Xvivo Perfusion AB

STO:XVIVO

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome to the XVIVO Perfusion Q2 2020 Results Webcast. I will now hand over to Dag Andersson, CEO. Sir, please go ahead.

[Dag Andersson, President, CEO & Director]

Thank you very much. Good afternoon or good morning or good evening, depending on where you are in the world. My name is Dag Andersson, and I'm sitting here in Gothenburg again with Christoffer Rosenblad.

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

Good afternoon.

[Dag Andersson, President, CEO & Director]

And I have now been CEO for as long as 6 weeks. And so it's my pleasure actually to present first -- report here to all of you. And just to tell you a little bit about my background, I mean I served for 11 years before joining XVIVO as CEO and President of Diaverum, which is the third largest dialysis provider in the world. And prior to that, I was the Deputy CEO of Mölnlycke Health Care, a med tech company, also head officed here in Gothenburg. So I will start just to make some comments on Slide 2 of the presentation. So if you could turn to Slide 2, ladies and gentlemen. When it comes to sales, we have, between 2012 and 2019, had a yearly sales growth of 21% on average. Unfortunately, this year, because of COVID-19, we've actually had a sales loss of 28% in -- as measured in Swedish krona. The positive news is that -- one of the positive news is that we have very strong gross margin, 80%. I think this is a very, very good number. We have actually managed to produce a positive EBITDA during the first 6 months, excluding onetime costs of 5%, positive cash flow. We have sold 2 lung machines -- evaluation machines in Europe during the corona crisis, including 1 to Italy during the sort of height of the pandemic in the country. Activity is increasing again. We have seen the start in activity increase in the U.S. from May, in Europe from June. So activity is now on its way up again. We have also seen COVID-19 patients being transplanted in U.S., Europe and Asia. And our product solutions have been used for transplants in both U.S. and Europe for COVID-19 patients. We have also launched successfully Perfadex Plus, which is the cold preservation fluid, with Click Port, in Europe and Canada and full implementations are completed. And it's a very unique and patented fluid that is now sold on our markets. So that -- these are the highlights of first 6 months. I will come back to explain some of the highlights in more detail, but I will now ask Christoffer Rosenblad to talk a little bit about the profit and loss statement on Page 3.

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

Thank you. Yes, it is a big picture of the P&L. What can be said of the first 6 months is that, as was reported earlier, there has been a COVID-19 effect on top line. The good news is that gross margin has remained high during this period of time. Also, we reported earlier, we had a cost reduction program implemented. And we have been able to reduce cost to a lot of extent without reducing the speed of our projects. This is also a very positive news on that. If you look at the first half year, we also managed to have a positive EBITDA for the first -- for the period. And I think with that, we turn over a little bit more to the COVID-19 effect on the company on the next slide, Slide 4.

[Dag Andersson, President, CEO & Director]

