Xvivo Perfusion AB
STO:XVIVO
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Xvivo Perfusion AB
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Welcome to XVIVO Q1 Report for 2023. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rosenblad and CFO, Kristoffer Nordstrom. Please go ahead.
Thank you so much, and welcome to XVIVO's earnings call for the first quarter of 2023. Today's presenters are myself, Christoffer Rosenblad, CEO for XVIVO and Kristoffer Nordstrom, CFO. On Slide 3, you can see the financials at a glance, and I'm very happy and proud to report that Q1 was the strongest quarter ever posted by XVIVO. We saw sales of SEK 141 million, organic growth of 34% and an adjusted EBITDA of 18%. And we're also very pleased to see continued high organic constant currency growth and improving gross margin for disposable products for all segments. Also, contain that the integration of our 3 last latest acquisition has progressed according to plan, and they have significantly contributed to the high growth during the quarter. An opportunity to further integrate the STAR recovery service in the U.S. with our product and the possible Avionord model is currently under investigation. We'll come back as soon as we have the result of that investigation.
The Kidney Assist Transport has been launched during the quarter with mainly delivery and installations of machines in the U.S., the Netherlands and Italy. Therefore, we had mainly sales in liver in the quarter, and we're expecting to see a ramp-up of kidney sales during the year with increasing production capacity. I also want to say that in terms of numbers and drivers behind the numbers, our CFO will give you further details later in the presentation.
Next slide, slide 4 is the highlights. In this conference call, we will focus on progress for the heart technology, the recent ISHLT Conference, which is the largest annual conference for heart and lung transplantation, and the recent clinical publication strengthening the EBITDA for our product portfolio.
On slide 5, we start with the Australian experience. The first important thing to point out is that we have pre-started commercially with compassionate use in Australia and New Zealand. And very encouraging is that during Q1, roughly 25% of all heart transplants in Australia and New Zealand were performed under compassionate use with our heart technology. This is above our expectation and very impressive. And to my knowledge, at least, such high usage before approval is uncommon or unheard of. As you also see on the slide, all 5 [indiscernible] participated have continued to use the device, which is encouraging.
We have also seen clinical data coming in and the reason for the high compassionate use is probably because the clinical data is commencing. The data was featured in 3 presentations during the recent ISHLT, and key takeaway was that seeing is believing, after experience the box, the clinician want to use it more. The survival data is also impressive with no 30-day mortality, even though that part of time was more than doubled from what is generally accepted, which is roughly 4 hours. The experience is also that the heart function of the transplantation is very good. And this is important for many reasons, but mainly 3.
The first one is, and that's the seeing is believing is that it gives confidence to surgeons around the world that the heart technology works. Number two, normally, it's an indicator of longer-term survival. We haven't seen the data since it's a new technology, but we are looking forward to long-term survival data with high confidence. And three, which is also very important, and the feedback I get more and more is that if you show a good heart function after transplantation is normally correlated to lower after care for the patients.
And especially, as you know, we're coming in after COVID pandemic and there is a shortage of qualified nurses, especially. And this is an indication, not final proof, but it's an indication that the heart technology could be a solution to reduce nursing time both during organ recovery because the heart box is a very easy-to-use product, and also aftercare after the actual transplant where a large number of patients, especially from DCD and up in ECMO or other high working burden for qualified nurses treatment. So we're very happy with those results from the Australia and New Zealand experience, and we're happy with the flying start to that in that market.
And with that, we go over to next slide, which is slide #6. I just came back from ISHLT, which was last week and had a very good experience from that week. The interest for XVIVO and both the lung and heart technology was very high. Our booth, as you see in the picture, featuring the products was full more or less during the whole conference, which lasted for 4 days. The presentation industry symposiums from XVIVO was crowded with people standing against the walls with very, very high interest. And in terms of the heart, everybody I met that if they could be part of trial in the U.S.
It was a good week, as I said. The key takeaways from ISHLT is that machine perfusion is here to stay and fulfill an important role in transportation today. DCD and use of extended criteria organs are growing rapidly. And with that, the use of machine perfusion. And lastly, that services and simplification for the user is important for the market acceptance. And here, I'm confident that the STAR acquisition, the Avionord acquisition Italy, STAR in the U.S. and our very easy-to-use machines in both heart transportation and kidney transportation will support the market needs that we saw clearly during ISHLT.
