Mediwound Ltd (MDWD) 2018 Q2 法說會逐字稿

Good day, and welcome to the MediWound Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jeremy Feffer. Please go ahead, sir.

Thank you, Morgan, and good morning, everybody. Earlier today, MediWound issued a press release announcing its second quarter 2018 financial results and business updates. You may access that release on the website under the Investors tabs.

With us today is Steve Wills, Chairman of the Board; Gal Cohen, President and Chief Executive Officer of MediWound; and Sharon Malka, Chief Financial & Operations Officer.

Steve is with us to share an update on the discussions regarding a potential strategic transaction, Gal will provide an update on the company's programs and review upcoming milestones and Sharon will summarize the company's financial results. After the prepared remarks, we will open the call to Q&A.

Before we begin, I'd look to remind everyone that statements made during this call, including the Q&A session, relating to MediWound's expected future performance, future business prospects or future events or plans, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and could differ materially from those forecast due to the impact of many factors beyond the control of MediWound. The company assumes no obligation to update or supplement any forward-looking statement, whether as a result of new information, future events or otherwise.

Please -- participants are directed to the cautionary note set forth in today's press release as well as risk factors set forth in MediWound's annual report filed with the SEC for factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

At this time, I would turn the call over to Steve Wills, Chairman of the Board. Steve?

Thank you, Jeremy, and good morning everyone. Before we commence the operational and financial review, I would like to update everyone on our strategic discussions with multiple parties. As a reminder, MediWound was approached earlier this year by a third-party to consider a potential strategic transaction. Subsequently, we engaged an investment bank, Moelis & Company. We commenced discussions and thereafter received approaches and engaged in discussions and diligence with multiple, strategic parties on multiple, strategic transaction scenarios.

At this point, we are engaged in advancing discussions and diligence with several parties. We are in the process of analyzing specific business transaction scenarios and proposals related to these parties. The board continues to be advised by Moelis & Company regarding evaluation and assessment of these potential strategic transactions. There is no additional information we can share at this stage.

As you can appreciate, we cannot give specific guidance as to a timeline on how long these discussions will take nor can there be any assurance that a definitive agreement between the parties or any other agreement will be reached. We'll be happy to answer questions during our Q&A session at the completion of our team's remarks. But it is important to note that I am limited in what I can say about this topic. Gal?

Thank you, Steve, and good morning everyone. We appreciate you joining our call to review our second quarter financial earnings and corporate update. It is a pleasure to speak with you today to provide an update on our business and to review our second quarter results. We are focusing in our clinical development programs and commercial plans.

First, we are pleased to say that we have completed enrollment in our U.S. Phase III clinical trial of NexoBrid, also known as DETECT Study. We expect to announce the acute top line data around the end of this year. Complete eschar removal is the primary end point of this study and will be tested against the gel vehicle, the placebo arm.

In our reported European Phase III study, the incidence of successful eschar removal with NexoBrid was 96.3%, and the incidence of successful eschar removal with the gel vehicle in 2 Phase II studies conducted in the U.S. was 0. Now that all the patients have been recruited, we are eager to see the results of the DETECT U.S. Phase III study.

As previously communicated, should the NexoBrid Phase III DETECT Study be successful, we plan in a pre-BLA meeting to ask the FDA to allow for the submission of the BLA based on the acute results, as they include the primary, the secondary and the safety acute data.

Subject to FDA concurrence at the pre-BLA meeting, we plan to submit the BLA in the second half of 2019 and supplement the filing with a 12 month long term follow up safety data during the FDA review period.

In other NexoBrid development news, we expanded our Phase III CIDS study to the U.S. after obtaining both the FDA concurrence on the on the protocol and BARDA funding for the study. The study is currently enrolling in Europe and in the U.S. and I'm very happy to say that for the first time children have been treated on U.S. ground with NexoBrid.

We continue to expand NexoBrid in an international reach as an effective and minimally invasive treatment for the removal of eschar. NexoBrid recently received a marketing authorization in South Korea and our distributor in South Korea intends to launch NexoBrid in the second half of this year.

