Earnings Call: Q3 2019

Oct 24, 2019

Ladies and gentlemen, welcome to the Exvivo Perfusion Third Quarter twenty nineteen Report Webcast. Today, I am pleased to present Magnus Nielsen, CEO and Christoph Rosenblatt, CFO. I will now hand you over to Magnus Nielsen. Sir, please go ahead. Thank you, and welcome to the twenty eighth quarterly report of the independent Klivo Perfusion. And this is, as we said, the interim report for the third quarter. Next slide, please. So the highlights. It's been an important quarter for us, and I'll try to put you into the picture. Q3, first time rolling twelve months nondurable sales over two hundred million dollars We have received a patent approval for the Perfect Plus. And we have started a very interesting collaboration to develop fast diagnostic tests using biomarkers at to be used in EVLP and similar. And repeating for the full year, the most important highlights is, of course, the PMA for XPS and SEA solution, the patents for the heart preservation fluids, the positive results of the clinical safety study in Lund on the heart device and the deepening deepened collaboration or cooperation with Lund Bioengineering. So next slide, please. So the sales highlights for the quarter was that we sold the second XPS to China, which is a really interesting market, come back to that. We also launched Bioengineering acquired their second XPS when they opened their new EVLP center. And we have continued stable gross margin during growth for the quarter and for the year. We can see for the year continued strong sales all over the year. Non durable goods, 25% Q3. Warm nondruble growth rolling is rolling on a 40% level year to year. And we see also a continuation of the positive sales trend for coal preservation, which is an indication that the global market for transplantation is growing also outside the two main markets. Next slide, please. So some more numbers here. The profit and loss statement to be highlighted is, of course, the net sales, but then the again, the stable gross margin of non ruble goods. That's the important gross margin, of course. And we are running on a level pretty similar level on the selling expenses. We've built up continuously our sales force, which is more of a customer support. That is technical advisers being out on the clinics, helping them to perform EVLP. We can also see that we are a little bit higher R and D. Same thing here. We've developed our clinical teams since we are in a situation where we start up a number of clinical studies. And then that we're still doing all this intensive investment in R and D and buildup of organization still can keep a very good profit level counted on the EBITDA level. There is one item affecting comparison, and that is, of course, as I said before, that we have a mirrored bonus program for the employees outside Sweden, which is based on the share price, mirroring the Swedish warrant program. Next slide, please. So we are in an intensive phase of the company where we strengthen ourselves in hiring new competencies and capacities, such as our first transplant surgeons and other clinical trial experts. So the buildup of the heart and Primaec teams that will run the multicenter studies over the world. And we're also extending supporting the lung, EVLP market development. Next slide, please. So a few words about the Chinese transplant market. It is a very fast growing market, a lot of activities. I think more than 10 new centers have been certified to do transplants in China. It's growing from a relatively low level, but with a very high speed and has been about a 50% increase during the last years and we something like that probably this year as well. Therefore, it's very encouraging that we now have placed our second or sold our second EVLP in China to the second largest cost transplant clinic in China, the one of the major hospitals in Beijing. And this clinic makes about 100 over 100 transplants last year. And you can see, CT, they are increasing very rapidly. And they're just being trained actually these days. Just yesterday, I got a report that the training was the first training practice run was performed in Bay. So this continues to be one of the more exciting markets where we focus on we'll focus on the future. Then another thing, the important product for us, obviously, is PerfectX. And as you know, we have upgraded ready to use product that which is more convenient and safe for the patients, so they don't have to mix at site. It's now been patented in Europe, which is very encouraging. And we have submitted patent applications in all major important markets. Next slide, please, number eight. Ex vivo and McArtis collaboration. MacArthur's is a company specialized in developing fast analysis tools and assays. So we will we are now part in collaboration where we will they will help us on developing these assays, which can be used and generate results within twenty minutes at bedside, so to speak, on the EDLP, which is thought to be very important in assessing and identifying, how good lungs and other organs are after ex vivo perfusion. So these biomarkers and this fast evaluation of biomarkers has the potential to increase the number of EBRP and also increase, obviously, the chances of positive outcomes for the patients. Next slide. We continue to cooperate with Lung Bioengineering, as said, and not only with Bioengineering, with another entities in United Therapeutics. So they have opened now their second EVLP center in Jacksonville, Florida, in addition to their center in Maryland. And we collaborate both. We're helping them to set up using the marketing of these services on centers so that the centers can choose to either use EDLP if they have an EDLP system themselves or if they want to use these services, which uses our products but at therapeutics or lung engineering sites. We also have started collaborating with them in their research on the c node transplantation. Next slide, please. So this part is about the R and D pipeline, which we drive with high speed and a lot of focus to ensure future growth and to employ the technology and the experience we've had with long lungs into other organs. So the investment in future EVP growth. So this is about developing the EDLP or the lung indication to use it more in order to get more organs available to the patients. So we