ReWalk Robotics Ltd.
Q2 2017 Earnings Call Transcript
Published:
- Operator:
- Good morning, ladies and gentlemen, and welcome to the Second Quarter 2017 ReWalk Robotics Ltd. Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ilanit Allen.
- Ilanit Allen:
- Thank you, Matt. Good morning and welcome to ReWalk Robotics Second Quarter 2017 Earnings Call. This is Ilanit Allen of In-Site Communications, Investor Relations for ReWalk. With me on today’s call are Larry Jasinski, Chief Executive Officer; and Kevin Hershberger, Chief Financial Officer of ReWalk. This morning, the company issued a press release detailing financial results for the three months ended June 30, 2017. 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 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. 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 available for one year on the 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 3, 2017. 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’d like to turn the call over to ReWalk’s CEO, Larry Jasinski.
- Larry Jasinski:
- Thank you, Ilanit. Good morning, everyone and thank you for joining us. We had another strong quarter with 31 ReWalk systems placed, generating $2 million in revenue. And we’ve made meaningful progress advancing our key initiatives including insurance reimbursement coverage for the ReWalk personal device, expanding our global footprint and progressing our innovative soft suit exoskeleton technology designed for individual with stroke. I’d like to highlight several key developments during the second quarter. I’ll begin with an update on reimbursement. We continue to make progress with commercial payers securing 11 positive case-by-case coverage decisions during the period. To date 35 separate insurance carriers have provided coverage for ReWalk systems in the United States. Our pipeline has expanded to 217 pending insurance claims, which represent over $15 million of potential sales. With nearly 400 systems placed around the world, we believe the acceptance of the technology is becoming mainstream. Securing regional and national coverage policies in the U.S. and Germany is a key strategic goal for ReWalk, one that we are vigorously pursuing. During the quarter, we completed a comprehensive policy review submission with a large commercial payer in the U.S. The policy review focus heavily on an evidence based medicine methodology. In the defined higher key of medical evidence the data provided meets to 1A and 1B level of proof. the information provided included
- Kevin Hershberger:
- Thanks, Larry. Q2 revenue was $2 million compared to $800,000 in the prior year quarter, and included 11 favorable commercial coverage decisions, five in the US and six in Germany. We placed a total of 31 units, of which 17 were in the US, including eight for the VA study and one for the veteran under the SOP. 11 were in our direct markets in Europe, and three in other markets. During the quarter, we had 11 new rented purchase units placed, and six previously rented units convert. We currently have 31 open trials, including 25 active rentals, and six claims that have completed their trial period and are waiting a final insurance decision. Gross margin improved to 37% for Q2 versus 10% in the prior-year period, driven by the increase in volume, conversion of rental units and lower product costs. Total operating expenses for the quarter were $6.1 million compared to $8.7 million in the prior year period. The reduction reflects our initiatives to reduce spending announced earlier this year, and a one-time R&D charge recorded in Q2 2016 related to the licensing agreement with the Wyss Institute at Harvard University. Net loss for the quarter was $6.3 million compared to a net loss of $9.1 million in the second quarter of 2016. And finally, we ended Q2 with $16.3 million in cash. During the quarter, we effectively utilized our ATM equity program, managed our operating expenses and worked with Kreos Capital on our credit facility to strengthen our balance sheet, as we continue to focus on our critical milestones. With that, I’d like to open the call for questions. Operator, please go ahead with the instructions.
- Operator:
- [Operator Instructions] Your first question comes from the line of Matt O’Brien with Piper Jaffray. Your line is open.
- Jonathan Preston McKim:
- Hi, good afternoon. This is J.P. on for Matt. Thanks for taking my questions this morning. I wanted to first start with the restore system. How do you think about commercializing that? Have you, do you want to give any details on the price points and gross margin there? Do you think you’re going to hire additional reps? How quickly you can you ramp up manufacturing, things like that?
