Lifeward Ltd (LFWD) 2017 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Q1 2017 ReWalk Robotics Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Ms. Ilanit Allen. You may begin.

Thank you, Kirsten. Good morning, and welcome to ReWalk Robotics First Quarter 2017 Earnings Call. This is Ilanit Allen 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 3 months ended March 31, 2017. This can be accessed through the Investor Relations section of the ReWalk website at 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 events 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 2 weeks. You'll find the dial-in information in today's press release. The archived webcast will be available for 1 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 4, 2017. 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's CEO, Larry Jasinski.

Thank you, llanit. Good morning, everyone, and thank you for joining us. We had an excellent first quarter, with record revenue of $2.5 million, including a record 14 favorable commercial coverage decisions, with a total of 37 ReWalk placements. We made meaningful progress with the VA and with commercial payers on the reimbursement front, and we moved closer to a design freeze on our stroke product.

As we indicated in our last call, our focus is on working with the VA to qualify and expedite processing of veterans via the co-op study and the SOP program; securing broader reimbursement coverage in the U.S. and Germany with both corporate entities and commercial providers; and finalizing the design, initial production, and clinical study setup to support regulatory filings and late 2018 commercialization of the restore soft exoskeleton product for stroke patients. I'm pleased to report on all of these fronts, we had encouraging and demonstrable results that show the promise and growth that is developing with this new industry.

We continue to make progress in building our business with the VA. During the first quarter, the VA placed an order of 28 units for its co-op study, of which 20 units were shipped in Q1. This purchase will allow each of the 10 co-op study sites to be fully active and recruiting subjects by midyear. As a reminder, this multi-year study will evaluate 160 subjects in 2 cohorts: 80 using the ReWalk exoskeleton and 80 in the control arm.

The study design is focused on home and community use, and is the first randomized and most comprehensive study being conducted on the benefits of using exoskeleton technology in the world today. The study is making meaningful progress, with the first 6 study sites recruiting 25 users to date. 14 were in the control arm and 11 were in the ReWalk arm, and enrollment is on schedule. All 160 participants in the study are eligible to receive an exoskeleton once they complete their follow-up.

Veterans who enter the study in 2016 will be eligible to receive their own ReWalk in late 2-2 and 2-3 of 2017. Those entering the co-op study in the first half of 2017 may move to the SOP process later in the year. Veterans that participate in the ReWalk cohort may move to the SOP process to acquire a system for home use, and those in the wheelchair cohort will have the opportunity to proceed through the VA's SOP ReWalk training process.

We continue to be encouraged by the significant support we see out of Washington from the White House and Congress. The newly-formed White House Office of American Innovation has indicated that a top priority will be reimagining Veterans Affairs, and the newly-appointed VA secretary, Dr. David Shulkin, has echoed that the VA is a top priority for the president. With a proposal to increase the VA's budget, making it one of the few federal departments with a proposed budgetary increase, we are optimistic that there is positive momentum to review and expedite programs within the VA.

We continue to advocate, one, that the VA expand the choices and locations available to veterans to train on the ReWalk system so the many veterans who are now waiting can train closer to where they live. Two, that the waiting times be reduced by providing resources for training in locations where veterans have been requesting help since the coverage decision was made in 2015. And three, that the VA increase the visibility of the SOP policy so that veterans who are not aware of this benefit can be considered.

While it's still early in the process, we feel good about the focus and momentum within the VA and the broader commitment in Washington to service the needs of paralyzed veterans, which includes providing the ReWalk device.

On the reimbursement front, we continue to make progress with commercial payers, self-insurers, and managed care providers. Within the U.S., we are continuing multiple high-level detailed meetings with 2 large insurance providers. Based on those discussions, we are reiterating our midyear target for a top commercial payer to make a determination regarding a broad coverage policy for the ReWalk personal device.

In parallel, corporate self-insurance groups and municipal coverage groups are closely examining the possibility of covering their employees. Additionally, we're making progress with other groups. For example, Genex, which is one of the most experienced national managed care providers for injured workers, released a remarkable video about their coverage impact on an injured police officer. He was the first police officer covered and is now 1 of 3 worldwide. The Genex video cites how his pain medicines are now no longer needed and how his frequent urinary tract infections have been reduced. This validates our belief that payers and providers increasingly recognize the value of our technology.

