MediWound Ltd.
Q4 2017 Earnings Call Transcript

Published: 19 Mar 2018

[Operator:]

Good day and welcome to the MediWound Fourth Quarter and Full Year 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Bob Yedid of LifeSci Advisors. Please go ahead.

[Bob Yedid:]

Thank you, Risha, and good morning everyone. Earlier today, MediWound issued a press release announcing fourth quarter 2017 financial results and a business update. You may access that release on the web site under the Investors tab. With us today is Steve Wills, Chairman of the Board; Gal Cohen, President and Chief Executive Officer of MediWound; and Sharon Malka, Chief Financial Officer. Steve is with us to give listeners information on an important corporate matter. Following Steve's brief remarks, Gal will provide an update on the company's programs, and review upcoming milestones, and Sharon will summarize the company's financial results. After the prepared remarks, we will open the call for Q&A. Before we begin, I would like to remind everyone that statements made during this call, including the Q&A session, relating to MediWound's expected future performance, future business prospects, or future events or plans, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and could differ materially from those forecast due to the impact of many factors beyond the control of MediWound. The Company assumes no obligation to update or supplement any forward-looking statements, whether as a result of new information, future events or otherwise. Participants are directed to the cautionary note set forth in today's press release, as well as 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. The conference call is the property of MediWound and any recording or rebroadcast is expressly prohibited without the written consent of MediWound. With those prepared remarks completed, at this time, I would like to turn the call over to Steve Wills, Chairman of the Board. Steve?

[Stephen Wills:]

Thank you, Bob, and good morning everyone. I am pleased to address MediWound's investors and research analysts for the first time. I joined MediWound's Board in April 2017 and was appointed Chairman of the Board last October. For those of you who do not know my background, I am currently the Chief Financial Officer and Chief Operating Officer of Palatin Technologies, a public biopharmaceutical company. Prior to that, I also served as the Executive Chairman and Interim Principal Executive Officer of Derma Sciences, a company offering advanced wound care products, from December 2015 until February 2017, when it was acquired by Integra LifeSciences for approximately $300 million. I am participating on today's call to discuss an important development that we disclosed in our earnings release this morning, namely, MediWound has been approached by other party, regarding a potential strategic transaction. As a result, the Board of Directors Moelis & Company, an investment bank with significant experience in mergers and acquisitions, to assist us in the evaluation of this opportunity. In my career as an executive and serving on boards, I have been very focused on ensuring that companies, where I am involved, are well positioned strategically and are seeking to create value for shareholders, especially, in an evolving healthcare market. Currently, the other party and MediWound are engaged in advancing discussions. However, there could be no assurance that a transaction will be consummated. Please understand, that MediWound reported this approach, based on our review of certain disclosure considerations. I will address your questions at the completion of our team's remarks, though please note that I will be limited in what I can say about this potential transaction. Now, I would like to turn the call over to MediWound's CEO, Gal Cohen. Gal?

[Gal Cohen:]

