ReWalk Robotics Ltd.
Q4 2016 Earnings Call Transcript

Published: 17 Feb 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the ReWalk Robotics Fourth Quarter 2016 Earnings 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 this time. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference Illanit Allen. Ma’am, you may begin.

[Illanit Allen:]

Thank you, Terence. Good morning, and welcome to ReWalk Robotics fourth quarter and full year 2016 earnings call. This is Illanit Allen of Insight 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 and 12 months ended December 31, 2016. This can be accessed through the Investor Relations section of the ReWalk website at www.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 our belief, expectation, projection, forecast, anticipation or intent regarding future events, and the company’s future performance maybe 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 maybe listening to the replay or archived webcast, this call was held and recorded on February 17, 2017. Since then ReWalk may have made announcements related to the topics discussed, so please refer to 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, Illanit. Good morning, everyone and thank you for joining us. As an innovator in the early stages of creating a multi-billion dollar industry, we believe we made solid progress in 2016 to advance our goals. Notably, we placed 119 ReWalk units around the world, revenue for the year totaled $5.9 million, an increase of 57% over the prior year. And with 199 pending commercial insurance claims at the end of 2016, our backlog of qualified insurance submissions exceeds $15 million. Today a total of 74 individuals have been covered by commercial and VA reimbursement. Through our efforts with the U.S. Veterans Administration, 14 veterans were trained under the VA’s SOP which went into the effect at the end of 2015. A significant number of veterans were actively enrolled in the VA’s multi-year exoskeleton study and we submitted a list of 96 pre-qualified veterans to the VA for consideration as candidates for either the study or coverage under the SOP. We are hopeful that a large portion of them will receive a ReWalk exoskeleton in the coming months. On the reimbursement front, ReWalkers benefited from 38 favorable case by case decisions during the year. This brings the total number of individuals covered by commercial policies since 2015 to 60. And we expect our discussions with a top five insurer in the U.S. and one in Germany result in a broader coverage policy as early as this year. Our 522 post-market clinical study was initiated at Stanford University and expanded to two additional sites this past January. We anticipate adding three more sites by mid-year. This would be a multi-year study that has been expanded to include utilization patterns and quality of life measures; and we would expect to see some initial data in late 2017. Importantly, in 2016 we invested in our R&D programs. We completed an operating next generation spinal cord injury prototype that met size and weight reduction goals and added new features for patient control. This will allow us to deliver at an enhanced market leading design. We also focused on establishing a stroke initiative that now has a fully defined and resource team. And finally, through our capital raising efforts, we successfully added $34 million in net cash to our balance sheet, enabling us to execute our plans in 2017. So as we move into 2017, we plan to focus on several key areas, securing broader reimbursement coverage in the U.S. and Germany by mid-year with both corporate entities and commercial providers. Working with the VA to qualify and expedite processing of additional 100 veterans in 2017. Advancing our soft exoskeleton program for stroke patients with clinical trials in 2017 and a new product launch as early as 2018. And as previously announced we have implemented operating expense reductions for 2017 to reduce our cash burn. It is our belief the revenue will continue to fluctuate until a broad reimbursement policy is in place. Therefore this time we will not be issuing guidance for 2017. I’d now like to turn the call over to Kevin to review our fourth quarter and full year financial results.

[Kevin Hershberger:]