And with that, we go over to the next slide, which is slide 7. And we also very proud and happy that we have strong clinical data, given the preclinical data published during the first quarter of the year that will strengthen our go-to-market strategy for both liver and heart. And the first one is the Liver Assist. As you know, we got featured in England Journal of Medicine in 2021 showing that it is used for DCD liver before transplantation a significant positive impact post-transplant clinical outcome. In Q1, a publication in Journal of Hepatology show positive results also for DBD livers.
So it will open up new markets for our liver product. And the last one at the bottom of this slide is very, very encouraging and says something about the future. In Q1, the Journal of Heart and Lung Transplantation published an article showing benefits of XVIVO heart preservation, that's the heart technology used at the DCD donation in a large animal model. And in short, it demonstrates our heart technology can be used both in direct procurement and as the use of normal-term perfusion. So these results improve and in a clinical setting could open up a very large market potential for the XVIVO heart technology which we are looking forward to.
And with that, we go over to our clinical pipeline, and we can skip direct actually to the slide 9 for a review of our status of clinical trial. As a company, we focus on mainly 4 things. The current business, the Kidney Assist Transport launch and the regulatory approval trials for heart and liver. And during this slide, we will focus on the last 2 focus areas. I'm happy to say that in Europe, we almost finished with the clinical trial. We expect it to be finished during the second quarter, so this quarter. We are in process also handing in documentation for the CE Mark. And we hope it's always hard to guess when we will receive and when we see market could have commercial launch, but we still aim in Q1 2024.
For U.S. Heart, we have just in the middle of April and in our IDE application to the FDA. We know that the FDA has certainties to respond. So we expect an answer in May. If we get a positive answer, we have to start the clinical trial in the end of Q3 when we have enrolled and trained all participants in the trials. And again, I can report from a dinner at ISHLT with the best of the best in heart transplant in the United States. We saw a very high interest. We have the right centers, including the trial, high-impact KOLs that will be very important for this trial. And as I said before, the interest is very high. I think everyone we met asked to be part of this trial, but we have today limited to 15.
And the last focus area is, as I said, the Liver Assist PMA, and we have reported before that the Liver Assist is granted breakthrough device designation during 2022. This will mean that we get a faster route through the FDA PMA process is also quality staff that the products are innovative and fulfill the need of the market. We are currently designing the U.S. study and compiling the quality file for the application. We have also already actually started to invest in organization to run the study based on the high interest we have seen in the U.S. as well. And we have seen now from the very strong numbers on liver that Kristoffer Nordstrom will show you more later in this presentation. So we now encourage that we should invest in the Liver Assist to get to the market also in the U.S. And with that, we go to the next slide, which is a participant slide. And with that one, I will hand over to our CFO, Kristoffer Nordstrom, who will present the financial performance during the quarter and deep dive into the details.
Thank you so much. As Rosenblad has emphasized here, Q1 was a strong quarter financially that we are very happy about the whole organization. We presented strong sales, strong sales growth in all 3 business areas across the board, strengthened gross margins, which led to an improved EBIT and EBITDA. Net sales in Q1 came in on SEK 141 million, which means a 52% increase year-on-year. Organic growth was 34%, acquired growth, 5% and currency effects, 30%. We delivered a strength in gross margin, 75% versus 70% last year.
Gross margin on disposables improved 2 percentage for the company as a whole, and we'll dig into the details in each business area as we go here. But from 79% to 81%, which is a very good number. The primary reason for the improved gross margin is the development that we have seen in our abdominal business area this quarter. Both EBIT and EBITDA were strengthened versus last year and an EBITDA margin of 18% was presented. If we move over to the different business areas, we start with thoracic. Thoracic performed a yet good quarter and continues to deliver growth. Net sales amounted to SEK 91 million.
Organic growth was 23% in local currencies. The good machine perfusion plan continues. Activity was good both in the U.S. and Europe. In connection to Q4, we flagged for potential stock taking -- stock building effect from the customers, but we didn't really experience this in Q1, and we don't experience it in the beginning of Q2 either. So it seems like the volumes we see now are true and that there is a good momentum out there.
