© 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.
Ladies and gentlemen, welcome to the XVIVO Group Interim Report Q3 2021. I will now hand over to Dag Andersson, CEO. Sir, please go ahead.
So hello, everybody. Good morning, good afternoon, good evening, depending on where you are in the world. Today, Kristoffer Nordstrom, CFO; and myself, Dag Andersson, CEO, we are happy to present the Q3 numbers and report to you, and you will be able to ask questions. And also on the web, there will be possibility to post those questions. So if we look at some of the highlights during the third quarter, we had an increase of 31% net sales, acquired growth. As you probably remember, we made an acquisition in the Netherlands end of September last year when we acquired the Dutch company, Organ Assist. We have had a good increase also in terms of machine perfusion, percentage of net sales at 53%. Gross margins continue to be strong. We have a gross margin of 78% for Thoracic; for Abdominal, 53%, which is actually higher than previous quarters this year. And as I have mentioned to you in previous calls, we continuously increase prices, and we are now in the process of increasing prices 1st of November for Thoracic U.S., and then Europe will follow in January. Yes. We have adjusted EBITDA margin of 10%, which we are also very happy with. Some of the events, we have launched a new strategy plan, and we'll come back to that, covering the time period 2022 through 2026. We had our first Capital Markets Day here in Gothenburg in September, which I -- from what I've heard was well appreciated. And we had a high number of attendees as well, around 100 persons in total. We participated in a strong way at ESOT conference in Milan. ESOT stands for the European Society of Transplantation (sic) [ European Society for Organ Transplantation ]. We have also delivered a fourth XPS, the lung machine, to Lung Bioengineering in the U.S. And for those of you who were participating in the Capital Markets Day, the main director of Lung Bioengineering was participating in our Capital Markets Day. And they have 2 sites in the U.S.: 1 in Maryland, 1 in Jacksonville. So we now have 2 machines for lung perfusion in both of these 2 sites, which is very, very positive. As regards to the strategy, we have a specific objective, which is very clear. We want to become the global leader on organ company. That is our objective. And we have also clearly defined our economic engine, which is commission revenue per installed machine. We have not done this in the past, but this is going to be a very important key metric moving forward because for every machine that we install, we want to maximize the utilization of this machine and, hence, these key metrics that we mentioned of. When it comes to our strategy, we defined 5 strategic focus areas, which will lead to a global or leading all organ company position. The #1 focus area here is to become a global leader in Abdominal, meaning global leader in liver and kidney with initial focus on the U.S. We are also -- we have also, as a second strategic focus area, the market -- to become a market leader with our heart preservation system. We'll talk a little bit more about that later. We will focus on increasing penetration of machine perfusion. We know that the way to increase utilization of organs is through increased penetration of machine perfusion. So that is something we will focus strongly on. We are working closely with government and in different geographies to secure all-inclusive reimbursement, reimbursement for our products, yes, machines and solutions exist in a number of countries, of course, U.S., Netherlands, France. But there is also a strong movement in this direction now in, for example, U.K. and also in Germany because when there is reimbursement in place, it is not -- then pricing becomes less of an issue when it comes to machine perfusion -- machines and solutions for organ preservation and evaluation. And then last but not least, we know that China in the future, at some point in time, will become the largest transplant market in the world. It's not there yet. United States is far bigger than China, but China doesn't have reimbursement today but will have in the future. So these are our 5 strategic focus areas. I will now let my CFO, Kristoffer, talk about -- this is what's going on in the transplant world with vaccines and meds .
