Mediwound Ltd (MDWD) 2018 Q3 法說會逐字稿

Good morning, everyone, and welcome to the MediWound's Third Quarter 2018 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, and is being webcast live on the Investor Relations section of the MediWound website at www.mediwound.com.

I would now like to turn the conference over to [Monique Cassie]. Please go ahead.

Thank you, operator, and good morning, everyone.

Earlier today, MediWound issued a press release announcing its third quarter 2018 financial results and business updates.

You may access that release on their website under the Investor tab.

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

Before we begin, I would like 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 are reflected in such forward-looking statements are based upon 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 statements, whether as a result of new information, future events or otherwise.

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 will turn the call over to Steve Wills, Chairman of the Board. Steve?

Thank you, and hello, everyone. Before we commence the operational and financial review, I would like to update everyone on our strategic discussions.

As we have discussed in our prior earning's calls, MediWound was approached earlier this year by a third-party to consider a potential strategic transaction.

Subsequently, we engaged an investment bank to help us review the proposal and advise in our discussions.

We commenced discussions and thereafter received approaches and engaged in discussions and diligence with other strategic parties on different strategic transaction scenarios.

At this stage, we continue to be in discussions and diligence with a subset of those parties.

The board continues to be advised by Moelis & Company regarding evaluation and assessment of all strategic options and avenues.

As we have said, there can be no assurances that a definitive agreement between the parties or any other agreement will be reached.

As you can appreciate, we cannot give specific guidance as to a time line on how long these discussions will take.

We will 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.

Now, I would like to turn the call over to Gal. Gal?

Thank you, Steve, and good morning, everyone.

It is a pleasure to speak with you today to provide an update on our business and to review our third quarter results.

We are focusing in our clinical development programs and commercial plans.

We were very pleased to have been awarded this quarter an additional BARDA contract for the development of NexoBrid for sulfur mustard injuries. The contract provides approximately $12 million of funding to support research and development activities up to pivotal studies in animals under the FDA Animal Rule, allowing for marketing approval based on animal studies.

It also includes options for additional funding of up to $31 million for additional and subsequent development activities including the animal pivotal studies and the FDA biological license applications, the BLA submission.

We were pleased to have the endorsement of our technology by another department in BARDA, and look forward to collaborating with BARDA on the development of NexoBrid for this new indication as part of the U.S. efforts to prepare for mass casualty events.

10 decades of research have not yet produced an approved treatment for sulfur mustard skin injuries.

Based on the promising data from animal studies, presented at the 2017 European Burns Association conference, NexoBrid has the unique potential to help victims of mass casualty events involving this chemical warfare agent who otherwise would have undergo radical surgical removal of contaminated skin.

Now, with this nondilutive funding awarded by BARDA, we have facilitated the efforts to develop a nonsurgical treatment option for sulfur mustard victims.

I'm also happy to report that the last patient has completed the acute treatment and entered the follow-up period in our U.S. Phase III clinical trial of NexoBrid, also known as DETECT study.

We expect to announce top line acute data in January 2019.

As a reminder, the primary end point of this study is complete eschar removal compared to placebo.

The DETECT Phase III study is one of the most comprehensive randomized controlled studies ever conducted in burn care, and we are excited to be able to see the results which we believe will support our BLA submissions to the FDA.

Should the NexoBrid Phase III DETECT study be successful, we plan to have a pre-BLA meeting to ask the FDA to allow us to submit the BLA based on the acute results, as the acute results 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 time that FDA still reviews the files.

In addition to DETECT, our Phase III CIDS study in children with thermal burns is moving forward as we continue to enroll patients and extend the study into additional clinical sites in both Europe and the U.S.

Moving to EscharEx. As planned, we have submitted our pivotal protocols to -- for the clinical development of EscharEx to the FDA, and we have recently met with the agency.

We had a constructive discussion, we received concurrence on many aspects of the program and suggested additional secondary efficacy endpoints on which we were requested to provide additional information.

We plan to submit the information and, subject to FDA concurrence, to initiate the program in the first half of 2019.

