. Studies indicate Bactiguard’s antibacterial coating reduces the colonized bacteria on catheters by about 60% and leads to a 35% reduction of infections. The company’s main customer – C. R. Bard – has been using the coating on its catheters since 1995 and has about 40% catheter market share.

Strategic direction may boost growth but competition is fierce We expect licence revenues to have low but stable growth. The strategy to focus more on sales of Bactiguard’s own Bactiguard Infection Protection products may boost growth but also means competing with strong, larger established players. Management’s targets of 20% sales CAGR for 2016-20 and a 30% EBITDA margin by 2020 seem overly optimistic to us but we do forecast double-digit sales growth and EBITDA margin expansion from current levels (reaching 17% in 2020).

Valuation: high earnings growth may justify a premium multiple Our valuation approach combines DCF and a peer group-based earnings multiple valuation. A premium compared to peers on EV/EBITDA could be argued for given our high EBITDA CAGR expectation of 30%, but risk factors (e.g. size, low market share and governance) may cause an on par multiple.

Key Data (2018E)

Price (SEK)ReutersBloomberg

Market cap (SEKm)Market cap (USDm)Market cap (EURm)Net debt (SEKm)Net gearingNet debt/EBITDA (x) 7.6

Shares fully dil. (m)Avg daily turnover (m)Free float 43%

77141

38%

33.30.0

BACTI.STBACTIB SS

79995

24.00

Share Price (12M)

Absolute (green) / Relative to Sweden (purple).

15

20

25

30

Apr Jun Aug Oct Dec Jan Apr

Financials (SEK)

Source for all data on this page: SEB (estimates) and SIX/Thomson Reuters (prices)

Year end: Dec 2016 2017 2018E 2019E 2020ERevenues (m) 128 154 149 171 197Adj. EBIT 6 3 7 13 22Pre-tax profit (m) (31) (8) (25) (19) (9)EPS (0.80) (0.10) (0.59) (0.44) (0.22)Adj. EPS (0.09) 0.02 0.13 0.27 0.50DPS 0.00 0.00 0.00 0.00 0.00

Revenue growth (%) (7.3) 19.7 (2.8) 14.6 14.9Adj. EBIT growth (%) (50.0) (42.6) 119.6 79.7 73.2Adj. EPS growth (%) n.m. n.m. 683.8 112.4 80.7

Adj. EBIT margin (%) 4.4 2.1 4.7 7.4 11.2ROE (%) (6.6) (0.8) (5.2) (4.1) (2.1)ROCE (%) 1.0 0.6 1.3 2.4 4.3

PER (x) n.m. n.m. 185.8 87.5 48.4Free cash flow yield (%) (3.5) 0.0 1.2 1.8 2.9Dividend yield (%) 0.0 0.0 0.0 0.0 0.0P/BV (x) 1.44 1.98 2.17 2.26 2.31

EV/Sales (x) 5.43 5.97 6.30 5.41 4.59EV/Adj. EBITDA (x) 45.9 63.5 50.5 37.6 26.3EV/Adj. EBIT (x) 124.4 285.0 133.1 72.9 41.0Operating cash flow/EV (%) (1.8) 0.7 1.9 2.4 3.5Net debt/Adj. EBITDA (x) 8.85 10.46 7.57 5.13 3.00

Marketing communication commissioned by: Bactiguard

Company Update Marketing communication commissioned by: Bactiguard 23 April 2018 2

Corporate Research NOT TO BE DISTRIBUTED IN, OR TAKEN OR TRANSMITTED INTO THE UNITED STATES

Contents Page

Investment case summary ...................................................................................... 3 Company profile ........................................................................................................ 6

About Bactiguard .............................................................................................................. 6 Bactiguard’s offering ............................................................................................... 8

Technology and innovation ............................................................................................ 8 Bactiguard’s products ...................................................................................................... 9 Patents ............................................................................................................................... 11

Healthcare linked infections ................................................................................. 12 The infection prevention market ................................................................................ 13

Bactiguard’s business model ................................................................................ 17 The company’s strategy ................................................................................................ 17 Two sources of sales ...................................................................................................... 17 Competition ....................................................................................................................... 20

Sales estimates ....................................................................................................... 21 How we model sales....................................................................................................... 21 Licence revenues ............................................................................................................. 21 Sales of BIP products ..................................................................................................... 21 Total sales estimates ..................................................................................................... 23

Financials .................................................................................................................. 25 P&L summary, annual .................................................................................................... 28 P&L summary, quarterly ............................................................................................... 29

Valuation................................................................................................................... 31 Earnings multiple valuation .......................................................................................... 31 DCF valuation ................................................................................................................... 33 Risks and possible concerns ........................................................................................ 34

Management & board ............................................................................................. 35 Management ..................................................................................................................... 35 Board of directors ........................................................................................................... 35

Overview................................................................................................................... 36



Investment case summary Healthcare associated infections are costly and can be fatal, so preventing them is crucial – an example is Bactiguard's antibacterial coating for catheters. Licensing income generates stable revenues and Bactiguard's strategy to focus more on its own sales of BIP products has potential to grow significantly but may take time because competition from larger players is fierce.

Preventing healthcare associated infections Globally, about 10% of hospitalized patients develop a healthcare associated infection (5% in the US, 7% in the EU, 9% in Sweden) which normally extends a hospital stay by four to six days. Patients in intensive care units are especially at risk and treatment of some infections (e.g. ventilator associated pneumonia) can cost SEK 650,000 in total.

Studies indicate Bactiguard’s antibacterial coating reduces the colonized bacteria on catheters by about 60% and leads to a 35% reduction of infections (catheter associated urinary tract infections, or CAUTI). Bactiguard’s main customer – C. R. Bard – has been using the coating on its catheters since 1995 and has about 40% market share in Foley catheters in the US, Japan and UK and treats some 13m people annually.

Strategy with focus on own product sales The company basically has two sources of income: licence revenues and sales of BIP products. Historically the main source of income for the company has been licensing fees from C.R. Bard and a few other customers. Aside from this, Bactiguard has been seeking to sell more of its own products (produced by third party suppliers) with its coating. This strategy means competing with the existing large suppliers of catheters – for example Bard and Covidien– instead of licensing the Bactiguard coating to them. In our view, the risk of this strategy is that it is seeking to compete with much bigger players , but also potentially much more rewarding, because the company will be targeting a much bigger piece of the value chain.

Sales by segment (2017) Sales estimates

Source: SEB, Bactiguard Source: SEB, Bactiguard

We expect licence revenues to have low but stable growth. The sales of BIP products are in a much earlier growth stage and Bactiguard has a better opportunity to affect growth via its own sales and marketing efforts. Although coming from a fairly low base, the pace of growth could be high.

Old license sales68%

New license sales14%

BIP products14%

Other sales4%

0

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40

60

80

100

120

140

160

180

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2014 2015 2016 2017 2018E 2019E 2020E

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m

Old license sales BIP products Other sales New license sales



Management’s targets of 20% sales CAGR for 2016-20 and a 30% EBITDA margin by 2020 seem overly optimistic to us but we do forecast double-digit sales growth and EBITDA margin expansion from current levels (reaching 17% in 2020).

EBITDA (adjusted) EPS (adjusted)

Source: SEB. Adjusted for non-recurring income of SEK21m in 2017 and IPO costs of SEK3m in 2014.

Source: SEB. Adjusted for non-recurring items and amortizations of acquired intangibles.

Valuation summary In our earnings multiple valuation approach, we focus on EV/EBITDA because EBIT and net profit are negative. We apply the multiple on 2020E EBITDA, by when we estimate profits from the BIP products to have improved and to be growing faster than in the peer group. Our peer group is trading at an average 12-month forward EV/EBITDA of 17x (main peers 18x).

● Bactiguard has higher earnings growth than its peers (EBITDA CAGR about 30%) which could support a 25% premium on the multiple (21x).

● With a more negative view it could be argued existing players with stable profits carry less risk and lower expected volatility, in which case a premium may not be justified (18x).

● In a scenario with the combination of more licensing agreements and BIP products establishing a strong market position, which could support stronger profit generation beyond 2020, an ever higher premium (50%) could be justified (26x).

-2

20

15 14

19

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34

-2%

15%

12%

9%

12%

14%

17%

-5%

0%

5%

10%

15%

20%

-5

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5

10

15

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30

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40

2014 2015 2016 2017 2018E 2019E 2020E

SEK

m

EBITDA adjusted -margin adj.

