Xvivo Perfusion AB (publ)

Thank you so much and welcome to Xvivo's earnings call for the first quarter of 2023. Today's presenter are myself, Kristoffer Rosenblatt, CEO for Xvivo and Kristoffer Nordström, CFO. On slide three, you can see the financial at a glance and I'm very happy and proud to report that Q1 was the strongest quarter ever posted by Xvivo. We saw sales of 141 million SEK organic growth of 34% and an adjusted EBITDA of 18%. And we're also very pleased to see continued high organic constant currency growth and improving gross margin for disposable products for all segments. I'm also content that the integration of our three latest acquisitions have progressed according to plan and they have significantly contributed to the high growth during the quarter. An opportunity to further integrate the Star Recovery service in the U.S. with our product and the possible Avionord model is currently under investigation. We come back as soon as we have a result of that investigation. The kidney assist transport has been launched during the quarter with mainly delivery and installations of machines in the U.S., the Netherlands, and Italy. Therefore, we had mainly sales in liver in the quarter, and we're expecting to see a ramp-up of kidney sales during the year with increasing production capacity. I also want to say that in terms of numbers and drivers behind the numbers, our CFO will give you further details later in the presentation. Next slide. Slide four is the highlights. In this conference call, we will focus on progress for the heart technology. the recent ISHST conference, which is the largest annual conference for water and lung transplantation, and the recent clinical publication, Strengthening the Evidence for our Product Portfolio. On slide five, we start with that Australian experience. The first important thing to point out is that we have pre-started commercially with compassionate use in Australia and New Zealand, and very encouraging is that during Q1, roughly 25% of all heart transplants in Australia and New Zealand were performed under compassionate use with our heart technology. This is above our expectation and very impressive. And to my knowledge, at least, such high usage before approval is uncommon or unheard of. As you also see on the slide, all five clinics participated have continued to use the device, which is encouraging. We have also seen clinical data coming in and the reason for the high compassionate use is probably because the clinical data is convincing. The data was featured in three presentations during the recent ISSAT and key takeaway was that the seeing is believing. After experiencing the box, the clinician wants to use it more. The survivor data is also impressive with no 30-day mortality. even though the other body time was more than double from what is generally accepted, which is roughly four hours. The early experience is also that the heart function of the transplantation is very good. And this is important for many reasons, but mainly three. The first one is, and that's the thing he's believing, is that gives confidence to surgeons around the world that the heart technology works. Number two normally it's an indicator of longer-term survival. We haven't seen the data yet since it's a new technology but we are looking forward to long-term survival data with high confidence. And three which is also very important and the feedback I get more and more is that if you show a good heart function after transplantation is normally correlated to lower aftercare for the patients and especially as you know we're coming in after COVID pandemic and there is a shortage of qualified nurses especially and this is an indication not a final proof but it's an indication that the heart technology could be a solution to reduce nursing time both during organ recovery because the HeartBox is a very easy to use product and also aftercare after the actual transplant where a large number of patients especially from DCD end up in ECMO or other high working burden for qualified nurses treatments. So we're very happy with those results from the Australian, New Zealand experience, and we're happy with the flying start to that in that market. And with that, we go over to next slide, which is slide number six. I just came back from ISHLT, which was last week, and had a very good experience from that week. The interest for Xvivo and both the lung and heart technology was very high. Our booth, as you see in the picture, featuring the products was full more or less during the whole conference, which lasted for four days. The presentation industry symposiums from XVivo was crowded with people standing against the walls with very very high interest and in terms of the heart everybody I met asked if they could be part of a trial in the US. It was a good week as I said the key takeaways from ISHRT is that machine perfusion is here to stay and fulfill an important role in transplantation today. DCD and use of extended criteria organs are growing rapidly and with that the use of machine perfusion. And lastly that services and simplification for the user is important for the market acceptance and here I'm confident that acquisition, the W Nord acquisition, Italy Star in the US, and our very easy to use machines in both heart transportation and kidney transportation will support the market needs that we saw clearly during ISHCT. And with that, we go to the next slide, which is slide seven. And we also very proud and happy that we have strong clinical data, preclinical data published during the first quarter of the year that will strengthen our go-to-market strategy for both liver and heart. The first one is the liver assist. As you know, it was featured in New England Journal of Medicine in 2021, showing that it's used for DCD livers before transplantation and significant positive impact post-transplant clinical outcome. In Q1, a publication in Journal of Hepatology showed positive results also for DBD livers, so it will open up new markets for our liver products. And the last one at the bottom of this slide is very, very encouraging and says something about the future. In Q1, the Journal of Heart and Lung Transplantation published an article showing benefits of ex vivo heart preservation, that's the heart technology, used after DCD donation in a large animal model. In short, it demonstrates that our heart technology can be used both in direct procurement and after use of normothermic region perfusion. So this results, if proven and mimicked in a clinical setting, could open up a very large market potential for the ex vivo heart technology we're looking forward to. And with that, we go over to our clinical pipeline and we can skip direct actually to the slide nine for a review of our status of clinical trial. As a company, we focus on mainly four things, the current business, the kidney assist transport launch, and the regulatory approval trials for heart and liver. And during this slide, we will focus on the last two focus areas. I'm happy to say that in Europe, we're almost finished with the clinical trial. We expect it to be finished during the second quarter, so this quarter. We are in process also of handing in documentation for the CMARC. And we hope, it's always hard to guess when we will receive and when the FCE market could have commercial launch, but we still aim in Q1 2024. For US Heart, we have just in the middle of April handed in our ID application to the FDA. We know that the FDA has 30 days to respond, so we expect an answer in May. If we get a positive answer, we're able to start the clinical trial in the end of Q3 when we have enrolled and trained all participants in the trials. And again, I can report from a dinner at ISHCT with the best of the best in heart transplant in the United States. We saw a very high interest. We have the right centers, including the trial, high impact. KOLs that will be very important for this trial. And as I said before, the interest is very high. I think everyone we met asked to be part of this trial, but we have today limited to 15. And the last focus area is, as I said, the liver assist PMA. We have reported before that the liver assist is granted breakthrough device designation in 2022. This would mean that we get a faster route through the FDA PMA process. It is also a quality stamp that the products are innovative and fulfill the need of the market. We are currently designing the US study and compiling the quality file for an IDE application. We have also already actually started to invest in the organization to run the study. based on the high interest we have seen in the US as well. And we have seen now from the very strong numbers on liver that Kristoffer Nordström will show you more later in this presentation. So we now encourage that we should invest in the liver assist to get it to the market also in the US. And with that, we go to the next slide, which is a participant slide. And with that one, I will hand over to our CFO, Kristoffer Nordström, who will present the financial performance during the quarter and deep dive into the details.

