Lifeward Ltd (LFWD) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2016 ReWalk Robotics Earnings Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Ms. Lisa Wilson, Investor Relations of ReWalk Robotics. Ma'am, please go ahead.

Thank you, Alia. Good morning and welcome to ReWalk Robotics' First Quarter 2016 Earnings Call. This is Lisa Wilson of In-Site Communications, Investor Relations for ReWalk. With me on today's call are Larry Jasinski, Chief Executive Officer, and Kevin Hershberger, Chief Financial Officer of ReWalk.

This morning the company issued a press release detailing financial results for the three months ended March 31, 2016. This call can be accessed through the Investor Relations section of the ReWalk website at www.ReWalk.com and you can also access the webcast of this call from there.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future statements and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act.

These forward-looking statements are based on information available to ReWalk management as of today and involve risks and uncertainties, including those noted in this morning's press release and ReWalk's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ReWalk specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.

A telephone replay of the call will be available shortly after completion of this call for the next two weeks. You'll find the dial-in information in today's press release. The archived webcast will be available for one year on the company's website, ReWalk.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 5, 2016. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.

And with that, I'll turn the call over to ReWalk CEO, Larry Jasinski. Larry?

Thank you, Lisa. Good morning, everyone. Thank you for joining us. Today we will be discussing our first quarter results, recent developments, and how we plan to focus our efforts to continue to build the business. We had a strong start to the year with a record first quarter of 2016. Revenue of $2.1 million was driven by placements of 32 units. These included 20 purchased by the VA for its multi-year study and 10 favorable insurance decisions and our first comprehensive coverage policy with a private insurer.

During 2015 we made significant progress in building a solid foundation for ReWalk in key areas, including market development and reimbursement. Initial progress is evident in our Q1 results and we expect to see further developments as we move through the year. These efforts included a focus on broader reimbursement coverage, expanded sales and marketing activities to build a solid pipeline of qualified leads and publication and clinical study support to demonstrate the benefits of ReWalk exoskeletons.

Additionally we continue to invest in enhancements to our technology to maintain our market leadership position. During the first quarter, we continued to build awareness of ReWalk exoskeletons and to ensure that those who can benefit from these devices are identified as potential candidates. Our market development efforts expanded with engagement of SCI advocacy groups and organizations that treat spinal cord injuries. During the quarter we generated 255 qualified leads.

Reimbursement, the most significant driver of increased adoption remained a central focus during the quarter. We work closely with health coverage providers both in terms of individual cases and to develop general coverage guidelines, all with the goal of achieving greater access to ReWalk devices for those in need.

During Q1, our first external insurance appeal in the United States resulted in a favorable decision that overturned the original coverage denial and enabled the patient to receive a ReWalk system. And most significantly, during Q1 we secured our first comprehensive exclusive coverage policy with a commercial insurance provider in the United States. I will discuss this important win for us in more detail shortly.

As the largest provider of healthcare to individuals with SCI, the Veterans Administration plays a pivotal role in advancing a national policy around providing widespread access to ReWalk systems. The VA's announcement in December of last year detailed the process for qualified veterans with spinal cord injury to procure ReWalk systems for use at home and in the community.

Importantly, this new policy defined the use of a exoskeleton as a standard of care for qualifying veterans. We're seeing momentum build as more veterans are reaching out to the VA and the centers are starting to build their programs. We now have two veterans using a ReWalk exoskeleton at home and in the community thanks to these recent VA guidelines.

The VA's four year study of the benefits of exoskeleton use in daily life announced last December is scheduled to begin later this year. Since announcing the study, the VA has procured 26 units, 20 of which systems were purchased during the first quarter of this year. This study will be an important addition to the already deep body of published work evaluating the use of exoskeletons.

The recently published first of its kind meta analysis evaluating the clinical safety and effectiveness of exoskeletons across the industry was effectively the equivalent of a 111 patient study and it concluded that there were many benefits of using these devices for the SCI community. It was published in early 2016 in Medical Devices, Evidence and Research. The analysis offers yet another validating measure of the importance and benefit of exoskeletons for the SCI community and that supports the acceptance of the ReWalk exoskeleton as a proven technology.