Thanks, Larry. Q4 revenue was $1.6 million compared to $1.3 million for 2015. For the full year revenue increased $2.1 million to $5.9 million. At year-end, we had 85 pending insurance claims in the U.S. and 114 in Germany, reflecting a potential backlog of over $15 million in revenue. During 2016, we had 51 favorable coverage decisions including 13 with the VA, and we expect these to continue to trend in our favor. As Larry noted, it is our belief that revenue will fully ramp once broader reimbursement coverage policies are in place both in the U.S. and in Germany, which we anticipate will occur later this year. We expect the implementation of these broader coverage policies will occur over time, and that the revenue impact will be reflected in our performance in the 12 months following initiation in the coverage. During the quarter, we placed a total of 39 units of which 12 where in the U.S., five in Europe, and 22 with distributors in other regions of the world. For the year, we placed a total of 119 units up 63% over the prior year. Through the end of 2016, a total of 28 units have been purchased by the VA for its research study, and 14 additional units have been placed as part of the SOP. We expect to see additional unit orders from the VA in 2017, including in Q1, but we do not have visibility into the final number or timing of these orders. The rent-to-purchase program remains an important option for customers. We had nine rent-to-purchase units placed during the fourth quarter including three with the VA and five units converted to full purchase. For the full year, we had a total of 38 rent-to-purchase units, of those 13 converted to sales, 14 are still in the rental period and five are waiting insurance or court decisions. Gross margin for Q4 was negatively impacted by geographic sales mix and inventory write-offs. We expect Q1 margins to return to historical levels. Total operating expenses for the quarter was $7.9 million compared to $7.5 million in the prior year period. Full-year operating expenses were $31.2 million compared to $25.4 million in 2015. And as Larry noted earlier, we have implemented initiatives to reduce operating expenses by up to 30% compared to 2016. Net loss for the quarter was $8.5 million compared to a net loss of $7.5 million in the fourth quarter of 2015. The full year net loss was $32.5 million compared with a net loss of $25.4 million in 2015. During the year, we raised net proceeds of $34 million through a combination of debt and equity and we ended the year with $23.7 million in cash. I’ll now turn the call back over to Larry.

[Larry Jasinski:]

Thank you, Kevin. ReWalk is the world’s leading exoskeleton company and a developing industry. Consequentially that means our metrics are likely to fluctuate as we focus on developing the foundational building blocks of this industry. But it also means there’s tremendous opportunity ahead. I’ll like to focus my final remarks today on what ReWalk will be doing this year to address the market need and remain the leading exoskeleton provider around the world. To start, we have been successful in gaining case-by-case reimbursement for ReWalkers in the U.S. and abroad, particularly as coverage providers became more educated about the benefits of walking when using our technology. We will continue to support individual case processing as we work on securing the broader coverage policies. We are in advance discussions with two large policy providers whose coverage extends to millions of lives. We are hopeful that these ongoing efforts will result in favorable policy outcomes later this year enabling potentially thousands of additional qualified spinal cord injury patients to benefit from the ReWalk. Based on our discussions with Wyss and other providers, it is apparent that the coverage decision will be based on various factors. For some it will be on the compelling published clinical data, supporting the benefits of walking and improved functionality enable by our devices. With insurers in Germany, where our system is deemed to restore function, compliance with court rulings may expedite coverage decisions. For these reasons, we are encouraged by the progress we’re making on the reimbursement front and believe one or more broader coverage policies should be secured mid-year. And these coverage policies will serve as catalyst for additional providers to follow suit. The full impact of these policies on our financial performance will be realized overtime. Next, we continue to evaluate the utilization and benefits of walking in everyday life through our 522 multi-center clinical study centered at Stanford University. We’ve expanded the scope of the study to include utilization patterns and patient reported quality of life outcomes. We’re actively enrolling subjects and we plan to use the data from the study to quantify physical and medical improvements from the use of the ReWalk Personal System. The interim results are expected in Q3, 2017. Continuing on the VA front, we are committed to supporting our veterans and providing them access to our technology. Through the end of 2016, 14 veterans were trained under the VA’s national policy. To evaluate, train and procure ReWalk exoskeletons and even more we’re trained as a part of the VA’s multi-center exoskeleton study. Additionally we submitted the profiles of another 96 veterans eligible for exoskeleton to the VA and hope to evaluate and provide 100 more this year. We expect that some portion will be channeled through the VA’s clinical study program throughout the year and they will receive additional orders to support the trial. More importantly, we expect that the combined programs will continue to expand. We have conducted training at 20 of the 24 primary VA SCI evaluation centers. And as part of our efforts to work with VA to expand the training capacity, we have proposed including training and additional facilities. So that those veterans of the too far from the current VA training centers can access our technology. We are encouraged when we perceive as the new administration’s eagerness to provide quality for our nation’s veterans. Finally R&D remains at the core of what we do. We are excited about the improvements we’ve made in the next-generation spinal cord injury suit to make it lighter, slimmer and more efficient. And as we mentioned last quarter, we see tremendous potential in the development of a soft exo-suit that can benefit even larger population of stroke in MS patients. Through our partnership with Wyss Institute at Harvard University, our R&D efforts are focused on developing a lightweight non-structural suit designed to provide an effective rehabilitation treatment for stroke patients. We’re beginning to plan and build testing units for a pilot trial to measure improve walking speed and gait. With a fully divined and resource program in place, we intend to begin clinical trials in 2017 and to launch our first stroke product in late 2018. With a lightweight soft exo-suit at a compelling price point, we believe this technology could potentially change the treatment protocols for stroke patients and become the new standard of care for this large population. As I indicated in my opening remarks, we are in the early stages of creating a multi-billion dollar industry. We believe we’ve made meaningful progress to advance our goals and that there are significant opportunities ahead. Our plan for this year is to drive expanded reimbursement coverage, both in the U.S. and Germany. Expand VA training capacity and grow the number of patients trained. And to advance key R&D initiatives to harness the potential of new markets through the development of a lightweight soft exoskeleton for stroke patients. Thank you for your continued support. With that, I’d like to open up the call for questions. Operator, if you could please go ahead with the instructions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Matt Taylor from Barclays. Your line is open.

