MediWound Ltd.
Q3 2017 Earnings Call Transcript

Published: 16 Nov 2017

[Operator:]

Good day, ladies and gentlemen. And welcome to the MediWound Third Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the floor over to [Jeremy Baver], please go ahead.

[Unidentified Company Representative:]

Thank you, Catherine, and good morning, everyone. Earlier today, MediWound issued a press release announcing third quarter 2017 financial results and business update. You may access that release on the Web site under Investors tab. Leading the call today is Gal Cohen, President and Chief Executive Officer of MediWound, who will provide an update on the Company's programs and review upcoming milestones. Then we will hear from Sharon Malka, Chief Financial Officer, who 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 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 event or otherwise. Participants are directed to the cautionary note set forth in today's press release, as well as the 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. This conference call is the property of MediWound and any recording or rebroadcast is expressively prohibited without the written consent of MediWound. At this time, I would like to turn the call over to Gal Cohen. Gal.

[Gal Cohen:]

Thank you, Jeremy and good morning, everyone. It is a pleasure to stick with you today to provide an update on our business and to review of our third quarter results. We continue to build on our first half momentum, and are progressing in our clinical development programs and commercial plans. During the quarter, we successfully completed a public offering of 5.04 million shares, including the over-allotment, from which we generated total net proceeds of $22.8 million from our major existing shareholders, as well as new investors. This financing provides us with resources to fund our research and development activities, primarily the clinical development of EscharEx. In addition, as communicated, BARDA committed an additional $32 million to fund NexoBrid R&D activities, bringing its total commitment to fund R&D to $56 million. BARDA also has an option to fund an additional $10 million of R&D walk. And in addition to that, the BARDA contract also calls for $16 million procurement commitment for NexoBrid, pending FDA emergence use authorization with an option to procure an additional $50 million. All-in-all, the deal with BARDA provides up to $132 million in non-regulative financing that will fully support our NexoBrid R&D costs up to BLA, including our ongoing Phase 3/b DETECT study in adults, as well as our Phase 3, pediatric study and its planned expansion to include pediatric burn centers in the U.S. Importantly, the upsize BARDA deal allows us to turn NexoBrid into a self funded opportunity as BARDA covers all its R&D program and we intend to correlate the sales and marketing expenses to the growth of NexoBrid sales. This will enable us to divert our liquidity towards our EscharEx opportunity. Moving to our clinical developments. We successfully completed the second cohort of our Phase 2 study evaluating EscharEx, our topical geological drug for the debridement of dead or damaged tissue in diabetic foot ulcers and venous leg ulcers. This cohort included 38 DFU or VLU patients who were randomized to EscharEx or to the hydrogel. The study achieved its primary objective of demonstrating safety over extended period of application of EscharEx with no material safety concerns identified. We continue to be enthusiastic about the commercial opportunity of EscharEx, given the large and growing markets of people who suffer from chronic wound, including an estimate of 1.3 million Americans with DFU or VLU who undergo debridement each year. The cost of debridement for these patients is between $1,000 to $2,000 