Welcome to Perfusion Report webcast. I will now hand over to Magnus Nilsson.
Welcome to this 13th quarterly report of XVIVO Perfusion. It's the interim report, January to March 2020. I have with me Christoffer Rosenblad, the CFO. Christoffer.
Hello.
Next slide, please. Very unusual Q1. We still have a strong cash position, which is the primary message. We have very limited cash consumption. Cash in spite of a very heavy investment in R&D, as usual. End the quarter in a good financial position, SEK 159 million at the end, at the start of the quarter. The net sales were 5% lower in SEK than last year. Non-durable goods was 6% lower, but we had the strong core sales of PERFADEX. All in all, limited reduction in the sales, almost intact. A strong gross margin, 79% of the non-durable goods. A good profit level on the EBITDA level as we normally count on. Interestingly, we got an XPS sold to a pediatric transplant clinic in Italy, Rome. We have launched the upgraded use PERFADEX Plus with Click Adapter. I'll come back to that.
Next slide, please. Implement the COVID-19 effect. I will make sure to emphasize that XVIVO Perfusion sees no reason why this epidemic of COVID-19 should affect the long-term demand of the XVIVO Perfusion's product. We are implementing, have start implementing I should say, a temporary cost reduction program to reduce expenditure to a substantially less period. The clinical studies are delayed, but we focus on being 100% ready to start them soon as it will be possible. Next slide, please. Interesting as said, we sold XPS to the first pediatric hospital in the world actually, and it was to a clinic in Rome, Italy. They already plan for the situation when this is gone. It opens also up to expand the use of donated lungs for transplantation for children additions for terminal lung disease, which is very hopeful for that group of patients.
Next slide, please. The other major event was that we launched the upgraded, ready-to-use PERFADEX Plus with the Click Adapter in Europe and Canada. Since it was only launched in the U.S. before, we have now launched it on the major markets. It is a version of the ready-to-use PERFADEX that will increase patient safety and customer convenience. You don't have to mix anything. You don't have to penetrate the membrane, which is a little troublesome out on the field to keep sterile. This is a convenience and a safety question, which has been much appreciated by the customers in the U.S. who have used it, and has a very good reception. Its applications are being on all other major markets. Next slide, please. Here's the statement. We won't go with the rest. The net sales was close with Q1 2019. We continue to see a high gross margin.
We continue to have built customer support and be ready, and close with the customers during this period so we can start full speed ahead when things clear up. We have continued an ambitious R&D investment to bring the product development projects closer to market. In spite of that, we could see a nice profit level, as you can see an EBITDA level of 16%. All in all, a robust quarter in spite of the troubles. Next slide please. The cash flow, in spite of that continued ambitious cash investment of SEK 27 million, all in all in R&D, the net cash position remained almost intact.
In the latter part of the Q1, we introduced the cost reduction program which contributed to a strong operating cash flow. That resulted then, again, in a strong position absolute terms, which we feel is a good situation to be in this situation. Next slide, please. Let's talk a little bit about the R&D pipeline to ensure the future growth. Next slide, please. We invest, as I say, in a pipeline for a very concrete product development, where we continue to invest in the eLungs, and also where we develop that indication through a number of measures, and I'll try to go through that. We continue the efforts development of online parameters to improving decision making. That is for weight, blood gases, and electrolytes.
It's also a question of ease of use, where we optimize more functions, simplify actions and protocols, and have a remote monitoring so doctor can be away from the machine and still monitor what's happening in the clinic. This is the solution, obviously. We continue to have research to further strengthen the organ and possible time in order to look at treatments, et cetera, which is obviously a lot of research is going on all over the world. That is looking at new additives, for instance, for the clinical research expanded use eLungs. This being donation after circulatory death, which is contrary to brain death. Those donors are used in a very low frequency today. It's more and more interesting to use them. Especially if uncontrolled DCD, you really need an EVLP to be able to use those organs.