- Larry Jasinski:
- Okay. This is Larry. J.P., thank you for joining us this morning. [Indiscernible] how we are looking at commercialization. We haven’t established a final price point, but we’ve given it a great deal of thought so far. And it will be a magnitude quite a bit less than the exoskeleton used for spinal cord injury, for example, because it’s a less complex product. So we would expect it would be somewhere well under half or closer to a third perhaps of the price of those, but let’s see what the market teaches us little bit. We do believe, it would be able to give what we would consider medical device margins in the 60%, 65% range as we have volume, so that’s an important component as we finish production and have a good control of that. But the key for pricing in this is we believe the initial placement of the product will be something that can be profitable to a center. In other words, they buy the unit as capital equipment. But the reimbursement codes that they can already use in rehab centers will be sufficient to cover their cost and they will have some level of reduced labor we believe involved in this as well. So this is going to be a very different component, as we can go into these centers and present this product as something that is not only great for their patients, but additive for them from a financial point of view. As to how we are going to do this, I’ll break it into two. Functionality, in the field this fits well with our existing sales force, our existing trainers, who already go into many of these centers. So we will be able to leverage our existing reps and we will add reps as revenue grows. But we can build on the infrastructure that the company has already developed. And then last, on the manufacturing, we are going to continue a philosophy that has worked very well for us. We already have our OEM manufacturer, setting the production lineup. We will do the study with our first commercial build, which is starting literally almost immediately in next few days. So we have got all the pieces in play for the plan that we’re really set up about a year and a half ago.
- Jonathan Preston McKim:
- And how do you think about the kind of suit per rehab stroke center opportunity right? Like I assume since it’s reimbursable and this code is already in place, that some of these centers that are at higher-volume ones can be buying multiples of these kind of soft suits. And then is there an option if the patient needs it or wants it that you can sell it to them and they can take it home? Or is it just going to be more of the rehab typesetting?
- Larry Jasinski:
- Well, the answers to both of those -- the timing. The physicians that have come and looked at the product as we did a lot of work with that in Q2, would be -- have indicated they would use it in multiple patients and multiple areas. So yes, I think each center will buy several suits. The bigger centers will buy more, though the smaller centers may only buy a few. So there is a good component with it there. And does that answer your key question?
- Jonathan Preston McKim:
- Yes. And then if the patient wants to purchase it outright for home use? Is that ...
- Larry Jasinski:
- Yes, the initiate labels indication will be for rehab centers. But we do believe, it could have an application for home use and will, and that will be a second label indication we will pursue.
- Jonathan Preston McKim:
- And then one last question for me on the VA side of things. Is there in terms of getting access to training, I guess it appears to be a bottleneck right now. Is there any way you can partner with the VA and you can train the people maybe at home or certain [incoming] familiar veterans to non-VA rehab centers to kind of ramp up the nonclinical study side of the VA?
- Larry Jasinski:
- Oh, we worked very hard with the VA to provide as much support as they will accept. I think, but that’s important in many centers are looking to do it, but they just haven’t done the resourcing at this point. We are not a clinical provider. We can teach people on how to train, and we can assist them somewhat, but we don’t directly do the training in our organization. So that is something that really belongs in the clinic. The reality is there is many, many good VAs that would like to train but the national policy just haven’t expanded at this pace that individual VAs would like. And the other one is, there is a program within the VA called Choice program, where they will allow patients to train at qualified centers. And I will pick a specific city as an example, Denver presently doesn’t have a VA that can do the training, but one of the best private centers in the United States right there in Denver, that if they can allow those patients to go over there to get trained, they wouldn’t have to simply wait. So this type of program is something that we have gotten favorable reaction from some members in the VA as well as on Capitol Hill. And I think, it is going to be actively considered, and we’re going to continue to advocate for it.
- Operator:
- Your next question comes from the line of Kyle Rose with Canaccord. Your line is open.
- Kyle Rose:
- Great, thanks for taking the question. Can you hear me all right?
- Larry Jasinski:
- Good morning.
- Kyle Rose:
- Good morning. So I wanted to follow-up on the stroke question quickly. You talked about the first iteration of the product. It sounds like the launch in 2018 will be that rehabilitation centers focused. And then near longer term you will pursue a label for personal use. Can you give us your expectations on timing for when we may see a personal device approved? And then secondly, how do you envision the I guess the cadence or the commercialization of the stroke products into the rehabilitation market over the course of the next 18 months?