so we see a very significant market opportunity in the U.S. Our excitement is driven by both, the solid demand for existing topical enzymatic debridement that currently generates annual U.S. sales of over $340 million and by the market dynamics for existing prescription and treatment practices, as well as existing reimbursement for enzymatic debridement. We look forward to keeping you updated on our progress with EscharEx. Moving to NexoBrid. We were proud that NexoBrid was highlighted in 43 presentations at the European Burns Association Conference. Moreover, a scientific poster highlighting European consensus statements on the benefit of NexoBrid was endorsed by the European Burn Association and awarded the best poster presentation at that conference. It is the third consecutive year that the scientific presentations, highlighting the therapeutic benefits of NexoBrid, was awarded best presentation in a Premier Burn Conference. The poster contains 68 different consensus statements from leading European burn specialists on the use and the benefit of NexoBrid after collectively treating over 500 patients with NexoBrid. Among the key findings, the experts agreed that eschar removal with NexoBrid can improve outcomes for patients with severe burns by reducing infection rates, the number of wounds requiring surgical excursion, blood loss, the need for autographing and hospital length of state. In addition, we were happy to receive yesterday the positive decision of the European Commission on the five year renewal of NexoBrid marketing authorization after the European Medicines Agency EMA review the data that are correlated since NexoBrid was approved. Going now to our commercial strategy to expand the use of NexoBrid in international markets. As part of the strategy, we collaborate with local companies that assume the financial commitment and diligence and posses the expertise in the local regulatory market access and marketing efforts. We recently announced an agreement with Holy Stone Healthcare to discuss with NexoBrid in Taiwan for the treatment of severe burns. We expect to begin commercial search in Taiwan once they secure local regulatory approvals, which they expect will take about two years. This agreement is similar to other local distribution agreements for NexoBrid that we currently have in many countries in Latin America, in South Korea and Japan, in India and in Russia. On a separate note, we were pleased to announce that Steve Wills who joined our Board earlier this year has been now appointed as the Chairman of the Board. Steve brings decades of strategic, financial and operational expertise. We would like to thank our previous Chairman Aaron for his service in the Board and wish him best in his future endeavors. Finally, we announced few days ago that the Tel-Aviv district court’s rules that MediWound is obligated to purchase, Polyheal’s shares for approximately $6.75 million with applicable interest, which represents the purchase price for the total number of shares that the buyout auction agreement contemplates would be acquired by us from the shareholders of Polyheal. The court ordered us to purchase shares in Polyheal from the three Polyheal shareholders that file the claims. On the basis of their actual shareholdings in Polyheal as of January 15, 2013 for approximately $1.5 million. This claim relates to a previous agreement we entered into with Teva and Polyheal to develop, manufacture and sale Polyheal’s wound healing product. The full details of the matter are provided in Form-6K that we filed earlier this week. We are continuing to evaluate the implications of the court decision and are considering appealing, as well as other possible steps. We will now turn the call over to Sharon Malka for review of our 2017 third quarter financials. Sharon?