[Matt Taylor:]

Hi, good morning. Thanks for taking the question. So I guess the first question I wanted to ask was, when you talk about the likelihood of getting some broader reimbursement with some of these I guess, private payers. Could you compare and contrast what that would look like versus the reimbursement that you have, say, at the VA. It is one of the concerns that I have – you do have a decision at the VA for reimbursement. But it’s not translating to a lot of sales. So, how would these potentially be more inducive to driving revenue, than the coverage decisions that you have?

[Larry Jasinski:]

I think, if we got a policy with the insurers that is similar to the VA that is actually a very good outcome. The real difference is in implementation. And the private insurers have access to more training centers as we have presently 177 training centers around the world and the majority of those are in the United States. One of our biggest limiters with the VA has been lack of access to training centers and slower implementation. So with the commercial payers, we are in much better shape relative to having training centers and it really will depend on how effectively they implement and resource. But generally the commercial centers, the places we work at and I’ll give examples such as Spaulding here in Boston a local place, we have very effective active programs that we will be able to implement relatively quickly. So I think that’s the distinct difference between the two that will leave us in a better position with Israel, German centers or the American centers, if we get a coverage policy.

[Matt Taylor:]

Okay. I know you probably don’t want to talk about the specific companies. But can you give us a sense of how many lives they cover and how many training centers their reach withstands.

[Larry Jasinski:]

Well, in both the United States and Germany they are generally national coverage groups. What we’ve done with them so far we’ve had multiple sessions and they seem to have accepted the benefits of walking rather well. We provided every component of data we had as well as some non-public data that they have requested and received through the VA. They’ve been focusing more on utilization. But I’m not sure what else I can give you for specifics until we actually get the contract in place. For the payers, probably the best way to characterize them is they both are in the top five coverage groups in the United States and in Germany.

[Matt Taylor:]

And I guess, if utilization is important to these folks, what can you say about the utilization for the people that have gotten approval and are using ReWalk in the community.

[Larry Jasinski:]

For the audience that hasn’t so far, we continue to have very good utilization. We have the advantage of – the element of a step counter within the system, so every time we service it, we know how much they’ve used it. But generally, we also have a good sense of how they’re using it. And virtually all users unless there has been a health reason unrelated to the ReWalk are using it routinely. And the patterns vary greatly some use it work, many use it in social situations and many use it for daily exercise or walking. But at least for those who have adopted it to date, our utilization has done rather well. So will that – when you get into much larger numbers continue, we think it will because it’s the pattern and the impact for those that are motivated users has been compelling.

