Xvivo Perfusion AB (publ) (XVIVO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the XVIVO Report on Operations 2022. [Operator Instructions] I will now hand over to Christoffer Rosenblad, CEO. Please go ahead.

Thank you so much, and welcome to you all to XVIVO's earnings call for the fourth quarter of 2022 and also on the Report on Operation for the full year 2022. With that, we go to the next slide. Today's presenter are myself, Christoffer Rosenblad, I'm CEO of XVIVO. And on the side, I have Kristoffer Nordstrom, CFO, who will give you a deep dive into the financials. And with that, we start the actual presentation. On Slide 3, we find the financials for Q4 at the glance. And I'm both very proud and happy to report that Q4 was the strongest quarter we ever had posted by XVIVO. Sales reached SEK 132 million. And we have an organic growth of 27%, a total growth of 53%, where we had some good tailwind from currency effects as well as acquired growth. Very stable EBITDA on 15%. We can also see that we show good growth on disposable sales for all product areas as well as good gross margins. So we see growth -- stable growth, high growth in all our areas where we invest, very happy with. If we go to the next slide, we will see the same picture for the year 2022. And again, very, very proud and happy that we set a new sales record of about SEK 400 million and strong growth of about 60%, whereas acquired growth was 15%, organic 30%. We see local currency growth in all product areas being very strong. We can see definitely the disposable sales are driving our growth, overall growth, organic. And good EBITDA level on -- for the full year, and we are still very, very happy with this 2022 where we passed many, many milestones and still managed to show growth and profitability. We see that -- sorry, our CFO will give you more details on the financial performance later on. And I will go into on the next slide, the highlights and the milestone passed during 2022, which are, I think, even more impressive than the financial performance and tells a picture of what we can see in the future. And then we go directly to Slide 6. The first point I want to make here is that now like transplant business is starting again after 2 COVID years. We can see that we are back to 2019 levels, and we see good growth both quarter-on-quarter and year-on-year. So we see good picture. We can also see that in all of organs actually, even the ones not severely hit by COVID, we can see that there is definitely solid growth year-on-year for all our -- all areas of transplantation where we have products. And this is positive for us going forward. If we go to the next slide. We are finally now accelerating the launch of Kidney Assist Transport, which we're very happy with. We have started to install the new device and trained clinics on the machine already. The early experience is very good. We have many testimonials from customers starting to using it now. And we can see that one customer, for example, did a trial on the porcine kidney pair, where one kidney went on the XVIVO Kidney Assist Transport and one kidney was transported with a standard machine used today. And the result was very encouraging. The XVIVO kidney produced urine within 2 minutes, and the standard of care machine took more than 30 minutes to produce urine. And this made a choice very easy for the customer which one to use. We have a very strong scientific results behind us already. For example, the [indiscernible] study that showed that if you use our Kidney Assist Transport, we have a 97% one new graft survival versus only 90% in the control group, again that being the standard of care today, that standard of care machine today. This was done on DCD kidney donors older than 50 years. We are now gradually ramping up the launch in parallel with our ramping up of production. And we are now ramping up during Q1 to increase availability of machines. During Q2, we had 2 new molds. And as they are fully installed and up running, we deem that we can satisfy the long-term market need on the kidney assist machines. So with that, we can say that the initial customer feedback during 2022 and early on in the 2023 launch has been very, very encouraging, in line with what we have seen in clinical studies and we look forward to 2023 to make a difference for patients, clinicians and also to save money for the health care systems around the world where we can -- if we can use more of the kidneys donated and they have longer survival in the patient. Now we save a lot on the other side with lower cost for the health care systems in the world. Our next milestone on Slide 8 is that we have obtained MDR certifications for our Abdominal product. We normally talk a lot about the FDA. The U.S. market is very, very important. But I would deem now with the new MDR regulation in place, that approval in Europe is equally hard to obtain. And therefore, we're very, very pleased and proud that we have obtained this for our Abdominal portfolio during 2022. There's been an enormous amount of resources effort going to this task, of course. And with this important milestone passed, we will now focus on commercial effort. And together with our new acquisition, Avionord Machines & Perfusion, we will accelerate sales in Europe of Abdominal products. Next slide is Slide 9, a very important product for us is the Liver Assist. And we have, as I mentioned previously, cleared the MDR hurdle, and now we can definitely focus on the customer need for this product and satisfied as much as possible. If we turn to U.S., we have been granted breakthrough device designation by the FDA during the 2022. We have seen already in 2021 in New England Journal of Medicine, very encouraging results on the Liver Assist usage. So we have good clinical outcomes. We have breakthrough designation obtained and we will now pursue the market opportunities through the PMA route for the Liver Assist in the U.S. And we're working hard on this right now, and we will come back when we have more information on this product. If we turn to the next slide, very important milestone during 2022. That was quite recently integrated in first of December is the Avionord Machine & Perfusion acquisition. We have said it in the previous call that the main reason for the acquisition is that it clearly supports our strategy, the long-term opportunity of XVIVO's products with Avionord business model is fantastic. The deal rationale is that we secure Italy, which is your bigger liver market. We also get an option for an organ transporter called GISTO developed after transplant process. We also believe that this GISTO and similar products will be important for transportation of all organs, as it keeps accessories according to the transplant process and will simplify it. But more importantly, the business model of Avionord Machine & Perfusion is interesting because of mainly 3 reasons. And the one is that it increases machine perfusion market penetration. I think the best example is the Liver Assist in Europe today where we can see, typically, we have a 5% market penetration, different country by country. But on average, in Italy, it is between 20% to 25% usage, which means that out of all liver transplant, 20% to 25% is actually done with the Liver Assist. Number two, high customer satisfaction seems to remove