That's certain research that we support. We also are involved in a continued EVLP protocol development. That could be ventilation strategy, it could be how the organ is positioned. It's a number of factors that you can fine-tune during the EVLP procedure. We're also investigating the immunological response during EVLP and targeting the long-term and short-term survival. That is a package of research and development we do to continue to develop the present lung business. We look at the next slide, please, at the R&D pipeline, which is done on products that we have not put on the market yet. It's foremost the priority one, the heart transplant project, which is a very interesting project. What's been shown is by optimizing preservation and oxygenate the organ during transportation, we can sustain organ quality.
The second priority is the PrimECC, which is an optimized priming solution to reduce the known side effects by running heart-lung machines. As a third and fourth priority, the third priority is liver and kidney using the same technology, more or less, for evaluation and using DCD organs in the liver and kidneys. A number of transplant has been made clinically with STEEN Solution today with good results, and we continue to look at that, although as a third priority. As a fourth priority, there's still interest out there. We've been contacted by a number of different researchers that want to see if they can use the perfusion of isolated organs and also tissues, with the STEEN Solution in order to administer drugs to those tissues and organs. Next slide, please. Let's look a little bit closer to the heart transplantation. A little bit repetition first.
There's a lot of preclinical proof. It's a research done by Professor Steen, who developed the original concept, where there is reduction to almost no non-oxygenated time from the time the heart is taken out of the donor until it's put into the recipient. Minimizing the oxygenating time is a key element. The second key element is a specially developed solution built on STEEN Solution, but with a number of additives and other small changes in order to be perfect for the heart. It has, in preclinical, shown being able to have much longer preservation time than is possible with the present technology, up to 24 hours in pigs. In the sensitive pig-to-monkey model, it was first when they start using this technique that they could have those monkeys survive for a long period of time.
There was actually the German study that shown six months survival. In clinic, there's a clinical study in Lund University Hospital, and they have now presented results from their first nine patients after six months, which indicates that the heart can be safely preserved with this technology, resulting in successful transplantations and a reduced risk for ischemic-induced reperfusion injury. Obviously, we are waiting for a full publication on this, which will be very interesting to see, hopefully later on this year. Next slide, please. What has been done in the past time here? We have patents for the heart preservations fluid approved in U.S., China, and Europe. We have built a clinical team, a clinical investigation team, I should say, which will carry out the clinical trials all over the world. We plan one in Europe, one in U.S., and one in Australia.
We have the disposables and the solution for the second version, the clinical trial version of the machine, designed, finalized, and tested and produced. It's been validated and wrapped up, so we now have getting the number of machines, and we will use for this trial. We have ongoing preparations for this multi-center trial in Europe, preparations also in U.S. and Australia, where clinics have been recruited and being prepared for study start. This project has been granted Breakthrough Device designation from the FDA, which will shorten the time to market if successful. I would just say the European multi-center trial was ready to include the first patient in Q1, but it's on pause right now due to this COVID-19 pandemic outbreak. The new starting dates will be defined based on how the situation develops in each country and clinic. Excuse me. Next slide, please.
About a very interesting product called PrimECC. Priming solutions are used to prepare the heart-lung machines before they can be employed in open heart surgery. The heart-lung machines replaces then the heart and the function of the heart and the function of the lungs during this open heart surgery. These solutions, these priming solutions, they enter the patient's bloodstream at the start of the procedure to replace the blood volume, which is filling up the heart-lung machine. When you start up the machine, about 1.5 L of blood volume goes from the patient into the machine. At the same time, 1.5 L roughly of this priming solution then enters the bloodstream of the patient. Those solutions which are used today all over the world, which are different, are not regulatory approved anywhere.
They're not being optimized and have never been in clinical trials. They are known to cause side effects. There is about 600,000 - 700,000 procedures of open heart surgery in the Western world, all over the world, which corresponds to the same amount of bags then, which are used each year in these surgery procedures. The PrimECC was developed using the technology of solutions from PERFADEX and these solutions been developed to alleviate those well-known side effects. Next slide, please. What's the status today? The accomplishment, just to again emphasize, it's been patented already in EU, US, China, Japan. It's already CE marked. We have performed a clinical study recently, a year ago. It was ready and the results were clean, that 40 and 40 patients at Sahlgrenska University Hospital that show that product was safe to use.
