ReWalk Robotics Ltd.
Q4 2019 Earnings Call Transcript

Published: 21 Feb 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter ReWalk Robotics Ltd Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions].I would now like to hand the conference over to your speaker today, Ori Gon, Chief Financial Officer. Please go ahead sir.

[Ori Gon:]

Thank you, Michelle. Good morning, and welcome to ReWalk Robotics' Fourth Quarter 2019 Earnings Call. This is Ori Gon, ReWalk's Chief Financial Officer and with me on today's call is Larry Jasinski, Chief Executive Officer.This morning the company issued a press release detailing financial results for the three months and full year ended December 31, 2019. 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 statements made on today's conference call that express a belief, expectation, projection, focus, 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.These forward-looking statements are based on information available to ReWalk management as of today, and involve risks and uncertainties, including those noted in this morning's press release and ReWalk's filings with the SEC.Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ReWalk specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.A telephone replay of the call will be available shortly after completion of this call. You will find the dialing information in today's press release. The archived webcast will be available for one year on the company's website at www.rewalk.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on February 20, 2020. Since then ReWalk may have made announcements related to the topics discussed. So please reference the company's most recent press releases and SEC filings.And with that, I'll turn the call over to ReWalk's CEO, Larry Jasinski.

[Larry Jasinski:]

Thank you, Ori. Good morning everyone and thank you for joining us today. The fourth quarter was primarily defined by three elements. Working with insurers on the detailed contracts for the broad supply of ReWalk spinal cord injury system in Germany starting in 2020, trial use and experience with a range of ReStore stroke clinical centers and preparation for the pursuit of a Medicare code in the United States. We have previously published our Q4 financial results in our recent S1 filings and noted that sales remain level with Q3 at $1.2 million and we placed 15 Rewalk personal and 10 ReStore systems. This is compared to 12 Rewalks and 5 ReStores placed in the third quarter. The increased placements in Q4 were primarily rentals where we expect the majority to convert to full sales in 2020.Sales were impacted in part by German insurers that preferred the whole ReWalk SEI purchases until their contracts were actively implemented and by the timing of capital acquisition cycle for the ReStore.Q4 2019 completed many processes that we believe are essential drivers for 2020 growth. There are five specific areas of activity that occurred in Q4. One, completion of the final details for German contracts with insurers to establish the implementation procedures to allow coverage of German spinal cord injury population. We have five groups where we completed final details of the contracts late in Q4. Two of these have been signed and the others are expected to be completed during Q1. Public announcements will occur when allowed and as each group completes their internal processes on educating and notifying their organization.This is the first step in providing broad coverage for qualified members of the paralyzed German population who wish to walk again in everyday life. It has meaningful leadership by German society as an example for the rest of the world to follow. Two, the U.S. VA randomized trial that studies community use of the ReWalk personal system compared to a group that uses wheelchairs only is nearing completion. They have stopped recruiting and have the last patients identified to complete enrollment. They anticipate completing the study around mid-year 2023.Three, in December we submitted an application for U.S. CMS Healthcare Common Procedure Coding System generally known as HCPCS Code. These codes are commonly used for billing with Medicare and Medicaid along with private insurers. As the supporting medical data has significantly expanded the advent of coverage in Germany and other EU countries and as the VA publishes the results of the ReWalk wheelchair randomized study, we believe a solid basic exist the creation of a distinct code. The goal is to establish this for the category of exoskeletal devices. More than half of the target market for ReWalk [indiscernible] relies on Medicare/ Medicaid and this would start the process of increasing access for those individuals.Fourth, the ReWalk ReStore system has gained experience with the first 60 minutes place through Q4 in parallel a meaningful pipeline has been established as we continue to build the market. The stores value and attracting patients back into the clinic was seen in a recent session with a patient 16 years post-stroke who walked with a rigid AFO.Following a single gate training session to ReStore the patient called the clinic to tell them how much you'd like to work in the device an indicated that he felt his ankle status was still improved on the following day. Similarly a recent case study was presented at the 2019 American Society of Neuro Rehabilitation Conference that compared the results of Exo-Suit assisted gate training to the results of traditional training with a crossover study design. In the Exo-Suit assisted training significant improvements were observed in the patient's walking speed, walking distance and stride length with a measured 10.52% increase in paretic propulsion symmetry.During traditional training smaller improvements were observed in the patient's walking speed and distance with a measured 9.18% decrease in propulsion symmetry suggesting that the traditional approach did not succeed in retraining compared to a more biological propulsion based walking strategy. A broader study is now underway at several U.S. Clinics. No other design or product enables the retraining of paretic propulsion which is a key element of a normal gate pattern which improves the speed, distance and efficiency of walking.And fifth, the expansion of the sales and field team during Q3 and Q4 we increase the size of our direct supporting field team by over 33%. Importantly we were able to recruit individuals with 10 or more years of extensive stroke, rehabilitation and capital equipment selling experience. All are on board as of January 1, 2020.Our progress in each of these five areas were key strategic elements for the development of these new markets allowing payment and access to these technologies. For ReWalk they're their pathway to initiate growth for the company in 2020 and beyond.I'd like to turn the call of the Ori for financial reviews. Ori?