As we have said before, in Q2, we plan to phase out the last LS machine systems on the European market. So we have a handful of LS machines that would be converted to express systems and excess protocols, and that is very good. And there are some strategic sites out there that we're working closely with such as Copenhagen, for example. So we hope to provide you with some good information about that process on the next earnings call here as well. Q1 thoracic sales include sales of heart preservation systems for the first time.
So we have sold some disposables, as Christoffer said, in Australia and New Zealand and also had some research related sales in the U.S. as well. Total heart number was on the disposable side, SEK 7 million. Disposable grew 32%, where lung accounted for 25%. Here, we are extra pleased that the EVLP sales grew 40% versus Q1 last year. Gross margin on disposables was especially strong, 86%, and that's 2% units better than last year, mainly driven by an increased ASP on Perfadex Plus and EVLP on our key markets.
Moving over to business area, Abdominal, Abdominal came in on SEK 31 million, which means once again an all-time high quarter. Growth in local currencies was 85% in total, and growth in disposables was specifically good, 123% in local currencies year-on-year, where 82% was organic. 41% was acquired. And with this, we mean it's represented by the former distributor margin in Italy.
Sales were mostly comprised by liver sales in Europe still approximately 78% of the total sales. Gross margin disposables were 65%, which is a significant jump up from last year's 53%. And this is a result primarily of 2 aspects. First of all, the added margin from our perfusion servicing model in Italy brings up the gross margin; and second, an overall good progress on the ASP prices on liver in Europe. Moving over to the services segment, which is our STAR Teams organ recovery business in the U.S. Here as well, Q1, a financially good quarter.
Sales of SEK 19 million was recorded in quarter, comprising an 82% increase versus last year. This increase was mostly a result of customers coming in at the end of last year, but we also had some, what we call one-off recoveries performed in Q1, and that's for customers that don't yet have a contract, but it also means that we have had a chance to prove our excellent service, and we are in a very good position to start contract negotiations also with these sites. So hopefully, they will result in additional contracts as the year proceeds.
Starting performed close to 500 cases last year. And in Q1, they started intensive with another 146 cases. a 24% increase versus last year. Key for future growth within services to continue to invest in the organization in both headcounts but also in quality insurance, focus in the coming quarters to bring on more surgeons and coordinators to ensure we are well prepared to meet the surge in demand of organ care services in the U.S. Moving over to EBITDA and profitability.
Q1 delivered an improved EBITDA. Adjusted EBITDA was SEK 25 million, representing a margin of 18%. This was primarily a result of our increased sales and our strengthened gross margins. Rolling 12 months EBITDA margin of 14.5%. That represents SEK 66 million. So the trend in the last quarter has been good with profitability levels that are increasing as sales are growing. We will continue to aim for a balance between profitability and investments in the coming quarters, and we will invest where it makes sense and continue to build our business model and organization as we go.
Moving over to my last slide, the financial position and cash flow. Operating cash flow in Q1 was negative SEK 12 million, which has been a trend for us in Q1 early years as well. This quarter was a result of increased working capital, mostly due to our increased sales and also payment of employee bonus liabilities that always are executed in Q1 every year. Cash flow from operating activities before changes in net working capital were positive SEK 22 million.
Investments amounted to SEK 34 million, consisting of investments in our R&D projects, mainly our different heart projects. And finally, just a heads up on the Avionord acquisition, an additional purchase price of maximum SEK 25 million will be paid out in Q2 2023, since they reached their milestone, where of SEK 10 million will be in cash and the rest will be in the new share issue. And that was all from me, Christoffer and to the Q&A. Leaving the word over to you again.
Thank you. And we will go over to the outlook. And we start on slide 18 with a long good term outlook. We are very pleased with this quarter. It's, of course, very good, but we're here for the long term. And it's important to point out that the demand for transplant today is still 10x higher than the supply of organs. Also, the sales value of machine perfusion versus cold static stores is roughly times 10, a little bit different organ per organ. But what we see in front of us is a market that is 100x higher than we see today.
And I think that we have seen the beginning of that market expansion in the last quarter. Also important to point out is the machine perfusion has proven to increase the number of organs to be used for transplantation, especially in the fast-growing DCD organ pool and hence, machine perfusion both normal, extended criteria and DCD graft will drive growth in the near future.
