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Xvivo Perfusion AB
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Ladies and gentlemen, welcome to the XVIVO Group Interim Report Q1 2022. I will now hand over to Dag Andersson, CEO. Sir, please go ahead.
Thank you very much, and good morning, good afternoon or good evening, depending on where in the world you are. So Kristoffer Nordstrom, CFO; and myself, we are very happy to be here in Gothenburg and present the Q1 report to you all. So let's start, let's kick off by talking a little bit about Q1 highlights, and there are quite a few highlights actually to note.
If we look at organic growth, we achieved a great organic growth in the quarter, 32%, and we also delivered an adjusted EBITDA margin of 17%. Worth noting as well, and this was actually already communicated in the last call. During last quarter of 2021 and in connection with the acquisition of STAR Teams, we established the third business area of services. So we have the 3 business areas: Thoracic, Abdominal and now also then Services.
If we look at the gross margin development, we have seen a good development from quarter 1 last year to quarter 1 this year. Gross margin on disposables increased from 76% to 79%. And this is a result of continued price increases and also economies of scale.
If we turn to the next page, we can -- I just want to say a few words about the Kidney Assist Transport. In January, we received the 510(k) clearance in the U.S. for our unique Kidney Assist Transport device. And in March, we also received the MDR certificate which enables us to sell the device also in the U.S. and what makes this device unique, and I will talk a little bit later on about the kidney market. But the Kidney Assist Transport is a transport device which is unique because it offers hypothermic oxygenated perfusion of kidneys.
If we then move to the next one, I just want to say a few words about the groundbreaking xenotransplant activity in the U.S.
Our technology made it possible to successfully transplant a pig heart to human being, and this happened on January 7 in Maryland. And research activities in both Maryland and Munich continue, and I'm sure that there will be more exciting news coming out of this collaboration over time.
If we then look at the next slide, we have received during the quarter regulatory approval of PERFADEX Plus in China. And we have actually now sold PERFADEX Plus in China. And China is the fastest-growing lung transplant market now in the world. And the number of lung transplant clinics is also growing at fast pace. Just to give you an example here, in 2016, there were 20 lung transplant clinics. And last year, there were 50 of them.
Other highlights. During the first quarter of this year, we sold 3 XPS machines: one to Dublin; one to Cleveland, which was the second one; and one to Gainesville. We also sold a second heart box to Revivicor, and Revivicor is the company behind the genetic biotechnology platform which was used for the xenotransplant patient case in Maryland.
We are also signing the first Kidney Assist Transport agreements, limited financial impact in Q1, but more so will come in Q2. STAR Teams continues to grow at fast pace with new customers and new agreements and also a very important air traffic agreement with a company called NORA to secure that organs recovered will be transported in timely manner. There have been incidents in the U.S. where organs have been recovered but could not be used because of lack of plane capacity, which, of course, is very sad when that happens.
If we look at transplant activity in the U.S., if we move to the next page, the transplant activity in the U.S. is -- we have seen a strong uptake in February, March. January was still, in general, sort of slow, but February, March, very strong. If you look at transplant activity quarter 1 this year versus quarter 1 last year, it's more or less on the same level for the full quarter. But we believe that the activity level will continue to increase. Kristoffer, I will then let you guide the audience when it comes to the financial performance.
Thank you, Dag. Happy to do that. So let's start with a summary of the P&L statement here. So overall, as you mentioned, Dag, it was a strong quarter. We are very satisfied with our performance despite the uncertainties in the world, I should say. A lot of -- you can read a lot about inflation, et cetera, and we follow this very closely. So given that we're extra strong -- we're extra happy with strong growth, strengthened margins and also improved EBIT and EBITDA.
So net sales, a record quarter, summarized to SEK 93 million, that was a growth of almost 60%. All areas showed organic growth. Total organic growth was 32%, and acquired growth, that's STAR Teams, was 15%. We have a tailwind from currency effect since most of our sales are in USD and euros. So that represented 12% of total growth. As we have said during the quarters here, we have implemented successfully price increases on all markets now. So it was U.S. in November, Q4 and now Europe and rest of the world in January, Q1. And that has contributed to both growth but also strengthened margins as you will see.
And it also, of course, gives a very strong and good outlook when transplant activities will increase even further here. So we continue to see improvements on gross margins. As always, when looking at XVIVO, one must look at each business area to understand the development of the gross margin. If you look at the total gross margins, you can see that it decreased compared to last year, 70% versus 74%, but that's due to the high portion of machines this year. And also that we, in this quarter, have added the Services business area.
