MediWound Ltd. (MDWD) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Second Quarter MediWound 2019 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 introduce your host for today’s conference, Ms. Monique Kosse. You may begin.

Thank you, Catherine, and good morning, everyone. Earlier today, MediWound issued a press release announcing its financial results and provided a business update for the second quarter of 2019. You may access that release on the website under the Investors tab. With us today are Sharon Malka, Chief Executive Officer of MediWound; and Boaz Gur-Lavie, Chief Financial Officer of MediWound. Following management’s prepared remarks, we will open the call for Q&A. Before we begin, I would like to remind everyone that statements made during this call, including the Q&A session, relating to MediWound’s expected future performance, future business prospects, or future events, or plans, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Although, the company believes that expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties that could differ materially from those forecast due to the impact of many factors beyond the control of MediWound. The company assumes no obligation to update or supplement any forward-looking statement whether as a result of new information, future events or otherwise. Participants are directed to cautionary note set forth in today’s press release, as well as the risk factors set forth in MediWound’s annual report filed with the SEC for factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. The conference call is the property of MediWound and any recording or broadcast is expressly prohibited without the written consent of MediWound. Now, I would like to turn the call over to Sharon Malka, Chief Executive Officer of MediWound. Sharon?

Thank you, Monique. And good day, everyone. Thank you for joining us today on our second quarter earning call. It is my pleasure to be here this morning and provide an overview of our recent accomplishment for our advanced program NexoBrid and EscharEx. We had a very exciting start to this year, highlighted by several significant milestones related to NexoBrid, including about Phase 3 results across all endpoints, a commercial agreement with Vericel, increased support from BARDA for the NexoBrid expanded access treatment protocol (NEXT) and a positive meeting with the FDA regarding our NexoBrid BLA submission plan. We also launched last month our U.S. development plan for EscharEx, our topical biologic drug candidate for the development of chronic and hard-to-heal wounds, which we believe represents a significant commercial opportunity with existing commercial validation. Let me now go into more detail on each of our programs. Starting with NexoBrid, we are pleased to report earlier this year robust data from our pivotal Phase 3 DETECT study with NexoBrid to treat patients with deep-partial and full thickness thermal burns. This study met its primary endpoint of complete eschar removal in all secondary endpoints, including the reduction in the need for surgical eschar removal, earlier eschar removal and blood loss. These robust results, which collaborate our previous positive EU Phase 3 clinical study results demonstrated clear significant benefit for patients and with this successful study we were 1 for 1. On the heels of this positive data, we entered into an exclusive license and supply agreement with Vericel Corporation to market NexoBrid in North America. We are working closely with our partner and are confident that Vericel is uniquely positioned to leverage the medical need and to maximize the commercial potential of NexoBrid in North America. As a result of this commercial license collaboration, we generated peak revenues in the second quarter of 2018 of $20.7 million including the license upfront payment. We are very pleased to report that we recently held a pre-BLA meeting with the FDA in which the agency accepted our BLA submission plan for NexoBrid. We were encouraged by the positive outcome of this meeting ahead of our planned BLA filing in the second quarter of next year. We will provide further updates as this quarter progresses. Also during the quarter, BARDA committed an additional $21 million in support for NexoBrid development, primarily to fund the expanded access treatment protocol named NEXT which we expect to initiate this quarter. The NexoBrid expanded access treatment protocol allows U.S. burn centers to treat patients with NexoBrid prior to BLA approval and to use NexoBrid in an undeclared emergency event. With this protocol we are able to increase the number of burn centers trained in the use of NexoBrid across the U.S. thereby furthering national preparedness for mass casualty burn incidents. This is an extremely productive beneficial partnership which underscores BARDA’s belief in the potential of our breakthrough therapy NexoBrid in treating severe burns and mass casualty preparedness. Now with the FDA endorsement of our BLA submission plan, the continued ongoing support from BARDA and the commercial collaboration with Vericel, we are confident in our ability to bring NexoBrid to the U.S. market where it has the potential to meaningfully impact patients’ lives. Moving to EscharEx, the primary focus of our strategy going forward. We were happy to have the opportunity to outline our EscharEx U.S. development plan at our Analyst Day held last month. EscharEx is an advanced biological formulation designed for the outpatient setting in line with the existing treatment workflows and reimbursement programs. With specific advantages over other approaches, including higher potency at lower doses which potentially leading to improved efficacy and tolerability, designed for a once-a-day application, improved ease-of-use and strong IP and patent protection. All these attributes are expected to further support compliance of both patients and caregivers. We are very excited about this program and will be initiating an adaptive adequately-controlled Phase 2 study in the fourth quarter of this year. This studying will assess the safety and efficacy of EscharEx compared to current U.S. non-surgical standard-of-care and placebo-controlled with a preplanned interim assessment. This approach will allow us ability to demonstrate efficacy, safety and clinical benefit over both placebo and standard-of-care as required by the FDA, ability to address market needs and other stakeholders' interest such as payers and healthcare professionals, and a head-to-head comparison of EscharEx with the current U.S. non-surgical standard-of-care, including the current available enzymatic debridement. Most importantly, if successful, it provides the ability to have a data-driven discussion with the FDA that this study will be considered as one of the two pivotal studies required for BLA submission. This study will be a multicenter, prospective, randomized, adequacy-controlled assessor-blinded study to evaluate the safety and efficacy of EscharEx in debridement of venous leg ulcers in about 25 clinical sites, primarily in the U.S. The study will enroll 174 patients randomized to either EscharEx arm, gel vehicle placebo arm, or non-surgical standard-of-care arm, which include either Santyl or Hydrogel at the ratio of 1:1:1with a three months follow-up. This study includes a preplanned interim assessment for futility and sample size adjustments, once the trial has achieved about 60% of the patients enrolled and treated which we plan by year-end 2020. We have obtained FDA concurrence that incidents of complete debridement versus the gel vehicle will be the primary endpoint of this pivotal program, and incidents and time to achieve wound closure will be assessed as a safety measurement. In addition, FDA recommended that additional clinical measures will be collected to demonstrate the clinical benefit of EscharEx. Hence secondary endpoints will include the reduction of pain, time to achieve complete debridement, reduction of wound area, granulation tissue, and quality of life and will be compared with both gel vehicle placebo and standard-of-care. Additionally, we have worked to derisk EscharEx development. EscharEx contains the same API as NexoBrid and benefits from the wealth of existing development data on NexoBrid. We obtained FDA concurrence that the EscharEx toxicology package supports its intended clinical use and the manufacturing processes and controls were reviewed and accepted by the FDA. Study preparations are ongoing and we expect to initiate the study in the fourth quarter of this year following IRB's approval. We continue to be enthusiastic about the commercial opportunity for EscharEx driven by the significant market potential, the longstanding unmet medical need and the solid demand for the enzymatic debridement agent which provides commercial validation. We believe physicians will find EscharEx to be more effective and offer a shorter debridement period than the product exists in the market today. Hence EscharEx has the potential to achieve substantial market share with a meaningful impact on the wound care treatment. We held an Analyst Day last month in New York City where we did a deep dive into the development plans, potential market of EscharEx and the medical need for our therapies. We encourage everyone to listen to the webcast of this event which is available on our website. In summary, we are very excited and look forward to several meaningful milestones in the coming quarters. We have two significant assets: One is NexoBrid with a clear regulatory pathway for a BLA submission and a commercial partnership in the U.S.; and the other is EscharEx with significant market potential and a clear development path. Finally, I would like to welcome aboard our CFO, Boaz Gur-Lavie who joined us this quarter. He is a very skilled and experienced executive and has been an asset to our team. It is my pleasure to now turn the call over to Boaz for a summary of our financials this quarter. Boaz?