Thank you, Steve, and we appreciate you joining the call. Good morning everyone. It is a pleasure to stick with you today, to provide an update on our business, view our accomplishments on 2017 and give you a perspective on our goals for the year ahead. We see several positives, as we enter 2018. First on NexoBrid, we are pleased that the development program on NexoBrid is now fully funded through an extended BARDA contract that we announced in the first quarter. This contract provides us with up to $132 million in non-dilutive funding, which fully supports all NexoBrid R&D costs up to BLA approval, including our ongoing U.S. Phase 3 DETECT study in adults, and our Phase 3 Children Innovative Debridement Study or as we call it CIDS. As we announced last July, BARDA committed an additional $32 million to fund NexoBrid R&D activities, bringing its total R&D funding commitment to $56 million, out of which, we have already received about $50 million. BARDA also committed to procure NexoBrid for about $60.5 million and as an option to fund additional $10 million of R&D work. This upside BARDA deal allows us to turn NexoBrid into a self-funded opportunity, as the contract covers all NexoBrid's R&D program costs. In our U.S. Phase 3 clinical trial, the DETECT, at the current rate of involvement, we expect to complete the recruitment of 175 patients around mid-2018. However, because patients must suffer acute burn injuries to be enrolled, the recruitment can fluctuate and the involvement completion date may extend into the third quarter of 2018. As communicated, should the NexoBrid Phase 3 study be successful, we plan to ask FDA in a pre-BLA meeting to allow the submission of A BLA, based on the acute results, as they include the primary, the secondary, and the safety acute data. The acute top line data, is expected around the end of the year, to allow for us to lock the acute database at a three month follow-up post wound closure, the FDA guideline, and following recent recommendations of our regulatory consultants, who believe that FDA would like to have the three month follow-up, as start of the acute data set. Subject to FDA concurrence at the pre-BLA meeting, we plan to submit the BLA in the second half of 2019, and supplement the filing with a 12 month long term follow-up safety data, during the FDA review period. Following BARDA's support for our CIDS Phase 3 study, we are expanding the study to the U.S. pediatric burn centers. We have submitted the protocols to the local IRB for approval, and as soon as they approve the protocol, we would initiate the course [ph] within the U.S. by mid-2018. On the commercial front, during 2017, we continue to see growth in revenues, patients treated in center using NexoBrid on more patients and on larger burn areas. The continued momentum of integrating NexoBrid as standard of care, resulted in more than 100 presentations in the award winning posture, at leading burns conferences such as the European Burn Association and the American Burn Association, as well as in additional independent peer reviewed publications, highlighting the positive clinical benefits and cost savings of NexoBrid for enzymatic debridement of severe burns. Moreover, we are also pleased to receive a positive decision on the five year renewal of NexoBrid marketing authorization, after the European Medicine Agency reviewed the data that has been accommodated since NexoBrid was launched in Europe. In addition to the regulatory acknowledgement of NexoBrid [indiscernible] during 2017, we were granted a three year cGMP renewal rather than a typical two year renewal, after successfully passing a manufacturing site audit by the Ministry of Health. We are proud of our team and believe that our second consecutive three year renewal speaks to the high quality standard of our operations. Now, I would like to move on to EscharEx. We continue to be enthusiastic about the commercial opportunity of EscharEx, given the large and growing market of millions of patients, who suffer from chronic wounds, generating a very significant market opportunity in the U.S., of over $1 billion for debridement of chronic wounds. Our enthusiasm for the market is driven by the solid demand for the existing topical enzymatic debridement that currently generates annual U.S. sales of hundreds of millions of dollars. The market dynamics for existing prescription products, and the clinical treatment practices, and the existing reimbursement for enzymatic debridement. We believe physicians will find EscharEx to be more effective and offer a shorter debridement period than the product on the markets today. During 2017, we successfully completed EscharEx Phase 2 study, demonstrating statistically significant superiority in the incident of complete debridement, with no deleterious effect on wound healing, as well as safety over extended period of application, during the second cohort of patients in that study. We are very pleased that we have been able to obtain the FDA concurrence that as in the successfully completed Phase 2 trial, incidents of complete debridement versus the gel vehicle, will be the primary endpoint of the pivotal program. With the net proceeds from our recent equity offering, we now have sufficient resources to fund EscharEx clinical program. We have invested substantial efforts in the last few quarters, working with U.S. experts to optimize and further optimize the EscharEx clinical development program, and plan to finalize the preparations and submit a protocol to the FDA in the second half of this year. Finally, I would like to update you, that we submitted an appeal to the Supreme Court, regarding the prior decision by the Tel Aviv District Court that MediWound is obligated to purchase Polyheal's shares. This claim relates to previous agreements we entered into with Teva and Polyheal to develop, manufacture and sell Polyheal wound healing products. We will keep you updated on the progress of this appeal. I will now turn the call over to Sharon Malka for a review of our 2017 financials. Sharon?