These are exciting times in the exoskeleton industry. For many, recent decisions by the Veterans Administration and individual insurers to cover the exoskeleton will have a profound and positive impact. We're very encouraged that the multiple health benefits to ReWalkers are becoming better understood within both the medical and insurance communities.

Going forward, we expect to have even more clinical data to support these benefits. With robust support for the product from the VA and the SCI community, ReWalk remains committed to executing on our strategic goals to deliver a revolutionary product with the potential to fundamentally change the lives of those with spinal cord injuries.

With that I'd now like to turn the call over to Kevin to review our first quarter results in greater detail. Kevin?

Thanks, Larry. Our revenue for the first quarter increased year over year to $2.1 million compared to $635,000 in the first quarter of 2015. We placed 32 units during the quarter compared to 13 in Q1 2015. Of the 32 units, 28 were purchased and 4 were rentals or deferred sales. Our top line also benefited from 3 units previously rented which converted to sales in Q1.

The strong results reflect growth in both of our direct markets, the United States and Germany, and 10 favorable insurance decisions. While these results reflect the momentum of our efforts, I would like to remind everyone that we are still in the early stages of commercialization and insurance reimbursement and are likely to see quarterly fluctuations in the short-term.

Our gross margins improved to 24% in the first quarter reflecting increased volumes and favorable geographic and customer mix. This strong gross margin also reflects the volume leverage we have as we grow. R&D expense was $1.7 million for the first quarter of 2016 compared to $1.5 million during the same period last year, reflecting increased investment in our product development programs and clinical activities.

SG&A expense grew to $5.2 million for the first quarter compared to $4 million in the prior year period, primarily reflecting our investment in our reimbursement organization and the broad efforts we've discussed in the past. Net loss for the quarter was $6.9 million compared to a net loss of $5.7 million in the first quarter of 2015. On a non-GAAP basis, net loss was $5.9 million for the quarter compared to a non-GAAP net loss of $5.1 million in the first quarter of 2015.

Earlier this year we closed a $20 million line of credit and drew down the first tranche of $12 million. We ended the quarter with $22 million in cash and are focused on ensuring that we have the resources to advance our strategic market development and reimbursement activities.

I'll now turn the call back over to Larry.

Thanks, Kevin. We entered 2016 with a lot of momentum and our focus on insurance reimbursement is now delivering results. As we've said in the past, expanded adoption of ReWalk exoskeletons will depend on broader reimbursement policies which we are diligently working on to develop.

We continue to prioritize these efforts on multiple fronts, working with the VA to support the first national coverage policy for ReWalk, engaging with private insurers to secure our second comprehensive coverage policy in the United States, appealing and winning a claim denial reversal in the US, and supporting the first ever meta analysis of the safety and health benefits of exoskeleton use. We will continue to provide scientific data and to actively engage with investors to advocate for every qualified individual who is seeking insurance coverage for the ReWalk device.

In Q1 we secured our first comprehensive commercial insurance coverage policy decision. This is a very significant milestone for ReWalk and a very important win for the SCI community. First and foremost it provides a pathway for the spinal cord injury patients covered under this plan to obtain a ReWalk personal device and to experience the benefits of the home and community use.

Secondly, it highlights the continued acceptance of the technology by the payer community and validates the tremendous effort our reimbursement team has put in place to educate payers. And finally, we believe it demonstrates that ReWalk's strategic focus to broaden coverage is on the right path. This policy is exclusive to the ReWalk system and is based on the extensive body of published clinical data.

With regards to coverage, two notable rulings occurred in late 2015 and early 2016. One in the United States and one in Germany, each overturned previous claim denials. In the United States, the ruling established that the ReWalk exoskeleton is no longer considered investigational. The data which supported the health benefits of using a ReWalk exoskeleton led an independent medical review board to find the ReWalk device medically necessary. This is an important distinction that we expect to have a positive impact on other decisions going forward.

