Earnings Call: Q2 2019

Jul 12, 2019

Ladies and gentlemen, welcome to Xviro Perfusion Report Webcast. I will now hand over to Magnus Nielsen, CEO. Please go ahead. Thank you, and welcome to this interim report, January to June 2019. I'm Magnus Nusson, the CEO. And on my side here, I have Christoph Rosenblatt, the CFO as well. So let's start Page number two, please. So the highlights this year, this half year I should say, last quarter has been a lot of things happening, positive things happening. We have got the PMA, which was the for the XPS and spleen solution in The United States. We got patents approved for the heart preservation solution both in The U. S. And Europe. We have had we could see or note positive results from the clinical safety study with the heart device at Lund University Hospital in six patients with good results, presented at the International Society for Heart and Lung Transmutation. We got approval from the Swedish MPA to start the clinical study for heart preservation products. And we have by by showing the device for invited leading heart transplant surgeons. We've got a very good reception and we have was very a lot of interest to be part of the clinical multicenter trial that we are planning. And then we had changed, as you know, the Primaec production bag and that has now been first validation batches we produced. So we're now putting together the file for to get clearance to start clinical trial hopefully later this fall. Slide number three. The sales highlights. We continue to have a strong non durable goods sales, As you can note on the graph, we have non durable rolling twelve months on 47% year on year percent on year on year. We can continue to see a positive sales trend for the coal preservation. And we had another country now, Canada, with XPS sales in Q2. Slide number four, please. Look at the profit and loss statement. There's a few things to note, think. Important things is to see that the gross margin is still on a high level, comfortable level. You can see that we have a continued customer buildup on the selling expense, still on the about the same level. And we have in the R and D the clinical and product development build up. To be noted is that we have a share based bonus program to the employees outside Sweden which is mirroring the Swedish warrant program. So it's synthetic type of bonus program for the non Swedish employees and that is then affecting comparability in the way that those programs follow the very good share price obviously. So when we look at this, we should note that this is million on the cost side affecting the share by the share price of Rice. So we can see that the EBITDA profit level is still very strong for this company, I think. And I think important to note that extra cost for the program. Let's move on to page number five. We can obviously, it was a great moment for the company history that we received the PMA. It was the first company to receive PMA for marginal lungs or warm perfusion for marginal lungs. It was a long effort obviously for about ten years. First we got the HD and now the PMA in a large cohort of patients in The United States. And we can see similar, despite the fact that these were lungs that were discarded, we could see comparative to all statistical statistics that these lung were came out as good as or similar as the regular lungs. And we can also note in the study that the much increased use of DCD lungs in this study. So DCD is the donation of the circle for death. So in all, this means that more lungs can be used in transplants which will obviously benefit the patients on the waiting list for new lungs. Next slide, number six. The PMA approval simplifies then the reimbursement process for The U. S. Clinics. And we also remove all the other restrictions, jobs of ethical committee, necessary ethical committee, clearances and so on. All that goes away with the P and A. And we still continue to develop our collaboration with United Therapeutics called Lung Bioengineering. Let's move on to Slide number eight to talk about the future growth program that we have in terms of development projects. So in the lungs we continue to develop the EVLP. I think we have the most versatile system in the market with more online sensors. We have online weight sensor. We have before pH sensor, oxygen sensor. We're adding in this fall, we're gonna add c o two sensor and a little bit down the line, glucose and lactate sensors. All that to to build a more detailed picture of the lung, so to speak, for the doctor when he takes the decision to transplant or not. We'll also develop it to make it more easier to set up, easy to run, which means that doctors don't need to be involved so much in the setup of the system or in the running of the system. And they can be remotely looking at the data, which makes it obviously much more easy for the doctor to use the EVLP in the selection of lungs that's good enough for transplantation. Also support studies, clinical studies to look using the EDLP to receive the possibility of treating lungs for infections or could be virus infection, bacterial infections. We developed the EVLP protocol to make it more accurate or more detailed. Obviously, this is a long development process. When the science develops, we need obviously to apply that to the VDP system. So the good thing with the XPS is that it's very versatile, can be changed, the protocol can be changed, a lot things can easily be monitored in the system compared to other systems on the market. We also investigate the immunological response to EVLP by that targeting not only the short term but also long term survival. Next slide, number nine, please. So this is just the overview. We have the R and D pipeline and we have the priority one which is obviously