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Edited Transcript of XVIVO.ST earnings conference call or presentation 30-Jan-20 1:00pm GMT

Full Year 2019 Xvivo Perfusion AB Earnings Call

GOTEBORG Feb 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Xvivo Perfusion AB earnings conference call or presentation Thursday, January 30, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christoffer Rosenblad

Xvivo Perfusion AB (publ) - CFO & Deputy CEO

* Magnus Nilsson

Xvivo Perfusion AB (publ) - CEO

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Conference Call Participants

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* Arvid Necander

Redeye AB, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the XVIVO Perfusion report webcast.

I will now hand over to Magnus Nilsson, CEO. Sir, please go ahead.

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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO [2]

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Thank you very much. I have on my side, Christoffer Rosenblad, hello, and I'd like to take you through a presentation of the interim report of 2019, the 29th quarterly report. I have to excuse myself for having a cold here, so I hope you -- my voice comes through.

Right. Slide #2. We have had a historic year 2019, which ended with a record quarter, something everyone hasn't really appreciated, I think. But anyways, in Q4, we had a breakthrough designation in the -- with the FDA for the heart preservation system, something that would speed up the process in the U.S.

We have started up an Australian subsidiary, which was established then after the third of 4 possible XPS installations and also in preparation for our clinical trial in Australia.

During the full year, we had our first PMA, the first for such a product, the XPS and STEEN Solution in the United States. We have submitted applications for clinical trials for the heart device and an updated technical file for PrimECC. We have received patent approval for -- in Europe for Perfadex Plus, patents for heart preservation fluid in U.S. and Europe, have had positive results from the safety study in the Lund University Hospital on the 6 first patients for the first prototype of Stig Steen. And we have actually the full -- the 2-year warranty program offered to all employees were fully subscribed with a strike price of SEK 279.

Page #3. And sales highlights, a tremendous year for us. Record sales in the quarter compared to a strong Q4 last year. A little bit in details, we can see that in the U.S., more clinics bought more this -- and the only difference was really that the Lung Bioengineering stocked up very much last year. But if you look at -- the number of clinics buying more has increased. In the U.S., we can also see a really good development on sales in Europe. Warm sales for disposables increased to -- at about 50% in the fourth quarter. China has taken off from a low stock, but now we can see historically in China. So all in all, a very good year and quarter in sales. And we can also see that we can keep a stable gross margin of nondurable goods at 77%.

We also saw that for the full year, we passed the SEK 200 million mark for the nondurable goods, with a good growth, 20%, and nondurables and warm nondurables of 25%, and also a good positive trend for the cold preservation.

Next slide, please, #4. If we look at the profit and loss statement, there's few points to look at, as we said, continued high gross margin is notable. We can see that we continue to build our customer support crew. We had -- we forcefully invest in the R&D. And in spite of all this, we still have a very profitable lung transplant business. And if you -- especially if you then take away the items that affect comparability of SEK 7 million due to the warranty program we have for our external -- for our employees outside Sweden. If you remove that, we can see that the EBITDA profit actually increased. So all in all, in spite of a heavily investment period, we still show a good profit level and good gross margin.

Next slide, please. So we look at the accomplishments during the year. Next slide, please, #6. We received, as the first company, a PMA for a warm perfusion device for lungs. In the multicenter, we showed that in 110 patients, that were lungs that would never have been used without an EVLP, and we can see that the survival rates for 1 or 2 years was similar to the normal lungs, and we also saw higher use rate of DCD lungs in the study. So more lungs can be used for transplant, which benefits patients on the waitlist.

Next slide, please. The breakthrough device designation granted by the FDA. This program is a mean for the FDA to prioritize those medical devices that they are deemed to be especially important for patients by speeding up the development. So this will shorten the administration time for the whole process, from applications through processing clinical trials and application for approval. So the whole thing means that we get a decreased time to market, which is very encouraging.

Next slide, please. We can also see in China a very fast-growing transplant market, especially now we see in lungs, relevant for us. It's the fastest-growing market with a 35% increase from 2018 and, I think, from last year doubled between '17 and '19, and more centers are being certified to do transplants. And then we have installed a second XPS to the second largest transplant clinic in China, in Beijing, who made more than 100 transplants last year, 2018. So we have most of our products already approved in China, with the exception for the XPS, and we hope to gain that during the year. So we are in the forefront here. And we believe China will continue to grow and be one of the biggest markets in 2 to 3 years in the world, we believe.

Next slide, please, #9. Another big thing for us was the upgraded ready-to-use Perfadex Plus. We have used -- we have sold Perfadex now for more than 20 years, and it's the gold standard in all clinics all over the world, more or less, more than, I think, 95% market penetration. And with the new ready-to-use version, we increased patient safety and ease of use. And it was launched in Europe and U.S. before. And we're now rolling it out in more and more markets. We also got now patent applications and -- submitted in all relevant markets, something we didn't have for Perfadex.