customer resource hurdles. The customer needs to keep their whole team trained on machine perfusion. But if we can actually help them with that and we can keep personnel trained and support them with machine perfusion personal resources, that will reduce the huge hurdle. And my belief is that this is the main reason that we see higher penetration ratio for liver perfusion in Italy. And then lastly, which is equally important for us is that the gross margin is a lot higher in Italy and this acquisition will help us coming closer to our Abdominal target of 70%, which we're working towards, and this was -- this would definitely be part of it. And just to explain it again, what Avionord Machine & Perfusion and why it fits so well with XVIVO offering is that Avionord Machine & Perfusion have perfusionists employed, they are 24/7 available for the clinicians to run the machine. They can also offer expertise on the machine run and support basically on being there actually doing the machine run, sometimes over the Teams, but very often physically in the actual clinic to do it. And together with the STAR acquisition, XVIVO now offer all parts of the transplant process where an organ is outside the body. We have started the integration already. We started that in first of December already. And it's interesting. The commercial integration is more or less finished. It's done and it's working very well. And the admin integration is ongoing, and we have gone very far and we hear very positive mindset from working together. And with that, we go to the next milestone, which is, I think, the key milestone from the year 2022 on Slide 11, and that's the XVIVO Heart Technology and the experience from Australia/New Zealand. The heart preservation product is truly innovative and paradigm-shifting product. Among others, it has enabled xeno transplants as well as pushed out-of-body time to, as we see now almost 9 hours with good results. And we should compare those 9 hours to what we see today is typically 4 hours out-of-body time during a heart transplant. The product consists of a machine disposable and new innovative patented solution. The Australian study that is now finalized and the data has been presented. We always thought to date that would be good, but we actually never expected this good. So we can see from the first 20 patients with an average of 7 hours out-of-body time, we see 100% survival and 0% left ventricular PGD, which is very impressive. What is even more impressive is the feedback we get from clinicians using it. And you heard during our Capital Markets Day in September that Professor McGiffen. He said that the results are good and he deemed it even unethical to not use it for all transportation of hearts. In other words, you said if it's an intra-hospital, he could consider not using it. But if it's going from one hospital to another, he would use it. The reality is that after the study was completed in mid-December, and so that is a little bit more than 1 month, 6 cases -- 6 clinical cases has been done in Australia/New Zealand. And we should compare those 6 cases to an average monthly heart transplant volume in Australia/New Zealand between -- somewhere between 12 and 15 cases per month on a yearly basis or on a monthly basis in an average year. So it is very encouraging that we see cases occurring that they use the machine. What is even more encouraging is that this was not a single center. This was 4 different clinics who used it in Australia/New Zealand. So we can say that it's widely accepted on the Pacific market. This is a very, very important milestone for XVIVO going forward. With that, we go to the last important -- also very important milestone that we passed during 2022, and that's the first xenotransplant ever performed. And we have 2 advanced teams in the world. They are Maryland and Munich, and they are both deemed it absolutely important that we have the heart technology for xeno. It is a necessity, and they have told me both that we can't do xeno without it, and that XVIVO have to guarantee supply to them. And this is really interesting because everyone I met until before this case seen is always 10 years away. And the heart technology then together with some other technologies in gene therapy and immunosuppression has shown that it's actually possible already now. And last week, I spent time in the U.S. We met clinicians in heart and kidney xeno and there is an increasing interest for xeno in the U.S. right now, and we see that many clinics want to start xeno programs and they [indiscernible] for the product. So the interest is increasing very fast. And even though we don't think that we will have a huge sales impact in 2023 already, but it does show that XVIVO technologies in the forefront is sought after by commission. And it also shows that the product portfolio XVIVO have secured, not only the current market opportunities with DBD and DCD organs, it has also secured future market opportunities in xeno. If we go to the next slide, we will go into the clinical pipeline, and we can go directly to Slide 14 for an overview. And I've said it before, the heart technology is the paradigm shift in technology on the transplant market today, enabled xeno, it pushed out-of-body time with good results to almost 9 hours, and we are seeing this as the crown of XVIVO product portfolio. We are conducting multiple trials to prove benefit and to gain market approval in the world. We have in -- if we start with Europe, we have included 80% of patients in the study. We are aiming to launch in the first quarter of 2024. Again, what is encouraging is that the initial feedback we get from Europe is similar to that we got in Australia, that if they use the product, they say we want to use it now. We want use it today. And XVIVO team is working very hard to accommodate usage already in 2023 through compassionate use where they can use a product before market approval. We still forecast the study to be finalized inclusion fairly soon. We aim it to be Q2 2023 and launch it as soon as possible after that. As you know, in the U.S., we submitted the IDE application and we are in discussion with the FDA for starting the study. Again, when I was in the U.S. last week, we met clinicians. We met our team, and we have a very good team in place. We have very good clinics that will enroll patients to the study, high-volume, high-impact centers. And when we talk to them, they are very encouraged by what they have seen so far, and it's an overwhelming feedback. They ask -- they say, yes, if we get in our hands, we will use it, what can we do to get the product approved as soon as possible. We want it in our program. We've seen what it's done and we want to do it now. So the sentiment I got is really that if we can manage to get it approved, they will use it. Lastly, we were through the Australian study. I think key takeaway there is that we did expect usage definitely after the trial, compassionate use between trial and approval. The amount surprises us, that is so high. It really shows that this is a product that makes a difference for clinicians. And with that, we go over to Slide 15. I hand over to our CFO, Kristoffer Nordstrom, who will present the financial performance for Q4 and the year. Thank you so much for this session. I'll come back in the closing words.

