Mediwound Ltd (MDWD) 2017 Q1 法說會逐字稿

Welcome to the MediWound 2017 first quarter financial results conference call.

(Operator Instructions)

As a reminder, this call is being recorded.

I would now like to turn the call over to Anne Marie Fields.

This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from MediWound are Gal Cohen, Chief Executive Officer; and Sharon Malka, the company's Chief Financial Officer.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operation and future results of MediWound. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's forms 20-F and 6-K which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the contents of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 8, 2017. MediWound undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call expect as required by law.

With that said, I would like to turn the call over to Gal Cohen.

Thank you all for your interest in MediWound and for participating in today's call.

2017 is off to a great start, highlighted by meaningful progress across both our clinical and our commercial programs. Let me start with the discussion of EscharEx, our product and development for the debridement of chronic and hard-to-heal wounds.

In February, we reported the final results from our second Phase 2 clinical study with EscharEx which affirmed the positive top line data and showed the incidents of complete debridement with up to 10 daily applications of EscharEx was significantly higher and was achieved earlier compared with the control group. Safety data was comparable to the controlled group for both top line and final results.

In addition to safety and efficacy, one of the key objectives of the study was to further analyze these effects in different etiologies to guide a design of our future pivotal studies. The final data confirmed that the results were even more outstanding in the prospective subgroup analysis of diabetic foot ulcers and venous leg ulcers.

As a result, we are moving forward with our development plans in these two important indications of DFU and VLU.

Convenience and compliance are also very important considerations in the development of a successful wound care product that can be used in both the outpatient and the in-home care settings.

Consequently, we have a second cohort of this study underway in which 32 DFU and VLU patients are being treated to demonstrate safety over extended period of application of 24 hours to 72 hours. We believe that offering a wider range of choice for caregivers and patients to change dressings from as often as every day to every two or three days will fit better into their routine and lifestyle and does enhance convenience and compliance.

In the ongoing study, patients with DFU and VLU are being randomized to either EscharEx or the gel vehicle at the ratio of 2:1. We expect to report top line data of this second cohort of the Phase 2 study around mid-2017.

We are also moving forward with EscharEx 2, which is an advanced formulation of EscharEx. Clinical studies have already been successfully completed and demonstrated that EscharEx 2 has a greater potency at lower doses, thus, further enhancing convenience and improving gross margins for MediWound. Moreover, EscharEx 2 is expected to be easier to use and enjoys an extended patent life of at least for the next 20 years.

As communicated, these are part of our efforts to develop EscharEx to fit the typical patient flow, the current treatment regiments and reimbursement settings so that we can hit the ground running once approved.

With regards to our plans to exempt clinical development in the US, we recently completed the meeting with the FDA to discuss the US pivotal program for EscharEx. During these discussions, we were able to obtain FDA concurrence that complete debridement will be the primary endpoint of the studies and that wound closure would be measured as a safety outcome to document that EscharEx has no [deleterious] effect on wound closure. These are the same endpoints that we use in our successful Phase 2 study and that we are using in our ongoing NexoBrid US Phase 3 study.

We believe that this is a major achievement given the track records of so many other recent technologies which attempted to demonstrate superior complete wound closure, and since our past studies show that EscharEx has a superior complete debridement. Following this meeting with the agency, we are working to finalize our plans and looking forward to initiating the US pivotal program.

We are very excited about the potential of EscharEx. In addition to the very favorable existing Phase 2 data, we believe EscharEx will be very competitive in a market with a substantial need for effective and rapid non-surgical debridement therapy.

The topical therapies currently on the market require daily applications for weeks, even months, to achieve complete debridement. Timely debridement will support the efforts of so many advanced wound care technologies that are aiming to heal those wounds as well as expanding their existing market to wounds that currently cannot be treated with such therapies because of the presence of non-viable tissue on the wound bed.

Of note, a post [organic] analysis of our Phase 2 data showed that 93% of the wounds with complete debridement with EscharEx were debrided within seven days after four to five applications on average.

To fit EscharEx into the market dynamics and to ascertain its commercial potential, we completed the comprehensive market research study on EscharEx involving more than 200 health care professionals in the US and in Europe. According to the study, there are more than 1.3 million patients with DFU or VLU, in the US alone, who undergo debridement every year.

