My name is Ulrik Trattner, Research Analyst at Carnegie. We are very pleased today to host the Q3 conference call for XVIVO Perfusion. Presenting the company today is CEO Dag Andersson as well as CFO, or should we call you CFO, Christoffer, or would you like to go under your new title?
No. CFO is fine.
Great. Well, I'll hand over to you guys. Before I do that, please we would like everyone to be muted during this conference call. If you have any questions, please send them to me on my email address. That should be in the invitation. You can also send your questions in the chat, which you have if you're on the computer up to the right on your screen. By that, I will leave over to you. Thank you very much.
Thank you, Ulrik. Yes, Dag Andersson and Christoffer Rosenblad with you here from Gothenburg, and it's our pleasure to talk you through the Q3 presentation. When it comes to, let's say, the key highlights during the third quarter, I think the main highlight is truly the acquisition of Organ Assist. If you turn to page two in the presentation, you can see here that the number one highlight here is the acquisition of Organ Assist. Organ Assist is a Dutch medtech company with machines for perfusion of liver and kidneys. That was achieved during the quarter, and with this acquisition, we actually become the first company in the world with product for all major organs. That is something that I'm very pleased to see and witness, also having been the CEO only for a couple of months.
To finance this acquisition and to fund projects which will arise as a consequence of this acquisition, we raised SEK 500 million in a direct share issue, and actually with no rebate, which I think is quite an accomplishment. Another highlight was the positive adjusted EBITDA of 22%. This is actually one of the very best quarters throughout our history, Christoff, isn't it?
That's correct.
As I know, even if I haven't been with the company more than five months, but that's what I was told. A very strong margin of 78%, of course, contributed to this EBITDA result. In addition to the above, the new complete management team of XVIVO was also formed during this quarter, and the organizational changes executed. You can see here also in the note on page two that we adjusted EBITDA with costs associated with the organization change of SEK 5.4 million. Now the organization changes are complete, and the new organization is up and running. On top of all this, a strategic plan for the next five years was presented to the Board of Directors in September and approved, and we have now started to execute the strategic plan. If you move to page four, you can skip page three.
Move to page four, where we are actually showing the development when it comes to the number of transplants. We have used two countries as examples. One is United States of America, which is our biggest market today. We have also included Spain. Spain is, as some of you already know, the largest transplant market in the world in relative terms, of course. It is very clear that during the month of April, there were very few transplants carried out, both in the U.S. and in Spain. A gradual improvement has since taken place. We can also see here that in Spain, and taking lung transplants, pulmonary transplants, the numbers are not yet back to pre-COVID-19 level. All in all, lung transplants has suffered less in the U.S. versus Europe and Australia. That is the takeaway from page four.
If we move to page five, clinical trials update. I will start with the heart preservation project, which is a very important project for us. We have, as you know, a transplant for an EU trial ready to be executed at any point in time. We were planning to have the first patient in October. That might be delayed one, two months due to the COVID-19 situation. The planning for the trials and the training and agreement with hospitals is all being executed as previously planned. When it comes to the PrimECC study, it says here that PrimECC is patented and so on. We have actually already included seven patients in the PrimECC study. Hopefully the number of patients that we know have been included will increase at a fast pace. These are the two major trial updates that I wanted to share with you.
I'm very excited about both of these projects. Of course, the heart preservation project is extremely important for us and will give us a good commercial edge when we are able to launch these products. I will talk a little bit about the strategic plan on the next page. What I have listed here are the five strategic objectives that we have agreed on as a leadership team and also approved by the Board. For each of these five strategic objectives, there are very clear actions and measures in place. The first one is to build a high-performing team. The leadership team is in place, which I mentioned before. Our new R&D Director, Charlotte Walldal, who joined us from Essity. She just started in the company a few weeks ago. With Charlotte, the leadership team is now complete.
As you also know, Christoffer Rosenblad, who is sitting next to me, he will take on the role as the Chief Operating Officer on December 1st. To replace him, Kristoffer Nordström, who is currently serving as Head of Accounting, he will then become CFO for XVIVO. All this is happening on December 1st, even if naturally, there is already a transition taking place. When it comes to the second priority, which I talked about when it comes to highlights, we are now becoming an all-organ provider with the acquisition of Organ Assist. We are able to offer devices and solutions for transportation and perfusion for four major organ areas. There is no other company in the world which is involved in all major organ areas.
This is something that will, of course, be very much in focus in the coming years to make sure that we reach the strategic plan financial ambitions. Commercial excellence, which is then the third strategic objective. Last quarterly report, I talked about XVIVO becoming more commercial, and this is now happening step by step, together with the new Head of Commercial, Jan Malmström, who joined in early September. What we are doing in very concrete terms, we are introducing new incentive models for key account managers. We are looking at geographic expansion. We have actually just now hired our first sales manager in China. We are looking at adding more key account managers, also to ensure that we can sell the full range of products, with the Organ Assist product being added to this assortment. We are looking at strategic pricing.