Thank you, Christoffer, for this very encouraging status update. So let's move over to the financial section. Overall, as Christoffer has highlighted, we are very satisfied with the way we end the year. We end on a high really. Q4 was by far our strongest quarter so far. Also pleasing that we see that we performed strongly in all 3 business areas, but also in both key geographies, North America and Europe. So good across the board. Net sales in Q4 SEK 132 million, that's a 53% increase year-on-year and a significant step-up from quarterly sales earlier this year, which has been around SEK 90 million, right. Organic growth was 27%, acquired growth, 7%. And then we have, as you know, some currency effects from a strong dollar primarily, 19%. Solid gross margins in the quarter, 72% all in all. Both EBIT and EBITDA were strengthened versus last year. EBITDA margin, 15%, and EBIT 6%. Looking at the full year, we hit SEK 415 million passing the SEK 400 million milestone. Sales grew 61% year-on-year, whereas 30% was organic growth. And EBITDA for the full year 14%, EBIT 3%. I'll move over to the next slide here, and we go into the respective business areas. If you start with Thoracic. Thoracic performed a strong quarter and continues to deliver a solid growth. Net sales amounted to SEK 88 million. Organic growth was 26% in local currencies. We see that the machine perfusion trend is still strong. There is definitely a recovery and activity was good both in the U.S. and Europe, which is extra delighting. Over 30 customers actually purchased EVLP kits in the quarter, where LB is one of them, of course, but they serve more than 15 clinics, we should remember that. So a very good uptake on EVLPs what they are experiencing at the moment. One XPS system was delivered to a French clinic. So we -- this was also one of the records for the year actually that we delivered 9 XPS systems during the year in Q1, Q2. In 2023, we will phase out our very last LS systems on the European market. I'm not sure if every one of you remember, but LS was the land machines that we got when we acquired the small Swedish company, Vivoline in 2016. The main purpose of that acquisition was, of course, the Heart project, but we also got some LS system. So we talked about a handful of LS systems, primarily in the Southern Europe region who will be converted to XPS systems and XPS protocols in 2023, which we look forward to. Gross margin continues to be great, 85%, and that's a 2% unit better than last year. If we move over to Abdominal. Net sales came in on SEK 27 million, which is definitely an all-time high. We knew that the comparison quarter last year. We foresee that, that could be a little bit hard to hit. That was a SEK 20 million sales -- SEK 21 million last year. Yes, as you can see, we came over significantly over that, which is very pleasing. So organic growth, 27%, mostly comprised by Liver sales in Europe still. As Christoffer said, we have not yet fully accelerated our launch of Kidney Assist. So I guess you can say more or less all the sales were Liver at Europe. Growth of Disposables was good, 37% and gross margins were 54% in line with last year. If we move over to our last business area, Services. We were pleased to see that this business area grew in Q4. Services consist of STAR Teams and their organ recovery business in the U.S. And they were acquired by XVIVO in November last year, 2021. So this was the fourth whole quarter, including their business. There is a very big interest for organ recovery services in the U.S. This is reflected in the good numbers that we see in Q4. So 44% growth in Q4 and 39% for the full year 2022. In 2022, STAR Teams performed close to 500 cases, recovery cases. Not every case represents a transplant eventually. But to put into perspective, 500 cases is about 7% of all heart and lung transplants that were performed in the U.S. combined in 2022. So it's a great platform for us to continue to build on. Sales in Q4 were SEK 16 million, an increase of 44%. And the reason for the increase is that we included handful of new contracts in the quarter. I guess you can say SEK 16 million is, therefore, the base that we go into in 2023, the quarter, I should say. Moving over to profitability and EBITDA. We continue to deliver a solid EBITDA and the trend is positive. So the rolling 12 months EBITDA margin was 14%, representing SEK 56 million. The adjusted EBITDA in the quarter was 15%, and full year 14%. The adjustment we referred to is primarily mergers and acquisition-related costs and it was SEK 6 million in Q4 and SEK 8 million for the full year. In the quarter, we saw increased costs for marketing and sales, driven by the increase of sales, that's natural. if we increase sales, we see increased freight costs and also some increased marketing activities. But we also had costs from activities such as the [ Liver Master Plus ] event, and it's important also to mention that we are investing a bit in front of the curve, especially talking about organization. If we look at our European organization, we are more or less fully invested after the last additions we made in Q4, so a very good platform. There will be further investment in the U.S., and we will take that carefully step by step as we see that, particularly the Kidney Assist transport sales will grow. R&D costs also increased in the quarter, primarily due to some regulatory costs that were consolidated to the fourth quarter and that we do not see will be the same case in Q1 next year. In terms of increasing EBITDA, we foresee this to happen gradually, as I mentioned before, year-by-year during the strategy period. So overall, continue to deliver a top growth -- top line growth, good gross margins and also a stable EBITDA level. Moving on to my final slide for this presentation, and then I will hand over to Christoffer again, so financial position and cash flow. Operating cash flow in Q4 was strong, plus SEK 22 million, and that was a good follow-up on a very strong Q3 operating cash flow as well, SEK 17 million. And this is an effect of I would say, basically, the increased sales that we see in Q3 and Q4, and we have also worked on reducing our working capital. Investments amounted to SEK 77 million in the quarter, whereas a significant part of that was a payment for the Avionord acquisition, where we paid 40% in cash equaling SEK 42 million. The rest, about SEK 25 million was invested in our clinical projects and, of course, primarily our heart trials. So as a result of this, even though the operating cash flow was strong, SEK 22 million, there was a negative total cash flow of SEK 58 million. We ended the year with around SEK 250 million in cash and also, finally, just a heads up on the Avionord acquisition where there will be an additional purchase price of maximum EUR 2.4 million, so roughly SEK 24 million. Happy to pay that out, and it is expected to be paid out in Q2 2023. So that was all for me summarizing a strong quarter, and I'll hand over to you again, Christoffer. Thank you.

