Xvivo Perfusion AB

STO:XVIVO

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to XVIVO Q2 Report for 2023. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rosenblad; and CFO, Kristoffer Nordstrom. Please go ahead.

[Christoffer Rosenblad, executive]

I want to welcome everyone to the earnings call for the second quarter of 2023 XVIVO. And with that, I turn to slide number two in the deck, just the pictures of the two presenters. It's me, Christoffer Rosenblad, CEO for XVIVO; and Kristoffer Nordstrom, CFO, for XVIVO on today's call. First, giving a presentation and then answering questions from all of you. And with that, we go over to slide 3, which is the Q2 finances at the glance. And to start with, we are pleased with the quarter with strong sales, strong growth. We continue to see strong growth on the organic side. We are helped by especially the strong U.S. dollar on the currency effect.We continue to see strong EBITDA development. We have said that our financial goal 2027 is 30%, and we are progressing towards that goal. We could -- I said it before, and I say it again, we could reach that tomorrow, but we believe we have a market potential being 100x bigger than the one we see today, and we want to invest towards that very big market opportunity. If we look on the right side of the slide, I'm pleased to say that we see continued good progress, especially in all our segments, Thoracic, Abdominal and Services; good organic growth for disposable products and case revenue in the services case. I especially want to point out that the abdominal disposable gross margin of 70%, which was the goal we set to reach in -- during the strategy period.And I'm very pleased and happy to report that already in Q2 2023, we have reached the goal of 70%. So we, of course, want to from now on improve that also. And we see on the Thorax side or Thoracic side that the abilities to have higher margins in the market environment we are is there so that's definitely good news. I'm also very pleased to inform a report that the integration of our three latest acquisitions have progressed according to plan and that they are significantly contributing to the high growth we see both YTD and in the quarter. We have definitely stabilized the STAR recovery services in the U.S. And as we have press released during the quarter, we will now start integration of that service model and our products.We will also investigate a possible perfusionist model similar to the one we see in Italy, and that will be tested in a few clinics to come. I also want to say once we are talking about high growth that we are currently building up our production capacity, and we have delivered without back orders, but we see a very fast increase in demand for our products in the market. So we have already started a project to build up production capacity for times 10 for disposable products. We have three types of products we supply to our clinics and one is solutions or fluids. One is machines and one is the disposable sterile kits. And for both machines and fluids, we feel we can scale up fluids definitely by 10 and machines we can scale up over time.However, for disposables, we do feel the need to invest right now to scale up times 10 within for heart and liver within the next 12 months and then later on also for Kidney Assist Transport and Lung products. And we think the cost is pretty limited. It's a maximum investment of SEK50 million during 24 years, and we see a very good ROI on these investments, not only from scale, but also that we can redesign some of the products to get lower cost per kit. So we will be able to do an investment and get money back in a quick time. Then if we turn to slide 4, I won't stay on this slide too long. It's YTD, so Q1, Q2 financial at the glance. But key message is that Q2 is not just one quarter.We see a continued progress according to our strategy with organic growth of 9% and EBITDA level in 18%, and we see growth in all our product areas with improving gross margins. So that's the key message and key takeaway here. And in terms of numbers and drivers behind the numbers, our CFO, will give you further details later in the presentation. So we get [indiscernible] ability to ask Kristoffer Nordstrom all the questions you have on the finance side. So we will instead of dwelling on this slide, we will go to the slide number 5, which is the Q2 highlights, and we will focus on the progress on the heart technology and the STAR integration in this quarterly call. We had progress in all our [ client ] areas, but we want to focus on those two in the highlights section.We start with slide 6, the European and Australian heart experience. To start with, I'm very, very proud and happy to present that we have finalized inclusion of the regulatory study in Europe. It was a very big study with 202 patients, 15 leading transplant hospitals from 8 European countries just the logistics of running the trial was immense. But I'm happy to say that the feedback we've got so far from the leading KOLs in this -- in the study has been very, very positive. They really love the experience with the heart technology. And we are now -- I'm going to come to that a little bit later but we are now targeting definitely we can launch it next year, hopefully, in Q2 and are very pleased to say that we have already started that regulatory work now.So it's now at the hands of our regulatory body or [indiscernible] body. If you look at the Australia, New Zealand experience, I reported last quarter that we are seeing very good market penetration even before regulatory approval, I can report that we see the same picture in Q2, where roughly one quarter of all heart transplants are done with the XVIVO Heart Technology, which is truly impressive considering its prior to regulatory approval. So it means that the users really loved it. We will just -- for your information, we will do the same in Europe. Not in all countries, we will not apply for compassionate use, but in a number of countries, we will do that where we think it makes sense in Europe as well.We have activated four out of five trial sites and the fifth will come very soon in Australia, New Zealand, and then we have full coverage there. The reason for having high compassionate use is probably the most interesting for this product because it tells most about the future. And the main reason is that maybe twofold, but one is that the clinical data is convincing so far what we have seen. And the data we saw from during the -- as a team was very convincing with, for example, in Australia, no 30-day mortality. We could prolong out-of-body time to more than double of the generally accepted four hours, etcetera, which is compared to standard of care is a very impressive number.The other thing where we see the heart technology is or explanation for the use of the heart technology even before regulatory approval is that seeing is believing. And we hear from almost all our users that they see on the first heartbeat after using our technology that heart is in better shape. That the first punch the heart takes at the transplant is like it's never been outside the body. Normally, in the heart trust it would take -- it could take a couple of beats to even [indiscernible] time to get there. So we feel very strong that this product will be a paradigm shifter for the transplant industry as we see it. And also more important to that, it also when seeing is believing they see that the heart is performing good. It definitely gives confidence that the technology works and that they want to use it more.One last thing which we have heard, which we don't have data, we will definitely look into this more is that aftercare and especially usage is less frequent using our technology versus standard of care, which is also another, let's say, not proof, but it's another arrow pointing in the right direction that the heart is in better condition after using the heart technology. And we cannot fully explain this today, but we have run a study where we can see that one of the reasons are that we have higher cell survival on endothelia after using our box. That