This approval is in line with our commercial strategy to expand the use of NexoBrid in international markets such as Latin America, Asia Pacific and CIS, using our European EMA approved registration file through collaboration with local companies that possess the expertise in the local regulatory, market access and marketing efforts and assume the financial commitment and diligence.

We look forward to additional marketing approvals in international markets in the coming quarters and seek to further expand our distribution channels to additional markets through our ongoing business development efforts.

As seen in the Colectiv nightclub fire in Romania, couple of years ago, NexoBrid can contribute to the treatment of burn victims in mass casualty event, where surgical capacity is limited and the need for injury diagnosis and a rapid medical intervention are critical.

Recently, again, we were pleased to have the opportunity to offer humanitarian aid by providing NexoBrid to the medical delegation that treated victims suffering from burns in the massive volcano eruption in Guatemala. We will continue to seek B2G, business-to-government cooperation with countries and international agencies as part of their preparations for possible future or mass casualty events.

As part of our overall B2G efforts, during the second quarter, we were also able to obtain FDA agreement in development pathway of NexoBrid in Sulfur Mustard injuries would be in accordance FDA Animal Rule that allows to grant marketing approval based on adequate and well controlled animal efficacy studies, when the results of this study establish that the drug is reasonably likely to produce clinical benefit in humans.

FDA also agreed that trials in a single animal species would suffice, subject to adequate safety and efficacy data from the planned studies. And more so to rely on the existing key manufacturing and control data, which is already available for NexoBrid by way of cross-reference to the existing NexoBrid IND for burns.

Last but not least, moving on to next to EscharEx, we continue to be committed and enthusiastic about the significant medical need and commercial opportunity for EscharEx, and are on track to submit a protocol to the FDA in the second part of this year for the EscharEx clinical development program.

I will now turn the call over to Sharon Malka for review of our second quarter financial. Sharon?

Thank you, Gal, and good morning everyone. We are pleased with our financial performance in the second quarter of 2018, which was highlighted by growing revenues combined with disciplined budgets and with a continued support of BARDA.

Turning now to our financial results, we have reported that revenues in the second quarter of 2018 increased 50% to $1 million up from $0.7 million in the prior year's second quarter and increased 100% from $0.5 million in the previous quarter of 2018.

Gross profit for the second quarter of 2018 was $0.4 million compared to a gross profit of $0.2 million for the second quarter of 2017.

Research and development expenses for the second quarter of 2018, net of participations, were $1.5 million, down 8% compared with $1.7 million for the second quarter of 2017. The decrease in research and development, net of participations was as a result of an increase of $1.7 million in the gross research and development expenses on one hand, which was offset by an increase of $1.9 million in participation by BARDA in the company's R&D expenses on the other hand.

Selling, general and administrative expenses for the second quarter of 2018 were $2.1 million, compared with $2.2 million for the second quarter of 2017.

The operating loss for the second quarter of 2018 was $3.3 million, an improvement of 11% from $3.7 million in the second quarter of 2017, primarily as a result of the improvement in gross profit and the decrease in operating expenses.

Net loss for the second quarter of 2018, was $4.2 million or $0.15 per share, compared with a net loss of $4.5 million or $0.20 per share for the second quarter of 2017.

Adjusted EBITDA for the second quarter of 2018 was a loss of $2.9 million, compared with a loss of $3.2 million for the second quarter of 2017. A reconciliation of adjusted EBITDA to GAAP net income is included in the press release we filed with the SEC earlier this morning.

Looking at the first half results versus the prior year, revenues for the first half of 2018 were $1.6 million compared with $1.2 million for the first half of 2017, an increase of 26%. A gross profit for the first half of 2018 was $0.5 million, compared with a gross profit of $0.4 million in the prior year period, reflecting a gross margin of 35%.

Research and development expenses, net of participations, were $2.7 million for the first half of 2018, compared with $3.4 million for the first half of 2017. The decrease in research and development, net, was as a result of an increase of $2.4 million primarily in NexoBrid clinical trials expenses, which was offset by an increase of $3.1 million in participation by BARDA in the Company’s R&D expenses.

