Lifeward Ltd (LFWD) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2017 ReWalk Robotics' Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for this conference call, Ms. Ilanit Allen. You may begin, ma'am.

Thank you, Kevin. Good morning, and welcome to ReWalk Robotics' Fourth Quarter and Full Year 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; Ori Gon, Chief Financial Officer of ReWalk; and Kevin Hershberger, former CFO.

This morning, the company issued a press release detailing financial results for the 3 months and year ended December 31, 2017. This can be accessed through the Investor Relations section of the ReWalk website, 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 March 8, 2017. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases and filings.

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

Thank you, Ilanit. Good morning, everyone, from snowy Boston. Thank you for joining us.

Before I review our 2017 results, I'd like to discuss our announcement this morning that ReWalk and Timwell Corporation Limited, its affiliates and RealCan Ambrum Healthcare Industry Investment Partnership Enterprise have entered into a broad strategic agreement. This agreement establishes a joint venture to develop, manufacture and market the ReWalk and Restore devices throughout China; and includes an equity investment of USD 20 million by Timwell in exchange for 16 million ReWalk shares, which reflects a per share price of $1.25. The equity investment will be structured as an initial $5 million investment in escrow to be released upon shareholder approval of the transaction; a $10 million investment upon the formation of the joint venture established in China between RealCan Ambrum and ReWalk, which is planned for midyear; and $5 million, which is expected by year-end or no later than April 1, 2019.

In the near term, we expect the joint venture to focus on the Restore soft-suit exoskeleton for stroke patients in China, where the number of stroke rehabilitation centers are expected to exceed those in the U.S. and EU combined by 2021. Following that, we intend to commercialize our SCI products, ReWalk Personal 6.0 and ReWalk Rehabilitation systems for the Chinese market.

This significant expansion into China is a key component of our worldwide strategy. It will allow us to increase revenue from new market segments and to expand into key markets. We also expect that the lower price of the soft exosuit will allow greater market penetration and allow us to lower our overall cost structure since we plan to develop the devices through local manufacturing with our Chinese partner. The JV will primarily be funded by RealCan pharma, a publicly traded diversified medical products and services group with over $3.7 billion in sales that brings market knowledge and experience to the joint venture.

It is very important to note that this agreement reflects Timwell's belief in the value of our Restore technology to address the rehabilitation and mobility requirements for individuals with lower limb disabilities, including stroke and Parkinson's disease. Stroke incidents in China is estimated to be 2.4 million individuals each year, approximately triple the U.S. annual incidents, and is an opportunity for ReWalk to advance into the single largest market in the world with a strong partner. We look forward to updating you on our progress.

Returning now to our 2017 results.

2017 was an important year, as we achieved several milestones in advancing our business and positioned ourselves for additional growth in 2018. Key accomplishments include revenue of $7.8 million or growth of 32%; placement of 107 ReWalk systems in the United States and abroad, bringing this to a total of 433 worldwide to date; positive reimbursement momentum in Germany, with a pathway to expanding coverage for those that meet the medical qualifications; momentum in the United States that has now seen 42 different commercial payers cover the device on a case-by-case basis.

On our last call, we discussed our work with a large national commercial payer with whom we had submitted a proposal for a broad coverage policy. Despite encouraging discussions with the group and the depth of detail we provided, they could not come to a consensus on coverage. They will continue to evaluate submissions on a case-by-case basis. While this was not the outcome we hoped for, we have built a strong foundation of supporting clinical evidence to submit to multiple payers that are already active with exoskeletons. And last, importantly, our development of the Restore soft-suit Exoskeleton for stroke patients has progressed on schedule with the first patients in the regulatory clinical study expected to occur in the next 2 to 3 weeks. Now let me cover each of these in a bit more detail.

First, reimbursement. We've made significant progress in Germany. Last quarter, we were pleased to announce coverage with Barmer, a large social, health insurance group; and DGUV, the governing body of workman's compensation payers. To date, we have 40 open claims with these groups. And we are very pleased with the recent announcement that the National Association of Statutory Health Insurance Funds, the SHI, the governing body of Germany's statutory health insurance provider, has listed the ReWalk Personal 6.0 exoskeleton system in the German medical device directory, the MDD, which means that any German SHI beneficiary who is medically approved is eligible for reimbursement of a system. 90% of Germans are beneficiaries under SHI coverage. These formal decisions by the governing German authorities will translate into additional ReWalkers over the next 6 to 18 months.

Before moving on to the U.S., I am pleased to note that, together with the efforts of our exclusive Italian distribution partners [Project Yomo Automatica Robotics], we were just recently able to secure workman's compensation reimbursement in Italy. This policy decision is a milestone in the adoption of exoskeleton technology for the people of Italy and has the potential to contribute as a precedent in helping many more people gain access to this breakthrough technology.