Yes. So we talk a little bit about the impact on transplant activity. And as you can all guess and understand, I mean the COVID-19 situation has had a big impact on transplant activity and all sorts of surgical activity and critical activity in the world because, in terms of care, capacity has been utilized by COVID-19 patients. But you can see on the 2 graphs on Slide 4 that the number of lung transplant per week in the U.S. The first graph is going up again. And you can also see on the second graph, which shows Spain. And interesting is Spain is actually the country in the world with highest number of transplants per inhabitant. And the activity level is also increasing there but a little bit later than in the U.S. So that is the trends on activity, the 2 examples of countries where activity is going up again. Page 5, which I mentioned already on Page 2, is that we have -- despite the pandemic, we have sold 2 lung evaluation machines called XPS in Europe. And 1 has been sold in Austria in one of Europe's actually leading hospitals. AKH in Vienna is a very prominent transplant center, one of the more prominent ones in Europe. And interestingly enough, we have also sold 1 machine to a pediatric clinic in Rome. And it's actually the first time that we sell a machine to a pediatric hospital. And this is also -- this was done during the height of the pandemic. When it comes to Page 6, it's a study linked to our heart preservation project, which I will come back to a little bit later on. So we can actually skip this page from now on -- or for now. On Page 7, this is just an example of what we continuously do. We add features that are -- benefits our customers on our machines. And this is actually an example of such a feature that we add. And it's a weight sensor. And the weight sense -- sensor makes it much easier to make a decision whether to use a lung for transplantation or not. And previously, the weight of the lung could only be taken at the beginning or at the end of the evaluation, lung evaluation period. So this is actually quite a unique feature that I think we are quite alone of in the industry. On the next slide, Page 8, we are just showing that being market leader means that we are also taking a lot of initiatives in different areas. And one is to host XVIVO webinars, where a number of key opinion leaders in the global lung transplant field moderate them and present or participate in these webinars and share experiences from their clinics around the world. And it's quite interesting to note that, in total, we have around 350, currently, participants so far and very positive feedback. And we will continue to host these webinars at least once or twice per quarter. If we then turn to Page 10, which just shows the -- how we sort of continue to grow or focus on growing within the lung transplantation area. We are continuously looking at the protocol development related to our warm perfusion fluid called EVLP protocol development, where we are looking at ventilation strategy and organ in prone position, et cetera. We are also looking at the machine strategy, how can we make the machine or machines easier to use, more customer-oriented, more flexible. We are adding features such as the sensor I mentioned before. Biomarkers are also being validated. We are looking at the next-generation of the warm perfusion fluid. The name is actually called STEEN Solution. And we are looking now at STEEN Solution 2, and where patents are being filed as we speak. We are also looking at expanding the use of DCD lungs. And this stands for donation after circulatory death as opposed to DBD lungs, which are donation after brain death. So it's important to distinguish between those 2 types of facts -- of deaths, to be brutal. Next page, Page 11, heart transplantation. We have a key project aimed at commercializing a heart preservation device solution. This has been developed by Professor Steen, who has also developed our warm perfusion and cold preservation fluids. And we are actually very happy to show to you today that we have start -- we have done the first clinical study at Lund University Hospital in the south of Sweden, where results on the first 6 patients after 6 months indicate actually that our -- that hearts can be safely preserved with our technology. And safely preserved means that a heart transplant results in success and reduces the risk for -- how do we pronounce it?

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

Ischemic induced...

[Dag Andersson, President, CEO & Director]

Ischemic induced reperfusion injury. So this is actually a publication in a magazine called Nature, which is very important. So this is the first, call it, initial evidence that our heart preservation device solution is successful. And when it comes to this project, the heart preservation project, we have actually managed to get patents approved in the U.S., Canada and Europe. We have a clinical team build-up, and we are actually starting multi-center trials. I mean the trial I mentioned to you before in Lund was a -- we can call it preclinical trial. But now we are starting the retrial in Europe, U.S. and Australia. And Belgium, France will start first, and Germany, then Poland. And what I'm very happy to mention to you as well is that our heart preservation device included -- has been granted breakthrough device designation by the FDA, which means that it will -- it's the first sign that we will get an FDA approval for this. So planned IDE submission in quarter 3. So that is on heart. PrimECC, which you can read about on Page 13, is a solution that will be used with the heart-lung machines. And these solutions enter the patient's bloodstream at the start of the procedure to replace the blood volume filling the heart-lung machine. And the objective here is to limit the damage on surrounding organs, notably the kidney. And this is also a very interesting project, and we believe that this will have a commercial success. It has been patented also in Europe, U.S., China and Japan; CE marked; clinical studies at Sahlgrenska University Hospital in Gothenburg. And we are now preparing a clinical and multi-center trial in various Swedish -- in several Swedish hospitals. And they are now ready to include the first patient. And I think this is also a very exciting project for XVIVO. On Page 15, if we look a little bit at the outlook, the outlook this year, a little bit also into the future, for us, of course, it's very important to defend and develop our position in the lung transplant segment, and that means continuing to develop the warm perfusion fluid, clinical practice, the machines. We have the heart preservation project with the device and fluid, which I mentioned to you before, where the trials are now starting in Belgium, France and Germany. And we have the PrimECC project with the multi-center study in Swedish hospitals. When it comes to our long-term goals, we have said, and I think we will continue to say, that we want to solidify our position in thorax surgery, that means lung and heart Tx. That includes the heart preservation and the PrimECC project. But we also want to enter the liver and kidney organ segment. And how to do this, the future will tell. I mean there is also an option to do it on our own, or there is an option to cooperate with or acquire another player in the industry. And there are some interesting companies to study for this sort of purpose. When it comes to the COVID-19 situation, as I'm sure you've heard many other companies, I mean there is -- COVID-19 has had an impact on transplantation and on our sales. And we have implemented a temporary cost reduction program to bring expenditure to lower level. And what we have primarily done is to reduce the number of consultants primarily. And therefore, it's also very important that we focus on what is important for XVIVO. And the projects I have talked to you about are absolutely essential for our development and future. And we have the resources to drive and develop these projects. And as mentioned before, we have exciting clinical studies ready to start, though, for the heart preservation project and for the PrimECC project. And on the last page, page -- what is it, Page 16, yes? Just to give you a little bit of my observation after the first month or 6 weeks [ now ended ]. We have appointed a Chief Intellectual Property Officer. It is a person who ensures that we have the right sort of patents and IP protection in place throughout the world. And we have also appointed Chief Medical Officer for the company. In the early autumn, a Head of Commercial will join XVIVO, with a great experience, and I'm sure that this person will fit well into the company and be very productive from the start. The Head of R&D will also join during the autumn. My focus right now is very much on further commercializing the organization to focus on sales force speeds, pricing, safe tools, but also to improve product management and time to market. It is important to have [ 40 plans ] for the few projects to actually set them all their time on leading their respective projects. And being a company of a relatively small size, it's important that we always are clear about priorities. We do -- cannot afford to focus on [ sub-benefits ]. So we have our priorities. We know exactly what projects to drive. We have the resources for those projects, and I'm sure this will lead to great success also in the future for the company. So that's all from our side. Thank you.