On the commercial side, this past quarter, the Ministry of Health in Russia authorized the marketing authorization of NexoBrid for the removal of dead or damaged tissue in adults with deep partial and full-thickness thermal burns.

Our exclusive distributor partner in Russia plans to launch NexoBrid in the first half of 2019. This approval is part of our ongoing commercial strategy to expand the use of NexoBrid into international markets using the European approved registration file through collaboration with local companies that possess the expertise in the local regulatory market access and marketing efforts, but not less importantly, assume the financial commitment and diligence in doing so.

We look forward to additional marketing approvals in international markets in the coming year, and seek to further expand our distribution channels to additional markets through our ongoing business development efforts. I will now turn the call over to Sharon Malka for a review of our third quarter 2018 financials. Sharon?

Thank you, Gal, and good morning, everyone.

We are pleased with our financial performance in the third quarter of 2018, which was highlighted by growing revenues combined with disciplined cost management and with a continued support by BARDA, which was extended following the awarding of the new BARDA contract for the development of NexoBrid for sulfur mustard injuries.

Turning now to our financial results. We reported revenues in the third quarter of 2018 of $0.9 million, an increase of 16% compared to the $0.7 million in the last year's third quarter.

Gross profit for the third quarter of 2018 was $0.5 million compared to a gross profit of $0.4 million for the third quarter of 2017.

Research and development expenses for the third quarter of 2018, net of participations, were $1.1 million, an increase of 26% when compared to the $0.8 million last year's third quarter.

This increase was the result of an increase of $1.5 million in gross R&D expenses which was offset by $1.2 million increase in participations in the company R&D expenses, primarily by BARDA.

Selling and marketing and general and administrative expenses in the third quarter of 2018 was $1.6 million, down 30% compared to $2.4 million in the third quarter of last year.

Operating loss for the third quarter was $2.2 million, an improvement of 20% from $2.8 million during the same period last year as a result of the decrease in operating expenses.

The net loss for the third quarter was $2.9 million or $0.11 per share, compared with a net loss of $11 million or $0.49 per share for the third quarter last year.

During the third quarter of 2017, we recorded onetime loss from discontinued operations in the amount of $7.5 million as a result of the district court ruling and a full provision for PolyHeal's shares purchase price.

Adjusted EBITDA for the third quarter was a loss of $2 million compared with a loss of $2.3 million for the third quarter last year. A reconciliation of the adjusted EBITDA to GAAP net income is included in the press release we filed with the SEC earlier this morning.

Looking at the first 9 months results versus prior year, revenues for the first 9 months of 2018 were $2.4 million, an increase of 23% compared with $2 million for the same period of 2017.

The gross profit for the first 9 months of 2018 was $1 million, compared with gross profit of $0.8 million in the prior year period, reflecting a gross margin of about 40%.

The research and development expenses, net of participations, were $3.8 million for the first 9 months of 2018, compared with $4.3 million for the first 9 months of 2017.

The decrease in research and development net was as a result of an increase of $3.8 million, primarily, in NexoBrid clinical trials expenses, which was offset by an increase of $4.3 million in participations in the company R&D expenses, primarily by BARDA.

Selling, general and administrative expenses in the first 9 months of 2018 were $5.8 million compared with $6.7 million in the prior-year period.

Operating loss for the first 9 months of 2018 was $9.2 million, down 9% from $10.2 million in the prior year period.

Operating expenses in the first 9 months of 2018 included other onetime expenses of $0.7 million associated with a review and analysis of the potential strategic transactions.

The decrease in operating loss was as a result of the increase in revenues and the decrease in operating expenses in the first 9 months of 2018 compared to the prior year period, which was offset by onetime other expenses as mentioned above.

For the 9 months ended September 30, 2018, the company posted a net loss of $11.7 million, or $0.43 per share, compared with a net loss of $19.8 million, or $0.89 per share, for the same period in 2017.

The company's net loss in 2017 included onetime loss from discontinued operation in the amount of $7.5 million as a result of the difficult ruling and the full provision for the PolyHeal's shares purchase price.

Adjusted EBITDA for the first 9 months of 2018 was a loss of $7.6 million, compared with a loss of $8.7 million for the first 9 months of 2017.