Thank you. Briefly, we will have 2 slides on the outlook, and we go directly to Slide 23, where we have the long-term outlook. And I think it's important to understand why we're here and the market opportunity and actually how big it is. Because the matter of fact is that the demand for transplants are today 10x their supply. Also, the sales value, what we are doing machine perfusion is approximately a little bit different organ [indiscernible], but it's approximately 10x higher than cold static storage, which today is often a beer cooler with ice and the solution. Machine perfusion has proven to increase the number of organs to be used for transplantation, especially in the fast-growing DCD organ pool. So it -- to increase the number of transplants, the survival of the transplant, et cetera, we know the machine perfusion will be an important part, an integral part. And we, therefore, know that machine perfusion will be both for normal and DCD grafts will drive the growth in the near future. Our belief is we're going to grow all the way to 10x the number of transplants today. We need new -- not only new innovative products, but we also need new innovative sources of organs to be used. And one example of that is xenograft. And both for machine perfusions of the current used organs and also for new source of organ, XVIVO has a proven product pipeline on the market or in clinical studies for market approval. And this really puts XVIVO in a unique position on the market today. Also worth to be added in the long-term view of XVIVO and why we are here is that during the last 2 years, we have built a very strong leadership team as well as a strong organization. And we are now ready and committed that no one should die waiting for an organ. And with that, we go to the next slide, which is Slide 24, which brings us to the more near-term outlook of XVIVO in 2023 and the next 12 months. First, we can see the machine perfusion is growing. We see continued momentum. We see that especially hub models and service models such as Avionord Machine & Perfusion is supporting machine perfusion and we see faster growth with those models. Number 2 is obviously Kidney Assist Transport, we will be launching in U.S. and Europe. And as I reported, we have very good customer feedback using our device, very strong clinical results, backing it up. And what we hear is that it's also easy to use and they love to use the product. Number 3 is the heart. We will continue to prepare for European and Australian launch, and we want to start the PMA study in the U.S. For the liver product, we will prepare for the trial submission in the U.S. during the year, and we're working hard on this right now, and we'll come back when we have more information. And lastly, but not least, we can see that we live in a very inflationary environment. We still see that we are underpriced, especially if we look at the clinical trial results versus the competition we see on the market today, and we see that there is room to continue to increase prices for unique products. So thank you for listening on this quarterly call today. And with that, we'll open up the line for questions. Thank you so much.