[Sharon Malka:]

Thank you, Gal, and good morning everyone. We had two notable financing achievements in 2017, which improved our liquidity position. First, as Gal discussed, we are thrilled with BARDA's increased commitment to support NexoBrid as BARDA's non-dilutive and non-royalty bearing funding will now fully support our development program for NexoBrid. Second, we completed successfully public equity offering in September, that provided us with an additional $22.7 million in net proceeds to primarily support our EscharEx clinical program. Looking ahead, as NexoBrid becomes a self-funded product, we expect to focus our resources to fund our development programs for EscharEx. We also made progress financially in calendar year 2017, which was highlighted by higher revenues and gross profit, combined with a disciplined cost management. Turning now to our financial results; we are pleased to report that revenues in the fourth quarter of 2017 increased 23% to $530,000, up from $430,000 in the fourth quarter of 2016. Gross profit for the first quarter of 2017 was $114,000 compared to a gross loss of approximately $425,000 in the prior year period. This improvement of over $0.5 million was a combination of increased sales and improved efficiencies. Research and development expenses, net of participation for the fourth quarter of 2017 were $1.2 million compared with $0.8 million for the fourth quarter of 2016, while SG&A expenses decreased 25% to $2.5 million from $3.3 million in the fourth quarter of 2016. Operating loss for the fourth quarter of 2017 was $3.5 million, an improvement of 22% from $4.5 million during the same period last year. The smaller operating loss was primarily due to improvement in gross profit year-over-year and the decrease in selling and marketing expenses. Net loss for the fourth quarter of 2017 was $2.4 million or $0.09 per share, compared to a net loss of $1.9 million or $0.09 per share for the fourth quarter of 2016. The increase in net loss was primarily as a result of a non-cash financial income from revaluation of contingent liabilities, as quoted in the fourth quarter of 2016. Adjusted EBITDA for the fourth quarter of 2017 was a loss of $3 million compared with a loss of $3.5 million for the prior year period. Looking at the full year 2017 results, revenues for the 12 months of 2017 were $2.5 million compared with $1.6 million for the 12 months of 2016, an increase of 60%. For the full year of 2017, gross profit was $0.9 million compared with a gross loss of $0.6 million in the prior year, an improvement of approximately $1.5 million year-over-year, resulting from a combination of increased sales and improved efficiencies. Operating loss for the full year 2017 was $13.7 million, an improvement of 32% versus an operating loss of $20.2 million in 2016. The decrease in operating loss was primarily due to A, the positive change in gross profit; B, a decrease of $1.6 million in R&D expenses, net of participation, primarily due to an increase of participation by BARDA, in the company R&D expenses. And, a decrease of $3.4 million in SG&A expenses, as a result of reduction in marketing expenses, associated with NexoBrid launch activities and a decrease in non-cash share based compensation. The net loss for the year ended December 31, 2017 was $22.1 million or $0.95 per share, compared with a net loss of $18.9 million or $0.86 per share for 2016. The change in net loss was as a result of a decrease of $4.4 million in net loss from continuing operations, and a onetime loss from discontinued operations of $7.6 million, following a full provision for the share purchase price plus accrued interest, that was recorded as a result of the district court ruling in November. Adjusted EBITDA for the full year 2017, was a loss of $11.8 million compared with a loss of $16.4 million for 2016. A reconciliation of the adjusted EBITDA to GAAP net loss, is included in the press release, we filed with the SEC earlier this morning. Turning now to our balance sheet, as of December 31, 2017, the company has cash and cash equivalents of $36.1 million and this compares with $30 million as of December 31, 2016. This includes the $22.7 million of net proceeds we generated from the public offering we completed in September. We remain on budget, and utilized about $50 million in cash to fund operating activities during 2017, which was at the lower end of the company's 2017 cash use guidance of $15 million to $17 million range. In addition, we used approximately $1.6 million for the purchase of Polyheal shares pursuant to the district court ruling in the fourth quarter of 2017, for which an appeal was recently submitted by the company to the Supreme Court. Looking ahead, as NexoBrid becomes a self-funded product, we expect to concentrate our resources to fund our development programs for EscharEx. We currently anticipate that existing cash resources, together with BARDA's funding and procurement, will be sufficient to enable us to complete our ongoing Phase 3 clinical programs of NexoBrid and our planned clinical program for EscharEx. As a result, we expect that cash use for ongoing operating activity 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, Sharon. We look forward to 2018 and we have several important milestones, including initiation of our clinical program for EscharEx in the U.S., the completion of involvement of our Phase 3 DETECT trial for NexoBrid, and the initiation of equipment of our pediatric Phase 3 study in the U.S. in pediatric burn centers. We will continue to progress our product development and commercial programs, and will update you on our future earning calls. In addition, the company will report as applicable, on the status of the inquiry on the strategic party mentioned at the opening of the call by our Chairman Steve Wills. With the completion of our prepared remarks, Steve, Sharon and I will take your questions. Operator, kindly open the call for questions.