could be an explanation and more will come. And we are running a couple of studies to try to explain fully why we see those good results from our technology.With that, I will go to the next slide, which is the heart technology in the U.S. And here, I think it's the best news during the quarter, I want to highlight, it's that we got the IDE approval from the FDA, and that was great news, by the way. But the best news is actually that we've got a request from the FDA to investigate if we could include the DCD in the study as an inclusion criteria. And this is fantastic news for many reasons. One is that the donor pool in the United States in 2022, it's roughly one-third of the donors are from the DCD pool and two-thirds from the DBD. The other reason that is fantastic news is that this will -- of course, we would like to attack that pool sooner or later, but it saves us four years in come to market during that.And it will also save us actually a lot of money in not running two separate trials. So this was a fantastic news from the FDA during the quarter. We expect -- and we have said that we expect the study to start enrollment end of Q3. I have to then point out now that, that's still our goal. We are working really hard towards it. However, the fact that we have to negotiate the DCD inclusion criteria with the FDA might prolong first patient in a month or two. But again, that is really worth it if we can come four hours faster to market with the DCD inclusion that is already one-third of the American donor pool and is growing double digit, a lot faster than the DBD donor pool. So it will soon be at least 50% of the donor pool in the U.S. So it's definitely very, very good news.I'm also happy to say that when it comes to the U.S. trial, we have really the best transplant center, engage the best KOLs, high-impact center large center in the U.S. So I'm really looking forward to going to the U.S. and meet site and see how the trial is progressing over time. And with that, we go to the next slide, which is slide number 8, and also some very, very encouraging and good news. We have a press release that we will start the integration of STAR into XVIVO. We will have one brand, one strength and value proposition, one organization. This is -- everybody wants this, XVIVO all employed in the STAR and also our customers. And we will definitely also -- we will focus on becoming a preferred partner in the transplant process.And to do that, we need to have a combined service product offering. We see that we can finally accomplish that. We had also due to the fact that we had to focus on the processes within STAR teams we have prolonged both the integration until now and also the acceptance of new contracts. But now we feel we are in a good shape, fantastic shape with our service offering, and we will now start accepting new contracts and integration will start immediately. I'm also very happy to present our latest strategic collaboration. It's an aviation company called MTJ Aviation in the U.S. This collaboration will enable reduced logistic complexity, reduce cost for the transplant teams and hospitals and a lot easier working environment for our staffing going out and recovering organs.So I think I'm very happy for this collaboration. We will have dedicated aircrafts for three primary hubs with an intention to grow that if we see the need for more hubs with an increased service offering and product offering. So again, great progress in our service U.S. operation, and I strongly believe that more to come. There will be onetime costs associated with this. We have already flagged and taken SEK11 million in this quarter, and we believe there will be an estimated another SEK11 million during second quarter of the year -- or second half of the year. Good. Great. With that, we go over to the clinical pipeline and slide 9, which is [indiscernible] slide.So we step over to the slide 10 and our status in clinical trials and timelines. And if we start with the heart and the U.S., as I said, very, very good news. We expect to get the first patient in very soon. The trial will include with the current trial design of -- will include 141 patients. As I said, high-impact centers engaged -- I met most of them during April and I feel very positive towards this trial. It would be interesting for it. In Europe, as we have stated earlier, it's all included patients. We will now look at the data. We have submitted the technical files to the notified body, etcetera. And we will now work closely with our notified body and competent authorities to enable regulatory approval and commercial launch in Q2 next year. I want to point out two things. The first one I already said, it's about the DCD that might prolong the start of it, but we'll shorten time-to-market for DCD.The other one is that with regulatory approval in Europe and MDR and the notified body there, there are -- we can affect our timeline, and we all have met all of the timelines for submissions. It's hard to affect the notified body. They are under a lot of stress due to MDR. So it's hard to promise anything in terms of regulatory approval. But as I stated earlier, we will investigate compassionate use, etcetera. So we believe that we will have commercial product on the market being used, gathering more data and more experience anyway. Australia, I think I said most of it. We have very good results, encouraging results from that study, really pushing the limit of what we can do in heart transplantation.To point out in terms of go-to-market strategy, the Australian regulatory approval will be pending CE-Mark. So I think we expect that to come shortly after we expect the CE-Mark. And then we have the last piece of regulatory approval and clinical trial, and that's the liver and the U.S. -- or access to the U.S. market. And we have a very good product. Liver is probably our fastest-growing product right now in Europe. We have very good clinical results and more and more clinical -- and convincing clinical data is coming out every quarter. And of course, we want the U.S. market to also have access to this product. We are granted breakthrough device designation by the FDA. We are in a trial to sign a planning phase. And we will start actually investing towards liver organization over now in 2023, 2024.And we are investigating the possibility of having a U.S. heart PMA trial parallel to a liver PMA trial to accelerate the time-to-market, and I will come back as soon as I have more information on that investigation, but that will definitely be great in terms of time-to-market for both the liver and the heart DCD products. On the next slide, slide 11, we have PrimECC and as you know, last night, we sent a press release that we will stop patient inclusion and look into data to evaluate strategic options we have. And the reason for this is partly that we saw a quite slow patient inclusion, and we want to know why. The other reason is that we are getting more and more focused by the day.I said earlier that we have an opportunity that it's a market opportunity that's 100x bigger than we see today, which is roughly 10x more in volume and 10x more in value for machine perfusion versus standard of care today. And we see that we need to focus in order to capture that opportunity. So that's partly it. We have -- PrimECC is a fantastic product, what we have seen so far. It's used to prime heart-lung machines. It's a CMR patented solution. And we will look at it the data to analyze it.And then after we have looked at the data from this -- the patients we have, we will evaluate next step going forward. We have decided that we should do that before the end of the year, and we hope that we can come back before the end of the year with strategic options for this product. I also want to make sure it has no impact on 2027 financial targets or any day-to-day business in terms of XVIVO, just to be clear on that.And with that, I turn to slide 12. I hand over the word to our CFO, Kristoffer Nordstrom that is actually on the picture you can see you right now, and thank you. I'll come back to the last two slides again and for questions.