[Operator Instructions] The first question comes from the line of Peter Ostling.

Congrats for extremely strong quarter, especially the top line, it was impressive. I will start with my standard question, and that is your annual outlook. When will you start to make more solely financial outlook instead of just the descriptive outlooks. I mean your closest peer has found that from the start. So I don't see any reason why you should do that -- so couldn't do that also?

Thank you, Peter. I appreciate the question. It's a very good question. What we have said now internally is that we want to have more granularity into the Heart launch and delivery launch in the U.S., at least being closer to launch and have more of the full understanding of the opportunity there. Because that will obviously affect both the top and bottom line results a lot. So we want to have -- when we have more granularity on those 2 products, especially on the U.S. market, we will come back with financial guidance.

Okay. Great. And then your price increases, how many, how big and where will those prices increase be during 2023?

Yes, that's a good question. Yes, we definitely can say something around that. I mean, we are a global company, and our customers are even if they are being transplant regionally or in clinic, maybe you talk to each other. So we will have global price increases to start with. We are in the process of defining the size of it. And to be honest, we normally do price increases beginning of Q3 in some jurisdictions due to fluctuations at the beginning of the year or first of January. And we are now looking closely at, especially inflation in numbers to see how we have to increase prices to adjust the inflation, but we will come back on the numbers.

Okay. Okay. Fair enough. Then just on your last slide, you're mentioning this hub and service model. Can you say anything about the development in the U.K. where you have very good recommendations from NICE and how the work is proceeding there?

Yes. Again, the work is proceeding very, very good. The main driver for the hub, the customer is basically little bit frustrating with the support from the UK health administration, that is not good enough. We have hired a person in the U.K. that we start very soon to support this process. And they basically said they would start the hub no matter what during 2023. So we see an increase in UK and also in other jurisdictions in the world or in Europe, that there is some interest for hub solution in the regional hub solutions. So we do see that this would be an increasing, you call it revenue model.

