Ladies and gentlemen, welcome to XVIVO Perfusion Q1 Report 2019. Today, I am pleased to present CEO Magnus Nilsson and CFO Christoffer Rosenblad. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Please go ahead with your meeting.
Thank you very much, and welcome to the XVIVO Perfusion Q1 Report. I'm Magnus Nilsson, and again, I have Christoffer Rosenblad on my side. You have to excuse me. I caught a cold on my way here the other day from the United States, so I hope you can hear my voice. Good. Let's go to slide number two. Highlights from Q1 2019. The endorsement process for EVLP approved in France. You see very encouraging results from the first six patients in the heart study with the heart preservation device. We've also presented at the annual ISHLT Congress with great interest. We also have presented a device for leading heart transplant surgeons worldwide, and it's shown a great interest in starting clinical trials with the machine.
We have a continued strong EBITDA of 18%, even though we have had high investments in research and capacity during the quarter. Let's go to slide three. The growth numbers. We are very proud to present that still we have a good growth, especially the warm non-durable growth, which is 52% in Swedish currency and 40% in local currency. And that's, of course, the most important. The Perafadex is growing also at a steady pace. But obviously, the part that's growing more is the 45% or so of the warm perfusion products. Next slide, number four, please. Here we have a profit and loss statement. The key things to look at here, I think, is the gross margin of non-durable goods. It's 77%. We can see that the selling expenses are stable, about 25%. Same with the admin expenses, and a little bit more put into research.
One definitely odd thing here affecting this is the stock option program. I mean, we are happy with the stock option growth of the share and the price of the share, but that results in a, excuse me, that we have to appreciate the possible payout at the end of the first quarter. And that's the 12% affecting the EBITDA. But without that, it's 18%, which we believe is a very good number. Let's move on to page number five. As I mentioned, we have now introduced the machine for potential customers, the heart preservation device, I should say, with potential customers at the big annual congress for heart and lung transplantation. We had two different workshops around lungs and around heart with great interest. The lung EVLP is still a lot of interest in the development, and it was excitement for the new heart technology.
Professor Steen was there presenting his groundbreaking research, and Professor Johan Nilsson presented the results from the first six heart transplants with the machine in the clinical trial in Lund, which had very encouraging results, which is the basis for us to go ahead with the planning of the multicenter trial that we hope can start soon. More about that a bit later. Slide number seven. To enable future growth within lung transplant, we continue to develop the EVLP procedure. We support clinical trials to use more of the organs, especially the non-heart-beating donors, the so-called DCD lungs. We also support trials with infected lungs that were presented at the ISHLT with very good results.
We also looked at EVLP protocol development and continued development of the XPS machine to enable more online parameters for better decision-making in order to facilitate better decisions made by the surgeons at the time of the EVLP, and we continue ourselves to research the possibility of affecting the immunological response during EVLP in order to maybe better the short-term organ function and the long-term survival, so the area is still creating a lot of interest, which we could note at the annual congress, but also in the number of questions we get and the interest from more and more clinics over the world for the EVLP. Next slide. If you look at the R&D pipeline, the priorities here, what we obviously prioritize first is the heart transplant project. Secondary is the priming solution, PrimECC. It's the third and fourth priority.
The third is the liver and kidney transplant, and fourth, the isolated organ, which is more a future, distant future thing, but very interesting. I'll come back to each of these. Next slide. This is number nine, so the heart transplant, a lot of progress in the project in the past three to six months. We've done a number of large animal studies now, and as before, Professor Steen showed that with the avoidance of non-ischemic time, you can get a much better organ quality. You can have a much longer preservation time. Also was shown in the Nature article, the pig-to- monkey transplant, which showed very good results with the machine.
As I said, the first safety part of the clinical study at Lund University Hospital on six patients showed that the heart could be safely preserved with this non-ischemic heart preservation method, resulting in six successful transplantations and avoiding this ischemia, which means non-oxygenation. Avoiding that reduced the risk for what's called reperfusion injury, which is when once the organ is put into the recipient, is to avoid the immediate reactions to the organ. We can see that this method had very good solid proof in preclinical with the large animals, and now we get the first results in humans, which is encouraging, and encouraging us to go ahead and plan the multicenter trial, which is very much on its way. Page number 10.
There has been, as I said, great interest from all over the world, from Australia, United States, and Europe, to use this device in trials. We're planning multicenter trials in all of these major markets. Now we are involved in ramping up production of the machine, the disposables, and the solution, and we are waiting regulatory approval to start the clinical trial in Europe. Next slide. Number 11. That's PrimECC, which is a little bit different from the other products in that it's a product that is used on several hundred thousand operations per year when using the heart-lung machine to open heart surgeries. Then the product is priming this heart-lung machine before it can be used, and that solution then comes into the body of the patient.