-2.06 -0.07 -0.08 0.020.14

0.28

0.50

-2.20

-2.00

-1.80

-1.60

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

2014 2015 2016 2017 2018E 2019E 2020E

SEK

EPS adjusted



Valuation sensitivity

Enterprise value

Share price

Net debt

Market cap EV/EBITDA

Versus peers

(SEKm) (SEK) (SEKm) (SEKm) 2018E 2019E 2020E 600 14.2 126 473 32.2 24.4 17.5 617 14.7 126 490 33.1 25.1 18.0 In line 634 15.2 126 508 34.0 25.8 18.5 651 15.8 126 525 34.9 26.5 19.0 668 16.3 126 542 35.9 27.1 19.5 685 16.8 126 559 36.8 27.8 20.0 702 17.3 126 576 37.7 28.5 20.5 720 17.8 126 593 38.6 29.2 21.0 +25% 737 18.3 126 610 39.5 29.9 21.5 754 18.8 126 628 40.5 30.6 22.0 771 19.4 126 645 41.4 31.3 22.5 788 19.9 126 662 42.3 32.0 23.0 805 20.4 126 679 43.2 32.7 23.5 822 20.9 126 696 44.1 33.4 24.0 840 21.4 126 713 45.1 34.1 24.5 857 21.9 126 730 46.0 34.8 25.0 874 22.4 126 747 46.9 35.5 25.5 +50% 891 23.0 126 765 47.8 36.2 26.0

Source: SEB

Risks and possible concerns The investment case carries risks because the company is loss making and because future income depends on several uncertain factors.

● One long-term customer, C.R. Bard, accounts for about 80% of sales and could under certain conditions terminate the agreement. This is unlikely and there are no indications today of it happening, but the company-specific exposure is unusually large.

● Development of competing technologies with better clinical results could disrupt the sales potential. If a coating or other technology with better antibacterial results is developed, Bactiguard’s coating could become obsolete.

● Reimbursement levels could affect pricing negatively. This would probably only have a small impact but pricing of the end product would have a direct impact on both the licensing income and own-product sales.

● An increase of single-use catheters could reduce demand for Bactiguard's antibacterial coating. Bactiguard’s coating is used for products used for more than two days. In some cases, an alternative could be to change catheter more frequently, especially if prices decrease.

● The higher than normal turnover of management positions – with three CEO changes in the past four years – may indicate somewhat volatile working conditions with implementations of new strategies etc. A corporate governance flag could potentially also be raised with the two founders (one of them the CEO) having control of the company (combined they hold 79% of the votes and 56% of the capital), which leaves minority shareholders with less influence.



Company profile

About Bactiguard Bactiguard is a Swedish medical device company which develops infection protection solutions that reduce the risk of healthcare associated infections (HAI) and the use of antibiotics. The company’s Bactiguard Infection Protection (BIP) technology prevents the adhesion of bacteria on medical devices, and is based on the application of a thin metal coating (consisting of gold, palladium, and silver) to medical devices. The coating is firmly bound to the surface of the devices and reduces the adhesion and growth of microbes.

The company offers its technology and products through licensing agreements and sales of its BIP portfolio of products. Through its licence partner, CR Bard, urinary catheters with Bactiguard’s coating are, according to the company, market leaders in the US and Japan. In addition, Bactiguard’s own product portfolio of urinary catheters, endotrachael tubes, and central venous catheters, prevent some of the most common infections that appear in the urinary tract, the blood stream, and the respiratory tract.

Bactiguard is expanding its presence in Europe, China, India, and the Middle East by establishing licensing agreements in new therapeutic areas. The company has around 60 employees around the world. Its headquarters and one of its production facilities are in Stockholm, while the other production facility is in Malaysia.

History – Bactiguard’s story started over 100 years ago Bactiguard AB was founded in Sweden in 2005 and acquired the business and technology from the previous owner, Adensive Technology. However, the company can trace its roots to 1912 and Gustav Dahlén, the Nobel Prize-winning physicist who invented the AGA lighthouse. Gustav Dahlén’s pupil, Axel Bergström, developed and passed on the technique of coating non-conductive material with a thin layer of metal to his pupil, Billy Södervall, who refined the technique and became the innovator of the Bactiguard technology. Billy Södervall remains actively involved with the company to this day.

History of Bactiguard

Source: Bactiguard



The development of the coating of noble metals that could be applied to medical devices and applications began in the 1970s, when Billy Södervall applied for patents on the innovation in the US. The company entered into partnership with US medical device company C. R. Bard, and in 1994 the US Food and Drug Administration (FDA) approved the sale of Bardex IC Foley catheters, treated with the BIP coating. The catheters were launched in the market the following year.

In 2006, a development and production unit was established in Markaryd, the south of Sweden, to focus on further development of the technology, while the company started the development of a separate product portfolio the same year. In 2008, the company commenced delivery of Bactiguard coated latex urinary tract catheters and Bactiguard Infection Protection Foley catheter (BIP Foley catheter). Silicone urinary tract catheters were launched the following year. The company launched Bactiguard coated endotracheal tubes (BIP ETT) and central venous catheters (BIP CVC) in 2013. The same year, a production unit was established in Malaysia to manufacture urinary tract catheters.

In late 2014, Bactiguard relocated to its new headquarters in the Karolinska Institute Science Park, Tullinge, south of Stockholm. The new facility enabled all parts of the company, such as sales and marketing, research, production, and product development, to be combined in a single, central location. In addition, the Karolinska Institute Science Park location places the company in close proximity to research and development at the Karolinska Institute and the Royal Institute of Technology, as well as healthcare at the Karolinska University Hospital, which all facilitate closer cooperation.



Bactiguard’s offering Tissue-friendly medical devices reduce potential clinical infections The tissue-friendly Bactiguard coating reduces the adhesion and growth of microbes, and according to the company, more than 170 million Bactiguard coated catheters have been used in clinical practice since 1995, with no reported adverse events associated with the coating. Bactiguard coated products have been used in a large number of clinical studies and evaluations (1986-2015) involving over 100,000 patients.

Bactiguard's BIP products significantly reduce the likelihood of healthcare associated infections (HAI) in the urinary tract, the respiratory tract, and in the bloodstream. Approximately two-thirds of all HAIs occur in these three main areas of the body, and medical devices cause an overwhelming majority of these infections. The use of medical devices treated with anti-bacterial coatings can significantly lower the need to use antibiotics, thereby reducing the occurrence of antibiotic resistant bacteria, and improving patient clinical safety.

Technology and innovation Safe and patient-friendly technology The company’s Bactiguard Infection Protection (BIP) technology is based on a thin layer of noble metals, referred to as the Bactiguard coating, which is applied to the surface of medical devices and prevents bacteria from adhering and forming biofilm (growth of microbes). This contributes to significantly reducing the number of HAIs. The technology can be applied to almost all types of materials used for medical devices.

The Bactiguard coating comprises a thin layer of gold, palladium, and silver

Source: Bactiguard

The Bactiguard coating comprises a thin layer of gold, palladium, and silver that is applied to the surface of medical devices. This composition of metals creates a galvanic effect, referred to as a ‘micro current’, which prevents the adhesion of bacteria and the formation of a biofilm. The Bactiguard coating is firmly attached to the surface of the products, which means that the effect remains for a significant length of time. There is no increased risk of thrombosis and the coating does not trigger immune reactions.



The amount of noble metals is very low and they are not released in any toxic or pharmacological quantities, which makes the technology both tissue-friendly and safe for patients.

Bactiguard Infection Protection (BIP) technology – mechanism of action

Source: Bactiguard

In contrast to coating technologies that depend on the release of substances to kill bacteria, e.g. large amounts of silver ions, chlorhexidine, or antibiotics, the Bactiguard coating is neither toxic nor pharmacologic. For example, after 90 days in urine, 99% of the coating remains bound to the surface of the BIP Foley Catheter. To date, more than 170 million Bactiguard coated urinary catheters have been sold for patient use, with no reported adverse events related to the coating.

Bactiguard’s products Bactiguard’s current product portfolio consists of Foley catheters (BIP Foley Catheters), endotracheal tubes (BIP Endotracheal Tube), and central venous catheters (BIP Central Venous Catheter), all with the Bactiguard coating.

BIP Foley Catheters The Bactiguard Infection Protection Foley Catheter (BIP Foley Catheter) is an indwelling urinary catheter, which has been demonstrated to significantly reduce bacteriuria, symptomatic urinary tract infections, and the need to use antibiotics. The catheter is used to drain the bladder, or for the collection and measurement of patient urine. The BIP Foley Catheter can be used for up to 90 days and is available in latex and silicone material. The BIP Foley Catheter has a hydrophilic coating to reduce friction between the catheter surface and urethra when inserting the catheter, aimed at increased patient comfort.

The Bactiguard Infection Protection Foley Catheter (BIP Foley Catheter)

Source: Bactiguard



Catheter associated urinary tract infections (CAUTI) account for a large proportion of HAIs. These infections can result in serious complications, such as urosepsis, which can lead to increased mortality and healthcare costs. In addition, many of these infections are treated with antibiotics, which increases the risk of emergence and spread of multi-resistant microbes. The risk of CAUTI increases with the number of days of catheterisation and if the patient’s immune system is weak. Groups at risk include the critically ill and patients with urological malignancies and neurological diseases.