[Matt Taylor:]

Okay. And maybe just one more question for me. So can you talk I guess a little bit more about your cash position and your cash burn rate? You talked about these decisions that we come through potentially driving more revenue in 2018. So how do you sort of bridge through that with the cash that you have and the burn rate that you have?

[Kevin Hershberger:]

So Matt, this is Kevin. I’ll take that. So our cash burn rate has run this year between $6 million and $7 million, fluctuating based on various factors quarter-to-quarter. We announced a 30% reduction – to a 30% reduction in spend and that will reflect in our cash, cash burn going forward as well. But I do want to point out, we also have a credit facility, a debt facility that we are also going to be repaying some of the principal this year. So that will be offset a little bit. So cash is moving around there. We do believe that we have sufficient resources to hit our key milestones this year. We’ve also been pretty open about we would look at all options to continue to fund the company including, we have an active ATM. We would look at the credit market – the equity markets as well as any credit facilities.

[Matt Taylor:]

Okay. All right, thanks guys. That’s it from me.

[Kevin Hershberger:]

Thank you, Matt.

[Operator:]

And our next question comes from the Matthew O’Brien from Piper Jaffray. Your line is open.

[JP Peltier:]

Hi, this is actually JP in for Matt. Thanks for taking the questions. I guess my first one is on the kind of orders from Asia, the distributor orders. I think you caught out there not only hiring 20 this quarter, is there anything – is there any reason, either more interest in a particular country or just trying to sale out only there.

[Larry Jasinski:]

Yes, there were two specific elements behind that. A lot of it initially was we were trying to see the market, specifically in Japan because they had identified some individual users, and we wanted some public faces in there and that was a joint program that we did with our partner Yaskawa. So that was one factor, but the other major factor is we have been working extensively in Korea and Taiwan and we anticipate coverage in terms of pay FDA clearance shortly. And the rehab centers in Korea do have the capacity to buy product, so we anticipate that upon that coverage we’ll place a number of units in Korea and we’ve started to see a little bit of growth in Taiwan. So that was the basis for that initial order and that we hope will also translate into some impact in 2018.

[JP Peltier:]

Got it. And then when you talk about these 199 pending commercial claims, I mean I guess the qualified backlogs. Is that – sounds like that does not include the 96 kind of veterans that you think are qualified as well, is that correct?

[Larry Jasinski:]

That is correct. Yes, the 119 claims is with commercial and government, non-VA insurers and then the VA is separate. So there’s a full box between the two of them.

[JP Peltier:]

So if you take the 119 qualified lead, I think you quantified that around $15 million and then just the 96 VA leads is another $6 million or $7 million. I mean, is it fair to say there is $22 million out there are just qualified leads in your current capacity without additional and a commercial coverage?

[Larry Jasinski:]

That is correct. They are more than qualified leads, at this point they’re qualified with full applications and with the insurers. So we’ve done all the further checking and the 199 claims are comprehensive submissions. So lead is probably a step before that, this is a much of a step much later. On the VA side they’re a little more like a lead, we’ve already qualified them at a lower level but the whole process has to be worked by the VA there. So it comes out of our hands, so we can’t do though, some of the letter of medical necessities, prescriptions and things at the same level in the VA. So they’re not quite as far long but they apply equally for patients. Does that answer your question, JP?

[JP Peltier:]

Yes. Yes, definitely. And then the last one from me is on this whole dynamic of rent-to-own. I think I get why insurers are doing it. I’m trying to when I look out for 2017 and I hope we get some commercial payers in mid-year assume a part of your rent-to-own as well, so I’m just trying to figure out how we look at the models for 2017. Even after we get coverage in mid-year which should be a huge blend, but this huge blend not having to do a rent-to-own anyway, then selling of the revenue impacts could even be there in 2017, is that fair?