[Kristoffer Nordstrom, executive]

Thank you for clarifying the picture, Christoffer. Good. So yeah, no, Christoffer has given a very good overview of this great quarter so far. So I will spend some -- a few minutes here on discussing the numbers further. But in many aspects, this was a record quarter. I mean it was record sales for the business areas. We achieved the milestone of 70% gross margin on abdominal. EBITDA was strong, etcetera. So overall, we are very content and satisfied with the quarter and the trend that we see at the moment. But a little bit about the numbers so net sales came in for the quarter of SEK155 million. That's a 64% increase year-on-year. Most importantly, the organic growth was strong, 46% in the quarter.Gross profit increased SEK48 million to SEK115 million. That's a big jump up. We delivered a strengthened total gross margin of 75% versus 72% last year. Both EBIT and EBITDA were strengthened significantly versus last year, and we also achieved a sequential improvement versus Q2, which is great. EBIT margin, 10%. EBITDA at 19%. The adjustments that we present when we talk about adjusted EBIT, EBITDA margin, that is related to integration costs in the U.S., as previously announced. This year-to-date sales amount to SEK295 million, a growth of 58% whereof 40% organic. Year-to-date EBIT 9% and EBITDA 18%.I will move to the next slide and go into the business areas. Thoracic performed well again this quarter and continues to deliver growth sequentially. Net sales amounted to SEK105 million. Organic growth for disposables was 47% in local currencies. The main driver for this growth is EVLP, and that is, of course, what we want to be the main driver, right? So in Q2, EVLP activity was especially good in the U.S., where volume growth versus the first quarter wasn't significant. If we stay on the Lung side, we sold one XPS machine in the quarter, our first machine to a country in the Middle East, which is exciting. We expect that the next quarter will be a little bit more busy especially in Europe in terms of XPS placements, but it's always a little bit uncertain quarter-to-quarter.As we have described or Christoffer has described, we continue to sell our heart products in Australia for -- under special permits and the sales was at SEK7 million in Q1, and this quarter, it was SEK5 million. So we continue on a very good trend in Australia, which is exciting. Gross margin disposables was good, 84%. We have presented gross margins at the mid-80% level for a few quarters now, which is strong given inflation and cost pressure overall. To further improve our margins, we will continue to focus on price increases year-on-year that we always do. But we will also, as Christoffer mentioned, to start -- we will invest in supply chain and manufacturing improvements over the next two years, and that will also be beneficial to our margins also long term.And this goes for all our organs on our full portfolio. If we move over to Abdominal, net sales came in at SEK30 million, in line with Q1, which was an all-time high quarter. So that is a good trend and a good level at the moment. Growth of disposables was specifically good, 79% in local currencies year-on-year, whereof 40% was organic -- 39% was acquired, and that's represented by the additional perfusion service revenue that we have in Italy at the moment. Sales were mostly comprised by European sales, approximately 86% of total sales and the lion's part of this is lever. As we said, worth mentioning again, gross margin disposables reached 70%, and this is a milestone for us, and it's a significant jump up from last year's 56%.It's a result primarily of two aspects. First of all, as I mentioned, the added margin from our perfusion service in Italy. But also, secondly, we see a good progress also on our ASP development on liver in Europe at the moment. So to our third and last business area, Services. As Christoffer said, great momentum, a lot of positive initiatives within this business area, the Procurement Service division that we have in the U.S. So we have seen in the quarter the interest in collaboration with MTJ Aviation. We are having great discussions with customers. We are currently renegotiating many of the current contracts with good outcomes, and we're also hoping to bring in some new prominent transplant centers towards the next -- the end of the year here as well. Sales were SEK20 million, in line with the last quarter.That's a 79% growth versus last year. The number of cases in Q2 was SEK150 million, and we showed a strong growth in lung volumes, which is very interesting and very good. So lung recoveries are a bit more complex than heart recoveries. And this growth in lung volumes is a true quality stamp for our organization and will fit perfectly well also when we enter the new phases of the integration here in the future. We performed close to 500 cases last year, which is a significant number. And our rolling 12 number now is 564, and we expect to reach about 600 cases for the full year 2023. I would say, key for future growth here is to continue to invest in this organization in both surgical capacity, but also infrastructure and we should also not forget the quality insurance and the quality part.So by leveraging XVIVO's brand and reputation, we are very optimistic that we will be able to attract more surgeons in the future and also win more customer contracts as well. So overall, now when we enter into the new integration phase here, this organization is in a very good shape and ready to grasp the big opportunity that we all see in the U.S. in this area. A little bit about profitability and EBITDA. So Q2 was a good quarter also from a profitability point of view. EBITDA adjusted for integration cost was SEK29 million, corresponding to a margin of 19%, rolling 12 months EBITDA, 16%, representing SEK83 million.The positive development is primarily a result of increased sales and the gross profit. To Christoffer's point we are continuing to also invest in the organization. And we -- and we will continue to do so for the rest of the year. My final slide for today, cash flow. So here as well, Q2 was good. So we had a positive cash flow from operating activities, SEK16 million, a big improvement from last year. Our rolling 12 months operating cash flow is SEK43 million.We continue to invest primarily in our R&D projects, where heart is the biggest one, SEK47 million in total. But in these numbers, we also had some one-offs, if you may, because we made some final payments in connection to the acquisitions of Avionord and STAR teams that amounted to SEK18 million after this SEK47 million. And the cash position at the end of the period was SEK171 million.So that was everything from me, and I will leave the word over to you, again, Christoffer.