So worth mentioning on the gross margin side is that we, as most of the companies, do see increased freight prices. So for outbound freight, we have been successful to pass this cost over to the customers. But for inbound freight costs, it will be absorbed by both COGS and distribution costs. So -- but we don't believe it will have a significant effect on the margins in the future. But we are working very, very good with this and with high focus. Adjusted EBIT was 6% and the adjusted EBITDA was 17%. So that's a significant improvement, and we're happy over that.
If you look at the Thoracic business area, it delivered its strongest quarter ever, I think in total sales. So U.S. specifically showed great development and represented 63% of sales. Net sales amounted to SEK 68 million and the organic growth was 35%. As Dag mentioned, strong machine sales, and we have a good momentum now in XPS. And can shed some light on that as well, Dag, but it looks promising also for the coming quarters here. Gross margin on nondurable goods was good, 84%, and that's 1% better than last year.
Moving over to Abdominal. Sales came in on SEK 15 million. That's SEK 6 million lower actually than Q4, which was a record quarter, but transplant activity in Europe started low, especially for livers. And we should remember that we are only, so to say, established more or less on certain markets in Europe at the moment. So we expect this activity to increase in Q2, and we also expect to have some sales fueled by the Kidney Assist Transport launch in Q2 as well. Organic growth, though, was 21%.
Services then, our last -- our third and last business area. So Services consists of STAR Teams acquired in Q4 last year and their organ recovery business in the U.S. I think it is good to recap what they actually do. So organ recovery, that refers to organ removal from the donor body. It refers to preservation of organs in cold solutions during the transport and also logistics and coordination before and during organ recovery. So they are really helping hospitals with the whole chain of the recovery and transport part. And by removing these tasks and responsibilities from the clinics, STAR Teams adds great value to clinics.
So net sales was SEK 9.5 million, and it represented a sales growth of 53% compared to last year, which is very strong. The number of cases grew 57%. And some comments on the EBITDA for Q1. So adjusted for affecting -- items affecting comparability. EBITDA was SEK 15 million, and that corresponds to a margin of 17%. So this is a strong start of the year and a significant improvement from the 11% margin for the full year of 2021.
And I think seen in the light of the uncertainties in the world, as I said, regarding inflation and logistical challenges, we are extra happy that we can deliver this increase of profitability. This is a result of commercial and operational excellence to use XVIVO terminology, but also very hard work, of course, and close connection with customers and suppliers.
Final slide for me here, cash flow. So cash flow from operating activities was minus SEK 9 million. And this quarter, it was impacted by bonus payments to employees for the full year of 2021. And also worth mentioning is that we have had extremely good sales in March, and we expect payments of those sales in April, May here. So total cash flow was minus SEK 64 million, and that was mainly affected by our final milestone payment for the acquisition of Organ Assist, SEK 21 million and then R&D investments, SEK 27 million, and that is more or less in line with our internal budget, I should say, for the quarter. Thank you, Dag.
Thank you, Kristoffer. So let's talk a little bit about R&D and the R&D pipeline. I mean we are making very good progress in our R&D projects. If we start with the European heart preservation trial, we have now activated 11 centers and we might add another 2 to 4 centers in the coming months to secure that we have finalized the study by end of the year. The ambition is to include 202 patients in Europe, and we are getting close to 100 patients here in the coming couple of weeks.
In Australia, a new record that was actually set when it comes to donor heart on the body preservation time, more than 8 hours of total time outside the body. 3 centers have been activated, and we are planning to add 1 to 2 more centers, including Auckland, New Zealand. In the U.S., FDA discussions are in the final phase. And as previously communicated, trials are expected to start during the summer.
If we take the next slide, Kristoffer. So outlook, 2022. What do we expect? Well, if we start with transplant activity, we believe that transplant activity will continue to increase in U.S. and in the rest of the world. And as I previously communicated, there is a target in the U.S. of minimum 50,000 transplants by 2026. So of course, the ambition there is to continue to increase the number of transplants. There is a strong interest in XVIVO machine platforms. And we see also great momentum here, very much fueled by the XPS installations.
And as I said earlier, we have installed 3 machines so far, and we expect more machines in the coming months to be installed. We have the Kidney Assist Transport launch. I mean with kidney being the most transplanted organ by far in the world and with evidence behind our machine-produced hypothermic Kidney Assist Transport device, I look forward to commercial achievements in the near future or in the near term. Price increases will continue. You have seen our margin improvement on disposables over time, and we are planning a next set of increases in the U.S., October 1 and in Europe, again, January 1 next year.
