Lifeward Ltd. (LFWD) Q3 2018 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Q3 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 is being recorded. I would now like to turn the conference over to your host, Ms. Ilanit Allen. Please go ahead.

Thank you, Ella. Good afternoon, and welcome to ReWalk Robotics Third Quarter 2018 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 Ori Gon, Chief Financial Officer, of ReWalk. This afternoon, the company issued a press release detailing financial results for the 3 months ended September 30, 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 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 afternoon'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 1 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 November 8, 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.

Thank you, Ilanit. Good afternoon, everyone, and thank you for joining us. Since our last call, ReWalk has made significant progress on several important fronts, including R&D and reimbursement. Positive developments with insurance providers in both the U.S. and Germany suggest we should see increased coverage for the ReWalk exoskeleton for SCI patients as we end 2018 and head into 2019. At the end of October, we achieved a major milestone with our ReStore program, our new breakthrough product for stroke patients. We have completed patient enrollment in our ReStore clinical trial and have met the study accrual objectives. We are now moving to complete the clinical study data reports to support our 510(k) submission, and we are on track to file with the FDA around year-end. This positions us to potentially launch this unique design that can change and expand the exoskeleton stroke market as soon as early Q3 2019. We will advise the market once the FDA submission is under review by the agency. With regard to our ReWalk spinal cord injury product line, during the third quarter, we placed 22 ReWalk units, generating total revenue of $1.6 million. Coverage decisions in Germany are starting to bear fruit but are taking about one quarter longer than we expected to translate into rentals and sales. During the third quarter, we received 9 positive coverage decisions in Germany, the highest number we've seen in the past 18 months, and we expect to see more in the coming months. We are encouraged by the trend we are seeing and believe this will meaningfully contribute to growth in sales in the coming quarters. Demand from the system remains strong as request for authorizations among new applications under the American Health Care Act in the United States have averaged 25 per quarter and are expected to be over 100 for the year. The number of German request for authorizations under the new MDC code are expected to reach 43 for the year. Based on this, we expect Q4 sales to be in the range of $2 million to $3 million pending timing of insurance conversions. The German and VA infrastructure protocols are progressing, but we do not have sufficient history to predict exact timing for those orders. First, for the VA's ongoing co-op study and the recently revised clinical protocol for the issuance of powered exoskeleton devices to veterans with spinal cord injury. We continue to accelerate our efforts in these two critical and important areas. The co-op study is progressing at a rapid rate by continuing to expand the number of study sites and has enrolled over 90 veterans to date of 160 planned. As patients are completing their study requirements, we are beginning to receive access to co-op participants that are seeking their own Personal ReWalk 6.0 via the protocol after the study. Outside of the study, the revised clinical protocol, the SOP, has expanded access to veterans with spinal cord injury with a distance to a VA facility and time constraints, limited access. This policy is starting to work as intended to support all paralyzed veterans. I'm excited to say the first veteran has been approved to take a ReWalk 6.0 home via the Choice program. To support significant access to the VA's program going forward, our clinical training team is in the process of training additional spoke sites that will be able to process veterans. Regarding support for commercial coverage, there have been some major developments within the SCI community that provide us with increased confidence that the industry, and insurance providers in particular, are more broadly recognizing exoskeleton as a medical necessity. Recently, Triumph, an important independent society for the disabled community, published a recommendation for exoskeleton insurance coverage. In their own words, and I quote, "Triumph Foundation maintains a position supporting the safety and efficacy of powered exoskeletons for patients with spinal cord injury across the continuum of care. After reviewing the available literature at exoskeletons in the rehabilitation and home settings, including 28 publications totaling 414 patients, Triumph Foundation believes that restoring walking functions through exoskeletal-assisted walking improves health outcomes. Powered exoskeletons have demonstrated safety and effectiveness in both clinical trials and outside of the institutional setting. Therefore, Triumph Foundation does not consider them to be experimental or investigational device, and we recommend that they not be treated as such when evaluating coverage. We encourage private health insurance carriers to consider the use of powered exoskeleton devices medically necessary for well selected patients with spinal cord injury." That's a powerful endorsement and a sentiment we're seeing repeated. A ReWalker, who has walked over 300 miles in the past two years, recently participated in TED Talk. One of his more compelling points was directed at those who make coverage decisions. He stated, We're trying to have an argument that walking is medically necessary. Too many insurers are telling people in wheelchairs that it's not medically necessary. But we think the tide is finally shifting in our favor. Acceptance of exoskeletons is transitioning from being a wheelchair-type system to a system that restores functional mobility in a manner that is more aligned with amputation and prosthetics. The ambulation focus is an important and strategic change in perspective. A major U.S. insurer recently removed the designation of experimental and investigational regarding home use of exoskeletons and has also approved coverage of its first case. This insurer is now reviewing multiple other claims on a case-by-case basis. As part of our yearly submission for policy review among U.S. payers, one of the top 5 insurers in the country is currently evaluating a coverage policy with a decision expected in Q4 2018, and two regional insurers are considering pilot programs with existing patients. In Germany, the official DGUV guideline on the process for supplying exoskeletons for home and community use is now in effect. The guideline indicated that only MDD-listed exoskeletons can be provided for home and community use. The only exoskeleton cleared in the MDD is our ReWalk system. The current RFA pipeline of DGUV cases is 24. As we have long believed, published data will help insurers ultimately make broader coverage decisions. Over the past 2 years, a flood of new published studies has further demonstrated the safety and efficacy of exoskeletons to restore ambulatory function. Notably, over the 5-year period from 2016 to - 2012 to 2016, there were a total of 12 studies, while in the last 22 months, 16 new studies have been published. A significant acceleration in literature has provided evidence which repeatedly demonstrates that powered exoskeletons are safe and clearly store functional ambulation better than existing mechanical braces. This increase in publication frequency has been accompanied by a significant increase in the average subject size for study as well. Our analysis of the currently available data indicates that there is sufficient evidence to support the assertion that exoskeleton use is no longer experimental and investigational and should be considered medically necessary for qualified individuals. We believe all this data provides a strong tailwind for the ReWalk system as we wrap up 2018 and look ahead to 2019. Let me now turn to the work we have done with our ReStore system for stroke patients. Study recruitment for the ReStore has met the targeted number of patients, and all sessions will be completed in the coming days. Assuming the data is positive, we expect to move forward with the FDA submission in the next 60 days. The CE submission for the ReStore rehab system was submitted on November 1, and we anticipate a clearance by midyear 2019. In preparation for commercialization, we have begun production activities at our manufacturing partner Sanmina. In addition, we are beginning to plan the first phase of our launch strategy, targeting 2000 centers in the U.S. and Europe which will use data from the clinical studies and can effectively leverage our existing infrastructure in the U.S. and Germany. From our voice of the customer views and hospital operating structures, we have found the environment to be favorable to leasing-type programs, which will help support a successful launch. We also envision a second phase of the launch targeting a large number of the more than 100,000 physical therapy practices in the U.S. and Europe. We see this product becoming a workhorse device that offers a good value proposition using existing reimbursement codes for the many smaller local clinics that treat stroke patients. With regard to our activities in China, we entered into an investment agreement with Timwell Corporation Limited, its affiliates and RealCan earlier this year. We received the first $5 million tranche in May and have not yet been able to find a path to move forward on the extensive joint venture license agreement and supply agreements for March. We are actively discussing other potential structures that will support investment in ReWalk and will allow distribution in China via RealCan and Timwell. The company has also identified alternative pathways if the Timwell and RealCan efforts are not completed soon. The progress we've made in 2018 has been built on many years of market development for spinal cord injury and the creation of a soft suit for commercialization. It has established a foundation for future industry and company expansion. The most meaningful measurements, placement of ReWalk systems, have reached 500 units. This is a clear measurement of a design that works and is gaining acceptance. We have made progress in insurance coverage in both Germany and the U.S., laying the groundwork for faster claims processing in the months ahead and our expectation of more positive coverage decisions. With ReStore, we are on track to have a second major commercial product line in 2019. Given the existing coverage landscape for stroke and gait training, the attractive price point for ReStore in its lightweight fabric design, we expect to see faster market adoption through the sheer size of this new market, and because we can work with existing reimbursement codes, represent a powerful economic value to these clinics. So the key milestones for the next 9 months are demonstrating sales growth from the German and VA policy accomplishments, establishing a U.S. commercial policy, completing the CE and FDA clearances, the launch of the ReStore stroke system and securing a distribution partner in China. We continue to focus on margin improvement, managing our burn rate to the lowest possible level, seeking to reduce our debt and raising adequate capital. We are mindful of maintaining the necessary financial flexibility to execute our strategic goals and we'll update each at the appropriate time. With that, I'd like to turn the call over to Ori to review our third quarter 2018 financial results. Ori?