Which hospital did you end up with? Because I believe there has been several hospitals involved in being the actual hub. Which one did you end up with?

Let me probably check this. I read that there has been several and I have to double check with our director at the end of the day, but it will of course around London area, I think.

Okay. The MDR work that you have done maybe for several years. Can you say anything about the cost of that program and if that will lead to lower cost in '23? Or if you will reinvest that in your commercial operations ahead of the KAT launch and, of course, the big Heart launch Q1 next year?

Yes, it's a very good question. I don't have an exact number, but it has added a substantial workflow and actually also a substantial cost to our P&L during the last 2 to 3 years. And what we have is -- some costs will, of course, go down, but they are quite marginal and typical application costs for MDR, et cetera. The main impact will be that now we can get the resources that were tied up in MDR and actually focus them on more customer flow development for commercial activities. So we believe that passing the milestone of MDR, but we will have more saving in our customer relations. So that will give you [indiscernible].

Okay. Can you say anything about what kind of investments you need to do with your commercial operations ahead of the Heart launch in Europe a year from now? Or can you use your existing -- I mean, the other Kristoffer alluded to that the European organization is more or less fully staffed right now.

Yes, and that is correct. So we will -- in general, and if you look at all products, we are good staff in Europe. We have a very strong -- where we have all products except Heart now approved, but we are -- we have a good staff level in Europe, very confident people, working together selling our products. And we have -- we will focus more on -- let's say, operational production improvement to scale our production, [indiscernible] that. And then over time, we need to do the same investments we have done in Europe also in the U.S. when we see more products nearing the market there.

Okay. And just finally, before I jump back into the queue. Was there any stocking to talk about in Q4 that maybe would affect Q1 sales?

There is -- there always is a certain amount of stocking level in Q4. But I would say that it was nothing out of the normal this year. It was more driven by an improved facility that you can see in the U.S. transplant number. And we do see that the trend of more transplants taking place. You can see that also going into the new year. So we don't believe there was a strong stocking effect, not more than normal.

[Operator Instructions] Our next question comes from Johan Unnerus.

Thank you for taking my questions. And yet again, congratulations. I can start with a follow-up to produce excellent questions. On the -- when we can expect some more detail on the financial targets to put it that way, perhaps already 2023, can we expect that ahead of the actual launch of the Heart and Liver or should we wait -- expect that after the launch?

Good question. I think we should expect it after the launch and we should expect it when we have more granularity into the U.S. user experience because that will affect, obviously, the top line guidance.

Okay. That's good to know. And also, of course, second guessing or the FDA is always difficult and dangerous also. But when -- is it possible to say anything about the time lines when we can expect sort of the structure for the U.S. study or [indiscernible].

Yes. As you say, the last thing I should do is trying to forecast what the FDA will say. But given that, we have a good dialogue with them. We have a hope that we should be able to finalize that dialogue during the first half of 2023. And then we believe that we are very much in agreement with FDA, that's at least our view on the dialogue.

Excellent. We're looking forward to that as well. And sort of more of a less, perhaps significant aspect, but it's our understanding that the demand for U.S. Services and the STAR Teams is robust and high. But there is a challenge, I believe, in actually recruiting these often senior, experienced surgeons. How is that going?

It's going good. We do believe that getting good people is always the most difficult task in any business area or for any position within XVIVO. I just came back from traveling the U.S. for 2 weeks now. And one thing that struck is that XVIVO is a very strong brand in the U.S., being part of the transplant market. And I think that definitely helps in this process. We see that if you're in the transplant field, we do see that there is a wish to work with XVIVO. When we meet clinicians, we see that there is a wish to cooperate with XVIVO and support us. And one clinician even said, we will support with training of and certification of surgeons, et cetera. So we have a very good relations with both our customer clinicians and with other people in the field today. And I was, I shouldn't say surprised because I knew it, but I was overwhelmed by the strong support and a very strong brand, XVIVO, has in the U.S. market.

So you're fairly confident that you will find resources and meet demand in that way?

Yes, we are confident that over time, we will. Again, I mean, getting the right people in the right place is difficult. I have to be humble here. But given that the strong and the known brand of XVIVO, it makes me more confident.