In peer-reviewed studies looking specifically at the incidence of symptomatic CAUTIs in patients with over two days of catheterisation (in line with current standards), the weighted average reduction of infection was 35%. In certain studies a larger reduction of up to 70% was observed.

BIP Endotracheal Tube The Bactiguard Infection Protection Endotracheal Tube (BIP ETT and BIP ETT Evac) reduces the risk of microbial adhesion, colonisation, and subsequent respiratory infections. The BIP ETT is available both with and without subglottic secretion drainage (SSD), a mechanical feature which reduces the risk of ventilator associated pneumonia (VAP). Bactiguard coated ETTs have been shown to effectively reduce microbial adhesion to the device by up to 98% in in-vitro studies. In addition, a clinical study with 100 patients comparing a standard uncoated endotracheal tube with BIP ETT concluded that the Bactiguard coating reduced the incidence of VAP by 67%.

The BIP ETT is intended for use in airway management by oral or nasal intubation of the trachea. The BIP ETT is used to secure an open airway during anaesthesia, or when intubation is necessary as part of standard medical care. The bevelled tip, the “Murphy Eye” (a hole on the side of most endotracheal tubes that functions as a vent and prevents the complete obstruction of the patient's airway) and high volume low pressure cuff are designed to minimise the risk of damage to the trachea and ensure safe usage. The catheter is made of PVC and has the Bactiguard coating on both the inside and outside of the tube, and can be used for up to 30 days.

The Bactiguard Infection Protection Endotracheal Tube (BIP ETT)

Source: Bactiguard

VAP is a common and serious HAI of the respiratory tract which can affect patients using certain medical devices, such as ETTs. Microbial adhesion on the tube itself, resulting in biofilm formation, is one major cause of infection. In long-term ventilated patients, subglottic secretions can accumulate above the cuff of the ETT and represent an ideal growth medium for bacteria.



By micro-aspiration along the cuff, these contaminated secretions can pass into the lower respiratory tract and become a potential cause of lower airway infection, including VAP.

VAP is the second most common nosocomial infection in the ICU, and is estimated by Bactiguard to occur in up to 25% of patients. VAP is associated with increasing the time that patients need to stay in the hospital by up to 25 days. Late onset VAP is often associated with high-risk pathogens such as MRSA and is associated with a greater negative impact on patient outcomes and hospital cost. Mortality that is directly attributable to VAP is estimated to be as high as 30-50%. In addition, many of these infections are treated with antibiotics, which increases the risk of emergence and spread of multi-resistant microbes.

BIP Central Venous Catheter The Bactiguard Infection Protection Central Venous Catheter (BIP CVC) reduces the risk of microbial adhesion and colonisation, and has been shown to reduce catheter-related infections in high risk patients, compared with uncoated CVCs. The BIP CVC is used to administer drugs and intravenous solutions, and to sample blood. It is made of polyurethane, and can be used for up to 30 days.

The Bactiguard Infection Protection Central Venous Catheter (BIP CVC)

Source: Bactiguard

Catheter related bloodstream infections (CBRSI), also known as Central Line Associated Bloodstream Infections (CLABSI), account for a large proportion of HAIs in patients using medical devices, such as CVCs. In a clinical study of Bactiguard coated central venous catheters, it was concluded that the coating significantly reduced the incidence of infections by 52%. The investigation included 233 haematological oncology patients, 113 received standard uncoated catheters and 120 received Bactiguard coated catheters. Catheter related infection developed in 21% of patients with the standard catheter, but only in 10% of the patients with the Bactiguard coated catheters. The Bactiguard coating has a proven strong biocompatibility profile in blood. A further analysis of the data showed no increased risk for adverse events such as thrombosis and haemolysis when using the Bactiguard coated product.

Patents Bactiguard’s antibacterial coating has patent protection until 2029 in the US and 2027 in the other countries. The ingredients (metals etc.) are known but the recipe is a trade secret.



Healthcare linked infections A significant concern for patients and health practitioners Millions of people are affected by healthcare associated infections (HAIs) each year. This not only causes patient suffering, but due to the overuse of antibiotics leads to a greater risk of the spread of multi-resistant bacteria. Infections caused by multi-resistant bacteria are often difficult to treat as the bacteria are resistant to many types of antibiotics.

Today, HAIs are the third leading cause of death in developed countries after cancer and heart and vascular diseases. In addition, HAIs are a growing problem worldwide. Every year, six million patients are affected in the US and the EU alone, resulting in around 150,000 deaths. In the US, the annual financial losses due to HAIs are around USD 6.5bn and the corresponding costs for Europe are around EUR 7bn.

More than half of all HAIs are caused by bacterial growth on medical devices. The use of catheters is one of the greatest risks as it creates a passage between a patient’s body and the environment. Studies show that about 70% of bacteria which cause HAIs are resistant to one or more of the most commonly used antibiotics. This increases the risk of the spread of multi-resistant bacteria.

The majority of HAIs occur in three main areas of the body: the urinary tract, the respiratory tract, and the bloodstream, and Bactiguard’s Infection Protection (BIP) portfolio is targeted at reducing device-related infections in these areas.

Healthcare associated infections (HAIs)

Source: Bactiguard, SEB

Urinary tract*32%

Bloodstream*14%

Respiratory tract*15%

Surgical site22%

Other17%

*Bactiguard portfolio



The infection prevention market A large and ever increasing market driven by multiple factors In the US, healthcare associated infections (HAIs) account for around 100,000 deaths per year, making them the fourth highest cause of death after heart disease, cancer, and stroke.

Leading causes of death in the US

Source: Centre for Disease Control and Prevention, American Cancer Society, and industry research

According to Freedonia estimates, the global infection prevention market increased at a CAGR of around 6.0% from USD 126bn in 2013 to USD 151bn in 2015, while the US market increased at a CAGR of around 5.0% from USD 20bn to USD 23bn over the same period. Moreover, the global infection prevention market is estimated to be worth around USD 160bn in 2017 according to Freedonia, and is projected to increase at a CAGR of 6.2% from USD 171bn in 2018 to USD 231bn by 2023. The US market is estimated to increase at a CAGR of 4.5% from USD 25bn to USD 31bn over the same period.

The global and US infection prevention markets (USDbn)

Source: Freedonia

600,000

580,000

130,000

99,000

75,000

55,000

41,000

40,000

Heart Disease

Cancer

Stroke

Healthcare Associated Infections (HAI)

Diabetes

Influenza/Pneumonia

Breast Cancer

Auto Accidents

20 21 22 23 24 25 26 27 28 29 31

126134

142151

160171

181192

204217

231

0

50

100

150

200

250

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023US Global



Healthcare markets are benefiting from positive trends Due to a number of driving factors, such as longer life expectancy and the concomitant increase in chronic health conditions, along with an increasing number of patient visits to health centres driven by greater access to healthcare facilities, HAIs are likely to increase significantly in the years ahead.

Greater overall healthcare utilisation and growing healthcare expenditure are the major driving factors in the burgeoning infection prevention market. In the US, the population aged over 65 years consistently utilises healthcare services (10 or more visits per year) at a rate of 1.5x higher than the population aged 45-64 years and 2.0x higher than the population aged 18-44 years.

In addition, per capita healthcare expenditure in the US is estimated to increase at a CAGR of around 5% from USD 9,570 in 2013 to USD 12,120 by 2018, according to estimates by Freedonia.

US citizens with 10 or more annual visits by age Per capita US healthcare expenditure (USD)

Source: Department of Health and Human Services, CDC, and the National Ambulatory Medical Care Survey

Source: Freedonia

Greater access to healthcare facilities drives growth in patient visits Driven by greater access to healthcare facilities, an increase in hospital admissions and outpatient visits will be the main driving force behind the growth in the HAI prevention market. Although this will largely comprise infection prevention supplies, such as gloves, patient gowns, sterilisation equipment, and disinfectant supplies, this should also drive demand for safety enhanced medical devices, such as syringes, blood collection tubes, catheters and stents.

According to estimates by Freedonia, the number of outpatient visits in the US increased at a CAGR of around 2% from 2003 to 2013, and is likely to increase at a similar rate to 2023. In addition, the number of hospital admissions has increased at a CAGR of around 1% from 2003 to 2013, and should increase at a similar rate to 2023, according to Freedonia.

12%

16%

25%

0%

5%

10%

15%

20%

25%

30%

18 to 44 45 to 64 65 and over

8,150

9,570

12,120

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2013 2018



Outpatient visits in the US (bn) Hospital admissions in the US (m)

Source: Freedonia Source: Freedonia

Greater healthcare utilisation drives higher surgical volumes In the US, the demand for infection prevention products is driven by the growing number of surgical procedures due to the increase in healthcare utilisation.

According to estimates by Freedonia, the number of surgical procedures performed in the US increased at a CAGR of 2% from 68,500 in 2003 to 81,500 in 2013, and this is estimated to increase at a CAGR of 1% to 93,000 surgical procedures by 2023.