Thanks, Larry. Q3 revenue was $1.6 million due to the placement of 22 units. 11 units were placed in the U.S., 9 in Europe and 2 were placed in other markets. 8 units were purchased by the VA for their ongoing study, which brings the total number of units purchased by the VA for the study to 88 units. This number supports the progress the VA has made over the last 2 years with its SCI clinical study. During the quarter, we had 8 new rental purchase units placed and 3 previously rental units convert to purchase. We currently have 22 open trials, including 12 accidental and 10 claims which have completed their trial period and are awaiting the final insurance decision. As of the end of the third quarter of 2018, we had 226 pending insurance claims relating to coverage for ReWalk compared to 218 at the same time last year, reflecting an increase of 8 claims. This represents approximately $18 million in potential revenue. Our gross margin was 47.1% during the third quarter of 2018 compared to 40.9% in the prior year quarter. This 6.2% increase is driven by sales mix and lower product cost. This is also our highest gross margin to date, reflecting our continued focus on reducing product cost and improving margins. Total operating expenses for the quarter decreased to $4.9 million compared to $6.1 million in the prior year period. For the first 9 months of 2018, our operating expenses were $17.5 million compared to $18.9 million during the same period in 2017. This 8% reduction, together with our lower product cost, puts us on track to reduce our year-over-year operating expenses by up to 10% as planned in the beginning of the year. Net loss for the third quarter was $4.5 million compared to a net loss of $5.8 million in the third quarter of 2017. Our non-GAAP net loss was $3.8 million during the third quarter of 2018 compared to a non-GAAP net loss of $4.8 million in the prior year quarter. We ended the quarter with $5.2 million in cash. With that, I'd like to open the call for questions. Operator, please go ahead with the instructions.

[Operator Instructions] We have a question from the line of Brandon Benjamin a private investor. Your line is open. [Operator Instructions] And I'm showing no further questions at this time. I would now like to turn the conference back to Larry Jasinski for closing remarks.

I'd like to thank everybody for joining us today, and we look forward to speaking in the future. Have a great day. Thank you, and good night.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.