[Operator:]

[Operator Instructions]. We will go first to Josh Jennings of Cowen and Company.

[Josh Jennings:]

Hi, thanks and good morning. I was hoping to start off by just asking about more details on the strategic transaction announcement. Just to be clear, is what you are prescribing, a bid as an acquisition? Could this be a distribution partnership? You could just start there?

[Stephen Wills:]

Thanks for your question Josh, it's Steve. At this stage, and as I mentioned in my prepared remarks, we are just not in a position to go much more granular, than what I have already disclosed. We were approached by a third party, to consider a strategic transaction. We have obviously signed CDAs and we are involved with mutual due diligence. Other than that, I really just can't get any more granular.

[Josh Jennings:]

Okay. And is this announcement -- should we be thinking about it as a strategy to make public, that you would be soliciting competing bids, or that you are open to potential further discussions with other companies outside of this initial company that has approached you?

[Stephen Wills:]

Well public companies always have a fiduciary responsibility to assess all these types of transactions. I can state that we as a Board and senior management, we have made not outbound calls, and we are in advancing discussions with mutual diligence with this particular party.

[Josh Jennings:]

Great. And any thoughts or any color that you can provide on the timing of the discussion with the initial party?

[Stephen Wills:]

It's tough to -- if you will be day driven or data driven in these types of things. Again, we didn't make any outbound calls. We are in advancement [ph] discussions, we are doing mutual diligence, and we are going to be data driven, if this is an opportunity that we continue to have advancing discussions, and it shows positive diligence, the board will seriously -- obviously, assess the opportunity, and if it makes sense for the shareholders, then we will move forward. We have engaged a third party specialist, Moelis & Company, to assist us with this evaluation.

[Josh Jennings:]

Okay. Thank you. I know you are limited in what you can disclose with, so thanks for that incremental detail. And maybe just a question on EscharEx, Gal; if you are submitting the protocol of the FDA in the second half, how should we be thinking about the timing of the enrolment start? And then also in terms of downsize, the potential downsizing of patients, in terms of your requirement for the EscharEx Phase 3 trial, can you walk us through how much savings you can incur, in terms of the clinical trial costs? Thanks for taking on the questions.

[Gal Cohen:]

Thank you very much, Josh. So if we submit the protocol in the second half of 2018, and if FDA says go, then most probably, we will be able to initiate a study, sometime in late 2018, or maybe beginning of 2019. As for the sample size of the study, initially, for a budgeting standpoint, we looked at the program for about 700 patients, and again, subject to FDA, concurrent on that, with the help of our expert that we discussed in the last few quarters, we believe that the program is of about 500 patients in two studies; like 250 patients per study or something around that, should be sufficed to show the efficacy of the drug, and to generate enough safety data, for a, what you call, exposure requirements. Again, this is subject to FDA concurrent on that. If this will be the case, versus the previous plan, it would be something like 200 patients less, which would be something around $10 million less.

[Operator:]

And we will go next to Jay Olson of Oppenheimer.

[Jay Olson:]

Hey guys, congratulations on all the progress and thanks for taking my questions. I know that you are limited in what you can say, but I think you said that the approach that you received from a third party was unsolicited, is that correct?

[Stephen Wills:]

That is correct.

[Jay Olson:]

And if you were to enter into a competitive bidding process, what would a typical timeline for something like that be?

[Stephen Wills:]

I mean, at this stage, all I can state is -- what I have already stated, where we were approached by a third party, it was unsolicited, we are in advanced discussions, we are engaged with mutual diligence, and as this potential transaction discussions advances, we might be in a position over the next few months, to circle back and give more guidance. As I mentioned on the earlier question, public companies have fiduciary responsibilities to assess all opportunities in the best interest of shareholders. So we are cognizant of that, and we will do that -- we are doing that currently, and we will continue to do that in the future.