I have also mentioned before that we are raising prices. We have done so on October 1st in the U.S., we do so in Europe from January 1st. Strong focus on product pricing and profitability, and on top of that the development of additional professional sales tools. Customer-driven innovation is the fourth strategic objective, and it's all about ensuring that we implement true customer insight-driven processes and optimize time to market and also improve the customer experience. Last but not least, which will be Christoffer's responsibility in his new role, operations excellence. We will implement new distribution models, focus more on cost of goods sold, improvement, and also design for manufacturing to ensure that we continue selling high-quality products at high margins. On page seven, you can actually see the new leadership team. You have pictures of us all.
As I said, and you can see the footnote here, the CFO/COO transition happens on December 1st. This is the complete management team of XVIVO. I will move and talk a little bit about Organ Assist. If we move to page nine, I also mentioned this before, but the key takeaway here is that with the acquisition of Organ Assist, we do become the world's first global all-organ provider. The aim is to become first choice in organ transplantation and evaluation for all multi-organ clinics and organ procurement organizations. Our aim is, of course, to combine our unique and patented STEEN Solution technology with the liver and possibly also the kidney machines that Organ Assist are producing. Organ Assist products have not yet been commercialized in the U.S., except for test states, because they have not worked with FDA regulatory approvals.
Therefore, our U.S. footprint and our knowledge about the U.S. will be very vital in penetrating the U.S. market. We know how to manage regulatory processes, and we have already started working with the FDA approval for Organ Assist machines in the U.S. On page 10, you can see a little bit of the product range offered by Organ Assist today. The Kidney Transport device that you can see on the bottom to the left is a new device. It is in the market, and this is the device that we will then apply for FDA approval in the U.S. to be able to commercialize it. The Liver Assist machine is today their biggest product, followed by Kidney Transport. We have a lung machine, but it's a very small product when it comes to sales. Their focus has been on Liver, followed by Kidney.
We are planning to commercialize the Kidney Transport device in 2021 in the U.S. as soon as we have received FDA approval. Next page, which is page 11, shows the importance of machine perfusion and warm evaluation to drive the viability of donation after circulatory death organs. This is the way to safeguard that more transplants take place and thus reducing waiting lists. As previously stated, the demand for organs is approximately 10 x higher than the supply of organs. Page 12 shows the full range of XVIVO and Organ Assist products. The first three columns show the current XVIVO product assortment, and the final column, the fourth column, shows Organ Assist's current offering. The key to success in the future is to combine primarily the Liver Assist machine with our STEEN Solution warm evaluation solution. This is the product range. You can skip page 13.
Page 14 just shows our unique position once more with a presence in all major organs. Today, when it comes to storage, yes, we have storage devices for lungs, heart, liver, kidney. When it comes to the evaluation of organs, yes, we do lung evaluation with the STEEN Solution. We have the heart project, which I mentioned before. We have a clinical proof of concept study for liver and kidney, but the real work to combine solutions and devices will now start as a consequence and result of the Organ Assist acquisition. Treatment of organ, we also have a clinical proof of concept study for lungs here. Leveraging strong position within lung transplantation to address the significant multi-organ opportunity, this is key, and this is our future.
If you turn to page 16 after this, it shows the focus areas for the remainder of 2020, but also of course, for 2021. If we start with the integration of Organ Assist, the combined go-to-market strategy for XVIVO and Organ Assist is being developed. I believe that our key account managers can sell the full range of products, of XVIVO and Organ Assist products, but they will need more support when it comes to training and product specialists. We will hire more key account managers in North America, Europe, and Asia as a consequence of this acquisition. Our first salesperson in China has just been recruited, and China is actually already today the second-largest transplant market in the world. We will focus on FDA application for the Organ Assist Transport device 2020 and 2021 in order to be able to start selling that device as soon as possible.
We have now one organization in place with common governance, systems and processes. There is an integration project up and running between XVIVO and Organ Assist with a detailed 100-day plan. The commercial excellence program has been launched even if COVID-19 continues to have some impact. High focus on project execution, which means the heart project. We are developing a new STEEN Solution for the future. We have the PrimECC project. We have the project combining the Liver Assist and our STEEN Solution, et cetera. This is the outlook, and this is the focus for 2020 and also 2021. Just to summarize where we started, I'm happy with Q3 margins and positive adjusted EBITDA. As I stated, it is one of the best adjusted EBITDAs ever in the history of the company. I'm very pleased with the acquisition of Organ Assist and the opportunities this leads us as a company.