[Christoffer Rosenblad, executive]

Thank you. As always, I will end the presentation with the outlook. And we start with a long-term outlook, and some of you have heard this before, but the repetition is mother of learning. And we're still looking at a demand that is 10x the supply of organs and number of transplants today. And this is something we have in our mission that we will need to adjust in order to make sure that nobody dies waiting for lung. The sales value for machine profusion versus cold static storage is roughly times 10. So we're looking at the market that is 100x bigger than the one we see today.Machine perfusion has proven to increase the number of organs to be used for transportation, especially in the fast-growing DCD pool but also in a lot of DBD organs, which is called marginal or extended criteria DBD. So machine perfusion on normal and DCD grafts will drive growth in the future. We will continue to invest in this market opportunity with service models, improved machine perfusion, etcetera. And lastly, I would say XVIVO has a unique, innovative and world-leading products that are second to none on the market today or in clinical trials for regulatory approval in the world. And this puts us in a unique position to capture this opportunity. And we are now getting more and more ready day-by-day to deliver on this promise.And if we look into a little bit shorter term, what we do during 2023 -- we said that we have four focus areas. And the first one is definitely to -- we see continued momentum for machine perfusion. I think it's more and more proven that this enables more transplants, higher survival rates and it's getting used more and more. To drive this, we believe in hub models and service models. So this is what we market and drive towards and so far has been successful. Number two, we have the Kidney Assist Transport with a continued introduction in both U.S. and Europe. We have very good results and customer feedback so far.And we are tweaking the product to fully meet the American market needs and scaling up for production to meet the full market need but so far, very good [indiscernible]. I have -- we already talked about the production scale up times 10, very important project that we already started and we will continue to invest in this in order to meet the increasing market need. And the heart products is -- we have already now prepared for the commercial launch in Europe and Australia, and we are definitely in the start of the PMA trial in the U.S. And as I said earlier, we are negotiating with the FDA how to include DCD and that's the last part of the puzzle before start. In liver, we are prepared for trial application and submission in the U.S. So those are the things you should expect more information on during 2023.And with that, I close the presentation part of this call and open up for questions.

[Operator]

[Operator Instructions] The next question comes from Ulrik Trattner from Carnegie.