[Sharon Malka:]

Thank you, Gal and good morning everyone. We are pleased with our financial performance in the third quarter of 2017, which was highlighted by our improved liquidity position and by growing revenues, combined with disciplined cost management. Most notably, we are thrilled with; one, BARDA’s increased commitment to fund NexoBrid development as part of financing we’ll now fully fund our development programs for NexoBrid; and two, with our recently successful public equity offering, which provided us with an additional $22.8 million in net proceeds to support our EscharEx pivotal program. Looking ahead, as NexoBrid becomes a sales funded product, we expect to focus our resources to fund our development programs for EscharEx. Turning now to our financial results. We are pleased to report that revenues in the third quarter of 2017 increased 43% to $739,000 up from $518,000 in the third quarter of 2016. Gross profit for the third quarter of 2017 was $400,000 compared to a gross profit of $44,000 in the prior year period. Research and development expenses, net of participations for the third quarter of 2017, were $0.8 million compared with $2.4 million for the third quarter of 2016. The decrease in net research and development expenses was primarily due to a decrease of about $0.5 million related to EscharEx clinical trial and non-clinical development, and an increase of about $1 million in participation by BARDA in the Israeli Innovation Authority. Selling, general and administrative expenses in the third quarter of 2017 decreased to $2.4 million from $2.6 million in the third quarter of 2016. Operating loss for the third quarter of 2017 was $2.8 million, down 43% from $4.5 million during the same period last year. The decrease was primarily due to improvements in gross margins and aforementioned decrease of about $1.8 million in operating expenses compared to the third quarter of 2016. Net loss for the third quarter of 2017 was $11 million or $0.49 per share compared with a net loss of $5.7 million or $0.26 per share for the third quarter of 2016. The increased net loss was comprised of one-time impairment loss as a result of a full provision for the PolyHeal’s share purchase price plus the accruals interest in the amount of $7.5 million that was recorded in the last quarter within the loss from discontinued operations pursuant to the district court ruling. This was offset by a decrease of $2.2 million in a net loss from continuing operations, primarily due to the decrease of $1.8 million in operating expenses. Adjusted EBITDA for the third quarter of 2017 was a loss of $2.3 million compared with a loss of $4.2 million for the third quarter of 2016. Looking at the year-to-date results versus the prior year period, revenues for the first nine months of 2017 were about $2 million compared with $1.1 million for the first nine months of 2016, an increase of 74%. Year-to-date gross profit this year was $0.8 million compared with gross loss of $0.2 million in the prior year period, an improvement of approximately $1 million. This improvement was a combination of increased sales and improved efficiencies. Operating loss for the first nine months of 2017 was $10.2 million, an improvement of 35% versus an operating loss of $15.6 million in the first month of 2016. The decrease was primarily due to the positive change in gross profit, a decrease of about $2 million in research and development expenses, net of participations and a decrease of about $2.5 million in selling, general and administrative expenses compared to the prior year period. Net loss for the nine months ended September 30, 2017 was $19.8 million or $0.90 per share compared with a net loss of $17 million or $0.78 per share for the same period in 2016. The change in net loss was as a result of. One, a decreased in net loss from continuing operations, primarily due to $5.5 million decrease in operating loss, which was offset by an increase of $0.8 million net financial expenses, which was largely comprised of non-cash revaluation of continued liabilities, resulting a loss per share from continuing operations of $0.55 per share. And two, a one-time loss from discontinued operation of $7.5 million, following the full provision for the purchase of PolyHeal’s shares reflecting its purchase price flat the accrued interest that was recorded as a result of the district court ruling, resulting a loss per share from discontinued operation of $0.34 per share. Adjusted EBITDA for the nine months of 2017 was a loss of $8.7 million compared with a loss of $12.9 million for the same period of 2016. A reconciliation of the adjusted EBITDA to GAAP net income is included in the press release we filed with the FERC earlier this morning. Turning now to our balance sheet. As of September 30, 2017, the Company had cash and short-term deposit of $44.6 million with this and this compares with $30 million as of December 31, 2016. This includes the $22.8 million of net proceeds we generated from the public offering we completed in September. We remained on budget and utilized about $30.1 million in cash to fund operating activities during the first nine months of 2017. Looking ahead, we will continue to invest primarily in research and development efforts and we intend to allocate the majority of our cash resources to its bank the development of EscharEx in chronic wounds. While the NexoBrid development plans are fully funded by BARDA. We currently anticipate that existing cash resources, together with BARDA’s R&D funding and the procurement from BARDA, will be sufficient to enable us to complete both our ongoing Phase 3 clinical programs for NexoBrid and our planned Phase 3 clinical program for EscharEx. As a result of the increased funding by BARDA, we expect that cash used for ongoing operating activities in 2017 will be towards the lower end of our $15 million to $17 million guidance. In addition, we made there an additional $1.5 million expense to purchase shares of Polyheal pursuant to the district court ruling in the fourth quarter of 2017. With that financial overview, let me turn the call back to Gal. Gal.

[Gal Cohen:]

Thank you, Sharon. We look forward to continued progress during the remainder of 2017 as we continue to execute on our commercial and development programs. We will provide further update about our 2018 plans on our fourth quarter earnings call in February. And now operator kindly open the call for questions.

[Operator:]

Thank you [Operator Instructions]. We’ll go to Bruce Nudell with SunTrust Robinson Humphrey.