It improved the fluid balance and reduced the side effects using heart-lung machine when it was primed compared to what's used today. The next study we plan then is to increase the number of patients in the study so that we can get good statistical proof if it can reduce those side effects in a statistically significant way. The production of the first validation batch in the eco-friendly bag, we had to change the bag because of regulatory demands. We've done that with satisfying results. That regulatory file for the production site and packaging has now been approved by the notified body, and we have ethical committee approval to start the trial. This trial was ready to include the first patient, but was then postponed due to the outbreak of COVID-19.
The company is ready to start this trial as soon as situation at the hospital so permits. This will be a Swedish study on several Swedish university hospitals. That takes us to the last slide here, the outlook. Again, I want to stress here first that during this COVID-19 situation, XVIVO is implementing a temporary cost reduction program to bring the expenditure- of cash to a substantially lower level. The clinical studies that are delayed, in that those XVIVO focuses on being prepared to start these trials as soon as it will be possible. This is the core message here. The focus areas has not been changed. The primary focus is thoracic transplantation surgery. In lungs, it's further support the development of the EVLP technology that we have on the market today and move it into clinical practice in more places over the world.
We can say that in China, for instance, there is a great interest for using this technology. We can see that in China, they seem to open up again the transplantations. Our contacts in China, we see that transplantations are starting up again. We can see this period in China was about two to three months, and we hope that will be the same. We estimate that will be the same in the Western world, but it obviously needs to be seen. The major focus continue to support that development, the EVLP technology. The second very important thing, obviously, is to start and run multi-center studies on all major markets for regulatory approval. Then also with PrimECC to start and run a multi-center trial. It's already approved, but we need more clinical documentation before we want to launch that product in the market.
Secondary focus is to use all that technology, all that experience in the abdominal field as well, where we continue to support clinical development in liver and kidney with STEEN Solution technology, and also further investigate how to employ this technology in abdominal organs. The long-term goals, solidify positioning thoracic surgery and build new business in the liver and kidney in the future. This was the presentation from me. We are open for questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The first question comes from the line of Christian Lee from Pareto Securities. Please go ahead.
Yes. Thank you. I have a couple of questions. The first one is regarding you assess that the sales in Q2 will be negatively affected by COVID-19, obviously. Given that the sales of STEEN Solution decreased by 32% in Q1, would it be possible to give some kind of sense of magnitude that you're expecting in Q2?
No, I can't give any predictions. I can say, generally speaking, that what we see over the world is that lung transplantation is continuing. We see no big change in the number of transplants made over the world. There is a reduction, obviously, especially in the severely hit areas, but no big changes yet, at least. We see less of activity in the EVLP front. That explanation is really that what happens in these situations is that the clinics they take less and less risk, so to speak, in terms of having people on ICU units. Normally they have a spectrum of lungs which they use, donated lungs they use. They are from pristine lungs, or let's say, from a 20-year-old male, perfect, in a car accident or something, to a 65-year-old donor, which may previously have been a smoker, so forth.
There obviously is a big span between the quality of the lungs that are used any day in all transplants. What we have proven with EVLP is that you can use also those lungs that were not even used today with the help of EVLP technology. Obviously they are on the, we say, the last, the end of the spectrum. Obviously today, when they will have to double the effort not putting people on ICU, they are much more conservative. They use, so to speak, the better end of the spectrum. That exactly why we see that they use less EVLP today. They continue to do transplants. That's the general picture we see. I cannot really foresee when would this start up again, et cetera.
The only thing as a sign was that even in Italy, they invested in this technology to be prepared to use it once this virus pandemic has blown over. That's what we can say today. From our perspective, we can't see any risk that the long-term demand for EVLP will go down. It's just a temporary thing. Exactly how long that pause will be is very hard to tell. Most people guess, it's not our guess, it's the general guess, is that this would take about a quarter. Obviously that's a guesstimate that people do over the world. When we talk to clinicians and et cetera, that's the next couple or three months or something. That's what people expect, that it will be a lower activity. They all recognize, actually, that if you don't transplant, people will die on waiting lists.
It makes no sense of saving people with COVID-19 if you, at the same time, let people die on the wait list. This is something the authorities and the clinics are very well aware of. I can't see really that this would be prolonged too long, but exactly how long, it's hard to say. Long answer to a short question, sorry.
