Lifeward Ltd (LFWD) 2020 Q1 法說會逐字稿

Hello. Good morning, everyone, and welcome to ReWalk Robotics First Quarter 2020 Earnings Call. This is Ori Gon, ReWalk's Chief Financial Officer, and with me on today's call is Larry Jasinski, Chief Executive Officer.

This morning, the company issued a press release detailing financial results for the 3 months ended March 31, 2020. This press release and a webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com.

Before we get started, I would like to remind everyone that any statement 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. You will find the dial-in information in today's press release. The archived webcast will be available on the company's website at www.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 28, 2020. 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. Larry?

Thank you, Ori. Good morning, everyone, and I appreciate your time and interest. The first quarter and activities through May had significant progress in targeted areas and was substantially impacted by the general shutdown from COVID-19. Here are the key activities that occurred so far in 2020. First, successful execution of coverage contracts with the #1 rated and another top 5 insurer in Germany, which have been publicly disclosed. Additional contracts with other SHIs have also become active, although the groups did not make public announcements. There was also completion of a binding offer placed and installed within the procurement system with the national social health insurance coverage in Germany, and we now have expanded later stage talks with multiple other groups that are seeking similar type contracts.

Second, modification of our agreement with Harvard University's biodesign laboratory to expand their focus and resources to develop a telehealth remote home therapy exo-suit.

Third, editorial is published on the Restore technology in the U.K. on clinical value and results, further publications from Harvard on exo-suit technology, along with upcoming publication of the results from the clinical trial conducted for FDA clearance.

Fourth, our CMS application for consideration of creating a level 2 Healthcare Common Procedure Coding System, generally known as HCPCS code, for the ReWalk exoskeleton now has a public hearing scheduled for June 1.

And fifth, we have successfully added 2 new product groups via distribution agreements that will be initiated at the start of Q3.

Next, regarding our revenue, financial operations and more detail on the 5 points highlighted a moment ago. The effect of the COVID-19 pandemic on our business and revenue is significant because our products require in-person contact to complete the sales process. This includes delivery of the system and conducting training in some cases, which we did not continue during this lockdown period. The company established and maintained extensive policies for the safety of our customers and employees entirely in conjunction with local governments. Revenue was limited to $760,000 as we were not able to complete the delivery of several units during March due to the lockdown. We resumed shipping, delivery and training of ReWalk personal systems in May and are now completing the pending Q1 orders, along with additional new orders in Germany and in many parts of the United States.

Looking forward, the insurance contracts in Germany will impact revenue as long as users gain access to the clinics for hands-on evaluation and training. We had 98 pending German claims at the end of the quarter, with 35 of them in groups where we have contracts. We also see a positive trend in the number of potential VA patients as we now have activity to 26 new potential users as we are no longer competing for patients with the VAs 160 patient multisite randomized clinical trial to investigate home use of the ReWalk exoskeleton, which is nearing completion.

SCI growth year-over-year in both regions in 2020 can occur depending on the COVID-19 conditions. The ReStore product was proceeding through capital approval processes in approximately 50 clinics at the time of the shutdown. The status of any approvals and where the capital budgets, in general, are affected are presently unknown as we are awaiting guidance as these clinics reopen. We anticipate that in many cases, capital spending will be reduced due to the financial impact on the operations of these clinics.

We have also taken steps to ensure our financial stability during the crisis, which included implementing short-term and part-time work reduction programs in specific regions; reducing the number of employees and subcontractors, mainly in the research and development segment; and also looking closely in our inventory procurement to make sure we have the right amount to support our sales. Year-to-date, we have completed many activities that will impact 2020 sales and long-term growth.

There are 5 specific areas that we've really focused on. One, executed contracts with Techniker Krankenkasse, TK; and Deutsche Angestellten-Krankenkasse, DAK; along with other groups, which cover in total over 20 million Germans. Also a binding offer has been placed and installed within the procurement system of 36 insurances under Deutsche Gesetzliche Unfallversicherung, the German accident social insurance DGUV, which covers 83 million Germans. Each of these agreements were built on the government code for coverage of the ReWalk personal system and are the key element of potentially making exoskeletal walking the standard of care for Germans with paralysis. TK is rated as the leading statutory insurer in Germany. TK is the third largest DGUV, covers workers along with schoolchildren, firefighters and other essential elements of German society.

Two, the advent of COVID has demonstrated the need for technology from clinician to manage therapy options in the patients' home setting and separate from the clinic. CMS has responded by expanding the list of services, which can be provided via telehealth to include existing physical and occupational therapy codes, such as gait training, for example. Harvard's biodesign laboratory has fundamental research and designs for home use, and we have modified our collaboration agreement to utilize these technologies in a low-cost, home-based design that can be managed by the clinician remotely.

