Earnings Call: Q3 2020

Oct 23, 2020

my name is Ulrik Trotner, research analyst at Carnegie, and we are very pleased today to host the q three conference call for Xevo perfusion. And presenting the company today is CEO, Doug Anderson, as well as CFO. And or should we call you CFO, Christopher? Or everyone to be muted during this conference call. If you have any questions, pre please send them to me on my email address. That should be in the invitation, or 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. And by that, I will over leave over to you. Thank you very much. Thank you, Ulrich. So, yes, Doug Anderson and Christophel Rosenthal 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 sort of highlight is through the acquisition of Organ Assist. So 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. So that was achieved during the quarter. And with this acquisition, we actually become the first company in the world with products for all major organs. And that is something that I'm very pleased to to see or witness after 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 500,000,000 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, Christofas Yeah. That's correct. As as soon as long as as 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 Exviva was also formed during this quarter and the organizational changes executed. And you can see here also in the footnote on Page two that we adjusted EBITDA with costs associated with organization change of SEK 5,400,000.0. So 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. And we have used two countries as as examples. One is United States Of America, which is our biggest market today, and we have also included Spain. And Spain is, as some of you already know, the largest transplant market in the world in relative terms, of course. And it is very clear that during the month of April, there were very few transplants carried out, in The U. S. And in Spain. A gradual improvement has since taken place. But we can also see here that in Spain and taking lung transplants, pulmonary transplants, the numbers are not yet back to the COVID-nineteen level. All in all, lung transplants has suffered less in The U. S. Versus Europe and Australia. So that is the takeaway from Page four. If we then move to Page five, clinical trials update, I will start with the heart preservation project, which is a very important project for us. And we have, as you know, planned 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-nineteen situation. But the planning for the trials and the training and agreement with hospitals is all being executed as previously planned. When it comes to the Primaec study, it says here that PRIMEC is patented and so on. We have actually already included seven patients in the PRIMEC study. And hopefully, the number of patients that we now have included will increase at a fast pace. So these are the two major sort of trial updates that I sort of wanted to share with you. And I'm very excited about both of these projects. And 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 next page. And what I have listed here are the five strategic objectives that we have agreed on as 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, to build a high performing team, the leadership team is in place, which I mentioned before. Our new R and D director, Karlok Van Dahl, who joined us from SCT. He just started the company a few weeks ago. So we've had a lot. The leadership team is now complete. And as you also know, Christophe Rosenberg, sitting next to me, he will take on the role as the operating officer on December 1. And to replace him, Christopher Nugstrom, who's currently serving as head of accounting, he will then become CFO for for Excedo. But all this is happening on December 1, if naturally there is already a transition sort of 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. And there is no other company in the world which is in all major organ areas. So this is something that we'll, 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 Excedo becoming more commercial, and this is now happening step by step, together with the new Head of Commercial, Jan Hornstrom, who joined early September. So 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 Organisys product being added to the assortment. We are looking at the pricing. I have also mentioned before that we are raising prices. We have done so October 1 in The U. S. We do so in April from January 1. So strong focus on product pricing and profitability and on top of that, development of additional professional sales tools. Customer driven innovation is the fourth strategic objective. And it's all about ensuring that we implement through customer insights driven processes and optimize time to market and also improve the customer experience. And last but not least, which will be Chris Goffer'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. So you have pictures of us all. And as I said, and you can see the footnote here, the CFO, the COO transition sort of happens on December 1. So this is the complete management team of Exvivo. I will then move and talk a little bit about Organ Assist. And if we move to Page nine, I also mentioned this before, but the key takeaway here is that with the acquisition of OrganCyst, we do become the world's first global organ provider. And the aim is to become first choice in organ transportation and evaluation for all multi organ clinics and organ procurement organizations. And our aim is, of course, to combine our unique and patented stent 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 dates because they have not worked with FDA regulatory approvals. And 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 in The U. And we have already started working with the FDA approval for organ cyst machines in The U. S. On Page 10, you can see a little bit the product range offered by OrganStix today. The kidney transport device that you can see on the bottom to the left is a new device. It is earmarked, and this is the device that we will then apply for FDA approval in The U. S. Today to commercialize it. The liver assist machine is today their biggest product followed by kidney. Have a lung machine, but it's a very small product in when it comes to sales. So 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 availability of donation of the circulatory death organs. This is the way to safeguard that more transplant take place and thus reducing waiting lists. As previously stated, the demand for organs is approximately 10 times higher than supply of organs. Page 