STAR Teams will continue to grow and expand into abdominal organs also later on this year. Heart projects -- I mean the exciting and groundbreaking heart technology trials will start in the U.S. in the summer. We continue with geographical expansion. Our first regional business manager has been employed in Brazil, and we believe that Brazil is an exciting market for XVIVO in the coming years. We will increase focus even more on professional education. We have global educators working with our key markets, leading the way forward in professionalizing education even further.
Then, of course, there is great uncertainty in the world. We know one thing, and that is that uncertainty is the only certainty there is, and this was actually written by mathematician, John Allen Paulos. And we all have to accept that we live in an uncertain world. And this means always being close to the business, reacting quickly when something happens and continuing to work with excellent people. And we see uncertainty in the world related to the war situation in Ukraine. We have interest rates. We have inflation. Kristoffer had mentioned the freight costs earlier. These are things we have to live with.
But so far, we have managed the uncertainties really well, and the plan is to continue doing so as well. So that was everything from our side. And as the last slide here says, nobody should die waiting for a new organ. I mean that is why we all come to the offices and so on every day to make this happen.
So we will now open the floor for any questions or comments, and we'll try to answer it as well as we can. So this floor is or the stage is yours.
[Operator Instructions] Our first question is from Ulrik Trattner of Carnegie.
Great. Dag and Kristoffer, first of all, congratulations on a stellar quarter. Just sort of -- looking here at, it sounds very optimistic in terms of your outlook for placing XPS systems in the U.S. as well as launching the new transport device for kidneys. We have heard some sort of mixed signals throughout the last few weeks with some big U.S. health care providers, perhaps being a bit more dovish in terms of where sort of the capital placement market is looking. Just from your point of view, are you seeing any slowdown at all in capital placements in the U.S.?
Okay. Just to answer that question in a very easy way right now, no, we don't see any slowdown. I mean we have already delivered 2 XPSes to the U.S. in the first quarter. We know that there will be more installations. We can't talk about that today, but we believe that we will have a very strong year when it comes to XPS installations.
Regarding Kidney Assist Transport. More information will actually follow a little bit later on, not today, but we are planning a press release linked to some installations with customer names and so on where contracts are being drawn right now. So no, I don't see any slowdown for our type of capital equipments so far.
And also to add that for the Kidney Assist Transport, as communicated earlier, we will, in most of the cases, place those machines.
We are not selling the machines. I mean they are being placed, and then we are -- the earnings will come from disposables that we are delivering and the XPS machines are typically sold on cost price to customers in the U.S.
Great. And on the topic of sort of the abdominal area, I think the highlight here also is the MDR approval for the upgraded kidney transport system. Have you seen any sort of additional interest from that device in Europe post the sort of reregistration of this system?
Yes. I mean as you know, we received the MDR approval, was it March 23. And of course, there is interest in Europe as well. But we have decided to focus initially on the U.S. because it's such a large market and there is also a high need and high demand from several customers to work with our new technology. So we are concentrating on U.S. Europe will follow a little bit later on this year.
Great. And since you also mentioned here the expansion in Brazil as well as for selling products in China or perhaps you can start off with China and when do you expect to have the XPS approved in China? And secondly, Brazil, obviously, a very exciting market. Are we to expect any meaningful sales contribution during 2022 for Brazil?
If we take Brazil first, yes, I think we are going to see some meaningful numbers in Brazil. We have employed a very competent person in Brazil who has previously worked for Molnlycke among other companies. And we have already initiated very, how do you say it, detailed discussions with certain customers in Brazil. And we have also made an appointment internally. We have a business development director who is responsible for Latin America and Far East China.
So there is also additional sort of resources to focus on Brazilian and Latin American markets. When it comes to China, we have the PERFADEX Plus registration, as mentioned before, we have sold PERFADEX Plus in China. We are working with the XPS and STEEN registration. We thought it would be done a little bit earlier this year, but it probably takes another couple of months before XPS is registered. It's quite a cumbersome process with the authorities in China and especially now with, let's say, with the pandemic as well, it doesn't make things easier. So we thought we would have it in Q2, but unlikely that it will be Q2, but it will come in the sort of coming months.
Great. And last question on my end. On Services. From a product mix on the gross margin side, it looks dilutive. But based on its sort of history in terms of its EBITDA margin, it should be adding quite some profits to the entire group. Is there any possibility that you can provide it with some rough numbers on STAR's profitability in Q1 beyond the gross margin?
