Earnings Call: Q2 2020

Jul 10, 2020

Ladies and gentlemen, welcome to the XVIVO Perfusion Q2 2020 report webcast. I will now hand over to Dag Andersson, CEO. Sir, please go ahead. Thank you very much. Good afternoon or good morning or good evening, depending on where you are in the world. My name is Dag Andersson, and I'm sitting here in Gothenburg again with Christoffer Rosenblad. Good afternoon. I have now been CEO for as long as six weeks. It's my pleasure actually, to present the first report here to all of you. Just to tell you a little bit about my background. I served for 11 years before joining here as CEO and President of Diaverum, which is the third-largest dialysis provider in the world. Prior to that, I was the Deputy CEO of Mölnlycke Health Care med tech company, also head office here in Gothenburg. I will start just to maybe some comments on slide two of the presentation. If you turn to slide two, ladies and gentlemen. When it comes to sales, we have, between 2012 and 2019, had a yearly sales growth of 21% on average. Unfortunately, this year, because of COVID-19, we've actually had a sales loss of 28% in SEK. One of the positive news is that we have very strong gross margin, 80%. I think this is a very good number. We have actually managed to produce a positive EBITDA during the first six months, excluding one-time costs of 5%. Positive cash flow. We have sold two lung evaluation machines in Europe during the corona crisis, including one to Italy during the height of the pandemic in the country. Activity is increasing again. We have seen a start in activity increase in the U.S. from May, in Europe from June. Activity is now on its way up again. We have also seen COVID-19 patients being transplanted in U.S., Europe, and Asia. Our product solutions have been used for transplants in both U.S. and Europe for COVID-19 patients. We have also launched successfully PERFADEX, which is the cold preservation fluid with Click Port in Europe and Canada, and full implementations are complete with that. It's a very unique and patented fluid that is now sold on the markets. These are the highlights of first six months. I will come back to explain some of the highlights in more detail, but I will now ask Christoffer Rosenblad to talk a little bit about profit and loss statement on page three. Thank you. Here is the big picture of the P&L. What can be said of the first six months is that, as we reported earlier, there has been a COVID-19 effect on top line. Good news is that gross margin has remained high during this period of time. Also, we reported earlier, we have a cost reduction program implemented, and we have been able to reduce costs to large extent without reducing the speed of our projects. This is also the positive news of that. If you look at the first half year, we also managed to have a positive EBITDA for the first period. I think with that, we turn over a little bit more to the COVID-19 effect on the company on the next slide. Slide four. Yes. We talk a little bit about the impact on transplant activity. As you can all guess and understand, the COVID-19 situation has had a big impact on transplant activity and all sorts of surgical activity and critical activity in the world, because intensive care capacity has been utilized by COVID-19 patients. You can see on the two graphs on slide four that the number of lung transplants per week in the U.S., the first graph is going up again. You can also see on the second graph, which shows Spain. Interestingly, Spain is actually the country in the world with highest number of transplants per inhabitants. The activity level is also increasing there, but a little bit later than in the U.S. That is the transplant activity. Two examples of countries where activity is going up again. Page five, which I mentioned already on page two, is that despite the pandemic, we have sold two lung evaluation machines called XPS in Europe. One has been sold in Austria in one of Europe's actually leading hospitals. AKH in Vienna is a very prominent transplant center, one of the more prominent ones in Europe. Interestingly enough, we have also sold one machine to a pediatric clinic in Rome, and in fact, it's the first time that we sell a machine to pediatric hospital. This was done during the height of the pandemic. When it comes to page six, it's a study linked to our heart preservation project, which I will come back to a bit later on, so we can actually skip this page for now. On page seven, this is just an example of what we continuously do. We add features that are of benefit to our customers on our machines, and this is actually an example of such a feature that we add. It's a weight sensor. The weight sensor makes it much easier to make a decision whether to use a lung for transplantation or not. Previously, the weight of the lung could only be taken at the beginning or at the end of the lung evaluation period. This is actually quite a unique feature that I think we are quite alone of in the industry. On the next slide, page eight, we are just showing that being market leader means that we are also taking a lot of initiatives in different areas. One is to host ex vivo webinars, where a number of key opinion leaders in the global lung transplant field moderate and present or participate in these webinars and share experiences from their clinics around the world. It's quite interesting to note that in total, we have had around 350 participants so far and very positive feedback. We will continue to host these webinars at least once or twice per quarter. If we turn to page 10, which just shows how we continue to grow or focus on growing within the lung transplantation area. We are continuously looking at the protocol developments related to our warm perfusion fluid called EVLP. It's EVLP protocol development, where we are looking at ventilation strategy and organ preservation, et cetera. We are also looking at the machine strategy. How can we make the machines easier to use, more customer-oriented, more flexible? We are adding features such as the sensor I mentioned before. Biomarkers are also being validated. We are looking at the next generation of the warm perfusion fluid. The name is actually called STEEN Solution, and we are looking now at STEEN Solution 2 and where patents are being filed as we speak. We are also looking at expanding the use of DCD lungs, and DCD stands for donation after circulatory death, as opposed to DBD lungs, which are donation after brain death. It's important to distinguish between those two types of deaths, to be brutal here. Next page 11, heart transplantation. We have a key project aimed at commercializing a heart preservation device solution. This has been developed by Professor Sten, who has also developed our warm perfusion and cold preservation fluids. We are actually very happy to show to you today that we have done a first clinical study at Skåne University Hospital in the south of Sweden, where results on the first six patients of the six months indicate actually that hearts can be safely preserved with our technology. Safely preserved means that a heart transplant results in success and reduces the risk for. How do we pronounce it? Ischemic ischemic induced reperfusion injury. This is actually a publication in a magazine called Nature, which