[Bruce Nudell:]

Good morning, Gal. Thanks for taking the question. Clearly, NexoBrid is a very interesting product. It’s getting a lot of attention in the scientific clinical community. I guess, the question is, given the more cohesive reimbursement in the United States and perhaps more cohesive clinical practice pattern. Should we be thinking of NexoBrid worldwide three years post launch in the $50 million or $100 or $75 million range. I mean, where should we be thinking about the mid-term opportunity for NexoBrid, just given the frictions in the market that you've experienced in Europe as a counter-balance by how innovative the product really is?

[Gal Cohen:]

As you mentioned, we do believe that in the U.S. market, things would look different because of, I would say, mainly four or five reasons. Number one, as you mentioned, it's one market, not 14 or 13 markets with different reimbursement systems. Secondly, by the time that we will come to the U.S. market, there will be about a quarter of the burn centers in the U.S. that have already practiced the use of NexoBrid so they detect other study and the pediatric study, both Phase 3 study are going to be recruiting patients in the U.S. In addition to that, when we will come to the U.S., all the data that has been generated in Europe will always be available, whereas unlike the situation in Europe. So we do agree with you that the situation in the U.S. is different than Europe because it's fragmented different reimbursement systems and different starting points. In terms of the overall, I will say, range that we can find ourselves with NexoBrid, I would say it's difficult to predict the future with all the changes that have been going on in the last two years, just in the U.S. alone. But I would say that in the ranges of tens of dozens of meetings, meaning anything between 50 million to 100 million in the U.S. can be a reasonable assumption based on what you would think about market share, price and things like that.

[Bruce Nudell:]

Perfect. And just to clarify with regards to chronic would trial. Basically you think you'll have enough cash on-hand to fully fund what was communicated and it's likely two trials with DFU and VLU trial. Is that correct?

[Gal Cohen:]

Yes, I will turn the call to Sharon. Sharon can you please give the details.

[Sharon Malka:]

So you are correct. We currently plan to have two factories rise, and the estimated cost as of today for those pivotal plan is about $40 million. The rate of that to fund this pivotal plan is as follows. Our cash balance, at the end of the year based on our guidance on cash use for '17, will be around to $35 million to $37 million. In addition, EscharEx is the project that is supported by the Israel Innovation Authority. And the expected support or fund from the Israel Innovation Authority is estimated at about $5 million to $7 million. And the third result is that BARDA procure procurement. As you remember, BARDA have a commitment to procure NexoBrid in the total amount of $16 million, which result as a contribution or a gross profit of about $12 million to $13 million. So overall, we are at cash resources of about $53 million to fund these pivotal plan going forward from the beginning of ’18. And that’s the reason we think we have the sufficient resources to end both the NexoBrid development program by BARDA funding and the EscharEx planned pivotal plan.

[Gal Cohen:]

I would add that…

[Bruce Nudell:]

I guess it's, would you bootstrap, how you pay selling and marketing expenses in the U.S.? I mean, is that sufficiently self-funding, or is it at a rate anticipated?

[Sharon Malka:]

The U.S. marketing for NexoBrid, we are considering the two alternatives that we have rather to replicate what we did in the Open hub, our sales force team on-ground and selling to the U.S. market is more focused than the European one. All collaborate with a local distributor, partnering with the local distributor, providing the marketing rights to him and not having investments for this -- building this infrastructure for selling. Anyway, even if we will replicate what we did in the Europe, probably we’ll build this infrastructure on stage wise process in order to correlate the investments we anticipated ramp up in the U.S.

[Gal Cohen:]

And additional drivers that we haven’t mentioned are. First of all, when we talk about BARDA, Sharon mentioned the gross profit we have to remember that we don’t have sales and marketing expenses for BARDA. So the gross profit is relatively the contribution. And we do have registration files in many, many countries around the world, including Japan, South Korea and Mexico and so on so forth. These are also expected to generate revenues, going forward. And the period in which we will execute the pivotal program for EscharEx that’s in the next two-three years is at a time where we still most probably will not launch NexoBrid yet in the U.S. looking at the 2020 approval. So with this information, I think I hope that we’ll able to address your question.

