MediWound Ltd.
Q1 2017 Earnings Call Transcript

Published: 8 May 2017

[Operator:]

Good day ladies and gentlemen, and welcome to the MediWound 2017 First Quarter Financials Health Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Anne Marie Fields. You may begin.

[Anne Marie Fields:]

Thank you, Michelle. Good morning, 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 operations 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 content 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, if that does required by law. With that said, I’d like to turn the call over to Gal Cohen. Gal?

[Gal Cohen:]

Thank you, Anne Marie, and 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 clinical and our commercial programs. Let me start with a discussion of EscharEx, our product in 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 incidence of complete debridement with up to 10 daily applications of EscharEx was significantly higher and was achieved earlier year compared with the control board. Safety data was comparable to the control board 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 theologies to guide a design of our future pivotal studies. The final data confirmed that the results were even more outstanding in the prospective sub-group 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 everyday to every two or three days, will feel better into the routine and lifestyle and thus enhance convenience and compliance. In the ongoing study, patients with DFU and VLU are being randomized to either EscharEx or the gel vehicle at a ratio of 2 to 1. We expect to report top line data of the 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, but 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 effort to develop EscharEx to feed the typical patient flow, the current treatment regimens and reimbursement settings, so that it can hit the ground running once opposed. With regards to our plans to advance clinical development in the U.S., we recently completed the meeting with the FDA to discuss the U.S. 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 on-going NexoBrid U.S. 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 robust 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 U.S. 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 therapy is currently on the market require daily applications for weeks, even months to achieve complete debridement. Timely debridement would support the efforts of so many advancement care technologies that are aiming to heal those wounds, as well of 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-hoc 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 a certain its commercial potential, we completed the comprehensive market research study on EscharEx involving more than 200 healthcare professionals in the U.S. and in Europe. According to the study, there are more than 1.3 million patients with DSU or VLU in the U.S. alone who undergo debridement every year. The seven physicians indicated that a product having a profile such as EscharEx, would potentially be described to a significant portion of these 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 consider it as a significant effort of MediWound. We look forward to embarking on our U.S. EscharEx studies and will keep you apprised 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 are particularly pleased to have an independent clinical review published in an international peer reviewed journal that showed NexoBrid reduced the average treatment cost per patient by more than €5,000 compared with standard-of-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 using 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 United Kingdom and in Spain. We look forward to favorable results from these studies and expected the growing body of independent cost effectiveness data 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 conference 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 greater insight into the use of NexoBrid in New York it’s potential role in the management of casualty events and the future integration of NexoBrid as part of the U.S. standard of care for severe burns. We are currently preparing for the European Burns Association Annual Meeting which will take place in Barcelona in early September. We believe that attendance at this conference will feel the huge buzz NexoBrid generating across Europe. Especially, there are already more than 40 abstracts on NexoBrid that have been accepted for presentation. We expect that European experience and the magnitude of the growing clinical body of evidence in support of NexoBrid in the treatment of severe burns will be our great value, when we launch NexoBrid in other markets such as the U.S. 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 a new distribution agreement for Japan, India and most of the main countries in South America including Colombia, 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 this filings will provide for approvals and launches later in the year. We will continue to walk with our partners in each of these markets to support regulatory submissions and expand the product global commercial rates to additional important new markets. And last but not least, last week we are 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 ministerial routine evaluation of the company’s manufacturing facility and it’s concluded that it confirms 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 R&D and commercial success. We take great pride in maintaining the highest quality standards 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 standards MediWound upholds in the manufacture of our proteolytic enzymatic therapies for commercial and clinical use in compliance with rigorous international standards. 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 non-Japanese high quality standards. This was one of the steps necessary for the regulatory submission and we are looking forward to expand the use of NexoBrid to Japan after Kaken obtains local regulatory approvals. 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 procurement for stock filing 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. Sharon?

[Sharon Malka:]

Thank you Gal and good morning everyone. 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 severe burn care. We enter 2017 well positioned financially with a continued support of our U.S. clinical program from BARDA and our ongoing financial discipline, which is expected to support our 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 first 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 above $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 clinical trials and a decrease of about $0.5 million of participation from the Israel Innovation Authority, which resulted from the revaluation of with respected 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 increase in net loss was as a 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 revaluation 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 reported, 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 the BARDA and for EscharEx chronic wound, as well as in advancing the adoption of NexoBrid in Europe. As a result, we’ll iterate 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. Gal?

[Gal Cohen:]

Thank you, Sharon. 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 U.S. EscharEx 2 clinical program, we anticipate further global expansion of NexoBrid and certain of our international distributors may gain regulatory approval and launch, and we look forward to the continued publication and presentation of data, highlighting the clinical merits and cost effectiveness of NexoBrid of 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:]

[Operator Instructions] Our first question comes from Bruce Nudell of SunTrust Robinson Humphrey. Your line is open.

[Bruce Nudell:]

Good morning, gentlemen. 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 EscharEx trail? And then I have a follow-up.

[Gal Cohen:]

Thank you, Bruce, for the question. We were very happy to receive FDA feedback that we are able now to have the primary end point as instance of complete debridement and our teams now are looking into the optimal ways to design the U.S. Phase 3 program and the pivotal program. One we have completed this work, we will be able to communicate exactly what would be the design of the study, their duration, the number of patients and all the consequences. We’re playing to initialize – However, we are planning to finish this work – sorry, it’s my error; we’re planning to finish this work and initiate the studies hopefully already this year.

[Bruce Nudell:]

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. I’m’ just wondering how are you thinking about either a public or a private raise and/or a commercial partner for EscharEx contributing to the finances of the company?