Three, the publications and the value and effects of the ReStore system have expanded. This growing base of scientific support is essential to complete market acceptance and understanding of this technology.

Four, in December, we submitted an application for a U.S. HCPCS code. These codes are commonly used for billing with Medicare and Medicaid along with private insurers. This continues to progress, and the public hearings for this application will be held on June 1. More than half of the target market for the ReWalk 6.0 relies on Medicare and Medicaid, and this would start the process of increasing access for these individuals.

And fifth, with the expansion of the U.S. sales team, we have sought to add synergistic products to our offering to service our home-based customers, expand our clinic relationships and to grow our revenue. As part of this strategy, we have completed agreements to distribute 2 additional product categories as of July 1, 2020. We will offer the MYOLYN functional electrical stimulation, known as FES, cycle rehab and home products; and the MediTouch, we have glove, leg, arm and balance systems to our U.S. customers. These match our primary call points, are needed by our customer base and each have innovative design elements that match the ReWalk mission.

Our progress in each of these areas are key strategic elements for the development of these new markets by allowing payment and access to innovative technologies. For the company, they are the pathway to initiate growth in 2020 and beyond.

Next, I'd like to turn the call over to Ori for a financial review. Ori?

Thanks, Larry. Our Q1 revenue was $760,000. And as Larry mentioned, it was affected by the COVID-19 pandemic. A substantial part of our transaction are normally finalized in the last 3 to 4 weeks of the quarter. So the clinic shutdown in March impacted our ability to potentially close ReStore rentals and sales. We were also not able to complete the delivery of several ReWalk Personal 6.0 devices during the quarter.

The revenue split by product is the following: our Personal 6.0 products had a total of $714,000, and the rehab ReStore device had a total of $46,000.

On the reimbursement side, we had 4 new rental approvals and full conversions of previously rented units during the first quarter. At the end of the quarter, we had 13 active SCI rentals and 7 ReStore trials. This rental pipeline represents $1.5 million in revenue. Our total number of SCI pending insurance cases was 115 at the end of the quarter, with 98 of them in Germany and 17 in the U.S., compared to 145 at the end of 2019. The U.S. pipeline list private insurers and do not include the VA opportunities. The reduction in pending insurance cases compared to previous quarter is because we are no longer pursuing a field with commercial payers in the U.S. as we shifted our focus to the VA, walkers' comp and obtaining broader coverage through CMS.

Our gross margin in the first quarter of 2020 was 49% compared to 59% in the prior year quarter. This decrease is due to the reduced revenue generated this quarter from our ReWalk Personal 6.0 device.

Regarding the operating expenses, our Q1 2020 OpEx decreased by $500,000 or 11% compared to the prior year quarter and remained flat compared to the previous quarter. The decrease compared to the prior year quarter was mainly in the R&D segment and is due to the completion of the regulatory and development spend on our ReStore device.

I would also like to describe several steps we have taken to reduce our spending and cash burn due to the COVID-19 impact. As we completed our main R&D project in the second part of 2019, we have decided to focus our remaining R&D internal resources through product maintenance. This allowed us to reduce some personnel and subcontracting elements. We have also reduced employee spending with [short-term] program in certain locations. And within our consulting spend, we have looked carefully and adjusted in several areas as well. The different steps that we have taken are anticipated to result in lower operating expense of approximately $300,000 per quarter, with some of it taking effect in the second quarter, and full effect will be shown in the third quarter.

We have also applied for 2 government funding programs. One was already received with the U.S. payment protection program loan of $400,000.

To recap the quarterly results, our net loss for the first quarter was $3.8 million compared to a net loss of $4 million in the first quarter of 2019. Our non-GAAP net loss for the first quarter of 2020 and 2019 remained flat at $3.6 million. We ended the quarter with $16.6 million in cash, and our short-term bank -- sorry, our short-term loan balance was $5.7 million.

With that, I'd like to turn the call back to Larry for some final remarks.

Thank you, Ori. I'd like to provide additional detail on each of the driving factors for our creation of these new markets and in establishing this industry. So part one, the pathway for broad and well-defined coverage has been the key limiting factor for those seeking the benefits of walking once again. ReWalk has been the leading and sole company pursuing insurance coverage for home-based exoskeletal walking. The path started in Germany, and the recent results there came from years of effort and by establishing data and systems.