- Larry Jasinski:
- The timing we’ve lined up primarily for the rehab but the expectation is the products to the rehab essentially is going to be the same or very, very similar to the one that would be used at home. The only difference will be sizing. We can size specific it or we don’t have to provide as many foot plates or components for a home device. So what will really define the timing on the personal units will be the FDA trial. And we’ve not yet had a meeting with the FDA on what they will require. We believe that the risk factors for this are relatively low. So there will be a moderate number of patients with I think reasonable follow up. But I can’t give you timing until I think after we’ve have met with the FDA on that specific study. Our focus right now has been on the rehab study so far. The cadence on this over time, we believe the restore program is really a foundation for us. Just like the SCI product, that ReWalk is a foundation for spinal cord injury, this is going to wind up for many applications. And it’s a question of how quickly we can get the labeling for the various indications and how many iterations of the device. In the 18-month cycle, you will primarily see the stroke product and began to see our efforts in MS and other areas. But from a revenue point of view, I think, that’s probably where your question is, the bulk of our expansion will be in the rehab centers currently for the first year. We’ll get to the personal units behind it, but I believe you will see a move towards MS and other applications pretty quickly as well.
- Kyle Rose:
- Okay. I guess, is it fair to expect you have a similar commercialization pattern into the centers from a rehab perspective that we saw with the rehab unit, when it launched for spinal cord or for the SCI patients. I’m just trying to understand over the course of 2018, as you start launching into those centers, how we should think about the cadence revenues?
- Kevin Hershberger:
- This as Kevin. I mean, I will start off here, I think, we would expect to see a more rapid adoption of this product. I mean, this is really something that is an unmet need out there as the ReWalk was. But this is a much smaller device that they can get on and off of the stroke patients and get them up and get them walking much quicker. I mean, one of the things that Larry noted in his remarks earlier, is that one of the feedback and it’s really an important feedback that we got from a physician, is that they were able to modify the walking pattern and walking speed for a patient in a realtime setting, while they were using the device, as we were working with the physician to preview the device. So I think it really gives the centers a lot of opportunity to get in and provide a better treatment. And as Larry noted, I mean, it’s also economically advantageous to the center because they have existing reimbursement. And this also allows them to reduce staffing or treat more patients in a certain period of time.
- Larry Jasinski:
- And I’ll add to that, the things that make it easier for us to have a faster penetration, our internal structure of the team that took a lot of time to build, to have a service and training and sales team, that team is in place. The other factors that, I’ll add to what Kevin said, is the number of labs between the U.S. and EU, there is over 4,000 potential sites, that we could go into and provide this technology and that’s a much greater number as spinal cord injury tends to be much more specialized while stroke occurs everywhere. The third one is the number of patients. The number of patients here are dramatically larger than what we saw with the spinal cord injury. And then fourth, as Kevin alluded to the economics, we have a very favorable statement to be able to make at the very beginning when we go into the labs.
- Kyle Rose:
- I appreciate the color there. Then just last question from me, is just business in international markets excluding Europe, in the second quarter we have seen the low volume or I guess no unit volume. I know there were some big orders towards the back half of ‘16. But just wondering how we should think about that for the second half of ‘17, just as far pacing of unit placements from that perspective?
- Larry Jasinski:
- Well, there’s always some ebb and flow. We tend to get some larger orders out of those groups but we can’t always predict their timing. So we have some tenders out there, which can improve fast, and we have some other funding decisions. But it’s reasonable to expect we will have some of them. Unfortunately I can’t give as to when it’s going to come because they can’t tell us entirely.
- Operator:
- Your next question comes from the line of Christian Moore with Jefferies.
- Christian Moore:
- Hi, good morning. And thank you for taking my question. Maybe the first one just on cadence of the VA. Sounded like you’re a little more frustrated than you have been in the past with the uptick of their orders there. What are your expectations for the back half of the year? So understanding that the 28 orders you have done so far for the research unit have all been placed now, so is that zero for the rest of the year? And then do you see any sequential uptick in key units that will be placed?
