GOTEBORG Oct 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Xvivo Perfusion AB earnings conference call or presentation Thursday, October 24, 2019 at 12:00:00pm GMT
Ladies and gentlemen, welcome to the XVIVO Perfusion Third Quarter 2019 Report Webcast. Today, I am pleased to present Magnus Nilsson, CEO; and Christoffer Rosenblad, CFO.
I will now hand you over to Magnus Nilsson. Sir, please go ahead.
Thank you, and welcome to the 28th quarterly report of an independent XVIVO Perfusion. And this is, as we said, the interim report for the third quarter.
Next slide, please. So the highlights. It's been an important quarter for us, and I'll try to put you into the picture.
Q3, first time, rolling 12 months nondurable sales over SEK 200 million. We have received a patent approval for the Perfadex Plus, and we have started a very interesting collaboration to develop fast diagnostic tests using biomarkers at -- to be used in EVLP and similar.
And repeating for the full year, the most important highlights is, of course, the PMA for XPS and STEEN Solution, the patents for the heart preservation fluids. The positive results of the clinical safety studies in Lund on the heart device and the deepening -- deepened collaboration or cooperation with Lung Bioengineering.
So next slide, please. So the sales highlights for the quarter was that we sold the second XPS to China, which is really interesting market. I'll come back to that. We -- also Lung Bioengineering has acquired their second XPS when they opened their new EVLP center, and we have a continued stable gross margin during growth for the quarter and for the year. We can see for the year continued strong sales all over the year, nondurable goods, 25% in Q3. Warm nondurable growth rolling -- is rolling on a 40% level year-to-year. And we see also continuation of the positive sales trend for cold preservation, which is an indication that the global market for transplantation is growing also outside that main markets.
Next slide, please. So some more numbers here. The profit and loss statement to be highlighted is, of course, the net sales, but then the -- again, the stable gross margin of nondurable goods. That's the important gross margin, of course. And we are running on a level pretty similar level on the selling expenses. We built up continuously our sales force, which is more of a customer support. That is technical advisers being out on the clinics, helping them to perform EVLP.
We can also see that we are a little bit higher R&D. Same thing here. We developed our clinical teams since we are in a situation where we start up a number of clinical studies. And then that we're still doing all this intensive investment in R&D and built up our organization still can keep a very good profit level -- counted on the EBITDA level. There is one item affecting comparison. And that is, of course, as I said before, that we have mirrored bonus program for the employees outside Sweden, which is based on the share price, mirroring the Swedish warrant program.
Next slide, please. So we are in an intensive phase of the company, where we strengthen ourselves in hiring new competencies and capacities, such as our first transplant surgeons and other clinical trial experts. So the buildup of the heart and PrimECC teams that will run the multicenter studies over the world, and we're also extending the team supporting the Lung EVLP market development.
Next slide, please. So a few words about the Chinese transplant market. It is a very fast-growing market, a lot of activities. I think more than 10 new centers have been certified to do transplants in China. It's growing from relatively low level But with a very high speed, and it has been about a 50% increase during the last years and we -- something like that probably this year as well. So therefore, it's very encouraging that we now have placed our second or sold our second EVLP in China to the second largest transplant clinic in China, the -- one of the major hospitals in Beijing. And this clinic makes about 100 -- over 100 transplant last year. And you can -- necessity they are increasing very rapidly, and they're just being trained actually these days. We -- just yesterday, I got a report that the training was -- the first training practice run was performed in Beijing. So this continues to be one of the more exciting markets where we focus on, and we'll focus on in the future.
Then another thing, the important product for us, obviously, is Perfadex. And as you know, we have a upgraded ready-to-use product that -- so that -- which is more convenient and safe for the patients. You don't have to mix at site. It's now been patented in Europe, which is very encouraging. And we have submitted patent applications in all important markets.
Next slide, please, #8. XVIVO and MyCartis collaboration. MyCartis is a company specialized in developing fast analysis tools and assays, so we will -- we are now part in a collaboration, where we will -- they will help us on developing these assays, which can be used and generate results within 20 minutes at bedside, so to speak, on the EVLP, which is thought to be very important in assessing and identifying how good lungs and other organs are after XVIVO perfusion. So these biomarkers and this fast evaluation of biomarkers has a potential to increase the number of EVLP and also increase the, obviously, the chances of positive outcomes for the patients.
