MediWound Ltd.
Q2 2018 Earnings Call Transcript

Published: 11 Aug 2018

[Operator:]

Good day and welcome to the MediWound Second Quarter 2018 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Jeremy Feffer. Please go ahead, sir.

[Jeremy Feffer:]

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

[Steve Wills:]

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 engage an investment bank Moelis & Company. We commence 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?

[Gal Cohen:]

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 3 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 endpoint of the study and will be tested against the gel vehicle, the placebo arm. In our reported European Phase 3 study, the incidence of successful eschar removal with NexoBrid was 96.3%, and the incidence of successful eschar removal with the gel vehicle in two Phase 2 studies conducted in the U.S. was zero. Now that all the patients have been recruited, we are eager to see the results of the DETECT U.S. Phase 3 study. As previously communicated, should the NexoBrid Phase 3 study be successful, we plan in a pre-BLA meeting to ask the FDA to allow 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 the 12-month long-term follow-up safety data during the FDA review period. In other NexoBrid development news, we expanded our Phase 3 CIDS study to the U.S. after obtaining both the FDA concurrence 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 to say this for the time children has been treated on U.S. ground with NexoBrid. We continue to expand NexoBrid in international reach as an effective and minimally invasive treatment for the removals 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 Latin America, Asia-Pacific and CIS, using our European EMA approval 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 the 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 burned victims in the mass casualty events, where surgical capacity is limited and the need for injury diagnosis from 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 B3G business-to-government cooperation with countries and international agencies as part of their preparations for possible future mass casualty events. As part of our overall B2G effort, during the second quarter, we were also able to obtain FDA agreement that development pathway of NexoBrid is suitable massive injuries which in accordance with the FDA Animal Rule that allows to grant marketing approval based on adequate and welcome to all animal anyone efficacy studies when the result of these studies establish as a drug is reasonably likely to produce clinical benefiting in U.S. FDA also agreed that trial is single animal species would suffice subject to adequate safety and security data from the planned studies and more or so to rely on the existing chemistry and infection control data which is already available for NexoBrid by way of course excellence to the existing next 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 needs 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.

[Sharon Malka:]

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 disciplines budgets and with the continued support of other BARDA. Turning now to our financial results, we reported that revenues in the second quarter of 2018 increase 50% to 1 million at from 0.7 million in the prior year 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 participation 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 participation was as a result of an increase of 1.7 million in the growth 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 were 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 a 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 2018were $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 the result of an increase of $2.4 million primarily in NexoBrid clinical trial 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 added onetime expenses of $0.7 million associated with the review and analysis of potential strategic transaction. The decrease in operating loss was primarily due to the improvement in gross profit and the decrease in the operating expenses in the first half of 2018 compared to the prior year period, which was offset by the onetime added expenses as mentioned above. For the six 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 '18 was a loss of $5.7 million compared with the loss of $6.4 million for the first half of '17. Turning now to our balance sheet, as of June 30, 2018, cash and cash equivalents and short-term bank deposit 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 development program 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?

[Gal Cohen:]

Thank you Shaun. We look forward to the next quarter, and we have several important milestones including top line acute data in our Phase 3 DETECT trial for NexoBrid around year-end, continuing recruitment in our pediatric Phase 3 study in U.S. Pediatric Burn Center, initiating our clinical program for EscharEx in the U.S., further global expansion of NexoBrid, as seven of our international distributors are expecting to gain regulatory approval 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 on and myself will take your questions. Operator, can be open the call for questions? Thank you.

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from Bruce Nudell from SunTrust. Please go ahead. Your line is open.

[Bruce Nudell:]

We recently look at analyses of claims data in the U.S. and Germany, and we’re surprised to see that how the chronic wound is treated, diabetic foot ulcers and venous leg ulcers contributor to relatively small percentage, surgical wounds and traumatic wounds, which may frequently have a diabetic etiology as well as pressure ulcers figure prominently in their 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.

[Gal Cohen:]

Well, we have conducted a detailed market analysis in the U.S., and we spent a $1.25 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 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 over $2 billion market. So, we believe that should we run clinical studies in these vacations and get an approval there is a huge, huge market opportunities there. The market and market research also indicated that should we be able to prove the efficacy of the drug and the safety of drug in venous leg ulcers and diabetic foot ulcers, physicians would things 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 ago.

[Bruce Nudell:]

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 built for. There is no separate reimbursement for facilities and offices for drug procurement and no associated professional fee. Patients generally get a prescription and reimbursed by insurance with the majority of SANTYL's usage in 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 million for mid-sized wounds. Firstly, should we presume that there likely won't be broad separate reimbursement from facilities and offices for EscharEx procurement and on separate profession fee for doctors and PAs. Secondly, what's the process and timeline for EscharEx is inclusion on formularies inclusive of Part-D?