12 shows the full range of Ex vivo and Organ Assist products. So the first three columns so the current ex vivo product assortment and the final comments the column, the fourth column, those organizations' parent offering. And as I said before, the key to success in the future is to combine primarily the liver assist machine with our STM solution, volume evaluation solution. So this is the product range. You can skip Page 13. Page 14 just shows our unique position once more with the presence in all major organs. So today, when it comes to storage, yes, we have storage devices for lungs, heart, liver, kidney. When it comes to evaluation of organs, yes, we do lung evaluation with the skin solution. And we have the heart project, which I mentioned before. And we have a clinical proof of concept study for liver and kidney, but the real work to combine solutions and devices we now start as a consequence or result of the Organ Assist acquisition. And treatment of organ, we also have a clinical proof of concept study for lung SEER. So leveraging strong position within lung transplantation to address multi organ opportunity. This is key, and this is our future. So if you turn to Page 15 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, I mean, the combined go to market strategy for Exxivo and Organ Assist is being developed. And I believe that our key account managers can sell the full range of products, of Exxivo 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 Organosys transfer 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 Nexvego and Organ Assist with a detailed one hundred day plan. The commercial excellence program has been launched even if COVID-nineteen continues to have some impact. High focus on project execution, which means the hard projects. We are developing a new Stain solution for the future. We have the Primet project. We have the project combining the LiVerAssist and our Steam Solution, etcetera. So 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 Organisys and the opportunities this leaves 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. And last but not least, the 2025 strategy is being executed. And I showed you the five strategic objectives, and these are the ones that will be in focus for me and for the management in other company. So this was an introduction presentation of the Q3 results. I don't know if you want to add anything, Christof, before we open up. No. I think you started all. And as a 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 have one or two quarters better historically. So I'm pleased with that. And I'm happy to hear when the CFO is pleased with the numbers. It's always good. It's a good science. Thank you, Doug. I hope everyone is hearing me alright. So if you want to ask any question, you can either ask them through the chat function of of BlueJeans or otherwise send them by email to to my email address, which is is stated in the invitation. But I think I'll start off with a few questions that I have. It seems like you're making good progress with Primaek, the first patients included. Could you shed some more light on how long do you expect it will take to include all three sixty six patients? I mean it depends on how quickly we can get more hospitals in Sweden. It's primarily it's a Swedish study this time, Ulrik. So we have already engaged Sargrins. Sargrins gave the largest transplant hospital in Sweden. And so 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, Christoph, if you know the timing of the next ones. Yes. We are in contact with actually one hospital in Sweden, and there is a high level of interest to participate in the pilot study. So we hope that we can accelerate the pace of infusion over time. Again, unfortunately, we have COVID-nineteen that hampers the how fast we can get new clinics in the study. But we do hope we can accelerate the infusion point. Yes. So I hope that by next quarterly, let's say, so update, we will be able to present much higher numbers of Prinec patients being included in the study. Okay. And you mentioned strategic pricing. Obviously, the price development has been rather flat over the last few years, and you stated that you've been raising prices as of October 1. Could you give some quantification on how much you've started to raise prices? And what's the ambition on price increase here over the next one to two years? I mean I think as a principle, if one has unique patented products, it is, of course, a much, much better position to be in when it comes to price increases than to be in a next sort of competitive situation. If you look at PerfectX Plus, it is the gold standard for preservation of lines. We have a very high market share in the world, and we know that the product is unique and fantastic and everybody wants to use it. So if we want to talk about concrete numbers, we can say that we are increasing prices, focusing now U. S. Also the first Europe will follow from January 1. It's, I would say, in the range of 20 to 15%. I think that's a fair average statement. And I also see that price increases will continue, It's not the last time. And do you see these price increases to bridge the full gap to TransMedics? Or is that too ambitious to assume? I think Ulrik, if we wanted to bridge the full gap to TransMedics, we would probably have to increase price much more. So what I'm saying with that is that I believe there is still good room for further price increases. But you know as well as I do that if you count the customers say that you want to increase prices by 30%, maybe that is regarded as a little bit too much in one go. So everything has to be done in a logical and well thought through way. But the answer is yes, there is still room for more price That's one one can assume that 15% is not sort of the end end of all in terms of price increase? No. Thank you. Once again, just as a reminder, if you want to ask any questions, there's a chat function for BlueJeans where can you where you can send questions or or email me questions. So I'll just continue. So you had quite a lot of one offs in the quarter. I think it amounted A lot of these or at least part of this is related to the organizational change. Is there any spillover in terms of cost going into the next few quarters? It's something that you I can take that. No, there should not be. We took the full amount of the organization change in that Q3 as a one off. And then there will, however, be for the integration, there will be we will guide on that how much in due time, but there will be in the next quarters some integration costs that will also be