[Larry Jasinski:]

Although there certainly will be – if not be bolus from outright purchase, the rental prices have been reasonably attractive to us, so they will – we will get the monthly rentals for it. But that is correct, I think what we’re seeing in the VA has done and what we’re hearing from some of the other groups, we may see a greater number of these are rent-to-buy, but it will be a steady stream of revenue that we’ll be able to track pretty well. I think the key element for us for rental is not just the rental rate but it’s going to be the conversion rate. How many of those rentals go on to buy – those renters going to buy it or they decide to rent it for four years or five years so we know what we’re getting for income. We are still learning about that. Our estimate right now in our own perspective is that about 70% of these should convert. And today for what we have out there – Kevin has run through some of the numbers and what we went through. We have a good number of people just waiting on their systems and that’s sort of a decision by the VA in terms of getting their paper work done and by some of the other insurers in terms of how quickly they move.

[Kevin Hershberger:]

And JP, that’s why we’re trying to give the breakdown on new rental purchase units, the number converted and the number still out there so that you have more visibility as you’re building your models. I mean to Larry’s point, it is a very attractive business for us, it’s a good way to get the patients into the unit and using unit on a regular basis, and then that have the opportunity to convert. It’s another reason why we’ve also said that the – once we get a coverage policy, the coverage policy will be implemented and then the revenue impact would be it’s not going to be a very next quarter thing, that it would be spread over the next 12 months as they implement the policy.

[JP Peltier:]

Got it. Very helpful, thank you.

[Operator:]

And our next question comes from the Steven Lichtman from Oppenheimer. Your line is open.

[Steven Lichtman:]

Thank you. Hi guys.

[Larry Jasinski:]

Good morning, Steven.

[Steven Lichtman:]

Larry, you mentioned that the pathway to a broader commercial coverage may differ from payer to payer. I was curious, if you just look at the large payers that you’re in discussions with in the U.S. is the pathway likely being influenced more by a high volume of case by case coverage that’s occurring to-date or is that some of the data that they are favorable on? I’m just curious in terms of the U.S. payers what the discussions are more focused on to-date?

[Larry Jasinski:]

The U.S. discussions as far have been focused more on the basic data of submission. So we literally have provided them a few thousand pages of data in multiple sessions with them. But they really focus more on utilization, the case-by-case fees why it’s relevant, hasn’t it really been a big component there, they’re aware of some specific cases in their system for example. So in the United States, now they’ve been much more traditionally data driven and I think the case-by-case is brought in to their attention, but not forced it. Even though your question was U.S., and Germany I’ve sort of seen the other side of this, we have a couple of insurers that have a large number of pending cases and in parallel they had some court decisions that made it very clear, they would have to pay for these. So that brought then to the table to negotiate it because I think they essentially anticipate the future is that the court will continue to do the same thing it’s done in every case so far. So I think they are for different reasons, they feel its, if they’re going to lose the court decisions so better off do an negotiated program with us. And that seems to be were that what is. So they are very different between the two continents. But U.S. is pretty much a traditional data driven approach.

[Steven Lichtman:]

Got it. Thanks for that. And then you mentioned that we could see some early data out of the Stanford study as soon as 3Q here. What would some of that initial data revolve around? What are some of the early metrics that we could be seen?

[Larry Jasinski:]

The main things that we’ll have data and be able to publish in the interim data will be around utilization, which is what we want to show to the market that how they’re being used. And then primarily quality of life measurements that will be interim quality of life, but at that point you’ve at least got enough time on the early patients to where, we will be able to report the scores on the impact on the patient using the SF-36 scoring system, which is a validated accepted measure for quality of life.

[Steven Lichtman:]

Okay, great. And then lastly, Kevin in your press release last month in terms of the reduction operating expenses, one of the buckets was just a realignment reduction in staffing. What in general, what are some of the areas you’re looking to cut back on from an operating perspective this year.

[Kevin Hershberger:]

I mean we’ve really looked across the board. There is not really one area that we have singled out to reduce, I mean more on the overhead sided, I would say. But what we’re really focused on are the three objectives that Larry laid out. Delivering on revenue – with the product that we have. So getting reimbursement, building the pipeline and expanding coverage to the VA. So our commercial aspects of that we’re staying focused on. And then on the R&D side, it’s really development of the stroke product. So those are our priorities and areas that are not aligned with those priorities is where we’ve actually look to take cost out.