Yes. So on the -- that was a good question, Ulrik. So on below gross margin, they did rough -- yes, I think STAR Teams did around zero or some percent [ SGA ] on their sales. So it was the quarter where we had some investments, mostly in the organization. And we need, of course, to wait until new contracts come on board where we -- and then we will see new customers, and then we will see a big increase on margins there. So what we have done more in detail is that we have required a finance manager, a bit more on the admin side, so a finance manager for STAR Teams. Also, there is a shared HR person, shared for the U.S. organization. And there was also a very good surgeon hired in Q1. So if -- or when, I should say, new contracts are coming on board. They will -- we expect a good impact on both gross margin and EBITDA.
Okay. So just correct me if I'm wrong. So one can assume then that core XVIVO, organic XVIVO generated 17% EBITDA adjusted margin roughly and we should expect start to essentially go back to its former margins as we add on more contracts.
Exactly. That is what I would say for this year. Absolutely.
Great. Well, thank you very much, both Dag and Kristoffer and once again, congratulations on a stellar quarter.
Our next question is from Dylan van Haaften of Bryan Garnier & Co.
Also congrats from my side. So just 2 questions from my side. The first one would be on the trends in the OPTN data. It looks like there's a dip in transplant volumes. So it's obviously early days. And obviously, that makes the result and the organic growth on the lung side, I guess, even more impressive.
I was just wondering sort of what's driving that? Is that a supply issue? Has there still been some Omicron disruptions what people might be worried about? So could you help me on that question?
Hello, Dylan, by the way, it's a good question. I mean if you look at lung data, let's sort of focus on that here. I mean, we have -- we know that we are gaining market share right now because there was a situation with several hospitals in the U.S., but also in Europe where EVLP technology was little bit put on hold due to the pandemic. So these institutions sort of focus more on safe lungs, so to say, not for the marginal lungs.
And we have now seen an increase in activity level from many customers who have been doing nearly nothing during the pandemic. I mean Vancouver is one case, San Diego is another case and several others. So the increase -- the level of EVLP, the number of EVLP organs are increasing clearly right now. So that's sort of one part of it. When it comes to lung volumes as we said earlier, January was weak, at least the first couple of weeks in January. But we have seen a very strong uptick in volumes from, let's say, last week in January and on, and also now continued into April.
So we believe that 2022 volumes will be very positive and developing in a good way. So we have the volume increase, but we also have our -- that the market share increase or, let's say, penetration of machine perfusion, which we see now happening in many of our countries and customers. Does that answer your question, Dylan?
That's perfect, Dag. That's good to hear. I was hoping that it would be that actually. And so maybe on exactly that topic on lung perfusion. Has anything sort of changed in respect to the uptake? You said there's more and more uptake. There will also be some press releases coming up for new XPS placements. And could you maybe contextualize that a little bit with how we should look at the Kidney Assist device growth, which I think is going to sort of be sort of a negative mix. Should we look at from the current sort of quarter things to be sort of relatively stable in terms of those 2 offsetting factors? Or how should we look at that?
I mean the challenge is always with lung machines that we are -- we don't make any money on them. I mean we install them and then we make good money on the disposables. And we have installed, as I said, 3 machines this quarter, and we know that there will be several more installations coming as well in both U.S. and Europe and maybe also in other parts of the world. And of course, in a quarter when we have several machine installations, the impact on gross margin is there. That is why I always prefer, when it comes to lungs, that the audience looks at the disposable gross margin because that is really where we make good returns.
And if you remember, Dylan, I mean we have 84% gross margin on thoracic disposables, which I would say is quite an attractive number, and that is where we will also continue to make money in the future.
Excellent, very clear. And so just as a general comment, we've kind of turned the corner in respect to, let's say, the risk averseness around COVID in regards to some of the transplant trends that we're sort of getting back to normal, if you will, in terms of what your business was pre-COVID.
Yes, I mean, we had an organic growth of 32% in the quarter, even higher for lungs, and we see strong momentum, Dylan. We don't see any reason why it should be slowing down.
Our next question is from Peter Ostling of Pareto Securities.
I have a couple of questions. The first one, it's also about the volume trend on organs being seen in this first quarter. For most of the organs, the recovery has been quite good. But for lungs, this situation is still below the same period last year, for instance, in the U.S., as you alluded to in your presentation and looking at the OPTN data.
I understand that machine perfusion disposables, i.e., warm perfusion is essentially -- well, if adjusting it for FX, it's probably down quite significantly. But what I'm not understanding is that PERFADEX is performing so strong in the quarter. Is there a stocking? Or have you sold some bulk in -- late in the quarter to China? Or can you talk a little bit about that, please?