[Jay Olson:]

Okay. And then, maybe a couple of other questions, starting with NexoBrid; you had a lot of impressive clinical and pharmacoeconomic data presented at European Burn meetings. Are there any abstracts we should be looking for, coming up here at the American Burn Association Conference in April?

[Gal Cohen:]

Thank you, Jay. Yeah, there would be a European Physician that will present in the American Burn Association. Obviously, the company cannot promote, because NexoBrid is not at the point [ph] in the U.S., but there would be, and I think they have been, in the past ABA, few lectures that U.S. experts are still remembering, coming from [indiscernible] and others, and also we are aware of efforts being made in Europe, to publish few interesting papers, that have been submitted and accepted, they are just waiting to be in print. And I think that you will find them interesting as well. Obviously, we cannot elaborate on that yet, because it's not -- it hasn't been published yet. But a lot of work is ongoing in Europe as well.

[Jay Olson:]

Okay. Thank you. Will look forward to that. And then, maybe just one last question on EscharEx; I know you have mentioned that FDA concurred that debridement versus gel vehicle would be the approvable endpoint of a pivotal study. But are we still correct to look at Santyl as sort of a benchmark in terms of commercial potential, with $342 million in sales last year, and if so, would you ever consider doing a comparative trial, maybe not necessarily for registrational purposes, but just to look an non-registrational study, head-to-head at EscharEx versus Santyl?

[Gal Cohen:]

Thank you, Jay. I think that from the commercial standpoint, the market study that we have commissioned, it included 230 healthcare professionals, both physicians and medical directors at insurance companies elucidated that the potential of EscharEx is obviously -- the sweet spot is not that the debridement in the U.S. is now being used; but because of different efficacy matrixes, this product potentially can target a wider market and has a wider potential, because it could be used as an add-on and to some extent, may be the replacement of cell debridement, if you like, I will go more granular on that, as well as replace some of the autolytic debridement that is ongoing in the U.S. But I mean, this is such a huge market, and as you mentioned, the market of debridement sales is hundreds of millions of dollars just in the U.S. alone. So a good place to start. As for the question about the studies, you rightfully said, we are looking at a global development program, and Santyl is not approved outside of the U.S., it's not used in Europe or in other countries, and could not be accepted as a control ARM by the regulatory authority. So the regulatory clinical studies would be as FDA clearly said, a placebo controlled study against the gel vehicle of the EscharEx, practically exactly as we did the Phase 2 study that we succeeded in. On the commercial standpoint, I think there is a lot of interest among physicians to see how EscharEx is performing versus the existing technologies out there, and I would not be surprised, if they will take this one step further, and try to see whether they can compare the two and see how they work. The comparison that we can do now, are based on publications and clinical outcomes, and I mean, you see that the published data shows that the enzymatic debridements in the U.S. today can debride the wounds after approximately six to eight weeks, and that EscharEx was able to debride -- 93% of the wounds that were completely debrided, were divided in four to five applications in about a week.

[Jay Olson:]

Great. Thank you very much. Thanks for taking my question.

[Gal Cohen:]

Thank you.

[Operator:]

We will go next to David Maris of Wells Fargo

[Katie Kerfoot:]

Hi, this is Katie Kerfoot on for David Maris. Thanks for taking the questions. First, I am kind of curious about the enrollment in the DETECT Phase 3 for NexoBrid and your confidence in the new timeline to completion of enrollment and those top line data. Was there a significant shift in the incidents of acute burns, since your last update in which we had expected the Phase 3 data in the first half of 2018? And then on EscharEx, what are the final kind of characterizations of that program that you are working through or debating, and what are the steps you are taking to finalize that protocol? Can you just give us more information around what you plan to achieve between now and when you plan to submit that protocol now in the second half of the year? Thank you.