[Operator:]

Thank you. Our next question comes from David Maris from Wells Fargo.

[Katie Brennan:]

This is Katie Brennan on for David Maris. Thanks for taking the questions. First, on the Polyheal ruling, it seems that part of the reason why you believe you weren’t required to make that milestone payment, was because Teva hadnt made it's milestone payment to you. Have you moved to receive those funds from Teva? And do you have any plans to try and recouperate some of that. And then on EscharEx, given that you think the cash balance will be enough to complete the Phase 3 clinical program. Can you give us any idea of what assumptions you’re making on what that clinical program looks like with the pivotal Phase 3 will entail? Or any expectations or when we might know more about that program? Thank you.

[Gal Cohen:]

So as for the question about the Polyheal agreement, you rightfully said that we informed Teva of the occurrence of the milestones under the 2010 Polyheal agreements. Upon achievement of which, Teva was acquired to invest an additional $6.75 million in exchange for the company’s ordinary shares. And at this point in time, all we can comment is that we are continuing to evaluate the ruling and its legal accounting implications and looking at our options, including a potential appeal. All the rest, I think will need to be specified at the right values.

[Sharon Malka:]

One add-on before Gal answer to address your second question, you just have to bear in mind that in terms of cash implication on the short-term probably in the next quarter, the implication of this will be about $1.5 million out of the $7.5 million, and the $6 million provision probably will be pending the appeal resolution and for the midterm -- the assumption of the EscharEx pivotal program…

[Gal Cohen:]

So the key assumptions for the EscharEx pivotal program, we are looking to conduct two Phase 3 studies, one in DFU and one in VLU. Each study will help about 360 patients approximately also prescriptions are working to build into the study and in term look after about 200 patients. And at this point in time, the prospective statistical plan would tell whether we need to increase the sample size, the full 360 or part of that, or not need to increase, if at all. The primary end point of the study is going to be incidence of complete debridement versus the gel vehicle, the placebo and wound closure would be a safety measurement to assure that we don’t have any debatious effect on wound closure. So practically, we are replicating the Phase 2 study that we successfully completed and reported previously this year.

[Katie Brennan:]

I have one quick follow-up on that. On the Phase 3, will it be using the EscharEx 2 formulation or the original EscharEx formulation?

[Gal Cohen:]

So this study is planned for the EscharEx, not the EscharEx 2 formulation. Because as I mentioned, we are building the Phase 3 study on the results of the Phase 2 study that we have reported. So as we can power the end points and replicate the same effect that we did in Phase 2 now into Phase 3.

[Operator:]

Our next question will come from Josh Jennings with Cowen.

[Josh Jennings:]

I just wanted to follow-up with a question on EscharEx. Is there any forthcoming data that we should have in our radar in front of the IV submission and subsequent approval?

[Gal Cohen:]

With EscharEx, I think that the next upcoming milestone would be the initiation of the pivotal program in the U.S. We are under process of doing all the operational activities that are required in order to do that. And we expect that next year we will be in a position to open the studies in the U.S. And I think that this would be the next -- catalyst or next major step in regards to EscharEx in the U.S.

[Josh Jennings:]

I just want to make sure we were -- we have that clear and on the NexoBrid, just in terms of the reimbursement picture. Any updates that you can provide in any of the countries where you are commercialized and the cost-effectiveness paper helping this process. Are you digging up any new society support?

