Xvivo Perfusion AB (publ)

I want to welcome everyone to the earnings call for the second quarter of 2023 in Exvivo. And with that, I turn to slide number two in the deck, just with pictures of the two presenters. It's me, Kristoffer Rosenblatt, CEO for Exvivo, and Kristoffer Nordström, CFO for Exvivo, on today's call, first giving a presentation and then answering questions from all of you. with that we go over to slide three which is the q2 finances at the glass and um to start with we are pleased with the quarter uh with strong sales strong growth we continue to see strong growth on on the organic side we are helped by especially the strong use dollar on the on the currency effect. We continue to see strong EBITDA development. We have said that our financial goal 2027 is 30% and we are progressing towards that goal. We could, I said it before and I said again, we could reach that tomorrow, but we believe we have a market potential being a hundred times bigger than the one we see today. And we want to invest towards that very big market opportunity. If we look on the right side of the slide, I'm pleased to say that we see continued good progress, especially in all our segments, thorax, abdominal and services. Good organic growth for disposable products and case revenue in the services case. um i especially want to point out that the abdominal disposable gross margin on 70 which was the goal we set to reach in in during the strategy period and i'm very pleased and happy to report that already in q2 2023 we have reached the goal of 70 percent so we of course want to from now on improve improve that also and we we see on the thoracic side that the abilities to have higher margins in the market environment we are is there. So that's definitely good news. I'm also very pleased to inform and report that the integration of our three latest acquisitions have progressed according to plan and that they are significantly contributing to the high growth we see both Y2D and in the quarter. We have definitely stabilized the STAR recovery services in the US. And as we have press released during the quarter, we will now start integration of that service model and our products. We will also investigate a possible perfusionist model similar to the one we see in Italy and that will be tested in a few clinics to come. I also want to say once we are talking about high growth that we are currently building up our production capacity and we have delivered without back orders but we see a very fast increase in demand for our products in the market. So we have already started a project to build up production capacity four times 10 for disposable products. We have three types of products we supply to our clinics, and one is solutions or fluids, one is machines, and one is the disposable sterile kits. And for both machines and fluids, we feel we can scale up fluids definitely by 10 and machines we can scale up over time. However, for disposables, we do feel the need to invest right now to scale up times 10 for heart and liver within the next 12 months and then later on also for kidney assist transport and lung products. We think the cost is pretty limited. It's a maximum investment of 50 million SEK during 24 years and we see a very good ROI on this investment. Not only from scale but also that we can redesign some of the products to get lower cost per kit. So we will be able to do an investment and get the money back in a quick time. Then if we turn to slide four, I won't stay on this slide for too long. It's the Y2D, so Q1, Q2 financed at a glance. But key message is that Q2 is not just one quarter we see a continued progress according to our strategy with organic growth on 39 percent and EBITDA level 18 and we see growth in all our product areas with improving gross margins so that's the key message and key takeaway here and in terms of numbers and drivers behind the numbers our CFO will give you further details later in the presentation and then we have the ability to ask Kristoffer Nordström all the questions you have on the finance side. So we will instead of dwelling on this slide we will go to the slide number five which is the Q2 highlights and we will focus on the progress on the heart technology and the star integration in this quarterly call. We had progress in all our But we want to focus on those two in the highlight section. We start with slide six, the European and Australian heart experience. To start with, I'm very, very proud and happy to present that we have final inclusion of the regulatory study in Europe. It was a very big study with 202 patients. 15 leading transplant hospitals from eight European countries. Just the logistic of running the trial was immense. But I'm happy to say that the feedback we got so far from the leading KOLs in the study has been very, very positive. They really loved the experience with the HART technology. And we are now I'm going to come to that a little bit later. We are now targeting definitely AvicaNorset next year, hopefully in Q2. And are very pleased to say that we have already started that regulatory work now. So it's now at the hands of our regulatory body, or notified body. If you look at the Australia and New Zealand experience, I reported last quarter that we are seeing very good market penetration even before regulatory approval. I can report that we see the same picture in Q2, where roughly one quarter of all heart transplants are done with the Expedivo Heart Technology. which is truly impressive considering it's prior to regulatory approval. So it means that the users really loved it. We will, just for your information, we will do the same in Europe. Not in all countries. We will not apply for compassionate use, but in a number of countries we will do that where we think it makes sense in Europe as well. We have activated out of five trial sites and the fifth will come very soon in Australia, New Zealand and then we have full coverage there. The reason for having high compassionate use is probably the most interesting for this product because it tells most about the future and the main reason is that maybe twofold, but one is that the clinical data is convincing so far what we have seen. And the data we saw from during the ISHRT was very convincing with, for example, in Australia, no 30-day mortality. We could prolong the out-of-body time to more than double of the generally accepted four hours, et cetera, which is compared to standard of care is a very impressive number. The other thing where we see the heart technology is, or explanation for the use of the heart technology even before regulatory approval is that seeing is believing. And we hear from almost all our users that they see on the first heartbeat after using our technology that a heart is in better shape. That the first punch the heart takes after transplant is like it's never been outside the body. Normally in a heart transplant, it could take a couple of beats to even a long ECMO time to get there. So we feel very strongly that this product will be a paradigm shifter for the transplant industry as we see it. And also more important to that is also when seeing is believing, they see that the heart is performing good. it definitely gives confidence that the technology works and that they want to use it more. One last thing which we have heard which we don't have data and we will definitely look into this more is that aftercare and especially ECMO usage is less frequent using our technology versus standard care which is also another Let's say not proof, but it's another arrow pointing in the right direction that the heart is in better condition after using the heart technology. And we can not fully explain this today, but we have run a study where we can see that one of the reasons are that we have higher cell survival on the the telia after using our box that could be an explanation um and and more will come and we are running a couple of studies to try to explain fully