[Ulrik Trattner, analyst]

I have two questions on my end, and I hope you can hear me all right. I'll start off with some broader questions and then perhaps going in with a few regarding the orders. If we could start off with STAR integration and the new collaboration with MTJ and Chris, you touched upon it briefly front the presentation that you were seeing a situation where you can expand the service offering in the U.S. on the base of this sort of similar to that you have in Italy. What does this mean in practice? Are we to expect here in the medium term that XVIVO will operate service -- profusion service centers in the U.S. or what should we expect?

[Christoffer Rosenblad, executive]

Yeah. Christoffer Rosenblad here. I mean right now, we are trialing that if we call it the Italian model in a limited number of clinics to see -- so we learn more from Italy. It took them quite a long time to learn it. So we are currently trialing it. Over time, we see there is -- when I go meeting customers, this is both Europe and the U.S., they very often tell me that, yes, yes, we are convinced about the clinical need. We understand it. That's not it. It's like -- it's a resource issue. So I believe this will be key for success growing our machine perfusion offering in the future. But we will start with, let's say, trials to see -- to make sure if there are learnings. We know a lot from Italy, but we know that there's always tweaks country-by-country, clinic-by-clinic in order to make it really good. I hope that answered question.

[Ulrik Trattner, analyst]

Sure. Absolutely. And a follow-up question on STARs. STAR currently have around 9% of all lungs and hearts for transportation out of -- recovery of all lungs and hearts currently. With this sort of new collaboration and expansions you have in plan, what is a reasonable number in terms of market share for STAR in the medium term? Is it in the teens -- 20%, 30%? What is feasible here?

[Christoffer Rosenblad, executive]

To be honest, we have not had a target market share for the number of recoveries. The main reason being that we want to be customers' true friend. So we will be there for them. But to paint that in a bit of color, right now for 6 months, we said no to a lot of contracts because we want to get the logistics right, we want to get everything right. If you put it nail it before we scale it. So I do believe there is a huge opportunity to grow this market share, absolutely. But we are targeting having, let's say, perfected customer offering rather than a market share target for our STAR services. That's the one thing.Secondly, on the MTJ Aviation contract, it's -- it will be better for us, for our employees, but it will also be a lot better for the customers, and we will drive down costs in the transplant system where additional flights might increase the legs and with increased cost for the transplant center. So this is something requested by our current customers to have a better service provider, which we now have that on board, and we can drive down cost per transplant for the transplant center. So I think this would be a great piece of the puzzle, not only one, but one piece of the puzzle for a great product service offering.

[Ulrik Trattner, analyst]

Great. And if we were to jump to the IV and for heart and as you mentioned, great news that you may also include DCD hearts in the U.S. study just and you alluded to uncertainty when the study can start but play out to be in the second half of this year. How fast do you expect to enroll patients? Now when you -- if we were to reason that DCDs were to be included, how fast would it take for you to include all these patients?

[Christoffer Rosenblad, executive]

That's a great question. We have said before, we included DCB, but we -- it will take roughly 18 months. If we include the DCD patients, we were almost -- or we will double the pool of possible organs, so we should be able to do it faster for sure. So I don't think that just because the first patient it might be a little bit delayed due to negotiation with the FDA. I'm not sure that the last patient will be affected in any major way. So we are now spending all our time on getting that negotiation with the FDA finalized as soon as possible so all the clinician knows what protocol to follow.

[Ulrik Trattner, analyst]

Great. And on the regulatory pathway for heart in Europe. So I know the MDR is a new framework. It's a lot of work that needs to be done. But where are you in the process with the notified body? Have you submitted the technical file for the heart machine yet?

[Christoffer Rosenblad, executive]

Yes, we have. So I hope I was during the call, we have really met all our deadlines. And -- but I'm always very humble when it comes to regulatory bodies such as notified body or the FDA, etcetera, that we can, of course, affect some of the time by spending in good quality reports, etcetera, and answering questions fast. But we can never -- or we can never affect their working burden, so to say, that could be high during some periods of the year, etcetera. So I'm always a bit humble, but we have kept our lines. We have handled in the technical file for the heart box. So that is done. I'm waiting for review. And there will be questions, of course, and we will turn around them in a fast and correct manner that I can promise.

[Ulrik Trattner, analyst]

And last question on heart moving on. Since you've been participating in a lot of conferences, and you have a lot of now user feedback. And what is -- as you seeing and saying and seeing is believing in heart what is the key aspects of the heart machine? What are they the most impressed about? Is it avoiding primary graft dysfunction or is it the prolonged transportation time or is it both?