[Gal Cohen:]

Thank you. 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, they are several options to that. One, we are expecting revenues from New York to increase, we are expecting procurement of BARDA, we are expecting all those from our international partners. So one possibility would be to fund part of it from our own resources and our possibility would be to ask for capital to fund this very exciting program, and the third possibility would be to partner or to walk with their partner in order to fund the same 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.

[Bruce Nudell:]

Thanks so much.

[Operator:]

Our next question comes from Raj Denhoy of Jefferies. Your line is open.

[Raj Denhoy:]

Hi, good morning.

[Gal Cohen:]

Good morning.

[Raj Denhoy:]

I wonder if I could maybe ask about the positive gross margin in the quarter. So the first time you’ve actually shown some gross profit implication being that you’re 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?

[Sharon Malka:]

Hi, Raj. So basically the key reasons for this gross margin I have two; first of all, it’s the increase of revenue such as the first quarter of 2016. And I mentioned in the past, the revenues will increase, the gross margin will increase and eventually we’ll have a gross margin of about 80% when we will stabilize. The second reason is a effectiveness all our resources of the plants, while the plant currently part of it allocated to the cogs and the other one is supporting R&D activities and allotment are allotted to R&D activities. So those are mainly the two main reason reasons for this gross margin and we anticipate that as I’ve said before, these margins going forward will increase and eventually we’ll stabilize on about 80%.

[Raj Denhoy:]

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

[Sharon Malka:]

Yes.

[Raj Denhoy:]

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

[Sharon Malka:]

Thank you. I think the two main things that we can see is one, I would say even three; again depending on the country, as you remember, reimbursement in Europe is very fragmented and it’s different from country to country. So it’s difficult to give an answer on a P&L level, maybe I’ll go to a – 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 FIT Sicilia [ph] which is a region that usually takes a very, very long time, we’re able to get these 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’ve made a big progress forward. And I hope that by 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 deposit 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 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 few days ago from the British Burn Association Conference, a lot of enthusiasm, a lot of customers approaching us and wanting to start using and buying the product. So I hope that this backwind would also support us in these 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 U.S. Then if they are successful, they will be able take charge or get refund or reimbursed for the specific use of NexoBrid in patients. Their 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. So as I mentioned in the call, in Italy a peer reviewed paper just showed that we save €5,000 per patient and we know that such efforts are being made in other countries like England, Spain, Italy, Germany and the more we see of that independent data showing that we are cost effective. The more difficult, it will be to the reimbursement body to in all that.

[Raj Denhoy:]

No, that’s helpful. And maybe just a follow-up but I know you guys, you 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, you’re comfortable with this year and maybe as you move into 2018 as well.

[Gal Cohen:]

As you rightly mentioned, we don’t give guidance on revenues because at this stage, when the reimbursement is still changing from country to country and there’s no consistency it would not be the right thing to do. We do give guidance on expenses and we never missed the guidance on expenses. And as Sharon mentioned we reiterate our guidance that in this year 2017, we will spend between $15 million to $17 million.

[Raj Denhoy:]

Okay, that’s helpful. Thank you.

[Operator:]

Our next question comes from David Maris of Wells Fargo. Your line is open.

[Katie Brennan:]

Hi. This is Katie Brennan on for David Maris. It’d 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. So I am wondering if the FDA gave you any indication if you need to more than one additional study. And if what you heard from the FDA was like – significantly different than what you were expecting to implement. So if the time you need to kind of finalize that the design of the pivotal program if this was expected or if the agency is asking for more changes than you anticipated.

[Gal Cohen:]

Thank you, Katie. I don’t think that we got more feedback from the FDA that we – than we anticipated, usually as – FDA usually, when you ask FDA what you need to do? FDA answer would be, it’s sort of a view issue, because FDA doesn’t want to commit – it depends what will be the results of the study, what will be the p-value, what will be the safety signals and so on. So usually they do not commit to something unless you go to an FDA process something like that. We are aware of the regulations that – or calling to the regulations, there is a need to do two adequately control studies to get an approval pair indication in the U.S. We are aware of the regulations that require a certain amount of exposure to patients. We are aware of the regulations that in the U.S. or internationally to be honest going to IgG4 [ph], one needs to do what is called a build wrench finding study. Having said that, we are also aware that we have enough experience with NexoBrid and NexoBrid is already in Phase 3 within Europe, there is a lot of exposure there, it went to Phase 3 and Phase 4 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 walking with FDA and with the other 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’d asked me, what is mobility that FDA after 40 years, will agree that we’ll do a study with a primary endpoint of interest of complete debridement. Every consultant would 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 will not able to achieve that in a Phase 3 program. So we have argued with FDA, we’ll provided with rational and scientific rational to justify why we believe that with NexoBrid as well as with EscharEx interests complete debridement would be the primary endpoint and by choosing 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 no deleterious effect exactly like what we did with the Phase 2 in Europe, and exactly like we’re trying to do with a Phase 3 study with NexoBrid. I think this is a great achievement because without it, as you know the program will be much more complex. So we’re taking all these elements into account in order to bid an optimal, I would say plan to get the product to the market as soon as we can.

[Katie Brennan:]

Okay, great. Thank you. 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.

[Gal Cohen:]

In general, this is our anticipation, we always like to show sequential growth sometimes because of the magnitude – one places in all there three days after the end of the quarter and sometimes we have just two weeks and sometimes you saw that our significant like for example in this quarter, we had something like that in England when the – all those came just after the end of the quarter. But if you look at it over time as a trend, the trend is always growth since launch. We are walking and striving to maintain this growth going forward.

[Katie Brennan:]

Great, thank you.

[Gal Cohen:]

Thank you.

[Operator:]

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

[Gal Cohen:]

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.

[Operator:]

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.