Thank you so much. As Mr. Rosenblatt has emphasized here, Q1 was a strong quarter financially. We are very happy about the whole organization. We presented strong sales and strong sales growth in all three business areas across the board, strengthened gross margins, which led to an improved EBIT and EBITDA. Net sales in Q1 came in on 141 million SEC, which means a 52% increase year on year. Organic growth was 34%, acquired growth 5%, and currency effects 13%. We delivered a strengthened gross margin, 75% versus 70% last year. Gross margin on disposables improved 2% for the company as a whole, and we'll dig into the details in each business area as we go here, but from 79% to 81%, which is a very good number. The primary reason for the improved gross margin is the development that we have seen in our abdominal business area this quarter. Both EBIT and EBITJ were strengthened versus last year and an EBITJ margin of 18% was presented. If we move over to the different business areas, we start with Thoracic. Thoracic performed a yet good quarter and continues to deliver growth. Net sales amounted to 91 million SEK. Organic growth was 23% in local currencies. The good machine profusion trend continues. Activity was good both in the US and Europe. In connection to Q4, we flagged for potential stock-building effect from the customers. But we didn't really experience this in Q1, and we don't experience it in the beginning of Q2 either. So it seems like the volumes we see now are true and that there is a good momentum out there. As we have said before, in Q2, we plan to phase out the last LS machine systems on the European market. So we have a handful of LS machines that will be converted to Express systems and Express protocols. And that is very good. And there are some strategic sites out there that we're working closely with, such as Copenhagen, for example. So we hope to provide you with some good information about that process on the next earnings call here as well. Q1 thoracic sales include sales of heart preservation systems for the first time. So we have sold some disposables, as Christopher said, in Australia and New Zealand, and also had some research-related sales in the US as well. Total heart number was, on the disposable side, 7 million SEK. Disposable grew 32%, where lung accounted for 25%. Here we are extra pleased that the EVLP sales grew 40% versus Q1 last year. Gross margin on disposables was especially strong, 86%. That's 2% units better than last year, mainly driven by an increased ASP on PerfectX Plus and EVLP on IoT markets. Moving over to Abdominal came in on 31 million SEK, which means, once again, an all-time high quarter. Growth in local currencies was 85% in total, and growth on disposables was specifically good, 123% in local currencies year on year, where 82% was organic. 41% was acquired, and with this, we mean it's represented by the former distributor margin in Italy. Sales were mostly comprised by liver sales in Europe still, approximately 78% of the total sales. Gross margin disposables were 65%, which is a significant jump up from last year's 53%. And this is a result primarily of two aspects. First of all, the added margin from our perfusion service model in Italy brings up the gross margin. And second, an overall good progress on the ASP prices on labor in Europe. Moving over to the services segment, which is our star team's organ recovery business in the US. Here as well, Q1, a financially good quarter. Sales of 19 million SEC was recorded in the quarter, comprising 82% increase versus last year. This increase was mostly a result of customers coming in at the end of last year. But we also had some what we call one-off recoveries performed in Q1 and that's for customers that don't yet have a contract. But it also means that we have had a chance to prove our excellent service and are in a very good position to start contract negotiations also with these sites. So hopefully they will result in additional contracts as the year proceeds. Start teams performed close to 500 cases last year and in Q1 they started intensive with another 146 cases, a 24% increase versus last year. Key for future growth within services is to continue to invest in the organization in both headcounts but also in quality assurance. Focusing the coming quarters to bring on more surgeons and coordinators to ensure we are well prepared to meet the surge in demand of organ recovery services in the US. Moving over to EBITDA and profitability. Q1 delivered an improved EBITDA. Adjusted EBITDA was 25 million SEK, representing a margin of 18%. This was primarily a result of our increased sales and our strength and gross margins. Rolling 12 months, there is a margin of 14.5%. That represents 66 million Cech. So the trend the last quarter has been good with profitability levels that are increasing as sales are growing. We will continue to aim for a balance between profitability and investments in the coming quarters. And we will invest where it makes sense and continue to build our business model and organization as we go. Moving over to my last slide, the financial position and cash flow. Operating cash flow Q1 was negative, 12 million SEK, which has been a trend for us in Q1 early years as well. This quarter was a result of increased working capital, mostly due to our increased sales and also payment of employee bonus liabilities that always are executed in Q1 every year. Cash flow from operating activities before changes in networking capital were positive, 22 million. Investments amounted to 34 million consisting of investments in our R&D projects, mainly our different heart projects. And finally, just a heads up on the Avinod acquisition, an additional purchase price of maximum 25 million SEK will be paid out in Q2 2023, since they reached their milestone, where of 10 million will be in cash and the rest will be in a new share issue. And that was all from me, Kristoffer, until the Q&A. I'm leaving the word over to you again.