[Gal Cohen:]

So I think that to begin with our commercial strategy would to be 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 served to and we will fall under that. It is true that the physician reimbursement for sharp debridement is higher as we said all along. And that we would not expect to replace sharp debridement in the U.S. What we believe will happen is that; one, physicians will either start with EscharEx, if it will remove all the eschar that will be fine. If not, they can completely removal with sharp debridement or they can start with sharp debridement. And they will not fight with the wound, if it's too challenging they will 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 are large. They are painful. And they're not swiftly divided by the sharp debridement as DSUs. So having said that, we believe that today from what we understand from physician, it takes physician 10, 15, 12 minute to do sharp debridement to a patient. We have to remember that these are fixed patients, these on heal well, they anti-coagulative drug. And therefore physician can see 10 to 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 is the nerve. She will show you what to do with it. It will take him 3 to 4 minutes, allowing you to see 30 to 40 patients in a day. The compensation per patient would be lower, but you will be able to see more patients and 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 to debride a wound, if they can do it in one or two weeks. So, we believe that we can take based on the market research as a special portion of this $360 million market. And then you got another 20% that are using just and less expensive offerings like hydrogels and honey dressings and another things where we also believe that the efficacy today and doesn't allow to debarred these wounds in less that 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 and opportunity for us. We all know that this trend in reimbursement in the U.S. our total pay for outcome. And obviously that’s might have also a favorable effect on EscharEx being able to actually debride this wound in a very short time.

[Bruce Nudell:]

How long would it take the formulary once you approved?

[Gal Cohen:]

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 homes as you mentioned. There are offices. So, there are so many different institutions. So, this process will take most probably over the year. But again, one doesn’t target the entire market in one day, so it will be a sequential process as usually happens.

[Operator:]

We will take our next question from Jay Olson from Oppenheimer. Please go ahead. Your line is open.

[Jay Olson:]

Congratulations on the completion of enrollment for your NexoBrid Phase 3 DETECT study. I’m curious now that the study is fully enrolled. Can you share with us the average body surface area of the burned patients that are enrolled in this study? And how that compares to your European studies?

[Gal Cohen:]

Thank you for the question Jay. So, the inclusion criteria allowed in the 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 studies way. We only got an approval from the FDA to extend the total body surface area after about a year, year and a half 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 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.

[Jay Olson:]

And then since it seems like you’re going to request for the FDA to accept your BLA submission in the second half of ’19 and then supplemented 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 studies?

[Gal Cohen:]

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 closer. 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 3 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 scar 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 will be a second line of argumentation. The third line as you mentioned would be the publications, going out now new we have now we kind of we have all of 50 previous 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 it's not better than with standard of care. And we hope to see more studies that published until we get to the BLA stage which will be late-2019. So, we hope that all this medical sound argumentation would convince the FDA. If yes, then we will solidify it in late '19 as we expected. And if not, then we'll have to wait for the 12 month follow-up data that will come something like three quarters later.

[Jay Olson:]

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?

[Sharon Malka:]

Basically, the net operating losses, the carry forward 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, MediWound, itself has as an entity. So, there is no limited limitation for time and it can be utilized going forward. And we have about $120 million carryforward losses as of today.

[Operator:]

[Operator Instructions] We'll take our next question from Josh Jennings from Cowen. Please go ahead. Your line is open.

[Unidentified Analyst:]

This is Brian in for Josh. Thank you for taking my questions. On your last call you said you have some granularity on the strategic discussions by that call. Was it your expectations you have reached the final decision on the path forward by now? And if so, what accounts for the additional time needed to assess these options?

[Steve Wills:]

Hi, Brian, this is Steve. Well I'm sure I've lost my membership in the Nostradamus club for predictions, but seriously we're taking the data-driven and measured approach to any potential 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 significant unmet medical need and have frankly tremendous commercial potential. 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 enrollment perspective. I did make the comment that I thought it was reasonable that we would be in a position to convey some more clarity. But again, we're -- this measured and we're being very deliberate and measured with the comprehensive review, we have multiple parties in advancing discussions and they cover multiple scenarios. So we were 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.

[Unidentified Analyst:]

Can you provide some detail, just has the group of parties narrowed since the strategic process began?

[Steve Wills:]

Yes. I mean, if you picture like a funnel, I mean, we’re -- to reiterate, we were approached by a third-party earlier this year for potential strategic transactions. And from completion standpoint, we have been a public company 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 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 diligence with has narrowed significantly from the various approaches that we’ve had.

[Operator:]

[Operator Instructions] It appears there are no further questions at this time. I’d like to turn the conference back to you for any additional or closing remarks.

[Gal Cohen:]

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.

[Operator:]

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