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.