I'm very happy, of course, with the results of the direct share issue. We have a great management team in place, and I'm looking forward to leading this team to ensure that we execute the 2025 strategy in a good way. Last but not least, the 2025 strategy is being executed, and I showed you the five strategic objectives, and these are the ones that we've been focused for me and for the management team of the company. This was an introduction presentation of the Q3 results. I don't know if you want to add anything, Christoff, before we open up.
No, I think you said it all, and as the CFO, I'm pleased that the cost reduction program worked and that we actually could post one of our best EBITDA adjusted results ever. I think we only had one or two quarters better historically. I'm pleased with that.
I'm happy to hear when the CFO is pleased with the numbers. It's always good.
It's fine.
It's a good sign.
So we-
Please call me.
Thank you, Dag. I hope everyone is hearing me all right. If you want to ask any question, you can either ask them through the chat function of BlueJeans or otherwise send them by email to my email address, which is stated in the invitation. I think I'll start off with a few questions that I have. It seems like you're making good progress with PrimECC, with first patients included. Could you shed some more light on how long do you expect it will take to include all 366 patients?
It depends on how quickly we can get more hospitals in Sweden. Primarily, it's a Swedish study this time, Ulrik. We have already engaged Sahlgrenska. Sahlgrenska is the largest transplant hospital in Sweden. It was important to get them up and running first. We are now planning to include a couple of more hospitals. I don't know, Christoff, if you know the timing of the next ones.
Yeah, we are in contact with actually all hospitals in Sweden, and there is a high level of interest to participate in the PrimECC study. We hope that we can accelerate the pace of inclusion over time. Again, unfortunately, we have COVID-19 that hampers how fast we can get new clinics in the study. We do hope we can accelerate the inclusion over time.
Yes. I hope that by next quarterly update, we will be able to present much higher numbers of PrimECC patients being included in the study.
Okay. Thank you. You mentioned strategic pricing. Obviously, the price development has been rather flat over the last few years, and you stated that you have been raising prices as of October 1st.
Yes.
Could you give some quantification on how much you've started to raise prices and what's the ambition on price increase over the next one to two years?
I think as a principle, if one has unique patented products, it is of course a much better position to be in when it comes to price increases than to be in a neck-to-neck sort of competitive situation. If you look at PERFADEX Plus, it is the gold standard for preservation of lungs, and we have a very high market share in the world. We know that the product is unique and fantastic, and everybody wants to use it. If we want to talk about concrete numbers, we can say that we are increasing prices. Focus has been now U.S., also the first Europe will follow from January 1st. I would say in the range of 10%-15%. I think that's a fair average statement. I also see that price increases will continue next time.
Do you see these price increases to bridge the full gap to TransMedics, or is that too ambitious to assume?
No, I think, Ulrik, if we wanted to bridge the full gap to TransMedics, we would probably have to increase prices much more. What I'm saying with that is that I believe there is still good room for further price increases. You know as well as I do that if you come to customers say that you want to increase prices by 30%, maybe that is regarded as a little bit too much in one go. Everything has to be done in a logical and well-thought-through way. The answer is yes; there is still room for more price increases.
Yeah. One can assume that 15% is not sort of the end goal.
No
In terms of price increase.
No.
Thank you. Once again, just as a reminder, if you want to ask any question, there's a chat function for BlueJeans where you can send questions or email me questions. Well, I'll just continue. You had quite a lot of one-offs in the quarter. I think it amounted to SEK 20.5 million. A lot of these, or at least part of it, is related to the organizational change. Is there any spillover in terms of cost going into the next few quarters?
Christoff, would you take that?
I can take that. No, there should not be. We took the full amount of the organizational change in the Q3 as a one-off. However, for the integration, we guide on that how much in due time, but there will be in the next quarters, an integration cost that will also be one-offs.
Should there be fully realized, these costs, over the 100-day integration process or something that should be expanded a bit further beyond these first 100 days?
A bit further. It's a two-step rocket due to the milestone payments. The first step is the 100 days. That will be the majority. There will be a lower amount, but some for the remaining quarter until the end of 2021.
As you mentioned, the milestone payments, or if we should call these earn-outs, could you please shed some more light on what these actually include and what obligations or what type of milestones is Organ Assist supposed to reach in order to obtain these milestones?
Oh, it's very clear. The first one is that the approval of the Kidney Assist Transport. If that is obtained, there will be an earn-out of another EUR 2 million. The other one is tied to the sales of Organ Assist products in 2021, with a maximum payout of EUR 2 million as well. It's very simple structure. One is for regulatory approval in the U.S., and one is for sales.
Do you have any more specifics in terms of timing of course, FDA approval? Secondly, in terms of sales, what type of amount or growth is supposed to be reached in order to obtain these milestones?