Moreover, the number of HAIs in the US increased at a CAGR of 0.9% from 1.7m in 2003 to 1.9m in 2013. However, the growth in the number of HAIs in the US is estimated to decline to a CAGR of 0.6% by 2030, due to more stringent protocols and better standards of healthcare, in addition to the wider use of infection prevention products, such as safety enhanced medical devices. This is demonstrated by the fact that HAIs as a percentage of surgical procedures have been consistently declining in the US, from 2.6% in 2003 to 2.4% in 2013, and this is estimated to further decline to 2.2% by 2023, according to Freedonia.

US surgical procedures (000s) US HAIs (000s) and as % of surgical procedures

Source: Freedonia Source: Freedonia

3.43.7

4.14.4

4.9

0

1

2

3

4

5

6

2003 2008 2013 2018 2023

41.3

43.1

44.9

46.8

49.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

2003 2008 2013 2018 2023

68,500

75,30081,500

87,30093,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2003 2008 2013 2018 2023

1,770

1,870

1,940

2,000

2,050

2.6% 2.5% 2.4% 2.3% 2.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

2,050

2,100

2003 2008 2013 2018 2023US healthcare associated infections US healthcare associated infections (as % of surgical procedures)



Safety enhanced medical devices – a critical element to cut HAIs According to Freedonia, the infection prevention supplies market, including safety enhanced medical devices, will be worth a total of USD 23bn by 2023, of which around 35% (around USD 8bn) should comprise safety enhanced medical devices. Freedonia estimates 5.3% annual growth in safety enhanced medical devices through to 2023, including products such as catheters, syringes, and blood collection tubes.

Infection prevention supplies categories, estimated at USD 23bn by 2023

Source: Freedonia

9

8

4

3

1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2023EProtective apparel & textiles Safety enhanced medical devices Sterilisation suppliesDisinfectants Infectious waste disposal



Bactiguard’s business model Globally about 10% of hospitalized patients develop a healthcare associated infection (5% in the US, 7% in EU, 9% in Sweden) which normally extends a hospital stay by four to six days. Patients in intensive care units are especially at risk and treatment of some infections (e.g. ventilator associated pneumonia) can cost SEK 650,000 in total.

Studies indicate Bactiguard’s antibacterial coating reduces the colonized bacteria on catheters by about 60% and leads to a 35% reduction of infections (catheter associated urinary tract infections, or CAUTI). Bactiguard’s customer C. R. Bard has been using the coating on its catheters since 1995. It has about 40% market share in Foley catheters in the US, Japan and UK and treats some 13m people annually.

The company’s strategy Historically the main source of income for the company has been licensing fees from C.R. Bard and a few other customers. Aside from this, Bactiguard has been seeking to sell more of its own products (produced by third party suppliers) with its coating. This strategy means competing with the existing large suppliers of catheters – for example Bard and Covidien – instead of licensing the Bactiguard coating to them. In our view, the risk of this strategy is that it is seeking to compete with much bigger players but also potentially much more rewarding, because the company will be targeting a much bigger piece of the value chain.

Two sources of sales The next table shows the company’s two sources of income.

Bactiguard – sources of income

Licence

BIP portfolio

C.R. Bard (since 1995),

Vigilenz (no sales yet), Smartwise (no recurring sales)

BIP Foley BIP ETT BIP CVC

Licence revenue BIP revenue


1

2



Sales by segment (2017) Sales by region (2016)

Source: SEB, Bactiguard Source: SEB, Bactiguard

Sales of BIP products The BIP portfolio currently includes sales of the BIP Foley, BIP ETT and BIP CVC products. In 2017, these products had total sales of about SEK 22m, or 14% of group sales. Of the BIP product sales value, we estimate Foley catheters account for about 80%, CVC 16% and ETT 4%. Although the absolute level of sales is still fairly low, this is six times the sales in 2014 so the growth rate has been high.

BIP products sales, quarterly BIP products sales, annually

Source: Bactiguard, SEB Source: Bactiguard, SEB

BIP products’ market status

Source: Bactiguard



BIP products14%

Other sales4%

Americas87%

MEA2%

Asia8%

Europe3%

0

5

10

15

20

25

0

1

2

3

4

5

6

7

8

Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17

SEK

m

SEK

m

BIP products BIP products sales 12 months rolling (rhs)

0

5

10

15

20

25

2014 2015 2016 2017

SEK

m

BIP products



Mapping of where the products are needed

Source: Survey of US physicians, Socialstyrelsen DRG-database 2013, SKL point-prevalence of Foley usage 2013, Swedish intensive care registry

Price difference, standard versus coated catheter (Sweden)

Source: SEB, Bactiguard

Licence revenues The licence revenues stem from sales of products under licence. Today, all the recurring licence sales come from one customer. Bactiguard currently has three licensing agreements:

1. C.R. Bard regarding coated Foley catheters for the US, Japan, the UK, Ireland, Canada and Australia. The partnership has been in place since 1995 and generates stable revenues every quarter. The agreement runs until Bactiguard’s patent expires (in 2029 in the US and 2027 in the other countries). Bard is not allowed to change supplier unless another coating technology demonstrates significantly better clinical results than Bactiguard. C.R. Bard was acquired by the global medical technology company Becton Dickinson (BD) in December 2017. Commentary and presentations by BD indicate an intention of continued strong focus on infection prevention, e.g. via the Foley catheters.

20

100

250

100

200

500

0

100

200

300

400

500

600

Foley catheters Endotracheal tube Central venous catheter

SEK

Standard non-coated Coated



2. Vigilenz Medical Devices for coated orthopaedic trauma implants, covering the Asean region. This partnership was signed in 2015 but is not generating any sales today. The company is aiming for a CE mark in early 2018.

3. Smartwise for coated vascular injection catheters. Smartwise is a very small company with no product sales today. We note Bactiguard’s CEO and the other main owner are two of the founders and owners of Smartwise which makes the agreement somewhat peculiar. The partnership generated SEK 21m income in 2017 as non-recurring upfront payments and could lead to future royalties. We do however not expect any near or mid-term sales since Smartwise’s product is still in preclinical development and is some three to five years from clinical use.

Competition Bactiguard faces fierce competition from several large established players. The top three competitors, which are market leaders in their respective segments, are:

● Bard, in Foley catheters. Acquired by Becton Dickinson 2017.

● Teleflex, on central venous catheters

● Covidien, in endotracheal tubes. Acquired by Medtronic 2015.

A more detailed competitive landscape is shown in the table below.

Competitive landscape

Foley catheters Central venous catheters Endotracheal tubes Coated products Bard/BD (Bardex IC) Teleflex (Arrowg+ard) Bard (Agento IC) (anti-infective) Covidien/Medtronic (Dover Silver) B Braun (Certofix)

Medline (Silver Touch) Vygon (Multicath) 3 local Chinese players Cook Medical (Spectrum)

Uncoated products Bard Teleflex (Arrow) Covidien (Mallincrodt) Teleflex (Rüsch) B Braun Teleflex (Rüsch) Covidien/Medtronic Vygon Smith Medical (Portex)

Source: SEB



Sales estimates

How we model sales We model the two sources of income separately: ● Licence revenues: low but steady growth.

● Sales of BIP products: high growth from a low base.

Licence revenues The old licence revenues from C.R. Bard have been in place since 1995 and grew at a CAGR of 3% in 2013-2017. CAGR in 2014-17 was higher at 6% but CAGR in 2016-17 was 0%. Bard has about 40% market share with coated catheters and revenues to Bactiguard could grow if C.R. Bard (or BD, since the acquisition is completed) were to decide to add the Bactiguard coating to other products. There is however no indication of this today. We model 3-4% annual growth in line with the five year historical CAGR which also should be about in line with the underlying market.

New licensing revenues depend on new agreements and product approvals. We do not model income from Smartwise as the time to reach the market is closer to five years with very limited data available. For Vigilenz the product could be approved in 2018 and we model a small sales contribution from 2019.

Sales of BIP products The sales of BIP products are at a much earlier growth stage than the licensing sales and Bactiguard has more opportunities to improve growth via its own sales and marketing efforts. Although growing from a fairly low base, growth could be high.

Average selling price per BIP product unit During full-year 2017 the value of sold BIP products was SEK 21.8m and in total about 502,000 units were delivered. This translates into an average selling price (ASP) of about SEK 43 (an increase from the SEK 38 recorded in 2016).



Average selling price per BIP product unit


Market value of SEK 4.3bn The total market for the product categories is about SEK 20bn but the BIP products are addressing the part of the market where the products are used for more than two days (otherwise the risk of bacterial infection is much smaller). This market has a value of about SEK 10.5bn. The countries where Bactiguard today has its products approved for sale have a market value of about SEK 4.3bn.

BIP products’ market value

Source: Bactiguard

Bactiguard market share This means the current market share is only 0.49% although it did increase from 0.37% in 2016 and 0.15% in 2015. We estimate further market share gains based on the historical track record and the contribution from new or recently added regions/countries.