[Christoffer Rosenblad, executive]

It's actually a combination of both. But I think the -- was mind-blowing to all of us was when -- presented during ISHLT and pushing the time limit so far with so many hearts going way beyond what was normally accepted in terms of ischemic time and showing that low 30-day mortality, I think that was -- because you compared it to the [indiscernible] average, which is 8% already at 5 hours and most of the hearts in Australia were going beyond that time limit at 0%. So I think that was mind-blowing for all of us. So that's one part of it, the clinical results that.I would say the other one, which I hear over and over again, and this is what I mean with seeing is believing is that it's easy to use product and -- but especially for a heart surgeon to see the first punch being really like it's never been outside of the body -- that gives a lot of confidence. And I think that means more than we think because once you have transplant at the heart, you're really looking for those early signs, was this a good heart? Was this a good transplant? Will this be successful over time? And those early signs from the surgeons will actually mean something because you see that when the chest is still open.So I think that is definitely so important. Then lastly, I think a lot of -- if I talk to a lot of surgeons and I asked them what can I do for you and many of them tell me if you can make this a daytime procedure, I would be thankful because it is exhausting overtime to always go up 2:00 in the morning for a transplant and before that being active for 20 hours, 24 hours in the organ procurement or allocation process. If we can simplify that and do it scheduled 6:00 in the morning that would be great. And I think this is one step in that direction, where you enable the logistics at the hospital to be better.You also enable -- you take away a lot of insecurities because once you don't know how long time it will take to explant the heart from the patient either. That's an insecurity every heart surgeon has is that it could take -- it could go quick, but it could take hours. Now you know every hour accounts and with our box, they know that they have that time. They can do it correctly, the explant of the old heart as well so they don't destroy any blood vessels or anything. So it takes down stress, etcetera. So it's a multifaceted reasons I think. It's not a silver bullet, but it attracts a lot of the [ words ] from the transplant surgeon team.

[Ulrik Trattner, analyst]

[Technical Difficulty].

[Christoffer Rosenblad, executive]

Sorry, which one in the U.S?

[Ulrik Trattner, analyst]

Kidney Assist Transport business.

[Christoffer Rosenblad, executive]

It's more -- I would say, it's not the market this time for us. We are -- when we launched it or pre-launched it in the U.S., we got early feedback from the U.S. market. We decided to address that. Long story short the Kidney Assist Transport is designed for European market. The OPO system in the U.S. has different demands on the product. So we adjusted those and we are in the progress of that. So that's one thing we are addressing right now and improving while we're talking actually. The other thing is the production capacity where we have decided that the big scale-up times 10 will be the big reason or the big solution to scale up of production capacity.But we had some, let's say, early child diseases in terms of production ramp-up with the current supply chain, where we are addressing that now. And hopefully, in the year or less than one year, we will have addressed it fully. So that's the -- it's more us than the market because when I talk to our sales reps in Europe and the U.S., the interest for the product is there, and they really like to use it. It's easy to use. They like the product. They love the clinical results they have seen in clinical trials, and they have done small-scale testing themselves with standard of care, and they see that it's performing accordingly. So it's more us than the market.

[Ulrik Trattner, analyst]

Okay, great. Last question on my end. A short one might be for Nordstrom. I know that R&D in percentage of sales did a jump in this quarter. Is that something that we should extrapolate going forward or were there some sort of exceptional cost here in the second quarter?

[Kristoffer Nordstrom, executive]

Thank you, Ulrik. I would not quote specific, but specific to this year-to-date is that we have taken a strategic decision to allocate less internal resources to some of our capitalized projects that has led to those costs being taken over P&L instead. So -- and that -- for the year-to-date to talk about SEK5 million, SEK6 million. And that will continue. So I would say the quarter was pretty busy in terms of audits. I can't remember the exact number here. But I would say that broad answer, yes, you should continue to see this type of spend on R&D.

[Operator]

The next question comes from Jakob Lembke from SEB.

[Jakob Lembke, analyst]

I have a few questions, and I hope we have time for them. I'll take them one by one. So my first question is relating to EVLP in the U.S., which seems to be accelerating. Wondering if there's like any new hubs that has been established or anything else in particular that is driving the strong growth?

[Christoffer Rosenblad, executive]

Thank you for that question. No, I would say, in general, there are -- in the U.S., there are definitely hub around Cleveland that start to deliver. But in general, what we can say is that the hub model does deliver, and we can see the same pattern in Europe and in the U.S. that it works. Not unexpectedly, but it's always good to get proof that what you thought would work that it actually works. So it's not -- right now, it's not so much maybe one more hub in the U.S., but it's more that the hub model works that we see.

[Jakob Lembke, analyst]

Okay. And then moving on to the heart products, I mean, obviously, I guess it's facilitating more transplants in Australia and New Zealand right now. But do you have any sense of -- I mean, how much of the growth is driven or how much of the volumes are driven by new transplants vis-a-vis existing transplant that otherwise would have been -- you're able to do?

[Christoffer Rosenblad, executive]

I actually have asked the team the same question, but I did not give an answer yet from Australia. We don't have -- in the U.S. you have really good statistics on number of transplants. You don't actually have the same transparency or easy access to data in Australia. But I'm waiting for that answer because I do hope and believe that many of those transplants are new that would never ever happen. And we know that, definitely, every organ transplant going beyond 5 hours are new, that we know, but we don't know the exact number in percentage or number of transplants right now. But I will hopefully come back during the next call in October with a better answer.

[Jakob Lembke, analyst]

Okay. And then on heart in Europe, do you have a sense for when the first compassionate use approval could come?