In Germany, we're in advanced discussions with 2 groups in our efforts to drive broader coverage for individuals with spinal cord injury. The first group is a large social health insurance group with which we have over 15 pending insurance claims. Our successes with 2 social court decisions in Germany in 2016 have helped to facilitate these discussions, which we believe will likely result in a coverage policy around midyear.

The second group, BG, is the governing body of workman's compensation groups in Germany. The BG has increased its activity with 7 new rental coverages in Q1. In its 2016 annual report, it indicated the intent to develop a unified coverage policy for all workman's compensation cases at BG facilities across Germany, and this will allow therapy with exoskeletons to become more transparent. We believe such policy will be similar to the VA's SOP, and we look forward to updating you on these developments in the coming months.

We have a total of 194 pending insurance claims in the pipeline, with 77 in the U.S. and 117 in Germany, representing potential revenue of over $15 million.

Outside of our direct markets, we saw the first positive coverage decision for training in Australia, by the NDIS, which covers national disability insurance. They provided this coverage for Paul Jenkins, who recently ReWalked across the parliamentary stage at the University of Canberra, to receive 2 bachelor's degrees. Paul is a determined young man who looks forward to permanently setting aside his wheelchair. The NDIS decision and the great success of Mr. Jenkins are precedent-setting, and provides hope to many other trained ReWalkers in Australia. The efforts with the NDIS are now progressing to an application for funding a system for him to use in everyday life.

Turning to R&D, we continue to make progress in advancing the soft exoskeleton device for stroke to the next stage. We are moving from concept to production, and anticipate that our first commercial systems will be bench-tested this quarter. We are looking forward to additional physician feedback on the advanced designs later this month, which we expect will allow us to complete final testing and adjustments for clinical use. This will be followed by clinical use of our first commercial design, which we expect will occur in 2-4 of 2017, and then FDA studies starting in the first half of 2018. Our goal remains to target commercialization at the end of 2018.

We believe that the disruptive uniqueness of this lightweight, compact, economical, patient-friendly design, along with the size of the market and the preexisting reimbursement codes that allow rehab centers to immediately have a profitable business case, all combine to make this a compelling product that will drive the next stage of the exoskeleton industry.

Overall, we've made good progress with each of our goals -- advancing efforts with the VA through the co-op study, and with potential changes in access policy with the SOP. Discussions with commercial players on broad coverage contracts and with our innovative soft suit exoskeleton for stroke and other lower limb disabilities. We believe we're on the right path as we continue to build the foundation of this new industry.

I'd like to turn the call over to Kevin now to review our first quarter 2017 financial results and then open the call for your questions.

Thanks, Larry. Q1 revenue was $2.5 million compared to $2.1 million in the prior year quarter, and included 14 favorable commercial coverage decisions -- 5 in the U.S. and 9 in Germany. We placed a total of 37 units, of which 26 were in the U.S., consisting of 20 for the VA study, one for a veteran covered under the VA SOP, and 5 covered by commercial insurance. The remaining 11 units were placed in Europe.

As I've done in the past, I'd like to give you some additional detail on our rental units. We had 10 rent-to-purchase units placed during the first quarter, including one with the VA, and we had 5 previously-rented units that were converted to purchases. We currently have 26 open trials, including 21 active rentals and 5 claimed that have completed their trial period and are awaiting final insurance decisions.

Gross margin improved to 42% for Q1, driven by increased volume, conversion of rental units to purchases, favorable geographic mix impacting our ASPs, and lower product cost. Total operating expenses for the quarter were $6.7 million compared to $6.9 million in the prior year period. As we discussed on the last call, we have implemented initiatives to reduce operating expenses, the full impact of which will become more visible throughout the year.

Net loss for the quarter was $6.4 million compared to a net loss of $6.9 million in the first quarter of 2016, and we ended the quarter with $17.1 million in cash

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

(Operator Instructions) Your first question comes from the line of Matt O'Brien from Piper Jaffray.

This is J.P. on for Matt. I wanted to start first with in Germany, it seems like you're seeing a lot of good uptake there. How much of that is from, I think it was last summer you had the German Social Court ruling. And so, maybe talk a little bit about that tailwind that's provided for you guys. And then just in terms of patient awareness building now that it's getting more and more often covered in Germany, are you seeing more patients kind of funnel into the pipeline, and should we think about that as a good precedence for the U.S.?

Clearly, those court cases last summer did have an impact because the groups that we're talking to on contractual and policy side now have many cases that are pending, and they're also some of the same groups that have done the large number of rentals we had in the first quarter here. So the pattern is what we hoped it would be in Germany, and we believe the output at the end, as some policies and contracts are established, we believe roughly about midyear.