[Gal Cohen:]

Thank you, Katie. Thank you for the questions. So for the first question on enrollment, obviously as I mentioned, we are dealing with an acute indication, and it is not always easy to predict who is going to get burned next month, and will fit the recruiting criteria. And therefore, it was guidance though [ph], what we thought was, that we will complete the recruitment in the first half of 2018. Based on the current recruitment rate, we would still meet that goal. But I cannot commit to that, because I don't know. Some months we have over 10, 15 patients being recruited, and in some months we have two, because patients were not burned or they don't meet the criteria. And this is why, it's very difficult for us to be as accurate as a month projections. Our plan currently is to finish this recruitment by midyear or around midyear. As for the top line data, I think there was a change in what we planned before. You know, that in general, as patients into the study within days of being debrided, after approximately a month. This wound is closed, and at that time, we thought that we will just add the top line data, which would be in the first half of this year. We have been advised by regulatory consultants recently, that although there is no meaningful data that is supposed to be gathered in the three month follow-up, because it's particularly looking at the patients and many doing safety, it is wise, conservatively to wait for this treatment's follow-up, before we close the database, just that FDA will have the three month follow-up in the acute dataset, because that's what we did in the guideline. Again, there is no read data that is going to be gathered during these three months, but it's a good practice to be as conservative as you can, if you are confident or if you believe that the results are going to be positive. So following their advice, we will wait for the last patient to go in, and then we will wait for months for this patient to close his wound, and then for three months follow-up. And at that point in time, we will clean the data, close the database, and crunch the statistics. And this is why we believe, that the data will be available around the end of the year, depending on when the last patient will go into the study. So this is regarding the timelines of Phase 3. Regarding the EscharEx program, we know that we need to adequately control studies for BLA in the U.S. We know that the primary endpoint is going to be incidences of complete debridement versus the gel vehicle. We estimate that we know that, on a statistical standpoint, we might be able to do a smaller study, but because we do want to have exposure data, we are looking at about 500 patients database, that will hopefully be supported by also on the NexoBrid exposure data being the same API, and what we are doing particularly now -- first of all, our Board also wanted to get involved on doing [ph] a big meeting with a lot of consultants in the U.S. recently, and we are working with several teams on the clinical front, on the regulatory front, on the statistical front, to get the most efficient and best protocols possible, to get this product approved in the U.S. Did I address your questions?

[Katie Kerfoot:]

Yes. Thank you, Gal.

[Gal Cohen:]

Thank you very much, Katie.

[Operator:]

We will go next to Raj Denhoy of Jefferies.

[Raj Denhoy:]

Hi, good morning. Maybe I could start, Steve, just on the offer. You know, I am curious, given that you moved forward to due diligence and signing CDAs. I am curious, what is the hurdle to do that? I mean, does that suggest that you are viewing this as a fairly bona fide offer at this point?

[Stephen Wills:]

Well, the short answer is yes. We were approached -- if we didn't think, that there was some merit to moving forward, then we wouldn't have moved forward, and we also wouldn't have engaged an outside M&A firm like Moelis. And at this stage, we are just really concentrating on advancing the discussions and performing the -- with mutual diligence, but obviously, we are concentrating on our side, and we will see where it leads over the coming months.

[Raj Denhoy:]

Okay. Fair enough. And I know at this point, not a fair question either, but I guess, one of the biggest sticking point is probably valuation, and is there anything you can offer in terms of whether that's a point of heated discussion at this point, or is there -- just trying to understand, given the stage of the company and where it is in terms of rapidly advancing development of these various products, and a lot of data and FDA activity over the coming years, that could be value creating? I mean, how you think about selling the company at this point.

[Stephen Wills:]

Let's be clear, we are not looking to sell the company. Boards, it's not indigenous to the MediWound board, I think most boards operate this way. You are always cognizant of ways to improve your value. We are extremely enthusiastic and excited about where we are with NexoBrid, and with EscharEx, as we go forward. So we are not looking to sell the company, if the diligence hands out that we think it's a strategic thing that we believe, it would be positive to the shareholders and increase value, we will move forward. So obviously we are considering that, but I couldn't be any clearer, that we are not looking to sell the company, we think we are -- you'd probably hear this from a lot of senior executives on public companies, we think we are very undervalued, and we think we got a lot of things on horizon, and we are looking forward to having that value [indiscernible] to the MediWound shareholders.