is very important. This is the first initial evidence that our heart preservation device solution is successful. When it comes to this project, the heart preservation project, we have actually managed to get patents approved in the U.S., Canada, and Europe. We have a clinical team build-up, and we are actually starting multi-center trials. The trial I mentioned to you before in Lund was a, we can call it, pre-clinical trial. Now we are starting the real trial in Europe, U.S., and Australia. Belgium, France will start first, and Germany then follow. What I'm very happy to mention to you as well is that our heart preservation device and treatment has been granted Breakthrough Device Designation by the FDA, which means that it's a first sign that we will get an FDA approval for this. Planned IDE submission in quarter three. That is on heart. PrimECC, which you can read about on page 13, is a solution that will be used with the heart-lung machines. These solutions enter the patient's bloodstream at the start of the procedure to replace the blood volume filling the heart-lung machine. The objective here is to limit the damage on surrounding organs, notably the kidney. This is also a very interesting project, and we believe that this will have a commercial success. It has been patented also in Europe, U.S., China, and Japan, CMAR, clinical studies at Sahlgrenska University Hospital in Gothenburg. We are now preparing a clinical multicenter trial in several Swedish hospitals. They are now ready to include the first patient. I think this is also a very exciting project for XVIVO. On page 15, if we look a little bit at the outlook of this year, a little bit also into the future. For us, of course, very important to defend and develop our position in the lung transplant segment. That means continuing to develop the warm perfusion fluid, clinical practice with the machines. We have the heart preservation project with the device and fluid, which I mentioned to you before, where the trials are now starting in Belgium, France, and Germany. We have the PrimECC project with the multicenter study in Swedish hospitals. When it comes to our long-term goals, we have said, and I think we continue to say that we want to solidify our position in organ surgery. That means lung and heart, and that includes the heart preservation and the PrimECC projects. We also want to enter the liver and kidney organ segments. How to do this? The future will tell. There is always an option to do it on our own, or there is an option to cooperate with or acquire another player in the industry. There are some interesting candidates to study for this sort of purpose. When it comes to the COVID-19 situation, as I'm sure you've heard from many other companies, COVID-19 has had an impact on transplantation and on our sales. We have implemented a temporary cost-reduction program to bring expenditure to low level. What we have primarily done is to reduce the number of consultants primarily. Therefore, it's also very important that we focus on what is important for XVIVO. The projects I have talked to you about are absolutely essential for our development in the future, and we have the resources to drive and develop these projects. As mentioned before, we have exciting clinical studies ready to start both for the heart preservation project and for the PrimECC project. On the last page 16, just to give you a little my observation after the first month or six weeks now even. We have appointed a Chief Intellectual Property Officer. It is a person who ensures that we have the right sort of patents and IP protection in place throughout the world. We have also appointed Chief Medical Officer for the company. In the early autumn, a head of commercial will join XVIVO with great experience. I'm sure this person will fit well into the company and be very productive from the start. The head of R&D will also join during the autumn. My focus right now is very much on observing commercializing the organization to focus on sales force skills, pricing, sales tools, but also to improve product management and product market. It is important to have product managers for the key projects who actually can spend all their time on leading the respective sort of project. Being a company of a relatively small size, it's important that we always are clear about the priorities. We cannot afford to focus on too many things. We have our priorities. We know exactly what project to drive. We have the resources for those projects, and I'm sure this will lead to great success also in the future for the company. That's all from our side. Thank you. We will now open up for questions. Ladies and gentlemen, if you have a question for the speakers, please dial 01 on your telephone keypad. Please hold until we have the first question. Our first question is from Daniel Djurberg from Danske Bank. The floor is yours. Thank you. Daniel from Danske. My first question is really if it's possible to quantify, say, the physical effects of the cost reduction program going into 2021 and the following second half of this year. My second question is really if you could give, say, an updated picture on the activity level when it comes to warm perfusion procedures, especially concerning your largest customers and what we should expect going into the second half of this year in terms of growth or decrease. Okay. Yeah, we can do that. To kick off with the second question. EVLP activity, in our judgment right now, is about a month later than, let's say, the lung transplant activity in general. It's a slight delay with about a month country by country. We can see increased activity at the end of Q2 coming in. Again, it could be different country by country, region by region, but as a general picture, that's the best data we have. The first question, could you please repeat it? Yes. I'm wondering a bit, you're mentioning a cost reduction program, and I'm wondering if you could quantify the effects on, say, how much will you slice OpEx cost on a full year basis? Is it possible to quant? I think if you look at the Q2 reduction, I think it's quite apparent that we have reduced, especially a lot of the variable cost during the quarter, and we have intention to continue to do that as long as needed. When we do that, we reduce the cost without actually short-term, at least reducing productivity. I think that's important to mention when it comes to cost reduction programs. It's hard to quantify the exact effect going out the end of the year. I think Q2 gives a quite good indication on the level. Okay. Thank you. As a reminder, if you would like to ask a question, you will have to press 01 on your telephone keypad. We have no further question at the moment. I give the floor back to you. Thank you. I have seen no question on the Q&A side in written statement either. I don't know if we should wait another 15 seconds and see if there are any more questions on the line. No more questions on the line. Okay. We conclude this meeting. Thank you all for dialing in and listening to Kristoffer and myself, looking forward to meeting you all again in a couple of months' time for the next quarter report. Thank you all. Thank you all. Enjoy the weekend. Cheers. Ladies and gentlemen, this concludes our conference call. You can disconnect.