To avoid the very well-known side effects with these previous PrimECC solutions, this was constructed by Professor Steen on the basis of what he learned from the organ preservations. The product is patented in all major markets. It's CE marked already. We've done it 40 plus 40 patients in Gothenburg, showed it's safe to use, and it improves fluid balance and reduction side effects. We had to move production to fulfill the new regulatory demands on the bags that the solution is filled in. That is now coming to an end, the first production event with the full scale. It's planned to end up Q2, which means that we can go into more intensive preparation for the multicenter trial. There's a big interest in Europe to start this trial.
The difference here that we have a product is it's already CE marked, so we do this to get more clinical documentation in order to show the benefit of the product in this huge population of patients. Next slide, number 12. We're looking for the rest of the year. We can say we prioritize the thoracic transplantation surgery, which is our primary focus. Lungs, we continue to develop the EVLP technology. We continue to build and support clinics, new clinics that start up their EVLP, and also old clinics where we retrain crews. We go out and help them with problem-solving and retraining them for using the technology. In the heart, we prepare, as I said, for several multicenter studies first in Europe. We prepare, and we hope we can get the regulatory approval soon.
And with PrimECC, we prepare for a multicenter study again in Europe for increasing the clinical documentation. On the abdominal side, the organs, liver, and kidney, which is a secondary focus. We continue to support clinical development in liver transplantation and kidney transplantation with the Steen Solution technology, and so forth with good results. So the long-term goals, solidify the position as a leader in thoracic surgery. For us, it's lung transplantation, heart transplantation, and PrimECC, and build a new business, a new area of business, you can say, on the abdominal organs, using the same Steen Solution technology in these organs. Thank you. That was the presentation for today, and we are ready for questions.
Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. There will now be a brief pause while questions are being registered.
Our first question is from Daniel Albin from Danske Bank. Please go ahead. Your line is now open.
Yeah, thank you, Magnus. So I have a couple of questions, and the first one is really on the working capital during the quarter where you tie up some more capital, and you state that argument is durable goods. Just wondering if you are building on the back of demand, for example, the XPS. Could you give us more granularity on that?
Yeah. Hi, it's Christoffer speaking here. Yeah, that is correct. The durable goods are the XPS, so we are building up stock of the XPS in order to be able to meet the demand of the product.
Okay. So should we expect to see some further or some stronger sales of durable goods in the Q2 then?
I would say the interest for the XPS is quite constant. Then when it comes to closing the contracts, they could, like we saw in Q4, for example, we more or less depleted the stock end of Q4 when we had four delivered XPS. So I would like to say that the demand is quite constant. However, when we ship them and deliver them has to do with a lot of administration inside the hospital, so it's hard to pinpoint an exact quarter. But yes, there is still a high interest for the XPS, and especially we saw that during ISHLT now that there is an increasing interest for EVLP and an increasing interest for the XPS into usage.
Okay. All right. And to my second question on the heart preservation project, could you just give us some time frame, both regarding when you think that patient recruitment could be finalized when initiated, and also if I may, on the total cost for the whole study, and thirdly then the potential market launch?
Yeah, that's good questions, but maybe a little bit hard to answer. We expect to take about a year for the inclusion, depending on when we start. We hope we can start this summer and hopefully before vacation time, but it depends on the regulatory authorities. We are planned and we are ready, but we need some. We've got some questions, and there's still a good possibility we can start before vacation. Otherwise, we'll start directly after. And then we plan the inclusion time to be about a year. That's always hard to say, but that's what we plan for. This is a pivotal trial, so we hope with good results that that will be the trial we need to make a CE mark. But again, inclusion time is one year, and the follow-up time is one year.
By that calculation, about between two and two and a half years, something like that would be a reasonable guess. But that is again only a guess because we all know things can take longer, sometimes shorter time to perform.
And also on the cost for the whole study?
For the cost, there are two, let's say, main buckets. The first one is Europe, where we know it's a lot cheaper than the U.S. And the cost there, we estimate around half of the U.S. And what we learned from earlier EVLP studies in the U.S. is that the PMA study costs now between $50-100 million, and we estimate that the cost will be around that as well for U.S. heart study somewhere, and then around half of that for European study.
Okay. Got it. And to my last question, I guess you already noted that TransMedics recently filed for an IPO. I was just wondering how you think we should view it in terms of their technology versus yours, both the pros and cons, and also should we expect to see some more competition at the interactive clinics?
Yeah. Could you take up the question with the TransMedics? It's important to point out the difference. TransMedics has a transportation device for lungs approved for normal lungs. It's not approved for evaluation and for marginal lungs. So the machine is made for transportation. They have a similar device for transportation of warm beating hearts. Our strategy is different. We believe, and I should say most of the clinicians believe, that during transport, having a beating warm heart, it's very difficult. It's a very risky procedure. While having a cold blood perfused, an oxygenated heart, and not beating, it's much more safe, and it's shown clinically that it works very well. So it's a big difference in the technology in that sense. They also do not have proprietary solutions.