developed the XPS technology with new sensors and we also then again want to develop markers to be used in conjunction with the running of the XPS. We're also looking at the clinical development in expanded use of donation after circulatory death, that is the for DCD lungs, and also for anti infection therapy. We can we see now one of the results of that support is the recent publication on virus hepatitis C reduction during EDLP. And we also developed further the EDLP protocol. So the ventilation strategy, organ pruning, which is to turning it to get perfusion all sides, etcetera. So a lot of development going on in order to make the EVLP even better in determining which organs that can be used. We also investigate the immunological response during EVLP, targeting both short term organ function and long term survival. Next slide. So if you look at deploying this technology on new organs, we have of course our number one priority, the heart transplant project, which is about optimizing preservation to prolong the time outside the body. Since we know that heart is very demanding in the sense that it can only survive four to five hours outside the body today. And we have the aim to keep the organ in better shape during the process and therefore both being able to use older donors and also to extend the time outside the body to be able to use organs from further away than today. The number two priority is the PRIMEC. It's about an optimized solution. So it's based on our knowledge and technology around Perfodex and Steen Solution to have an optimized primary solution to reduce the known side effects. And as a third priority and a lower priority, but still very interesting is to see how we can employ the Skin Solution technology on the liver and kidney transplants. We have been supporting that for a time, where in clinical studies, thin solution with some additives has been used both in liver and in kidneys today clinically. The fourth priority, which is a relatively low priority, but may be interesting in the longer term future, is perfusion of the isolated organs and tissues. Next slide, please. So, again, the heart transplantation, it's a heart perfusion and preservation solution and device developed by Professor Steen originally. And that first device prototype has been used in a number of preclinical trials, where he has shown that this non oxygenated time called NIHP results in a better organ quality. So the idea is to keep the organ resting but perfused with this new solution in a low temperature reducing the metabolism, which then facilitates a longer preservation time. And it's shown up to twenty four hours in pigs in publications and even longer. It's also being used in xenotransplantation from pig to monkey. And using that device, they were able to increase the survival, up to six months. It was never been done before. That was published in Nature in December of last year. And after that, the technology has been employed in Lund University Hospital in a safety clinical trial. The first six patients were evaluated after six months and partly publicized, where they said that the heart could be safely preserved with this NIHP technology, resulting in successful transplantations and a reduced risk of ischemic induced reperfusion injury. More patients have been included with this, and the study is ongoing in parallel to all other activities. Next slide, please, 14. So we've been working very hard now with a number of activities, especially the clinical team buildup, ramp up of machine, disposable and solution production. And we see a huge interest worldwide in the clinical participation in the clinical trials, both in Europe, U. S. And Australia. And on preparations for all these three are ongoing. And Europe, obviously, first. We have several authorities that have cleared this, but we will we're looking to have all centers all regulatory authorities, all centers clearing the protocol before we start inclusion. This moves on very well. And of course, the important is not the first patient in, the important is the last patient out. So that means that we need to have all the centers up and running. That's the most important, and that's what we're focusing on. Next slide, please. Primec. So Primec background, just for those who haven't heard it, priming solutions are used in all runs of heart lung machines, and they are primed before you start using them in the patient. And that means that about one point liter of blood of the patient comes into the circuit of the heart lung machine, and the 1.5 liter of the primary solution goes into the patient. That has of the solution used today. There's a number of known side effects of the solutions used today. About 600 to 700,000 of these operations are done worldwide each year. And the whole idea now is that the PRIMEC has been developed to alleviate these side effects. That's the whole idea of this project. And we have done quite a bit so far. Next slide, please, 16. So it's a patent in all major markets, CE marked. We have done a clinical study for 40 plus 40 patients, which showed that Primec is safe to use. It also showed that we can improve fluid balance, reduction of side effects using the heart lung machines primed with Primaec. So what we do right now is to scale up both the production, we had to change the bag for regulatory reasons to eco friendly bag. And we've done all that validation of production. We have submitted that all that technical file to the notified body, which are looking at that file. And as soon as they are done, we can then start up the clinical trial. We have meanwhile also built up a clinical and regulatory team around the product, which will run then the clinical trial and the regulatory implications. So the whole idea here is to make a few one or two studies to get more clinical documentation showing them and developing the effects of this in reducing the side effects. It's a high interest from the clinics to participate in these studies. Next slide, please. So we look forward. We continue to focus on the thoracic transplantation as primary focus. It's lungs, obviously, further to support the AVLP technology and clinical practice of using it. The heart preparation for multicenter cells in all major markets, that's U. S, Europe and Australia. And also in PRIMEC preparation for the multicenter study, waiting