Next slide, #10, please. Another key thing for us in the U.S. market is that we have -- we are collaborating with Lung Bioengineering, a subsidiary of United Therapeutics, where they serve centers, especially smaller clinics that maybe not have the organization to perform their own or not have the time to perform their own EVLP. They can then use this service to have Lung Bioengineering do an EVLP for them and then sending the lung back to the clinic.

They are using XVIVO technology and the XVIVO products. So it's neutral for us. So we now co-market with them to extend the reach of EVLP in the United States. They have now 3 machines that they are -- one moment, validating. And we -- they believe and we believe that they will use that during this 2020, and we hope it will be successful. It's a very important collaboration for us. We also collaborate with another subsidiary of United Therapeutics in the area of xenotransplantation, where we have provided for them to use the new heart preservation technology in that Revivicor subsidiary.

Next slide, please. So let's talk a little bit about the R&D pipeline and what we do to ensure future growth.

Next slide, please, #12. And during -- in the lung area, we continued to develop the XPS. We have released another new version, where a lot of new -- with a lot of new features. And we plan to do that furthermore during 2020, with more sensors for metabolites, blood gases and other things and looking at also biomarkers in order to improve the basis for the decision making that the doctor do, should you transplant or not the organ that has been evaluated.

We also look at expanded use for non-heart beating donors, DCD donors, especially during controlled and uncontrolled, which means patients that arrive dead to or die and -- in the emergency room. We also continued to develop the protocol in collaboration with academic organization, where they look at ventilation, optimizing ventilation strategy, [turn new organ, organ proneing] and other things that could improve the EVLP technique. We also investigate the immunological response during EVLP. We know a lot of things happen during EVLP in terms of immunological response, and the target there is to see if we can even better the short-term organ function and long-term survival.

Next slide, please, #13, which is an overview of the new project -- development projects. Priority one, of course, is the heart transplant project, optimized to -- for the preservation or to sustain organ quality and to increase time outside the body. The second priority is the PrimECC, which is an optimized priming solution to reduce the known side effects by using a heart-lung machine. And second-tier of priority then is -- the third is liver and kidney transplant. We continue to collaborate with clinicians using STEEN Solution for the livers. They have done -- more than 30 transplants have been made with successful results, and then also another number of kidneys, too. So we look at that in the future a possibility to expand the reach of our technology into other organs. And the fourth priority, there's still an interest of perfusion of isolated organs and tissues with STEEN Solution to administer, especially cancer drugs, but also other drugs.

Next slide, please, #14. Let's talk about the heart transplant project. This is the most exciting project we have right now, I think. It's a total novel concept with a very advanced solution. We pump through the heart during -- all the way from being -- taken out of the donor until it's into the recipient, and it's oxygenated -- or that solution is oxygenated in the device. So that means we can keep the heart in better -- sustain the quality of the organ while it's taken out until it's transplanted. And it's also -- in animal experiment it's shown to be possible to prolong the preservation time. The data preclinically, the most exciting was the pig-to-monkey transplant with a 6-month survival, which was the kind of world record in xenotransplant, only made possible with this technology. And we also have, obviously, the first human trial, which is ongoing still in Lund University that made a number of patients. But what's been reported, the 6 patients after 6 months, were shown that hearts can be safely preserved with this technology and with a successful transplantation. And we can also see then a reduced risk for ischemic-induced reperfusion injuries. So very promising results, which have encouraged us to go ahead with full force to develop the second more advanced prototype of both the solution disposables and the machine. And as I said, we've been granted breakthrough device designation from the FDA, shortening the time to market. The patents for the heart preservations fluid approved in U.S. and Europe. We have built a clinical team to run them -- to be able to run the

(technical difficulty)

design be finalized. It's been tested, validated, and the production has been ramped up for this -- making it possible to start up the trial. And the ongoing preservations for the multicenter trials, both in Europe, U.S. and Australia are at full -- at full speed. Centers all recruited. Applications have been submitted. And we have interactions with regulatory authorities. In Europe there are, obviously, 6 different authorities. It takes some time, but we're optimistic and hope that we now can start to -- expect to start the first patient in -- during the Q1 depending, obviously, on authority approvals, the same subsequently in the other countries and markets.

Next slide, please, the PrimECC. So the background for this, priming solutions are always used in order to be able to use the heart-lung machine before it's employed into -- in open-heart surgery. And this -- the thing is that this priming solution, besides the -- having to prepare the heart-lung machine, it also goes and enters the patient's bloodstream at the start of the procedure. This release unoptimized -- nonoptimized solutions, they are known to cause side effects. And there's 600,000 to 700,000 bags of these solutions used each year when running heart-lung machines in open-heart surgery worldwide. And PrimECC is developed to alleviate those known side effects.

