ReWalk Robotics Ltd.
Q4 2020 Earnings Call Transcript

Published: 19 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 ReWalk Robotics Earnings Conference Call. Please note that today's call is being recorded. I would now like to hand the conference to our CFO, Ori Gon. Ori, the floor is yours.

[Ori Gon:]

Thank you, Jay. Good morning, and welcome to ReWalk Robotics 4th quarter 2020 earnings call. This is Ori Gon, ReWalk's CFO, and with me on today's call is Larry Jasinski, our CEO. This morning, the company issued a press release detailing financial results for the 3 and 12 months ended December 31, 2020. This press release and a webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com. Before we get started, I would like to remind everyone that any statement made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act.

[Larry Jasinski:]

Thank you, Ori. Good morning, everyone, and I am glad to start 2021 as we foresee a healthier and very active year ahead of us. Q4 and 2020 results were greatly impacted, as we lost access to clinics and patients for much of the year due to the COVID virus. Nonetheless, we maintained sales and, importantly, achieved key milestones for building the business. We also improved our financial status through careful management through this pandemic. The fourth quarter was impacted by the second lockdown cycle of 2020, as we achieved $1.22 million in sales compared to $1.18 million in the prior year quarter. For the full year, sales were $4.4 million compared to $4.9 million in the prior year. In 2020, COVID left us with over 4 months of almost no direct access to our patient and rehab population contrasted to full year access for the entire prior year. Nonetheless, in Q4, we were able to make meaningful progress with coverage of the ReWalk Exoskeleton and in financial management of the company. First, the Medicare HCPCS code took effect on October 1, and we added 2 new contracts in Germany. The issued HCPCS code defines the acceptance of the new category of exoskeletons, which facilitates submission of claims to Medicare and other health insurers in a consistent and orderly manner and is a key step in the company's efforts with pursuing coverage determinations. The 2 new German contracts include a private insurer and BKK Mobil Oil as a public group that initiated coverage for their constituents.

[Ori Gon:]

Thanks. As Larry discussed the revenue numbers, I will just add some metrics regarding the quarterly activity and our insurance pipeline as we look forward into 2021, and I will then turn to our gross margin expenses and cash position. So during Q4, we have received 4 new rental approvals in Europe and 4 units converted from prior quarters. Our total number of SCI pending insurance cases was 98 at the end of the year compared to 96 at the previous quarter, with 84 of these cases in Germany and 14 in the U.S. The cases in Germany, which are currently already covered under contracts, represents 44% of the total cases, and we are now working on implementation within these sales, as Larry will provide the details shortly. Turning into our gross margin. So our annual 2020 margin ended in 50% of revenue compared to 56% in 2019. Our Q4 2020 margin was 33% compared to 61% in the previous year quarter. The quarterly decrease was affected mainly by $150,000 service parts write-off related to our older rehab and personal designs as well as some changes in revenue mix. The yearly reduction of 6% was also affected by the onetime inventory write-off as well as the effect of our overall reduction in revenue compared to last year and the change in mix. We ended the year with $14.2 million in operating expenses and $3.2 million in the fourth quarter of 2020 compared to $16.8 million in 2019 and $3.9 million in the previous year quarter. The reduction was affected by 2 major elements. First is our reduction in R&D, employee and employee-related expenses, consultant and material as we finished the development of our ReStore product in 2019. And second is showing in our sales and marketing, which is a positive $400,000 effect in the fourth quarter due to our PPP loan forgiveness. In 2020, we have repaid in full our Kreos loan, which accounted for $900,000 in interest payments and principal payment of $6 million. This will no longer affect our bottom line as well as our cash flow requirements going forward. Our net loss for the year 2020 was $13 million and $2.9 million in the fourth quarter compared to a net loss of $15.6 million in 2019 and $3.6 million in the previous year quarter. This year's net loss is the lowest since our IPO and shows our commitment to be as efficient as possible in order to get us to breakeven as soon as we can.

[Larry Jasinski:]

Thank you, Ori. I'd like to start by further discussing the developments of coverage in Germany. We now have 6 active contracts in Germany. The DGUV covers essentially all individuals for work-related accidents. We have public and private insurers covering 25.3 million lives, and we expect that coverage to reach as many as an additional 35 million more lives in 2021, with the new contracts currently under discussion. Our next focus for these contracts will be on improving effective implementation through all aspects of the supply chain of the insurers. These insurers are still learning how to manage these detailed contracts and have had to adjust with the pandemic interrupting the flow. We have found the communication through the individual insurers organization is taking some time. We have also observed the supporting groups for medical assessment would benefit from further training and information on the standards for the selection of ReWalk candidates. Our efforts in 2021 will focus on basic factors that strengthen the performance of these contracts. These will include tactics, such as increased case manager communication, additional materials via secure online support, increased follow-up training on patients to ensure they achieve high skill levels and in providing more published information in areas such as bone density to help guide assessments. Additionally, we are eager for the return in 2021 of German industry events, such as REHACARE, which traditionally provide a significant generation of ReWalk candidates to our pipeline. The short-term U.S. growth will be based on VA activity and a focus on workers' compensation issues. Longer-term growth will be driven by a pursuit of CMS coverage pathway at a local or national level. The VA centers will begin to be more active as the COVID vaccine is more widely implemented.