Selling, general and administrative expenses in the first half of 2018 were $4.2 million compared with $4.3 million in the prior year period.

Operating loss for the first half of 2018 was $7 million, down 5% from $7.4 million in the first half of 2017. Operating expenses in the first half of 2018 included other one-time expenses of $0.7 million associated with a review and analysis of potential strategic transactions. The decrease in operating loss was primarily due to the improvement in gross profits and the decrease in operating expenses in the first half of 2018 compared to the prior year period, which was offset by one-time other expenses as mentioned above.

For the 6 months ended June 30, 2018, the company posted a net loss of $8.7 million, or $0.32 per share, compared with a net loss of $8.8 million, or $0.40 per share, for the same period in 2017.

Adjusted EBITDA for the first half of 2018 was a loss of $5.7 million, compared with a loss of $6.4 million for the first half of 2017.

Turning now to our balance sheet. As of June 30, 2018, cash, cash equivalent and short term bank deposits balance was $27 million, compared with $36.1 million at December 31, 2017. We remained on plan and utilized $7.5 million in cash to fund ongoing operating activities in the first half of 2018.

Throughout 2018, we will continue to invest primarily in research and development efforts for EscharEx, while NexoBrid research and developments programs will be funded by BARDA. As a result, we expect that cash used for ongoing operating activities in 2018 will be in the range of $14 million to $16 million. With that financial overview, let me turn the call back to Gal. Gal?

Thank you, Sharon. We look forward to the next quarters and we have several important milestones, including top line acute data in our Phase III DETECT trial for NexoBrid around year-end, continuing recruitment in our pediatric Phase III study in U.S. Pediatric Burn Centers, initiating our clinical program for EscharEx in the U.S., further global expansion of NexoBrid, as 7 of our international distributors are expecting to gain regulatory approvals and launch, potential initiation of the development program for NexoBrid for the treatment of Sulfur Mustard injuries, which we will seek to collaborate on with governmental entities. With the completion of our prepared remarks, Steve, Sharon and myself will take your questions. Operator, kindly open the call for question. Thank you.

(Operator Instructions) We will take our first question from Bruce Nudell from SunTrust.

We recently looked at analysis of claims data in the U.S. and Germany, and we are surprised to see that how the chronic wound is treated, diabetic foot ulcers and venous leg ulcers contributed a relatively small percentage, surgical wounds and traumatic wounds, which may frequently have a diabetic etiology as well as pressure ulcers figured prominently in the totals. Hence, it seems that a broad label as enjoyed by SANTYL for that treatment of chronic wounds generally is important for commercial success. What should our expectations be for EscharEx in that regard, given that the pivotal trials are focused on DFUs and VLUs? And I have a follow up.

Thank you, Bruce. Thank you for the question. Well, we have conducted a detailed marketing analysis in the U.S. We spent a $0.25 million on that and they have interviewed quite a lot of people, I think, 230 healthcare professionals, physicians, insurance companies. We also bought several commercial marketing reports and they all seem to indicate that in the U.S. there are 8.7 million Americans suffering from chronic wounds and about, I would say, something like 5 million of them have venous leg ulcers and diabetic foot ulcers. In the detailed market research, we saw that 1.3 million Americans are undergoing debridement every year with the diabetic foot ulcer or a venous leg ulcer. Knowing that the cost of treatment in the U.S. is $1,000 to $2,000 that's over $2 billion market. So we believe that should we run clinical studies in these indications and get an approval, there is a huge, huge market opportunities there. The market research also indicated that should we be able to prove the efficacy of the drug and the safety of the drug in venous leg ulcers and diabetic foot ulcers, physicians would think that this might be also relevant for other indications like pressure sores and others. And as you saw in our clinical studies, we also treat post-surgical complications. So we all know that these are -- it's practically an epidemic. There are so many patients out there. I think each indication that we will choose will be so large that we'll have enough to churn for many, many years to come.