why we see this those good results from the heart technology um i um With that, I will go to the next slide, which is the heart technology in the US. And here I think it's the best news during the quarter I want to highlight. It's that we got the ID approval from the FDA. And that was great news, by the way. But the best news is actually that we got a request from the FDA to investigate if we could include the DCD in the study as an inclusion criteria. And this is fantastic news for many reasons. One is that the donor pool in the United States in 2022 is roughly one third of the donors are from the DCD pool and two thirds from DBD. The other reason that is fantastic news is that this will, of course, we would like to attack that pool sooner or later, but this saves us four years in come to market doing that. And it will also save us actually a lot of money in not running two separate trials. So this was fantastic news from the FDA during the quarter. We expect and we have said that we expect the study to start enrollment end of Q3. I have to then point out now that that's still our goal. We are working really hard towards it. However, the fact that we have to negotiate the DCD inclusion criteria with the FDA might prolong first patient in a month or two. But again, that is really worth it. If we can come four hours faster to market with the DCD inclusion, that is already one third of the American donor pool and is growing double digit a lot faster than the DPD donor pool. So it will soon be at least 50% of the donor pool in the US. So it's definitely very, very good news. I'm also happy to say that when it comes to the US trial, we have really the best transplant center engaged, the best KOLs, high impact center, large center in the US. i'm really looking forward to going to the us and meet sites and see how the trial is progressing over time and with that we go to the next slide which is slide number eight and also some very very encouraging and and good news um we have press release that we will start integration of star into xvivo we will have one brand one strength and value proposition, one organization. This is, everybody wants this, Exvivo, all employed in the Star, and also our customers. And we will definitely also, we will focus on becoming a preferred partner in the transplant process. And to do that, we need to have a combined service product offering. We see that we can finally accomplish that. We had also, due to the fact that we had to focus on the processes within Star Teams, we have prolonged both the integration until now and also the acceptance of new contracts. But now we feel we are in a good shape, fantastic shape with our service offering. And we will now start accepting new contracts and integration. We start immediately. I'm also very happy to present our latest strategic collaboration. It's an aviation company called MTJ Aviation in the US. This collaboration will enable reduced reducing complexity reduced cost for the transplant teams and hospitals and a lot easier working environment for our staffing going out the recovering organs so i think i'm very happy for this collaboration we will have dedicated aircraft for three primary hubs with an intention to grow that if we see the need for more hubs with an increased service offering and product offering. So again, great progress in our service US operation. And I strongly believe that more to come. There will be one time cost associated with this. We have already flagged for and taken 11 milliseconds this quarter. we believe there will be an estimated another 11 million during second quarter of the year, or second half of the year. Good, great. With that, we go over to the clinical pipeline and slide nine, which is divided slide. So we step over to the slide 10 and our status in clinical trials and tentative timelines. And if we start with the heart and the US, as I said, very, very good news. We expect to get the first patient in very soon. The trial will include, with the current trial design, will include 141 patients. As I said, high impact centers engaged. I met most of them during April and I feel very positive towards this trial. It would be interesting to follow it. In Europe, as we have stated earlier, it's all included patients. We will now look at the data. We have submitted the technical files to the notified body, etc. And we will now work closely with our notified body and competent authorities to enable regulatory approval and commercial launch in in Q2 next year. I want to point out two things. The first one I already said, it's about the DCD that might prolong the start of it, but we'll shorten time to market for DCD. The other one is that with regulatory approval in Europe and the MDR and the notified body, we can affect our timeline and we all have met all of the timelines for submission. It's hard to affect the notified body. They are under a lot of stress due to MDR. So it's hard to promise anything in terms of regulatory approval. But as I stated earlier, we will investigate compassionate use, et cetera. So we believe that we will have commercial product on the market being used, gathering more data and more experience. Anyway, Australia, I think I said most of it. We have very good results, encouraging results from that study, really pushing the limit of what we can do in heart transplantation. To point out in terms of go-to-market strategy, the Australian regulatory approval will be pending CMARC. So I think we expect that to come shortly after we expect the CMARC. And then we have the last piece of regulatory approval and clinical trial, and that's the liver and the US or access to the US market. And we have a very good product. Liver is probably our fastest growing product right now in Europe. We have very good clinical results and more and more convincing clinical data is coming out every quarter. And of course, we want the US market to also have access to this product. We are granted breakthrough device designation by the FDA. We are in a trial design and planning phase. And we will start actually investigating or investing towards a liver organization already now in 2023, 2024. And we are investigating the possibility of having a US heart PMA trial parallel to a liver PMA trial and to accelerate the time to market. And I will come back as soon as I have more information on that investigation. But that will definitely be great in terms of time to market for both the liver and the heart DCD products. On the next slide, slide 11, we have PRIMEC and as you know last night we sent a press release that we will stop patient inclusion and look into the data to evaluate strategic options we have. And the reason for this is partly that we saw a quite slow patient inclusion and we want to know why. The other reason is that we are getting more and more focused by the day. I said earlier that we have a market opportunity that is 100 times bigger than we see today, which is roughly 10 times more in volume and 10 times more in value for machine perfusion versus standard care today. and we see that we need to focus in order to capture that opportunity so that's partly it we have primek is a fantastic product what we have seen so far it's used to prime heart lung machines it's a c-mark patented solution and we we would look at it the data to analyze it and then after we have looked at the data from from this that the patients we have we will evaluate next step going forward. We have decided that we should do that before the end of the year and we hope that we can come back before the end of the year with strategic options for this product. I also want to make sure it has no impact on 2027 financial targets or any day-to-day business in terms of Exvivo and just to be clear on that. And with that, I turn to slide 12. I hand over the word to our CFO, Kristoffer Nordström, that is actually on the picture right now. And thank you. I come back to the last two slides again and for questions.

