ReWalk Robotics Ltd.
Q2 2018 Earnings Call Transcript

Published: 14 Aug 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the second quarter 2018 ReWalk Robotics Ltd. earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, turn the call over to Lisa Wilson, Investor Relations for ReWalk Robotics. Ma'am, you may begin.

[Lisa Wilson:]

Thank you, Joelle. Good morning and welcome to ReWalk Robotics second quarter 2018 earnings call. This is Lisa Wilson of In-Site Communications, Investor Relations for ReWalk. With me on today's call are Larry Jasinski, Chief Executive Officer, and Ori Gon, Chief Financial Officer of ReWalk. This morning, the company issued a press release detailing financial results for the three months ended June 31, 2018. This can be accessed through the Investor Relations section of the ReWalk website at rewalk.com and you can also access the webcast of this call from there. Before we get started, I would like to remind everyone that any statements made on today's conference call that express the beliefs, 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. 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 for the next two weeks. You'll find the dial-in information in today's press release. The archived webcast will be for one year on company's website, rewalk.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 14, 2018. 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, Lisa. Good morning, everyone, and thank you for joining us. In Q2, ReWalk has continued to make progress on our key strategic objectives. I'd like to outline the status of each, provide some background and Ori will then provide our financial results. Our ongoing and primary objectives for the quarter were, one, financial management of the business; two, securing reimbursement coverage to drive the business; three, expansion to a second major product group with the ReStore system; four, geographic expansion to China. First, financial management includes sales growth, expense management and capital for operations. During the second quarter, we placed 21 ReWalk units, generating total revenue of $1.8 million, up sequentially from the prior quarter. Our guidance for the year is now expected to be at the lower end of the range of $9 to $11 million. Anticipated year-over-year growth is driven by the expanding coverage and access we have seen in Q2. Our expense management efforts in Q1 are starting to be realized and will be reflected in the second half of the year. With respect to our plans to enter China and regarding our plans to augment our capital requirements, we are working to complete our transaction with Timwell to explore ways to reduce our debt and are examining pathways for additional capital. With expanding insurance coverage with ReWalk, the addition of a major new product line in 2019 with ReStore, careful expense management and sufficient capital, we are now solidifying a path to breakeven operations. Second, regarding reimbursement, the definitive result in Q2, with the expansion of coverage via the broader access with the VA based on our efforts over the past 18 months and the establishment of our coverage code in Germany based on our efforts over the past three years, each of these will begin to impact positively our revenue in Q3 and Q4. Third, regarding new product success, we're completing a second major product offering which is advanced to the stage of fully active clinical studies and preparations for both CE and FDA submissions. All five leading centers have now enrolled patients and the study will provide the supporting data for the regulatory submissions in the second half of 2018, allowing for a 2019 launch. Fourth, geographic expansion. In May, our shareholders approved the Timwell investment in a joint venture in China to provide ReWalk and the ReStore to that market. In particular, the stroke market in China has great potential and is a market that we seek to penetrate. The efforts to establish the JV have been extensive, but have not yet been completed. I'd now like to provide greater detail on these four key objectives. As our demand remains strong with 250 pending claims, achieving predictable payer coverage is needed to enable our growth. For Germany, with the MDD code for statutory health insurance and private insurance along with the DGUV guidelines, we now have coverage for approximately 90% of the paralyzed population. With this new code published, we have seen rental approvals increase to 13 approvals between June and August of 2018, up from six approvals in the prior-year period of April to September. We anticipate this will reflect in our sales for Q4. In the United States, the ReWalk exoskeleton has been an approved treatment option for veterans, and so part of the VA's SOP policy since 2015. We haven't seen broad implementation of this policy largely because it has been difficult for eligible veterans to access VA's ReWalk training facilities. With revised policy issued in June, we believe that many of the over 100 veterans we have previously identified, plus many more will be able to access the necessary training. The evaluation process will now have all veterans go through one of 23 designated spinal cord injury VA centers. Once a veteran is determined to be qualified for training and procurement of his or her own exoskeleton systems, the individual may be allowed to pursue training in one of three ways – at the applicable VA hub center, at a qualified VA hospital designated by the VA's hub and spoke program, or any qualified private rehabilitation center through the VA Veterans' Choice program. The choice is one where veterans can receive care from a community provider paid for by the VA. Through the choice program, the number of training sites available for veterans will increase by a factor of six, broadening the geographic coverage to include any of the 137 ReWalk certified private or VA centers across the US. Of course, these individuals will need to be evaluated and screened again over the coming months, but we are optimistic that many of them will be able to finally take advantage of the SOP just as retired Marine Captain Derek Herrera has. Captain Herrera who sustained his injury while conducting a combat mission in Afghanistan in 2012 was the first American to obtain a ReWalk Personal 5.0 system in 2014 following FDA clearance. This year, he worked with his local VA hospital to obtain a second ReWalk device, the ReWalk Personal 6.0. His continued usage is an example of how these devices become not only an important part of people's lives, but also an important part of managing their health. We anticipate that many ReWalkers will opt for new devices every few years as they do with wheelchairs and other assistive equipment. For US case-by-case authorizations, we have previously outlined that we have transitioned all claims from a provider-based appeal process to a patient-based appeal process due to the guarantees within the Affordable Care Act. This change in process was because of shorter timing and a defined process. The initial results are encouraging as we've already had three claims that have been approved in a much shorter cycle and anticipate an increased clearance level in Q4. For US coverage policies, we had outlined a regional effort to make 50 policy applications in 2018. We made 21 applications to date and do not yet have a final coverage policy accepted. The engagement has allowed us to educate payers and we have four of the applications with ongoing discussions. We'll continue our submissions to insurers and look forward to updating you in due course. Our expansion in China is based on the sizable opportunity we see in that market. We are committed to completing the establishment of the JV with Timwell, Ambrum RealCan. However, due to the different jurisdictions involved, continued dialogue on certain commercial points and certain technical administrative delays, the company and Timwell continue to work through and negotiate the other conditions to establish the joint venture. As a major strategic opportunity for our business, we have identified the soft exo-suit technology as a disruptive and unique advance for stroke patients. In Q2, we made meaningful strides to enhance our ReStore program for stroke patients. All five research institutes participating in the multicenter clinical study are now actively enrolling patients. There are six subjects already enrolled. Another 15 screened and we anticipate completing enrollment with 40 subjects within the next few months. Regulatory submissions will follow, and pending timing and receipt of CE Mark and FDA clearance, we anticipate having the product in the market in mid-2019. We've also begun a production setup in anticipation of the clearance. As a wrap-up, I'd like to share the story of another remarkable young man, Todd Reigelsperger. And as of July, Todd completed 550,000 steps or 275 miles of ReWalking after just two years of having his own ReWalk exoskeleton. ReWalkers can do remarkable things with the assistance of our technology and we're committed to making it accessible for all of those who are eligible. To close, the company has made meaningful progress in our key strategic objectives for financial management, reimbursement coverage, product development, and geographic expansion, which all support the long-term goals and opportunity for the company. With that, I'll turn the call over to Ori to review our second quarter 2018 financial results.