Excellent. And then also a follow-up. The price review, you're clearly looking into the impact of inflation and on the cost side, I suppose. And earlier, you had also some -- it was an aspect of rather not aggressive, but progressive price review, approaching a more sort of -- reaching more normal or competitive price level. Is that process going to continue? Or is it more about sort of protecting and reacting to cost inflation? Or do you still see scope for more progressive price increases?

Depending the product, but I do see that in some areas, we are, let's say, underpriced. And there we more aggressive because we can see that the benefits for the health system, that will save an enormous amount of money to the health system. You can see that, that will support, and there we see a great opportunity. So different [indiscernible]. But definitely, we will look into both inflation and the other side of the question, which is let's say, the opportunity to save costs where we have unique products.

And are you confident in giving examples of solutions where you are, so to say, underpriced?

Let me finish the job first to really go through inflationary pressure and product to product. But we can see in some service areas, in some product areas, where we are underpriced today, and it's something we need to adjust.

Is that process expected to be completed or may completed by Q1?

During Q1, probably mid Q2.

And finally, on the R&D side. Of course, you have exciting opportunities and will increase the R&D. That's obvious. Can you give us any flavor of that for the dynamic for 2023?

Sorry, one more time, the dynamic for the R&D pipeline or the dynamic in the...

Yes, the R&D cost increases because, of course, you're supporting these studies that are ongoing and increasing and also hopefully starting some new studies and perhaps other activities as well. Can you provide any sort of more precise or specific feel for the level of increase in '23?

Okay. I mean in terms of R&D, we will -- over time, we will have added position where needed. But we don't foresee any drastic cost increases in 2023 on the R&D side. There will be -- there are some gaps where we don't have positions today when we see more and more products coming to market and we need to maintain them. But as I stated earlier, we have worked very, very hard on MDR. We will use more and more of the, let's say, that time and that resources to actually work on improving our products on the development side. So we don't foresee any dramatic increases on the R&D side, at least during 2023.

I could also add, Christoffer, here that in terms of investments, if you skip the P&L for a while and look at our cash flow for 2023 in terms of investment in R&D, we will basically -- yes, I will expect more or less the same spend that we have had this year. Yes, we will start the U.S. trial, but we will also have a European trial that has now been concluded. The European Heart trial will hopefully -- can be considered as well. But give or take, we spoke about the same R&D spend also on our balance sheet.

Our next question comes from the line of Ulrik Trattner.

Thank you very much. I have some technical issues. So I apologize in advance if I'm repeating any questions already answered. So I'll start off with the high growth in warm perfusion. And is there a function of increased penetration? Or should we -- an adoption of warm perfusion in the U.S.? Or should we view this as a continuous trend of the 9 XPS systems that have been placed in during the year?

Thank you, Ulrik, for your question. It has not been asked before. Actually, it's a bit of all of above there. What we see now is that when more and more personnel return from, let's say, COVID, recover COVID, that they now -- we can see an increasing EVLP activity. And it's actually something we see all over the world, but then obviously when I say the world, that mainly mean the U.S. and Europe. We can also see a higher interest for starting with the [indiscernible] program where you can see the [indiscernible] last year, which is a record for the year. So we see generally an increasing interest for XPS and EVLP. And I think part of that interest also comes from the fact that we can now look forward after COVID. That's my view on it.

Okay. Great. And since we now are approaching an accelerated launch of the Kidney Assist Transport in the U.S., could you just help us sort of decipher the gross margin profile going forward? I'm looking at Q4 seeing machine gross margin being very nice. I'm guessing, that is partly related to the integration of Avionord for 1 month. But then if I remember it correctly, in the U.S., it's going to be placed more or less at cost, and you're going to have higher gross margin on the disposables. So if you can give us some guidance on those 2 metrics, that would be very helpful.

Nordstrom, can you take this question?

Sure. You are correct, Ulrik. So our approach in the U.S. will be to place machines. That's our primary model. And in Europe, it will look a little bit different than in the market. In terms of our disposables, we will go in with the price level in the U.S. that ensures that we are seeing a gross margin level of 70% initially. And that we will, of course, follow that closely and see if there is room for price increases as well but that's the initial model for the U.S. So that, of course, means that if U.S. sales, when that takes off, it will contribute significantly to the gross margin of the business area, Abdominal and the global gross margins that we see. And also, as we mentioned, the Avionord effect. I mean it is 20% of our European markets today where we go in with their prices and their margins, which are -- the prices are more or less the double of what we have seen before in XVIVO. So that will also contribute. So yes, there will be a significant growth for the gross margins in Abdominal in 2023 already, gradually.