[Operator:]

Our first question from the line of Swayampakula Ramakanth from of H.C. Wainwright.

[Swayampakula Ramakanth:]

This is RK from H.C. Wainwright. Larry, within your 2021 milestones, one of the first things you talked about was the German court ruling for direct/, indirect compensation for exoskeleton use. Can you expand on this a little bit? What is the real court case? And as you said, if it is direct compensation, then it's going to be better, obviously. But just like to understand what's the premise for this court case and how does it impact your relationship with the different payers in Germany.

[Larry Jasinski:]

Certainly. Well, this particular court case is with the Federal Court. And in the German system, comparative to the Supreme Court, the United States almost, there are multiple levels. This is the highest level court in the country for determining social decisions. To date, most of the decisions that have been made on exoskeletons, or ReWalk in particular, have been done at the lower level social courts, and there are roughly 30 pending cases still in the social courts. This case was advanced by one of the larger insurers in Germany through the highest court, I think, in part to achieve a decision from the highest court that will define things for all of the lower courts. The specific case parameters, I don't know that I can discuss, even though I'm well aware of them. It's a very favorable case, we think, as does our counsel, but the ruling as a direct compensation basically would eliminate any of the other challenges to the use of this product. Direct compensation is meaning does a ReWalk or an exoskeleton in general provide an ability to walk that you cannot otherwise get. If it were considered indirect compensation, it would suggest you could go back to a wheelchair. So our expectations, this is an easy one to document. We know the specific case is a favorable one in terms of how well it works for the individual, and that court decision has been in process for about 1.5 years and is forecast in midyear this year.

[Swayampakula Ramakanth:]

Okay. And then you stated that there are about 84 pending cases in Germany, and you're expecting implementation of some of those in 2021. Does the court case decision -- do these -- basically, do these 84 cases wait on the decision from the court case or they will be working independently off the court case?

[Larry Jasinski:]

Most of those are independent of the court case. The insurers have been processing. Our limitation has actually been more COVID-related there. The only cases affected by the court decision are the approximately 30 specific court cases that exist. The others are falling under the contracts and have been being followed by both ReWalk and the insurers.

[Ori Gon:]

And just to add to this point, RK, one thing. Out of the 84, so there was about 30 in cases -- in cold cases. We have 20 either in a rental -- active rental as of the end of the year, I'm talking about, or pending decision, meaning that they completed the rental and are still awaiting a final decision. And the rest is ongoing cases in the reimbursement process, basically.

[Swayampakula Ramakanth:]

Okay. One last question on the German insurance. You stated, potentially, you will have like 60 million lives under contract once you have all the 6 different -- not only the current 6, but also the additional 2. So of the 60 million lives, what is generally the potential candidates that can or could use an exoskeleton?

[Larry Jasinski:]

Well, we have published our estimates of the German market a few times, so your German population data is not quite as precise as the U.S. due to privacy laws. But approximately 60,000 to 80,000 Germans have a spinal cord injury, and approximately 1/3 of those would meet all the inclusion criteria. So your potential market is fairly significant there in the 20,000 to 26,000 range. I think that market is accessed over time and depends on the health of the individual patients, so it will continue to be a smaller number. But on the whole from a top down, it's a significant number that we see as part of the potential growth for this industry over the coming years as these become a standard of care for all users.

[Swayampakula Ramakanth:]

Yes, yes. I certainly can see that. And then on the HCPCS code that you received in 2020, I'm sorry, I know you made some remarks about how you would be commercializing based on the code. Could you just highlight some of your comments again, please? I'm sorry about that.

[Larry Jasinski:]

No. That's okay. Well, most of our U.S. focus in 2021 will continue to be on the VA as we now see the centers getting vaccinated, and we believe they'll open up. So we have a number of candidates that we'll try to pass forward with the VA and with workman's compensation on a case-by-case basis. Regarding the HCPCS code, we can use that for applications. Our primary short-term focus is getting and completing all of the major data elements that we believe are most needed to support coverage decisions as a policy. So from a revenue end, most of our prosecution of cases is outside of the HCPCS code, although some people can apply using the code at this point. And our real work with CMS is to present a very strong database for coverage. And the variable for us the most is the timing of a few of those components and specifically the VA when we can gain access to that data and include it. We believe it strongly improves and strengthens our position. We'd have 2 randomized clinical trials that we could cite. One's already published. And the other one, we think, with the vaccine, will get to moving again in terms of getting the data analyzed. But that is the real driver. Data will drive our results with CMS more than any other factor at this point.

[Operator:]

[Larry Jasinski:]

So operator, I think we are set then if there's no further questions at this time. I would ask anyone to please refer to our website for information if they are looking for any elements from this call or to reach us through Investor Relations, so we can answer questions that anybody may have. So thank you for joining us, and we appreciate the interest and time you've invested in ReWalk today. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.