Yes. Thank you, Dag, and I will follow up that with the financial information as well for the quarter. I think it would be good to shed some light on the transplant activity, especially in this quarter, where we saw some effects of the Delta virus on health care in general. So I think this picture summarizes it very well. During the third quarter, the transplant activity, especially in the U.S., was impacted by the effects that the Delta virus had on the intensive care at hospitals. So as you can see it on this slide, the number of COVID patients in hospitals in the U.S. increased dramatically in the beginning of the third quarter. First of July, for example, the number of patients was 13,000. It peaked on September 1 with 100,000 patients. And then luckily, the decrease in September has been equally dramatic. And as we speak, the number of COVID patients are down to 55,000 in the U.S. So this has, of course, had an impact on health care capacities in general. In Europe, the trend has been more or less the same but not far as dramatic as you can see. If you look at the lung transplants in the U.S., the number of lung transplants year-to-date is in line with 2020. There actually has been 24 lung transplants more, but it's 6% down against a more normal year like 2019. In 2021, the first 2 quarters showed growth but the third quarter was down 18% compared to the second quarter. And in comparison to 2020, the third quarter was down 9%. However, the trend in October so far has been positive, so we are carefully optimistic. In the first 3 weeks of Q4, the weekly average of lung transplants was 49, and this means an increase of 5 transplants compared to Q2 this year. In Europe, as we have explained earlier, the COVID impact varies from country to country, and there is no quarterly transplant data available actually. But year-to-date, we can see that the number of lung transplants are the same as 2020 and they're actually identical. So to the financial of the quarter. Starting with the P&L overview and key ratios. So as I have just mentioned, this was a quarter affected by the Delta virus effects of intensive care. Net sales amounted to SEK 55 million, a growth of 31% compared to last year. Growth was entirely an acquired growth coming from the Abdominal business area. Thoracic organic sales growth was overall 0. And I guess you can say that what we lost in the U.S. due to Delta was compensated by stronger sales in Europe and rest of the world. Regarding gross margin, we are pleased with the margins also for this quarter, as Dag mentioned. Total gross margin, 69%. It's a little bit dependent on product mix there. And I will begin to the details on the upcoming slides. Adjusted EBITDA was SEK 5 million, corresponding to a margin of 10%, decent in my opinion given the lower sales than expected. And year-to-date, net sales, SEK 173 million, with total gross margin of 73% and an adjusted EBITDA margin of 12%. If we look into the Thoracic business area, net sales amounted to SEK 42 million and, as I said, means a 0% growth against 2020. Nondurable goods was 94% of sales. We had one expense sale in the quarter, as Dag mentioned, to Lung Bioengineering. Fantastic that they have bought their fourth machine from us. And we will plate 2 machines in England and Germany very soon, which is very promising. In terms of regions, the split was basically what we are used to see. North America constitutes about 2/3 of total sales. Machine perfusion represented 38% of sales. That's quite low. An example, if you compare with 2019, the split is more like -- used to be more like 50-50. And static preservation portion in Q3 was 60%. Strong gross margin, 78% and in line with previous year. Moving over to Abdominal. They showed net sales of SEK 13 million, which is a strong growth compared with SEK 9 million in the second quarter. This SEK 13 million was in line with the Organ Assist sale in Q2 last year. However, they were not a part of XVIVO then. The organic growth year-to-date for Organ Assist for January to September is plus 28% compared to 2020, which is good. As you know, Abdominal more or less only operate in Europe. So therefore, 97% of the sales are in Europe. And gross margin, 53% is the strongest quarter so far. Just a short comment on the EBITDA. Adjusted for onetime costs, it amounted to SEK 5 million, corresponding to a margin of 10%. The items affecting comparability was SEK 1 million in the quarter and consisted primarily of integration costs with Organ Assist. We are now finalizing the central station of the warehouse to Netherlands. And the rolling 12 adjusted EBITDA is SEK 27 million plus, and that means 11%. My final slide for today, financial position and cash flow. Cash flow from operating activities was negative SEK 9 million, and that was mainly due to a negative change of working capital. For example, we are now strategically building stock. We did it last quarter. We do it this quarter again. Both -- we are -- both on Thoracic, we are manufacturing excess sales to meet future demand, which is good. And we are also, for Abdominal, securing products for our upcoming launch since we are moving from one supplier to another. Cash flow from investing activities was minus -- was SEK 20 million, mainly attributable to investments in our heart products as usual. Cash position, SEK 285 million by end of Q3. We see it in line with our internal expectations. And I feel confident that we have a good cash position that is sufficient and that forms a good basis for us to reaching our strategic objectives for the upcoming strategic -- strategy period.So I will now give the word back to Dag Andersson.
