© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Great. I see that the clock is already half past 2, so I think we'll start off this presentation. And my name is Ulrik Trattner, research analyst at Carnegie. And we are very pleased today to host the Q3 conference call for XVIVO Perfusion. And presenting the company today is CEO, Dag Andersson; as well as EFO and -- or should we call you CFO, Christoffer? Or would you like to go under a new title?
No, no, no. Ulrik, it's fine.
Great. Well, I'll hand over to you, guys. [Operator Instructions] By that, I will over -- leave over to you. Thank you very much.
Thank you, Ulrik. So yes, Dag Andersson and Christoffer Rosenblad with you here from Gothenburg, and it's our pleasure to talk you through the Q3 presentation. When it comes to, let's say, the key highlights during the third quarter, I think the main sort of highlight is truly the acquisition of Organ Assist. So if you turn to Page 2 in the presentation, you can see here that the #1 highlight here is the acquisition of Organ Assist. And Organ Assist is a Dutch medtech company with machines for perfusion of liver and kidneys. So that was achieved during the quarter. And with this acquisition, we actually become the first company in the world with products for all major organs. And that is something that I am very pleased to see or witness after having been the CEO only for a couple of months. To finance this acquisition, and to fund projects which will arise as a consequence of this acquisition, we raised SEK 500 million in a direct share issue, and actually with no rebate, which I think is quite an accomplishment. Another highlight was the positive adjusted EBITDA of 22%. This is actually one of the very best quarters throughout our history. Christoffer.
Yes, that's correct.
As long as I know, even if I haven't been with the company more than 5 months, but that's what I was told. A very strong margin of 78%, of course, contributed to these EBITDA results. In addition to the above, the new complete management team of XVIVO was also formed during this quarter and the organizational changes executed. And you can see here also in the footnote on Page 2 that we adjusted EBITDA with costs associated with the organization change of SEK 5.4 million. So now the organization changes are complete, and the new organization is up and running. On top of all this, a strategic plan for the next 5 years was presented to the Board of Directors in September and approved, and we have now started to execute the strategic plan. If you move to Page 4, you can skip Page 3, move to Page 4, where we are actually showing the development when it comes to the number of transplants. And we have used 2 countries as examples. One is United States of America, which is our biggest market today, and we have also included Spain. And Spain is, as some of you already know, the largest transplant market in the world, in relative terms, of course. And it is very clear that during the month of April, there were very few transplants carried out, both in the U.S. and in Spain. A gradual improvement has since taken place, but we can also see here that in Spain, and taking non-transplants, pulmonary transplants, the numbers are not yet back to pre-COVID-19 level. All in all, lung transplants has suffered less in the U.S. versus Europe and Australia. So that is the takeaway from Page 4. If we then move to Page 5, clinical trials update. I will start with the heart preservation project, which is a very important project for us. And we have, as you know, planned for a EU trial ready to be executed at any point in time. We were planning to have the first patient in October. That might be delayed 1 or 2 months due to the COVID-19 situation, but the planning for the trials and the training and agreement with hospitals is all being executed, as previously planned. When it comes to the PrimECC study, it says here that PrimECC is patented and so on. We have actually already included 7 patients in the PrimECC study. And hopefully, the number of patients that will now be included will increase at a fast pace. So these are the 2 major sort of trial updates that I sort of wanted to share with you, and I'm very excited about both of these projects. And of course, the heart preservation project is extremely important for us and will give us a good commercial edge when we are able to launch these products. I will talk a little bit about the strategic plan on the next page. And what I have listed here are the 5 strategic objectives that we have agreed on as a leadership team and also approved by the Board. For each of these 5 strategic objectives, there are very clear actions and measures in place. The first one, to build a high-performing team. The leadership team is in place, which I mentioned before. Our new R&D Director, Charlotte Walldal, who joined us from Essity. He just started in the company a few weeks ago. So with Charlotte, the leadership team is now complete. And then as you also know, Christoffer Rosenblad, who is sitting next to me, he will take on the role as Chief Operating Officer on December 1; and to replace him, Kristoffer Nordström, who's currently serving as Head of Accounting, he will then become CFO for XVIVO. But all this is happening on December 1 even if, naturally, there's already a transition sort of taking place. When it comes to the second priority, which I talked about when it comes to highlights, we are now becoming an organ provider with the acquisition of Organ Assist. We are able to offer devices and solutions for transplantation and perfusion for all major organ areas. And there is no other company in the world which has imported all major organ areas. So this is something that will, of course, be very much in focus in the coming years to make sure that we reach the strategic plan, financial ambitions. Commercial excellence, which is then the third strategic objective. Last quarterly report, I talked about XVIVO becoming more commercial. And this is now happening, step-by-step, together with the new Head of Commercial, Johan Holmström, who joined early September. So what we are doing, in very concrete terms, we are introducing new incentive models for key account managers. We are looking at geographic expansion. We have actually just now hired our first sales manager in China. We are looking at adding more key account managers also to ensure that we can sell the full range of products with the Organ Assist products being added to the assortments. We