Earnings Call: Q1 2020

Apr 9, 2020

Welcome to the thirtieth quarterly report of Exceva Perfusion It's the interim report January through March 2020. And I have with me Christof Dorsenblad, the CFO. Mr. Svec? Hello. Next slide, please. So, very unusual Q1, we still have a strong cash position, which is the primary message. So we have very limited cash consumption, cash in spite of a very heavy investment in R and D, as usual, and we ended the quarter in a good financial position, SEK 159,000,000 at the end, at the start of the quarter. The net sales were 5% lower in SAK than last year. And non turban goods was 6% lower, but we had the strong core sales of Perfect. So all in all, limited reduction in the sales, almost intact. A strong gross margin, 79%, up in non durable goods, and a good profit level on the EBITDA level, as we normally count on. Interestingly, we got an FPSO to a pediatric transplant clinic in Italy, Rome. And we have launched the upgraded use PerfectX Plus with click adapter. I'll come back to that. Next slide, please. So COVID nineteen effect, and I will make sure to emphasize that for extrusion, there's no reason why this epidemic of COVID nineteen should affect the long term demand of the ex vivo profusions process. We are implementing, having started implementing, I should say, a temporary cost reduction program to reduce the to a substantially less period. And the clinical studies, are delayed, but we focus on being 100% ready to start them as soon as it will be possible. Next slide, please. So, 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 planned for the situation when this this is gone. It opens also up to expand the use of donated lungs for transplantation for children allergens for terminal lung disease, which is very helpful for that group of patients. Next slide, please. The other major event was that we launched the upgraded with the use of the Click Editor in Europe and Canada. Since it was only launched in USA before, we have now launched it from the major markets. It is version of ready to use Prefix that will increase patient safety and customer convenience. You don't have to penetrate you don't have to mix anything. You don't have to penetrate the membrane, which which is a little bit troublesome out on the field to keep sterile. So this is a convenience and a safety question, which has been much appreciated by the customers in The U. S, West Houston, and has a good very good reception. It's a perfect example of patent applications are being on all other major markets. Next slide, please. Here's the statement. Won't go with Direct. The net sales was close to Q1 twenty nineteen. We continue to see a high gross margin. We continue to build 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 and D investment, to bring the product development projects closer to market. And in spite of that, we could see a nice profit level. And as you can see, an EBITDA level of 16%. The all in all, a robust quarter in spite of the troubles that latter part of it with. Next slide, please. So the cash flow, in spite of that continued we continued a vicious cash investment of 27,000,000 all in all in R and D. In spite of that, the net cash position remained almost intact and remains active in quarter, up to 100%. In the latter part of the Q1, we introduced the cost reduction program to which contributed to a strong operating cash flow. And that resulted then, again, in a strong position in absolute terms, which we feel is good situation to be in this situation. Next slide, please. So, let's talk a little bit about the R and D pipeline, for the to ensure the future growth. Next slide, please. So we, invest, as I say, in in a pipeline for, a very concrete product development, where we continue to invest in the lung lungs and also we develop that indication through a number of measures. And I'll try to go through that. We continue the of online parameters to decision making. That is for weight, blood vessels, metabolites. It's also a question of ease of use, where we optimize more functions, simplify actions and protocols, and and look at and have a remote monitoring so the doctor can be away from the machine and still monitor what's happening in the kidney. So that is the solution, obviously. We need have research to further strengthen the organ in possible time in order to look at treatments, etcetera, which is obviously some, a lot of research is going on all over the world. And that is looking at new additives, for instance, for the clinical research expanded UC lungs. This thing means donation for circulatory death. So she's currently to brain death. And those donors are used in a very low, frequency today, but they get more and more it's more and more interesting to use them. And especially for uncontrolled DCD, you really need MEUP to be able to use those organs. So that's, research and research that we support. We also are involved in a continued EDLP 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 VLP procedure. And we also investigate in immunological response during VLP and targeting them the long term and short term survival. So that is a package of research and development we do to continue to develop the present lung business. And then we we look at the next slide, please, at the r and d pipeline, which is then 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 you you by optimizing preservation and oxygenate the the organ during transportation, you can sustain organ quality. The second priority is the Primaek, which is an optimized Primaek solution to reduce the known side effects by running hot lung meshes. 