In Germany, an employer-based fund in the local, social, and youth agency first rejected a reimbursement claim on the basis that a wheelchair could serve as an alternative. On appeal, payment for the system was approved. Both of these cases serve to confirm the growing understanding and acceptance of the ReWalk and the life changing impact it can have for recipients. Notably, the VA has also concluded that the ReWalk is no longer considered investigational and should be incorporated into the standard of care in treating qualified veterans with spinal cord injuries.

Last year, as part of our reimbursement strategy, we outlined a series of publications that would aid our efforts to support clinical reimbursement decisions. The recently published meta analysis that I mentioned in my earlier remarks, the first key publication validates the benefits of exoskeleton use and we believe will be an important contributing factor in future favorable reimbursement decisions.

The report was comprehensive, analyzing 14 published studies that encompassed 111 patients and various exoskeleton on the market. Key observations from the analysis were first that users could safely ambulate in real world settings and with prolonged use. There were also no reported incidences of serious adverse events in the studies.

Second, that physiologic demand on perceived exertion was 10 on a board 6 to 20 scale which is comparable to the exertion of a able-bodied person. Third, 76% of participants were able to walk without aid from another person. 61% of 25 of the patients evaluated saw improvement in bowel function. 38% of 35 patients evaluated saw improvement in spasticity. And lastly, the study also reported other exercise-related benefits from standing and ambulation, including improved upper body fitness and circulatory response.

Taken together, these findings add to the discourse regarding treatment options for the SCI community. We are making great strides in educating insurers and other decision makers and we expect these findings will support broader coverage decisions and improve the prospects for positive outcomes on case by case decisions.

Turning now to the Veterans Administration which is the largest single US healthcare provider to individuals who have suffered spinal cord injury. As we outlined during our last quarterly call, we are engaged with the VA on two important front. The first effort resulted in the VA's coverage policy handed down in late December which specifies the evaluation, training, and procurement of ReWalk exoskeletons for all qualifying veterans in the United States.

This policy is critically important as it was the first national coverage decision for the ReWalk system. We are already seeing the positive impact of the VA's new policy. So far two devices have been procured as a direct result of this initiative. With 37 qualified veterans in the pipeline, we anticipate more will reach similar successful outcomes.

In addition, we are seeing an uptick in inquiries from veterans and hope to be able to move more veterans through the approval process in a shorter timeframe now that the policy is in place. We are pleased to see this increased activity related to the VA SOP.

Our second area of focus with the VA has been to support their broad based multi-year study of the ReWalk system for community use. The study will include 160 patients that will be randomized to a cohort of 80 using the ReWalk personal system in every day life and a control cohort of 80 using only a wheelchair. The study is expected to start later this year at six VA centers in California, Florida, Texas, Massachusetts, and Virginia. The primary objective of the study is to demonstrate that veterans with spinal cord injury will have a clinically meaningful health improvement by using the exoskeleton in their community.

The outcome measures of the study are, one, responses to the RAND-36 questionnaire with a focus on eight health domains, including general health, pain, function, and mental wellbeing. Two, use of some P-scores for the SCI 2OL physical medicine health domain which focuses on areas such as bladder management, bowel management, and pain.

We will continue to work closely with the VA to support their efforts and to ensure the smooth launch of this important study in October of this year. We expect the VA to purchase additional devices during 2016 but the timing of these purchases will be determined by the VA. The VA programs and policies will have a long-lasting positive impact on the industry and we continue to partner with the VA to meet the needs of additional veterans who qualify for exoskeletons.

I'd now like to share some details about our outreach efforts and the status of our patient pipeline. In Q1 we generated 255 qualified leads and grew our overall qualified lead database to over 1,000 leads over the past five quarters. As these leads have progressed through the pipeline, we presently have 272 that are in the evaluation to trial process.

Now, based on approval patterns in 2015, we have modified our claim submission measurement to focus on claims that we believe have a greater than 70% likelihood of success. We have determined 94 claims with private insurers meet our refined criteria. This pending claim database excludes the VA SOP request, self-pay systems, training center systems, and claims allowed by commercial insurers that have a likelihood of less than 70% success.

We believe our ReWalkers help generate a tremendous level of interest in our technology because of the inspiration they offer others in the spinal cord injury community. The hard work that we put in at ReWalk is all the more rewarding when we hear stories about courageous people like Adam Gorlitsky.