Okay. Great. Thank you. Perfect. My second question is regarding your cost reduction program. Is it possible to quantify what kind of cost savings you're expecting when you have implemented this program, especially given that you are assessing to start the two delayed studies in Q3?
Yes, the delayed study saves a lot of cash, obviously, because a lot of the cash that we thought that we're going to spend were actually going to those clinical trials. That automatically saves a lot of cash for us. The program as such is focused on really to cut down on the external expenditure, typically consultants and like, but to keep the competencies in the house. We have a lot of things to continue to develop in-house. It's not like we have a lack of work. On the other hand, I think we can use this time very well by being even more prepared, and do a lot of in-house development during this time. The program as such, is directed to cost reductions on external expenditure.
Typically, we have a very high-speed development, which means that a lot of things we do, we need consultants for, to keep up the high pace. What we can do now, obviously, is to do with a little bit slower pace, due to the delayed studies, is that we can cut down on using external help. Going down to run the business with the employees, which means that we can save a lot of money in that sense. Which I think is pretty simple. In a company like us with a high-speed development, you can't really have everything in-house and the capacity in-house, so we normally have a lot of consultants running, helping us to keep up the pace, but now we can kind of go down since we have more time to prepare things.
Right. Is it possible to give us some kind of ballpark on the amount of expenditures related to consultants in Q1?
No, I can't give you numbers. I don't have them at hand either. I can't really give them. Generally speaking, there's activities we can't do. We can't really go out to clinics today, which means that we save on travels, hotels, and all that. We do not use consultants for capacity anymore. It's hard to give exact numbers, but it's a substantial savings that we can make this way. That's the answer I can give you.
Okay. Thank you very much. That's all for me.
The next question comes from the line of Arvid Necander from Redeye. Please go ahead.
Okay. Thanks for taking my question. I was just wondering if you can provide a slightly more granular view of the activity at the clinics. Where are you seeing the most significant impact, clinics that have come further in implementing the novel protocol? Are they still performing EVLPs, and does the decrease mainly stem from clinics that haven't come as far, and how do you see the dynamics there?
Yeah. I can see that the clinics who are very used to using EVLPs, which have a high number today, they still use it somewhat, but in a reduced way. I think where the major slowdown is on the clinic who are using the technique not so frequent yet. It's more the startups. That's the general answer. I think the ones, clinics who are very used to use it, use still, but in a lower pace. I think it's more the clinics who's just started and are in a lower frequency are the ones who are hesitating today and waiting for the situation to clear up. If you say areas, obviously New York area, East Coast there, has been obviously Italy, Southern Europe. We still hear activity from Spain, for instance, in lung transplantation, so on.
It's not that they stopped, it's just a reduction in number. We see now China is really going up again and returning to a more normal situation. Which took them about two to three months then. Same in Korea, for instance, who were early into this. They now seem to be back and gearing up again their transplant programs. I think generally speaking, it's the worst-hit areas, generally speaking, where the downturn is biggest. I think even in Gothenburg, in Sweden, they still do lung transplants, but with more caution. Obviously, they want to make sure that the recipient on the wait list hasn't been infected. Obviously, more precautions are made. These lung transplantations still continue to be made in most places in the world, actually. It's just the really worst areas where they stop.
I think most areas, they still continue, but with caution.
Okay. Yeah, thanks for that. Just a couple more quick questions. Secondly, is it still possible for you guys to do perfusion training at this point, or have all of those efforts been stopped given the restrictions at most of the hospitals right now? Is it possible to still give support and training to the doctors through digital measures and et cetera?
Yes, we do. We have a position where we have training, at least assistance online and via video. We have done some of these things on video before, but it's hard for us to come out. Most hospitals won't let in people today. We do have video contact with them, et cetera. That's a normal procedure, really. We start with physical training, so to speak, but then we often move over to having assistance online. That online assistance continues, and we develop that even further by developing instruction films, videos, and all those things. We continue to develop that. For now, it's hard to go out physically to the clinics or to bring in clinics to our training facilities. That's on hold. The online assistance is still ongoing.