I mean, for PERFADEX Plus, I mean, there are many reasons for the performance. First of all, there is -- one thing I have to mention here is that PERFADEX Plus has -- we have had very good focus from the commercial team on PERFADEX Plus. I mean it has basically sold itself historically and it still does. But if you focus a little bit on PERFADEX Plus, you can actually achieve more because, for example, there are very big differences in volume uptake between customers.
A customer at Cleveland uses 8, 9 liters of PERFADEX Plus for every [indiscernible] from flushing the lungs to flushing again before transplantation, whereas other hospitals use 4 or 5 liters of PERFADEX Plus. So that's actually one reason why if you focus on PERFADEX Plus and you somehow look at what are the best hospitals actually consuming of PERFADEX Plus and why isn't there everyone else following the same route. So we have looked at that and trying to optimize consumption of PERFADEX Plus. So that's one part of it.
The second part is, of course, also once again, price increases. We continue to raise prices on PERFADEX Plus. I mean we have an excellent gross margin on PERFADEX Plus, but we believe that we can do even more because it is a unique product. It's a patented product. There is nothing else on the market that corresponds to PERFADEX Plus.
Coming to volumes again, when it comes to lungs, yes, the quarter -- first quarter was 1% down versus last year. But you have to look at the weeks, Peter. And if you take February and March, it's a big difference from January this year. In January, we have very little lung activity in general. I think people were still a little bit tiered from the pandemic and many reasons for it but February, March and also continuing into April, great performance.
Yes. Well, January was weak, 164 and then you have 211 and then 247 in March. So there is a good trend. I agree on that. So it's mainly hype. So there hasn't been any stocking on PERFADEX ahead of this positive trend continuing?
No, no. Absolutely not. Peter, we don't really stock PERFADEX Plus that much. In general, I mean, most of our customers, they place orders and we deliver the next day. It's a different sort of supply chain compared to other medtech sort of companies in general.
Okay, because we have seen in the past, we have seen these stocking effects for certain quarters. But anyway.
It's very -- I mean it's -- the intention is never to stock. And I think today, when we are -- customers know us, we have a good delivery performance. If you look at our delivery performance last year, I think we had 100% on-time delivery. So customers are trusting us as well, Peter, in a different way today. They know that we deliver on time. They trust us. They don't have to stock up to be on the safe side anymore.
Okay. Even with these supply chain disturbances that you see around the globe?
Yes. I mean we are not having any supply chain problems impacting our customers when it comes to PERFADEX Plus or STEEN solution at all, right now nothing.
Okay. I noticed that the gross margin on machines are higher than for disposable in the Abdominal segment. Normally, there is the other way around. Could you please elaborate a little bit what's going on there?
Yes. So in general, it was a different sales for machines in Abdominal as well as for SEK 4.3 million. Those sales are -- that's mostly consist of liver machines, as we know, but there were also one Kidney Assist Transport sold for research purposes, our first one actually. And also some Kidney Assist machines, not to be confused here. And for those, it was for research purposes, but we were able to take very good prices for those basically.
Okay. Great. Could you talk a little bit -- I mean, as you said, as the numbers deliver, there has been a rather weak start for Abdominal in 2022. I noticed that the U.K. is performing well, while when you look at euro transplant numbers, they are still slightly behind the 2021 numbers. France and Spain, I don't have any good numbers. Could you please talk a little bit about the development that you see at the end of the quarter and the start of Q2 within Abdominal, please?
Yes. The problem with the euro transplant numbers, you know that is where they don't cover all the countries. So I'm a little bit...
You have Germany in there, which is the biggest one. So you can see if you take Germany or euro transplant with the U.K. numbers you cover a good part of Europe. Of course, you have to add other countries as well, but.
No, no, absolutely. But you know that for example Germany and U.K. are very small countries for us when it comes to Abdominal today. So we don't have much activity on the Abdominal side. I mean, in the U.K., the focus right now is on getting started with the EVLP program in [indiscernible]. And in Germany, it's also the same thing with Berlin and the EVLP program, which has started there. But on Abdominal, we are still weak in Germany and U.K.
And the ambition, of course, is to focus more on these countries as well. If you look at 2021, the total increase in transplant activity according to euro transplant was 12% versus 2020. And I think it's still a little bit early days to conclude on European transplant numbers. It's based on sort of 3 months.
Okay. Yes, that's why I asked if you had seen a pickup here in the start of Q2.