0

5

10

15

20

25

30

35

40

45

50

Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17

SEK

ASP per BIP product unit, 12m rolling average

20

10.5

4.3

0

2

4

6

8

10

12

14

16

18

20

22

Total market value BIP potential (prod. used >2days)

Adressable today (marketsproduct is approved)

SEK

bn

Foleys CVC ETT



Market share (BIP products)


Total sales estimates Reported sales growth in 2017 was 20% but adjusted for the non-recurring new licence sales (upfront payment from Smartwise) the growth was 3%. In 2018, we in total estimate negative reported sales growth but 13% growth when adjusted for the same non-recurring income in 2017. In 2019 and 2020 we estimate double-digit growth.

Total sales

Income statement (SEK m) 2016 2017 2018E 2019E 2020E Old licence sales 103.0 104.3 109.5 113.9 117.3 New licence sales 21.3 0.0 3.0 6.0 Total licence sales 103.0 125.6 109.5 116.9 123.3 BIP products 15.8 21.8 33.4 47.6 66.6 Other sales 9.6 6.2 6.4 6.6 6.8 SALES 128.3 153.6 149.3 171.1 196.7 growth (%) -7.3% 19.7% -2.8% 14.6% 14.9% growth (%), adjusted 8.3% 3.1% 12.8% 14.6% 14.9%

growth (%), Old licence sales -18% 1% 5% 4% 3% growth (%), New licence sales -100% 100% growth (%), Total licence sales -18% 22% -13% 7% 5% growth (%), BIP products 157% 39% 53% 43% 40%

Source: SEB

0.15%

0.37%

0.49%

0.73%

1.02%

1.38%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

2015 2016 2017 2018E 2019E 2020E

market share (BIP products)



Sales by segment


Sales by segment (2017) Sales by segment (2018E)

Source: SEB, Bactiguard Source: SEB

Sales by region (2018E)

Source: SEB

0

20

40

60

80

100

120

140

160

180

200

2016 2017 2018E 2019E 2020E

SEK

m

Old license sales BIP products Other sales New license sales



BIP products14%

Other sales4%

Old licence sales74%

New licence sales0%

BIP products22%

Other sales4%

Americas77%

MEA6%

Asia9%

Europe8%



Financials In November 2015 the growth target was reduced from 30% to the current 20%. The starting point is SEK 118.5m in 2015 (FY 2015 sales adjusted for a one-off order). This translates into target sales of SEK 295m in 2020. In the first two years (2016 and 2017) the company ran behind plan since the sales CAGR was 14% (or 6%, if adjusted for the abnormal new licence income in 2017).

Of the base of SEK 118.5m, SEK 105m was licensing income from C.R. Bard where growth was flat to the end of 2017 and is unlikely to increase significantly, in our view. Assuming 3-4% annual growth from SEK 104m in FY 2017 it grows to SEK 117m by 2020. This means that the other SEK 13.5m (BIP products, new licensing revenue and other income) would need to grow to SEK 180m by 2020, or at a CAGR of about 67%.

We estimate sales CAGR of 11% in 2016-2020 which is a good level but still clearly below the company’s target which seems overly optimistic to us. Our estimated 2020 sales figure is 33% below the company target.

Sales growth target is behind plan

Source: SEB. Adjusted for non-recurring income in 2015 and 2017.

EBITDA margin >30% by 2020 To reach an EBITDA margin of 30% would be quite an achievement, given that the company historically has only reached 15% on our adjusted figures (adjusted for the one-time income from Smartwise). And the adjusted margin has been sliding down from 15% to 9% over the past three years, as demonstrated in the chart below. We forecast margin expansion but not up to the target level.

Future sales growth will likely derive largely from sales of BIP products, for which margins are lower than for the licensing income from C R Bard. We estimate BIP products’ gross margin currently is around 50-55% and potentially will reach 70% with more scale, but this is still clearly below the close to 100% gross margin on the licensing income. On the operating level the margin spread is even higher. In our view, all this will hamper margin expansion, but with increased volumes we still expect the margin to improve significantly over the next few years, as also demonstrated in the chart.

non-recurringnon-recurring

0

50

100

150

200

250

300

2015 2016 2017 2018E 2019E 2020E

SEK

m

actual (adj) target non-recurring



EBITDA margin

Source: SEB. Adjusted for non-recurring income of SEK21m in 2017 and IPO costs of SEK3m in 2014.

There are only a few medical technology and medical device companies enjoying EBITDA margins above 30% and those that do have either a dominant market share position (e.g. Coloplast) or large scale advantages (e.g Medtronic and C. R. Bard).

In our peer group, the most relevant companies from an operational perspective are Teleflex, Medtronic (especially since its acquisition of Covidien) and C R Bard. Other companies with significant consumables sales are also relevant, e.g. Coloplast, Ambu, Boule and Biotage.

The average EBITDA margin in our group of reference companies is about 22% but Bactiguard’s limited scale today makes us forecast a lower margin. This could of course prove to be too conservative if there are substantial additions of licensing income, which would be margin accretive.

Peer group companies’ EBITDA margin

Source: SEB, Thomson Reuters

-5%

15%

12%

22%

12%14%

17%

9%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2014 2015 2016 2017 2018E 2019E 2020E

margin (EBITDA) adjusted margin (EBITDA) Target

1222

3032

3136

2415

2329

222121

189

2318

20

0 5 10 15 20 25 30 35 40

BactiguardPeers' average

TeleflexMedtronic

C R BardColoplast

AmbuBoule

BiotageStraumann

SonovaGN Store Nord

William DemantGetinge

DraegerwerkSteris

ElektaVarian

EBITDA margin 2018E, %



Equity ratio >30% The equity ratio of 62% at the end of 2017 was far above the target. It has not been below 30% since the IPO in 2014.

Dividend policy of 30-50% of net profit In the coming years expansion is prioritized and we believe it may still be several years before a dividend is paid to shareholders.



P&L summary, annual P&L

Income statement (SEK m) 2014 2015 2016 2017 2018E 2019E 2020E Old licence sales 89.8 125.3 103.0 104.3 109.5 113.9 117.3 New licence sales 21.3 0.0 3.0 6.0 Total licence sales 89.8 125.3 103.0 125.6 109.5 116.9 123.3 BIP products 3.7 6.1 15.8 21.8 33.4 47.6 66.6 Other sales 4.8 7.0 9.6 6.2 6.4 6.6 6.8 SALES 98.3 138.5 128.3 153.6 149.3 171.1 196.7 growth (%) -20.7% 40.9% -7.3% 19.7% -2.8% 14.6% 14.9%

growth (%), Old licence sales 9% 40% -18% 1% 5% 4% 3% growth (%), New licence sales -100% 100% growth (%), Total licence sales 9% 40% -18% 22% -13% 7% 5% growth (%), BIP products -90% 63% 157% 39% 53% 43% 40% Cost of Goods Sold -6.5 -7.9 -15.8 -20.3 -24.1 -31.1 -37.9 Gross profit 91.8 130.6 112.5 133.4 125.1 140.1 158.7 gross margin (%) 93% 94% 88% 87% 84% 82% 81% Other ext expenses -48.9 -56.3 -46.7 -42.3 -45.7 -49.6 -53.5 Personnel costs -45.0 -52.9 -45.8 -51.5 -55.5 -60.3 -65.1 other opex -3.2 -1.1 -4.8 -5.1 -5.3 -5.6 -5.8 EBITDA -5.3 20.3 15.2 34.4 18.6 24.6 34.3 -margin (%) -5% 15% 12% 22% 12% 14% 17% EBITDA adjusted -2.3 20.3 15.2 14.2 18.6 24.6 34.3 -margin adj. (%) -2% 15% 12% 9% 12.5% 14.4% 17.4% growth (%) -106% -987% -25% -6% 31% 32% 39% depr & amort -30.1 -32.9 -33.4 -35.0 -35.4 -35.7 -36.1 EBIT -35.4 -12.6 -18.2 -0.6 -16.7 -11.1 -1.8 -margin n/a n/a n/a n/a n/a n/a n/a Net financials -80.4 -18.3 -13.1 -7.7 -7.9 -7.7 -7.5 Pretax profit -115.8 -30.9 -31.3 -8.3 -24.6 -18.8 -9.3 Tax 5.1 4.5 4.5 5.0 5.1 4.1 2.1 tax rate (%) 4% 14% 14% 61% 21% 22% 22% Net profit -110.7 -26.4 -26.8 -3.3 -19.5 -14.7 -7.3