Now turning to our balance sheet. As of September 30, 2018, the company had cash, cash equivalent and short-term deposits of $25.7 million compared with $36.1 million as of December 31, 2017.

We utilized $10.4 million in cash to fund ongoing operating activities in the first 9 months of 2018.

Throughout the remainder of 2018, we will continue to develop NexoBrid and EscharEx, while NexoBrid research and development programs will be fully funded by BARDA.

As a result, we now expect that cash use for the ongoing operating activities will be in the range of $13 million to $14 million, lower than our previous guidance for 2018 of $14 million to $16 million.

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

Thank you Sharon. Again this quarter has been very active for us and we look forward to continuing to progress our programs forward and announcing several important milestones including the top line acute data in our Phase III DETECT study for NexoBrid in January 2019, initiation of our clinical program for EscharEx in the U.S. and further global expansion of NexoBrid, as 7 of our international distributors are expecting to gain regulatory approvals and launch.

With that, Steve, Sharon and I would like to open the call now for questions. Operator?

(Operator Instructions) And we'll take our first question from Raj Denhoy with Jefferies.

This is [Katherine] on for Raj. If I may, my first question would be, I understand that using EMA to seek approval in country has been very effective. But I was wondering about your broader strategy for international expansion? And if you can remind us of the size of the NexoBrid international market, and maybe how NexoBrid is penetrating in these markets?

Thank you. Our strategy internationally, as I mentioned. We do not have presence in all the international markets. And therefore, we work with local distributors. We provide them with our European file and support them scientifically in the submission process and if there are questions from the authorities, we obviously also manufacture the product and sell it to our distributors, but the distributors themselves take all the financial burden of doing their local processes, the regulatory market access in sales and marketing, and they buy the product from us for large portion of the revenues.

In Europe, we have direct sales force. And we are currently focusing on a portion of the market. As you know, in Europe, we have hospitals, we have the burn centers, and there are about 130 burn centers. We are focusing on about 70 or so. 70 to 80 burn centers in Europe. Mainly, in the G5 countries where we are generating sales.

In the U.S., we are still few years from launch. So we have a time until we can make a decision. The burn market in the U.S. is very focused, there are about 127 burn centers. So one alternative would be to do it with our own sales force directly, because it is not too much of a market to cover.

And on the other hand, we are also looking at alternatives of working with other parties to do that. And as usual, what we'll guide us is what is best for our shareholders. Have I addressed your questions or do you have a...

Yes, I just have one follow up on NexoBrid, you mentioned the read-out for January 2019, when should we assume full submission and commercial launch?

So once we see the results of the top line in the first quarter of next year, hopefully, the study will be successful. And if so, because during the acute treatment of the patients, particularly, we have the primary, the secondary, the safety data, we've almost all the data, except for on the long-term follow-up. And since we already have data on long-term follow-up of patients coming from the Phase III study in Europe, where we showed that the long-term effect of NexoBrid is at least as good, if not better, than the standard of care, we plan to ask FDA for a pre-BLA meeting which will most probably be granted in the first half of 2019. And in this meeting to ask FDA to submit the file based on the acute results. If FDA concurs, then our plan is to submit the file in the first half -- sorry, in the second half of 2019. And since FDA usually takes about 10 months to review a file, so we expect an approval, if FDA finds this file adequate, towards the second half of 2020. In case the FDA does not accept the approach and would like to see the 12 months follow-up data then the follow up -- the 12 months follow-up data will be available in the first half of 2019. And everything will be delayed by about 3 to 4 quarters.

We'll take our next question from Josh Jennings with Cowen and Company.

This is [Brian] for Josh. On EscharEx, can you detail what the secondary efficacy endpoints are? And how you are accumulating the data you need to show the FDA? And then I guess my follow-up on that is just will the data relating to these secondary endpoints go to the FDA at the same time as the overall study plan, or are those 2 separate submissions in your mind?