To the second half of your question, what we've learned from the German audience is they don't go out and fundraise and look for these. They believe that the government does have a responsibility to take care of their citizens, and it will probably help us with an uptick on people that, okay, now I know how the system works. And an important thing is, if you look at the BG specifically, their annual report, and they did more rentals than anybody else, is specifically targeting making the process more transparent. That's the wording in their actual report and in the discussions we're having.

So this, I think, will help the users and will be continued growth. I do think it translates to the U.S. The VA also has I think gained momentum, as we can see in the success we had, and the success we've had with the workman's comp groups.

Just to add to Larry's comments, the one group we're talking with is a large social health insurance group, and we have 15 claims with them now, and a large part of that is the court case last summer that you referenced. And Larry referenced, again, the activity with the BG. 7 of the 10 rentals were with BG groups in Germany.

Got it. And then I was trying to dig in on the VA. How much visibility do you have there? Because it seems like -- I don't know if this is a pattern. It's like Q1 last year, they had a big order, and then they kind of tailed off. Q1 this year, they had another big order and it kind of tailed off again. Is that something we should think about as a pattern going forward or is it just you don't really have visibility?

It's more of a pattern of the study design. So last year they ordered the initial (inaudible) units to get the first 6 centers up and running, which they ordered them in Q1 but they got them really up and running around midyear. And what you've seen this second order that we just got also was to get the remaining 4 centers. But the part that feeds into that and the part that was most important, frankly, for us to measure, is, okay, they've got 10 centers that'll be up and running now, are they effectively accruing patients? And they set their own goals as to when they did the study plan, and the 25 patients that have already been enrolled in only half the centers is, as they've characterized it, is exactly on schedule. So I think it's going to even out in its own way because the patients coming out of the study all become available in the SOP.

Additionally, the VA does have some additional units budgeted. We can't tell the timing, when they're going to order for the further units for the co-op study, whether it's later this year or not. But they do have additional budgeted units. So I think this is the beginning of some quarter-to-quarter predictability, because the patients coming out of the study (inaudible) a lot to us.

That makes sense. And then the last one for me is on the commercial side. It sounds like midyear this year is kind of building up to where you could get some more coverage contracts in Germany, some favorable decisions here in the U.S. In a perfect world, those all go well. How should you think about the ramp throughout the end of this year in the back half and then the 2018 -- or I guess more specifically, what gives you confidence? What are your conversations with these commercial payers that gives you a good feeling about them actually coming on board midyear this year?

Well, the depth of the discussions -- I'll start in Germany. They, to an extent, because of the court cases and because of the number of pending cases, we are far enough along in contract-type discussions to where we're reasonably confident that the contract will happen. We're not absolutely certain of the timing. But they have patients in line.

To answer your question on implementation, I think there's 2 stages to it. Those that had been waiting in the system for them where they have pending claims, those will be shorter-term for us. As Kevin pointed out, one of them has 15 pending claims. I think you'll see those come up in the 6-month-type cycle. But new patients will probably, between getting qualified and getting trained and actually getting their systems, will be greater than 6 months cycle, and will probably fall more into 2018. But it's making it predictable for both the patient, us, and eventually for you guys.

Yes, this is Kevin. We said on the last call that we would expect the revenue to follow within 12 months after getting the claim, and I think that's important. As Larry pointed out, we've got some cases that are pending that would come through in the first 6 months. I think the other part of it is -- there are 2 important aspects of it. The first is getting patients that are covered under those groups in through the process that now they know that they have coverage. And I think the second aspect of that that's very important is as we have discussions with other groups. So getting these first coverage decisions in the U.S. and in Germany are important because then it sets a precedence for discussions with other groups as we're continuing to work on reimbursement and on the case-by-case processing that we're currently doing now.

Your next question comes from the line of Matt Taylor from Barclays.

This is Xuyang Li, in for Matt. I guess maybe first, just a -- can you maybe talk about your manufacturing capacity and ability to meet demands from maybe a [bolus] of orders from the VA or from broader reimbursement coverage?

Yes, Young, this is Kevin. So -- we manufacture through our contract manufacturer, Sanmina, so our ability to ramp up is pretty quick. On any product like this, you have some longer lead times, but we're talking a couple months for a longer lead time. So as we build the business, we have the infrastructure in place to grow our manufacturing capacity.