for the regulatory authorities go ahead. We are looking at the abdominal transplantation, a new indication. It's a secondary focus, but we feel it's very interesting to see how we can use the technology and the experience further into organs in abdominal organs like liver and kidney. And we have been supporting with good results in clinical trials using SynSolution in these organs. And we further investigate how to employ the technology further and see how we can create value of what we've done in lungs and then hearts to these important and interesting indications. So the long term goal solidify the position in thoracic surgery and then build new business using the institutional technology in liver and kidney. That's the long term goal. And we are open for questions, please. Thank you. Our first question comes from the line of Daniel Albin from Danske Bank. Please go ahead. Your line is now open. Thank you. Can you hear me guys? Yes. Yes, good. Okay. So I have a couple of questions. My first question is maybe a bit more of a technicality, but looking at the sales of coal preservation this quarter, seems to be a pretty good one. I'm just wondering if you could elaborate a bit more on the reasons behind this strength and how we should view the growth rates going forward. You're mentioning that the global market is growing. Is it growing more than the 6% last few years? Or how should we view this? I think it's mirroring a worldwide growth of lung transportation as such. I don't think we should pay too much attention to a single quarter. We will see in the long term trend if that will continue. We know that more we see more countries buying and clinics buying also in South America and so forth. But we don't really know if that will increase over the kind of long term trend of 6% to 7%. Too early to say. Yes. Thank you. My second question then. So you're mentioning China here growing very fast. And I'm wondering if you could give us maybe some bit more clarity on the regulatory pathway required by the FDA or the MPA nowadays regarding your products and then Perfodex and also the EvelP solution? What are the lead times, the required clinical studies you're obligated to do, etcetera? So normally, it's traditionally or historically, it takes about two years to get the product registered in China if you have the right documentation. We already have Steen Solution. We have several of the disposables already approved in China. We have what the thing's missing so far is the XPS. However, it's it's okay to use the XPS in in in as an exception still in in since since transplantation lung transplantation is is very young there. They allow them to use them anyways, but we are in the late rather late should be in the rather late stage of having the XPS approved. Obviously, hard to say, but we I would imagine that within the next six to nine months, we should have a registration of XPS in China. We have Perfect SP4 registered. Okay. And how do you view the, I guess, the ramp up of ELP procedures in China? It's early stage. But again, we see how quickly it it grows. What they have problems with in China is that that they are not used to to good ways of taking care of the donor. The donor management is rather, let me say, not too developed, which means that the lungs or the organs they receive vary in quality quite a bit. And therefore, they have said that to us that for that reason, they think EBLP is very important for them in order to check if the organs are okay since, again, the variation, I should say, of the organ quality is pretty large. So they believe that EVLP will be an important addition to their clinical practice. Although we have to say that this is, again, transplantation, lung transportation is very new, and obviously, this technology for them totally new. On the other hand, I have experience from other products taking other products to China, and and they always want to start with the most advanced. They never go for the simple solution. So so from my time in little life, I know that that once the Chinese start up, they want to go for the for the cutting edge technology. And I think that's why they have been so interested in taking on this ERP. But we will probably have to wait a little bit longer, a couple of maybe a year or so until we see a significant increase in the ERPs there. But I have no doubts that China will be in a very important market for us just in the next two to three years. Okay. Yes. Great. Thank you. That was all for me. Thank you. Our next question comes from the line of Arvind Nikander from Redeye. Please go ahead. Your line is now open. Okay. Thank you for taking my question. So my first question relates to the collaboration with United Therapeutics. So when we saw the delivery of the first machine, we saw quite a big uptick in the sales growth related to warm perfusion. How correlated was this? And do you expect to see a similar impact now that the second machine is delivered? Yes. It's tough question because I try to predict what other people do. But we know that they're very dedicated in providing this service to The U. S. Clinics. They are very dedicated. They put a lot of money into having the service in order to have more transplant available. I know the CEO dedicated in advancing this technology in order to get more patients transplanted. So I can only judge from what I see in terms of how many how much resources they put in and what kind of big focus they have. So I'm convinced that over the years they increase significantly the number of or percentage of EVLPs done by their service compared to the overall number. And for us it's very good because I think that a lot of clinics are not big enough to can employ this technology by themselves. And I foresee more or less that in the next year or so, we'll see a pretty rapid increase in this service. I wouldn't be surprised otherwise. We have already been starting co marketing with them, helping or going traveling with them to clinics and to explain, you know, the difference and the and the similarities for the clinics using this service versus using our technology. So as I I I can just say that they're they're very determined and put a lot of resources into it, which I think is very encouraging. Okay. Thank you for that answer. And also if you could just address the recruitments you've made