Ladies and gentlemen, welcome to the XVIVO Perfusion third quarter 2019 report webcast. Today, I am pleased to present Magnus Nilsson, CEO, and Christoffer Rosenblad, CFO. I will now hand you over to Magnus Nilsson. Sir, please go ahead.
Thank you, welcome to the 28th quarterly report of an independent XVIVO Perfusion. This is, as we said, the interim report for the third quarter. Next slide, please. The highlights. It's been an important quarter for us, and I'll try to put you into the picture. Q3, first time rolling 12 months non-durable sales over SEK 200 million. We have received a patent approval for the PERFADEX Plus. We have started a very interesting collaboration to develop fast diagnostic tests using biomarkers to be used in EVLP and similar. Repeating for the full year, the most important highlights is, of course, the PMA for XPS and STEEN Solution, the patents for the heart preservation fluids, the positive results of the clinical safety studies in Lund on the heart device, and the deepened collaboration or cooperation with Lung Bioengineering. Next slide, please.
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. Also, Lung Bioengineering acquired their second XPS when they opened their new EVLP center. We have a continued stable gross margin during growth for the quarter and for the year. We can see for the year, continuous strong sales all over the year. Non-durable goods, 25% Q3. Warm non-durable growth is rolling on a 40% level year to year. We see also a continuation of the positive sales trend for cold preservation, which is an indication that the global market for transplantation is growing also outside the two main markets. Next slide, please. Some more numbers here. The profit and loss statement to be highlighted is, of course, the net sales. The stable gross margin of non-durable goods.
That's the important gross margin, of course. We are running on a pretty similar level on the selling expenses. We built up continuously our sales force, which is more of a customer support. That is technical advisors being out on the clinics, helping them to perform EVLP. We can also see that we are a little bit higher R&D. Same thing here. We develop our clinical teams, since we are in a situation where we start up a number of clinical studies. That we still, during all this intensive investment in R&D and build-up of organizations, still can keep a very good profit level counted on the EBIT level. There is one item affecting comparison, and that is, of course, as 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. We are in an intensive phase of the company where we strengthen ourselves in hiring new competencies and capacities, such as our first transplant surgeon and other clinical trial experts. The build-up of the heart and PrimECC® teams that will run the multi-center studies over the world. We're also extending the team supporting the lung EVLP market development. Next slide, please. 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 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 heart transplant clinic in China, one of the major hospitals in Beijing. This clinic makes over 100 transplants last year. You can see they are increasing very rapidly, and they're just being trained. Actually, these days, just yesterday, I got report that the first training practice run was performed in Beijing. This continues to be one of the more exciting markets where we'll focus on in the future. Another thing, the important product for us, obviously, is PERFADEX. As you know, we have an upgraded, ready-to-use product which is more convenient and safe for the patients. They don't have to mix at site. It's now been patented in Europe, which is very encouraging. We have submitted patent applications in all major important markets.
Next slide, please. Number 8. XVIVO and MyCartis collaboration. MyCartis is a company specialized in developing fast analysis tools and assays. We are now part in a collaboration where they will help us on developing these assays, which can be used and generate results within 20 minutes at bedside, so to speak, on EVLP. Which is thought to be very important in assessing and identifying how good lungs and other organs are after ex vivo perfusion. These biomarkers and this fast evaluation of biomarkers has the potential to increase the number of EVLP, and also increase the, obviously, the chances of positive outcomes for the patients. Next slide. We continue to cooperate with Lung Bioengineering, as said. Not only with Lung Bioengineering, actually, with other entities in United Therapeutics.
They have opened now their second EVLP center in Jacksonville, Florida, in addition to their center in Maryland. We collaborate both. We're helping them to set up using the XPS EVLP process, and also are cooperating in marketing of these services on centers, so that the centers can choose to either use EVLP if they have an EVLP system themselves, or if they want to use these services, which uses our products, but at the United Therapeutics or by Lung Bioengineering sites. We also have started collaborating with them in their research on the xenotransplantation. Next slide, please. This part is about the R&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 lungs into other organs. The investment in future EVLP growth.
This is about developing the EVLP or the lung indication to use it more in order to get more organs available to the patients. 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, so for DCD lungs, and also for anti-infection therapy. We see now one of the results of that support is the recent publication on virus, hepatitis C reduction during EVLP. We also developed further the EVLP protocol, the ventilation strategy, organ pruning, which is turning it to get perfusion all sides, et cetera. 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. If you look at employing this technology on new organs, we have, of course, our number 1 priority, the heart transplant project. Which is about optimizing preservation to prolong the time outside the body, since we know that a heart is very demanding in the sense that it can only survive four to five hours outside the body today. We have the aim to keep the organ in better shape during the process, and therefore both be 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 2 priority is the PrimECC®. It's about an optimized solution.