Ten years ago, at age 19, Adam was in a car accident that left him with a spinal cord injury and paralyzed from the waist down. His doctors told him he would not walk again. At the time, he never could have imagined that he would be able to participate in the Cooper River Bridge Run, a prominent race held in Charleston, South Carolina, Adam's home town.

With the help of the ReWalk robotic exoskeleton, Adam was one of 40,000 people who participated in the 10K race, walking across the Cooper River Bridge Run on April 2 of this year. He walked 26,000 steps, including walking in wind, rain, and up and then down a large bridge. Adam became the first paralyzed man to walk the Cooper River Bridge Run and in doing so inspires us to continue to develop and deliver state of the art products that change lives. His follow up effort was to walk a 5K event just a few weeks later.

The first Veterans Administration patient that obtained the system via the SOP was injured in 2006. He had served as a Blackhawk crew chief in Iraq and he was injured shortly after returning while riding a motorcycle. In speaking about the unit that the VA has given to him, he said he greatly enjoys being able to walk in the country with his father once again.

These are exciting times for our industry. We believe advances in technology will make exoskeletons useful in more applications. The health benefits of exoskeleton use have become more widely accepted and more insurers will follow the lead of the VA and issue national coverage decisions for reimbursement. While we don't expect this to happen overnight, we do sense the tide is turning in our favor. In 2016 with our strategy in place we continue to build our foundation, prioritizing reimbursement efforts, demonstrating the benefits of exoskeleton use in clinical studies and publications, building our sales pipeline, and remaining at the forefront of product innovation.

With that, I'd like to open the call for questions. Operator, would you please go ahead with the instructions?

(Operator Instructions) Kyle Rose, Canaccord.

Thanks for taking the question and congrats on a strong start to the year. Just wanted to see if we could get a little more color on the claims that you've seen to date. If I read it correctly, you talked about the 94 claims that meet the refined criteria and then you also noted at the VA, that there's 37 qualified leads. In total, should I take that to read that there's 131 claims in the pipeline right now?

If we look at the claims, we break it into several categories. The claims pending with the private insurers is 94. We then have several other areas where individuals are pursuing units. The VA SOP, we have 37 that are various stages but those will be over the coming quarters. We have the VA study which is independent from the co-op.

We also have some self-pay users that are not pursuing insurance, that will be able to pay on their own, and then we also have the remaining claims that we believe are under 70%. So, while we're not putting out a specific number on the overall category, we have about five groups that are all moving forward to procure units at different levels but the one that's most definitive to us is the 94 claims where using our prior data from the past year, we believe will get better than 70% of those approved.

Okay. I appreciate that extra color there. Just to take that one step further, I wondered if you could give us somewhat of a like for like comparison of what the claims would've looked like in Q4 and some of the previous periods under this new refined criteria? And then additionally I think in the past you've broken it down between the US and OUS. And I think you said there was actually in Q4 there was a 76% conversion from claim to approval. If we could just get updates on those metrics?

First, I'd step back, the breakout of the leads was 209 in the US and 46 in Germany and the claims -- a little bit higher in Germany because there's more pending right now. Kevin? We've given that one before?

It's 49 in Germany and 45 in the US, of the 94.

If you look at the claims paid, this will help indicate -- the first two quarters of 2015 we had 6. In the second half of 2015 we had 17 in total. And in Q1 of this year we just had 10. So, the trend is upwards on the ones being paid and the way that it's broken out as well.

Great. And then shifting to the positive coverage decision. I mean, that's a significant momentum builder there. When you think about the leads in the funnel you have from a claim perspective, have you broken out how many of those really fall within that positive coverage decision and just how significant that first decision could be?

For that specific coverage decision, it started with an individual that they have provided a system to and they have a few others that are now pending at that particular insurer that are in the evaluation stage. So, our current 94 is primarily outside that particular coverage.