Thank you. go over to the outlook and we start on slide 18 with a longer term outlook. We are very pleased with this quarter. It's of course very good but we're here for the long term and it's important to point out that the demand for transplant today is still 10 times higher than the supply of organs. Also, the sales value of machine perfusion versus cold static storage is roughly times 10, a little bit different organ per organ. But what we see in front of us is a market that is 100 times higher than we see today. And I think that we have seen the beginning of that market expansion in the last quarter. Also important to point out is the machine perfusion has proven to increase the number of organs to be used for transplantation, especially in the fast-growing DCD organ pool. And hence, machine perfusion on both norman extended criteria and DCD grafts will drive growth in the near future. Probably to go all the way to times 10 of today's numbers. The company at least believe that new innovative sources of organ need to be used, for example, xenografts. For bulk machine perfusion, new source of organ, Exviva has a proven product pipeline on the market, or we are in clinical studies for market approval. And this puts us in a unique position on the market today. And lastly, I think it's important to point out for long term is that during the last couple of years and we have invested in a strong leadership team, a strong organization, and we are now ready to deliver on our strategy and our focus areas to make sure that we can capture this very big or even huge market opportunity. If we go to the next slide, slide 19, it's more of a shorter-term outlook. That's what we're going to do this year. We're going to focus on our current business, and that's mainly machine perfusion. We see continued momentum through especially hub and service models, and that could also be said from ISHLT that it was a high interest for from technician to hub models and service models, so they don't need to keep all their knowledge in-house that we could support them with that. I'm also happy to report that the integration with Abionord was record fast. We bought them in December 2022, 1st of December, and more or less from January 1, we executed as an integrated company beating revenue budget etc. So very happy to see that and very impressive from the Abynode and European team. Number two we will focus on the kidney assist transport launch. This is a key focus for us. We have launched in the US and Europe. We have mainly installed machines during the quarter. And we're now looking forward to more usage on the product. We are continuously ramping up production on this product to make sure we can satisfy the high need. We talked a lot about heart today. And we will continue to work hard to get this product out. The message I get from clinicians is just get it approved. We will use it. So we work very hard for commercial launch in Europe and Australia and New Zealand. We hope to start the trial in the United States as soon as possible with a positive ID application. Last focus area is that we will focus to prepare the liver application for the PMA approval in the US. hopefully have an IDE application as soon as possible for the US market. And the last point is that we continue to see that we are under price versus competition and we find ourselves in a high inflation environment. And we will continue to increase prices on our unique products to make sure that that cost increases from our suppliers and deflation is carried forward in the value chain when there are our reimbursement systems to take care of them. And with that, we can go to the last slide, slide 20. Thank you for listening to us today. As you see, that's our vision that we work hard for. Nobody should die waiting for a new organ, and we continue to work hard every day. And with that, we open up the lines for questions. Thank you.