are looking at strategic pricing. I had also mentioned before that we are raising prices. We have done so October 1 in the U.S., and we do so in Gothenburg from January 1. So strong focus on product pricing and profitability and, on top of that, development of additional professional sales tools. Customer-driven innovation is the fourth strategic objective. And it's all about ensuring that we implement through customer insight-driven processes and optimized time to markets and also improve the customer experience. And last but not least, which will be Christoffer's responsibility in his new role, operations excellence. We will implement new distribution models, focus more on cost of goods sold, improvement and also design for manufacturing to ensure that we continue selling high-quality products at high margins. On Page 7, you can actually see the new leadership team. So you have pictures of us all. And as I said, and you can see the footnote here, the CFO, the COO transition sort of happens on December 1. So this is the complete management team of XVIVO. I would then move and talk a little bit about Organ Assist. And if we move to Page 9, I also mentioned this before, but the key takeaway here is that with the acquisition of Organ Assist, we do become the world's first global all-organ provider. And the aim is to become first choice in organ transplantation and evaluation for all multi-organ clinics and organ procurement. And our aim is, of course, to combine our unique and patented solution technology with the liver and possibly also the kidney machines that Organ Assist are producing. Organ Assist products have not yet been commercialized in the U.S., except for test sales, because they have not worked with FDA, with regulatory approvals. And therefore, our U.S. footprint and our knowledge about the U.S. will be very vital in penetrating the U.S. market. We know how to manage regulatory processes in the U.S., and we have already started working with the FDA approval for Organ Assist machines in the U.S. On Page 10, you can see a little bit the product range offered by Organ Assist today. The kidney transport device that you can see on the bottom of the left is a new device. It is CE marked, and this is the device that we will then apply for FDA approval in the U.S. to be able to commercialize it. The Liver Assist machine is, today, their biggest product, followed by Kidney Assist. They have a lung machine, but it's a very small product in -- when it comes to sales. So their focus has been on liver, followed by kidney. We are planning to commercialize the kidney transport device in 2021 in the U.S. as soon as we have received FDA approval. Next page, which is Page 11, shows the importance of machine perfusion and warm evaluation to drive the availability of donation of the circulatory death organs. This is the way to safeguard that transplants take place and, thus, reducing waiting lists. As previously stated, the demand for organs is approximately 10 times higher than supply of organs. Page 12 shows the full range of XVIVO and Organ Assist products. So the first 3 columns, so the current XVIVO product assortment, and the final comments -- column, the fourth column, those Organ Assists aren't offering. And as I said before, the key to success in the future is to combine primarily the Liver Assist machine with our Steen solution warm evaluation solution. So this is the product range. Let's skip Page 13. Page 14 just shows our unique position once more with a presence in all major organs. So today, when it comes to storage, yes, we have storage devices for lungs, heart, liver, kidney. When it comes to evaluation of organs, yes, we do lung evaluation with the Steen solution. And we have the heart project, which I mentioned before. And we have a clinical proof-of-concept study for liver and kidney, but the real work, to combine solutions and devices, will now start as a consequence and result of the Organ Assist acquisition. And treatment of organ, we also have a clinical proof-of-concept study for lungs here. So leveraging strong position within lung transplantation to address the significant multi-organ opportunity. This is key, and this is our future. So if you turn to Page 16 after this, which shows the focus areas for the remainder of 2020, but, also, of course, for 2021. If we start with the integration of Organ Assist, I mean, the combined go-to-market strategy for XVIVO and Organ Assist is being developed. And I believe that our key account managers can sell the full range of products, of XVIVO and Organ Assist products, but they will need more support when it comes to training and product specialists. We will hire more key account managers in North America, Europe and Asia as a consequence of this acquisition. Our first salesperson in China has just been recruited. And China is actually already, today, the second largest transplant market in the world. We will focus on FDA application for the Organ Assist transfer device, 2020 and 2021, in order to be able to start selling that device as soon as possible. We have now one organization in place with common governance, systems and processes. There is an integration projects up and running between XVIVO and Organ Assist, with a detailed 100-day plan. The commercial excellence program has been launched even if COVID-19 continues to have some impacts. High focus on project execution, which means the heart projects. We are developing new Steen solution for the future. We have the PrimECC projects. We have the project combining the Liver Assist and our Steen solution, et cetera. So this is the outlook, and this is the focus for 2020 and also 2021. Just to summarize where we started. I'm happy with Q3 margins and positive adjusted EBITDA. As I stated, it is one of the best adjusted EBITDAs ever in the history of the company. I'm very pleased with the acquisition of Organ Assist and the opportunities this gives us as a company. I'm very happy, of course, with the result of the direct share issue. We have a great management team in place, and I'm looking forward to leading this team to ensure that we execute the 2025 strategy in a good way. And last but not least, the 2025 strategy is being executed. And I showed you the 5 strategic objectives, and these are the ones that we've been focused for me and for the management team or the company. So this was an introduction presentation of the Q3 results. I don't know if you want to add anything, Christoff, before we open up.