Thank you, Sharon. And thank you for the kind words. It is my pleasure and privilege to join the team and I'm very excited about the clinical and commercial opportunities in front of MediWound. Turning now to our financial results, the financial results in the second quarter were significantly driven by the license agreement with Vericel and the revenue recognition of the multiple elements of this deal. As a result, in addition to revenues from sales of products, we will now recognize revenues from two additional elements. One, revenues from development services provided to Vericel in accordance with the BARDA agreement; and second, revenues from license agreements in consideration for license rights which include upfront payment, milestone payments and future royalty payments. We had peak revenues in the second quarter of 2019 with $20.7 million compared with the $1 million in the second quarter of 2018. The revenues include $17.5 million upfront license payment and $2.3 million from development services derived by Vericel licensing agreement for NexoBrid. Gross profit during the quarter was $17.3 million compared to a gross profit of $0.4 million for the second quarter of 2018. The gross profit in the second quarter was comprised of $0.3 million from sales of products and $0.4 million from development services and $16.9 million from license agreements primarily driven by the upfront payment. Research and development expenses, net of participation, were $0.2 million for the second quarter of 2019 compared with $1.5 million for the second quarter of 2018. The decrease in research and development costs, net, was a result of decrease in clinical trial costs of $3.1 million and a decrease of $1.7 million in participation by BARDA and the Israeli innovation authority grant. Selling, general and administrative expenses in the second quarter were $2.3 million, compared to $2.1 million in the same period of last year. Operating profit for the second quarter of 2019, which includes a $17.5 million upfront license payment, net of royalty payment of $0.7 million and $0.8 million of other expenses, were $13.9 million. Excluding the upfront license payment, net of deal related expenses, operating loss for the second quarter was $2.1 million an improvement of 37% from the $3.3 million in the second quarter of 2018. The improvement was primarily due to the decrease in research and development costs, net of participation. The company’s net profit for the second quarter of 2019, which includes the $17.5 million upfront license payment and related costs of $0.7 million for royalty payment and $0.8 million for other expenses, was $12.7 million or $0.47 per share. Excluding the upfront license payment, net of deal related costs, net loss for the second quarter was $3.3 million or $0.12 per share, compared with the net loss of $4.2 million or $0.15 per share in the second quarter of 2018. Adjusted EBITDA for the second quarter was a profit of $15.4 million, compared with a loss of $2.9 million for the prior year period. A reconciliation of adjusted EBITDA to GAAP net income is included in the press release we filed with the SEC earlier this morning. Looking now at the six months results versus prior year, revenues for the first six months of 2019 were $21.2 million, compared with $1.6 million in the first half of 2018. Revenues were primarily driven by the $17.5 million upfront payment and $2.3 million revenues from development services derived by Vericel licensing agreement for NexoBrid. Operating profit for the first half of 2019, which includes the $17.5 million upfront license payment and $1.6 million of deal related expenses, was $10.4 million. Excluding upfront license payment, net, operating for the first half of 2019 was $5.5 million, an improvement of 21% from the $7 million in the first half of 2019. The improvement was primarily due to the increase in research -- sorry, decrease in research and development costs net of participation. The company’s net profit for the first half of 2019, which includes the $17.5 million upfront license payment, net of royalty payment of $0.7 million and $0.9 million of other expenses, was $8.6 million or a profit of $0.32 per share. Excluding upfront license payment, net of deal related costs, net loss was $7.3 million or $0.27 per share compared with a net loss of $8.7 million or $0.32 per share in the first half of 2018. Turning now to our balance sheet. As of June 30, 2019 the company had cash, cash equivalents and bank deposits of $38.7 million compared with $23.6 million as of December 31, 2018 utilizing about $6.4 million in cash during the first half of 2019. We expect cash yield for ongoing operating activities in the second half of 2019 to be in the range of $6 million to $8 million including NexoBrid license related payments and repayment of contingent liabilities. Looking ahead, we believe the existing cash combined with the proceeds generated from the collaboration with Vericel will provide us sufficient funds enabling us to significantly advance the ongoing development of EscharEx through BLA filing while NexoBrid becomes a self-funded product as its research and development programs are funded by BARDA. I will now turn the call back over to Sharon. Sharon?