On the U.S. front, as I noted earlier, 42 different commercial payers have chosen to cover the ReWalk device on a case-by-case basis. We have modified our strategy to focus on coverage with groups that have active review cycles upcoming on their policy, that have previously elected to reimburse SCI members on a case-by-case basis and where covered members have directly experienced a high level of success in using our technology. During 2018, we will be submitting proposals for coverage policies to 25 progressive national, regional and state providers who have planned and scheduled upcoming policy reviews.

To date, we have submitted coverage proposals to 3 U.S. commercial groups. And we'll update you on our progress with these and additional submissions throughout the year.

Next I'd like to update you on our progress with the VA. The VA continues to purchase units to support their clinical study. An additional 8 units planned for Q4 2017 has successfully completed the bid process and we expect will be purchased during the first half this year. That gives ReWalk a total of 68 devices for the study. The study has now enrolled 57 patients at 10 sites. And we're now beginning to see patients roll out of the study, as we've had the first veteran receive a ReWalk device for home use following participation in the study. Overall, the VA continues to be slow in resourcing and in supporting their commitment to veterans under this SOP. Only 16 veterans have been covered under this policy to date, with 4 additional in progress. On our last call, I was pleased to report that the first veteran was able to train on the ReWalk device through the Choice Program, which allows veterans to train at local commercial facilities if a VA center is greater than 50 miles from their home. Broader use of this program would solve the meaningful lack of access within the VA for many veterans. We are hopeful that progress will be made and that more of our deserving veterans will receive support from the VA.

I'd now like to continue, turn to the Restore and our continuing R&D work. In May 2016, we announced our collaboration with Harvard University's Wyss Institute to develop and commercialize the first-ever lightweight exoskeleton for individuals with lower limb disabilities, which did not require the structural support of a traditional exoskeleton. In less than 2 years, we are now happy to report that our Restore device for stroke is on track to begin the regulatory study required for FDA clearance. In parallel, we've submitted for CE mark clearance utilizing published clinical data from the programs and Harvard's Wyss Institute. The U.S.-driven clinical study for the FDA has attracted 5 of the top 10 rehabilitation institutes in the country based on the high potential value of this unique soft exosuit design. We are excited to begin the first sessions at Spaulding rehabilitation center in Boston and with the research team at Wyss Harvard in the next 2 to 3 weeks.

As a reminder: The clinical trial on the Restore system is intended to assess the safety of the Restore system during gait training in stroke patients in a rehabilitation setting. Based on the proposed study design, we anticipate the study will involve 40 patients, each participating in 7 training sessions at the designated stroke research centers.

We believe the Restore's soft lightweight design and affordability offers multiple advantages to stroke rehabilitation clinics, as compared with other traditional therapies, devices and structural exoskeletons. A key feature is that the clinician can set the variable current capacity with real-time adjustability and feedback, which is managed by the software and sensors so that power is adjusted for improved walking symmetry and speed. An additional key element is that the cost structure for the system and the existing payment models in the U.S. and Germany will enable us to offer a price point that is compelling and will support rapid market penetration. We plan to commercialize the Restore exoskeletons for use with stroke patients in Europe and the United States in early 2019, subject to the timing and receipt of CE mark and FDA clearance. We will provide more information on our timeline for China in subsequent calls.

Next I would like to outline our near-term financial strategy.

We believe our plans to grow sales through new products, entering new geographic markets and by achieving greater insurance coverage will result in a path to profitability. This requires a management focus on margin improvement and a more efficient operating cost structure. We see "reduced cost of goods" opportunities through volume gains and in the unique soft-suit exosuit design. Our efforts in China will enable us further. And as we continue to grow the business, we will continue to adjust our operating model by refining our operations to take advantage of the cost savings and operating efficiencies. We expect cost savings to approach 10% in 2018. With regard to our capital structure, the investment from Timwell that we just announced is a key first step as we strengthen our balance sheet.

In 2018, we expect to achieve sales of between $9 million and $11 million of SCI exoskeletons, with lighter sales in the first quarter and first half of the year picking up in the second half of 2018 driven by reimbursement cycles. We expect the first quarter sales of $1 million to $1.5 million, largely impacted by the pace of the VA's support for veterans. Any sales of the Restore, once cleared, would be additive.

As we reach 2019, we see broader coverage for SCI systems and the launch of the Restore system in multiple markets as key revenue drivers. So as you move into 2018, let me outline our key priorities. First, we will continue to focus on achieving broader reimbursement policies in the United States and leveraging our reimbursement wins in Germany as a basis for increasing our current growth rates. Second, we plan to advance the Restore through clinical studies, with a focus on launching in early 2019. Third, we will establish the China joint venture by midyear and will focus on detailed plans for entering the Chinese market and producing the Restore for China as part of a cost-of-goods reduction initiative.

Before I end my remarks, I'd like to relate the recent experience of one of our ReWalkers, retired police officer Jeremy Romero of New Mexico. He was injured in the line of duty, and then his clinicians and his Genex case management team quickly facilitated provision of his own personal ReWalk system. Because of his progress and improved health, you can see him ReWalk-ing on the campaign trail as he runs for sheriff of Guadalupe County. We hope he has a great campaign and are proud to have, in part, facilitated his run for public office.