a bit more. How do you see the headcount increasing going forward? Are we should we expect to see the same trend? Or do you see a bit of a slowdown now going forward? Yes. So what we've done we can say that we have kind of a pretty steady growth when it comes to marketing. There's no explosion there. It's an add on every now and then when we more or less parallel with the sales increase. What we've done is to build our development team. So to run these huge clinical trials for us, I mean, heart will be on all continents. We had to build more competence in teams in the heart transplantation field and also to some extent on the Primaq thing. So this will continue for some quarters more to complete the buildup of those clinical teams. After that, I foresee that we go back to a more gradual increase again. So next couple of quarters where we complete the kind of recruitment of these clinical teams. After that, I see more going back to a more gradual growth in terms in parallel more or less how we place up new machines and so forth. Okay. Yes. Right. Thanks. Then just a last question, I guess, that popped out up related to the subject that you talked about before, related to China. How do you see the reimbursement pass? Of course, very hard to speculate, but what's your sense? And do you have any take on that going forward? No. As you say, it's very hard to predict what they will do, really. But apparently, there's still the rapid expansion increase, I mean, it's a huge population, 1,300,000,000 people. So even if it's not something for everybody, I think there is enough market space, so to speak, to increase for many more years going forward. So I think it's not a problem. And you will not limit, so to speak, the increase for the next number of years. But in the long run, obviously, some kind of reimbursement probably be necessary, but not for the next five to ten years. I think that will be a limiting factor. Right. Okay. Yes. So if we'd assume that there would be a purely private payer product for the first couple of years after launch, do you still see a significant market opportunity then? Yes. Yes. That's what they clearly They don't see a problem there. Thank you. And our next question is a follow-up from Daniel Albin from Danske Bank. Please go ahead. Your line is now open. Yes, thank you. Just a follow-up on the collaboration on lung bioengineering and this may be a bit more of a futuristic question, but you are mentioning the Xeno transplantation and I'm just curious hear your future for this because basically, is this the killing of your business model since you don't need to harvest or use marginalized lungs anymore because you can grow them in pigs? Or how should we view that technology going forward, you think? No, I don't think it's vice versa. I think it's actually a great business opportunity because you do need the logistics of doing this. You do need to use the technology in order to we've seen that in the heart field where they've used heart transplantation. It was not possible to do. They could not make it work without this technology. So, and have the monkeys to survive a longer than a few days. So this was absolutely necessary. I think it's a fantastic long term opportunity. It will take some time. Even though I'm surprised when I hear from them that they they think that the first transfer will happen in in the next couple of years, which surprised me, but we'll have to see. But I think the the that that's when I talk to people on the field generally, And I think that this might happen already in two to three years. But I think for us, it's a great business opportunity because it will be in addition to the transplants made today. It will not, so to speak, compete out the present market. It will be an addition to the market. Okay. You. That was all. And as there are no further questions from the phone lines, I will hand the word back to the speakers for questions from the web. Go ahead. Gustafy, can you read up the first question comes from Peter Steenstrom, and it reads out, can you please comment on the patent situation for Steam Solution? Well, Steam Solution patent is expiring late twenty twenty one and then 2022, most of it in 2022. What we're looking at right now is we see Synsolution as the kind of the second generation of solutions, so to speak, and that we are developing a third. That was the hard solution. And we see how we can employ that type of that technology also to Lux. So that is an ongoing research that we have to further improve the Steam Solution after 2021. Okay. Thank you. And then we have a second question from Johan Beale, and it is what is the biggest exclamation mark, inhibitor factor for XPS sales? XPS sales, we have a certain market saturation. There are about, roughly speaking, 200 transplant clinics in the world lung transplant clinics in the world, about sixty percent, sixty five percent in U. S. And about the same number, a little bit more maybe in Europe. Of them, about maybe 50% or so or maybe a little bit more would be big enough to run an EVLP program. So I think the number of XPS is to be placed out has more has that limitation, how many clinics there are. Then again, in China, we know also interest from India and other huge potential markets further on. But we think that in a few years, those countries will open up also for using XPS. So I think in Europe, U. S, there is a beneath number more that we can place. We have 50 out there now long perfusion machines. So we will see probably maybe another 50 in these countries maybe at the most. But then I think the further development further number of XPSs or machines will happen in China and India and those places. Next question? Okay. There are no more questions on the web right now. So I will hand back to the moderator. Yes. There are no questions from the phone lines either. So I will hand back to you for closing comments. Yes. Thank you for listening to us. We feel that this has been a very important quarter with a lot of things happening and while we're strengthening the company for the great challenges ahead of us in terms of clinical trials. And we look forward to have you on board and listen to us after the full year report in January. Thank you very much, and goodbye. This now concludes today's call. Thank you all for attending. You may now disconnect your lines.