No, I think you got it all. And as a CFO, I'm pleased that the cost reduction program worked, that we actually could post one of our best EBITDA adjusted results ever. I think we only have 1 or 2 quarters better historically. So I'm pleased with that.
And I'm happy to hear, when the CFO is pleased with the numbers, it's always good. It's a good sign. So with these comments [indiscernible]
Thank you, Dag. I hope everyone is hearing me all right. [Operator Instructions] I think I'll start off with a few questions that I have. It seems like you're making good progress with PrimECC, with first patients included. Could you shed some more light on how long do you expect it will take to include all 366 patients?
I mean it depends on how quickly we can get more hospitals in Sweden. It's primarily -- it's a Swedish study this time, Ulrik. So we have already engaged Sahlgrenska. Sahlgrenska is the largest transplant hospital in Sweden. And so it was important to get them up and running first. We are now planning to include a couple of more hospitals. I don't know, Christoff, do you know the timing of the next ones?
Yes. We are in contact with actually all hospitals in Sweden. And there's a high level of interest to participate in the following study, so we hope that we can accelerate the pace of inclusion over time. Again, unfortunately, we have COVID-19 that hampers that -- how fast we can get new clinics in the study, but we do hope we can expect inclusion over time.
Yes. So I hope that's, Ulrik, by next quarterly, let's say, update, we would be able to present much higher numbers of PrimECC patients being introduced in the study.
Okay. And you mentioned strategic pricing. Obviously, the price development has been rather flat over the last few years, and you stated that you've been raising prices as of October 1. Could you give some quantification on how much you've started to raise prices? And what's the ambition on price increase here over the next 1 to 2 years?
I mean I think as a principle, if one has unique patented products, it is, of course, a much, much better position to be in when it comes to price increases that should be made to make sort of a competitive situation. If you look at Perfadex Plus, it is the gold standard for preservation of lungs. And we have a very high market share in the world, and we know that the product is unique and fantastic, and everybody wants to use it. So if we want to talk about concrete numbers, we can say that we are increasing prices. Focus has been now U.S., October 1. Europe will follow from January 1. It's, I would say, in the range of 10% to 15%. I think that's a fair average statement, and I also see that price increases will continue with the last time.
And do you see these price increases to bridge the full gap to TransMedics? Or is that too ambitious to assume?
I think, Ulrik, if we wanted to bridge the full gap to TransMedics, we would probably have to increase price much more. So what I'm saying with that is that I believe there is still good room for further price increases. But you know as well as I do that if you come to customers to say that you want to increase prices by 30%, maybe that is regarded as a little bit too much in one go. So everything has to be done in a logical and well thought through way. But the answer is yes, there is still room for more price increases.
Yes. So one can assume that 15% is not sort of the end holding in terms of price increase?
No.
[Operator Instructions] Well, I'll just continue. So you had quite a lot of one-offs in the quarter, a figure amounted to SEK 20.5 million. A lot of these or at least part of this is related to the organizational change. Is there any spillover in terms of costs going into the next few quarters?
Christoff, can you take that?
No. I can take that. No, there should not be. We took the full amount of the organization change in the Q3 as a one-off. And then there will, however, be -- for the integration, there will be -- we'll guide on that how much in due time, but there will be in the next quarters some integration costs that will also be one-offs.
And should these be fully realized, these costs, over the 100-day integration process or something that should be expanded a bit further beyond these first 100 days?
A bit further since you said were actually due to the milestone payments. So the first, that is the 100 days. That would be the majority. And then there will be a lower amount of sum for the remaining quarter until the end of 2021.
And as you mentioned, the milestone payments, or if we should call these earn-outs, could you please shed some more light on what these actually include and what obligations? Or what type of milestones is Organ Assist supposed to reach in order to obtain these milestones?
Well, it's very clear. It's -- the first one is the FDA approval of the transplantable kidney device. And so if that is obtained, there would be a lot -- of another EUR 2 million. And the other one is tied to the sales of Organ Assist products in 2021 with a maximum payout of EUR 2 million as well. So it's a very simple structure. One is for regulatory approval in the U.S., and one is for sales.
And do you have any more specifics in terms of timing of, of course, FDA approval? And secondly, in terms of sales, what type of amount or growth is supposed to be reached in order to reach -- to obtain these milestones?