Probably to go all the way to X10 of today's numbers, the company at least believe that new innovative sources of organ need to be used, for example, xenografts. For both machine perfusion new source of organ, XVIVO has a proven product pipeline on the market or we are in clinical studies for market approval. And this puts us in a unique position on the market today.
And lastly, I think it's important to point out for long term is that during the last couple of years, and we have invested in a strong leadership team, a strong organization, and we are now ready to deliver on our strategy and our focus areas to make sure that we can capture this very big or even huge market opportunity.
And if we go to the next slide, slide 19, it's more of a shorter-term outlook. That's what we're going to do this year. And we're going to focus on, we said, our current business, and that's mainly machine perfusion. We see continued momentum through especially hub and service models, and that could also be set from ISHLT, that it was a high interest for from clinician to hub models and service model. So they don't need to keep all their knowledge in-house that we can support with that. I'm also happy to report that the integration with Avionord was record fast. We bought them in December 2022, 1st of December. And more or less from January 1, we executed as an integrated company beating revenue by debt, et cetera. So very happy to see that and very impressive from the Avionord and European team.
Number two, we will focus on the Kidney Assist Transport launch. Key focus area for us. We have launched in U.S. and Europe. We have mainly installed machines during the quarter, and we're now looking forward to more usage on the product. We are continuously ramping up production on this product to make sure we can satisfy the high need. We talked a lot about heart today, and we will continue to work hard to get this product out. The message I get from clinicians is just get it approved, we will use it. So we worked very hard for commercial launch in Europe and Australia and New Zealand.
We hope to start the trial in the United States as soon as possible with a positive IDE application. Last focus area is that we'll be focused to prepare the liver application for the PMA approval in the U.S. So we will hopefully have an IDE application as soon as possible for the U.S. market. And the last point is that we continue to see that we are underpriced versus competition, and we find ourselves in a high inflation environment. And we will continue to increase prices on our unique products to make sure that cost increases from our suppliers and deflation is carry forward in the value chain when there are reimbursement system to take care of them.
And with that, we can go to the last slide, Slide 20. I thank you for listening to us today. As you see, that's our vision that we work hard for. "Nobody should die waiting for new organ." And we continue to work hard every day. And with that, we open up the lines for questions. Thank you.
[Operator Instructions] The next question comes from Ulrik Trattner from Carnegie.
Congratulations on a great quarter. I have a few questions, if I may, and very intrigued to see that you started to generate sales in heart, I was wondering if you can elaborate a bit on margins and pricing of those revenues. And it looks like it's not dilutive to thoracic sales in terms of the gross margin side. If you can just help confirm that, that would be my first question.
Yes. We can confirm that, that we have a unique technology and we will not dilute margins on the thorax side with the heart launch.
And just in terms of are you able to take a full price being compassionate to you for the sites that are already been participating in the study, I'm guessing you will be giving them some type of discount or how does that work?
Yes, that is correct. We have a discount during compassionate use in Australia. We plan to do the same in Europe and if possible, also later on in the U.S. So there will be before regulatory approval price, for sure. We can't take full price.
Okay. Great. And a follow-up on heart and I'm bridging into the PMA study in the U.S. We talked about this before, but do you believe that STAR will be able to participate and or to be included in the PMA study given that they are part of the infrastructure for heart transportation.
Yes, it has been very clear from several of the centers that they are interested in the STAR Teams model as part of the study. And that is something we would love to be able to support them with as well. So that is definitely something we are looking into at the moment.
Yes. And to add to that question Ulrik, we can -- I've seen now during ISHLT that there is a need for service support. Then, of course, it's up to the clinician himself or the clinical team to make that decision. But if we can help, we will help from the STAR Team side.
Sure, sure. And on the STAR Teams, you mentioned in the report that you're looking at improved margins. I'm guessing you're looking at the gross margin side of STAR Teams. Is this purely based on the number of contracts obtained or is there any volume component or in tweaking in terms of the revenue model in STAR Teams that should drive margins higher for that segment going forward here over the next 6, 12 months?
Yes. So we are currently looking over the revenue model for STAR teams. And so I think this is, it's 2-folded here. We -- when we -- so the contracts that we have, they are renegotiated on a yearly basis. So we will have several opportunities during the year here to renegotiate contracts and with the new model in place, to ensure that they get even more profitable for us. The second thing, I think, is a little also up to us, but more internally that if we can be more strategic on where new customers are located, that could also give us economies of scale because we have learned now during this year, that is a lot about efficiency. If we can have customers located in where it makes geographically sense, and we can have our power surgeons there, then we can kind of cover more contracts with less surgeons, so to say.