The [seventh] physicians indicated that the product having a profile such as EscharEx would potentially be prescribed to a significant portion of this patient pool. With an estimate average cost of treatment of $1,000 to $2,000 per patient, EscharEx represents a significant market opportunity which, is one of the reasons why we are confident in our decision to advance its clinical development program.

We believe EscharEx will become an important product in this multibillion dollar market and we considered it as a significant asset of MediWound. We look forward to embarking on our US EscharEx studies and will keep you appraised of our progress.

Let me turn now to a review of our ongoing commercial and clinical program with NexoBrid. We are very pleased to report the increased revenues during the first quarter of 2017, as it illustrates progress in converting awareness and interest into sales. As expected, this progress is enhanced by our market access and commercial efforts. We were particularly pleased to have an independent clinical review published in an international peer review journal that showed NexoBrid reduced the average treatment cost to a patient by more than EUR 5,000 compared with standard care.

This very favorable cost analysis supports both the clinical and economic benefits of NexoBrid compared with the current standard of care in the routine real-life management of severe burns. The result showed that giving NexoBrid significantly reduces the cost due to fewer surgeries, less blood loss, less time in intensive care unit.

We have been made aware of a number of similar independent cost-effective studies that are underway in Germany, in the United Kingdom and in Spain. We look forward to February results from these studies and expected that the growing value of independent cost-effective is data, which will support and expand reimbursement for NexoBrid.

In addition to published data, our commercial efforts continue to be supported by the significant presence we have in international and regional medical conferences for specialists. These meetings further enhance the awareness of NexoBrid among burn specialists from around the world.

In March, we had more than a dozen presentations at the American Burn Association annual meeting in Boston. In addition, a meet the expert panel, which included seven of the world's leading burn specialists provided graded insight into the use of NexoBrid in Europe, it's potential role in the management of mass casualty events and the future integration of NexoBrid as part of the U.S standard of care for the severe burns.

We are currently preparing for the European Burn Association annual meeting, which will take place in Barcelona in early September. We believe that attendance at this conference will fill the huge bag NexoBrid is generating across Europe, especially as there are already more than 40 [up stocks] on NexoBrid that has been accepted for presentation.

We expect that the European experience and the magnitude of the growing clinical body of evidence in support of NexoBrid in the treatment of severe burns will be of great value when we launch NexoBrid in other markets such as the US.

The cumulative body of presentations and publications provide a substantial volume of clinical reference and knowledge base that did not exist when we launched NexoBrid in Europe, which leads me to our progress expanding NexoBrid into other global markets.

Last year, we signed new distribution agreements for Japan, India and most of the main countries in South American, including Columbia, Chile and Peru. In addition, filing has been submitted in Mexico, South Korea, Russia and India, and preparations are underway for submission in Japan. We expect some of these filings will provide for approval in launches later in the year.

We will continue to work with our partners in each of these markets to support the regulatory submissions and expand the product's global commercial reach to additional important new markets.

And last but not least, last week, we were very delighted to report the successful completion of the Israeli Ministry of Health GMP, Good Manufacturing Practice, audit of our manufacturing facility. The audit was performed as part of the ministry (Inaudible - microphone inaccessible) of the company's manufacturing facility, and it concluded that it conforms to the requirements of CGMP for the manufacture of sterile and biological medicinal products.

As a fully integrated company, manufacturing is a core competency of MediWound and is critical for our R&D and commercial success. We take great pride in maintaining the highest quality standard and are particularly pleased that for the second consecutive time, the Israeli Ministry of Health is granting us a compliance certificate for sterile manufacturing for three years rather than the customary two years. This underscores the quality and the high standard MediWound upholds in manufacture of our proteolytic enzymatic therapies for commercial and clinical use in compliance with vigorous international standard.

Importantly, this certification, compliance with international guidelines and standards, which is important for Europe as well as for our global distribution partners. In fact, we are very happy to report that our facility recently passed the audit of our Japanese distributor KAKEN, which is impressive given the known Japanese high quality standards. This was one of the steps necessarily for the regulatory submission and we are looking forward to expand the use of NexoBrid to Japan after KAKEN obtains local regulatory approval.