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 of, transplant has been made clinically with with a steam solution today with good results, and we continue to look at that, although as a third priority. And as a fourth priority, there's still interest out there. We'll be contacted by a number of different researchers that want to see if they can use the protrusion of isolated organs and also tissues with Perfectex sorry, with the Steam Solution in order to administer, drugs to those tissues and organs. Next slide, please. So let's, look a little bit closer to the heart transplantation. So a little bit repetition first. It's a pre there's a lot of preclinical proof. It's a research done by professor Steen who developed the original concept, where where there is reduction to almost no non oxygenated time during, from the time the organ the heart is taken out of the donor until it's it's put into the recipient. So minimizing the oxygenated time is is a key element. The second key element is a specially developed solution built on steam solution, but with a number of additives and other small changes in order to 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 twenty four hours in pigs. And 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. It's actually the journal study showing six months survival. And in clinic, there's a clinical study in Lund University Hospital, and they have, now presented results from the first nine patients after six months, which indicates that the heart can be safely preserved, with this technology resulting in successful transplantations and the reduced risk for ischemic induced refugation injury. Obviously, are waiting for a full publication on this, which will be very interesting to see, I hope, later on this year. Next slide, please. So, what has been done during the past time here, we have patents for the heart preservation fluids approved in US, Canada, and Europe. We have built a clinical team, an investigation team, I should say, which will carry out the clinical trials all over the world. We we plan one in Europe, 1 in US, One in Australia. We have the disposables and the solution for the second version between the trial version of the machine, designed, finalized, and tested and produced. It's been validated and ramped up. So we now have the number of getting the number of machines we will use for this trial. And we have ongoing preparations for this multicenter trial in Europe, preparations also in US 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. And I would just say the European multicenter trial was ready to include the first patient in q one, but it's on pause right now due to this COVID-nineteen pandemic outbreak. And the new starting dates will be defined based on how this duration develops in each country and clinic. Excuse me. Next slide, please. Then about very interesting product called Primaec. Primaec solutions are used to prepare the heart lung machines before they can be employed in open heart surgery. The hot lung machines replaces then the heart and the the function of the heart and the function of the lungs during this open heart surgery. And these solutions, these primary solutions, they enter the patient's bloodstream at the start of the procedure to replace the blood volume, which is filling up the hotline machine. So you you when you start up the machine, one about one and a half liter of blood volume goes from the patient into the machine. At the same time, one and a half liter roughly of this primary solution then enters the bloodstream of the patient. And those solutions are used which are used today all over the world, which are different, are not regulatory approved anywhere. They're not being optimized and never been in clinical and and they are known to cause side effects. There is about seven six to 700,000 procedures of open heart surgery in the Western world, or other world, which corresponds to the same amount of dioxin, which are used each year, in these surgery, procedures. And the PrimeX was developed using the technology of solutions from PerfectX and NDC solution has been developed to alleviate those well known side effects. Next slide, please. So what's the status today? The accomplishment, Just to, again, emphasize, it's been patented already in EU, US, China, Japan. It's already C marked. We have performed a clinical study recently, a year ago. It was published. Sorry. It was ready and the results were clear. That fourteen forty patients that showed Prinec was safe to use. It improved the fluid balance and reduced the side effects using heart lung machine when it was primed to primed compared to what's used today. And the next study we plan then is to increase the number of patients in the study so that we can get a good statistical, proof if it's it can reduce those side effects in a in a statistically significant way. So the production, of the first valetia bags, in the eco friendly bag, we had to change the bag because of regulatory demands. So now it's producing new eco friendly bag in a new at a new production manufacturer, and 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. So this trial was ready to include the first patient, but has to be had had was then postponed due to the outbreak of COVID nineteen. But the company is ready to stop this drug as soon as situation at the hospital, so permits. This will be Swedish study on several Swedish, university hospitals. So that takes us to the last slide here, the outlook. And, again, I want to stress here first that during this COVID nineteen situation, Ex is implementing a temporary cost reduction program program to bring the expenditure, of cash to a substantially lower level. And the clinical studies that are delayed In that, those placebo focuses on being prepared to start this trial as soon as it will be possible. So this is the core message here. The focus areas is not 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. And we can say that in China, for instance, there's a great interest for using this technology. And 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. So we can see this period about in China, was about two to three months, and we hope that that will be the same. We estimate that will be the same, in the Western world, but it obviously needs to be seen. So the major focus continues to support that development of European technology. The second very important thing, obviously, is to start and run multicenter studies on all major markets for regulatory approval. And then also with Primaek to start and run the multicenter Charlie. It's already approved, but we need more clinical documentation before we want to launch that product in the market. Then secondary focus is to use all that technology, all that experience in the abdominal field as as well, where we continue to support clinical development in liver and kidney with using Steam Solution technology and and also further investigate how to employ this technology in abdominal organs. The long term goals, solidify position in thoracic surgery and build new business in the kidney in the future. This was the presentation, to