Yes, I mean, if you look at our numbers for Abdominal, I mean, we had an organic growth of 20%, Kristoffer, in Q1? And we are I mean, as I said, we are not really -- we are not strong in U.K. or Germany. So I cannot really comment on those 2 countries, in particular. I mean we are doing very well in Netherlands. We are doing very well in Italy. We are selling in France. We have a number of customer countries in Europe, but U.K. and Germany have been weak countries for us, and we have very little knowledge about the exact activity level and what is sort of happening in those 2 countries.
Okay. Because most of the growth was attributable to machines. Disposables actually had a negative growth year-over-year.
Yes. But there's little bit time lag occurring between machines and disposals, and you installed machines and then you work with a disposable sort of program. And it's the same with XPS. It doesn't mean that if you buy a machine, next day, you buy a lot of disposables. There is also a little bit of training needs and all these things that have to happen before you actually start consuming the disposables.
Also -- I mean we had a very strong fourth quarter, the final quarter last year. It was the record quarter ever for disposables in Abdominal. And as said, we are at the moment, focused on a couple of important markets in Europe. So Italy, Benelux, mostly France. So yes, it could be maybe that there was some stocking in Q4 because we saw that the beginning of the year was weak. But the trend now is positive and when we reach out to our, for example, our distributor in Italy, they have a good view of Q2. So it should be good in Q2.
Absolutely.
Okay. Great. How many patients do you think will be needed in the American part of the heart study? I don't know. Maybe you have said that in the past.
Yes. I mean that sort of number varies a little bit depending on -- I think, it's around 160, is the last number I have seen in the U.S., and we are running not too many clinics because you know the clinics are very large, Peter, as well in the U.S., and we have already -- we know already, which will be the first clinic that we start in the U.S. I'm not allowed to give the name today, but we are talking about very large...
We are very -- I think we should say we are very close to finalize the discussions with FDA, which is very delightful, and we will get back with more information when we have something clear to communicate there.
Absolutely.
Okay. And my final one, could you talk a little bit about your M&A activities?
Peter, I mean, this is always a little bit sensitive, as you know, but let's put it this way. We made an acquisition in 2020, we made an acquisition in 2021. We are very happy with both acquisitions. I think Organ Assist completely transformed the company into an organ company. I think STAR Teams took us into the Service dimension, which I think is also a way to achieve sort of barriers to entry. I mean, there are very few competitors who have a service arm, which we now have. And I think it's very likely, Peter, that we will make another acquisition this year, but I cannot tell you which company it will be [indiscernible] when it happens.
I understand that. But you apparently have still an active M&A agenda going on.
Absolutely. We have a business development team now. We have employed a person who is working full time with business development. So we are absolutely working intensively with that. We have very regular business development [ meet ]
[Audio Gap]
We keep track of all competitors and all the service companies that exist, and we have made the target list, absolutely.
Yes. Are you mainly targeting the -- well, the U.S. or Europe? Or would you consider expanding your geographical reach with acquisitions?
Yes. I mean, yes, absolutely. We are looking at -- I mean most companies are based in -- if you take product and service companies, they are based in Europe or U.S. with the exception of [ ORS ], which is owned by Shanghai Genext in China. But otherwise, it will most likely be a company in the U.S. or in Europe this year, next acquisition, yes.
Our next question is from Johan Unnerus from Redeye.
And congratulations, Johan Unnerus here. Yes. If I can follow up first on the M&A side, just confirmation. Would you say that you are already now ready organizational-wise with your previous, recent acquisitions to move on for the next one.
I mean it's a good question, Johan. I mean it always takes time to integrate a new business. And if you take STAR Teams it is the first time that we have acquired a service company, and we are working very closely together with STAR Teams and as Kristoffer explained, we have employed a finance manager and we have an HR person working very closely with STAR Teams. And we are very happy with STAR Teams performance and progress.
And I mean, organizationally, we are ready to do another M&A activity in the not-too-distance future, absolutely. I mean we have the resources for it. And Kristoffer is actually moving across to the U.S. himself here on Sunday with his family to live there for 2 years. Also to be closer to STAR Teams and the American team and market. So I would say that we have geared up for -- organizationally and for next acquisition, absolutely.
Interesting. And regarding the launch that is -- well, it's ongoing, I can say, I guess, with this approach that you are going to place the machines in the system. What can we say regarding the transparency and the intention from the centers that are committed to placing these systems. I presume you're not just slushing them around. I mean there is some level of commitment.
Absolutely. There is a level of commitment, Johan. I just would prefer not to go in too much detail on this because there will be press release fairly shortly related to some customer insight. So I mean, the intention is, of course, to -- we place the machines and there would be a certain volume commitment from the customer in order for us to place the machine. And there's a price already established for the market. I think we have set the price at 4,800 for disposables, for Kidney Assist Transport. So that is how we start, Johan. And more information with follow. And as Kristoffer said, we have already -- we have had the first research delivery of Kidney Assist Transport. And now we are taking the next steps here right now and more information to follow. I would not go into customer names right now, Johan.