Thank you for clarifying the picture, Kristoffer. Good. Kristoffer has given a very good overview of this great quarter so far, so I will and a few minutes here on discussing the numbers further. But in many aspects, this was a record quarter. I mean, it was record sales for the business areas. We achieved the milestone of 70% gross margin on abdominal. EBITDA was strong, et cetera. So overall, we are very content and satisfied with the quarter and the trend that we see at the moment. A little bit about numbers. So net sales came in for the quarter of 155 million SEC. That's a 64% increase year on year. Most importantly, the organic growth was strong, 46% in the quarter. Gross profit increased 48 million SEC to 115 million SEC. That's a big jump up. We delivered a strengthened total gross margin of 75% versus 72% last year. Both EBIT and EBITDA were strengthened significantly versus last year, and we also achieved a sequential improvement versus Q2, which is great. EBIT margin 10%, EBITDA at 19%. The adjustments that we present when we talk about adjusted EBIT, EBITDA margin, that is related to integration costs in the US as previously announced. Year-to-date sales amount to 295 million SEK, a growth of 58% where of 40% organic. Year-to-date EBIT 9% and EBIT 18%. I will move to the next slide and go into the business areas. Thoracic performed well again this quarter and continues to deliver growth sequentially. Net sales amounted to 105 million SEK. Organic growth for disposables was 47% in local currencies. The main driver for this growth is EVLP and that is of course what we want to be the main driver, right? So in Q2, EVLP activity was especially good in the US where volume growth versus the first quarter was significant. If we stay on the long side, we sold one XPS machine in the quarter, our first machine to a country in the Middle East, which is exciting. We expect that the next quarter will be a little bit more busy, especially in Europe in terms of XPS placements, but it's always a little bit uncertain quarter to quarter. As we have described, or Christopher has described, we continue to sell our heart products in Australia under special permit. And the sales was 7 million SEK in Q1, and this quarter it was 5 million SEK. So we continue on a very good trend in Australia, which is exciting. Gross margin disposables was good. 84%. We have presented gross margins at the mid-80 level for a few quarters now, which is strong given inflation and cost pressure overall. To further improve our margins, we will continue to focus on price increases year on year. That we always do. But we will also, as Kristoffer mentioned, we will invest in supply chain and manufacturing improvements over the next two years, and that will also be beneficial to our margins, also long-term. And this goes for all our organs and our full portfolio. If we move over to abdominal, NetSafe came in on 30 million sec in line with Q1, which was an all-time high quarter. So that is a good trend and a good level at the moment. Growth of disposables was specifically good, 79% in local currencies year-on-year, where 40% was organic and 39% was acquired, and that's represented by the additional profusion service revenue that we have in Italy at the moment. Sales were mostly comprised by European sales, approximately 86% of total sales, and the lion part of this is liver. Worth mentioning again, gross margin disposables reached 70%, and this is a milestone for us, and it's a significant jump up from last year's 56%. It's a result primarily of two aspects. First of all, as I mentioned, they added margin from our perfusion service in Italy, but also, secondly, we see a good progress also on our ASP development on liver in Europe at the moment. So to our third and last business area, services. As Kristoffer said, great momentum, a lot of positive initiatives within this business area, the procurement service division that we have in the US. So we have seen in the quarter the interesting collaboration with MGJ Aviation, We are having great discussions with customers. We are currently renegotiating many of the current contracts with good outcomes, and we're also hoping to bring in some new prominent transplant centers towards the end of the year here as well. Sales were 20 million. in line with the last quarter. That's a 79% growth versus last year. The number of cases in Q2 was 150, and we showed a strong growth in lung volumes, which is very interesting and very good. So lung recoveries are a bit more complex than heart recoveries, and this growth in lung volumes is a true quality stamp for our organization. will fit perfectly well also when we enter the new phases of integration here in the future. We performed close to 500 cases last year, which is a significant number, and our role in 12 number now is 564, and we expect to reach about 600 cases for the full year 2023. I would say key for future growth here is to continue to invest in this organization in both surgical capacity, but also infrastructure. And we should also not forget the quality insurance and the quality part. So by leveraging Xvivo's brand and reputation, we are very optimistic that we will be able to attract more surgeons in the future and also win more customer contracts as well. So overall, now when we enter into the new integration phase here, this organization is in a very good shape and ready to grasp the big opportunity that we all see in the US in this area. A little bit about profitability and EBITDA. So Q2 was a good quarter also from a profitability point of view. EBITDA adjusted for integration cost was 29 million SEK, responding to a margin of 19%. Rolling 12 months EBITDA, 60% representing 83 million SEK. The positive development is primarily a result of increased sales and the gross profit and to Christopher's point we are continuing to invest in the organization and we will continue to do so for the rest of the year. My final slide for today, cash flow. So here as well, Q2 was good. So we had a positive cash flow from operating activities, 16 million SEK, a big improvement from last year. Our role in 12 months operating cash flow is 43 million SEK. We continue to invest primarily in our R&D projects, where heart is the biggest one. 47 million in total, but in these numbers, we also had some one-offs, if you may, because we made some final payments in connection to the acquisitions of ABINUDE and STAR teams that amounted to 18 million SEK after this 47. And the cash position at the end of the period was 171 million SEK. So that was everything from me, and I will leave the word over to you again, Christopher.