It's based on our knowledge and technology around PERFADEX and STEEN Solution to have an optimized priming solution to reduce the known side effects. As a third priority and a lower priority, but still very interesting, is to see how we can employ the STEEN Solution technology on the liver and kidney transplants. We have been supporting that for a time, where in clinical studies, STEEN 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 the perfusion of the isolated organs and tissues. Next slide, please. Again, the heart transplantation, it's a heart perfusion and preservation solution and device developed by Professor Steen originally.
That first device prototype has been used in a number of preclinical trials, where he's showed that this non-oxygenated time, called NIHP, results in a better organ quality. 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 is shown up to 24 hours in pigs in publications and even longer. It's also being used in xenotransplantation from pig to monkey. Using that device, they were able to increase the survival up to six months, which has never been done before. That was published in "Nature" in December of last year. 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. We've been working very hard now with a number of activities, especially the clinical team built up, ramp up of machine, disposable and solution production. We see a huge interest worldwide in the clinical participation in the clinical trials, both in Europe, U.S., and Australia. Preparations for all these three are ongoing. In Europe, obviously first. We have several authorities that have cleared this, but we are looking to have all regulatory authorities, all centers clearing the protocol before we start the inclusion.
This moves on very well. Of course, the important is not the first patient in, the important is the last patient out. 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. PrimECC. PrimECC 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. That means that about a liter and a half of blood of the patient comes into the circuit of the heart-lung machine, and the one and a half liter of the priming solution goes into the patient. Of the solution used today, there is a number of known side effects of the solutions used today.
About 600,000-700,000 of these operations are done worldwide each year. The whole idea now is that the PrimECC has been developed to alleviate these side effects. That's the whole idea of this project. We have done quite a bit so far. Next slide, please. 16. It's a patent in all major markets. It's CE marked. We have done a clinical study of 40/40 patients, which show that PrimECC is safe to use. It also showed that we can improve fluid balance, reduction side effects using the heart-lung machines primed with PrimECC. What we do right now is to scale up both the production. We had to change the bag for regulatory reasons to an eco-friendly bag. We've done all that validation of production.
We have submitted 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, PrimECC®, which will run then the clinical trial and the regulatory implications. 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. We look forward. We continue to focus on the thoracic transplantation as primary focus. It's lungs, obviously, further to support the EVLP technology and clinical practice of using it. The heart preparation for multi-center sites in all major markets, that's U.S., Europe, and Australia.
Also in PrimECC, 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, we feel it's very interesting to see how we can use the technology and the experience further into abdominal organs like liver and kidney. We have been supporting with good results clinical trials using STEEN Solution in these organs, we further investigate how to employ the technology further and see how we can create value of what we've done in lungs and in hearts to these important and interesting indications. The long-term goals solidify the position in thoracic surgery, and then build new business using the STEEN Solution technology in liver and kidney. That's the long-term goal. We are open for questions, please.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. You can also submit your question in the Q&A box on the webcast screen. Our first question comes to the line of Daniel Albin from Danske Bank. Please go ahead. Your line is now open.
Thank you. Can you hear me, guys?
Yes.
Yeah. Good. Okay, I have a couple of questions. My first question is maybe a bit more of a technicality, but looking at the sales of cold 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 the 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 transplantation 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 we're seeing 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 long-term trend of 6%-7%. It's too early to say.
Okay. Yeah, thank you. My second question then. 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 NMPA nowadays regarding your products and then PERFADEX and also the EVLP solution. What are the lead times, the required clinical studies you're obligated to do, et cetera?
Normally, traditionally, or historically, it takes about 2 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. The things missing so far is the XPS. However, it's okay to use the XPS as an exception still since lung transplantation is very young there. They allow them to use them anyways. We should be in a rather late stage of having the XPS approved. Obviously hard to say, but I would imagine that within the next 6 to 9 months, we should have a registration of XPS in China. We have PERFADEX SP4 registered.
Okay. How do you view the ramp-up of EVLP procedures in China?
Yeah. It's obviously early stage-
Yeah
Again, we see how quickly it grows. What they have problems with in China is that they are not used to good ways of taking care of the donors. 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.
they have said that to us that for that reason, they think EVLPs are very important for them in order to check if the organs are okay, since again, the variation, I should say.
Yeah
of the organ quality is pretty large.
they believe that EVLP will be an important addition to their clinical practice. Although we have to say that this is, again, lung transplantation is very new.
This technology is for them totally new. On the other hand, I have experience from taking other products to China.
They always want to start with the most advanced. They never go for the simple solution.
Yeah.
From my time in Vitrolife, I know that once the Chinese start up, they want to go for the cutting-edge technology, and I think that's why they have been so interested in taking on this EVLP. We will probably have to wait a little bit longer, probably maybe a year or so, until we see a significant increase in EVLPs there. I have no doubts that China will be in a very important market for us just in the next two to three years.