[Gal Cohen:]

So again, in Europe as I mentioned, it's something that has to be looked at form a country-to-country perspective and sometimes even within countries. So I'll just give like a board overview, okay. In Germany, we are not going for a national level reimbursement. We are working through the hospital's budgets by creating, or we've created a budget index tool that shows the hospitals that they are compensated by the DRG. And they save money by using the product, as well as captured in the pharmacoeconomical paper that shows that with the use of NexoBrid, hospitals can save up to 30% of the cost of the DRG. In addition to that, the German Burn Association, so not a company but a German Burn Association submitted their request for what is called an OPS code for NexoBrid. This OPS code once is granted would enable them later on to document the use of NexoBrid and to trigger the DRG just by the use of NexoBrid. So this is a market access or reimbursement activities that are going on in Germany. In Italy, we have full reimbursement on the national level. And in Italy, you have then to go to each region in Italy and get that cleared out on a regional basis. We have started to do that last year. And by now, I would say, we have about two-thirds of the regions in Italy that we pass the whole critical process of getting this thing done and we’re able to generate orders from about two-thirds of burn centers in Italy. In England, we are not going to a national level reimbursement because of the other procedure. I will not go into all the details. So we have to go hospital-by-hospital and put the product on the formulary of the hospital. We are doing this process. And I would say that by now, more than half or about half of the burn centers in the UK are able to procure the product as soon they’ve a local formularies. In Spain, again, we are working through the hospital budgets and we are able to generate revenues of others, from most of the burn centers in Spain. These are the major countries.

[Josh Jennings:]

And lastly, on potential near-term NexoBrid approvals, we’re thinking about some of those countries you mentioned, I think to answer an earlier question, South Korea, Mexico, Japan, India, Russia, as potential approvals in first half of ‘18. And how you’re thinking about launching in those countries, or do you have distributors lined up in those regions and if anything on the reimbursement front or any easier pathways in any of those territories? Thanks for taking the questions.

[Gal Cohen:]

So, we do have distribution partners in all the countries that you’ve mentioned. We have distribution partners, in particularly or very large portion of Latin America already, Columbia, Brazil, Peru, Chile and Mexico and so on, Argentina. We have the submission partners in Russia, in India, in South Korea, in Japan, now also in Taiwan. And obviously, we are extending this effort to continue with that. The strategy behind it is that we don’t -- it doesn’t take part of our resources. We aren’t investing our own funds in doing so. This is a responsibility of the local partners. So the local partner is also leading the regulatory -- local regulatory submissions and the obtainment of market access in these countries. And this supports them scientifically. We first of all, provide them with the registration file. We address any questions that the authorities have about that that of the product. So we are relying on the plans of these distributors. The plans are, or according to the information that we got from them, we do expect to get additional approvals during 2018 in countries like you mentioned Russia, South Korea and so on. And as soon as we are informed that we have got that then we will able to report that obviously to the street.

[Operator:]

Thank you. Our next question comes from Jay Olson with Oppenheimer.

[Jay Olson:]

I was curious about the improvement in gross margins we saw in the third quarter and then one of the earlier comments you made. And just in terms of how we should be modeling this longer term. Would I be right to think that your gross margins eventually for NexoBrid could get up to the 70% or 75% range for gross operating margins -- gross profit margins?

[Sharon Malka:]

So first of all, yes, on the long-term on a steady state. The gross margin on NexoBrid will be around 75% to 80%. I'd say it’s in our results for the nine months 2017 a gross margin is around 40% for nine months. We believe it will be the same for this full-year 2017, but it will increase modestly between the years as rate or ramp-up of sales. And gradually get to these 75% to 80% on a steady state.

[Jay Olson:]

And then congratulations on all the data at the European Burn Association. Is there anything, in particular, you would highlight there that you think could drive growth into some of the European markets that you mentioned or perhaps in new markets, maybe some cost effectiveness or other data that you think could fill growth in those markets?