Thank you. As always, I will end the presentation with the outlook. We start with a long-term outlook. Some of you have heard this before, but repetition is the mother of learning. We're still looking at a demand that is 10 times the supply of organs and number of transplants today. And this is something we have in our vision that we will need to adjust in order to make sure that nobody dies waiting for lung. The sales value for machine perfusion versus cold static storage is roughly times 10. So we're looking at the market that is 100 times bigger than the one we see today. Machine perfusion has proven to increase the number of organs to be used for transplantation, especially in the fast-growing DCD pool, but also in a lot of DBD organs, which is called marginally extended criteria, DBD. So machine perfusion on normal and DCD grafts will drive growth in the future. We will continue to invest in this market opportunity with service models, improved machine profusion, etc. And lastly, I would say Exvivo has a unique, innovative and world leading products that are second to none on the market today or in clinical trials for regulatory approval in the world. And this puts us in a unique position to capture this this opportunity. And we are now getting more and more ready day by day to deliver on this promise. And if we look into the little bit shorter term, what we do during 2023, we said that we have four focus areas. And the first one is definitely to receive continued momentum for machine perfusion. I think it's more and more proven that this enables more transplants, higher survival rates, and it's getting used more and more. To drive this, we believe in hub models and service models. So this is what we market and drive towards, and so far has been successful. Number two, we have the kidney assist transport with a continued introduction in both the US and Europe. We have very good results and customer feedback so far. And we are tweaking the product to fully meet the American market needs and scaling up our production to meet the full market need. But so far, very good initial flow. I have, we already talked about the production scale up times 10, a very important project that we already started and we continue to invest in this in order to meet the increasing market need. The HART products is, we have already now prepared for the commercial launch in Europe and Australia and we are definitely in the in the start of the PMA trial in the US. And as I said earlier, we are negotiating with the FDA how to include DCD. And that's the last part of the puzzle before start. In liver, we are prepared for trial application and submission in the US. So those are the things you should expect more information on during 2023. And with that I close the presentation part of this call and open up for questions.