No, that's sensible. And that's also very useful. And also to -- again without any specifics, of course, that for the level of volume commitment is clearly a very interesting aspect. But there might be other aspect that could -- it'd be a reason by you to place a system, I suppose. It's not only volume commitment.
No. But I think in the beginning, of course, it's good to utilize device as much as possible to gain attention as well and see that it is used to transport organs around the country. So we are looking primarily at volume commitment rather than other criteria right now, Johan.
Excellent. And on the different or related aspect, you are clearly investing and supporting the growth and that shows also in the SG&A and the sales and marketing. Should we expect this to increase?
You mean the relative share of SG&A? Is that your question?
Sorry. Yes, I guess it's -- that very relevant. A bit of both. Of course, you will continue to increase in absolute terms, but the speed of increase, I mean during 2022 because there's a lot of [indiscernible].
Yes. I mean I think what could -- what normally drives costs in our organization is sales activities, start to travel more, the pandemic eases. And I think from that aspect, that Q1 was a fairly representative quarter. It's also -- a driver also if we hire new employees. I think we have, in fact organizationally, we have a [ cost due ] now that will enable our growth plan. So probably talking about 1 or 2, 3 new more resources during the year.
So I would say more or less we should be able to maintain this good profitability level that we presented in Q1.
Very good. And I also suppose that your take on the market readiness for partly recovering to more normal levels and also to accept new technologies, it comes into this [ slide ] and seems to improve lately.
Yes. I mean the market readiness for machine perfusion is clearly there. And we -- as I said earlier on, I mean, we are increasing the penetration level of machine perfusion. And we know that there are also reimbursement programs like in the Netherlands, for example, which is connecting or linking reimbursement to machine perfusion.
So everyone knows that machine perfusion is the way to make more organs sort of successfully transplanted. So I think the market is ready for it, and we see that as well in the uptake and also in the sales volumes. Quarter 4, quarter 1, machine perfusion is very much in focus.
And there seems to be very little worries about sort of any knee-jerk reaction regarding capital interest or in investments.
Yes. I mean, especially if we are placing the Kidney Assist Transport to them, it's not an issue for the hospital. And in the case of XPS, I mean, we are selling at cost price. So we are not making money on the machines on the lung side.
And finally, just small thing. On the cash flow side, you had some employee delayed [indiscernible] credit items. Is that all we can expect from that part and it's related to bonuses and...
Okay. Yes. So I think 2 key explanations to the somewhat weak cash flow from operating activities of SEK 9 million was the fact that in the first quarter, we always pay out the yearly bonus to the employees that was earned in the year before. So all costs were taken, of course, in 2021, but payout was made in Q1. So that effect, I'm not going to the details there, but that effect will not be seen in the cash flow until Q1 next year.
Then also, we had, as I said, a very strong sales in March meaning, of course, that we did not get paid for those invoices in March, but that will be a good upside in April, I hope, or May.
Thank you. So it sounds like that's the sort of problems you would like to have.
Yes.
Yes.
Our next question is from Caroline Baner of Danske Bank.
Congrats on good-looking quarter. Just some questions on STAR Teams expansion. So recent case growth. I was just wondering if the growth is coming from existing customers mainly or from the new ones, and hospital and also from the expanded agreement with the Inova hospital?
It's a good -- I don't have exact information on all contracts, but there is 1 new contract in the quarter, and there is 1 renegotiated contract in the quarter. I know that several of the customers are -- had increased the activity level with STAR Teams. It is many time, Caroline, this case that when you agree on a contract, you want to try and test how it works first. And once the case is sort of proven, you expand and you give more activity to the provider.
So that is what has happened with many of the customers that they are utilizing or call it, decentralizing even more the recovery of organs to STAR Teams. And I think also with the agreement here with NORA with the flight transportation, it has also made many hospitals still more secured because there have been incidents quite significant ones in the U.S. where organs have been discarded because flight had not arrived or been delayed and so on.
And there is a big shortage when it comes to plane capacity in the U.S. Many people are using private planes nowadays. And this is also something that makes the customers of STAR there to give them more volume. So I would say it's -- many times old customers doing more with STAR Teams than before.
All right. And could you explain a little bit more on what the expanded agreement with NORA? And it is interesting to know.
Yes. I mean can you explain what is in that Kristoffer more...