[Gal Cohen:]

I think that there is larger value of information coming from so many experts with 43 presentations. But I would highlight two subjects, I would say. One subject is cost effectiveness. As I mentioned, we do have a budget impact too than we have, what is called an HDA model. But the fact that now they are local papers done by third parties that show that NexoBrid is cost effective with a paper from Italy showing reduction of 5,000 cures per patient, with a paper from Germany showing that NexoBrid can save up to 30% of the DRG cost. This is obviously very supportive when you come to discuss with the investment budgets, as well as with regional budget, as well as with local pharmacies and hospitals. So one big element is cost effectiveness. Another big element that I think will also be crucial as we go to the U.S. is long-term data. Long-term data, at the end of the day, is the wholly grail physicians want the patient to have a better long-term outcome, because the patient lives with that outcome for the rest of his life, it's not just the 30 days or 60 day or 40 days that a patient is hospitalized. Long-term data takes time to collect, because it's long-term. And we are starting to see now more and more papers showing that NexoBrid is able to generate better long-term results because these patients have been treated for several years now and now they can -- they are able to collect that. We've seen a paper from Germany that talks about faces and we've seen a paper from Italy comparing different case of long-term benefits that show that NexoBrid was superior to surgical debridement. Last but not least, I would say, one growth driver is the area of burns that are treated, because every -- you need one vile of 2 gram to treat 1% TBSA. So if you treat 10% TBSA patients, it's like treating 10 patients with 1% TBSA. So we are again starting to see papers by physicians that are driving a size of TBSA that they are treating. Physicians in Europe started already to treat small wounds, because they wanted to get comfortable with the technology. But in the conference, they were -- physicians that presented areas that have been treated that even are above the 15% TBSA that are in the label. They even double and it triple this area and this is obviously goal driver in terms of revenues. Having said all that, I think that our financial reports show that we understand that Europe is a fragmented market. It’s unlike the U.S., it’s going to take time until we see NexoBrid becoming this standard of care. We are confident that it will be standard of care, but it will take time. And in order to adjust for that, as management, we are correlating the surgeon marketing expenses to the ramp up so that we can, as I mentioned, have NexoBrid as a self-funded product. R&D covered BARDA, sales and marketing by the revenues and invest our liquidity predominantly in EscharEx, which is certainly in our eyes an outstanding opportunity.

[Operator:]

Thank you. Our next question will comes from Raj Denhoy with Jefferies.

[Krishna Guha:]

This is Krishna on for Raj. Wanted to ask maybe the $340 million U.S. debridement market opportunity is certainly significant. But given that ExcharEx is still three years to four years away from market entry. How fast do you see that market growing today on an annual basis? And then how much of that $340 million today you see EscharEx as a specific product being able to address?

[Gal Cohen:]

So first of all, unfortunately, we see a great growth in this market. It is reported that there is an 8% growth in the U.S. in chronic wounds due to obesity, aging and the diabetes. And practically, this is an epidemic that is going on. There’re $8.7 million Americans that have chronic wounds in the U.S. and we know that just in diabetic foot ulcers and venous leg ulcers, every year there are 1.3 million Americans. So the size of the market is huge and the -- unfortunately, it seems that this market is going to continue to grow, because of the factors that I mentioned. Looking at that market, as you’ve mentioned as the market debridement currently with the current level of efficacy that is that able to provide is already selling $340 million. In a market strategy we have conducted with 230 healthcare professionals sharing with them EscharEx was equal target for the total, what EscharEx is supposed to do was EscharEx actually did in a Phase 2 study, showing that we can remove the EscharEx in particularly less than two weeks and on average in four to five applications, which is particularly in the week. These experts tends to think that we can take a substantial part of the entire market. And when they talk about the entire market, they are not just talking about the market debridement, which is about 20% of the market they are also referring to the sharp debridement, which is about 60% of the market. And they are also referring to the, what we call autolytic debridement, which are the hydrogels and honey dressings and other means to do autolysis. So looking ahead with the way this market is going or the way this market is going to evolve, the need for evidence, going forward, the level of efficacy that EscharEx demonstrated in Phase 2 versus the existing efficacy of the current product, we particularly believe that this could be a very, very substantial opportunity.

[Krishna Guha:]

Yes. So maybe following-up on that, what gives you -- if you could just remind us, what gives you the confidence to take market share from the incumbent [indiscernible] product? And if you could just remind us of the clinical and powerful economic benefits of using EscharEx in your view?