Before I turn the call over to Ori to review our financial results, I want to acknowledge Kevin Hershberger's extensive contribution to ReWalk and extend management and the board's appreciation for his leadership and guidance in building the finance team and helping to propel this business forward.

As we previously announced, Ori assumed the CFO role in mid-February. Ori was hired by and has worked closely with Kevin since 2015. Therefore, he is intimately familiar with ReWalk, and I'm confident in a very smooth transition.

With that, I'd like to turn the call over to Ori to review our fourth quarter and full year 2017 financial results.

Ori?

Thanks, Larry.

Q4 revenue was $1.5 million compared to $1.6 million in the prior year quarter; and included 10 favorable commercial coverage decisions, of which 1 was from the VA. For the full year, we had revenue of $7.8 million, an increase of 32% compared with $5.9 million in 2016. This increase is primarily due to sales mix, increased sales to the VA and our ability to convert previously rented units into purchases.

We placed a total of 23 units in Q4, of which 4 were in the U.S., 12 in our direct markets in Europe and 7 in other markets. For the full year, we placed 107 units, of which 57 were in the U.S., 37 were in direct markets in Europe and 13 in other markets. During the quarter, we had 9 new rent-to-purchase units placed and 4 previously rented units converted to a purchase. During the year, 23 units converted from rental to purchases, including 19 converted units which were covered by commercial payers and the VA. We currently have 30 open trials including 25 active rentals and 5 claims that have completed the trial period and are awaiting a final insurance decision.

As of the end of 2017, we had 222 pending insurance claims relating to coverage for ReWalk compared to 199 at the same time last year.

Gross margin improved to 40% during the fourth quarter compared to negative 8% in the prior year quarter. For the year, gross margin was also 40% compared to 13% in 2016. The improvement was driven by sales mix, the increase in the conversion of rental units to purchases and lower product cost.

Total operating expenses for the quarter were $6.2 million compared to $7.9 million in the prior year period. For the year, operating expenses decreased to $25.1 million compared to $31.2 million in 2016.

Net loss for the fourth quarter was $6.2 million compared to a net loss of $8.5 million in the fourth quarter of 2016. Full year net loss was $24.7 million compared to $32.5 million in the prior year.

We ended the quarter with $14.6 million in cash.

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

(Operator Instructions) Our first question comes from Brandon Vazquez with Canaccord Genuity.

Can you hear me all right?

Yes, we can.

I just wanted to focus, first, on Germany. Can you just give us some color maybe on what the process is like for patients that are currently filing claims with Farmer? I'm -- just I'm trying to understand. How long is that process taking? How smooth is it going? And how do you expect that -- maybe that timetable to -- for those patients to trend going forward?

The process is getting well defined. With the policy approval in October and then the more recent listing in the medical device directive, it is starting to create a very routine process. There's -- one more step which we will also have is a formal process defined that will be in place here at the end of the quarter. So any patient will actually know how it's going to work. The process in Germany looks like it's going to develop to where they will do an evaluation period and of approximately 3 months. Or it could vary a little bit, depending on the patient's results, but it'll get us to a predictable pattern of about 6 months, is what we will deem as the going forward for a German user to be -- go from the point of wanting to -- a unit to the point where he takes one home. There'll be some variability dependent on the patient, but that, I believe it makes it predictable for the individuals that-- many have waited as many as 3 or 4 years, so they're quite excited.

Our next question comes from Ian Mahmud with Barclays.

This is Ian on for Matt. Can you hear me okay?

Yes, we can, Ian.

I just wanted to focus on U.S. reimbursement a bit because you alluded to it in your press release. And you mentioned that you've got these reimbursement efforts underway with national and regional providers. I'm just curious. At this point, what's the sort of sticking point there? Where's -- where are the areas of pushback? And how do you see yourself kind of overcoming those areas?

Well, the sticking point has really been a combination of data and belief in utilization; and the things that have happened from the time we got FDA clearance, where there was quickly several noncoverage decisions based on the FDA data being -- not being sufficient in the view of many of the insurers. At the time, we got FDA clearance in June of 2014. We had roughly 12 significant published papers. What has happened in the time since and really what drove the German and Italian reimbursement decisions were a lot of the additional papers, including a meta-analysis by Dr. Miller, for example, of 113 patients that had been provided. So we're now up to almost 50 papers we can cite when we are going forward with this. And the other variable that's changed, in June of 2014, we hadn't very many users out there. We now have 433 systems in the marketplace. So the users themselves are also providing data. So the progress you saw in Germany was a development built on data and experience. We expect the U.S. will follow the same pattern.

And I'm not showing any further questions at this time. I'd like to turn the conference back over to our hosts.

Well, good morning, everyone. And we did very much appreciate you joining us today. We look forward to answering or -- and providing any further information as you request.

So thank you, and have a great day.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect, and have a wonderful day.