The Plus model?
Yes, the Plus model.
So basically, there is an agreement that STAR Teams can have the possibility to provide more services than just only the recovery part, so to say. So it also means that we can offer profusion services, for example. And I think it also entails the transport, the flight transport agreement that we now -- which we didn't do with them before, can offer these flight -- air flight transports as a way.
And also products, I mean, for example, Caroline an example there is PERFADEX Plus. The expanded agreement means that STAR Teams will provide the PERFADEX Plus and charge the hospital for it. In the past, it was the hospital which sort of provided partly the solutions and other things. So revenue will increase where we have renegotiated the contracts. That would be a consequence of applying this so-called Plus model, which means more products, logistics, services provided.
It also modeled that, of course, because we'll be very interested once starting to move into the abdominal area because then we can -- of course, where have the possibility to also offer the best-in-class preservation method with our Kidney Assist Transport.
Okay. That's really interesting. And is this agreement, this Plus model agreement that you have with Inova. Is that unique for Inova? Is that something that you have with other customers as well?
We are planning to change all contracts so that as much of the plus model as possibly is included, but the contracts sort of are renegotiated at different times. So Inova is the first one that has been renegotiated, and we are now this quarter, renegotiating other contracts, Caroline, as well. So you will see more of that in the next quarter call.
All right. That sounds very promising. A question on China. One should always ask about China, I guess. So the number of lung transplantations in China has grown from 20 to 50 clinics in 2021. So in how many of these clinics are you present today?
I mean we are very -- we have very little presence in China. I mean there are a few clinics, Caroline, which are large clinics. I mean, 50 clinics means that many of the clinics are hardly doing any cases at all. And we have not sold that much yet to China. I mean, as I said earlier, it's only PERFADEX Plus that has been delivered. And I would guess without knowing exactly, but I would guess we are talking about a couple of clinics where we are present today. We want to have a little bit of control as well of how things are handled and sold in China.
So we are taking a little bit slow. And now we are waiting for the XPS regulatory approval and STEEN Solution. We still only have 1 employee in China as well. We will, over time, increase that number. But as you are well aware, China has its challenges, and we have to make sure that we manage our sales in China in a strong way. So yes, that's my answer.
That's all from me and congrats again on a good quarter.
Thank you, Caroline, and see you next week in Stockholm.
We have a follow-up question from Dylan van Haaften of Bryan Garnier & Co.
Sorry, just final 2 questions. Just on the xenograft progress. I might have missed it, but obviously, there was -- it was a big story in the news. So I was just wondering sort of what next steps were going to be because at one point, there was talk about starting a clinical trial, IND-enabling.
Is this still the case even though the patient did not leave the hospital? Or do you have any granularity on what's going to be next, if we can expect any news flow?
You mean on the xenotransplant side, Dylan.
Yes.
I cannot really answer what will be next now. I'm actually going to visit Maryland quite soon and also Munich to understand a little bit what is next. We know that we are delivering, as I said earlier, we have delivered an additional heart box to Revivicor, which is the biotech company behind the genetically modified pig. So there is a lot of activity. And I know that activity level is sort of picking up as a consequence of the success of xenotransplant, but what that means in practical terms, I cannot really answer that question today, Dylan. Hopefully, by next call, I should have more information on that.
Excellent, very clear. And maybe on the second part as well. I know that the solution, and I'm just going to call it the heart STEEN Solution was also kind of part of that secret sauce of the xenotransplant. I wasn't really clear on if that's been sort of -- obviously, it's been patented and whatnot, and what the plans are going to be in regards to launching that solution? If you could perhaps give us some clarity on that as well.
Yes, but that solution is used in the clinical trials in Europe and Australia and then U.S. It's a combination of heart box and this unique solution that is always used. You don't use the heart box without the solution, Dylan.
The same solution that is being used in clinical trials that was used in the xenograft. So there's no differences there. So in terms of commercialization, yes, what we have said earlier, so Q1 2024 in Europe and then in the U.S. once that study has been concluded.
Okay. Perfect. And there was -- I remember, it's also -- could you remind me about the patent situation around that. That is sort of unlike the other STEEN Solution, this one is patented for a much longer time right?
Is it patented for a much longer time. Do we have the exact time hit Kristoffer?
It's in 2035.
Yes, '35.
That's a long time from now. Excellent.
Thank you. There are no further questions at this time. So I'll hand back over to our speakers.
Perfect. Thank you all, and thank you for listening, and thank you for asking good questions. And looking forward to the next call in 3 months' time, Kristoffer.
Yes.
Thank you all. Bye.