Okay. Yeah. Great. Thank you. That was all for me.
Thank you. Just as a reminder, if you would like to ask a question, please press 01 on your telephone keypad now. Our next question comes to the line of Arvid Nicander from Redeye. Please go ahead. Your line is now open.
Okay. Thank you for taking my question. My first question relates to the collaboration with United Therapeutics. 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?
Yeah, it's a tough question because I try to predict what other people do. 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 transplants available. I know the CEO is very dedicated in advancing this technology in order to get more patients transplanted. I can only judge from what I see in terms of how much resources they put in and what kind of big focus they have. I'm convinced that over the years, they will increase significantly the number of, or percentage of EVLPs done by their service compared to the overall number. For us, it's very good because I think that a lot of clinics are not big enough to employ this technology by themselves.
I foresee more or less that in the next year or so, we will see a pretty rapid increase in this service. I would be surprised otherwise. We have already been starting co-marketing with them, helping, traveling with them to clinics and to explain the difference and the similarities for the clinics using this service versus using our technology. I can just say that they're very determined and put a lot of resources into it, which I think is very encouraging.
Okay. Yeah, thank you for that answer. Also, if you could just address the recruitments you've made a bit more. How do you see the headcount increasing going forward? Should we expect to see the same trend, or do you see a bit of a slowdown now going forward?
Yeah. What we've done, we can say that we have kind of a pretty steady growth when it comes to marketing. It's no explosion there. It's add on every now and then in more or less parallel with the sales increase. What we've done is to build our development team. To run these huge clinical trials for us, several, 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 PrimECC thing. 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.
Okay
next couple of quarters where we complete the kind of recruitment of these clinical teams. After that, I see going back to a more gradual growth in terms, in parallel more or less how we place up new machines and so forth.
Okay. Yeah. Right. Thanks for that. Just a last question, I guess, that popped up related to the subject that you talked about before related to China. How do you see the reimbursement path? 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. Apparently, there is still the rapid expansion increase. It's a huge population, 1.3 billion people. 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. I think it's not a problem. It will not limit, so to speak, the increase for the next number of years. In the long run, obviously, some kind of reimbursement probably be necessary, but not for the next 5-10 years. I think that will be a limiting factor.
Right. Okay. Yeah. If we'd assume that it would be a purely private payer product for the first couple of years after-
Yeah
launch, do you still see a-
Yeah
a significant market opportunity then?
Oh, yeah. Yes.
Okay.
That's what they currently said.
All right.
Yeah. They don't see a problem there.
Okay. Right. Thanks for that input. Yeah, that was everything for me. Thanks, guys.
Thank you. Our next question is a follow-up from Daniel Albin from Danske Bank. Please go ahead. Your line is now open.
Yeah, thank you. Just a follow-up on the collaboration on Lung Bioengineering. This may be a bit more of a futuristic question, but you are mentioning the xenotransplantation, and I'm just curious to hear your future for this. Basically, is this the killing of your business model since you don't need to harvest or use marginal lungs anymore because you can grow them in pigs? 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. You do need the logistics of doing this. You do need to use the technology. 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 and have the monkeys to survive in a longer than a few days. 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 think that the first transplant will happen in the next couple of years, which surprised me. We'll have to see. I think that's when I talk to people on the field generally, and I think that this might happen already in two to three years.
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. Yeah. Well, thank you. That was all.
Thank you. As there are no further questions from the phone lines, I will hand the word back to the speakers for questions from the web. Please go ahead.
Christoffer, can you read out the question, please?
Sure. The first question comes from Peter [Stenström], and it reads out, "Can you please comment on the patent situation for STEEN Solution?
For STEEN Solution, patent is expiring late 2021 and then 2022, most of it in 2022. What we're looking at right now is we see STEEN Solution as the second generation of solution, so to speak, and that we are developing a third. That was the heart solution. We see how we can employ that technology also to lungs. That is an ongoing research that we have to further improve the STEEN Solution after 2021.
Okay, thank you. We have a second question from Johan [Bill], and it is, "What is the biggest inhibitive 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 60, 65 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. I think the number of XPS is to be placed out, has that limitation, how many clinics there are. Again, in China, we know also interest from India and other huge potential markets further on, that we think that in a few years those countries will open up also for using XPS. I think in Europe, U.S., there is a finite number more that we can place. We have 50 out there now, lung perfusion machines.
We will see probably maybe another 50 in these countries, maybe, at the most. I think the 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. I will hand back to the moderator.
Yeah, there are no questions from the phone lines either. 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 where we're strengthening the company for the great challenges ahead of us in terms of clinical trials. 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.