If you wish to ask a question, please dial star five on your telephone keypad To enter the queue, if you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Ulrich Tratner from Carnegie. Please go ahead.

Great, thank you very much. And good afternoon, Christophe and Christophe, and congratulations on a great quarter. I have a few questions, if I may, and very intrigued to see that you started to generate sales in heart. I was wondering if you can elaborate a bit on margins and pricing of those revenues. And it looks like it's not diluted to drastic sales in terms of the gross margin side. If you can just help to confirm that, that would be my first question.

Yes, we can confirm that, that we have a unique technology and we will not dilute margins on the Thorac side with the heart launch.

And just in terms of are you able to take a full price being compassionate use for the sites that have already been participating in the study. I'm guessing you will be giving them some type of discount or how does that work?

Yeah, that is correct. We have a discount during compassionate use in Australia. We plan to do the same in Europe and if possible also later on in the US. So there will be a before regulatory approval price for sure. We can't take full price.

Okay, great. And follow up on HART and bridging into the PMA study in the US. We talked about this before, but do you believe that STAR will be able to participate in or to be included in the PMA study, given that they are part of the infrastructure for

Yes, it has been very clear from several of the centers that they are interested in the STAR team's model as part of the study. And that is something we would love to be able to support them with as well. So that is definitely something we are looking into at the moment.

To add to that question, Ulrik, I've seen now during ISSRT that there is a need for service support. Then, of course, it's up to the clinician himself or the clinical team to make that decision. But if we can help, we will help from the start inside. Sure.

And on Star Team, you mentioned in the report that you're looking at improved margins. I'm guessing you're looking at the gross margin side of Star Teams. Is this purely based on number of contracts obtained or is there any volume component or any tweaking in terms of the revenue model in Star Teams that should drive margins higher for that segment going forward here over the next six to 12 months?

Yes. So we are currently looking over the revenue model for our teams. And I think this is a two folded here. We when we saw the contract that we have, they are renegotiated on a yearly basis. So we will have several opportunities during the year here to renegotiate contracts. And with a new model in place, ensure that they get even more profitable for us. The second thing I think is also up to us, but more internally, that if we can be more strategic on where new customers are located, that could also give us economies of scale. Because we have learned now during this year that it's a lot about efficiency. If we can have customers located where it makes geographically sense and we can have our surgeons there, then we can kind of cover more contracts with less surgeons, so to say.