Sure. Makes sense. And since we're talking about profitability, you highlighted improved gross margin, seeing that as well. But the strong jump here in margins year-over-year, is it purely leverage on the current operation? Or is there anything in numbers that we should be aware of? Or is it a contribution from Avionord and STAR, which holds higher margins already? Or is it just all of the above?
I would say if we look at the business area or business area, so on the thoracic side, there we have constantly improved small steps at the time, mostly driven by our increased ASPs from the pricing increases that we have had now for a couple of years that together with -- to be fully transparent some currency effects as well. On the abdominal side, we flagged on the Capital Markets Day last year that our midterm goal is to reach above 70% in gross margin. And we highlighted that there are 2 key drivers for that. The first one is the improved margins from the perfusion model in Italy. And I think that as long as Italy as of today is our biggest abdominal market, that is a big contributor. And the second one is that -- which we haven't seen the effect of yet is when we get full steam ahead on the Kidney Assist Transport sales in the U.S., that will come in with a gross margin, I think about 70% directly, which will also help up. So we believe that the 65% to see this quarter is kind of what we should expect in short term now, I don't know.
And also to mention on that, Ulrik, building a medtech company, you have a lot of fixed costs. So if it is around SEK 400 million or SEK 500 million, you can see economies of scale kicking in from your R&D, you quality department, our admin department, et cetera, et cetera, your sales force. So we will see economies of scale kick in over time. And that mentioned before, we -- and Kristoffer Nordstrom mentioned it, that we have a market opportunity that is 100x larger than today's market. So we will try to balance investments versus profits in the next quarters and years to come.
That's great. And on abdominal, you mentioned it that the gross margin was high in the quarter. And as I'm looking at abdominal gross margin for machine, it was really high this quarter, which leads me to believe that, and obviously, in your presentation that sales from America was really low. So what's left besides the fact that you stated that you need to increase production capacity. But what's left before Kidney Assist Transport takes off and have meaningful revenue contribution in the U.S.
I think we will see that gradually coming through the year. And we'll see an uptick quarter-on-quarter. And we have unlike small sales force there that are having great -- they have a great customer experience when they do head-to-head with the current generally accepted market practice on kidney transport. We see that our product comes out better, both in kidney function, in clinical trials, we have seen it, but also in user friendliness, which is very important because, again, the less easier to use, the less personnel you need to run it. So we have confidence in the product and the outcome of Kidney Assist. And if we have the ramp-up of the production, we are confident that it will be also a sale success.
Okay. Great. Last question on my end, and I'll get back into the queue. Price increase and you talked about still being vastly enterprise versus what's out there today. What type of price increases are we to expect throughout '23 for each of the segments?
We are compiling that work right now. So it would be premature to state the number. But we have seen recent price increases, and we think that inflation is in line and at least has not gone down too much right now. So you could extrapolate the numbers yourself.
The next question comes from Peter Östling from Pareto Securities.
Yes. Good afternoon and also a very congratulation to an extremely good quarter. I have a couple of quick questions. First, going back to the Australian experience. Can you say more specifically how large the discount is now when you're selling the product under compassionate use?
No, unfortunately, we cannot comment on exact numbers. It's there, but we cannot comment on the exact discount. And then the final price will also depend on future reimbursement systems in different regions where all the work has not been done yet. So it would be also wrong to mention a number.
Okay. When it comes to the Kidney Assist Transport, you had some teething problems initially when you launched a year ago. Have all those been solved now so you can go full speed ahead in your continued launch?
Yes. So to my knowledge, everything has been solved. We are still experienced some issues with ramping up parts of the production of the machines, especially. So we have the right number of machines there, including service machines, et cetera. But from what I heard, we should be able to wrap it up further in Q2 and then even more in Q3, et cetera. So we are quite confident. And also now we have installed a couple of machines during Q1, and they will start to generate revenue during Q2.
Okay. How will you specifically related to Kidney Assist Transport, how will you report the continued development when it comes to machines and usage. Will you just bake them into the abdominal area as you have now? Or would you be more specific when it comes to numbers of machines sold and so forth?