I can't go into exact details due to the agreement we have with the old owners, but it's a pretty ambitious goal. We all believe that with the combined organization. In terms of the FDA, I mean, that work is going on. Organ Assist has started already. We will, of course, support them with all our knowledge of the FDA and regulatory approvals in general. That is part of the 100-day plan to support that as much as we can because it's a very important first step.
Great. I saw that we had one participant that raised his hand. I didn't have the time to see who it was, but if you would like to unmute and ask your question, press star four. Okay. Once again, if you want to ask any questions, just put them in the chat or email me. I will present them. Okay, going in furthermore then to Organ Assist, looking at what type of synergies could you find in the product development, and then mainly could you use some IP in the lung transportation device to improve your current offering?
I think a good answer there is if you look at XVIVO, what our excellence has been, until now at least, is when it comes to solutions. I mean, we are the world leader in solution in the cold preservation PERFADEX Plus solution, and the warm evaluation STEEN Solution. This is our expertise, whereas Organ Assist expertise has been more linked to design and call it manufacturability of machines. This is where they are strong on the device side, and we are strong on the solution side. I see this as a fantastic match, our solutions and their machines and design. That will, of course, influence the project that we run together. When it comes to lungs, yes, they have a lung machine, sales are very limited of this lung machine. We have our XPS.
We know that we need a smaller and possibly also cheaper machine on the market, especially for certain new markets. We are looking at the Organ Assist lung machine to see if this is something we would like to use or if we need to find another solution. There will be a lot of projects as a result of the acquisition, especially on the machine side, because this is where they are very strong and good. I hope that sort of answers your question, Ulrik.
Yes. Thank you very much. I have a question from Michael Edmonds. Sales are down in hardware. It is hard to get into hospitals to sell, I assume. Are there workarounds for selling now? If you can just give a general comment on this, it will be helpful. Is this starting to improve?
Sorry, just to understand, Ulrik, what you asked. Yes, you said that it is hard to get into hospitals now.
Yes. Capital equipment down. It's hard to get into hospitals to sell. Is there anything we're doing to improve this, and is there any way to work around this, perhaps digital sales? Is this starting to improve as you would like to view this from the beginning of the quarter versus end of the quarter?
You can take this, Chris, please.
I can take it. Just to start with, we are having a pipeline of sales that are in negotiations, those are continuing even during COVID-19. We did have some in the midst of the COVID-19, we actually sold the XVIVO machine, we have sold one to Rome. It is still possible. That being said, it will be harder, but we are having a very close contact with all our customers through the year, even during the midst of COVID-19. I think it definitely is possible and including this one. I mean, it worked in France, but it's possible to get machines deployed in the market. Yes.
Right. If anyone else would like to ask a question, you can either email me for the chat, or if you'd like to ask it by yourself, just put your name in the chat, and I will unmute you. Just one question from me before we see if there's anyone else. You talk about sort of ongoing work that you're doing right now in terms of getting reimbursement. For XPS in Europe, is there anything that we're expected to see here over the next 12 - 18 months, to get a sort of broader adoption?
Yeah, when it comes to reimbursement, I think what we expect to happen in the next 12 - 18 months is reimbursement introduction in Germany. We have already now filed application together with a number of hospitals in Germany to try for some reimbursement. I believe that Germany will be the next country where reimbursement will be introduced. We are also looking at U.K. for lung reimbursement. Of course, we need to work with reimbursement for kidney and liver, I suppose, as a result of the acquisition. I believe that very much the key to success in general in all these markets is to have a reimbursement model, because that takes away the pressure from the hospital, and it becomes, I wouldn't call it an easy sell, but it's not so that price becomes the key discussion point when there is a reimbursement model in place.
I'm quite optimistic when it comes to reimbursement in Germany in the not-so-distant future.
Okay. Thank you very much. I'll see if we have any further questions from the audience. Otherwise, I will let you conclude today's remarks.
Yes, I think once again, we should just be happy. I think we should celebrate. We had a good quarter. In my world, I think we had actually an excellent quarter to manage an acquisition of Organ Assist, to make sure that we also raised the money to fund the acquisition. Not only the acquisition, to fund projects that will come as a result of this acquisition. I think that's a fantastic piece of work by Christoffer and team. The new strategy, 2025 strategy, with clear milestones and strategic objectives, activities, measures, etc., fantastic. The new leadership team in place. I think XVIVO is well-built now for the future. Even if COVID-19 is throwing its shadow, I don't know if you say that in English, but of course, COVID-19 is still here. We have to live with it, yet for a while.
The forecast is better, of course, but we are a strong company, and I look very much forward to quarter four and 2021. That's my concluding remarks.
Thank you very much, Dag and Christoffer, and this concludes today's presentation. Thank you, everyone for listening in.
Thank you, Ulrik. Thank you.
Thank you so much.