[Larry Jasinski:]

Steven, I’ll elaborate just a little more that may help. Some of those things that we have been doing to build the Company shift around and to be specific we already have 177 active training centers. So we don’t have to go out and open as many new training centers. So that allowed us to look at that. And we had a number of smaller projects that were primarily a combination of product improvement in terms of production, in terms of costs that generally are completed. So it allowed us to shift our resources more towards the stroke and also to reduce some of the resources in areas where we had really achieved what we needed.

[Steven Lichtman:]

Great, thanks guys.

[Operator:]

And our next question comes from Christian Moore from Jefferies. Your line is open.

[Christian Moore:]

Hey, good morning. Maybe just one the cadence of VA placements that you are seeing, in terms of when these placements will come over the quarters of 2017 and then beyond and when you’ll able to get more visibility in terms of a quarter-by-quarter rate there?

[Larry Jasinski:]

Well, the VA we have a good ability to see what’s going on in the standard operating procedures. So someone who is outside the clinical study, so it will start to emerge I think into a pattern. But our big challenge right now as we’ve trained 21 of the 24 but many of them need more resource. And I can’t yet forecast when the VA will be able to hire as PTs to be able to do this. I’ve given example of one VA in particular, I know they have six people that would like the system, but they can only train one at the time. The other one is we have propose to the VA that they consider more a localized training keep control to make sure patients fully qualified before you begin down the path. But instead of leaving some one that’s five hours away where they can’t get to the training hopefully a local VA or even some other facility could do the training for them. Now that is something that if the VA decides do what I think would expand things, but that’s a key one. On the co-op study that’s the data that is really contained within the VA, that we know that they plan to purchase between 40 and 60 systems. And that they’ve done about 26 to date. But that’s generally confidential data within the VA. So we don’t have access to each patient they put in. And to some extent the ones we’re feed in the VA some can go to the left into the co-op and some can go into the right into the stroke into the SOP – excuse me, program.

[Kevin Hershberger:]

One thing I also want to add. I mean even if the patients are diverted to the research study, it helps us, I mean they would potentially get a ReWalk device a personal ReWalk device through the SOP at the end of their portion of the study. So the cadence – so the revenue would still come through in that case, it would just be delayed by a bit as they participate in the study.

[Christian Moore:]

Thanks that’s helpful. And then maybe just more broadly in terms of the visibility of the business obviously securing an NCD is crucial there. But do you ever expect to be giving guidance for the year, even just around units not even revenue going forward. There is that just something you’re evaluating each quarter.

[Larry Jasinski:]

Well, for 2017 I think it’s something we would evaluate each quarter. But until those are in place I don’t think we have as predictable models we want. We still anticipate we will see year-over-year growth, but the magnitude of it is just too hard to predict right now.

[Christian Moore:]

Okay. And then the last one just on the soft suit for the stroke victims. Is the timeline around that in terms of getting the second revenue stream still five years passed away or what’s kind of the range of where we could actually see that business making impact for our models as we go out into the out years?

[Larry Jasinski:]

Well, we believe the project status is certainly shorter than five years, at this point we believe we would be able to begin commercialization around the end of 2018 or early 2019 depending on success in our clinical studies followed by the FDA and CE mark submissions. But we should see meaningful revenue on this in a two year plus cycle, from what we can expect today. And that’s one of the shifts in resource; we’ve increased our resource into the program where this is now in a full development and commercialization mode to allow us to do that. So we’re somewhere around two years out.

[Christian Moore:]

Got it. Thank you. That’s helpful for the clarification.

[Operator:]

And at this time, I’m showing no further questions.

[Larry Jasinski:]

Okay. Well, I would like to thank everybody for joining us today. And I look forward to talk to you in the calls in the future and any other questions you may have along the way. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participation in today’s conference. This concludes the program, you may now disconnect. Everyone, have a great day.