Thank you for the question. So there are several secondary end points and we are still working with the FDA on secondary endpoints because the secondary endpoints also -- they have all kind of aims. One is to supplement the primary efficacy endpoint; two is to collect pharmacoeconomical data in terms of -- examples of such secondary endpoints are, not only incidence of complete debridement, but let's say time to complete debridement or complete eschar removal. You know that in our Phase II study, we were able to show in VLU and DFU patients that we were able to complete the debridement significantly earlier than the control group. Others failed to quality of life for example, which is something that [pales], you know, have -- see something as important. So these are examples of secondary endpoints as we will be looking at. And we're planning to submit all this data to the FDA once the study is completed. The primary and the secondary outcomes. Does that address your question?

That's great. And maybe if I could ask Steve. Can you discuss the variables that are extending the time line of your discussions with the strategic parties, and do you have a revised estimate of when a transaction could take place?

Sure, sure. Thanks for the question there. Let me sort of answer that in 2 parts, if you will. The -- I mean we're taking a data-driven measured approach to any potential strategic transaction. We're doing this because we have options. If we just wanted to do something with the company, find a different home, we could do that. But we have options. We can go forward and concentrate on our existing programs of NexoBrid and EscharEx, which we believe address significant unmet medical need and significant commercial potential. As Gal mentioned, with the NexoBrid Phase III results will read out in January of 2019, very significant milestone event for MediWound. The EscharEx clinical development program will advance in the first half of 2019. So we're very enthusiastic with those programs, or somewhat on the flip side, we can consummate a strategic transaction which we will not shy away from as long as we believe it's a comprehensive diligence and review that it is in the best interest of the shareholders from a value enrollment perspective. The approaches and discussions they cover all aspects, there's people -- we've had discussions out license of NexoBrid, out license of EscharEx and also, of course, potential acquisition or merger of 2 companies with both private and public companies. Where we are now, if you look at it as a funnel, and part of this process, there is a lot of pluses to it. We really know the competitive landscape better. We know some of the potential parties that we may, and could do something with, whether it's now or in the future. We know how they think. We know what they're looking for. That's some very good competitive intelligence or just plain intelligence to procure. From a funnel standpoint, at this stage, we're not talking, just say whatever the number was the multiple parties that we started talking to over the last several quarters. At this stage, we are engaged in advancing discussions and diligence with only a subset of those parties. So I think that's very, very significant. We're not out talking to near the same amount of parties we've talked to before. We've narrowed down our potential avenues. So is that sufficient from a response standpoint?

And we'll take our next question from Bruce Nudell of SunTrust.

Steve, just to follow up on that. I mean it doesn't sound like, given the markets and that, kind of, the economic due diligence, the market due diligence, you know should take a year, you know what I mean? So if -- are there like gating items that are kind of impacting this process that go beyond the normal diligence of how big is the opportunity, how much money we could make?

Sure. The -- all those factors, yes. Is there something that I would consider somewhat nonstandard or noncustomary. The answer is no. Again as I prefaced with the last response, that this was something -- that this was -- that we initiated. That we wanted to -- absolutely our strategic plan is to find another home for the company. It would be a different type of process. It would be a quicker process. So we're -- as I stated, we're taking a data-driven and measured approach. We're also running a company. In my mind, the board's mind, senior management's mind, if something makes sense we will do something. But we have options. I think that's key. The other item that is -- just because of how this transpired there have been a lot of discussions, there is a lot of interest in the burn market landscape in the advanced wound care market landscape around a debriding agent. And we wanted to do -- run a very comprehensive review. Moelis & Company, I think, has been excellent in that. So it's all those factors taken into account. Still in my mind, I don't feel that there's anything nonstandard or customary -- or noncustomary that has slowed the process down. This is the process we're moving forward with.

And I guess the follow up is EscharEx was always kind of viewed as a product that would require a distribution partner. Just given the discussions you've had, is it likely you've identified a party you guys could work with and actually that you're comfortable to be able to kind of maximize the potential of product even if they only serve as a distribution partner?