Okay, great. What’s the -- I guess, one on the balance sheet, just a -- any plans to strengthen the balance sheet, and maybe you can talk about priorities for cash usage in ongoing business?

So I'll talk about priorities first. We really said that we're -- we've laid out our priorities for the year, and it's really focused on the commercialization efforts and reimbursement for the existing product and the R&D focus on our stroke product. That's really what we're focused on this year, and we'll prioritize those areas as we go forward.

In terms of the balance sheet, we've said on the last call that we have sufficient resources to get us through our next key catalyst, and then we would look at all of our opportunities. We have an existing active ATM program, but we would also look at the markets, both equity and debt markets, to continue to fund the company.

And we have a question from the line of Christian Moore from Jefferies.

Maybe the first one just on, I'm not sure if I missed it, but if you gave the qualified lead number for the quarter, just in terms of tracking that.

I don't think we gave the number, but the number for the quarter was 138. One of the things that I want to point -- we haven't actually -- we'll provide that number for your benefit if you want. One of the things we actually haven't been including that, because as our business develops, we have a lot of patients in the queue, and it's really about getting more targeted in that area. We need a fewer number as we're building this business out, because there's more awareness of the device and of the industry.

Great. So you have more than enough to work with in the queue already.

We do, but we want more. So a lot of our other focus has been key opinion leaders, particularly in Germany and the United States, because we believe having more physicians on the podium and also talking to their patients about why this should become the standard of care and why it is the standard of care for the right patients, we find that helping us qualify our leads and move the leads forward more effectively. So that has been a increased area of focus for us in getting these guys to -- I'll give an example of a couple of physicians that went out and presented at a workman's comp conference lately. That has resulted directly in some patients in some cases that we've seen. So those have been very effective for us as a way to move them through the system more effectively.

Great. Then maybe one on the rest of the world. Japan sales, obviously a very strong fourth quarter. In terms of the cadence for the year, is that kind of the expectation, that you'll have strong back-loaded years, or is it just going to be lumpy in terms of when rental and full sale units come in for that segment?

It'll probably continue to be lumpy. We can't completely control the rest of world, although I would look at the activities we have. The insurance efforts are not limited only to Germany and the United States, which, those are the 2 we, as a company, are driving. For example, I cited what we've seen in Australia. The number of trained, waiting for ReWalk individuals in Australia, I don't know that we put that up publicly, but the distributor there has in excess of 30 trained individuals that hopefully can find a path to get these and the coverage, with the first by the NDIS, at least for training and now considering it for use, is important. And that translates to your question. I think all of those individuals will accept it. We can't tell when the Australian government, in that case, will cover.

We've also seen activity in several other geographies as well that could result in boluses [ph] of orders like we've seen in prior years, but the timing is -- lumpy is the characterization, I suppose.

Great, thanks. And then the last one just on the 28-unit order from the VA, 20 coming through this quarter. Will that basically come in the next quarter, or spread throughout the year? I'm probably expecting a similar cadence to what we saw in 2016, but just wanted to confirm that's how we should think about modeling that throughout the year.

Well, the order of 28 is that we ship 20 in Q1, we'll ship the other 8 in Q2. And then if there's other orders from the VA, we'll obviously ship them dependent on the date we get them, usually, in the quarter.

And then when you ship it, that's when you're booking them as placements, right?

Correct.

(Operator Instructions) Your next question comes from the line of Steven Lichtman from Oppenheimer.

This is Dennis in for Steve. First, it sounds like you remain confident on coverage coming through from a national payer. Is it now more than one payer in the U.S. that you're speaking with, or could we see more than one in the U.S. near-term?

We are directly speaking with 2 currently at one level and then we're speaking to a lot of corporate and municipal groups in parallel. So there is more than one that we're speaking to with the same types of discussions.

Understood. Just to follow up there, is the positive movement from them being a payer exposed to a lot of case-by-case situations, or is it from them being exposed to new data?

Primarily data. We've been fortunate in that groups that have good data, specifically the VA, have been willing to share that data, so they were able to examine not only the data we had from our clinical studies, but they were able to examine some of the data privately from the VA. So it gave them a good basis to consider, and that's where they stand today. They have spent a lot of time looking at it.

Great. And I guess the last question just regarding data. Broadly speaking, any update on new data we could see over the next 12 to 18 months? That’s it for us.