the heart transplant project, which is a project where we optimize preservation to prolong the time outside the body and also keep the heart in a better condition during time short or long. Priority two is to document the Primek, which is an optimized priming solution to reduce all the known, very well known side effects with the running a hot lung machine. And then a secondary priority is the Steen Solution for liver and kidney transplant. We still support that. Some development, more livers have been and kidneys have been transplanted after being evaluated with STEAM Solution. And that's a priority for more long term is to see how we can use this technology for other purposes, for instance drug administration. Okay, let's talk a little bit more in detail about these projects. Slide number 10, please. It's about a couple of slides on the heart transplant project, which is our most prioritized project where we have enormous potential and where the preclinical proof of concept studies indicated never seen before maintenance of quality of organs. So it was proved in studies on pigs where we can show no non oxygenation time leading to longer possible preservation times up to twenty four hours in pigs. And it's been trialed in, transplantations from pig to monkey and monkey survived for six months, was never seen before using this device during the transportation. And now we also have the first clinical data from the study using Professor Steen's technology at Lund University Hospital on six patients They presented at the Annual Heart and Lung Transplantation Congress, World Congress, where it was shown that the hearts could be kept in this device for four or five hours in patients up to 65 years old with very good results. And it looks like it's reduced risk for ischemic reperfusion injury. So all this very promising data for us when we now plan to start the multicenter trial. Next slide please, number 11. So accomplishments so far this year. Patents for heart preservation solution, important obviously, improved both in U. S. And Europe. All the testing of the new clinical trial model of the device and the solution and testing successfully. We've shown the machine for the opinion leading heart transplant surgeons both from Europe, U. S. And Australia with very good reception and we have a great interest to be part of the clinical development of this device. So next steps now. Oh, we should say we also will receive regulatory approval from the Swedish MPA. So the Lund Clinic will be the first to start this trial study. We're still waiting for ethical committee. Otherwise, we're very close to being able to start this trial, although there is summer. The next step will be for us to ramp up the production of the machines, disposables and the solution in preparation of this to get all the centers started in the multicenter trial in Europe. It's eight center plants in the big all the big markets in Europe, United Kingdom, Germany, France, Spain, Italy, Belgium. And we also have starting the preparation and planning for multicenter studies in The United States the biggest centers in The United States already, and then in Australia. So very exciting times in the heart transplant project. Next slide please, number 12. This is about PrimeT. So the background is about 600,000 times a heart lung machine is used for open heart surgery all over the world. And it's known that with this comes a number of side effects and some pretty severe. So the solution was developed to avoid those side effects because the reason for this is when you prime this machine, the hot lung machine, about a liter and a half of that priming solution goes into the patient because one and a half liter of blood needs to go out of the patient's into the machine. So that creates problems because there are no, today, no marketed product or approved product for this purpose. And Exvivo has done a patented CMR product, which we run a clinical study in fourteen forty patients that showed it was safe. We improved the fluid balance and reduced the side effects and now need to increase the number in a larger trial. So we have produced a new batch. We we needed by regulatory restrictions. We needed to change out the primary bag that the solution is in, And that has now been produced a new eco friendly bag with satisfying results. So now we're putting together a file that we will submit and have to have cleared before we can start then the multicenter trial where we intend them to increase the documentation of this product. And it's a high interest from clinics to be part of this trial. We hope that that could be started depending on regulatory approval, etcetera. We hope that could be started in Q4. Next slide, number 13. So we have these focus areas. The main focus area for us is thoracic transplantation and surgery. Lungs for the development of the EBLP. We see continued interest for our lung device and we see it being spread. We have one machine in China. We have seen increased interest from China and from other big countries outside the prime markets. So still continuing developing the lung indication. Then maximum priority for our heart preservation device in preparation for this multicenter studies that would be on all the major markets and in prime med preparation for the multicenter study in Europe. On the abdominal side, we continue to support clinical development of liver and kidney transplantation using STEAM solution technology. More than thirty patients have been transplanted with kidney sorry, with the liver and at least a handful of patients with kidneys using the steam solution technology. And we intend to look how we can apply our technology into the abdominal market. So the long term solidify the position in thoracic surgery and then building long term