Thank you, Kristoffer. I will talk a little bit about the R&D pipeline, let's say, the most important projects where this interesting progress has been made also since last quarter. I will talk first about the European heart preservation trial project where we are running the clinical trials in Europe. We have 6 centers including patients. We just added another German center not long ago, and we'll also add a number of new centers as well during November and December. And the plan has been communicated from the very beginning is to have the last patient in by quarter 4 next year and commercial launch quarter 1 2024. And so far, we have included close to 50 patients in the European study. We also have the preservation trial in Australia, New Zealand. And 2 days ago, we actually released a press release. I'm sure that some of you have seen it. And the title of that press release is that XVIVO set a record for a donor heart outside the body using our groundbreaking technology. And what is unique here is that the donor heart was preserved in Australia using non-ischemic heart preservation technology for 7 hours and 18 minutes before successful transplantation into a 55-year-old man. And by pushing the ideal time limit from less than 4 hours for traditional storage using ice to more than 7 hours using XVIVO's technology, more lives will be saved. So this was a fantastic accomplishment. We are working on making progress when it comes to the U.S. heart preservation trial, and we have the ongoing discussion with the FDA, and the trials will start in the U.S. next year. We also had PrimECC, which has been running for some time. We have so far only had one site included, and that is [ sovereign hospital ] in Gothenburg. But we expect now also Oslo and Copenhagen to include patients and hopefully also very soon to German high-volume centers. And the target here is to have the clinical study report finalized by second quarter next year. So that is for PrimECC. Liver Assist, which is a machine -- perfusion machine, which came with the acquisition of Organ Assist in the Netherlands end of September last year, we are selling this device or this machine in Europe. We are discussing and working with FDA to define the route forward for us to be able to commercialize the machine in the U.S., and the FDA routes will be concluded during this quarter. And you might remember that there was a publication in the North England Journal of Medicine -- New England Journal of Medicine, which demonstrates that 2 hours of dual Hypothermic Oxygenated Perfusion has great sort of clinical, medical advantages put forward for the recipient of the liver organ. So this is the Liver Assist project, the machine. When it comes to the outlook for the rest of this year, we are now in the final stage of preparing for the launch of the Kidney Assist Transport in the U.S. We are expecting 510(k) through it in the coming weeks. And we are ready to launch. We have already customers waiting for the device. And we will know exactly in the next -- I think even by next week, probably there's a date when we will have the FDA 510(k) approval. As Kristoffer mentioned before, we are now actually installing the Lung Assist machine in the U.K. and in Germany. And what's very exciting is that U.K. with a little bit, not copy, but they will follow the Lung Bioengineering model. There will be one hospital active which will be perfusing lungs not only for the heart hospital but also for a few other hospitals. So we expect quite good volumes in being there -- from this. And we are also installing the machine in Berlin in Germany, and we'll start a lung evaluation program there as well. As I mentioned before, we are going to have a conclusion on the U.S. regulatory pathway for Liver Assist. And we are speeding up the heart preservation and PrimECC clinical trials. At the end of the day, we all know that our vision is nobody should die waiting for a new organ. So this was -- this concludes the presentation by me and by Kristoffer Nordstrom. And I would then like to open up the floor for questions, and we will try to answer as well as we can. So feel free to ask any questions that you might have.
[Operator Instructions] Our first question is from Ulrik Trattner of Carnegie.
I have a few questions. Started off some interesting graphs you showed on the development of COVID and transplantation numbers for lung in the U.S. And it looks like we're not back to the level of we were in Q1, Q2. How is this trend progressing? Should we interpret this that Q4 should look fairly similar to that of Q1 and Q2? And sort of a follow-up on that one, these are obviously elective procedures. But to what extent can you actually defer these procedures? And could this even sort of relate to a pent-up demand? Or will these organs that have not been transplanted during this period be discarded?