one offs. And should we fully realize these costs over the one hundred day integration process or something that should be expanded a bit further beyond the first one hundred days? A bit further. It's a Tuesday bracket due to the milestone payments. So the first step is the one hundred days. That would be the majority. And then there will be a lower amount of sum for the remaining quarter until the end of twenty twenty one. And 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 organization supposed to reach in order to obtain these milestones? Well, it's clear. It's the first one is FDA approval of transport for kidney biopsy. And so if that is obtained, that would be an overlap of another €2,000,000 The other one is tied to the sales of Ornansys products in 2021 with a maximum payout of EUR 2,000,000 as well. So it's a very simple structure. One is for regular Brazil in The U. S. And one is for sales. And do you have any more specifics in terms of timing of, of course, FDA approval? And secondly, in terms of sales, what type of amount or growth is supposed to be reached in order to reach to obtain these milestones? I can't go into exact details due to the agreement we have with the old owner. But it's a pretty deep space goal, and we all believe that with the combined organization. And in terms of of the FDA, I mean, that work is is going on. Organizations has started already, and we would, of course, support them with all our knowledge of the FDA and and regulatory approvals in general. So that is part of the one hundred day plan to support that as much as we can. It's obviously a very important question. Right. I saw that we have one participant I didn't have the time to speak with what, but if you would like to unmute and ask your question, press 4. Okay. So once again, if you want to ask any question, just put them in the chat or email me. I will present them. Okay. Go going in furthermore then to to do organ assist, looking at what type of what type of of synergies could you find in the product development? And then mainly, could you use some IP in the long 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 have we are the world leader in solution, I mean, the the code preservation, Perfetix Plus solution, and the warm evaluation PM solution solution. So this is our expertise, whereas Organisys' expertise has been more linked to design and, call it, manufacturability of machines. So this is where they are strong on the device side, and we are strong on the solutions side. So I see this as a fantastic match, our solutions and their machines and design. So that will, of course, influence the projects that we run together. When it comes to lines, yes, they have a line machine, but sales are very, very limited of this lung machine. And we have our XPS. We are we know that we need a smaller and, of course, we also achieve the machine on on the market, especially for certain new markets. So we are looking at the organization to see if this is something we would like to use or if we need to find another solution. But there will be a lot of projects as a result of the acquisition, especially on machine side because this is where they are very strong and good. So I hope that sort of answers your question, Ulrik. Thank you very much. I have a question from Michael Edmonds. Sales are down in hardware, but it was hard to get into hospitals to sell, I assume. Are there workaround for selling now? If you can just give a general comment on this, it will be helpful. Or or and is this starting to improve? Sorry. Just to understand what you what you asked. Yes. You said that it's hard to get into hospitals now. And So capital equipment down. It's hard to get into to hospitals to sell. Is there anything work you're doing to improve this? And is there any way to work around this, perhaps digital sales? And is this starting to improve if you would like to view this from beginning of the quarter versus end of the quarter? You can take this, Christian. I can take it. Just start with, I mean, we are having a pipeline of sales that we are in negotiations. And those are definitely continuing even during COVID nineteen. We did have some in the midst of the COVID nineteen we actually sold. At the end of machine, we sold one to to grow. So it is still possible. That being said, it will be harder, but we are are are having a very close contact with all our customers through the year even during you know, technical nineteen. So I think it's definitely possible and could do this. I didn't say work in the balance, but it's impossible to get get machines deployed to the market. Yes. Right. So 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. So just one question for me before you 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 twelve to eighteen months to get us a broader adoption? I mean, when it comes to reimbursement, I think what we expect to happen in the next twelve to eighteen months is reimbursement introduction in Germany. So we have already now filed application together with a number of hospitals in Germany to apply for sort of reimbursement. So I believe that Germany will be the next country in where reimbursement will be introduced. We are also looking at U. K. For reimbursement. Then of course, we need to work with reimbursement for kidney and liver as a result of the acquisition. So 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 cashing points when there is reimbursement model in place. So I'm quite optimistic when it comes to reimbursement in Germany in the not so distant future. Okay. Thank you very much. I will 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 camp of OrganAssist to make sure that we also raise the money to fund the acquisition and not only the acquisition, to fund projects that will come as a result of this acquisition. I think that's fantastic piece of work by Christopher and Bill. The new strategy, 2025 strategy, which looks here, milestones and strategic objectives, initiatives, measures, etcetera, fantastic. And then the new leadership team in place. So I think XTubo is is well, how do you say, well built now for for the future, even if COVID nineteen is is is throwing its bad. I don't know if you say that in English. But, of course, COVID-nineteen is still here. We have to deal with it, yes, for a while. The short is better, of course. But we are a strong company, I look very much forward to 2024 and 2021. That's my concluding remarks. You very much, Dag and Christopher, and this concludes today's presentation. Thank you, everyone, for listening in. Thank you, Ulrik. Thank you so much.