In addition, our intermediate drug substance supplier in the Far East recently passed a BARDA due diligence visit, which is another step forward towards initiation of our procurement for stock piling by BARDA.

With that overview of our commercial and clinical programs, let me turn the call over to Sharon Malka for a review of our 2017 first quarter financials.

We are pleased to report our quarterly revenue during the first quarter of 2017 as it demonstrates how usage and awareness turn into product sales and eventually, the new standard of care in [CPU band care].

We enter 2017 well positioned financially with a continued support of our US clinical programs from BARDA and our ongoing financial discipline, which is expected to support of ongoing clinical trials for NexoBrid and EscharEx and our commercial efforts.

Turning now to our first quarter financial results, we reported that revenues in the first quarter of 2017 increased about 113% to $540,000 up from $254,000 in the prior year's third quarter.

Operating loss for the first quarter of 2017 was $3.7 million down 9% from $4 million in the first quarter of 2016. The decrease was due to gross profit that was generated in 2017 of 0.2 million compared with a gross loss of $0.2 million in the first quarter of 2016.

While our operating expenses remained at the same level as it was in the first quarter of 2016, about $3.9 million.

More specifically, research and development expenses, net of participation, for the first quarter of 2017 were $1.8 million, which was in line with our budget and compared with $1 million for the first quarter of 2016. The higher expense was primarily due to an increase of $0.2 million related to NexoBrid and EscharEx's clinical trials and a decrease of about $0.5 million of participation from the Israeli Innovation Authority, which resulted from revaluation of its respective contingent liability in 2016.

Selling, general and administrative expenses in the first quarter of 2017 decreased $0.8 million to $2.1 million from $2.9 million in the first quarter of 2016.

Net loss for the first quarter of 2017 was $4.3 million, or $0.20 per share, and this compares with a net loss of $3.8 million, or $0.17 per share, for the first quarter of 2016. The increasing net loss was the result of net financial expenses in the first quarter of 2017 compared with the net financial income in the first quarter of 2016, which were largely comprised of non-cash evaluation of contingent liabilities.

Adjusted EBITDA for the first quarter of 2017 was a loss of $3.2 million compared with a loss of $3 million for the first quarter of 2016. A reconciliation of the adjusted EBITDA to GAAP net loss is included in our press release and in the 6-K report that we filed with the SEC earlier this morning.

Turning now to our balance sheet, as of March 31, 2017, the company had cash and short-term deposits of $25.2 million and this compares with $30 million as of December 31, 2016. We used about $4.8 million in cash to fund operating activities during the first quarter of 2017, which is in line with 2017 budget and projected cash use.

Throughout 2017, we will continue to invest primarily in research and development efforts both for NexoBrid, which is predominantly funded by BARDA, and for EscharEx in chronic wound as well as in advancing the adoption of NexoBrid in Europe. As a result, we reiterate our guidance for cash use in 2017 to be in the range of $15 million to $17 million.

With that financial overview, let me turn the call back to Gal.

We expect to build on the progress we've made to-date in 2017 as we continue to execute our growth strategy to increase NexoBrid sales and to advance our clinical development programs in burns and wound care.

During the balance of the year, we expect to achieve a number of important milestones. We plan to report top line data from the second cohort of our Phase 2 clinical trial of EscharEx in chronic wounds, we expect to initiate the US EscharEx 2 clinical program, we anticipate further global expansion of NexoBrid as seven of our international distributors gain regulatory approval and launch.

And we do look forward to the continued publication and presentation of data highlighting the clinical merits and cost-effectiveness of NexoBrid in debridement of severe burns.

We believe that executing our plan and achieving those milestones supports our goal to build MediWound into a leading burn and wound care company and would create significant value for our shareholders.

And now, Operator, please open the call for questions.

(Operator Instructions)

Bruce Nudell of SunTrust Robinson Humphrey.

Just a question, now that you've talked to the FDA, could you give us any feeling for the likely duration of treatment, the number of patients, follow up period until you get the efficacy data in the EscharEx trial? And then I have a follow up.