I mean I think if I answer the second one and Kristoffer can talk about the activity level. When it comes to deferring transplantation, it is quite difficult to do so. I mean you have people on the waiting list, and we know that a high percentage of the people on the waiting list, they die because it takes too long to get the new organs. So I think it's not like we've elected care that you can just move forward the surgery and everything so we work out. People actually die on the waiting list. So I think that is probably the way to answer it. So if you can push -- I mean, there are, of course, different categories of patient on the waiting list as well. And I'm sure the most acute cases are getting a new organ. But -- and if you can defer it sometimes, then you would do it. But I think it's less -- you will not see an enormous pent-up demand. Suddenly, there will be 50% more transplantations after a few weeks. It doesn't really work like that. But we can see the activity level picking up again in Q4. But Kristoffer, you can elaborate on that number, which you showed before.
Yes. I mean it is -- I mean, it's hard for us to predict as well. But the trend so far, as I said, in October has showed an increase of the weekly average of lung transplants, 3 weeks, which is good from 44 in average in Q3 to 49 first 2 weeks. And I also think that if you look at the first graph has shown the number of COVID-19 patients in hospital, it doesn't correlate to 100%. But the peak that we saw in Q3 of 100,000, I think, could be compared with the peak that we saw in the beginning of the year of almost 130,000 patients. So that is less. So -- and hopefully, that means also that the recovery can come -- yes, can come back again.
And have we seen any effects on the waiting lists expanding over this time period?
I mean once again, the problem with the waiting list is that you don't typically add patients to the waiting list unless you know that there is a realistic chance. So there is no real sort of waiting list explosion. I mean it all depends on who is added and how we have people to the waiting list. There are always waiting lists, and we know that the potential waiting list is always much higher than real waiting list. So yes, I mean, if you look at waiting list data in -- there has been 2 weeks of decline in activations. So there is a correlation between waiting lists numbers and, let's say, the availability and access to intensive care. And we are -- I'm sure that you will see the waiting list increase as it's more access again to transplant progress with COVID cases falling down -- coming down again.
Okay. Great. Second question relates to gross margin development. And should we not be able to see the price increases affecting gross margin positively? I don't believe we have really seen that. Or is it too early to call out?
No, no, it's a good question. And if you take Abdominal, for example, we cannot compare it with last year because we did not own Organ Assist or the abdominal product range last year. So that's new. So we can only compare Abdominal with quarter 1 and with quarter 2, and we have seen an improvement in gross margin comparing quarter 3 this year with quarter 2 and quarter 1. When it comes to Thoracic, the 78%, there is a little different product mix this year compared to the same quarter last year. So price increases have taken place. But there are also differences in gross margin if you compare, for example, our Perfadex Plus preservation solution compared with the EVLP offering. So product mix do actually play in here as well. That's the reason why you don't see an increase [ of 78% versus all ].
Also, if you compare to the same quarter last year, where we had the same gross margin of 78% for Thoracic, and that will be good. I mean we have also invested in the organization with people also working in operations with manufacturing. And since -- so the cost basis is a little bit higher when -- and at the same time, we see the same revenue level. So that's temporarily an effect as well.
Okay. That's great. Two more questions, if I may. Starting off with Organ Assist and its potential earn-outs. Does it look like they will reach these earn-outs in 2021? And then do you believe -- one was related to sales, right, and one was related to clinical achievements and registrations. And given the progress of clinical activity, it looks like they most likely would have hit that earn-out. But how sort of will this play out? And what type of earn-outs are we talking about?
I mean there is an earn-out of EUR 2 million -- plus EUR 2 million. EUR 2 million is paid out if we do achieve the 510(k) approval for the Kidney Assist Transport before December 31 and that we feel confident that we will get. So that means an earn-out of EUR 2 million. When it comes to sales, we have quite an aggressive target for this year. The year is not over yet but it is probably going to be challenging to reach the earn-out for sales as we see it right now because we also know that earlier in the year, there was still impact also from COVID in Europe, but it's less so now. So I would say with certainty -- [ you can never have certainty ] that they will get the earn-out on the 510(k) approval, yes, less likely that they will get the earn-out on the sales revenue targets. Does that answer your question?