- Larry Jasinski:
- Well, our expectation there is, again, I will continue to say the research of the VA is fabulous, and there’s a lot of people in the VA that want to place these, they just haven’t supported it well, and we are frustrated with that. But for the back half of the year, the study still echoes a little bit. In other words, the 32 patient that already have a system, some of those are going to convert. So that will pick up some of our numbers in the back half. But many of them are landing in early 2018, depending on the timing. For the patients that entered the study, once they are up and running, it is basically a four months process. So at the end of the four months, they will then come and apply to get it the system for the patients who want it. So that will affect us a little bit in a positive way in the back half of the year. And on the SOP relative to the choice and training and resourcing, there are people in the VA and certainly people in the administration that are saying they want to change this. Now will that wind up affecting us heavily this year? I don’t know. We have these discussions and we have seen veterans being much more active than us, literally going to [the Hill] and other representatives and the VA asking for help. They have been listening to them. And I think at some point the VA will react to them, the VA just moves very slowly. And that is why you hear the frustration from us, because we don’t really want to be the complaint centers for those group of patients. We’d rather just be helping them get the products.
- Christian Moore:
- Great. Thank you. And then maybe one on the backlog progression that you are seeing. I think, it is a strong number of 217 insurance claims pursuing you mentioned over $50 million in the backlog. How many incremental qualified leads were those generated from at the higher level before an insurance claim? If that’s the number you are still tracking?
- Kevin Hershberger:
- We do, I mean -- Christian this is Kevin. We generated in the quarter 183 qualified leads. But you know as we’ve said in the past a lot of those pending claims come from a period of time, so they made day back for a quarter or even two quarters or three quarters to leads that we generated at that point in time. So it is really hard to correlate leads versus leads leading directly into qualified or into pending reimbursement claims. The other thing that is important to note is that as our businesses is growing, we don’t really track, we still track qualified leads but the business is developed to a certain point where we are getting a lot more referrals from physicians and centers. And they do get qualified in the qualified leads number. But they actually run through the process quicker if they come through that process.
- Larry Jasinski:
- I’d add two things, so Christian to think about that. The claims that we have if we get the success that we anticipate the timing to be determined on getting a policy for these, it is going to have two impacts, the 217 or whatever the number will be at the time that are waiting, they will have a quicker path. So that will lower the lag time or the waiting time for those individuals which will decrease some of our numbers at one level. But, I really believe that we’re going to see an increase overall in numbers, because something else is going to change. We have a lot of positions and a lot of individuals that don’t even enter the process right now, because until they believe they can get paid get the unit paid for they don’t want to fight the battle. So what I anticipate with some coverage decisions, you are going to see one thing pushing the number down and something else pushing it up. And that number is more likely to go up more than it’s going to go down in a positive way.
- Christian Moore:
- Yeah, thanks. If I’m understanding it correctly, it seems like the cadence has changed from getting a ton of incremental qualified leads to a number much smaller actual pending insurance claims for that kind of turning over and having more insurance claims that you are pursuing and those qualified leads being in the backlog for a shorter period of time. Is that correct?
- Larry Jasinski:
- That would be fair. We’ll take a lead anytime we can get it, but other than that our emphasis is more on the RFAs.
- Christian Moore:
- And last one for me is just that, I get that you mentioned six previous rental units converted, but I just missed the number on actual rental units placed in the quarter. And if you could break that out by U.S. and EU it would be very helpful.
- Kevin Hershberger:
- Christian this is Kevin. So we added 11 new rent-to- purchase units placed, two were in the U.S. including one with the VA and nine were in Europe.
- Christian Moore:
- What’s that?
- Larry Jasinski:
- No, I was just saying, I mean, the U.S. commercial payers are not as inclined. We’re seeing more request for trials in Germany than we do in the U.S. at this point in time at least.
- Operator:
- Your next question comes from the line of Steven Lichtman with Oppenheimer. Your line is open.
- Steven Lichtman:
- Thank you. Larry the submission you’ve made in the U.S. with the large insurer and the work you described in Germany, are these different pairs than what you’ve mentioned in the past in terms of sort of the mid ‘17 target or they are the same and why is the timeline maybe slipped a little bit here, are they looking for just some more data points? I just want to compare contrast that with what you have mentioned before in terms of the large insurer discussions.