We are very happy to receive from FDA the feedback that we are able now to have the primary endpoint as [essence] of complete debridement and our teams now are looking into the optimal ways to design the US Phase 3 program and the pivotal program.

Once we have completed this work, we'll be able to communicate exactly what would be the design of the study, their durations, the number of patients and all the consequences. We are -- however, we are planning to -- this work. Sorry, it's my -- we are planning to finish this work and initiate the studies hopefully already this year.

Perfect, and my second question is with regards to cash. I mean, clearly sometimes in 2018 there's going to need to be some sort of capital event. And I'm just wondering how you're thinking about either a public or a private raise and/or a commercial partner for EscharEx contributing to the finances of the company?

Currently, we have cash sufficient for the coming six quarters. I believe that once we finalize our plans for EscharEx, we will see what are the cash requirements to fund this program.

And as you mentioned, there are several options to do that. One, we are expecting revenues for Europe to increase, we are expecting procurement for BARDA, we are expecting orders from our international partners. One possibility would be to find part of it from our own resources.

Another possibility would be to ask for capital to fund this very exciting program.

And a third possibility would be to partner, or to work with a partner, in order to fund this program.

All venues are open. We are actively looking at all three of them and we will do whatever will be best to maximize the value for our shareholders.

Raj Denhoy of Jeffries.

I wonder if I could maybe ask about the positive gross margin in the quarter? The first time you've actually shown some gross profit implication being that you were actually probably selling more now than you're actually placing free of charge. And so, maybe you could dive into that dynamic a little bit?

Basically, the key reasons for this gross margin are two.

First of all, it is the increase of revenues that [such as the] first quarter of 2016. And as I mentioned in the past, when [big] revenues will increase, the gross margin will increase and eventually we will have a gross margin of about 80% when it will stabilize.

The second reason is effectiveness of our [resource set] of the plan while the plans currently part of it allocated to the COGS and the other one is supporting R&D activities and allotment -- or allotted to R&D activities.

Those are mainly the two main reasons for this gross margin and we anticipate that, as I said before, this gross margin going forward will increase and, eventually, will stabilize on about 80%.

Is the expectation, then, we should assume from this point forward that you generate a positive gross margin and as the revenue continues to ramp with NexoBrid and ultimately EscharEx that we should see it to the move off of this 37% gross margin continue to build from here?

Yes.

Okay, fair enough. And maybe just on the progress with NexoBrid in Europe, has there been any change on the reimbursement side, any notable wins in any countries or anything you want to call out in terms of the progress there?

I think the two main things we can see is one, I would say, the [treatment], again, depending on the country. As you remember, reimbursement in Europe is very fragmented and it's different from country to country. It's difficult to give an answer on European level, maybe I'll go to some of the highlights of the countries.

In Italy, we are making progress by implementing the national level reimbursement region by region. We recently got Cecilia, which is a region that usually takes a very, very long time. We were able to get this approval within about six months. And the more regions adopt the national decision, the more we can generate sales from that region. We have not yet finished all the regions in Italy, but we made a big progress forward and I hope that by at the end of this quarter, maximum the next, all Italy will be in a position that they can actually purchase the product.

The second country is England. Again, in England, the process is going center by center into the formulary process -- into the formulary hospital process. We have already several customers in England that are able to purchase the product. We know of several customers that in this quarter should have the meeting -- the internal meeting of the hospital to allow them to start purchasing the product. I just came back a few days ago from the British Burn Association conference, a lot of enthusiasm, a lot of customers approaching us and wanted to start using and buying the product. I hope that this [tech wind] will also support us in this formulary discussions.

The third country I would say is Germany. In Germany, this year, we were able to convince the German Burn Association -- or perhaps NexoBrid was able to convince the German Burn Association that they now should submit on their behalf to the government for what is called an OPS code, which is similar to a CPT code, let's say, in the US. Then, if they are successful, they will be able to charge or get refund or reimburse for the specific use of NexoBrid in patients.

There are efforts in all the local countries. In addition to that, we are also seeing physicians on their independent initiative starting to do local studies to show that NexoBrid is cost-effective because they need to show it to their administration.