Okay. And then when we look at the reimbursement status for SANTYL, it appeared that except for qualified outpatient hospital or wound care centers in which SANTYL is the only debridement method build for, there’s no separate reimbursement for facilities and offices for drug procurement and no associated professional fee. Patients generally get a prescription and are reimbursed by insurance with the majority of SANTYL’s uses and nursing homes and wound care facilities. In contrast, sharp debridement generates a professional fee around $70 in the office setting for small wounds and up to $160 for mid-sized wounds. Firstly, should we presume that there likely won't be broad separate reimbursement for facilities and offices for EscharEx procurement and no so separate professional fee for doctors and PAs? Secondly, what's the process and timeline for EscharEx's inclusion on formularies inclusive of Part D.

Thank you. So I think that to begin with, our commercial strategy would be to rely on the existing reimbursement code that SANTYL has. There is a reimbursement code in the U.S. typically called for nonselective debridement. This is the way it’s referred to and we will fall under that. It is true that the physician reimbursement for sharp debridement is higher as we said along and that we would not expect to replace sharp debridement in the U.S. What we believe will happen is that, one, physician will either start with EscharEx. If it will remove all the eschar that would be fine, if not, they can complete the removal with sharp debridement. Or they can start with sharp debridement and they will not fight with the wounds. If it's too challenging, they would just complete the debridement with EscharEx. And this is mainly referring to diabetic foot ulcers, because as you know, VLUs are not so often debrided by sharp debridement. They're large, they're painful and they're not frequently debrided by sharp debridement as DFUs. So having said that, we believe that, today, from what we understand from physician, it takes physicians 10, 15, 12 minutes to do sharp debridement to a patient. We have to remember that these are sick patients, they don't heal well. They take anticoagulative drugs. And therefore, a physician can see 10, 15 patients in a day. Whereas, with EscharEx, the physician can say to the patient you have a chronic wound, you need a prescription. Here's the nurse she'll show you what to do with it. It will take him 3-4 minutes allowing him to see 30, 40 patients in a day. The compensation per patient would be lower, but he would be able to see more patients and he would, more importantly, be able to avoid all the challenges that are currently associated with sharp debridement. This is just for the sharp debridement part. In addition to that, as you rightfully said, there are about 20% of the patients that are currently treated with SANTYL. Well, I don't know if one would want to use a product that takes 6 to 8 weeks to debride a wound if they can do it in 1 or 2 weeks. So we believe that we can take, based on the market research, a substantial portion of this $350 million market. And then you've got another 20% that are using just less expensive offerings like hydrogels and honey dressings and other things where we also believe that the efficacy today doesn't allow to debride these wounds in less than 4 to 6 to 8 weeks. And there we can also make a big impact. So overall, I think that entering the market with the existing reimbursement strategy would still generate a very lucrative opportunity for us. We all know that the trend in reimbursement in the U.S. are towards pay for outcome. And obviously, that might have also a favorable effect on EscharEx being able to actually debride its wound in a very short time. I hope...

How long would it take the formulary once you're approved?

Yes. Well, as you know, it takes about a year or so to be included in the code. And then it depends on the facilities. There are different clinics affiliated with hospitals, there are nursing home, as you mentioned, there are offices, there are -- so there are so many different institutions. So this process would take most probably over a year. But again, one doesn't target the entire market in 1 day, so it will be a sequential process as usually happens. Thank you.

We will now take our next question from Jay Olson from Oppenheimer.

Congratulations on the completion of enrollment for your NexoBrid Phase III DETECT study. I'm curious, now that the study is fully enrolled, can you share with us the average body surface area of the burn patients that are enrolled in the study and how that compares to your European studies?

Thank you for the question, Jay. So the inclusion criteria allowed in this study to include patients from, I would say, 3% to 30% total body surface area, which is quite in line with our inclusion criteria for the European study. We have to remember that in the U.S., we have not started the study this way. We only got an approval from the FDA to extend the total body surface area after about a year or 1.5 years into the study. But overall, it's the same inclusion criteria. As for the exact average, total body surface area in the study itself, we are currently blinded with this information. We will only know this information once we are able to open the code and run this statistical analysis. And this is expected, as I said, around the end of the year. So we do not know yet this information.