[Ori Gon:]

Thanks Larry. Our Q4 revenue was $1.2 million with the following speeds by product and geography. 15 ReWalk personal devices place of which 11 were in Europe and four in the U.S. We placed 10 ReStore devices of which seven were in the U.S. and three in Europe. For the year our total revenue was $4.9 million with 54 ReWalk personal units place generating $4.7 million of revenue and 16 ReStore devices placed generating $200,000 of revenue.Zooming into our ReStore placement this year out of the 16 units placed 6 units were sold and 10 were rented as part of a trial period. On the SCI side we had 8 new rental purchase units placed and 4 previously rented units convert to a purchase during the fourth quarter. At the end of the year we had 14 active SCI rentals in addition to the 10 ReStore trial that I mentioned before. This rental pipeline represents $1.7 million in revenue. Our total number of SCI pending insurance cases was 145 at the end of the year with 105 of them in German and 40 in the U.S.Turning to a gross margin. In the fourth quarter our margin was 61% and our yearly margin was 56%. This is compared to 39% in the prior year quarter and 43% for 2018. These 13% increase year-over-year is due to our ReWalk personnel 6.0 increased average selling price from an average of $77,000 to $87,000 and also due to the fact that this year we did not have any significant inventory write-off related to our older rehab units.Another aspect where we show constant improvement is our operating expenses which were $3.9 million in the fourth quarter and $16.8 million for the year compared to $4.6 million in the prior year quarter and $22 million in 2018. This $5.2 million reduction or 24% year-over-year it's split between each of our operating segments. R&D in 2019 we had lower spend as we completed most of restored development and regulatory activities in 2018. Sales and marketing in 2019 we have reduced our consulting spend and shifted our headcount resources to direct sales personnel. G&A, the decrease here is mainly due to lower share based compensation and overall expenses related to employee spend.As mentioned by Larry when we look at 2020 the one area we plan to grow operating spending is the sales and marketing segment. As we now have two products ready to be sold and therefore we have chosen to increase our headcount.To recap our result, net loss for the fourth quarter was $3.6 million compared to a net loss of $5 million in the fourth quarter 2018. Full year 2019 net loss was $15.5 million compared to a net loss of $21.7 in 2018. Our non-GAAP net loss for the fourth quarter of 2019 was $3.2 million compared to a non-GAAP net loss of $3.8 million in the prior year quarter. 2019 full-year non-GAAP net loss was $14 million compared to a non-GAAP net loss of $17.6 million in 2018.We ended the year with $16.2 million in cash and in February 2020 we raised an additional $7 million in gross proceeds from the sales of ReWalk stock. With this cash on hand we plan to continue executing on our 2020 objectives.With that I'd like to turn the call back to Larry for some final remarks.

[Larry Jasinski:]

Thank you Ori. I'd like to further discuss the development of coverage in Germany. In the period since the code was established by the German authorities we have shifted to establishing detailed and wide-ranging contracts with the public and private insurers with the endpoint of achieving near universal coverage for spinal cord injury community. The contracts that we expect to announce in Q1 and Q2 include detailed definition of the patient's qualified, the process for trial use, training programs to be able to take one home, provision requirements for direct supply, pricing programs, service programs for five years and provision of replacement systems or provision of a new user in the event that the original person can no longer use the system.As each insurer completes their internal training with management and case managers we will publicize the status as it occurred or as allowed by each group. We believe this established process will allow the referring medical community in understanding of how the coverage works if they wish to prescribe a ReWalk for their patients. They no longer have to deal with uncertainty of supply if the patient meets the qualifications and wants to walk again. It has clearer timelines that will allow their process to occur over three to nine months rather than facing years in an unstructured process.It will finally allow the development of this market. The VA study has successfully attracted the targeted number of 160 patients and the clinical use and follow-up portion study is expected to conclude by about mid-year. The randomized study that is exclusively a comparison of the ReWalk system has an added element of daily life to the experience of a person without exoskeletal walking will provide the first level one evidence for the following primary measured quality of life parameters, improved bowel management, improved bladder management, pain interference or reduction, mental health.The secondary outcome measure is body fatness. This study will also show the safety of using the device in a home environment. Once published it will become a leading force in conjunction with the extensive publications of the past five years. In the short term ReWalk will seek to provide systems to patients who want the system who completed the study along with pursuing the three patients per month on average that had been enrolling in the study over the past four years. We have developed an expanded training program for the VA and added sales staff to provide broader and more comprehensive coverage in 2020.Growth for the ReStore is a function of time, data and understanding. The experience and data to date supports the impact of propulsion via plantarflexion. A publication offered by the principle investigators from all five study sites summarizing the preliminary results from the store clinical trial is in the peer review process for potential publication. There is also a white paper on clinical proficiency guidelines and recommendations that we published shortly. New studies and process include the comparison Exo-Suit gate training to traditional gate training being done at several U.S. clinics.The University of Tennessee has gained funding for a larger scale study with patients from the VA in comparing long-term effects of the ReStore compared to traditional ankle-foot orthosis treatments commonly known as AFOs. To aid with market education we are presenting webinars, training videos and other materials as needed and from a business development initiatives we are currently exploring national contracts for trials and broader uses with several of the U.S.-based rehab chains. This technology appears to fit well with our stated goals.And to close operationally and financially our four primary goals are; one, in 2020 we expect to achieve sales growth each quarter off the base of $1.2 million in Q4, 2019. We expect the growth rate will expand as our large field team gains traction as contracts are implemented in Germany and in the United States and as ReStore has a full year of commercialization and in parallel as data continues to flow into the market and the function and value of our products.Second goal, we expect that 2020 operating cost will be kept level with 2018 with a focus on commercialization activities. Third goal, for 2020 we expect gross margin to remain around 50% overall depending on the mix between ReWalk personal and ReStore sales and fourth, we expect to have reduced our debt to approximately $1.5 million by year-end.We believe that the combination of these factors will reduce our cash requirements and improve our financial position. A decision on the Medicare code will be established around mid-year 2020 and if positive we intend to move on to the next step of pricing discussions. In late 2020 or early 2021 we expect the VA randomized clinical study results will be published and we expect the ReStore will have gained meaningful traction.All of these factors are key market development events that have taken many years to achieve but they match the vision and the dreams for this company. Thank you for the time and interest today. At this stage I'd like to turn the call over to questions. Operator if you could please proceed with the instructions and we'll answer everything we can.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Your line is open. Please go ahead.