[Ori Gon:]

Thanks, Larry. Q2 revenue was $1.8 million, up sequentially from $1.6 million in Q1. This reflects placements of 21 units – 13 units were placed in the US and 8 were in our direct markets in Europe. During the quarter, we had 8 new rent-to-purchase units placed and 8 previously rented units convert to a purchase. We currently have 21 open trials in the pipeline, including 11 active rentals and 10 claims that have completed the trial period and are awaiting a final insurance decision. The present conversion rate is approximately 60% globally and we expect it to reach 70% to 80% as we scale up the rent-to-purchase model. As of the end of the second quarter of 2018, we had 250 pending insurance claims relating to coverage for ReWalk, compared to 217 at the same time last year, reflecting an increase of 33 claims. This represents approximately $18 million in potential revenue. Gross margin was 43% during the second quarter of 2018 compared to 37% in the prior-year quarter. This increase is driven by sales mix and lower product costs, reflecting our commitment to improve our margin. Total operating expenses for the quarter slightly decreased to $6 million compared to $6.1 million in the prior-year quarter. The current operating expenses include costs related to our market development efforts in China of $385,000. We remain committed to reducing our year-over-year ongoing operating expenses by up to 10%. Net loss for the second quarter was $5.8 million compared to a net loss of $6.3 million in the second quarter of 2017. Our non-GAAP net loss was $4.7 million during the second quarter of 2018 compared to a non-GAAP net loss of $4.9 million in the prior-year quarter. We ended the quarter with $9.1 million in cash. With that, I'd like to open the call for questions. Operator, please go ahead with the instructions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Steven Lichtman with Oppenheimer. Your line is now open.