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 Trattner from Carnegie. Please go ahead.

Thank you very much and good afternoon and perhaps good morning to you, Mr Nordstrom. A few questions on my end and I hope you can hear me all right. I'll start off with some broader questions and then perhaps going in with a few regarding the quarters. But if we can start off with SCAR and integration and the new collaboration with MTJ. And Christoph, you touched upon this briefly throughout the presentation that you were seeing a situation where you can expand the service offering in the U.S. on the base of this sort of similar to that you have in Italy. What does this mean in practice? Are we to expect here in the medium term that Tixio will operate service, production service centers in the U.S., or what should we expect?

Yeah, Christopher Rosenblatt here. I mean, right now we are trialing that if we call it the italian model in in a limited number of clinics to see you see so we learn more from from italy it took them quite a long time to to learn it so we are currently trialing it over time we see there is when i go meeting customers that this is both europe and the us they they very often tell me that yes yes we are convinced about the clinical need we understand it that's not it it's like it's a resource issue so I believe this will be a key for success growing our machine perfusion offering in the future but we will start with with let's say trials to make sure if there are learnings. We know a lot from Italy, but we know that there's always tweaks country by country, clinic by clinic in order to make it really good. I hope that answered the question.

Sure, absolutely. A follow-up question on STAARs. STAAR currently have around 9% of all lungs and hearts for transportation out of all recovery of all sort of lungs and heart currently. With this sort of new collaboration and expansions you have in plan, what is a reasonable number in terms of market share for Star in the medium term? Is it in the teens? Is it 20, 30%? What is feasible here?

To be truly honest, we have not had a target market share for the number of recoveries. The main reason being that we want to be a customer's true friend. So we will be there for them. But to paint that in a bit of color, right now for six months, we said no to a lot of contracts because we want to get the logistics right. We want to get everything right. if you put it, nail it before we scale it. So I do believe there is a huge opportunity to grow this market share, absolutely. But we are targeting having, let's say, perfected customer offering rather than a market share target for our services. That's the one thing. Secondly, on the MPJ aviation contract, it will be better for us, for our employees, but it will also be a lot better for the customers. And we will drive down costs in the transplant system where additional flights might increase the legs and with increased costs for the transplant center. So this is something requested by our current customers to have a better service provider, which we now have. have that on board and we can drive down cost per transplant for the transplant center. So I think this would be a great piece of the puzzle, not the only one, but one piece of the puzzle for a great product service offering.

Great. And if we were to jump to the ID and for ART, and as you mentioned, it's great news that you may also include D2D parts in the U.S. study, just, and you alluded to some uncertainty when the study can start, but call it out to be in the second half of this year, but how fast do you expect to enroll patients now when you, if we were to reason that DCDs were to be included? So how fast would it take for you to include all these patients?

That's a great question. We have said before we included DCDs, but we it will take uh roughly 18 months if we include the dcd patients we will almost we will double the pool of possible organs so we should be able to do it faster uh for sure so i don't think that uh just because the first patient might be a little bit delayed due to negotiation with the fda i'm not sure that the last patient didn't will be affected in any major way. So we are now spending all our time on getting that negotiation with the FDA finalized as soon as possible. So all the clinician knows what protocol to follow.

Great. And on regulatory pathway for heart in Europe. I know the MDR is a new framework. It is a lot of work that needs to be done. But where are you in the process with NotifyBody? Have you submitted the technical file for the hard machine yet?

Yes, we have. So I hope I was clear during the call. We have really met all our deadlines. But I'm always very humble when it comes to regulatory bodies such as Notified Body or the FDA, etc., that we can, of course, affect some of the time by sending in good quality reports, etc., and answering questions fast. But we can never affect their working burden, so to say, that could be high during some periods of the year, etc. So I'm always a bit humble, but we have kept our lines. We have handed in the technical file for the hard box. So that is done. I'm waiting for review. And there will be questions, of course, and we will turn around them in a fast and correct manner. That I can promise.

And last question on heart. Since you've been participating in a lot of conferences and you have a lot of now user feedback, and what is Because he's saying that feeling is believing in the heart. What is the key aspect of the heart machine? What are they the most impressed about? Is it avoiding primary graft dysfunction, or is it the prolonged transportation time, or is it both?