[Christoffer Rosenblad, executive]

We actually have in one country approval for it. I don't know if there have been any transplants under it. So we are working with, let's say, less than handful, but it's three or four countries in Europe for compassionate use cases. By now in one country, we have approval. So we hope that, that will come soon. I know that the interest is high from the clinician side. So we are doing our utmost to facilitate this, of course.

[Jakob Lembke, analyst]

Okay. And then moving on to the investment in production capacity. Do you see any risk of any bottleneck before you're up running with the new investment?

[Christoffer Rosenblad, executive]

There are always risks. We are -- I mean, the operation team is working day and night to make sure that we have no back order. I mean we have a vision that nobody should wait for an organ, and we should definitely not be a reason for -- with non-delivery. We do believe that if we don't make this investment, there will be a high risk. We believe with this investment, we have lowered it significantly as far as we possibly can.

[Jakob Lembke, analyst]

Okay. And then the final question relating to the news on PrimECC. If you can share how many patients that has been recruited in the trial to this stage and if you think that will be enough to draw any new conclusions?

[Christoffer Rosenblad, executive]

We soon we will be able to do that. This information has obviously going out to all the trial members, etcetera, and we gather the data, both on number of patients and the results from it, and we will come back with more informed, but we are at -- is it roughly 50 patients-ish? We don't know if we can draw any conclusion based on that today, but we hope before we meet in October again that we have some initial idea based on the data when we have seen it. But right today, I mean, the decision was taken last night, so it's hard to say anything right now.

[Operator]

The next question comes from Johan Unnerus from Redeye.

[Johan Unnerus, analyst]

Just some short questions. On the heart and the U.S. opportunity, the DCD segment is, of course, very interesting to say the least. What timeframe should we expect to get a clarification if this is included and how confident or optimistic are you that this could be included?

[Christoffer Rosenblad, executive]

Great question. I will start that with saying that when it comes to regulatory bodies, I always have large portion of humility and I always try to be humble. They can always choose. But we should remember, this time, they've asked us to include it. We did not ask them. Hence, I believe there is a high chance of inclusion. Otherwise, I don't believe -- I don't see why they would actually ask. It was by request by the FDA. That's number one. Number two, I know that there is -- we have handed in our proposal already. So we've done our part.I do hope and believe for the same reason that they have requested that we have a fast turnaround time because they also see the need from American users and the American market to have a good technology helping take care of more organs and hence, making sure that more transplants are available, increasing patient survival and reducing healthcare cost in the U.S. I believe they have a motivation for doing this as well. But again, I mean, the issue is to humble. They set the rules, and we apply to them. That's how it works in our industry. But I do have high confidence that it will be included and that it will happen in a short timeframe. And we have -- we are still working towards first place in the end of September, but I do realize that if there will be a need of a negotiation that could be postpone a couple of months.

[Johan Unnerus, analyst]

That's very useful. And sort of a more overall question. Of course, there is always scope for economies of scale on the OpEx side given the sort of growth that you are experiencing. But on the gross margin side, the improvement has been rather significant in a short period of time -- should we expect more of a sort of steady state or more mature improvement going forward?

[Christoffer Rosenblad, executive]

I mean we are still in early days in terms of scaling and many of our products are almost, let's call it, R&D type of products that we now set up into large-scale production. So I do believe, and that's why we can make this type of investments and get really quick ROI is because we can be quite easy redesign of the products make them producible in a fast way. So I think definitely, we can expect over time, improving gross margins and reducing COGS for sure. Then also wise from experience, it looks like it will happen now and nothing happened before.I know it's a work that has been ongoing for many, many quarters and years. So it's just that sometimes you see it more in the numbers than you see previously. So it looks more than a step change than the reality, which is more of an everyday hard work type of improvements where you improve a little bit here, a little bit there, definitely. But I believe after this two-year period, we will see improvements in the COGS. I do believe that. There are huge opportunities for improving the cost structure and the design of the products to make them [indiscernible].

[Johan Unnerus, analyst]

It's more of a gradual journey going forward. And finally, you managed to reorganize and integrate the service offer considerably and in a short period of time and at the same time, keeping up the strong organic growth and also improving margins at the same time, that's rather impressive, and you alluded to that the hub model is accepted and liked and it works in Italy, you're rolling out in the U.S. Should we expect this to continue in other big markets?

[Christoffer Rosenblad, executive]

Yes. We should expect that. There is a true underlying need that's driving this change and one is definitely capacity. And the other one is that, let's call it, the work burden on the transplant team where if a transplant takes 24 hours, that is too long time to scale up the number of transplants, there will be high burnout ratio in the transplant community, if we don't do anything about it. And when the transplant team adds value is during the -- taking the right organ to the right patient and being rested and do the implant itself. The rest of it, we should be able to support the transplant industry with solutions and services and good products for better valuation, better transportation, better recovery services, etcetera, etcetera. So they are spending their time where they truly make a difference for the patient's life.

[Operator]

The next question comes from Peter Ostling from Pareto.