a new business using Steam Solution technology or similar in liver engine. That was the end of the talk and we are now open for questions. Our first question comes from Daniel Alban from Danske Bank. Please go ahead. Your line is now open. Yes. Thank you for taking my question. So I wonder if you could elaborate a bit more on the collaboration with United Therapeutics and where they are in terms of ramping up their operations currently. And also seeing that they are about to complete a new clinic in Florida, I wonder if if they are interested and committed in in buying your XPS machines and using the warm perfusion solution for that clinic as well. Okay. I I can't really speak for United Perfuges or Lung Engineering as their subsidiary is known as. Yes. They are, but I can say, yes, they are planning to open a second, EVLP center in Jacksonville, Florida at the Mayo Clinic there for sure, and we are having continued discussions and collaborations around the to develop EVLP technology for them. They're using the so called manual method. So they're using Steam Solution today. They're using some of our disposables, which was you know, this is kind of the old way of doing it with with so called manual system. And they have have then acquired one system, and we hope that they will they will acquire more of them. But this is some question you have to ask them. But I can say that it's a close collaboration with them and we were happy about that. They're still in the startup phase, would call it, and they're running a clinical trial with that to get the clearance from the FDA to to use this. But it looks good. I think it's very impressive. They have a very impressive setup. And the CEO, missus Rothblatt, I know has strong use to develop the availability of lungs using the EVP system. So, yeah, we look forward to continuing collaboration. But in detail, I'm not Yeah. I cannot really comment that. Okay. Yeah. Yeah. Yeah. Just a follow-up on on on that one. You're mentioning the clearance. Do you have any timeline for when ballpark, they are expected to receive some sort of clearance? No. I I cannot answer that question. But they they I mean, they are using all the patients in in in the in the old system in the clinical trials, but they can now, I think, accept also lung with the XPS. They're still in training phase, I think. But yes, we hope together with them that we can help them get started using, you know, also the more modern XPS system. Okay. And on the competitive front, we are seeing TransMedics or hearing and seeing more and more of them. Are you seeing them coming into clinics you have today competing with your XPS solution? No. We have not seen any any really entrance. You know, the the first, they got for normal lungs, but but it was not obviously, we haven't seen a spread in The United States at least and not in Europe what I know about at least. I think it's good that we have several products on the market. It's more easy to compare. So I'm welcoming that like you see, but it's a little bit they are not approved for evaluation. They're approved for transportation of lungs. So that's the difference. Okay. Thank you. And I have let me see. And the last question, I wonder if you could give some greater details on the growth in Born Perfusion excluding durable goods, I. E, the machines in the quarter and the growth rate. I think following both that we now see reimbursement codes and the PMA, shouldn't we see this to accelerate a bit? Obviously, that's what we're hoping for. We all but we're all humble in the way that we know it takes time. But we still have a great interest for from clinics, all over the world really for the XPS. We know it takes time for once the clinic has, got the technique to train and to put everything into their processes. So, yes, we've learned to be patient about it, but we can see that the centers that that have come furthest, along our way, I think, Toronto, obviously, is the biggest one, but also you go to Cleveland Clinic or or Pittsburgh, they use it for a lot. I mean, I can't an exact number right now, but probably in the order of ten to twenty percent of all the transplant and they are making over one hundred transplants in Cleveland, for instance. So we see that clinics are very skilled and have kind of used the technology for a while. They tend to increase But it seems to be a bit slow in the beginning, and then then once it takes off, it they they they do more and more. But, yes, it's a challenge, obviously, for us to help the clinic to get going. Okay. Yeah. Thank you. That was all for me. Thank you. And our next question comes from the line of Arvind Nikanda from Redeye. Please go ahead. Your line is open. Yes. Thank you for taking my question. I just wanted to follow-up a little bit on Chestnut's Medix and in light of the recent approval for expanded usage or expanded donor lungs. So in their final results of their EXPAND trial, the utilization rate is seemingly quite high and also the incidence of higher grade primary graft dysfunction. And of course, this is not a head to head trial and I know comparisons are difficult. And but I still wanted to get your take on how you view the data and the quality of the data and the trial design? Yes, I don't want to comment the quality of the data, but we can see that we've kind of target a little bit different populations. They have used the kind of old definition of marginal lungs which is lungs that has traveled more than I think six hours, which is very common today to use lungs that have been also blooded for eight, ten hours. So and they use the old definition of margin lung was over 60 or 65 years old, which is today not really considered marginal anymore. So I think the difference is that the population they're looking at using