me. We are open for questions. Thank you. The first question comes from the line of Christian Li from Pareto Securities. Please go ahead. Yes, thank you. I have a couple of questions. The first one is regarding you assessed that sales in Q2 will be negatively affected by COVID-nineteen, obviously. But given that the sales of Stain Solutions decreased by 32% in Q1, would it be possible to give some kind of sense of magnitude that you're expecting in q two? No. I can't give any predictions. But 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 change yet, at least. But we see a a less of of activity in the EBLP, front. And that that is explanation is really that what happens in these situations is that the clinics, they take less and less risk, so to speak, in in terms of having people on ICU units. So normally, they have a a spectra of lungs which they use, donated lungs they use. They are from pristine lungs for, let's say, from a 20 year old male, you know, perfect, in in a car accident or something, to a 65 year old donor, which may previously have been a smoker and so forth. So there obviously is a big span between the quality of the lungs that are used any day, you know, in all transplants. What we have proven with EBLP is that you can use also those lungs that were not even used today with the help of the boutique technology. But obviously, they are on the, let's say, the kind of the last the end of the spectra. And obviously, today, when they will have to double the effort not putting people on ICU, they are much more conservative. So they use, so to speak, the better end of the spectrum, and that exactly why we see that they use less PVLP today, but they continue to do transplants. That's the general picture we see. I cannot really foresee when would this start up again, etcetera. 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 has blown over. So that's what we can say today. There's no long term, there's no, from our perspective, we can't see any risk that the long term, demand for EVP will go down. It's just a temporary thing. But exactly how long that pause will be is very hard to tell, but most people guess, it's not our guess, it's just a general guess, is that this would take about a quarter. But obviously that's a net guesstimate that people do over the world. But when we talk to clinicians and that's the next couple or three months or something, that's what people expect that it will be a lower activity. But they all recognize, actually, that if you don't transplant, people would die on the waiting list. So it makes no sense of saving people with COVID nineteen if you, at the same time, let people die on the wait list. So this is something the authorities and the clinics are very well aware of. So I I can't see really that this would be prolonged too long, but exactly how long is hard to say. Long long answer to your short question. Sorry. Okay. Great. Thank you. Perfect. My second question is regarding your cost reduction program. Is it possible to kind of quantify what kind of cost savings you're expecting when you have implemented this program, especially given that you are assessing to start to delayed studies in Q3? Yes. And 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. So that automatically saves a lot of cash for us. But 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. And we have a lot of things to continue to develop in house, so 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 and and do a lot of in house development during this time. But but the program as such is is directed to, cost reductions on external external expenditure. And 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 to the delayed, studies is that we can cut down on on using, external help. Going down to run the business with the with the employees, which means that we can save a lot of money, in in that sense. So which 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 then go down since we have more time to prepare things. Right. And is it possible to give us some kind of ballpark on the amount of expenditures related to consultants in the Q1? No, I can't give you numbers. I don't have them on hand either, but but I can't really give it. But but 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. And we can't we do not use consultants for capacity anymore. So 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 only be Okay. Thank you very much. That's all for me. The next question comes from the line of Arvind Nikandov 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's the how do you see the dynamic there? Yeah. I can see that that the the clinics who are very used to using EDLP, they have a high which have a high number today, they still use it somewhat somewhat in a reduced way. I think the the the major where where the major slowdown is is on the clinic while using the technique, not so frequent yet. So it's it's more of the startups that I I would that's the general it's a general answer. But I think the the the the ones clinics who who are very used to use it used still but in a lower pace, I think it's more that they the things who just started and are are in a lower frequency are the ones who who are hesitating today and waiting for for the situation to to clear off. Then with your same areas, obviously, New York area, East Coast there, has been, obviously, Italy, Southern Europe. But, I mean, we still hear activity from Spain, for instance, in lung transplantation and so on. So it's not that they stopped. It's just a reduction in in number. And we see now China is is really going up again and returning to a more normal situation, which took them about two to three months then. And same in Korea, for instance, who were early into this. They they now seem to be back and and and gearing up again their transplant programs. So I think, generally speaking, it's the the worst hit areas, generally speaking, where the downturn is is is biggest. But I think even in in Gothenburg in Sweden, they still do lung transplants, but with more caution. Obviously, they want want to make sure that the the recipient isn't away on the wait list, hasn't been infected. It's an obviously, more precautions are made, but but this lung transplantations are still continuing to be made in in most places in the world, actually. It's just the the really worst areas where they have, where