They use blood from donors for their heart machine, and they use Perfadex, a kind of Perfadex, Vitrolife's Perfadex for their lungs. So it's big differences in technology, I would say. Will it be competition? Yes, I think it's a little bit of competition, but I think we welcome competition because we can show then, hopefully, as we've shown so far, that we can very well match all competitions, which is always good when it comes to pricing and everything. So there is a little bit of competition, but we have to remember that it's really comes from having proprietary solutions, which is the physiological part, so to speak, and the more science-driven, which our competitors do not have. So you can look at other competitors also. There are a few others. And I think almost everyone has no proprietary solution. They use non-proprietary solutions in their machines.
So I think that's the major difference between us and the competing, or at least the other on the market.
Okay. Yeah. That was all my questions, so thank you.
And just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad. There will now be a further pause, while questions are being registered. And our next speaker is Arvid Necander from Rede ye.
Hello?
Arvid, can you hear us? Okay. One moment while we try to reconnect to Arvid. Arvid, can you hear us?
Yes. Can you guys hear me?
Yes.
Yes, you're fine. Please go ahead.
Okay. Perfect. Thank you for taking my question. A couple of things. I wanted to begin with what you said about achieving reimbursement coverage for the whole EVLP procedure in France. I was wondering if you could elaborate a little bit on how that will look. Will it be a similar model as in the US, or is it added to the total transplant budget, and what kind of coverage are we talking with the new coverage?
Yeah. Yeah, it will be Christopher. It will be the same type as in the U.S. It will cover the material and the process of the EVLP itself, which is similar to the CPT codes in the U.S. It's a slightly different structure in France, obviously, but the essence, obviously, is similar, yes.
Okay. And will it be covered at a similar level in terms of monetary value?
Yeah. In terms of amount, it's obviously cheaper in France, so it's not the same amount, but it will cover the same cost. I was just saying I talked to the surgeon there in Paris, and they were very happy with it because it will cover all their cost for EVLP, they told me.
Okay. All right. Yeah, that's what I wanted to hear. And then I also wanted to take you guys up on something that was mentioned in the annual reports where you guys compared the utilization rate today when it comes to lungs of about 20% of the donated lungs being used, and the potential was mentioned as 40%. I was just a bit curious on what you based that on. Is that a sort of a real-life potential that you see? Because I know that some trials have indicated a higher utilization rate. So I just wondered what that was based on.
You can say utilization of lungs differs a little bit from the globe. It's in the United States a little bit about 20%. I know that in other countries, a bit higher. I think some countries, 30% or so, or even a few places more than that. But we've seen in the clinical trials is that where we looked at marginal lungs, so that is lungs that would not have been used otherwise. And we see that between 50% and 75% or even high 80% of those lungs were actually used. So it's an estimation that we have picked up from different directions, really. We're talking to clinicians about what lungs they use today and which lungs they do not use today.
So obviously, it's just an estimation, but it's not very far-fetched in the sense that in the trials we've seen that a lot of the lungs that then were picked up could actually be used.
Sure. Sure. But you see that 40% is a sort of realistic real-life scenario, or would you say that that's a conservative estimate from your side when you estimate the market?
Yeah. I mean, obviously, it's hard to say, but I think it's a very fair estimation. And I think it would still be conservative. A lot of people have a lot of other people make much bolder estimations of the number of lungs that actually can be used. And you can see that also that, as an example, if you go to a large center that does, let's say, 100 or more, they're more prone to take not-so-good lungs and transplant them, while a smaller center would be more conservative. And I think the EVLP machine is helping a lot of the centers to take away some of the risk of using these organs. But you can see that big difference between the clinics, what kind of lungs they use. So I think double the number from today is quite reachable, I would say.
Okay. All right. Thanks, guys. That was it for me.
And our next question is from Daniel Albin from Danske Bank. Please go ahead. Your line is now open.
Yeah. I think one more, so just looking at the cold preservation segment and trying to understand the organic growth year on year, excluding acquisitions, that segment is basically flat in the Q1. I wonder if you could just the volume aspect of this business, are you flat, or is it price reductions, or can you say something about the development?
Yeah. Basically, it will develop over time in line with the lung transplant market in number of lung transplants made since it's used in more or less all lung transplants. Then again, a quarter could shift from one quarter to another. So there's no, let's say, big issues if one quarter is a little bit lower than the other one. It could be one kind of effect. But it's no price reductions. We have not lowered the price anywhere. No. No price reductions.
Just to get your grip on really the market growth, are you still expecting it to grow at around 6% annually?
Yes.
Yeah. Okay.
Yes, something like that. Yeah. It's historically been between five and seven, and we think it will continue.
Okay. Yeah. Yeah. Thank you.
As there are no further questions at this time, I will hand the word back to the speakers for any final comments.
Yes. Thank you. It's been good to have several questions this time about this. We are very proud of the Q1, continuing keeping up with very good growth in the warm area and seeing progress in our development projects, and I hope you will be back when we present the Q2 in July. And meanwhile, I thank you very much for the interest. Thank you so much, and talk to you 12th of July next time.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.