Next slide. We continue to cooperate with Lung Bioengineering, as I said. And they -- and not only with Bioengineering. Actually with another entities in United Therapeutics. So they have opened now their second EVLP center in Jacksonville, Florida, in addition to their center in Maryland. And we collaborate both -- we're helping them to set up using the XPS EVLP process and also are cooperating in marketing of these services on centers so that the centers can choose to either use EVLP, if they have an EVLP system themselves; or if they want to use these services, which uses our products, but at the United therapeutics or Lung Bioengineering sites. We also have started collaborating with them in their research on the xenotransplantation.
Next slide, please. So this part is about the R&D pipeline, which we drive with high speed and a lot of focus to ensure future growth and to employ the technology and the experience we've had drawn on lungs into other organs.
So the investment in future EVP (sic) [EVLP] growth. So this is about developing the EVLP or the lung indication to use it more in order to get more organs available to the patients. So we developed the XPS technology with new sensors, and we also then again want to develop markers to use -- to be used in conjunction with the running of the XPS.
We're also looking at the clinical development, in expanded use of donation after circulatory death. That is the usual DCD lungs. And also for anti-infection therapy, we can -- we see now one of the results of that support is the recent publication on virus risk hepatitis C reduction during EVLP. And we also developed further the EVLP protocol for the ventilation strategy; organ proning, which is to turning it to get perfusion on all sides, et cetera. So a lot of development going on in order to make the EVLP even better in determining which organs that can be used. We also investigate the immunological response to EVLP, targeting both short-term organ function and long-term survival.
Next slide. So if you look at employing this technology on new organs. We have, of course, our #1 priority, the heart transplant project, which is about optimizing preservation to prolong the time outside the body, because we know that a heart is very demanding in the sense it can only survive 4 to 5 hours outside the body today. And we have the aim to keep the organ in better shape during the process and, therefore, both being able to use older donors and also to extend the time outside the body to be able to use organs from further away than today.
The #2 priority is the PrimECC. It's about an optimized solution. So it's based on our knowledge and technology around Perfadex and STEEN Solution to have an optimized priming solution to reduce the known side effects.
And as a third priority and a lower priority, but still very interesting is to see how we can employ the STEEN Solution technology on the liver and kidney transplants. We have been supporting that for a time coming -- for a time where in clinical studies, STEEN Solution with some additives has been used, both in liver and in kidneys today clinically. The fourth priority, which is a relatively low priority, but may be interesting in the longer-term future is perfusion of the isolated organs and tissues.
Next slide, please. So again the heart transplantation. It's a heart perfusion and preservation solution and device developed by Professor Steen originally. And that first device prototype has been used in a number of preclinical trials, where he's shown -- showed that this non-oxygenated time, called NIHP, results in a better organ quality. So the idea is to keep the organ resting, but profused with this new solution in a low temperature, reducing the metabolism, which then facilitates a longer preservation time. And it's shown up to 24 hours in pigs in publications and even longer.
It's also being used in xenotransplantation from pig to monkey. And using that device, they were able to increase the survival up to 6 months. This was never been done before. That was published in Nature in December of last year. And after that, the technology has been employed in Lund University Hospital in a safety clinical trial. The first 6 patients were evaluated after 6 months and partly public -- publicized, where they can said that the heart can be safely preserved with this NIHP technology, resulting in successful transplantations and the reduced risk of ischemic induced reperfusion injury. More patients have been included with this, and the study is ongoing in parallel to all other activities.
Next slide please, 14. So we've been working very hard now with a number of activities, especially the clinical team build up, ramp-up of machine, disposable and solution production. And we see a huge interest in worldwide and the clinical participation in the clinical trials, both in Europe, U.S. and Australia. And on preparations for all these 3 are ongoing and Europe, obviously, first. We have several authorities that have cleared this, but we will -- we're looking to have all centers -- all regulatory authorities, all centers clearing the protocol before we start the inclusion. This moves on very well. And of course, the important is not the first patient in. The important is the last patient out, so that means that we need to have all the centers up and running. That's the most important, and that's what we're focusing on.