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

We will now open up for questions.

[Operator]

[Operator Instructions] And our first question is from Daniel from Danske Bank.

[Daniel Albin, Research Analyst]

Daniel from Danske. So my first question is really if it's possible to quantify, say, the physical effects of the cost reduction program going into 2021 in the following second half of this year. And my second question is, really, if you could give a, say, an updated picture on the activity level when it comes to warm perfusion procedures, especially concerning your largest customers and what we should expect going into the second half of this year in terms of growth or decrease.

[Dag Andersson, President, CEO & Director]

Okay.

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

Okay. Yes, we can do just after that with the second question. EVLP activity, in our judgment right now, is about a month later than, let's say, than the lung transplant activity in general. So it's a slight delay with about a month country by country, and we can see increased activity at the end of Q2 coming in. Again, it could be different country by country, region by region, but as a general picture -- but the best thing to have. And the first question, could you please repeat it?

[Daniel Albin, Research Analyst]

Yes. So I'm wondering a bit is you're mentioning a cost reduction program. And I'm wondering if you could quantify the effect on, say, how much will you slice OpEx cost on a full year basis? Is it possible to...

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

Okay. I think it's quite -- if you look at Q2 reductions, I think it's quite apparent that we have reduced, especially that of the variable cost during the quarter, and we have intention to continue to do that as obviously needed. We -- when we do that, we still -- without -- we reduce the cost without actually, short-term, at least, reducing productivity. I think that's important to mention the consequence of cost reduction programs. It's hard to quantify the exact effect going out the end of the year. But I think Q2 gives a quite good indication on the level.

[Operator]

[Operator Instructions] And we have no further questions at the moment. I give the floor back to you.

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

Thank you. I have seen no question on the Q&A side and written statement in there. I don't know if we should wait another 15 seconds to see if there are any more questions on the line.

[Operator]

No more question from the line.

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

Okay. Then we conclude this meeting.

[Dag Andersson, President, CEO & Director]

Yes. Thank you all for dialing in and listening to Christoffer and myself, and looking forward to meeting you all again in a couple of months' time for the next quarterly report. Thank you all.

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

Thank you.

[Dag Andersson, President, CEO & Director]

Enjoy the weekend. See you.

[Operator]

Ladies and gentlemen, this concludes our conference call. You can disconnect.