they stop. But I think most areas, they they still continue but with with caution. Okay. Yep. Thanks a lot. Just a couple more quick questions. And secondly, is it still possible for you guys to do physician training at this point? Or have all of those efforts been sort of stopped given the restrictions at most of the hospitals right now? How how is it possible to still give support and training to the the doctors for digital measures and etcetera? Yes. We we do we we have a position where we we we have training, at least, assistance online and video. So we have we have done some of these things on video before, but but it's hard for us to come out. Most hospitals won't let in people today, but we we do have a video contact with them, etcetera. So and that's a normal procedure really. We start with physical training, so to speak, but then we often move over to having assistance online. So that online assistance continues, and and we develop that even further by developing instruction, films, videos, and and all that things. We continue to develop that. But, for now, it's hard to go out physically to the clinics or to bring in clinics to to our training facilities. So that's on hold, but the online assistance is still ongoing. Okay. Yes. And just a last question. Just recognizing the strong performance of sales related to co preservation PerfectX 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 PerfectX Plus? Or how do you see that going forward in your best guesstimates? I think that the the there there was the the quarter one twenty nineteen was relatively low on cold sales. So the the the relative number that the relative increase is is a bit higher because you compare to q q one nineteen where the sales of cold were was a little bit lower than normal, so to speak. So that that's but the absolute level, I think, is good. I mean, I don't foresee that absolute level would be much different. Although, you're right. There's a little effect of the of the launch. But I think the major effect on the percentage there is that the percentage increase is that we compare it to a quarter last year which was relatively weaker in cold sales last year. But I think the absolute level is good. Okay. Yes, that was it for me guys. Thank you. The next question comes from the line of Daniel Alvin from Danske Bank. Please go ahead. Thank you. So I have a couple of ones, few of them already been answered. But if I may just have a follow-up question on the number of EVLPs and the activity level. Well, I'm wondering if you could say something about destocking effects in in Q1 and really how we should view that. That's my first question. Yeah. It's okay. Let's take that first. Good that you bring that up. We actually have a number of orders that we were already orders, but that where the hospital were not allowed to receive goods. So in Italy, for instance, and and some other places, some hospitals did even if we had New York was the same. We had orders, for warm, for warm perfusion products that that were already, so to speak, done but had to be, inhibited because the hospitals, didn't receive didn't want to receive products to the hospital. So there is some some orders that were were, so to speak, already in the in the in the works, but that had to be stopped. And obviously, that reflects on a that's you call it a destocking effect in the sense that they haven't refilled their stock the way that we were expecting. Okay. Yeah. My second question, so we are seeing more reports and data coming out and indicating that we are seeing severe fibrosis in, say, middle aged COVID 19 cases. And 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 the China, and there is one clinic who have made three transplant on COVID nineteen or ex COVID nineteen patients, so to speak. That was patients who have had the COVID nineteen 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 over the world from in that respect. I think we have to wait to see. But it's true. I mean, fibrosis is a normal indication. It's severe, fibrosis is a normal indication for transplant. But today, it's it's it's very hard to see. Is this somehow reversible or can can you you as a source to be compensated? So it's a little bit early to say, but the only experience we have is is those three cases from China. Alright. Alright. Just just the last question, and and this one might be a bit hard to to answer. But regarding the heart preservation system project, could you just update us on the time line and say how long do you expect the clinical trial to be and when can we see potential launch? It's a very good question. I like I'd love to know myself. But the only thing that we can say here is that with with with this kind of pause, we hope that we can speed up the 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. So we hope we can save some time that has been lost this course. But normally, again, as it's planned, it's a one we we have calculated in one year follow-up. And then then, obviously, it takes some time. In US, we have a quicker approach with with the breakthrough designation, but we have to foresee at least the six months regulatory period. So then it's come down to when can we start and how long how long would it take to include patients. And we hope that we can reduce that time. We thought originally about one year. Maybe we can shorten that, with some months. But, I mean, again, it depends on when when the study can start. And and, obviously, we don't know if all centers will start at the same time or some centers will start earlier than others. So it's really very hard to say, but I think once we've started the trial, after at least, I mean, at least two years is is what we can expect from once we start the trial. Then then again, when can we start? How long would it take to all centrifuges can start? It's very hard to say today, today, obviously. There are currently no further questions registered. I'll hand the conference call back to you, speakers. Thank you. So in short summary again, I think during this COVID nineteen situation, XPOVIO perfusion is 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, and and we hope that this period and 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 to hope all hope, keep safe, and, hope this will be better next time we we talk. Thank you very much. Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.