Next slide, please. PrimECC. So PrimECC background, just for those who have not heard it. Priming solutions are used in all runs of heart-lung machines, and they're primed before they can -- you start using them in the patient. And that means that about 1.5 liter of blood of the patient comes into the circuit of the heart-lung machine and that 1.5 liter of priming solution goes into the patient. That has -- of the solution used today, there is a number of known side effects of the solutions used today. About 600,000 to 700,000 of these operations are done worldwide each year. And the whole idea now is that the PrimECC has been developed to alleviate these side effects. That's the whole idea of this project. And we have done quite a bit so far.
And next slide please, 16. So it's a patent in all major markets, it's CE marked. We have done a clinical study of 40 plus 40 patients, which show that PrimECC is safe to use. It also show that we can improve fluid balance, reduction of side effects using the heart-lung machines primed with PrimECC.
So what we do right now is to scale up both the production. We had to change the bag for regulatory reasons to eco-friendly bag, and we've done all that validation of production. We have submitted that -- all that technical file to the notified body, which are looking at the file. And as soon as they are done, we can then start up the clinical trial. We have meanwhile also built up the clinical and regulatory team around the product, PrimECC product, which will run than the clinical trial and the regulatory implications.
So the whole idea here is to make a few, 1 or 2 studies, to get more clinical documentation showing then and developing the effects of this in reducing the side effects. It's a high interest from the clinics to participate in these studies.
Next slide, please. So we look forward. We continue to focus on the thoracic transplantation. That's primary focus. It's lungs, obviously, further to support the EVLP technology and clinical practice of using it; the heart preparation for multicenter studies in all major markets, that's U.S., Europe and Australia; and also -- and PrimECC preparation for the multicenter study, waiting for the regulatory authorities' go ahead.
We are looking at the abdominal transplantation, a new indication. It's a secondary focus, but we feel it's very interesting to see how we can use the technology and the experience further into organs in abdominal organs like liver and kidney. And we have been supporting with good results the clinical trials using STEEN Solution in these organs, and we further investigate how to employ the technology further and see how we can create value of what we've done in lungs and the hearts to this important and interesting indications.
So the long-term goals: Solidify the position in thoracic surgery. And then build new business using the STEEN Solution technology in liver and kidney. That's long term goal.
And we are open for questions, please.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from the line of Daniel Albin from Danske Bank.
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Daniel Albin, Danske Bank Markets Equity Research - Research Analyst [2]
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Can you hear me, guys?
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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO & MD [3]
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Yes.
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Daniel Albin, Danske Bank Markets Equity Research - Research Analyst [4]
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Yes. Good. Okay. So I have a couple of questions. My first question is maybe a bit more of a technicality, but looking at the sales of cold preservation, this quarter seems to be a pretty good one. I'm just wondering if you could elaborate a bit more on the reasons behind this strength. And how we should view the growth rates going forward? You're mentioning that the global market is growing. Is it growing more than the 6% last few years? Or how should we view this?
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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO & MD [5]
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I think it's mirroring a worldwide growth of lung transplantation as such. I don't think we should pay too much attention to a single quarter. We will see in the long-term trend if that will continue. We know that more -- we're seeing more countries buy and clinics buying also in South America and so forth, but we don't really know if that will increase over the kind of long-term trend of 6% to 7%. It's too early to say.
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Daniel Albin, Danske Bank Markets Equity Research - Research Analyst [6]
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Okay, yes. And my second question then. So you're mentioning China here growing very fast, and I'm wondering if you could give us maybe some bit more clarity on the regulatory pathway required by the FDA or the MPA nowadays regarding your products and then Perfadex and also the EVLP solution. What are the lead times that required clinical studies you're obligated to do, et cetera?
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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO & MD [7]
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So normally, it's -- traditionally or historically, it takes about 2 years to get product registered in China if you have the right documentation. We already STEEN Solution. We have several of the disposables already approved in China. We have -- the things missing so far is the XPS. However, it's okay to use the XPS in -- as an exception still in -- since transplantation -- lung transplantation is very young there, they allow them to use them anyways.