Two answers. One, we will not have more segments, so to say. But yes, during the launch, we will be more specific in -- when we write in the abdominal segment of the quarter report on the progress of the launch.
Okay. You said that a large part of the growth is stemming from your increased average sales price. And I was just wondering, when will you see the volume factor also come into play more significantly?
On the abdominal, are you asking about the abdominal side?
Well, I'm talking in general, since you mentioned the average sales price increases, an important component for the growth.
It's an important component of the gross margin growth, I would say. But if you look on, if you look on the abdominal growth, for example, that's very much volume related, where we see good progress on liver in Europe. Many clinics are really up to speed now. Looking at lung as well, not the number we disclosed in the report, but the ELP revenues in comparison with Q1 last year was up 40%. Whereof, I would say 2/3 are volume related.
And the abdominal was 82% constant currency, excluding the Avionord effect, where the absolute majority is volume. So we're going to use more.
Yes. I hear you. And lastly, you had the symposia at the conference last week regarding EVLP. And I think if I'm correct about the title that it was something around how you will tear down the barriers for using EVLP even more in the future. Obviously it would be interesting what the conclusion from that symposia was.
It was to start with a very good symposium. And the conclusion is that the need for hub and service model will increase in the future to yes, what we said, bring down barriers and growth within EVLP. So everybody agreed on that, and that was the way forward. And I will say everybody is working very hard on that in many regions in Europe as well as in the U.S. more locally in the U.S. But we see that the hub models, the ones that are used to use in the XPS tend to use it a lot more because it's a knowledge hurdle, so to say. And once you go over that hurdle, it's a lot easier to use the product.
What is your expectation when it comes to time spent? Are we talking about 3 to 5 years, something like that? Or could it go even faster?
You mean uptake in EVLP?
No. Well, introducing this hub and service model, which will be a critical factor to increase the usage of EVLP.
I think I mean, it's happening while we're speaking. And there are hub models working in the U.S.
Yes. You have the lung bioengineering, of course.
That's for example and [indiscernible] is also having a hub. And you can see also regions in Europe or countries or regions in Europe are starting. I would say that the hurdle right now is rather very practical to get approval or agree on the logistics around it. But everybody is continued to work in high pace to have that. Once we have, let's say, fully European and U.S., Canadian, where every center is at least covered by one hub, that might take a few more years, yes. But it will happen gradually, not overnight.
[Operator Instructions] The next question comes from Alex Cogut from Bryan Garnier.
So I was just wondering if there are any major differences in the U.S. liver and heart trials compared to what you've done in Europe and Australia and whether it's different at all from our TransMedics branded trial?
Thank you for a very good question. In terms of liver, we are designing it right now. My guess right now is that there will be very little difference in liver between how it's used in Europe and the try and design in the U.S. But that is remains to be seen. In terms of heart, there are a little bit different legs we go for where in Australia, for example, we went for the long, really long transportation times and above what is used. In Europe, we have focused on the, let's say, the normal hearts, more or less. And occasionally, it will go out of what is considered a standard criteria heart. In the U.S., we will focus on the extended criteria. So that could be high down rate. It could be expected transportation time, et cetera, et cetera. So we will -- it's a little bit different design region per region, but the 3 trials together will cover the full usage of the heart product.
Got it. And then as a second question, are you looking to leverage the Italian on the STAR model in [indiscernible].
Yes. We are investigating that right now. And it's a very interesting question because it is -- and I'm more convinced now after ISHLT that there is a need for that model in more regions, more European countries or regions as well as the U.S., where the cost for clinic to key those very valuable nurses trained on different platforms is quite high and something that would like to get away from. And if we could offer that as a service, that would be highly appreciated, I think. So we are investigating right now which European countries would be fitted to it because also the reimbursement system has to be covered. We know already now that in the U.S., reimbursement systems are typically cover this type of services in the cost report. So that would be an obvious market. We have not taken a decision yet on a full integration of STAR with our product portfolio and Avionord model, but it's something we are investigating right now, and we will come back as soon as that investigation is finished.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thanks for listening to the conference call for Q1. I hope you will listen in to our conference call for Q2, which will be in the second week of July. And with that, I thank you all, and hope to see you next time.