Sure, makes sense. And since we're talking about profitability, you highlighted proof-growth margins, seeing that as well. But the strong jump here in margins year over year, Is it purely leverage on the current operation or is there anything in numbers that we should be aware of or is it contribution from Avianorda and Star which holds higher margins already or is it just all of the above?

I would say if we look at the business area for business area so on the thoracic side there we have constantly improved you know small steps at a time uh mostly driven by our um our increased asps from the pricing increases that we have had now for a couple of years that together with to be fully transparent some currency effects as well on the abdominal side we flagged on the capital markets day last year that our mid-term goal is to reach above 70% in gross margin and we highlighted that there are two key drivers to that. The first one is the improved margins from the production model in Italy and I think that as long as Italy um as of today is our biggest abdominal market that is a big contributor and the second one is that which we haven't seen the effects of yet is when we get full steam ahead on the kinetic transport sales in the US that will come in with a gross margin, I think about 70% directly, which will also help out. So we believe that the 65% to see this quarter is kind of what we should expect in short term now in abdominal.

And also to mention that Ulrik, You know, building a MedTech company, you have a lot of fixed costs. So if it is around 400 or 500 million, you can see economies of scale kicking in from your R&D, your quality department, your admin department, et cetera, et cetera, your sales force. So we will see economies of scale kick in over time. And that mentioned before, and Christoph Nordström mentioned it, that we have a market opportunity that is 100 times larger than today's market. So we will try to balance investments versus profits in the next quarters and years to come.

That's great. And on abdominal, you mentioned it. that the gross margin was high in the quarter, and as I'm looking at abdominal gross margin for machines, it was really high this quarter, which leads me to believe that, and obviously in your presentation, that sales from America was really low. What's left besides the fact that you stated that you need to increase production capacity, but what's left before kidney assist transport takes off and have meaningful revenue contribution in the US?

I think we will see that gradually coming through the year and we will see an uptick quarter-on-quarter and we have quite small sales force there that are having great they have a great customer experience when they do head-to-head with the current generally accepted market practice on on kidney transport we see that our product comes out better both in kidney function in in clinical trials we have seen it but also in user friendliness which is very important because again the less easier to use the less personal you need to run it so we have a their confidence in the product and the clinical outcome of kidney assist and if we have the the ramp up of the production, we are confident that it will be also a safe success.

Okay, great. Last question on my end, and I'll get back into the queue. Price increase, and you talk about still being vastly underpriced versus what's out there today. What type of price increases are we to expect throughout 2023 for each of the segments?

We are compiling that work right now so it would be prematurely to state the number but we have seen recent price increases and we think that the inflation is in line and at least it has not gone down too much right now. So you could extrapolate the numbers yourself.

Great. Well, thank you very much, Kristoffer and Kristoffer, and once again, congratulations on a great quarter.

Thank you, Ulrik, for questions.

The next question comes from Peter Ossling from Pareto Securities. Please go ahead.

Yes, good afternoon and also a very congratulations to Extremely good quarter. I have a couple of quick questions. First, going back to the Australian experience, can you say more specifically how large the discount is now when you're selling the product under compassionate use?

No, unfortunately, we cannot comment on exact numbers. It's there. but we cannot comment on the exact discount. And then the final price will also depend on future reimbursement systems in different regions where all the work has not been done yet. It would be also wrong to mention a number.

Okay. When it comes to the kidney assist transport, you had some teething problems initially. when you launched a year ago. Have all those been solved now so you can go full speed ahead in your continued launch?

Yes, so to my knowledge everything has been been solved. We are still experiencing some issues with ramping up parts of the production of the machines especially. So we have the right number of machines there, including service machines, et cetera. But from what I heard, we should be able to wrap it up further in Q2 and then even more in Q3, et cetera. So we are quite competent. And also now we have installed a couple of machines during Q1 and they will start to generate revenue during Q2.

Okay. How will you, specifically related to the kidney assist transport, how will you report the continued development when it comes to machines and usage? Will you just bake them into the abdominal area as you have now, or will you be more specific when it comes to numbers of machines sold and so forth?