EPS -4.43 -0.79 -0.80 -0.10 -0.59 -0.44 -0.22

EPS adjusted -2.06 -0.07 -0.08 0.02 0.14 0.28 0.50




P&L summary, quarterly P&L

Income statement (SEK m) Q1/17 Q2/17 Q3/17 Q4/17 Q1/18E Q2/18E Q3/18E Q4/18E Old licence sales 27.4 25.7 24.3 26.9 28.8 27.0 25.5 28.2 New licence sales 8.8 4.3 4.0 4.2 0.0 0.0 0.0 0.0 Total licence sales 36.2 30.0 28.3 31.1 28.8 27.0 25.5 28.2 BIP products 2.8 6.5 5.2 7.4 5.0 9.4 7.5 11.5 Other sales 2.0 -0.4 1.4 2.9 2.1 0.0 1.4 2.9 SALES 41.0 36.1 34.8 41.4 35.8 36.4 34.4 42.7 growth (%) 58% 7% 0% 23% -13% 1% -1% 3%

growth (%), Old licence sales 20% -6% -10% 4% 5% 5% 5% 5% growth (%), New licence sales growth (%), Total licence sales 59% 10% 4% 20% -21% -10% -10% -9% growth (%), BIP products -2% 75% 48% 30% 75% 45% 45% 56% Cost of Goods Sold -3.9 -6.5 -3.6 -6.2 -4.2 -7.5 -4.5 -7.9 Gross profit 37.2 29.6 31.2 35.1 31.6 28.9 29.9 34.8 gross margin 91% 82% 90% 85% 88% 79% 87% 82% Other ext expenses -10.1 -10.9 -9.4 -11.9 -11.2 -11.6 -10.1 -12.9 Personnel costs -12.7 -13.6 -12.3 -12.9 -14.1 -14.4 -13.1 -14.0 other opex -1.0 -1.7 -1.0 -1.5 -1.0 -1.7 -1.0 -1.5 EBITDA 13.4 3.5 8.4 8.8 5.3 1.2 5.7 6.4 -margin (%) 33% 10% 24% 21% 15% 3% 17% 15% EBITDA adjusted 4.6 -0.8 4.4 4.6 5.3 1.2 5.7 6.4 -margin adj. (%) 11% n/a 13% 11% 15% 3% 17% 15% growth (%) -398% -133% -55% 1% 16% -250% 29% 40% depr & amort -9.0 -8.6 -8.7 -8.7 -9.1 -8.7 -8.8 -8.8 EBIT 4.4 -5.1 -0.3 0.1 -3.8 -7.5 -3.1 -2.4 -margin (%) 11% n/a n/a 0% n/a n/a n/a n/a Net financials -1.6 -2.4 -1.4 -2.2 -1.7 -2.5 -1.5 -2.2 Pretax profit 2.7 -7.5 -1.7 -2.1 -5.5 -10.0 -4.5 -4.6 Tax 1.4 1.2 1.3 1.2 1.4 1.2 1.3 1.2 tax rate (%) 50% 16% 75% 57% 25% 12% 28% 27% Net profit 4.1 -6.3 -0.4 -0.9 -4.1 -8.8 -3.3 -3.3

EPS 0.12 -0.19 -0.01 -0.03 -0.12 -0.26 -0.10 -0.10

EPS adjusted 0.04 -0.14 0.05 0.03 0.06 -0.08 0.08 0.08


EBITDA (adjusted)

Source: SEB, Bactiguard. Adjusted for non-recurring income of SEK21m in 2017 and IPO costs of SEK3m in 2014.

-2

20

15 14

19

25

34

-2%

15%

12%

9%

12%

14%

17%

-5%

0%

5%

10%

15%

20%

-5

0

5

10

15

20

25

30

35

40

2014 2015 2016 2017 2018E 2019E 2020E

SEK

m

EBITDA adjusted -margin adj.



EPS (adjusted)

Source: SEB, Bactiguard. Adjusted for non-recurring items and amortizations of acquired intangibles.

-2.20

-2.00

-1.80

-1.60

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

2014 2015 2016 2017 2018E 2019E 2020E

SEK

EPS adjusted



Valuation Our valuation approach is based on a combination of a peer group based earnings multiple valuation and a traditional DCF valuation. We do not establish a firm fair valuation or range, but indicate different scenarios and its subsequent valuation.

Earnings multiple valuation Bactiguard’s historical valuation as a listed company only extends back to mid-2014 and with earnings below or fairly close to zero, the historical valuation multiples are of little use, in our view. We instead focus on a peer group based valuation approach.

EV/EBITDA

Source: SEB. Historical outcomes and SEB future estimates.

In our peer group, the most relevant companies from an operational perspective are competitors Teleflex, Medtronic (especially since its acquisition of Covidien) and C R Bard (recently acquired by B.D.). Companies with significant consumables sales are also relevant, e.g. Coloplast, Ambu, Boule and Biotage. We also include other medical companies which are less relevant than the above mentioned but which are still valid reference points.

x

10x

20x

30x

40x

50x

60x

70x

80x

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

Jun-

19

Sep-

19

Dec

-19

Bactiguard EV/EBITDA 12m fwd average



Peer group comparison

MKT cap PER EV/EBIT EV/EBITDA ROCE (%) EPS CAGR Company (EURm) 2018E 2019E 2018E 2019E 2018E 2019E 2018E 2019E 2017-20E Bactiguard 78 84.9 47.0 129.8 71.1 49.2 36.7 1.3 2.4 128% Peers Teleflex 10,115 26.7 22.8 21.5 18.8 18.4 16.2 13.8 15.4 14% Medtronic 93,235 16.8 15.5 14.7 13.6 13.3 12.2 7.1 7.7 6% C R Bard - - - - 15.0 - - - Coloplast 14,538 27.4 25.5 20.6 18.9 18.3 16.9 69.4 65.8 6% Ambu 4,350 91.4 70.1 63.6 51.2 52.1 41.8 24.4 24.1 23% Boule 137 21.7 20.4 16.4 14.9 14.6 13.1 20.4 19.8 Biotage 545 33.9 29.0 31.3 26.9 24.2 21.3 29.7 31.3 21% Straumann 8,717 33.9 29.1 29.1 25.2 25.0 21.9 22.9 24.2 19% Sonova 9,011 23.8 20.9 21.7 19.3 17.0 15.3 14.3 15.3 13% GN Store Nord 4,333 21.7 19.0 20.0 18.2 16.1 14.8 17.9 19.9 18% William Demant 8,406 28.6 24.8 24.7 22.4 21.5 19.5 19.8 21.2 20% Getinge 2,536 15.8 13.1 13.6 11.7 8.1 7.4 6.8 8.2 -8% Draegerwerk 1,297 14.6 12.4 8.7 8.2 5.5 5.1 6.5 7.1 11% Steris 6,925 22.9 20.1 17.6 16.2 14.6 13.5 12.0 - 10% Elekta 3,409 29.3 25.5 21.0 18.5 14.7 12.9 13.6 15.8 21% Varian 9,543 27.8 25.1 20.8 19.3 18.0 17.0 20.0 18.5 0% Average 11,073 27.0 23.8 20.7 18.7 17.5 15.8 11.8 12.4 7%

Source: SEB, Thomson Reuters

In our earnings multiple valuation approach, we focus on EV/EBITDA because EBIT and net profit are negative. We apply the multiple on 2020E EBITDA, by when we estimate profits from the BIP products to have improved and to be growing faster than in the peer group. Our peer group is trading at an average 12-month forward EV/EBITDA of 17x (main peers 18x).

● Bactiguard has higher earnings growth than its peers (EBITDA CAGR about 30%) which could support a 25% premium on the multiple (21x).

● With a more negative view it could be argued existing players with stable profits carry less risk and lower expected volatility, in which case a premium may not be justified (18x).

● In a scenario with the combination of more licensing agreements and BIP products establishing a strong market position, which could support stronger profit generation beyond 2020, an ever higher premium (50%) could be justified (26x).

Valuation sensitivity

Enterprise value

Share price

Net debt

Market cap

EV/EBITDA

Versus peers

2018E 2019E 2020E (SEKm) (SEK) (SEKm) (SEKm) 600 14.2 126 473 32.2 24.4 17.5 617 14.7 126 490 33.1 25.1 18.0 In line 634 15.2 126 508 34.0 25.8 18.5 651 15.8 126 525 34.9 26.5 19.0 668 16.3 126 542 35.9 27.1 19.5 685 16.8 126 559 36.8 27.8 20.0 702 17.3 126 576 37.7 28.5 20.5 720 17.8 126 593 38.6 29.2 21.0 +25% 737 18.3 126 610 39.5 29.9 21.5 754 18.8 126 628 40.5 30.6 22.0 771 19.4 126 645 41.4 31.3 22.5 788 19.9 126 662 42.3 32.0 23.0 805 20.4 126 679 43.2 32.7 23.5 822 20.9 126 696 44.1 33.4 24.0 840 21.4 126 713 45.1 34.1 24.5 857 21.9 126 730 46.0 34.8 25.0 874 22.4 126 747 46.9 35.5 25.5 +50% 891 23.0 126 765 47.8 36.2 26.0

Source: SEB



DCF valuation Our DCF valuation depends heavily on several assumptions. The value shown below uses our estimates outlined in previous sections but this is only one of several possible scenarios. We have also included a sensitivity table.