I mean the short answer to that is, absolutely yes. There is several parties out there that we think would be potentially extra, not extra, exceptional partners for the distribution of EscharEx. And at this stage, it's good to have those types of discussions, as we're finalizing the clinical development plan, the regulatory plan, and then frankly at this stage where you're already thinking about and talking about the type of label, the specific target product profile. So having those discussions with the potential collaborations/distribution partners is very -- actually quite valuable. So we're -- we feel very comfortable that there are not just multiple excellent parties for the potential distribution, but also that they view the EscharEx, a new debriding agent in the advanced wound care market, albeit diabetic foot ulcers or venous leg ulcers or possibly even other treatment paradigms. It's been all very positive for us regarding that -- those types of conversations.

(Operator Instructions) We'll take our next question from Jay Olson with Oppenheimer.

Maybe if I could just one more follow-up for Steve. I think you described proceeding in discussions with a subset of potential partners. Could you maybe describe some of the gating factors that narrowed down your list to a subset?

I mean I'm not going to go into the granular specifics of how we got to this point. I think it's -- for the most part it's pretty standard or customary, we're -- depending on which area we feel the party has the best fit. And the fit being, we're not looking short-term, mid-term, long-term. We're looking at all those things in the aggregate there. As I mentioned earlier, everything is on the table from a discussion standpoint and certain parties would be more interested in NexoBrid, more interested in EscharEx or more interested in the combination. The point I want to get across is that the process I believe is going through a natural evolution and that natural evolution being from the filter standpoint you start with a lot of discussions and then you narrow it down to just a much smaller subset of discussions and diligence.

Okay. And then just looking forward to the NexoBrid top line results in January. Can you please describe which endpoints you'll be including in that press release and what exactly we should be looking for?

Thank you, Jay. Well first of all, the primary end point where we compare the incidence of complete debridement of NexoBrid versus the vehicle, because the primary is compared with the placebo arm. And as you remember in the Phase III study in Europe, the data was 96.3% for NexoBrid, and in 2 Phase II studies in the U.S., the vehicle obviously had 0% of incidence of complete debridement. The other ones are the secondary endpoints. The secondary endpoints refer to time to complete eschar removal, and we are comparing the secondary endpoints to the standard of care, because when FDA wanted to do a placebo-controlled study, we convened a market access advisory board in the U.S. and we plugged into the study a lot of secondary endpoints that will hopefully give us a good value proposition for CMS. So the secondary endpoints are being compared to the standard of care. And as I mentioned time to complete debridement again an end point that we already met in the European Phase III study and was published in burns. The incidence, or I would say the surgical burden, which is the incidence of excision of surgery, again an endpoint that we met in Europe with a very low P value. Blood loss might be another one. Again something that we met in the European Phase III study and was published in burns. These are the secondary -- main secondary endpoints. We are also going to have the acute safety endpoints. The safety endpoints are time to bring closure. We want to show that we don't have a deleterious effect on wound closure. We do not have to show that we have a superior efficacy result in wound closure, but it's a safety measurement for us just to show that we don't have any deleterious effect. And these -- and obviously all DAEs and labs and all the safety profiles that you have in the clinical study. Going -- plus will not be included -- what will not be included in the acute stage is the long-term follow up, which mainly refers to 2 things. One is, a quality of scars and cosmetics and functions. Just because you have to wait for at least 12 months before the scar stabilizes and you can have an accurate measurement of that. And the long-term quality of life measurement. Again, because to have a long-term quality of life measurement, you have to wait for the long time, which is the 12 months. So except for these 2 measurements, I would say, I don't know, 80%, 90% of the data of the study is going to be available. And the top line, we list the primary, the secondary and the overall safety profile of the product.

Okay, great. Look forward to that. And then congrats on the approval in Russia. Can you just remind us some of the other key markets where you expect approval in the near term?

Yes, thank you. Well we got approval in Argentina, Israel and Russia, and recently South Korea. We are in the regulatory process in India, in Japan, in Taiwan, in almost all Latin America, namely Mexico, Peru, Chile, Colombia and many others. All these processes are advancing depending on the local regulatory process in each and every market. For example, in India, we already got a positive opinion of the medical, particularly, the medical assessment has been completed and with a positive opinion it was published, so I can refer to that. And we are now more in the administrative part. These are the main feedbacks on these markets.

And I will now turn things over to management for any closing remarks.

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

And that does conclude today's conference. Thank you for your participation. You may now disconnect.