Okay. Great. And just one last one and I'll hop into queue. It sounds like the VA study, six centers to date. You've outlined that they've purchased 26 exoskeletons thus far. It looks like a little bit, right around 4 per center thus far. Any expectation for those additional four centers to come online? And should we expect those ordering patterns to be similar or is that going to be a bit of time here? Then I'll hop back in. Thank you.

The timing on that is up to the VA. And I believe their intent is to start the six centers here later this year. They're listed on ClinicalTrials.gov. They're stating the start date as October 1. So, the time at which they order additional units is up to them. If you step back, they originally had -- and this is public as well, the study had a plan for about 60 units but when they buy them will be up to them. They bought as I said 26 so far.

Also the patients that are in the ReWalk arm, there will be about 80. If they're successful, they would be possible candidates. And then there are 80 in the control. So, you have a large number of additional units, up to 184. But this is also over a three year timing and the FDA -- sorry, the VA will decide the timing of it. So, we can't forecast specifically when additional study units will occur. We do anticipate in the short-term most of the units will be SOP driven units for patients that are not in the study with the VA.

Great. Thank you very much.

Christian Moore, Jefferies.

Good afternoon and congrats on the great quarter here. Just to go back to the claims, I'm looking at the 94 number you gave. Just to confirm, that's comparable to the 106 you gave in 4Q and the 92 in 3Q? Would that be correct?

That would be -- it's the same category although we've gotten a little more specific in which ones we accept at this point. So, we can reconcile how they changed a little bit and it was a combination of some new claims coming in, some that have come off, or patients have opted out, some that we've sold and a few where we've found some incomplete details in the submission. So, we worked our way to a number that we believe is much more predictable. But it would compare to the 106 as you referred to.

But the 106 would be slightly lower. It would be a bit lower with some of the drop off.

If you did the same adjustments, correct.

Okay. Do you have an idea of how much lower it would be? Would it be ten units or so, I'm guessing?

The 106? We didn't specifically calculate it. It would be a little lower but I don't want to give you a number that's inaccurate.

No problem. So, you won't be giving that number, that was the 128 from last quarter, just in terms of us building out a forecast here. You won't be giving the pending insurance claims?

Going forward we will give the pending insurance claims under our new criteria but we're not going to go back with the ones that we had done previously.

Christian, we just believe that's a better indicator for you as you're building your model.

We appreciate it. Thank you. And then a little bit on the commercial reimbursement decision, obviously a huge landmark here. Can you talk a little bit more about the policy? Maybe -- I don't know if you're giving detail on who the payer was and the market rep you expect them to cover? And then maybe if you expect any similar decisions from other payers this year in terms of what you're pursuing for 2016?

Sure. First, the current payer did not yet give us permission to be public about them specifically but this was driven very much by them focusing on taking care of their patients and their users and it will be up to them to decide how much they want to publicize it. From our end, we know that patients in their geographic area are now covered and we can help guide them into it reasonably well. So, we'll try to get more detail as the provider allows us to.

Okay. And just for other payers that you expect are -- any to come online over the course of 2016 in terms of what you're pursuing?

We believe the data we're developing will help us with several and we will be continuing to educate and meet with them. I can't forecast yet when they will make definitive public decisions or make changes. But we are at least at a high level of discussions with many groups at this time. And as soon as we have those we'll announce them.

Great. Thank you. Thanks very much.

(Operator Instructions) Kyle Rose, Canaccord.

Thanks for taking the follow up. We've seen some positive regulatory decisions from competitive products out there and just wanted to see if you would comment on what you're seeing competitively from XO and then also the Indigo product from Parker and just how that has changed now that they also have 510K clearance?

I think the most important impact of further regulatory clearances, it helps validate this industry. It will help us with insurers and I think it will help the entire market develop. So, I think it's a very positive thing. Specifically, each of those companies will guide their own plans and program so I can't comment a lot on that. For clarity, my understanding is the XO product is presenting in the rehab center. So, they're not competing with us for patients. But we believe in the end this will help the industry.

Great. Thank you very much.

I'm showing no further questions. I would now like to turn the call back over to Larry Jasinski for any further remarks.

I would like to thank everybody for joining us today. We have certainly enjoyed the progress and look forward to continue reporting our results to you in coming quarters. So, thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone have a great day.