[Peter Östling, analyst]

I have a couple of questions, and I will take them one by one. First of all, I will -- I noticed that you -- I think it's the first time officially that you have stated that you may contemplate running the heart and liver projects in parallel for the U.S. Do you expect your current financial position to be [ sufficed ] to cover doing that or do you -- are you looking at some kind of financial arrangements in order to go ahead with that plan?

[Christoffer Rosenblad, executive]

Very good question, Peter. Yes, that is one of the cornerstones is that if we do this, we want to go full force ahead and not do it sequentially but do it in parallel and to do a full force ahead with two PMAs. My judgment today is that we need more capital. I have to be -- to be honest, that is obviously the Board's decision, but I have proposed that could be one way forward. The other item we need to contemplate is definitely on the resource side, our own resources running two PMAs at the same time. It could be quite burdensome for a handful of people who are having key competencies in especially running PMAs and dealing with FDA, etcetera. So those are the two questions we are currently contemplating to do that. But I think the business case of getting early to market with liver it holds.We see that it's, I think, our fastest-growing product right now. And the user experience is great. We believe we cracked the code with the Italian service model, and we finally see that we have reached those high penetration ratios we always wanted, and we actually see growing from there. So I said before, we are roughly at 25% penetration on the liver product on the Italian market versus compared other European countries are down at 5%. So we see that we have cracked a lot of -- or straightened other question marks, I should say, regarding both heart and liver in the past 6 months that has brought this question to a table.

[Peter Östling, analyst]

Okay, great. The SEK50 million in the capacity-enhancing investments that you are planning for the next 24 months is that spread evenly over that period or is it more at the beginning or at the end? And also, are there any specific disposables that needs boosting capacity or is it more broad-based all over your product assortment?

[Christoffer Rosenblad, executive]

I would say that the one that we don't have -- we don't need it now. Now we can a little bit, is lung. But I would say for heart, liver and kidney, I think we do need to do it ASAP. So what we will do is we will start with heart and liver, scale them up. That will leave a lot of free capacity for kidney as kidney and liver today are sharing one supply chain through the way. So that's where we focus the most on, and then we will bring in the kidney assist transport disposable right after we deliver in heart. So that's the plan. And after that, we will do lung. In terms of investment, it's always hard to predict. But according to the plan, the team put forward, we are at a pretty-even pace during this time period.

[Peter Östling, analyst]

Okay, great. And then I think it's good that you postponed the start of the U.S. heart trial by including DCD donors instead of excluding them. And I think you are doing the -- taking the right decision to go after that. I was just wondering how does it look in Europe and Australia where it's a different kind of approval process there? Will you use -- would you be able to use the heart product for DCD donors in those geographies?

[Christoffer Rosenblad, executive]

It depends on the label. We don't know exactly the label right now. I would expect speculating and talking from experience that we would need to do some additional small-scale confirmatory studies to include in the label. That's my expectation, and that's what we're working towards right now. We have already started and seeing positive results from preclinical trials. And if we could then transfer those into clinical set things, I would believe that, that is sufficient and that's what we have seen before in both Europe and Australia.

[Peter Östling, analyst]

Okay, great. And let's see here you mentioned the launch of the Kidney Assist Transport has been rather slow due to some logistical problems and the tailor-making that you needed to do for the U.S. market. Maybe I heard you wrong, when you said -- well, I think I heard you say that all these problems will be solved within one year. Did I hear you correct or will you be more active in the launch process later this year?

[Christoffer Rosenblad, executive]

Thank you for clarifying that. Yes. No, what I meant with one year is that we will scale up production a lot in one year when we -- with the scale up project. So in one year, we will have definitely solved all the issues. But I would say already now while we're speaking, we are solving the issues, and we are launching customer-by-customer right now. So we see progress over time, for sure. It's improving every day. So it's more of a gradual. But in terms of production capacity, especially on the disposable side, I would say, when we can release the whole current production setup to kidney that we now are doing kidney and liver that will be the game changer in terms of disposables. By the way, I don't want to be impolite, but I see I have another meeting in one minute.

[Peter Östling, analyst]

I have just a short final question for Nordstrom. And it's regarding the financial income and expenses, they have been rather high. I guess it's revaluation of assets and liabilities.

[Kristoffer Nordstrom, executive]

In the P&L, you mean the financial items.

[Peter Östling, analyst]

I think it was SEK5 million in the Q1, now it's SEK7 million almost SEK8 million.

[Kristoffer Nordstrom, executive]

It's mostly currency related with a strong dollar and reevaluating assets and liabilities. So it's nothing spectacular.

[Peter Östling, analyst]

No. And do you expect them to be at this level for the rest of the year or would it?

[Kristoffer Nordstrom, executive]

I mean, that is very hard to answer given since its exchange rate-related mostly.

[Peter Östling, analyst]

Okay. But if they are staying at the current levels?

[Kristoffer Nordstrom, executive]

Yes, then there would be no big differences in the future, I would say.

[Christoffer Rosenblad, executive]

Thank you so much. And with that last question, I would like to thank you all for participating in this call, and I wish you all to come back in the Q3 earnings call in October. Looking forward to that. And before that, I hope that you all get a great summer and talk to you soon again. Thank you so much.