Absolutely. And will that be booked over the P&L?
Yes, it will be. We are having discussions with -- we raised the question to the auditors actually, but it will most likely be a financial item asset over the P&L according to IFRS.
Perfect. And last question on my end before I get back into the queue. It relates to your quite positive comments, Dag, on Lung Bioengineering's business model on perfusion services. And obviously, you have Lung Bioengineering in the U.S. Should we interpret your positive comment that, that is something that you're looking into Europe, something that we should see as a potential over the next 12 months that you established? Or is there any limitation in terms of reimbursement for each geography in Europe as well as organ allocation program that limits your opportunity to do a similar type of perfusion service model?
I think it's difficult, as I see it now at least, to work sort of cross-border in Europe. It's not that easy because of the difference in a model, some comps have [ reimbursed with others ] still. But as I mentioned, partly in the U.K., it's going to adopt, let's say, a mini model of Lung Bioengineering, where they will be perfusing lungs also for other transplant hospitals. And I know that also in France, I mean, I've talked to -- in Paris, which is a big lab transplant center. They have also expressed an interest in perfusing lungs for other French hospitals. The problem in France is that the surgeons are not that willing to give up on this, and there has to be financial incentive as well connected to this. I mean if you look at Lung Bioengineering, they have a fantastic model in place where they only charge the transplant center if they are successfully delivering, if there is a successful transplantation of lung that they are actually delivering to the hospitals. So that's fantastic, that works in the U.S.. But I think you would see national examples of centralized sort of perfusion models, not only for lungs but also for other organs over time. And that, I think, will grow. And I see and view that very positively. Does that answer your question?
It does. Congratulations on the heart transplantation patients, by the way.
Thank you. Thank you. I just see here that there is a question from [ Johan Rodriguez ] on the U.K. where he says that -- yes, this is an important dynamic not for XVIVO. Is Delta a concern for XVIVO over the next few months? I mean we have regular contact with health, and we are installing the machine now as planned. There is a budget allocated for a certain number of XVIVO lung perfusion sessions in that hospital. So we have not heard anything yet that there will be any impact from Delta on our business potential with [indiscernible] for the time being. And I think in the case of the U.K., if you centralize the perfusion to one big transplant hospital, it might actually make it even easier considering the Delta variant as well that you are doing in one sort of side. So the answer is that we are -- there is no concern or there is no information saying that there will be any delay in this activity or on the program. I hope that answered [ Johan's ] questions.
Our next question on the audio line is from Caroline Banér of Danske Bank.
So on the Abdominal segment, you have a very ambitious goal for 2026 of -- sort of from an Abdominal being kind at Thoracic level. So could you give some color on how you plan to get there?
Do you want to start, Kristoffer, a little bit, how we have sort of thought about the modeling?
Yes. But I mean -- so this is one of our strategic objectives for the strategy period, to be the global leader actually of Abdominal and to initially put our strongest focus on the U.S. market. So the key here will be the launches of our products, starting with the Kidney Assist. We need to ensure that we have a strong organization in the U.S. that can handle the products, and we have taken steps there. We -- I mean we also have products that are supported by very strong clinical data that we believe very much in. And then it's also -- will also be important for us to continue to think of how we can make life easier for the transplant teams, look how we can deeper -- broaden our business as well. So we will have very, very good machines. We will have a very, very strong sales force, but we're also looking to -- if there are other things that we can provide the transplant teams with in the Abdominal team. So I think yes, that is important for us.
Absolutely. I think at the end of the day, we have the best technology on the market, which is the Lancet publication and also the New England Journal of Medicine has shown when it comes to kidney and whether we have a commercial team with safety team in the U.S. dedicated to abdominal. I think the rest of the world, we will actually share sales -- the same sales that we said at least for the time being, both Thoracic and Abdominal, but we will make a big push in the U.S., which today is the biggest abdominal market in the world. And we have a launch plan ready. We have customers buying that. We have done everything on pricing and everything is ready to go. So as soon as we get the 510(k) approval from FDA, we'll just push the button and then we start selling.