- Larry Jasinski:
- Well, these are the groups that we’ve been talking to for quite some time. So I think that’s a positive in terms of the level of engagement that each of these groups have gone through. On the timeline side, yes, we are going a little slower than we want, which I think, the nature of these very large organization. But what we see and the reason we expect at least get to conclusions even though we can’t definitively forecast the conclusions, they have really engaged and paid attention and are taking it through multiple levels in their organizations. So we anticipate still that we will see some gear in the U.S. in roughly the 60-day cycle, we’ll have a decision. I can’t guarantee what the decision will be. And in Germany, I think they are really at a decision point and we’re speaking more about the contracts in those groups, and have been negotiating and developing contracts. So I think Germany is ahead of the U.S. right now. But both are progressing. We’ve put as much data in front of these groups as we put in front of the FDA for the original submission, it’s been that kind of process.
- Steven Lichtman:
- That’s great. And Larry, if you could with the German groups, can you scale for us about how large in terms covered lives or anything that you can provide in terms of the opportunity if those 2 do provide coverage in the coming weeks or months?
- Larry Jasinski:
- Well, the 2 in the Germany groups, 1 we’ve publically identified, it’s the BG, which covers all workman compensation in Germany, which I have to dig to get the actual number of covered lives. But it is basically any German who is injured on the job in a country of 80 million people. So we will see if we can grab that number for you if they got it published anywhere. Relative to the SHI or the Social Health Insurance Group, that’s broken out to more groups. But we are speaking to one of the 5 biggest, and we believe they will probably influenced the others once we will get the contract completed with them.
- Steven Lichtman:
- Okay, great. And then just lastly on the soft suit. I think, you’ve mentioned that you’re going to be in discussions with FDA on pathway there. When do you think the trial starts? Does it start up this year or perhaps early next year?
- Larry Jasinski:
- Well, there is 2 trials. One is not ours, one is done by Harvard. So Harvard is going to utilize the commercial designs in a study within their own IRB at the centers in which they work. And they plan on doing that in Q4. We are working with the FDA and setting up our centers during Q4. But we don’t anticipate we will treat any patient until sometime after the first of the year, depending on submission cycle, the IRB approvals, and all those kind of activities. So -- but you should see patients in both studies active by the end of first quarter [cut] cycle.
- Operator:
- Your next question coming from the line of Matt Taylor with Barclays. Your line is open.
- UnidentifiedAnalyst:
- Hi. This is actually Ian Xuyang on Matt. Can you hear me, okay?
- Larry Jasinski:
- Yes, we can. Good morning Li.
- Unidentified Analyst:
- Yes, good morning. I wanted to follow up on one of Steve’s question. On the large U.S. insurer, have they described any specific areas of pushback that you are actively working to address? Or is this more of just a process, sort of paperwork question at this point? And I have 1 follow-up.
- Larry Jasinski:
- It is more of a process question. This certainly -- we spend an extensive amount of time going through things that were in the original policy decision issued shortly after the FDA clearance and how things have changed. And they came back with a number of clarification type questions, but not questions of significant challenges. They just okay, that helps us, we understand. Because there was just so much new data, that they didn’t have, wasn’t available in 2014. So it haven’t really given us specific flags or concerns, we gave them a lot of data, which meets that I used some of the type of coding than what we’ve had that met the medical hierarchy of the evidence-based medicine rather well. I anticipate our questions will come in a contracts stage, if we get to it, that’s what we’ve experienced in Germany. And that is more mechanics, what do we do if they’re not using it, how much do they use it, what is the price, things like that.
- Unidentified Analyst:
- And I wanted to ask about competitive dynamics. Did you see any additional pressure in the rehab space this quarter, either in the U.S. or no real change?
- Larry Jasinski:
- I will say no real change. We are still probably the most active of the companies, certainly in placements and numbers in the clinics. We see a couple of good competitors, one particularly in the rehab space that has done a good job. But generally, I would like to see us all succeed to build this industry. But I don’t see it impacting our direction at all at this point in terms we’re not running into each other.
- Operator:
- I’m showing no further question at this time. I would now like to turn the conference back to Larry Jasinski.
- Larry Jasinski:
- Good morning, everybody. We appreciate the time you’ve have taken. Thank you for joining us. And have a great day. We look forward to talking to you again in three months or before.
- Operator:
- Ladies and gentlemen this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.
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