It's actually a combination of both, but I think that the What was mind-blowing to all of us was when McGiffin presented during ISHT and pushing the time limit so far with so many hearts going way beyond what was normally accepted in terms of ischemic time and showing up that low 30-day mortality. I think that was because he compared it to the ISHT average. which is 8% already at five hours. And most of the hearts in Australia were going beyond that time limit at 0%. So I think that was mind blowing for all of us. So that's one part of it, the clinical results. I would say the other one, which I hear over and over again, and this is what I mean with seeing is believing, is that it's easy to use product, but especially for a heart surgeon to see the first punch being really like it's never been outside of the body, that gives a lot of confidence. And I think that means more than we think. Because once you have transplanted a heart, you're really looking for those early signs. Was this a good heart? Was this a good transplant? Will this be successful over time? And those early signs from the surgeons, will actually mean something because you see that when the chest is still open. So I think that is definitely so important. Then lastly, I think a lot of, if I talk to a lot of surgeons and they ask, what can I do for you? And many of them tell me, if you can make this a daytime procedure, I would be thankful because it is exhausting over time to... always go up two o'clock in the morning for a transplant and before that being active for 20, 24 hours in the organ procurement or allocation process. If we can simplify that and do it scheduled six o'clock in the morning, that would be great. And I think this is one step in that direction where you enable the logistic at the hospital to be better. You also enable, you take away a lot of insecurities because once you You don't know how long time it will take to explant the heart from the patient either. That's an insecurity every heart surgeon has, is that it could go quick, but it could take hours. And you know, every hour counts. And with our box, they know that they have that time. They can do it correctly, the explant of the old heart as well, so they don't... destroy any blood vessels or anything. So it takes down stress, et cetera. So it's a multi-faceted reasons, I think. It's not a silver bullet, but it attacks a lot of the worries from the transplant surgeon team.

Great. As we're talking about seeing is believing, what's holding back in the US?

Sorry, which one in the US?

Kidney assist transport.

It's more, I would say it's not the market this time, it's more us. We are, when we launched it, pre-launched it in the US, we got early feedback from the US market. We decided to address that. Long story short, the kidney assist transport is designed for the European market. The opioid system in the US has different demands on the product. So we adjusted those. And we are in the progress of that. So that's one thing we are addressing right now and improving while we're talking actually. The other thing is the production capacity where we have decided that the big scale up times 10 will be the big reason. Or the big solution to scale up of production capacity. But we had some let's say early child diseases in terms of production ramp up with the current supply chain where we are addressing that now. And hopefully in a year or less than one year, we will have addressed it fully. So it's more us than the market because when I talk to our sales reps in Europe and the US, the interest for the product is there and they really like to use it. It's easy to use. They like the product. They love the clinical results they have seen in clinical trials. they have done small scale testing themselves with standard of care and they see that it's performing accordingly. So it's more us than the market.

Okay, great. Last question on my end. Short one might be for Nordstrom. I know that R&D in percentage of sales Did it jump in this quarter? Is that something that we should extrapolate going forward or were there some sort of exceptional cost here in the second quarter?

Thank you Ulrik. I would not quote a specific but specific to this year to date is that we have taken a strategic decision to allocate less internal resources to some of our capitalized projects that has led to those costs being taken over P&L instead. And for the year today to talk about five, six million SEK. And that will continue. So I would say the quarter was pretty busy in terms of audits. I can't remember the exact number here, but I would say that broader answer, yes, you should continue to see this type of spend on the R&D.

Okay, great. Thank you, Kristoffer and Kristoffer, and I'll get back into the queue.

Okay.

The next question comes from Jacob Lemka from SEB. Please go ahead.

Hi and good afternoon. I have a few questions and I hope we have time for them. I'll take them one by one. So my first question is relating to EVLP in the US, which seems to be accelerating. I'm wondering if there's any new hubs that have been established or anything else in particular that is driving the strong growth?

Thank you for that question. In general, in the US there are definitely hubs around Cleveland that start to deliver. But in general, what we can say is that the hub model does deliver. And we can see the same pattern in Europe and in the US, that it works. Not unexpectedly, but it's always good to get proof.

proof that what you thought would work that it actually works so it's not right now it's not so much it's maybe one more hub in the us but it's more that the hub model works that we see okay and then moving on to to the hot products i mean obviously i i guess it's you know facilitating more transplants in australia and new zealand right now but do you have any sense of i mean how much of the growth is driven or how much of the volume is driven by new transplants recently, you know, existing transplants that otherwise would have been, you know, able to do.

I actually have asked the team the same question, but I did not get an answer yet from Australia. In the US, you have really good statistics on number of transplants. You don't actually have the same transparency or easy access to data in Australia. But I'm waiting for that answer because I do hope and believe that many of those transplants are new that would never, ever happen. And we know that definitely all the transplants going beyond five hours are new. That we know, but we don't know the exact number in percentage or number of transplants right now. But I will hopefully come back during the next call in October with a better answer.