That sounds like a well-sorted plan. So a follow-up question on that in terms of the planned price increases. Are you getting any pushback from clients, that being in Europe, of course? And would you expect from U.S. clients and also potential competition over there?
I can tell you, we start with U.S., U.S., we have never -- we have not had any pushback at all when we did last year. We have not had any pushback now. We are actually implementing it on 1st of November because you have to give 30 days notice. And for some reason, all the contracts, we postponed the price increase in 1st of October to 1st of November. So we are doing it now. There is no pushback. In the U.S., we know that there is one competitor called TransMedics. They don't have an EVLP solution like we have, but they have a preservation solution for lungs, and they are charging nearly twice our price in disposables. So I don't see any issue in the U.S. to continue to increase prices. In Europe, it varies a little from country to country depending again on the reimbursement model in the country. So for example, in the Netherlands, they are now introducing a more generous reimbursement model from 1st of January, and they are also actually going to make it compulsory to use machine perfusion [ for much of the organs ]. So we see that we can increase prices in certain European countries in a good way and also, of course, get higher volumes, whereas in countries where there is no reimbursement, then of course, depending on who is the budget holder and how the budget for machines versus consumable and solutions is managed. I mean there needs to be a little bit of a different discussion. But we are also preparing a lot of support materials showing that raw materials are actually going up a little bit of price, and we are building a story around the price increases in an even better way this year, better than we've done in the past. So so far, so good.
[Operator Instructions]Our next question is from Dylan van Haaften of Bryan Garnier & Co.
Excellent. So just two questions from my side. First one is on EVLP trends. If I understand correctly, there is sort of a negative mix towards warm perfusion. And I was also wondering if you could perhaps characterize a bit sort of the OPTN weekly trends, where I can't really sort of see the COVID impact in terms of volumes, but maybe there's a difference in how that data is reported. So that's my first question. And the second one would be if you've actually encountered TransMedics, their device and tenders in the third quarter and perhaps so far this month.
Okay. Kristoffer, do you want to start with the first part there, which is a little bit the relative warm versus cold. That was really your question, Dylan, if I could...
Yes, basically.
Yes. Okay. In terms of EVLP, it varies from client to client, I think. So for smaller clients, they, in general, have had a much harder to focus on having their EVLP programs running for -- rather than the big one. We do know, for example, however, that one of our biggest companies, the UHN in Canada, that they have seen a quite significant decrease in their EVLP program of about 50% compared to last year. So I guess it's -- yes, it varies a lot between the clinics, but we are far from up -- we are far from the 2019 levels still, which was more of a normal year. And what was the second question again, Dylan?
Just for TransMedics in terms of mix. We have not seen -- you mean in lung?
Yes.
No, we have not seen them because they have different -- they are not evaluating lungs, Dylan, in our way. I mean they have a lung transportation device but they don't have any sort of unique solution. They don't have any sort of PMA for it. No, I have not seen them in any tenders that you know that since we have sort of 90% market share when it comes to cold preservation of lungs with the Perfadex Plus solutions. We can very easily also monitor transplantation volumes in different geographies based on our sales of Perfadex Plus. And we see no -- there is nothing that we have seen from TransMedics in any sort of tenders and discussions we have had with customers and more.
Excellent. That's very clear. I was just wondering if you saw them around because they're guiding to them aggressively. But yes, so that's good.
We don't see them.
There are no further questions at this time. So I'll hand back to our speakers.
So no more -- okay. Were there no more questions?
No more questions.
Okay. And I don't see any questions from the web either. So I think we have answered all the questions there are, and I would like to thank you all for listening in. It's much appreciated that you take your time to listen to our reports, and we'll talk again in a couple of months, sorry time. So thank you all, and thank you for organizing this.