[Unidentified Analyst:]

Hi, Larry and Ori. This is Jiang [ph] for Steve. You updated guidance points to – your updated guidance points to the lower end of the range. And it does imply a better second half than first half. On the call, you mentioned a couple of the drivers for that better second half. One is the expansion of coverage with VA; and second one, the establishment of coverage code in Germany. So, could you provide some more comments around that, what you're seeing as to the implementation of the revised VA policy as well as the reimbursement in Germany? And also, the second part of the question, with regards to the updated guidance, you said in the press release, depending on timing of reimbursement coverage, could you just clarify what you're referring you to by that? Thanks.

[Larry Jasinski:]

Thank you, Jiang. I think Ori and I can both comment. Broadly, the coverage in Germany is the one I'd cover first because it occurred first, so we have a little more runway on that. What we have seen is a significant change in the process of acceptance of appeals because there's defined processes. As I mentioned, we'd seen 13 in just the few weeks this has been done compared to six months and a longer period prior year. We also anticipate being able to take many prior claims and bring them back in. So, when we look at our specific expectations, the strongest driver we have with already track record established is here in Germany. With the VA, the policy is a little more recent, but we've already seen – particularly a couple of the spoke centers that have come through and said, okay, we've been wanting to train, ready to train and we know where these individuals are. So, we believe we're going to be able to move a number of those forward. Ori, I would ask you to also comment.

[Ori Gon:]

Yeah. About the VA, we have over 100 veterans in our database About which we have approached and are planning to assist them through the process of the evaluation, training and site selection. So, I think this is a significant pool to start walking with. obviously, there are many more. On the number of claims in Europe, we have 139 pending claims only in Europe. Now, with the new process, we expect the process of approval to be shortened. So, this will make it easier for us to convert from the rent to the extra sale. So, those are, I believe, the main two factors for the second half of the year.

[Unidentified Analyst:]

Okay, great. And congratulations on the improvements on reimbursement. Second question is, you mentioned the retired Marine captain who was able to obtain a ReWalk 6.0 after having been using the 5.0. And then, you also talked about maybe an upgrade cycle potentially every few years as patients replace their devices. Can you just talk about how that look and the potential impact on the business as you look out the next several years? Thank you.

[Larry Jasinski:]

Well, first, I'll comment. Apparently, the most important measure to us is that the Captain Herrera – he's now retired Captain Herrera – continues to use it and rely on it on a daily basis. And you're approaching his fifth year with the system. So, he stuck with it. And that's a pattern that's particularly important for us that it's working for him, it's changing his life, it's changing his health. On a macro sense, these devices are designed and built with an expected shelf life of approximately five years. So, whether it's within the VA policy or any other policy, including what we've seen in Germany, that is planned for in our discussions with each of those groups and it's common with things such as wheelchairs and other assistive devices. So, while our sales were not particularly large in 2014, it will really start to impact us as a bit of an annuity of types in the years once we get to 2020, 2021, and so – when we have a good number of users approaching their fourth or fifth year with the device.

[Operator:]

Thank you. [Operator Instructions]. I'm not showing any further questions at this time. I would now like to turn the call back over to Larry Jasinski for any closing remarks.

[Larry Jasinski:]

I'd like to thank everybody for joining us today. And please stay tuned to what we've got going on. We look forward to having future calls with more details on the things we discussed today. Thank you.

[Ori Gon:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a great day.