Great. So two more questions on the gross margin side and perhaps one on Avionord. So on the gross margin side on disposables, do you see the potential of abdominal disposables in the U.S., like, over time, more approaching the gross margin that you have in the Thoracic or in Lung or sort of 70% area or margin where you feel quite comfortable. And on Avionord, and you might have mentioned this already. I'm getting that Avionord generated SEK 6 million in sales for 1 month in December. That sounds like really good progress. Do you have any sort of reference numbers for us what sort of full year sales was for Avionord? That would be my second question?

If I can take the first question, and then I will leave the second question to Nordstrom. I mean we said the initial goal of 70%, and we will work towards that. But it's a very good question. If you add the U.S. and you look at the health economics of our product with Kidney Assist Transport and what it can do for the U.S. market because -- dialysis costs roughly USD 80,000 for a year. The average age is -- or average survival on dialysis is pretty much 10 years, so you talk about USD 800,000. So if we can get higher graft survival, which we have seen in the [indiscernible] study, and we have seen that in the initial experiment, then we can, of course, see that higher margins on the kidney side and as well as the liver going forward would be possible. But we have decided that we first focus on the 70%, and then we look into what is possible after that. Nordstrom, can you take the question about Avionord?

Yes, I will need to come back with that information. But the SEK 5 million, SEK 6 million that you referred to in December, that was correct. It was a strong month for them. So it was not SEK 5 million, SEK 6 million times 12. But I would get back to you.

But I can comment very quickly on it. I think we see -- they have a very, very good business model. I think I agree SEK 5 million, SEK 6 million is probably -- there's probably more activity in December versus previous month. There is no stocking effect on Avionord, just to be very clear, that they are a per-procedure. So they don't sell kits to do procedures. So -- but we do see that the business model is working very, very good in Italy. We foresee that we -- the interesting part is really how over time, how this business margin can affect other areas. But for 2023, we do -- we haven't guided anything else, but it will affect only Avionord to say, and the growth on the Italian market.

Okay. That's great. Two more questions from my end. Perhaps a shorter one and one that you can perhaps elaborate a little bit about. First on capitalized R&D in the quarter and going forward. If you could help us decipher at least how much of the capitalized R&D is allocated to the heart machine which is obviously not on the market in any market, just so we can sort of decipher if the remaining part of the business is generating a free cash flow?

Yes. So if you look at Q4, total investments were SEK 77 million. SEK 39 million of those were related to the acquisition with the payment cash part of Avionord. So that's the separate thing. The capitalized expense of R&D were SEK 26 million. And roughly SEK [ 16 ] million of those were on the Heart project.

You were essentially generated a free cash flow of around like SEK 10 million in Q4, if we were to exclude the heart.

If you were to exclude the heart, exactly. So SEK 26 million minus [ 16 ].

Perfect. I know that's essentially what I was aiming at. And last question on my end would be just recent comments from TransMedics and them commenting on advancing and accelerating in the U.S. and perhaps looking more into lung and just how word are you regarding their situation. They -- last year, they did a cap rate sort of have -- they are quite well funded. They don't seem to be worried that much about the profits. So just how worried are you on the competition evolving in the U.S. from TransMedics?

A very good question. And I think I said it before, and I will say it again that with the market potentially being 100x bigger than it is today, we realize that we can't build that ourselves. We need competition such as TransMedics to support us building that. In terms of clinical results and the outcome, we are very confident that the products we have and the personnel we have today, giving a service to our customers, meeting customers and supporting them are of highest quality. So to be honest, we are not worried. We are thankful they are there. And we will -- of course, we think we have better products and better, closer customer connections. You should never underestimate competition. But in this case, I think we need competition to grow the market faster than we could do ourselves.

We have no further questions at this time. Please continue.

Thank you so much. I think with that, we can conclude the Report on Operation quarterly call or the Q4 2022 quarterly call. We look forward to report Q1 2023 report on the 24th of April, and hope to see you then. Thank you so much, everyone.

Thank you. That does conclude our conference for today. Thank you all for your participation. You may now disconnect.