[Gal Cohen:]

So the enzymatic debridement that are currently on the market, based on the publications, the scientific publications that have been published to the best of our knowledge take about four or six to eight weeks to debride a wound. In our Phase 2 study, we were able to show that we were able to debride 65% of these patients within, on average four to five application of about a week. And they’re talking about wounds, and if you look at these studies of the existing products, they’re talking about wounds of about 0.5 square centimeter and after 52 weeks of duration, we are talking about wounds that have been included in our studies of over 72 weeks of over 33 square centimeter. So the magnitude of the effect, should it replicate itself in Phase 3 studies and be able to be approved, is a different ball game. Now, let's look at this market, okay. Today, there are more than 100,000 Americans every year that lose a leg because of a small chronic would we can't heal; so physicians don’t want to send patient homes to six to eight weeks with treatment that might not provide them with advancement for weeks and weeks. And this is why 60% of these patients are going through sharp debridement. Despite the fact that these patients are elderly, they don’t heal well, they take anti-coagulated drugs and still physicians are doing sharp debridement. Now, let's look at the reimbursement landscape. What insurance company would like to send a nurse to a patient’s house for six to eight weeks, if they can send a nurse to a patient’s house for week or two weeks. Let's look at patients. What patients would like to apply the point self for six to eight weeks in order the compliance is a big issue in this market. When the progress is slow the patient loses fate. With EscharEx, again I'm just saying this is Phase 2, it's not Phase 3 and it's not approved product yet. But from the existing information as we have currently, if you are able to debride a wound within approximately a week, the patients sees progress almost on a daily basis. So it gives you the hope that it will be give him a hope and will make him more compliant to the treatment. Taking into account that unlike NexoBrid, in which we need to revolutionize the market with EscharEx, physicians in the U.S. are prescribing is the market debridement. Nurses and physicians are used to treat themselves in chronic wounds with enzymatic debridement. There is an existing reimbursement called in the market for debridement. There is a commercial validation with a product selling almost $340 million. It was approved in the 60s. All this information support by the market study that we have done in other information that we have give us confidence that EscharEx is a very exciting opportunity.

[Krishna Guha:]

Yes. So just to follow-up on those numbers and we can talk about offline as well. So the $340 million of wound debridement for the chronic pain market, you’re saying is 20% is the total opportunity. So would you say, the total addressable market for EscharEx is closer to the $1.5 million or 1.5 billion, or above range? Is that the right way to think about it?

[Gal Cohen:]

I can just quote the results of the market study that was conducted in 230 healthcare professionals. They believe that the market is divided as 60% sharp debridement, 20% enzymatic debridement and 20% autolytic debridement. They believe that we can take about close to half of this market and they refer to the entire market, the entire market. They don’t think that we are going to replace sharp debridement in the U.S. tomorrow morning but we’re certainly going to be an add-on either before or after and in some cases replacement. In terms of enzymatic debridement, which is $340 million, we discussed it. And as for the autolytic debridement, they also believe that we can take a part of that, because again this product has limited efficacy. And again, subject to the fact that we’ll be able to approve the drug in the U.S. and that the drug will meet in Phase 3 the same result that we met in Phase 2. So this is how they calculated it. They didn’t take into account, by the way, the use of this drug in additional indications because if you look at, for example, pressure source, postsurgical complications, these are not much different than other chronic wounds like diabetic foot ulcers and so on in many [departments] that has to with debridement. So looking at that, there is a huge, huge market out there and the commercial validation by the product itself, hundreds of millions of dollars.

[Operator:]

Thank you. We have no additional questions. I’d like to turn the floor back over to management for any additional or closing remarks.

[Gal Cohen:]

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

[Operator:]

Thank you. Ladies and gentlemen, again that does conclude today’s conference. Thank you all again for your participation. You may now disconnect.