the kind of old definition of marginal is quite different from the ones that we've used, which is has been turned down lungs. So our lungs were turned down. They were not determined as marginal because of a certain criteria like age or travel time. So our lungs were actually turned down and then they were put, selected for transplantation which is totally different or if you just use a standard criteria where you say over 65, so it's marginal. So it's I think you have to be careful in comparing these studies. It's a total different population according to me. Sure. And of course, it's hard to comment on someone else's technology. But if you if the patient population would have been the same or the inclusion criteria the same, do you believe that the results would have been similar to what you're expecting in the final readout of the novel trial? Yes. I can't really have an opinion about that. But I know what we've done. We've taken turned down lungs. And, obviously, if you go out for lungs that are turned down, obviously, a lot of those will be too far gone, so to speak, that they're beyond salvation. I'm very, I mean, our, both the FDA and our, clinical trial doctors were very impressed by the technology that they can select out from this population lungs that were actually good use and then when we looked at them a year or two years later and compared to this huge statistical database where we selected exactly the same inclusion criteria and we can still see that those that were selected and used were as good as the other ones. So I think our tech may be very proud of it and I think the doctors that used it have a big confidence in this. That's just the thing I can comment. I can't really comment about their technology in this sense other than I think their study were different from ours in the sense they were not using, at least what I've seen, they're not using the same for the same population. And this was transportation. We are looking at evaluation. So taking a non approved lung that would turn down, bring it to the clinic, and then traditionally put it on this and evaluate if it's good enough or not. So I think that's the stuff there. I can't really comment there to the knowledge anymore. Right. Understandable. Thanks for providing some clarity on that. And then just a final question on I know that you guys are looking at the immunological response of possibly improving immunological response or a lack of response, so to say, when using EDLP. Do you see that as something being included as an endpoint in the hard trial to kind of make the differentiate the product, so to say? I think it's a little bit too early to say. I think we are in the early stage of this. So the HEART trial is we obviously take samples, planning to take samples so we can do this science behind it. But I think it's a little bit too early. But you say it's very interesting science. It's still in the early stages. I think in lungs we will probably start clinical trials doing more around this during the next coming, half year or maybe nine months. Studies in lungs will be started that would really look at the immunology on EVLP. For heart, I think it's a little bit early. Okay. Right. Yes. Thanks for that, guys. That was it for me. We have a follow-up question from Daniel Alban from Danske Bank. Please go ahead. Your line is now open. Yes. Thank you. So yes, some financial follow-up questions here. I'm just wondering that the investment rates in the novel study, that is completely done now after the Q2? Correct. Yes, just to give you the numbers. I mean the total capitalization on the PMA was 53,000,000. That is the amortization started then as of May as we got the approval in end of And that's why we have appreciated two months of those SEK 53,000,000 that will be depreciated over ten years. Okay. And coming back to the Harte project then, is the SEK 50,000,000 on a quarterly basis kind of the level we should expect going forward in terms of cash flow for the study? And secondly, wondering when can we expect the first sort of interim data from that study? The first part of the question, I can answer. I think we are right now ramping up both production applications for the clinical study. So I think if you yes, we could expect this in Q3 as well, probably in Q4. And then depending on how early we start also in United States, we could have this. But it's a bit elevated capitalization rate right now due to the ramp up. Does that answer the first part of the question? Magnus, you take the second part? Yes, sure. It's a little bit early to say, but I would expect first to second quarter next year. Yes. Thank you very much. That was all. Thank you. As there appear to be no further questions, I'll return the call. So we do have another follow-up question from Arvind Nikanda from Redeye. Please go ahead. Your line is now open. Right. Just a final question. I got kicked out there for some reason. But I just wanted to ask you about durable goods and deliveries during this quarter of where machines have been delivered, if you could specify that. Yes. Canada, United States and Canada was the new machine we talked about in this conference call, which is we're happy that it's the first one in Canada. Right. So one in Canada and then there was one in The United States. Is that correct? Yes, that's correct. Yes. Thank you for that. Thank you. And as there appear to be no further questions, I'll return the conference to you. Okay. Thank you very much. Appreciate the large number of people listening today. We're proud to hear that and looking forward to have you on board listen to the quarter three report. Thank you very much, and have a great summer. Thank you. This now concludes our presentation. Thank you for attending. You may now disconnect your lines.