Next slide, please. So accomplishments in the PrimECC with -- and are patented now in EU, U.S., China, Japan. It's CE marked. A clinical study is already performed for 40-plus-40 patients showing that it's safe to use, it improves fluid balance, and it reduces side effects using heart-lung machine primed with -- in the Sahlgrenska Hospital study.

We have now made a production. First validation was forced to change the bag into an ecofriendly bag with a -- which is now validated first production with satisfying results. That regulatory file, the new technical file have been for a whole production process relation, authorization, everything and packaging has been submitted actually in Q3 -- or early Q3. And we now hope and expect to have that approved by the notified body in Q1 2020. We have recruited a project team, it's completed, that can run this. And we -- again, we are now waiting final approval from notified body and ethical committee. Preparations are full -- at full speed to start the clinical documentation trial. And we now planned a multicenter trial at 7 Swedish hospitals to start at Q1, obviously conditioned of administrative approvals. But this is in late-stage preparations and really waiting for the approvals.

Next slide, please. So all in all, we look forward. Focus areas, obviously, thoracic transplantation surgery, primary focus. Lungs, further support development of EVLP technology spread in more countries, more clinics and in more clinical practice. The heart, the start-up and running of multicenter trials, all the important markets for regulatory approvals. And PrimECC, here, we have an approved product in Europe, but we need to increase the documentation. We want to do that by starting and running a multicenter study for that clinical documentation.

In abdominal, which we think will be the -- is a secondary focus, but it will be the next area, so to speak, where we continue to exploratory research to see how we can apply the technology in liver and kidneys. Very promising, but in the early start. Further -- we will further investigate during the year.

Long-term year goals, solidify position in thoracic surgery, lungs, heart, PrimECC; build a new business long term in the rest of the organs.

Thank you very much, and we are open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Arvid Necander from Redeye.

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Arvid Necander, Redeye AB, Research Division - Analyst [2]

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Not too much for me today, so I'll spare your voice a little bit. But just summarizing the year and touching upon what you said in the report, how growth has accelerated in Europe during the year, could you provide a bit more of a granular view of this? Is it -- where does the growth stem from? Is it mainly a few selected clinics that are reaching a higher degree of utilization? Or are you seeing growth across the board? Could you give us some insight into this?

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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO [3]

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It's actually both. We have some clinics that really excel and are increasing very much like Paris, tremendous site. I think I know more than 30%, I think, of their transplantations are EVLP right now, but it also is spread into more clinics, applying or employing the techniques. So it's actually a little bit of both.

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Arvid Necander, Redeye AB, Research Division - Analyst [4]

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Okay. Yes. And just a quick follow-up then. If you look at the clinics that have come a bit further, such as the Paris clinic, where you also have the adequate reimbursement, how far these clinics would you say reaching -- how far is the EVLP becoming -- from becoming a, more or less, standard of care in procedures, such as in Canada, where it's the most advanced? Could you provide some insight into that?

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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO [5]

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It depends a lot on the country and the basis for reimbursement. Because in the budget country, so to speak, like Sweden and others, it's very hard, it's kind of mark pill backflow to get these techniques established because of the costs. They only look at cost, they don't really look at the number of patients, unfortunately, treated. While on other places where -- like in France, where they have an external or a special financing, I should say, then it's really increasing. So it's country by country, almost, if you say. We know in Holland, for instance, there is a great improvement in the use, and they have this special system too with insurances. So it's a little bit of both. I mean it's a little bit of -- depending on country. In Germany, for instance, it's a lot of clinics now applying for -- they need to apply for reimbursement ahead. And we know the number of clinics are interested now and they are applying for it, and it'll take some time. So a little bit of both. But you can see on the -- especially in the countries where they have a special financing transplant, then you can see it's much more employed, if that is the case basically. It varies.

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Operator [6]

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(Operator Instructions) There are currently no further questions from the phone lines.

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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO [7]

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Okay. Do you have any on the -- from the Internet line?

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Christoffer Rosenblad, Xvivo Perfusion AB (publ) - CFO & Deputy CEO [8]

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No. I see no questions on the Internet.

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Magnus Nilsson, Xvivo Perfusion AB (publ) - CEO [9]

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Okay. Anyways, thank you all for listening in, and I hope you will join us for next quarter. It's been a tremendous strides in the company for delivering this great year. A lot of things have been achieved. And we're really anxious and looking forward to 2020, where a lot of things will start up, and exciting times ahead. Thank you so much. Hope you will join us next time. Thank you.