As I mentioned in the call, in Italy, a peer review paper just showed that we save EUR 5,000 per patient and we know that such efforts are being made in other counties like England, Spain, Italy, Germany; and the more we see of that independent data showing that we are cost-effective, the more difficult it would be to the reimbursement body to ignore that.

No, that's helpful. And maybe just a follow up, but I know you guys typically don't like to give guidance but given all the progress on the reimbursement front and general progress at the company, broadly is there anything you want to offer in terms of revenue level, your [comfort] with this year and maybe as you move into 2018 as well?

As you [honestly] already mentioned, we do not give guidance on revenues [because] at this stage when reimbursement is still changing from country to country and there is no consistency, it would not be the right thing to do.

We do give guidance on expenses and we never miss a guidance on expenses.

And as Sharon mentioned, we [determined] our guidance that in this year, 2017, we would spend between $15 million to $17 million.

David Maris of Wells Fargo.

This is Katie Brennan on for David Maris. It would be great to just get a little more clarity from you guys. In the press release, you noted that the complete debridement will be the primary endpoint of the studies. I'm wondering if the FDA gave you any indication that you'll need to do more than one additional study?

And if what you heard from the FDA was significantly different than what you were expecting to implement, so if the time you need to kind of finalize the design of the pivotal program, if this was expected or if the agency is asking for more changes that you anticipated?

I don't think that we got more (Inaudible - microphone inaccessible) from the FDA than we -- than we anticipated. Usually, as -- FDA usually -- when you ask FDA what you need to do, FDA's answer would be it's a review issue because FDA doesn't want to commit. It depends what would be the results of the study, what would be the fee value, what would be the safety signals and so on. Usually they do not commit to something unless you go to an SPA process or something like that.

We are aware of the regulations that by -- or according to the regulations, there is a need to do two adequately controlled studies to get an approval per indication in the US. We are aware of the regulations that require a certain amount of exposure to patients. We are aware of the regulations that in the US or internationally, to be honest, come to [ICAG4] one needs to do what is called dose-range finding study.

Having said that, we are also aware that we have enough experience with NexoBrid. And NexoBrid is already in Phase 3 of course in Europe. There is enough exposure there, a trend to Phase 3 programs and so on.

What we are doing now, we are -- the easiest thing is just to follow the guidelines, do whatever is in the book. We are working with FDA and with a lot of consultants to see how we can do something different, something better for the company and for the shareholders. We believe that we will be able to come up with this plan.

And, if you asked me, "What is the probability that FDA, after 40 years, will agree that we do a study with a primary endpoint of incidents of complete debridement?" Every consultant will tell you zero. It's impossible. FDA consistently said wound closure is the primary endpoint. And we saw that all the products that went before us were not able to achieve that in the Phase 3 program.

We have argued with FDA, we provided with rationale and scientific rationale to justify why we believe that with NexoBrid as well as with EscharEx, incidents of complete debridement would be the primary endpoint.

And by achieving a consent from the FDA that this would be the primary endpoint and that wound closure would be a safety measurement that we just need to show wound [closure] success, exactly like we did with the Phase 2 study in Europe, exactly like we are trying to do with the Phase 3 with NexoBrid. I think this is a great achievement because without it, as you know, the program would be much more complex.

By taking all these elements into account in order to build an optimal, I would say, plan to get the product to the market as soon as we can.

And just finally on NexoBrid revenues, would you expect that the contributions you're gaining in Europe as well as ex-Europe should lead to sequential increases going forward quarter over quarter for NexoBrid revenue?

In general, this is our anticipation. We always like to show sequential growth. Sometimes, because of the magnitude, one place is in order three days after the end of the quarter and sometimes we have these tweaks and sometimes [it's order] of significant. For example, in this quarter we had something like that in England when the order came just after the end of the quarter. But if you look at it overtime as a trend, the trend is always growth since launch. And we are working and striving to maintain this growth going forward.

There are no further questions. I'd like to turn the call back over to Gal Cohen for any closing remarks.

Thank you all for your questions and for your continued interest in MediWound. We look forward to updating you again when we report our second quarter 2017 financial results in August. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.