Okay. Yeah. Thanks. Just a last question. Just recognizing the strong performance of sales related to cold preservation PERFADEX this quarter, although it can vary quite a lot, I guess, from quarter to quarter. Were there any sort of temporary effects that you see perhaps related to the rollout of PERFADEX Plus? Or yeah, how do you see that going forward in your best guesstimates?
I think that the quarter one 2019 was relatively low on cold sales. The relative number there, the relative increase is a bit higher because you compare to Q1 2019, where the sales of cold was a little lower than normal, so to speak. The absolute level, I think, is good. I don't foresee that absolute level would be much different, although you're right, there's a little effect of the launch. I think the major effect on the percentage there is that the presented increase is that we compare to a quarter last year, which was relatively weaker in cold sales last year. I think the absolute level is good.
Sure. Okay. Yep. That was it for me, guys. Thanks.
Thank you. Once again, ladies and gentlemen, if you do have a question for the speaker, please press 01 on your telephone keypad. The next question comes from the line of Daniel Albin from Danske Bank. Please go ahead.
Thank you. I have a couple of ones, few of them already been answered. If I may just have a follow-up question on the number of EVLPs and the activity level. I'm wondering if you could say something about destocking effects in Q1 and really how we should view that. That's my first question.
Okay. Yeah. Okay, let's take that first. Good that you bring that up. We actually had a number of orders that were already orders, but where the hospitals were not allowed to receive goods. In Italy, for instance, and some other places, some hospitals did, even if we had New York was the same. We had orders for warm perfusion products that were already, so to speak, done but had to be inhibited because the hospitals didn't want to receive products to the hospital. There are some orders that were, so to speak, already in the works but had to be stopped. Obviously, that reflects on, you call it the destocking effect.
in the sense that they haven't refilled their stock in the way that we were expecting.
Okay. Yeah. My second question. We are seeing more reports and data coming out and indicating that we are seeing severe fibrosis in, say, middle-aged COVID-19 cases. Wondering if you, in discussions with your customers, how should we view this going forward? Do you think there will be some sort of pent-up demand for lung transplants or?
The only thing I can say there is that from China, and there is one clinic who have made three transplant on COVID-19, or ex-COVID-19 patients, so to speak. That was patients who have had the COVID-19, but then were out of it, but had so severe lungs they needed transplants. I think two of them survived. One died. That's the only practical thing I've heard in the world in that respect. I think we have to wait to see. It's true, severe fibrosis is a normal indication for transplant. Today it's very hard to see. Is this somehow reversible or can you be compensated? It's a little bit early to say. The only experience we have is those three cases from China so far.
All right. Just the last question, and this one might be a bit hard to answer. Regarding the heart preservation system project, could you just update us on the timeline and say how long do you expect the clinical trial to be and when can we see potential launch?
That's a very good question. I'd love to know myself. The only thing that we can say here is that with this kind of pause, we hope that once we can start, that we can speed up the inclusion in a more rapid way that we would have been possible to do otherwise. We hope we can save some time that has been lost in this pause. Normally, as it's planned, we have calculated a one-year follow-up, and then obviously it takes some time. In the U.S., we have a quicker approach with the Breakthrough Designation, but we have to proceed at least the six months regulatory period. It comes down to when can we start and how long would it take to include patients. We hope that we can reduce that time. We thought originally about one year.
Maybe we can shorten that with some months. Again, it depends on when the study can start. Obviously, we don't know if all centers will start at the same time or if some centers will start earlier than others. It's really very hard to say, but I think once we've started the trial, at least two years is what we can expect from once we start the trial. Again, when can we start? How long would it take till all centers can start? It's very hard to say today, obviously.
Okay. Yeah. That was all for me. Thank you, Magnus.
Thank you.
Once again, ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad. There are currently no further questions registered. I will hand the conference call back to you, speakers.
Thank you. A short summary again. I think during this COVID-19 situation, XVIVO Perfusion is focusing on conserving cash and also to continue to develop our products and being prepared to start the clinical trials as soon as ever possible. We don't see any long-term effects on the demands of our products. We hope that this period, and some other people too think that this period will last about a quarter. That's the summary I can give you. Thank you very much for listening in, and hope all cope, keep safe, and hope this will be better next time we talk. Thank you very much.
Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.