[Raj Denhoy:]

That's fair. I appreciate you can't say too much beyond that. Maybe Gal, I could ask about NexoBrid, and again, the timing in the United States. I know that you are angling to have the FDA accept the acute data, is kind of starting the timeline here for the approval process. But maybe you could give us a little bit around the confidence if that's what's going to take place; because I guess, the first endpoint is actually 12 months and I think the 24 month endpoint, but how confident are you, that you can start the process at three months and not have to wait for that 12 month data?

[Gal Cohen:]

Thank you for the question Raj. Well, from a medical standpoint or from a logical standpoint, let's look at the data. The acute data, we are going to have the primary endpoint. We are going to have particularly, all the secondary endpoints. We are going to have all the safety endpoints. The only thing that we will not have, is the scar cosmetics or function cosmetics data for 12 month and 24 months. Now, if you don't have issues on the acute data, no issues with wound closure, no issues with infections, there isn't a reason to believe, that there should be any issues on the 12 month data. In addition to that, we have studied, it was published with 89 patients showing that our long term data is at least as good, if not better, than the standard of care. So I think there is a lot of scientific and medical merit in that, and given the timeline -- if you look at the timeline, we will be in a position to submit the BLA in the second half of 2019, and we will be able to supplement this 12 month data very shortly thereafter, so they would still be in the review period -- in the early stages of the review period is when the review data is [ph]. Having settled that, FDA has all kinds of considerations, and sometimes it's not just medical merit and logic, so we cannot speak on behalf of FDA. But from our perspective, we see no reason, why they would not agree. But we have been with FDA many times, and also not always control, what would be the decision of the FDA.

[Raj Denhoy:]

That's fair. And then maybe just, find that line of logic and the results for the 24 month endpoint or follow point, do you think you will have to reach that before the FDA will approve the products? In essence, then you are looking at lat 2020 before you have reached that 24 month endpoint for all the patients, which would then suggest an approval maybe in 2021? How do you think about that?

[Gal Cohen:]

Thank you. So the 24 month follow-up is actually coming from Europe, not from the FDA. FDA never asked for a 24-month follow-up. We have to remember, that the DETECT study is a post-approval commitment to Europe as well. So instead of finding another study, spending another $12 million, $15 million or so, we offered EMA, the U.S. study, and then because in the European study, in the European Phase 2 study, we had 24 months follow-up. So they wanted what they had already. Since FDA is using the same protocol, and FDA is [indiscernible] 24 month data in there, so it would not object getting it. But I don't think there is an FDA requirement for any 24 month follow-up data, and I would say even more than that. People expect or the medical knowledge show that, scars and functionality only gets usually better with time. So with the cosmetics and function, we are not supposed to show superiority. We just need to show no deleterious effect. So if there will be no deleterious effect on 12 months, the likelihood of having a deleterious effect on 24 months isn't lower than that. So it's not --

[Raj Denhoy:]

No, I appreciate it.

[Gal Cohen:]

That's not expected.

[Raj Denhoy:]

Great. Thank you for the clarity. Appreciate it.

[Gal Cohen:]

Thank you very much for the question. Thank you.

[Operator:]

We will go next to Bruce Nudell of SunTrust.

[Bruce Nudell:]

Hi. Thanks for taking the questions. Steve, I had like a few questions that are kind of lengthy. Firstly, what compelled you to disclose this to the public today? Secondly, is the party's interest for both products, NexoBrid and EscharEx or just one or the other? And thirdly, does your commentary regard, I guess to Raj's question, does speak a greater inclination for a distribution deal rather than a sale and given the valuation today? And then I have a follow-up for Gal.

[Stephen Wills:]