Okay. And then on heart in Europe, do you have a sense for when the first compassionate use approval could come?

We actually have in one country approval for it. I don't know if there have been any transplants under it. So we are working with, let's say, less than a handful, but it's three or four countries in Europe for compassionate use cases. But I know in one country we have approval. So we hope that that will come soon. I know that the interest is high. from the clinician side. So we are doing our utmost to facilitate this, of course.

Okay, and then moving on to the investment in production capacity. Do you see any risk of any bottlenecks before you're up and running with the new investment?

um there there are always risks uh we are i mean the operation team is working day and night to make sure that we have no back order i mean we have a vision that nobody should die waiting for an organ and and we should definitely not be be a reason for for for with non-delivery um we do We do believe that if we don't make this investment, there will be a high risk. We believe with this investment, we have lowered it significantly as far as we possibly can.

Okay, and then the final question relating to the news on Premec. Just if you can share how many patients that have been recruited in the trial to this date, and if you think that will be enough to draw any new conclusions.

Soon we will be able to do that. This information has obviously gone out to all the trial members, et cetera, and we will gather the data, both on number of patients and the results from it, and we will come back with more informed. But we are at, is it roughly 50 patient-ish? We don't know if we can draw any conclusion based on that. today but we hope uh at before we meet in october again that we have some initial idea based on on the data uh when we have seen it but but right today i mean the the decision was taken last night so so it's hard to to say anything right now okay uh understood that was all the questions from my end congrats on a big quarter thank you so much

The next question comes from Johan Aniris from Red Eye. Please go ahead.

Thank you for taking our question and I hope we can hear us pretty well. Just some short questions on the heart and the US opportunity, the DCD segment is of course very interesting to say the least. What time frame should we expect to get a clarification if this is included and how confident or optimistic are you that this could be included?

Great question. I will start that with saying that when it comes to regulatory bodies, I always have Large portion of humility, and I always try to be humble. They can always choose. But we should remember this time they've asked us to include it. We did not ask them. Hence, I believe there is a high chance of inclusion. Otherwise, I don't see why they would actually ask. It was by request by the FDA. Number one. Number two, I know that there is... We have handed in our proposal already, so we've done our part. I do hope and believe for the same reason that they have requested that we have a fast turnaround time, because they also see the need from American users and the American market to have a good technology helping take care of more organs and making sure that more transplants are available increasing patient survival and reducing healthcare costs in the US. I believe they have a motivation for doing this as well. But again, I mean, you should always be humble. They set the rules and we apply to them. That's how it works in our industry. But I do have high confidence that it will be included and that it will happen in a short timeframe. And we have We are still working towards first place in the end of September, but I do realize that if there will be a need of negotiation, that could be postponed with a couple of months.

Thank you. That's very useful. And sort of a more overall question. Of course, there is always scope for economies of scale on the OPEC side, given the sort of growth that you are experiencing. But on the gross margin side, the improvement has been rather significant in a short period of time. Should we expect more of a steady state or more mature improvement going forward?

I mean, we are still in early days in terms of scaling. And many of our products are almost, let's call it, R&D type of products that we now set up into large scale production. So I do believe, and that's why we can make this type of investments and get really quick ROI, is because we can be quite easy redesign of the products, make them producible in a fast way. So I think definitely we can expect over time improving gross margins. and reducing cogs for sure. Then also wise from experience, it looks like a lot happened now and nothing happened before. I know it's a work that's been ongoing for many, many quarters and years. So it's just that sometimes you see it more in the numbers than you've seen previously. So it looks more than step change than the reality, which is more of an everyday hard work. type of improvements where you improve a little bit here, a little bit there, definitely. But I believe after this two-year period, we will see improvements in the cogs. I do believe that. There are huge opportunities for improving the cost structure and the design of the products to make them scalable.

It's more of a gradual journey going forward, perhaps. Yes. And finally, you managed to reorganize and integrate the service offer considerably and in a short period of time and at the same time keeping up the strong organic growth and also improving margins at the same time. That's rather impressive. And you alluded to that the whole hub model is accepted and liked and works in Italy, rolling out in the US. Should we expect this to continue in other big markets?

Yes, we should expect that. There is a true underlying need that drives this change, and one is definitely capacity. And the other one is, let's call it the work burden on the transplant team, where if a transplant takes 24 hours, that is too long time to scale up the number of transplants. There will be high burnout ratio in the transplant community if we don't do anything about it. And when the transplant team really adds value is doing that, taking the right organ to the right patient and being rested and do the implant itself. The rest of it, we should be able to support the transplant industry with solutions and services and good product for better valuation, better transportation, better recovery services, et cetera, et cetera. So they are spending their time where they truly make a difference for the patient's life.