We have made 3 public announcements where the companies were identified. One is TK, which covers 10.6 million Germans, has been voted Germany's best health insurance company for 13 years in a row and has moved swiftly to procure its first payment under the contract during the first quarter. The second is DAK-Gesundheit. It is the third largest SHI in the country, providing insurance for 5.6 million people. Its history dates back to 1775, making DAK Germany's oldest health insurance company. Third is DGUV, which comprises of 36 different DGUV member and insurers and covers nearly 83 million Germans against work-related, commuting, school accidents and other occupational diseases.

These new policies will allow any eligible beneficiary with a spinal cord injury, SCI, to seek procurement of a ReWalk 6.0 exoskeleton system. They will help set the standard for exoskeleton procurement in Germany.

A quote from Mr. Thomas Bodmer, Board member at DAK-Gesundheit is, "The advantages of this highly innovative supply have convinced us. The quality of this complex care is important to us. This is where the contract comes into play by clearly describing and regulating the interaction between the manufacturer, physiotherapists and orthopedic technicians in the contract on medical aid for the first time. In this way, we make it possible for those affected to make optimal use of exoskeletons."

We see these agreements having an immediate impact in 2 ways. First, and most importantly, for the patients who have waited for years, they will now be allowed to walk again. Second, many other insurers see the benefits of well-defined contracts, direct supply, and the results that come from providing an exoskeleton have also initiated contract discussions and provide systems to patients who had been waiting.

Part 2, the decision to modify the technicals and resources with Harvard was based on significant time-reviewing future needs with customers, the changes by CMS indeed demonstrated by COVID for home therapy and the capacity within Harvard's biodesign lab by transferring some internal existing technologies and expanding plans for clinical use. Harvard Professor Conor Walsh stated, "My lab is motivated to advance innovations that address real clinical challenges in collaboration with clinicians, industry partners in response to patients' evolving needs. It's clear that there is a need for remote home care with feedback and monitoring capability for clinicians. My research team is interested to see how we can optimize our technologies to meet that need as our collaboration with ReWalk continues." We are excited to provide more data on this program as it develops.

Part 3, publications. In April, Engineering in Medicine and Biology published Walking Faster and Farther With a Soft Robotic Exosuit in a publication based on Boston University and Harvard University, which focused on the improved mechanics and that exo-suits facilitate faster and farther over-ground walking. Subsequently, the Journal of NeuroEngineering and Rehabilitation has completed the peer-review process and accepted the materials from the ReStore FDA clinical study, and it will be published shortly.

Part 4, CMS. ReWalk's successful application and resulting public hearing is a meaningful development, and it's scheduled for June 1 next Monday. A need for a consistent and defined path for supply of technology to those who seek to walk again will help offset the discriminatory case-by-case approach that limits the market presently. The strategy of building a clinical database and then establishing a payment code has been a successful pathway for market development in Germany and has provided a strategic [model] for the United States.

Part 5. ReWalk has evaluated multiple products from innovative companies that lack a U.S. distribution system. We define specific requirements to match our mission, resources and capacity and have chosen to start with 2 product offerings that specifically met all requirements. MYOLYN has a technology that is easier to use and it's a lower-cost FES cycle for clinic and home use. It is primarily for SCI but can also be used with MS and stroke. ReWalk will benefit from exclusive rights under MYOLYN's existing contract with the VA, which matches well with our VA personal SCI focus. MediTouch offers unique motion-sensing devices for the hand, arm, leg and body with interactive software games to track and assess patients. It can be used in the clinic and at home. This is our initial entry into telemedicine and will allow a level of remote use where we can learn a great deal about this market. Training for both product lines will occur in Q2, and our sales efforts will start in the United States in Q3.

The challenges of creating highly innovative designs and then establishing new markets are permittable. If we examine what has been accomplished in terms of the trends towards broad ReWalk 6.0 coverage for Germany and the United States, clearance and marketing are the first robotic propulsion design for stroke, our ability to leverage and grow our distribution profile with well-matched innovative products, a financial operating structure that has meaningly improved and our path to be able to eliminate our debt by Q1 2021, we have reasons to be optimistic about achieving our goal of establishing a sustainable and profitable entity.

Our company now has the capacity to provide clinics with ReWalk exoskeletons for spinal cord injury, ReStore for stroke rehab, an FES cycle for multiple indications and upper and lower body technologies for motion balance training. In parallel, we are well positioned to provide ReWalk exoskeletons for community and lifestyle use that has growing reimbursement support, offer an FES cycle for home exercise and offer home-based systems for motion balance training. For the future, we have also refocused our efforts with Harvard to develop remote therapy lower leg systems that can be managed by the clinician, which are economical, provide propulsion and allow improved walking.