Okay. And then since -- it seems like you are going to request for the FDA to accept your BLA submission in the second half of '19 and then supplement it later with 12 months long term follow-up safety data. I was wondering if you could strengthen your argument for doing that by providing some long term safety data from Europe -- from European study.

Thank you for the question. Well, I think, there are several ways that we can support or justify our request. The first thing is, usually, if you don’t see a safety signal in the short term, meaning, let's say, a high rate of infections or a prolonged -- significantly prolonged time to wound closure, you would not expect to see a deleterious effect in the long term. And this we will know already at the time that we have the acute data. The second thing is, as you rightfully said, we have a published paper that shows our long term safety data from the European Phase III study that included 89 patients. It's one of the biggest long term follow-up data in a randomized controlled, multinational study ever published. And it shows that our incidents of scars is significantly lower. Our area of the scar is markedly lower. The quality of the scar is at least as good if not better than the standard-of-care. So that would be a second line of argumentation. The third line, as you mentioned, would be the publications going out now in Europe. We have now -- we counted, we have all of 50 peer-reviewed papers that have been published on NexoBrid in the few years that we've been in the market. And some of them coming from Milan and other places show that the long term outcomes seems to be at least as good, if not better, than with standard-of-care. And we hope to see more studies like that published until we get to the BLA stage which would be late 2019. So we hope that all these medical sound argumentation would convince the FDA. If yes, then we will submit the file late '19 as we expected. And if not, then we'll have to wait for 12 months follow-up data that would come something like 3 quarters later.

Okay. And then I guess just one financial question related to the potential strategic transaction. Does MediWound have any net operating losses that could be valuable to a potential strategic partner for tax purposes?

Basically, the -- sorry, basically the net operating losses, the carryforward losses for tax purposes remained and can be utilized going forward in [fair value] tax regulation as long as we maintain this activity in the company, maybe one it's safe as an entity. So there is no limited -- limitation for time and it can be utilized going forward, and we have about $120 million carry forward losses as of today.

(Operator Instructions) We'll take our next question from Josh Jennings from Cowen.

This is [Brian] in for Josh. On your last call you said you would have some granularity on the strategic discussion by this call. Was it your expectation to have reached final decision on the path forward by now? And if so, what accounts for the additional time needed to express these options?

Brian this is Steve. Well, I'm sure I've lost my membership in the Nostradamus club for predictions. But, seriously, we're taking a data driven and measured approach to any potential trend -- strategic transaction. We're doing this, because we have options. We can go forward and concentrate on our existing programs of NexoBrid and EscharEx, which we believe address a significant unmet medical need and have, frankly tremendous commercial potential. Or we can consummate a strategic transaction, which we will not shy away from as long as we believe after comprehensive diligence and review that's in the best interest of the shareholders from a value enrolment perspective. I did make the comment that I thought was reasonable that we would be in a position to convey some more clarity. But, again, we're -- this measured and -- we've been very deliberate and measured with the comprehensive review. We have multiple parties in advancing discussions and they cover multiple scenarios. So we're just being very diligent with this approach. As always, we're not assigning a date. We're going to be data driven and when we come to that point where we make a decision, we will absolutely circle back to the investor world, to the landscape and convey what our plans are going forward.

That's helpful. Can you provide some detail -- just has the group of parties narrowed since the strategic process began?

Yes. If you picture it like a funnel, I mean, we're -- to reiterate, we were approached by a third party earlier this year for potential strategic transaction. And from completion standpoint we have been a public company and from a comprehensive standpoint we engaged an investment bank Moelis & Company. We have a very engaged board. We have a very engaged senior management group. But picture of funnel, we've had discussions whereby we -- those discussions did not advance significantly for whether it was something strategic or some other factor. But to be very responsive, yes, the group that we are currently in advancing discussions and diligent with, has narrowed significantly from the various approaches that we've had.

(Operator Instructions) It appears there and no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks.

Thank you, everyone for joining the call today. We look forward to providing you with further updates on our third quarter call. Have a good day. Thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect.