Xvivo Perfusion AB

STO:XVIVO

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to XVIVO Perfusion Report Webcast. I will now hand over to Magnus Nilsson, CEO. Please go ahead.

[Magnus Nilsson, MD & CEO]

Welcome to this 30th quarterly report of XVIVO Perfusion, the interim report January to March 2020. And I have with me Christoffer Rosenblad, the CFO. Christoffer?

[Christoffer Rosenblad, CFO, Deputy CEO, Deputy MD & Board Secretary]

Hello.

[Magnus Nilsson, MD & CEO]

Next slide, please. So first, the highlights of this very unusual Q1. We still have a strong cash position which is the primary message. So we have very limited cash consumption, cash consumption during Q1 in spite of a very heavy investment in R&D, as usual, and we end the quarter in a good financial position, SEK 159 million at the end versus SEK 160 million at the start of the quarter. The net sales was 2.5% lower in SEK than last year. And nondurable goods was 6% lower, but we had the strong cold sales of Perfadex. So all in all, limited reduction in the sales, almost intact. A strong gross margin of 79% of the nondurable goods, and a good profit level on the EBITDA level, as we normally encounter. Interestingly, we got an XPS sold to pediatric transplant clinic in Italy, Rome, and we have low launched in Europe and rest of the world the upgraded ready-to-use Perfadex Plus with Click Adapter, and I'll come back to that.Next slide, please. So first, I want to comment the COVID-19 effect, and I will make sure to emphasize that XVIVO Perfusion sees no reason why this epidemic of COVID-19 should affect the long-term demand of the XVIVO Perfusion's products. We are implementing -- having started implementing, I should say, a temporary cost reduction program to reduce expenditure to a substantially lower level during this period. And the clinical studies are delayed, but we focus on being 100% ready to start them as soon as it will be possible.Next slide, please. So interestingly, as I said, we sold XPS to the first pediatric hospital in the world actually, and it was to a clinic in Rome, Italy, and it's a sign that even in a country that has been hit as hard as Italy has been by the coronavirus, they already planned for the situation when this is gone. And it opens also up to expand the use of donated lungs for transplantation for children and adolescents with terminal lung disease, which is very hopeful for that group of patients.Next slide, please. The other major event was that we launched the upgraded ready-to-use Perfadex Plus with a Click Adapter in Europe and Canada. Since it was only launched in U.S.A. before, we have now launched it on the major markets. It is a ready-to-use -- a version of ready-to-use Perfadex that will increase patient safety and customer convenience. You don't have to penetrate -- you don't have to mix anything, you don't have to penetrate the membrane, which is a little bit troublesome out on the field to keep sterile. So this is a convenience and a safety question, which has been much appreciated by the customers in U.S. who have already used it and has a good -- very good reception. It's a Perfadex Plus. It's patented in Europe, and patent applications are pending on all other major markets.Next slide, please. Here's the profit and loss statement. I won't go with some of the details, but some highlights. The net sales was close with Q1 2019. We continued to see a high gross margin. We continued to build -- have built customer support and we are ready and stayed close to the customers during this period so we can start full speed ahead when things clear up. We have continued an ambitious R&D investment to bring the product development projects closer to market. And in spite of that, we could see a nice profit level and as you can see an EBITDA level of 16%. And all in all, a robust quarter in spite of the troubles in the latter part of it with the coronavirus.Next slide, please. So the cash flow, in spite of that continued -- the continued ambitious cash investment of SEK 27 million all in all in R&D, in spite of that, the net cash position remained almost intact during the quarter. It's actually an increase of only 0.9%. In the latter part of the Q1, we introduced a cost reduction program to -- which contributed to a strong operating cash flow, and that resulted then, again, in a strong position in absolute terms, which we feel is a good situation to be in this situation. Next slide, please. So let's talk a little bit about the R&D pipeline to ensure future growth.Next slide, please. So we invest, as I said, in a pipeline for a very concrete product development where we continue to invest in the lungs and also where we develop that indication through a number of measures, and I'll try to go through them. We continued the XPS development of online parameters to improving decision making. That is sensors for weight, blood gases, metabolites, and we also look at biomarkers for organ viability. It's also a question of ease of use where we automize more functions, simplify actions and protocols and have remote monitoring, so doctors can be away from the machine and still monitor what's happening during EVLP.The other part is the solution obviously. We continued to have research to further strengthen the organ enduringness and to prolong possible time of EVLP in order to look at treatments, et cetera, which is obviously some -- a lot of research is going on all over the world. And that is looking at new additives, for instance, to further mimic physiology. Then we support the clinical research of the expanded use of DCD lungs, donation after cardiocirculatory death and which is contrary to brain death. And those donors are used in a very low frequency today, but they get more and more -- it's more and more interesting to use them. And especially for uncontrolled DCD, you really need an EVLP to be able to use those organs. So that's research and research that we support.We also are involved in the continued EVLP protocol development that can be a ventilation strategy, it could be how the organ is positioned. It's a number of factors that you can fine-tune during the EVLP procedure. We're also investing immunological response during EVLP targeting the long-term and short-term survival. So that is the package of research and development we do to continue to develop the present lung business.And then we look at the next slide, please, at the R&D pipeline, which is done on products that we have not put on the market yet. It's for most the priority 1, the heart transplant project, which is a very interesting project. What has been shown is you -- by optimizing preservation and oxygenate the organ during transportation, you can sustain organ quality. The second priority is the PrimECC, which is an optimized priming solution to reduce the known side effects by running heart-lung machines.As a third and fourth priority, third priority is liver and kidney, using the same technology more or less for evaluation and using DCD organs in the liver and kidneys. A number of transplants has been made clinically with STEEN Solution today with good results, and we continue to look at that, although as a third priority. And as a fourth priority, there's still interest out there. We'll be contacted by a number of different researchers that want to see if they can use the perfusion of isolated organs and also tissues with Perfadex as -- sorry, with STEEN Solution in order to administer drugs to those tissues and organs. Next slide, please. So let's look a little bit close to the heart transplantation. So a little bit of repetition first. It's a -- there's a lot of preclinical proof. It's a research done by Professor Steen, who developed the original concept, where there is reduction to almost no non-oxygenated time during -- from the time the organ -- the heart is taken out of the donor until it's put into the recipient. So minimizing oxygenated time is the key element. The second key element is a specially developed solution built on STEEN Solution, but with a number of additives and other small changes in order to be perfect for the heart. It has, in preclinical, shown -- been able to have much longer preservation time than is possible with the present technology, up to 24 hours in pigs and in the sensitive pig to monkey model, it was first when they start using this technique that they could have those monkeys survive for a long period of time. It's actually the journal study has shown 6 months survival.And in clinic, there is a clinical study in Lund University Hospital, and they have now presented results from the first 9 patients after 6 months which indicates that the heart can be safely preserved with this technology, resulting in successful transplantations and the reduced risk for ischemic-induced reperfusion injury. Obviously, we are waiting for a full publication on this which will be very interesting to see a bit late -- I hope, a little bit later on this year.Next slide, please. So what has been done during the past time here, we have patents for the heart preservations fluid approved in U.S., Canada and Europe. We have built the clinical team, it's an investigation team, I should say, which will carry out the clinical trials all over the world. We planned one in Europe, one in U.S. and one in Australia. We have the disposables and the solution for the second version, the clinical trial version of the machine designed, finalized and tested and produced, has been validated and ramped up. So we now have the number of -- getting the number of machines and we'll use -- we will use for this trial.And we have ongoing preparations for this multicenter trial in Europe. Preparations also in U.S. and Australia, where clinics have been recruited and being prepared for study start. This project has been granted breakthrough device designation from the FDA which will shorten the time to market if successful. And I would just say, the European multicenter trial was ready to include the first patient in Q1, but is on pause right now due to this COVID-19 pandemic outbreak, and the new starting dates will be defined based on how this duration develops in each country and clinic.Next slide, please. Then about very interesting product called PrimECC. Priming solutions are used to prepare the heart-lung machines before they can be employed in open-heart surgery. The heart-lung machines replaces then the heart and -- the function of the heart and the function of the lungs during this open-heart surgery. And these solutions, these priming solutions, they enter the patient's bloodstream at the start of the procedure to replace the blood volume which is filling up the heart-lung machine.So when you start up the machine, about 1.5 liter of blood volume goes from the patient into the machine, at the same time, 1.5 liter roughly of this priming solution then enters the blood stream of the patient. And those solutions are used -- which are used today all over the world which are different are not regulatory approved anywhere. They are not being optimized and never been in clinical trials. And they are known to cause side effects. There is about 600,000 to 700,000 procedures of open heart surgery in the western world -- around the world, which corresponds to the same amount of bags then which are used each year in these surgery procedures. And the PrimECC was developed using the technology of solutions from Perfadex, and this solution has been developed to alleviate those well-known side effects.Next slide, please. So what's the status today? The accomplishment. Just to again emphasize, it's been patented already in EU, U.S., China, Japan. It's already CE marked. We have performed clinical study recently, a year ago, it was published -- sorry, it was ready and results were clear that 40 and 40 patients at Sahlgrenska University Hospital that show that PrimECC was safe to use. It improved the fluid balance and reduced the side effects using heart-lung machine when it was primed -- PrimECC compared to what's used today. And the next study we plan then is to increase the number of patients in the study so that we can get good statistical proof if it can reduce those side effects in a statistically significant way.So the production of the first validation batch in eco-friendly bag. We had to change the bag because of regulatory demand. So now it's produced new eco-friendly bag at a new production manufacturer. We've done that with satisfying results. That regulatory file for the production site and packaging has now been approved by the notified body, and we have ethical committee approval to start the trial. So this trial is almost ready to include the first patient, but it has to be -- was then postponed due to the outbreak of COVID-19, but the company is ready to start this trial as soon as the situation at the hospital so permits. This is a -- will be Swedish study on several Swedish university hospitals.So that takes us to the last slide here, the outlook. And again, I want to stress here first that during this COVID-19 situation, XVIVO is implementing a temporary cost reduction program to bring the expenditure of cash to its substantially lower level. And in clinical studies that are delayed in that -- those, XVIVO focuses on being prepared to start these trials as soon as it will be possible. So this is the core message here.The focus areas is -- has not been changed. The primary focus is thoracic transplantation surgery. In lungs, it's further support development of the EVLP technology that we have on the market today and move it into clinical practice in more places over the world. And we can say that in China, for instance, there's a great interest for using this technology. And we can see that in China they seem to open up again the transplantations. Our contacts in China, we see that transplantations are starting up again. So we can see this period about -- in China was about 2 to 3 months. And we hope that, that will be the same. We estimate that will be the same in the western world, but it obviously needs to be seen. But -- so the major focus continue to support that development of EVLP technology. The second very important thing, obviously, is to start and run multicenter studies on all major markets for regulatory approval. And then also with PrimECC to start and run the multicenter tragic. It's already approved, but we need more clinical documentation before we want to launch that product in the market. Then secondary focus is to use all that technology, all that experience in the abdominal field as well where we continue to support clinical development in liver and kidney with using STEEN Solution technology and also further investigate how to employ this technology in abdominal organs. The long-term goals, solidify position in thoracic surgery and build new business in the liver and kidney in the future.This was the presentation. We are open for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Christian Lee from Pareto Securities.

[Christian Lee, Analyst]

I have a couple of questions. And the first one is regarding you assess that sales in Q2 will be negatively affected by COVID-19, obviously. But given that the sales of STEEN Solution decreased by 32% in Q1, would it be possible to give some kind of sense of magnitude that you're expecting in Q2?

[Magnus Nilsson, MD & CEO]

No, I can't give any predictions. But I can say, generally speaking, that what we see over the world is that lung transplantation is continuing. So we see no big change in the number of transplants made over the world. There is a reduction, obviously, especially in the severely hit areas. But no big change yet at least, but we see a less of activity in the EVLP front. And that is -- explanation is really that what happens in these situations is that the clinics, they take less and less risk so to speak in terms of having people on ICU units. So normally, they have a spectra of lungs which they use, donated lungs used. They are from pristine lungs or, let's say, from a 20-year-old male, perfect, in a car accident or something to a 65-year-old donor, which may previously have been a smoker and so forth. So there, obviously, is a big span between the quality of the lungs that are used any day in all transplants.And what we have proven with EVLP is that you can use also those lungs that were not even used today with the help of EVLP technology. But obviously, they are on the, let's say, the kind of the last -- the end of the spectra. And obviously, today, when they will have to double the effort not putting people on ICU, they are much more conservative. So they use, so to speak, the better end of the spectra. And that's exactly why we see that they use less EVLP today, but they continue to do transplants. That's the general picture we see.I cannot really foresee when would they start up again, et cetera. The only thing as a sign was that even in Italy, they invested in this technology to be prepared to use it once this has -- virus pandemic has blown over. So that's what we can say today. There's no long-term -- there's no -- from our perspective, we can't see any risk that the long-term demand for EVLP would go down. It's just a temporary thing. But exactly how long that pause will be is very hard to tell, but most people guess, it's not our guess, it's the general guess, is that this would take about the quarter.But obviously, that's a guesstimate that people do over the world. But when we talk to clinicians that's the next couple or 3 months or something, that's what people expect that it will be a normal activity. But they all recognized actually that if you don't transplant, people would die on waiting list. So it makes no sense of saving people with COVID-19 if you, at the same time, let people die on the waitlist. So this is something the authorities and the clinics are very well aware of. So I can't see really that this will be prolonged too long, but exactly how long it's hard to say. Long answer to a short question, sorry.

[Christian Lee, Analyst]

Okay. Great. Perfect. My second question is regarding your cost reduction program. Is it possible to kind of quantify what kind of cost savings you're expecting when you had implemented this program, especially given that you are assessing to start to delayed studies in Q3?

[Magnus Nilsson, MD & CEO]

Yes. And delayed study saves a lot of cash, obviously, because a lot of the cash that we thought that we're going to spend were actually going to those clinical trials. So that automatically saves a lot of cash for us. But the program, as such, is focused on really to cut down on the external expenditure, typically consultants and like, but to keep the competencies in the house. And we have a lot of things to continue to develop in-house. So it's not like we have lack of work. On the other hand, I think we can use this time very well by being even more prepared and do a lot of in-house development during this time.But the program as such is directed to cost reductions on external expenditure. And typically, we have a very high-speed development which means that a lot of things we do, we need consultants for to keep up the high pace. What we can do now, obviously, is to do with a little bit slower pace due to the delayed studies is that we can cut down on using external head, going down to run the business with the employees, which means that we can save a lot of money in that sense, so -- which I think is pretty simple. In a company like us with a high-speed development, you can't really have everything in-house and the capacity in-house. So we normally have a lot of consultants running, helping us to keep up the pace, but now we can then go down since we have more time to prepare things.

[Christian Lee, Analyst]

Right. And is it possible to give us some kind of ballpark on the amount of expenditures related to consultants in Q1?

[Magnus Nilsson, MD & CEO]

No, I can't give you numbers. Actually, I don't have them on hand either. But I can't really give it. But generally speaking, there's activities we can't do. We can't really go out to clinics today, which means that we save on travels, hotels and all that. And we can't -- we do not use consultants for capacity anymore. So it's hard to give exact numbers, but it's a substantial savings that we can make this way. That's the answer I can give you.

[Operator]

The next question comes from the line of Arvid Necander from Redeye.

[Arvid Necander, Analyst]

Okay. I was just wondering if you can provide a slightly more granular view of the activity at the clinics. Where are you seeing the most significant impact clinics that have come further in implementing the novel protocol? Are they still performing EVLPs? And does the decrease mainly stem come from clinics that haven't come as far? And how do you see the dynamics there?

[Magnus Nilsson, MD & CEO]

I can see that the clinics who are very used to using EVLP, they have a high -- which have a high number today, they still use it some, but in a reduced way. I think the major -- where the major slowdown is, is on the clinic who are using the technique not so frequent yet. So it's more of the start-ups that I would -- that's the general answer, but I think the ones, the clinics who are very used to use it, use still, but in a lower pace. I think it's more the clinics who just started and are in a lower frequency are the ones who are hesitating today and waiting for the situation to clear up.Then if you say the areas, obviously, New York area, East Coast has been, obviously, Italy, Southern Europe. But I mean, we still hear activity from Spain, for instance, in lung transplantation and so on. So it's not that they've stopped. It's just a reduction in number. And we see now China is really going up again and returning to a more normal situation, which took them about 2 to 3 months now. Same in Korea, for instance, who were early into this, they now seem to be back and gearing up again their transplant programs.So I think generally speaking, it's the worst-hit areas, generally speaking, where the downturn is biggest, but I think even in Gothenburg in Sweden, they still do lung transplants, but with more caution. Obviously, they want to make sure that the recipient isn't wait -- on the waitlist, hasn't been infected. It's -- obviously, more precautions are made, but these lung transplantations are still continued to be made in most places in the world, actually. It's just the really worst areas where they stopped. But I think in most areas, they still continue, but with caution.

[Arvid Necander, Analyst]

Okay. Yes. Just a couple more quick questions. And secondly, is it still possible for you guys to do precision training at this point? Or have all of those efforts been sort of stopped, given the restrictions at the most of the hospitals right now? Is it possible to still give support and training to the doctors through digital measures and -- et cetera?

[Magnus Nilsson, MD & CEO]

Yes, we do -- we have a position where we have training at least assistance online and via video. So we have done some of these things on video before, but it's hard for us to come up. Most hospitals won't let in people today. But we do have video contact with them, et cetera. So -- and that's a normal procedure really. We start with physical training, so to speak, but then we often move over to having assistance online. So that online assistance continues, and we've developed that even further by developing instruction films, videos and all that things. We continue to develop that. But for now, it's hard to go out physically to the clinics or to bring in clinics to our training facilities. So that's on hold. But the online assistance is still ongoing.

[Arvid Necander, Analyst]

Okay. Yes. And just a last question. Just recognizing the strong performance of the sales related to co-preservation Perfadex this quarter. Although it can vary quite a lot, I guess, from quarter-to-quarter, were there any sort of temporary effects that you see perhaps relating to the rollout of Perfadex Plus or -- yes, how do you see that going forward in your best guesstimates?

[Magnus Nilsson, MD & CEO]

I think there was -- the quarter 1 2019 was relatively low on cold sales. So the relative number -- the relative increase is a bit higher because you compare to Q1 '19 where the sales of cold was a little bit lower than normal, so to speak. So that's -- but the absolute level, I think, is good. I mean I don't foresee that the absolute level would be much different, although you're right there's a little effect of the launch. But I think the major effect on the percentage there is that the ink-presented increase is that we compare it to a quarter last year, which was relatively weaker in cold sales last year. But in the absolute level is good.

[Operator]

[Operator Instructions] The next question comes from the line of Daniel Albin from Danske Bank.

[Daniel Albin, Research Analyst]

So I have a couple of ones, a few of them have already been answered. But if I may just have a follow-up question on the number of EVLPs and the activity level, I was wondering if you could say something about destocking effect in Q1 and really how we should view that. That's my first question.

[Magnus Nilsson, MD & CEO]

Okay. Let's take that first. Good that you bring that up. We actually had a number of orders that were already orders but that where the hospital were not allowed to receive goods. So in Italy, for instance, and some other places, some hospitals did even if we had -- and New York was the same, we had orders for warm perfusion products that were already, so to speak, done, but had to be inhibited because the hospitals didn't receive -- didn't want to receive products to the hospital. So there is some orders that were, so to speak, already in the works, but had to be stopped. And obviously, that reflects on -- that you call it the destocking effect in the sense that they haven't refilled their stock in the way that we were expecting.

[Daniel Albin, Research Analyst]

Okay. Yes. My second question, so we are seeing more reports and data coming out and indicating that we're seeing severe fibrosis in, say, middle-age COVID-19 cases. I'm wondering if you in discussions with your customers -- how should you view this going forward? Do you think there will be some sort of pent-up demand for lung transplants or...

[Magnus Nilsson, MD & CEO]

The only thing I can say there is that from China and there is one clinic who have made 3 transplant on COVID-19 or ex-COVID-19 patients, so to speak. That was patient who have had the COVID-19, but then were out of it, but had so severe lungs that they needed transplants. I think 2 of them survived, 1 died. That's the only practical thing I've heard of the world from -- in that respect. And I think we have to wait to see, but it's true. I mean, fibrosis is normal indication -- severe fibrosis is normal indication for transplant. But today, it's very hard to see. Is this somehow reversible or can you, so to speak, compensate or -- so it's a little bit early to say, but the only experience we have is those 3 cases from China.

[Daniel Albin, Research Analyst]

All right. Yes, the last question, and this one might be a bit hard to answer. But regarding the heart preservation system or project, could you just update us on the time line? And say, how long do you expect the clinical trial to being -- when can we see potentially launch?

[Magnus Nilsson, MD & CEO]

It's a very good question. I'd love to know myself. But the only thing that we can say here is that with this kind of pause, we hope that we can speed up the -- once we can start, that we can speed up the inclusion in a more rapid way than we would have been possible to do otherwise. So we hope we can save some time that has been lost in this pause. But normally, as it's planned, it's 1 -- we have calculated in 1-year follow-up. And then obviously, it takes some time. In U.S., we have a critical care approach with the breakthrough designation, but we have to foresee at least 6 months regulatory period. So then it's come down to when can we start and how long would it take to include patients. And we hope that we can reduce that time. We thought originally about 1 year, maybe we can shorten that with some months. But I mean, again, it depends on when the study can start. And obviously, we don't know if all centers will start at the same time or if some centers will start earlier than others. So it's really very hard to say. But I think once we've started the trial, at least -- I mean, at least 2 years is what we can expect from once we start the trial. Then again, when can we start, how long will it take, all centers can start, it's very hard to say today, obviously.

[Operator]

[Operator Instructions] There are currently no further questions registered. I'll hand the conference call back to you, speakers.

[Magnus Nilsson, MD & CEO]

Thank you. So a short summary again. I think during this COVID-19 situation, XVIVO Perfusion is focusing on conserving cash and also to continue to develop our products and being prepared to start the clinical trials as soon as ever possible. We don't see any long-term effects on the demands of our products. And we hope that this period and some other people too think that this period will last about quarter. That's the summary I can give you. Thank you very much for listening in. And I hope to all keep safe and hope this will be better next time we talk. Thank you very much.

[Operator]

Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.