[Swayampakula Ramakanth:]

Thank you. Good morning Larry and good afternoon Ori. A couple of quick questions. So to start off what's the total number of eligible lives or eligible patients under the insurers in Germany that you expect to come on board in 2020?

[Larry Jasinski:]

Well, the eligible lives with all of the contracts would essentially give us universal coverage. We would cover if all the contracts are completed on the one side about 80 million of the 83 million German citizens and one of the other parts about the majority of the German citizens. So it's between public and private. So it's going to be very broad coverage once everything is in place.

[Swayampakula Ramakanth:]

Okay. Maybe I should have asked the question a little bit differently. In terms of the patients who will be eligible to use the device so that's -- what's the total number that these insurers would cover so that we have an idea?

[Larry Jasinski:]

Well, it vary by groups and timing. Specifically there are roughly 80,000 injured spinal cord people in Germany and the majority of those -- vast majority of those would have rights for coverage. Of those 80,000 by the time you look at all inclusion exclusion criteria and everything qualification that number comes down to about 8,000 or about 10% of the pool. So that's the available pool and the majority of that pool if it's a work-related injury probably almost all of them are covered. If it's a private injury, the majority would be covered. Is that more specific enough to cover your answer?

[Swayampakula Ramakanth:]

Yes. That's good.

[Larry Jasinski:]

Okay.

[Swayampakula Ramakanth:]

And then regarding the VA study. Congratulations on getting that study almost to completion. Do you have any idea in what formats the VA will be publishing some of the results that you expect, I think you said the third quarter or in maybe second half of 2020?

[Larry Jasinski:]

Well, first one of the best things about the study it's completely independent from our company and I think that helps with the credibility and it was obviously very well resourced by the VA and also give them credit. They have actually finished the study exactly on time. They accrued at the rate they said they would. So we didn't have a lot of control about that other than providing it. Relative to publishing the same is true. The overall administrative group that is charged with doing all the follow-up work estimates they finish the follow-up of now that they have all the patients roughly mid-year. So your publication cycle falls somewhere after that. That's why we said late this year, early next year but that is a government decision when they decide to publish as we're [obliged] in every way to the data and the information.

[Swayampakula Ramakanth:]

Okay. So one last question from me. Based on the agreement that you have with the VA, what sort of VA patients should we expect in terms of adoption for the device?

[Larry Jasinski:]

Well, the study fortunately very much matched our FDA inclusion criteria. So it doesn't narrow us in any way from what we actually have been trying to market just have not really had the support yet for sales that we are now seeing as we go forward in Germany and as the VA did in the study. It's really our main question as how aggressive they are now that the study is essentially complete in bringing the rest of the patients on and opening more centers because you were somewhat limited around to 10 centers around the U.S. they never really effectively broadened that even though they made some efforts to do so. For the most part there were not that many centers available for t-- so they should grow substantially. We're seeing a different approach now that we're talking to some of the sites. There's a study approved side is complete. So we're seeing more receptiveness from some centers that were not in this study. So we're optimistic there.

[Swayampakula Ramakanth:]

Thank you. That's all for me now.

[Larry Jasinski:]

Okay. Thank you.

[Ori Gon:]

Thanks.

[Operator:]

Thank you. [Operator Instructions] I'm showing no further questions at this time and I would like to turn the conference back over to Larry Jasinski for any further remarks.

[Larry Jasinski:]

Thank You Michelle. For everybody who joined us today and everybody who listened to this broadcast we're very appreciative of their time and interest and optimistic about where this industry is going. So if you have other questions along the way please feel free to reach to the company directly with either Ori Gon or myself. Stay tuned for the publications as they come out and have a great day. Thank you everyone.

[Operator:]

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.