I can't go into exact details due to the agreement we have with the incomers. It's a pretty steep sales scope, and that we all believe that with the combined organizations -- and in terms of the FDA, I mean, that work is going on. Organ Assist has started already. And we will, of course, support them with all our knowledge, both the FDA and regulatory approvals in general. So that is part of the 100-day plan to support that as much as you can because it's obviously very important for us.
Great. [Operator Instructions] Okay. [Operator Instructions] Going in furthermore then to Organ Assist, looking at what type of synergies could you find in the product development? And then mainly, could you use lung IP in the lung transportation device to improve your current offering?
I think the good answer there is, if you look at XVIVO, what our excellence has been, until now at least, is -- when it comes to solutions. I mean, we have -- we are the world leader in solutions. I mean, the co-preservation, Perfadex Plus solution and the warm evaluation solution, this is our expertise. Whereas Organ Assist expertise has been more linked to design and the, call it, manufacturability of machines. So this is where they are strong on the device side, and we are strong on the solutions side. So I see this as a fantastic match, our solutions and their machines and design. So that will, of course, influence the projects that we run together. When it comes to lungs, yes, they have a lung machine, but sales are very, very limited of this lung machine. And we have our XPS. We know that we need a roller and possibly also achieve the machine on the market, especially for certain new markets. So we are looking at the Organ Assist lung machine to see if this is something we would like to use or if we need to find another solution. But there will be a lot of projects as a result of the acquisition, especially on the machine side because this is where they are very strong and good. So I hope that sort of answers your question, Ulrik.
Yes. I have a question from Michael Edmonds. Sales are down in hardware. It was hard to get into hospitals to sell, I assume. Are there workaround for selling now? If you can just give a general comment on this, it will be helpful. Or -- and is this starting to improve?
Sorry. Just to understand the report you asked. Yes, you said that it's hard to get into hospitals now and..
With capital equipment down, it's hard to get into to hospitals to sell. Is there anything, work you're doing to improve this? And is there any way to work around this? Perhaps digital sales? And is this starting to improve if you would like to view this from beginning of the quarter versus end of the quarter?
You can take this test.
Yes. I can take. To start with, I mean, we are having a pipeline of sales that we are in negotiations. And those are -- that continue even during COVID-19. We did have some -- in the midst of the COVID-19, we actually sold the Vienna machine and sold one to Rome. So it is still possible. That being said, a little bit harder, but we are having a very close contact with all our customers through the year even during the midst of the COVID-19. So I think it's definitely possible, and it is possible. Although we say we work in lungs, but it's impossible to get trade machines deployed into the market, yes.
Right. [Operator Instructions] So just one question for me before -- if there's anyone else. You talked about sort of ongoing work that you're doing right now in terms of getting reimbursement for XPS in Europe. Is there anything that we're expected to see here over the next 12 to 18 months to get a sort of broader adoption?
Yes. I mean, when it comes to reimbursement, I think what we expect to happen in the 12 -- next 12 to 18 months is reimbursement introduction in Germany. So we have already now 5 applications together with a number of hospitals in Germany to apply for sort of reimbursement. So I believe that Germany will be the next country in -- where reimbursement will be introduced. We are also looking at U.K. for lung reimbursement. Then, of course, we need to work with reimbursements for core kidney and liver, I suppose, as a result of the acquisition. So I believe that very much the key to success in general in all these markets is to have a reimbursement model because that takes away the pressure from the hospital, and it becomes -- I wouldn't call it easier sell, but it's not so that price becomes the key catching point when there is a reimbursement model in place. So I'm quite optimistic when it comes to reimbursement that is in Germany in the not so too distant future.
We'll see if we have any further question from the audience. Otherwise, I will let you conclude today's remarks.
Yes. I think, once again, we should just be happy. I think we should celebrate. We had a good quarter. In my world, I think we had actually an excellent quarter to manage an acquisition of a -- on account of Organ Assist to make sure that we also raised the money to fund the acquisition, and not only the acquisition to fund on projects that will come as a result of this acquisition, I think that's a fantastic piece of work by Christoffer and his team. The new strategy, 2025 strategy, with sort of clear milestones and strategic objectives, activities, measures, et cetera, fantastic. And then the new leadership team in place. So I think XVIVO is well -- obviously, well-built now for the future. Even if COVID-19 is throwing its -- I don't know if you say that in English, but, of course, COVID-19 is still here. We have to live with it yet for a while. The shorter, the better, of course. But we are a strong company, and I look very much forward to quarter 4 and 2021. So that's my concluding remarks, Ulrik.
Thank you very much, Dag and Christoffer. And this concludes today's presentation. Thank you, everyone, for listening in.
Thank you, Ulrik. Thank you.
Thank you so much, Ulrik and everyone.