Two answers. One, we will not have more segments, so to say. But yeah, during the launch, we will be more specific when we write in the abdominal segments of the quarter report on the progress of the launch.

Okay. You said that a large part of the growth is stemming from your increased average sales price and I was just wondering when will you see the volume factor also come in to play more significantly?

On the abdominal side?

Well I'm talking in general since you mentioned the average sales price increases important component for the growth?

It's an important component of the gross margin growth I would say but if you look on the abdominal growth for example that's very much volume related where we see a good progress on liver in Europe many clinics are really up to speed now. Looking at Lange as well, not the number we discussed in the report, but the EVLP revenues in comparison with Q1 last year was up 40%. We're off, I would say, two-thirds of volume related.

Okay, okay. And the abdominal was up 82%. constant currency excluding the avionord effect where the absolute majority is volume. It's getting used more.

I hear you and lastly you had the symposia at the conference last week regarding EVLP and I think if I'm correct about the title that it was something around how you will tear down the barriers for using EVLP even more in the future. I was just a little bit interested in what the conclusion from that symposia was.

It was to start with a very good symposium and the conclusion is that the need for hub and service model will increase in the future to to uh yeah what we said bring down barriers and fuel growth uh within evlp so everybody agreed on that and that was the way forward and i would say everybody's working very hard on that in in many regions in in europe uh as well as in in the us more locally the US but we see that the hub models the ones that are used to use in the XPS tend to use it a lot more because it's a knowledge a knowledge hurdle so to say and once they once you go over that hurdle it's a lot easier to use the product

What is your expectation when it comes to time span? Are we talking about three to five years, something like that? Or could it go even faster?

You mean uptake in EVLP?

No, introducing this hub and service model, which would be a critical factor to increase the usage of EVLP.

I think it's happening while we're speaking. And there are hub models working in the US.

Yeah, you have the lung bioengineering, of course. Yes, for example.

Cleveland is also having a hub. And you can see also regions in Europe or countries or regions in Europe are starting. I would say that the herder right now is rather... very practical to get approval or agree on the logistics around it. But everybody is continuing to work in high pace to have that. Once we have, let's say, fully European and US, Canadian, where every center is at least covered by one hub, That might take a few more years, yes. But it will happen gradually, not overnight.

Of course. Okay, I get back into the queue. Thank you, gents. Thank you. Any questions?

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. The next question comes from Alex Covat from Bryan, Garnier.

Hi, guys. Good afternoon. Thanks for taking my questions. So I was just wondering if there are any major differences in the US liver and heart trials compared to what you've done in Europe and Australia, and whether it's different at all from a transmedics-branded trial.

Thank you for a very good question. In terms of liver, we are designing it right now. My guess right now is that there will be very little difference in liver between how it's used in Europe and the trial design in the US, but that is remain to be seen. In terms of heart, there are a little bit different legs we go for, where In Australia, for example, we went for the long, really long transportation times and above what is used. In Europe, we have focused on the, let's say, the normal hearts, more or less, and occasionally it will go out of what is considered a standard criteria heart. In the US, we will focus on the extended criteria, so that could be high donor age, it could be expected transportation time, et cetera, et cetera. So we will... It's a little bit different design region per region, but the three trials together will cover the full usage of the HART product.

Got it. And then as a second question, are you looking to leverage the Italian on the STAR model in other geographies as well?

Yeah, we are investigating that right now. And it's a very interesting question because it is, and I'm more convinced now after ISSRT that there is a need for that model in more regions, more European countries or regions as well as the US where the cost for clinic to keep those very valuable nurses trained on different platforms is quite high and something they would like to get away from. And if we could offer that as a service that would be highly appreciated, I think. So we are investigating right now which European countries would be fitted to it because also the reimbursement system has to be covered. We know already now that in the US reimbursement systems are typically covered this type of services in the cost report. So that would be an obvious market. We have not taken a decision yet on a full integration of STAR with our product portfolio and Avionode model. But it's something we are investigating right now and we will come back as soon as that investigation is finished.

Okay, thank you so much. That's it for me. Thank you.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much for listening to the conference call for Q1. I hope you will listen in to our conference call for Q2, which will be in the second week of July. And with that, I thank you all and hope to see you next time.