OK. Thank you.

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

Yes, thank you and good afternoon, gents. I have a couple of questions and I will take them one by one. First of all, I noticed that you, I think it's the first time officially that you have asked stated that you may contemplate running the heart and liver projects in parallel for the US. Do you expect your current financial position to be sufficient to cover doing that or are you looking at some kind of financial arrangements in order to go ahead with that plan.

Very good question, Peter. Yes, that is one of the cornerstones, is that if we do this, we want to go full force ahead and not do it sequentially, but do it in parallel. And to do full force ahead with two PMAs, my judgment today is that we need more capital. I have to be honest, that is obviously the board's decision, but I have proposed That could be one way forward. The other item we need to contemplate is definitely on the resource side, our own resources running two PMAs at the same time. It could be quite burdensome for a handful of people who are having key competences in especially running PMAs and dealing with the FDA, et cetera. So those are the two questions we are currently contemplating. to do that but I think the business case of getting early to market with liver it holds we see that it's I think our fastest growing product right now and the user experience is great we believe we cracked the code with the Italian service model and

And we finally see that we have reached those high penetration ratios we always wanted. And we actually see growth from there. So I said before, we have roughly a 25% penetration on the liver product. in the Italian market versus compared to other European countries that are down at five. So we see that we have cracked a lot of, or straightened out a question mark, I should say, regarding both heart and liver in the past six months that has brought this question to the table. Okay, great.

The 50 million in the capacity-enhancing investment that you are planning for the next 24 months, is that spread evenly over that period or is more at the beginning or at the end and also are there any specific disposables that needs a boost in capacity or is it more broad-based all over the your product assortment?

I would say that the one that I We don't need it now. Now we can wait a little bit. It is lung. But I would say for heart, liver, and kidney, I think we do need to do ASAP. So what we will do is we will start with heart and liver, scale them up. That will leave a lot of free capacity for kidney, because kidney and liver today are sharing one supply chain. Put it that way. So that's where we focus the most on, and then we will bring in the kidney assist transport disposable right after we deliver an heart.

So that's the plan, and after that we will do lung. In terms of investment, it's always hard to predict, but according to the plan, the team put forward we are at a pretty even pace during this time period. Okay. Great. Thank you. And then I am I think it's good that you postponed the start of the U.S. hard drive by including DCT donors instead of excluding them. I think you're taking the right decision to go after that. I was just wondering How does it look in Europe and Australia? It's a different kind of approval process there. Will you be able to use the heart product for DCD donors in those geographies? It depends on the label. We don't know exactly the label right now. I would expect speculating and talking from experience that we would need to do some addition small-scale confirmatory studies to include in the label. That's my expectation, and that's what we're working towards right now. We have already started and seen positive results from preclinical trials. If we could transfer those into clinical settings, I would believe that that is sufficient, and that's what we have seen before in both Europe and Australia. Okay. Great. Thank you. And let's see here. You mentioned the launch of the kidney assist transport has been rather slow due to some logistical problems and the tailor-making that you needed to do for the U.S.

market. Maybe I heard you wrong when you said, well, I think I heard you say that all these problems will be solved within one year. Did I hear you correct or Will you be more active in the launch process later this year?

Thank you for clarifying that. What I meant with one year is that we will scale up production a lot in one year with the scale up project. So in one year we will have definitely solved all the issues. But I would say already now while we're speaking, we are solving the issues and we are launching customer by customer right now. So we see progress over time, for sure. It's improving every day. So it's more of a gradual.

But in terms of production capacity, especially on the disposable side, I would say when we can release the whole production set up, to kidney, that we now are doing kidney and liver, that would be the in terms of . By the way, I don't want to be in for a while, but I see I have another meeting in one minute. I have just a short final question for Nordstrom. It's regarding the financial income and expenses. They have been rather high, I guess, its revaluation of assets and liabilities. In the P&L you mean? Exactly. I think it was five In the Q1, now it's seven, almost eight. It's mostly currency-related, you know, with a strong dollar and revaluating assets and liabilities. So it's nothing significant. No. And do you expect them to be at this level for the rest of the year? That is very hard to answer. since it's exchange rates related mostly. Okay. But if they are staying at the current levels, then there would be no big differences in the future, I would say. okay thank you that was one for me thank you thank you so much and with that last question i would like to thank you all for participating in this call and I wish you all to come back in the Q3 earnings call in October. Looking forward to that. And before that, I hope that you all get a great summer and talk to you soon again. Thank you so much.