DCF valuation

Source: SEB

DCF sensitivity

Source: SEB

DCF sensitivity

Source: SEB

DCF valuation (SEKm) Weighted average cost of capital (%)NPV of FCF in explicit forecast period 230 Risk free interest rate 2.5NPV of continuing value 518 Risk premium 5.0Value of operation 748 Cost of equity 7.5

Net debt 141 After tax cost of debt 3.5Share issue/buy-back in forecast period -Value of associated companies - WACC 6.7Value of minority shareholders' equity -Value of marketable assets - AssumptionsDCF value of equity 608 Number of forecast years 10DCF value per share (SEK) 18 EBIT margin - steady state (%) 14.0Current share price (SEK) 22.90 EBIT multiple - steady state (x) 17.0DCF performance potential (%) (20) Continuing value (% of NPV) 69.2

6.5 7.0 7.5 8.0 8.559 31 28 26 24 23

Equity capital 69 26 24 22 20 18weight (%) 79 22 20 18 17 15

89 19 17 16 14 1399 16 15 13 12 11

Cost of equity (%)

-2% -1% 0 +1% +2%-2% 14 15 16 17 18

Abs. change in -1% 15 16 17 18 19sales growth - 0 16 17 18 19 20

all years +1% 17 18 19 21 22+2% 18 19 21 22 23

Absolute change in EBITDA margin - all years



Risks and possible concerns The investment case carries risks because the company is loss making and future income depends on several uncertain factors.

● One long-term customer, C.R. Bard, accounts for about 80% of sales and could under certain conditions terminate the agreement. This is unlikely and there are no indications today of it happening, but the company-specific exposure is unusually large.

● Development of competing technologies with better clinical results could disrupt the sales potential. If a coating or other technology with better antibacterial results is developed, Bactiguard’s coating could become obsolete.

● Reimbursement levels could affect pricing negatively. This would probably only have a small impact but pricing of the end product would have a direct impact on both the licensing income and own-product sales.

● An increase of single-use catheters could reduce demand for Bactiguard's antibacterial coating. Bactiguard’s coating is used for products used for more than two days. In some cases, an alternative could be to change catheter more frequently, especially if prices decrease.

● The higher than normal turnover of management positions – with three CEO changes in the past four years – may indicate somewhat volatile working conditions with implementations of new strategies etc. A corporate governance flag could potentially also be raised with the two founders (one of them the CEO) having control of the company (combined they hold 79% of the votes and 56% of the capital), which leaves minority shareholders with less influence.



Management & board We note a higher than normal turnover of the CEO position with three changes in the past four years. The chairman will also soon be replaced after three years in the position.

Management CEO, Christian Kinch CEO of the group since June 2015 and during 2005 - March 2014. Chairman of the board from March 2014 to June 2015. Board assignments within the group since 2005. Also chairman of the Board of Directors of SWIB Holding AB (holding company for Smartwise Sweden AB and Procella Therapeutics AB). Born 1966. Owns 28% of Bactiguard.

CFO, Cecilia Edström CFO since September 2017, employed at the company since 2014. Background: different positions within SEB, Scania and TeliaSonera. Born 1966.

COO, Johan Rugfelt CEO March 2014 until March 2015 returned thereafter to previous role as COO. Background: assignments for McKinsey, Bain, SEB, The Swedish Trade & Invest Council (Exportrådet) and within the group. Born 1967

SVP Sales & Marketing, Nina Nilsson Background: several positions in international sales and marketing. Born 1977.

Board of directors Chairman of the Board, Stanley Brodén Board member since 2015. Has declined re-election at the AGM in May 2018. Born 1951.

Nominated Chairman of the Board, Jan Ståhlberg Nominated to be elected at the AGM in May 2018. Vice chairman of EQT AB and experience from Ovako Steel, cancer diagnostic company Dako, Carl Zeiss Vision and Gambro in the life science industry. Owns 4.8% of Bactiguard.

Christian Kinch Also CEO. More details above.

Mia Arnhult Board member since 2014 and chair of the auditing committee. Board assignments within the group since 2014. On the Board of Devyser, Odd Molly, Footway, M2 Capital Management , Suburban Properties and M2 Gruppen. Born 1969.

Svante Östblom Board member since 2017. On the Board of Adamo Telecom Iberia, Global Connect, CMA/Markör, Bredbandsgruppen (BBG), Nora 24, IP-only and Candidator. Born 1960.

Marie Wickman-Chantereau Board member since 2016. M.D and Med. DR., Associate Professor of Plastic Surgery, Karolinska Institute, Stockholm. Born 1955.



Overview Investment considerations

Healthcare associated infections are costly and can be fatal, so preventing them is crucial – an example is Bactiguard's antibacterial coating for catheters. The licensing income from C.R. Bard is likely to generate stable revenues and Bactiguard's strategy to focus more on its own sales of BIP products has potential to grow significantly but may take time as competition from larger players is fierce.

Company profile

Bactiguard is a Swedish medtech company which develop and supply infection protection solutions which aim to reduce the risk for healthcare associated infections and the use of antibiotics. The primary product is the Bactiguard coating which reduce bacterial adhesion and formation on medical devices. Bactiguard-coated urinary catheters are market leading in the US and Japan through the license partner C.R. Bard. Bactiguard also has its own product portfolio consisting of urinary catheters, endotracheal tubes and central venous catheters with the proprietary coating. The company has about 70 employees worldwide with headquarter in Stockholm.

Valuation approach

We use a blend of a DCF valuation and a peer group based earnings multiple valuation and include various scenarios.

Investment risks One long-term customer accounts for about 80% of sales and could under certain

conditions terminate the agreement. Development of competing technologies with better clinical results could disrupt sales potential. Reimbursement levels could impact pricing negatively. An increase of single-use catheters could reduce demand for Bactiguard's antibacterial coating. High turnover in key management.

Revenues by region Revenues by segment (2017)

Source: SEB Source: SEB

Sweden: 1% Other Nordic: 0%Other Europe: 3% Americas: 87%Asia: 8% RoW: 2%



BIP products14%

Other sales4%



Profit & loss statement - Bactiguard(SEKm) 2012 2013 2014 2015 2016 2017 2018E 2019E 2020ENet Sales 93 124 98 138 128 154 149 171 197Other revenues 0 0 0 0 0 0 0 0 0Total revenues 93 124 98 138 128 154 149 171 197

Total expenses (84) (84) (104) (118) (113) (119) (131) (147) (162)Profit before depreciation 9 40 (5) 20 15 34 19 25 34

Depreciation - Fixed assets (4) (5) (6) (9) (10) (11) (12) (12) (12)Depreciation - Other assets 0 0 0 0 0 0 0 0 0Amortisation - Goodwill 0 0 0 0 0 0 0 0 0Amortisation - Other intangibles (24) (24) (24) (24) (24) (24) (24) (24) (24)Operating profit (19) 11 (35) (13) (18) (1) (17) (11) (2)

Net interest expenses (59) (17) (80) (18) (13) (8) (8) (8) (8)Foreign exchange items 0 0 0 0 0 0 0 0 0Other financial items 0 0 0 0 0 0 0 0 0Value changes - Fixed assets 0 0 0 0 0 0 0 0 0Value changes - Financial assets 0 0 0 0 0 0 0 0 0Value changes - Other assets 0 0 0 0 0 0 0 0 0Reported pre-tax profit (77) (6) (116) (31) (31) (8) (25) (19) (9)

Minority interests 0 0 0 0 0 0 0 0 0Total taxes 12 2 5 4 4 5 5 4 2Reported profit after tax (65) (4) (111) (26) (27) (3) (19) (15) (7)

Discontinued operations 0 0 0 0 0 0 0 0 0Extraordinary items 0 0 0 0 0 0 0 0 0Net Profit (65) (4) (111) (26) (27) (3) (19) (15) (7)

Adjustments:Discontinued operations 0 0 0 0 0 0 0 0 0Interest on convertible debt 0 0 0 0 0 0 0 0 0Minority interests (IFRS) 0 0 0 0 0 0 0 0 0Value changes 0 0 0 0 0 0 0 0 0Goodwill/intangibles amortisations 24 24 24 24 24 24 24 24 24Restructuring charges 0 0 0 0 0 0 0 0 0Other adjustments 0 (34) 32 0 0 (20) 0 0 0Tax effect of adjustments 0 0 0 0 0 0 0 0 0Adjusted profit after tax (41) (14) (55) (3) (3) 1 4 9 17