But we are in the -- rather late -- should be in the rather late stage of having XPS approved. And obviously hard to say, but we -- I would imagine that within -- in the next 6 to 9 months, we should have a registration of XPS in China. We have Perfadex as before registered.
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Daniel Albin, Danske Bank Markets Equity Research - Research Analyst [8]
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Okay. And how do you view then the, I guess, the ramp-up of EVLP procedures in China?
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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO & MD [9]
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It's obviously early stage. But again, we see how quickly it grows. What they have problems with in China is that they are not used to good ways of taking care of the donor. So the donor management is rather, let me say, not too developed, which means that the lungs or the organs they receive vary in quality quite a bit, and that's what they have -- they said that to us that for that reason, they think EVLP is very important for them in order to check if the organs are okay since again, the variation, I should say, of the organ quality is pretty large. So they believe that EVLP will be an important addition to their clinical practice, although we have to say that this is, again, transplantation -- lung transplantation is very new, and obviously, this technology is for them, totally new.
On the other hand, I have experienced from other product -- taking out the products to China, and they always want to start with the most advanced. They never go for the simple solution. So from my time in Vitrolife, I know that once the Chinese start up, they want to go for the cutting-edge technology, and I think that's why they have been so interested in taking on this EVLP. But we will probably have to wait a little bit longer probably -- maybe a year or so until we see a significant increase in EVLPs there. But I have no doubt that China will be a very important market for us just in the next 2 to 3 years.
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Operator [10]
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(Operator Instructions) Our next question comes from the line of Arvid Necander from Redeye.
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Arvid Necander, Redeye AB, Research Division - Analyst [11]
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Okay. So my first question relates to the collaboration with United Therapeutics. So when we saw the delivery of the first machine, we saw quite a big uptick in the sales growth related to warm perfusion. How correlated was this? And do you expect to see a similar impact now that the second machine is delivered?
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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO & MD [12]
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Yes. It's a tough question because I try to predict what other people do, but we know that they're very dedicated in providing this service to the U.S. clinics. They are very dedicated. They put a lot of money into having the service in order to have more transplant available. I know their CEO is very -- is very dedicated in advancing this technology in order to get more patients, transplantation -- transplanted.
So I can only judge from what I see in terms of how many -- how much resources they put in. And what kind of big focus they have. So I'm convinced that over the years, they will increase significantly the number of -- or percentage of EVLPs done by their service compared to the overall number. And for us, it's very good because I think that a lot of clinics are not big enough to -- can employ this technology by themselves, and that I foresee more or less that in the next year or so, we will see a pretty rapid increase in this service. I would be surprised otherwise.
We have already been starting co-marketing with them, helping or going traveling with them to clinics and to explain the difference and the similarities for the clinics using this service versus using our technology. So I can just say that they're very determined and put a lot of resources into it, which I think is very encouraging.
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Arvid Necander, Redeye AB, Research Division - Analyst [13]
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Okay. And also, if you could just address the recruitments you've made a bit more. How do you see the headcount increasing going forward? Are we -- should we expect to see the same trend? Or do you see a bit of a slowdown now going forward?
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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO & MD [14]
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Yes. So what we've done -- we can say that we have kind of a pretty steady growth when it comes to marketing. It's no explosion there. It's an add-on every now and then when we -- in more or less parallel with the sales increase. What we've done is to built our development team. So to run these huge clinical trials for us, several -- I mean, heart will be on all continents. We had to build more competence and teams in the heart transplantation field and also, to some extent, on the PrimECC thing.
So this will continue for some quarters more to complete the buildup of those clinical teams. After that, I foresee that we go back to a more gradual increase again. So maybe a couple of quarters where we complete the kind of recruitment of these clinical teams. After that, I see more -- going back to a more gradual growth in terms -- in parallel, more or less how we place up new machines and so forth.
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Arvid Necander, Redeye AB, Research Division - Analyst [15]
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Okay. Yes, right. And then just a last question. I guess I popped out related to the subject that you talked about before. Related to China, how do you see the reimbursement path? Of course, very hard to speculate, but what's your sense? And if you have any take on that going forward?
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Edited Transcript of XVIVO.ST earnings conference call or presentation 24-Oct-19 12:00pm GMT - Yahoo Finance
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