Okay. Thank you for those questions there. Regarding the disclosure, we looked at the U.S. guidance and also the Israel guidance, since obviously we are an Israel base company, and we also chatted with our outside attorneys. We felt collectively that, even at this stage, it was proper to make the disclosure that we were approached by a third party, and that we are in advancing discussions. Regarding your -- let me take your third point first about the -- I don't believe I went into any granularity regarding the type of structure or deal, and I am not going to go there, where as I have mentioned -- if a proper company is approached, they should and they need to look at these approaches. Some of them are just reviewed very quickly, doesn't seem to make sense, it's not strategic, or whatever the factor is. We wouldn't be in advancing discussions, if we didn't think that there is some potential merit to this type of potential transaction. Regarding your point or question two, it's -- again, I am not going to overly granular on the assets there. We believe we are a company that's undervalued, and we have a lot of -- as Gal mentioned, a lot of significant milestones, transpiring over, not just in 2018, but 2018, 2019, 2020. We have an approved product in Europe and the plan is to get that approved out in the U.S. and EscharEx also to get approved in the U.S. So we are not, in anyway, not extremely excited and enthusiastic about our standalone opportunities. But again, if we are approached, Boards have fiduciary responsibility to just evaluate those approaches, and we are doing that right now, and we will always continue to be cognizant of those types of opportunities.

[Bruce Nudell:]

Okay, great. Thank you. And then, Gal, based on the anticipated burn rate, should we expect to -- ex-U.S. NexoBrid sales to kind of go on without much of sales and marketing effort next year? And how do you view -- it seems like a likely loss of NexoBrid in the U.S. in 2020, should we be expecting a much more buoyant adoption pace than we saw in Europe?

[Gal Cohen:]

Thank you, Bruce. Thank you for the questions. So as for Europe, we will continue to grow the sales in Europe. We are adjusting, as you mentioned, we are adjusting the sales and marketing effort to the revenue ramp-up, seeing that the ramp-up and pace is such and taking good look at our cash flows, as well as, as Sharon mentioned, we have kind of concluded the launch efforts. So when you look at samples, when you look at entries, always more -- requires more resources than just to grow a business, once you are already in the market. Regarding training, regarding sampling, and all these kinds of things, and this allows us to alleviate a bit, the sales and marketing expenses. As for the -- and in terms of revenues, we are remembering that, we have contracts with the U.S. government. The contract isn't -- I mean, the five year contract was until September 2020. BARDA has a contractual obligation to procure NexoBrid for $16.5 million over the course of the contract. It's their decision, but we do have -- we have an understanding that or we understand that most probably BARDA would start doing that, after we completed recruitment to the Phase 3 study, because the there is less point in holding stock in the U.S., if there is no one knowing how to use it. In the Phase 3 study and now in the pediatric study, we are going to have about a quarter of the burn centers in the U.S., using the product and know how to -- getting an experience with that. So we believe that, following the completion of recruitment, it is more likely than not, that BARDA will start the procurement, and conservatively, we look at that in 2019 and 2020. It's something that will already come up in 2018, that would have been upside for us. As for the U.S. and the ramp-up in the U.S., I think that the U.S. market is different than the European market, and to be honest, there isn't a European market. There are countries in Europe, many-many countries in Europe, but they are all acting differently, having different reimbursement systems and different pathways. The U.S. market is one market, one reimbursement system, unlike in Europe, with about two thirds of the burns are treated outside of the burn centers. In the U.S., at least according to the American Burn Association, three quarters of the burns are treated in the burn centers. So this market is much more focused. As I mentioned, by the time that we get to the market, about a quarter of this market will already know how to use NexoBrid through the DETECT and CIDS Phase 3 studies, and again, unlike in Europe, when we come to the U.S., there is already a huge value of information coming from Europe on cost efficacy, on efficacy, on different areas, on large burns. I mean, hundreds of abstracts and peer reviewed papers and textbook chapters, that the U.S. audience is aware of, that did not exist when we launched in Europe. And last but not least, I also believe that BARDA has a genuine interest that the product will be used in the U.S., because they understand that centers don't learn new tricks in an emergency. If centers of U.S. will use NexoBrid in routine, then if god forbid, there will be an emergency, they will know what to do with it. So these are five factors, why we believe that the U.S. market would be different than the ramp-up that we see in Europe.

[Bruce Nudell:]

Thanks so much.

[Gal Cohen:]

Thank you.

[Operator:]

At this time, we have no further questions in the queue. I would like to turn the call back over to Gal Cohen for any additional or closing comments.

[Gal Cohen:]

Thank you everyone for joining the call today. We look forward to providing you with further update on our first quarter call. Have a good day. Thank you everyone.

[Operator:]

That does conclude our conference for today. We thank you for your participation.