Margins, tax & returnsOperating margin (20.0) 8.7 (36.0) (9.1) (14.2) (0.4) (11.2) (6.5) (0.9)Pre-tax margin (83.5) (5.0) n.m. (22.3) (24.4) (5.4) (16.5) (11.0) (4.7)Tax rate 15.8 38.5 4.4 14.5 14.3 60.8 20.7 22.0 22.0ROE (90.2) (3.4) (42.3) (6.1) (6.6) (0.8) (5.2) (4.1) (2.1)ROCE 1.7 0.2 3.4 1.9 1.0 0.6 1.3 2.4 4.3

Growth rates y-o-y (%)Total revenues n.a. 33.5 (20.7) 40.9 (7.3) 19.7 (2.8) 14.6 14.9Operating profit n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m.Pre-tax profit n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m. n.m.EPS (adjusted) 0.0 0.0 0.0 0.0 0.0 0.0 683.8 112.4 80.7

Cash flow(SEKm) 2012 2013 2014 2015 2016 2017 2018E 2019E 2020ENet profit (65) (4) (111) (26) (27) (3) (19) (15) (7)Non-cash adjustments 51 (7) 51 27 22 32 35 36 36Cash flow before work cap (14) (10) (60) 0 (4) 29 16 21 29

Ch. in working capital / Other (26) (8) 23 (21) (8) (22) 2 2 3Operating cash flow (41) (19) (36) (21) (13) 6 18 23 31

Capital expenditures (22) (9) (18) (12) (7) (6) (8) (8) (8)Asset disposals 0 0 0 0 0 0 0 0 0L/T financial investments 0 0 0 0 0 0 0 0 0Acquisitions / adjustments 0 0 0 0 0 0 0 0 0Free cash flow (63) (28) (54) (33) (20) 0 10 15 23

Net loan proceeds 5 52 (322) (51) 12 (1) 0 0 0Dividend paid 0 0 0 0 0 0 0 0 0Share issue 0 0 473 0 0 0 0 0 0Other (0) 0 0 0 0 (2) 0 0 0Net change in cash (57) 24 98 (84) (8) (3) 10 15 23

AdjustmentsC/flow bef chng in work cap (14) (10) (60) 0 (4) 29 16 21 29Adjustments 0 0 0 0 0 0 0 0 0Int on conv debt net of tax 0 0 0 0 0 0 0 0 0Cash earnings (14) (10) (60) 0 (4) 29 16 21 29

Per share informationCash earnings (0.72) (0.52) (2.38) 0.01 (0.13) 0.86 0.48 0.63 0.86Operating cash flow (2.03) (0.94) (1.45) (0.63) (0.38) 0.19 0.54 0.68 0.94Free cash flow (3.13) (1.39) (2.17) (0.98) (0.6) 0.01 0.3 0.44 0.7

Investment coverCapex/sales (%) 23.7 7.3 18.3 8.4 5.8 3.9 5.4 4.7 4.1Capex/depreciation (%) 543 179 284 129 77 53 69 67 65

Source for all data on this page: SEB



Balance sheet - Bactiguard(SEKm) 2012 2013 2014 2015 2016 2017 2018E 2019E 2020ECash and liquid assets 8 5 105 22 16 12 22 36 60Debtors 60 96 87 56 31 53 47 53 60Inventories 4 4 9 12 15 14 13 15 17Other 7 8 8 10 10 0 0 0 0Current assets 79 113 209 100 71 78 82 104 136

Interest bearing fixed assets 0 0 0 0 0 0 0 0 0Other financial assets 1 1 11 7 17 17 17 17 17Capitalized development cost 4 7 8 12 17 19 19 19 19Goodwill 226 226 226 226 226 226 226 226 226Other intangibles 375 350 325 300 275 250 226 202 178Fixed tangible assets 18 20 32 31 26 36 32 28 24Other fixed assets 0 0 0 0 0 0 0 0 0Fixed assets 624 604 602 577 561 548 520 492 464

Total assets 704 717 811 676 632 626 602 597 600

Creditors 6 7 11 4 5 5 5 6 6Other trade financing 30 91 119 74 35 22 25 33 43S/T interest bearing debt 5 57 0 142 100 8 0 0 0Other 10 9 4 4 4 7 0 0 0Current liabilities 51 165 134 224 143 41 29 38 50

L/T interest bearing debt 461 428 196 0 50 155 162 162 162Other long-term liabilities 0 0 0 0 18 17 17 17 17Convertible debt 0 0 0 0 0 0 0 0 0Pension provisions 0 0 0 0 0 0 0 0 0Other provisions 0 0 0 0 0 0 0 0 0Deferred tax 47 44 39 35 30 25 25 25 25Long term liabilities 508 472 235 35 98 197 205 205 205

Minority interests 0 0 0 0 0 0 0 0 0

Shareholders' equity 145 81 443 417 390 387 368 353 346

Total liabilities and equity 704 717 811 676 632 625 602 596 600

Net debt (m) 459 479 90 120 134 151 141 126 103Working capital (m) 26 1 (30) (4) 12 33 31 30 27Capital employed (m) 611 566 638 560 540 550 530 515 508Net debt/equity (%) 318 593 20 29 34 39 38 36 30Net debt/EBITDA (x) 49.5 12.1 (17.1) 5.9 8.9 10.5 7.6 5.1 3.0Equity/total assets (%) 21 11 55 62 62 62 61 59 58Interest cover (0.3) 0.6 (0.4) (0.7) (1.4) (0.1) (2.1) (1.4) (0.2)

Valuation(SEK) 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E

No of shares, fully dil. (y/e) 20.0 20.0 33.3 33.3 33.3 33.3 33.3 33.3 33.3No of shares, fully dil. avg. 20.0 20.0 25.0 33.3 33.3 33.3 33.3 33.3 33.3

Share price, y/e 17.2 11.2 16.9 23.0 24.0 24.0 24.0Share price, high 38.5 19.3 18.9 26.5 25.4Share price, low 15.0 8.1 10.7 14.7 19.5Share price, avg 24.8 12.2 14.9 20.3 23.1

EPS (reported) (3.26) (0.19) (4.43) (0.79) (0.80) (0.10) (0.59) (0.44) (0.22)EPS (adjusted) (2.07) (0.68) (2.19) (0.08) (0.09) 0.02 0.13 0.27 0.50Cash earnings/share (0.72) (0.52) (2.38) 0.01 (0.13) 0.86 0.48 0.63 0.86Dividend/share 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Enterprise value/share 19.9 14.8 21 28 28 28 27Book value/share 7.2 4.0 13.3 12.5 11.7 11.6 11.0 10.6 10.4Adjusted equity/share 7.2 4.0 13.3 12.5 11.7 11.6 11.0 10.6 10.4

PER (adjusted) n.m. n.m. n.m. n.m. 185.8 87.5 48.4CEM (7.2) 890.2 (127.7) 26.6 50.4 38.0 27.8Dividend yield 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EV/EBITDA (125.5) 24.3 45.9 63.5 50.5 37.6 26.3EV/EBITA (57.1) 44.0 124.4 285.0 133.1 72.9 41.0EV/EBIT 32.4 44.0 124.4 285.0 133.1 72.9 41.0EV/Sales (x) 6.75 3.56 5.43 5.97 6.30 5.41 4.59Price/Book value 1.29 0.89 1.44 1.98 2.17 2.26 2.31Price/adjusted equity 1.29 0.89 1.44 1.98 2.17 2.26 2.31

Free cash flow/Market cap (%) (12.6) (8.7) (3.5) 0.0 1.2 1.8 2.9Operating cash flow/EV (%) (5.5) (4.2) (1.8) 0.7 1.9 2.4 3.5EV/Capital employed (x) 1.0 0.9 1.3 1.7 1.8 1.8 1.8

Main shareholders Management Company informationName (%) Votes Capital Title Name ContactChristian Kinch 39.6 28.4 COB Stanley Brodén Internet 0.0Thomas von Koch 39.6 28.4 CEO Christian Kinch Phone number 0Jan Ståhlberg 2.3 4.8 CFO Cecilia Edström

IR

Source for all data on this page: SEB



About this publication This report is a marketing communication commissioned by Bactiguard and prepared by Skandinaviska Enskilda Banken AB (publ). It does not constitute investment research; as such, it has not been prepared in accordance with the legal requirements to promote the independence of investment research, nor is it subject to any prohibition on dealing ahead of the dissemination of investment research.

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Company specific disclosures and potential conflicts of interest A member of, or an entity associated with, SEB or its affiliates, officers, directors, employees or shareholders of such members (a) is not, and has never been, represented on the board of directors or similar supervisory entity of Bactiguard, (b) has from time to time bought or sold the securities issued by the company or options relating to the company, and (c) SEB does not hold any short / long position exceeding 0.5% of the total issued share capital of Bactiguard as of 31 Mar 2018. The analyst(s) responsible for this research report (jointly with their closely related persons) hold(s) 0 shares in Bactiguard and do(es) not have holdings in other instruments related to the company.

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Documents

Corporate Research Bactiguardresearch.sebgroup.com /corporate Important.All disclosure information can be found on pages 40 – 42 of this document Corporate Research Bactiguard NOT