In short, we are providing solutions that offer meaningful value to the clinics and are enabling the future direction of home therapy in the industry by expanding the clinician's choices for home rehabilitation at everyday community use.

Thank you very much for joining us today. I'd like to turn the call over to questions at this stage. Operator, please go ahead with the instructions.

(Operator Instructions) And your first question is from the line of Mr. Rama.

This is RK from H.C. Wainwright. A couple of quick questions. Regarding the CMC meeting on June 1, which is coming up pretty soon here, what else does CMC need to do before they can provide the dollar amount for reimbursement?

Well, the first step is issuing a temporary code, and this public hearing is really the session where they will go over their recommendations. They will hear the comment from our company, from some of our clinicians and one of our users, and they will hear other public comment, either for or against establishment of this new code. So their decision will follow shortly after. The pricing and cycles of establishing CMS codes have varied a little bit, but generally, they match the calendar year for the government, which starts in October of this year. So you -- our anticipation is if they elect to establish a code, depending on -- we'll see how we do on Monday, June 1, then pricing would be something that would be addressed probably after that in the contracting phase. So we don't have specific control as to when they would establish pricing, but that is the cycle of time which we'd get to address it.

So specifically, would that be for the year 2021 or the year 2022?

Well, the code would be October of 2020. So it'd be really effective forward. Relative to pricing, it will probably happen more in negotiations in Q4 and Q1 next year. So we're basically looking in a 9-month type cycle.

Okay. Okay. That's good. And then regarding the German insurance contracts, has -- since you have announced a month, 1.5 months ago, what additional color could you provide in the sense as the countries are opening up post-COVID-19? Have you seen any outflow of product to some of these insured lives under the German contracts?

Yes. Specifically, almost every unit we've been placing here from the ones that were leftover from Q1, we didn't get to deliver, and the early ones are almost entirely within these contracts. And what I really like about them is several of these are patients that have been waiting -- one person, in particular, on social media, had been made in almost 4 years. And from the time that the contract was established till the time she had her unit at home was only a couple of months. So the actions that we're expecting in this quarter and the coming quarters are going to be very much driven by the contracts. We do expect them to expand. Our biggest short-term risk is access to the clinics. As long as clinics stay open and we can get in and they can get trained and they can get their delivery, we'll have some good progress. But we can't be certain as to how the market access will be just yet anywhere in the world yet with COVID.

Okay. And then what is -- could you provide some additional commentary on the VA front? How that -- how is the trial continuing to progress? Anything in terms of data or publications from them?

Well, the VA did complete enrollment. They enrolled 161 patients with a target of 160. That was good. They finished the follow-up. My understanding, there's -- this is from discussions with the centers and approximately 125 of them. And then the others are in a bit of a holding pattern because they haven't been doing the follow-up during the COVID period.

So the pace at which they get the key centers open will have an impact on when they finish the data. And we have no control over this. So they may elect to publish on the 125 where everything is complete, or they may finish the other 35 and then publish. So we originally expected them to be publishing around -- somewhere around year-end, Q1 next year. I can't tell if COVID is going to slow that down or not.

Okay. And then the last question from me is with these new MediTouch products. What sort of synergies should we expect? And also now that they can do some -- their patients can handle some of the telehealth operations, does that provide additional help in terms of placements on the product?

I think both of the 2 companies that we have brought in are really going to be synergistic because they're at the same call point. We're not going anywhere that we haven't gone before. So whether it's where we're selling the stroke product for the ankle, it's the same group that in the clinic that we're working with. The bigger difference with the MediTouch line is they also offer a home-based unit that can either be provided by the clinic or bought from us directly. So MediTouch has some very unique elements there that flow rather nicely.

On the MYOLYN product line, the reason it is a particularly good fit for us is they have a contract already in place with the VA, and we will be the distributor for all the VAs in the United States, and that will be our primary focus. These are the exact same patients we're trying to sell ReWalks to. And in the end, we tend to learn that some of our patients don't qualify. They don't have bone density sufficient, for example, but they would qualify for a PS bike where they may be able to improve their bone density and get back into a ReWalk, you never know. But they're the same patients, the same labs, the same clinics.

So we think both these product lines will offer us an improvement in both clinic sales and in-home sales as we work on them.

And at this time, there are no further questions.

Okay. Well, I'd like to close the session. First, thank you for everyone who joined for observing the progress with these new markets. We look forward to providing further announcements or press releases as things develop and conducting our Q2 earnings call in a few months. So please watch your (inaudible) you can.

Thanks, everybody, and have a good day.

Thank you. This does conclude today's meeting. You may now disconnect.