We have our current study ongoing. We would hope to do some interim reports. I think the most substantial data you will see from the VA, but that's not in our control. The randomized trial is right on target. I don't know when they will choose to publish and be public. They've certainly provided accrual information, which is what we cited today. When they're going to give more on results is, as I said, something we hope they do soon, because we believe it'll help us.

Your next question comes from the line of Kyle Rose from Canaccord.

A couple housekeeping and then another big picture one. Kevin, could you give us a little more color on the metrics on the rent-to-own and the converts? Just to maybe break that out, U.S. versus O.U.S. as far as the 10 rent-to-purchase in the Q1. And then if you could just kind of help us understand what that funnel looks like.

So the rent-to-purchase units, we had 10 rent-to-purchase units this quarter. There was 1 in the U.S., which was a VA unit, and then 9 in Europe. Then we also had 5 conversions this quarter, which, 2 were in the U.S. and 3 were in Europe.

Okay, great. And then wanted to talk a little bit on how you're seeing the marketplace, and just any competitive pressures, any increased competition, just what the focus is from a competitive standpoint. Any update there, either in the U.S. or globally.

This is Larry. Kyle, we see the industry developing, but at this point we really haven't been running into each other in terms of competitive components. We remain the most active in the United States on the personal sales, and we've either sold them in different places or we've been able to sell where we were targeting. Same in Germany. Generally, right now, the personal market is something that we have had the longest experience on with the sixth generation device, and that seems to have worked well for us.

Relative to pricing, Kevin can address SAPs. We're really not getting any pressure there, either competitively or from even the payers, as I believe they see the value of what we're doing to their patients and their customers.

Yes, just to reiterate, ASP, we have not seen any pushback from payers on ASP, and as I noted earlier, our gross margins reflect that. It's more of a geographic mix because heavier weighted towards our direct market. But we really haven't had pushback on ASP.

Yes, and in the United States, we've still remained -- there's only one product besides ours that's FDA-cleared for personal use, and similar in Europe. The other players haven't made it into the 2 direct markets in any significant way. The other area that I've seen more activity is on stroke. Clearly, we've seen at least one of our competitors do a pretty good job in developing their structural exoskeleton there, and I believe another one has begun a clinical trial.

So you also see, I believe, all 3 of the major competitors reaching to the stroke opportunity because of the size of the need and the effectiveness of exoskeletons in helping those patients. We're approaching it somewhat differently in terms of our product. Ours is really, as we've described it, a nonstructural system that is very lightweight. And importantly, for our point of view, we like the business model of this one because there's a capital element to it, but also there's replacement components that we have said it will change over time, and there's some patient-disposable components that really makes it a very economical business model.

And if we take existing reimbursement codes, we would be able to present that to any laboratory and any clinic, and give them a model as to how it would be a profitable proposition for them to take that particular design. But the designs first (inaudible) would benefit the patient, but economics was the second part of our consideration. So I do see a lot of activity in the stroke area.

And then just lastly, on the expectation for some reimbursement decisions from the larger players, you're talking about midyear. Was there a potential for us to see that (inaudible) before the end of the Q2? I guess it's midyear, Q2, Q3. And then on that point, I know you're going to stop short of giving longer-term guidance, and that's not what I'm asking, but how do we think about the time to then, after a positive decision, the time to which we should start to see a meaningful move in momentum in topline revenues? Is it 6 months that it needs to play through, 9 months, 12 months? How do we think about that?

The first part, midyear, the main reason we've given that is based on the level of interaction and general discussions we've had with the insurers, but we don't control it, so it could be Q2, it could be Q3. But it's going to be seemingly at least decisions in that cycle based on the feedback the insurers have given us. If you can get them on the line, you can ask them the question instead of us, because I can't answer it, I'm sorry, more than that.

Relative to time, once we get these coverage decisions, we believe that the patients that are already in line at these specific insurers will be shorter-term, less than 6 months, most of those should come into our system. So some of it could affect current year, and we believe it will. But most new patients will probably fall well beyond the 6 months before the time they're qualified to get in the system, get trained, and the transaction is complete. So part of these policies will have a bigger impact in 2018 and 2019, obviously, as it becomes more routine.

We have no further questions at this time. I would like to turn the call back over to the presenters for closing remarks.

We appreciate everyone taking the time and interest, and we look forward to our Q2 call and our later calls this year as we can continue to discuss the progress we did today. Thank you, everybody.

This concludes today's conference call. Thank you for your participation. Have a wonderful day. You may now disconnect.