Thank you, Boaz. Looking ahead, after a very active period for us, we anticipate to initiate the next treatment protocol soon, initiate a U.S. safety trial for EscharEx in the first quarter of 2018, and file a BLA for NexoBrid in the second quarter of 2020. We also will continue executing and advancing our programs forward as we continue to generate value for our shareholders. With that, it is now my pleasure to open the call for Q&A. Operator?

Thank you. [Operator Instructions]. And our first question comes from Anthony Petrone with Jefferies. Your line is open.

Thanks and congratulations on all the progress. One on NexoBrid and one on EscharEx. On NexoBrid, can you give us just timing on the additional funding from BARDA? What are the triggers for that, timing around that? And specifically in this development, where will those funds be allocated toward? And then on EscharEx, can you -- Sharon you mentioned end of 2020 there’ll be an interim analysis on that study for futility purposes. Is it also possible if the safety and efficacy signals strong that that study could potentially be accelerated? Thanks.

Okay, thank you for the question Anthony. So I will start with NexoBrid. So we were awarded in this quarter a modified contract with BARAD providing us with additional -- with committed additional $21 million. And this is to support additional activities including the following one. Additional activities regarding the regulatory submission of the BLA. Second is potential activities that will be required during the review process of the BLA. And third which is a primary activity is the funding for the NexoBrid expanded access treatment protocol (NEXT) in the U.S. This is regarded to the NexoBrid. Regarding to the question -- regarding EscharEx clinical trial, so we will have an interim assessment for futility analysis and sample size adjustment after about 50% of the patient will be recruited. This will enable us one of the three scenarios. One scenario can be to stop the study. The second scenario can be to adjust the sample size in order to win the study. And the third scenario can be to complete the study with the original sample size. This sample size adjustment or interim assessment will provide us with a notion about the successful -- or the probability of success of this study going forward.

That's helpful. And then just, when we look at EscharEx even with the interim analysis, just a rough high level estimate on timing. So, if we kind of follow it along, is 2022 a reasonable assumption for potential U.S. launch or will that go into 2023? Thanks.

So, as I mentioned during the call, we expect to commence a Phase 2 study in the fourth quarter of this year with an interim assessment conducted by year-end 2020 assuming that this study will end towards the end of 2021. As you know, we will require to do two pivotal studies for registration. So subject to the result of this study, anticipate to discuss with the FDA, and if this study will be successful, we will ask the FDA that this study will be one of the two pivotal studies, means we will be required to have an additional Phase 3 study and submit a BLA.

Thank you. Our next question comes from Josh Jennings with Cowen. Your line is open.

Hi, this is Bryan in for Josh. Thank you for taking my question. Will you still file the NextBrid BLA with the acute results from DETECT or will the submission include the one year results? I'm trying to understand the revised timing versus the prior expectation of a fourth quarter submission?

Okay. So, basically, we held the pre-BLA meeting at the end of July and we’ll share information as soon as we get the formal minutes of this meeting. On a high level, we can say that we’ve got a positive outcome of this meeting regarding the 12 months data since this 12 months data is soon be available. So we believe that the best strategy is to provide or to submit the BLA together with the 12 months data which provide us with a better assessment by the FDA. And this is part of the new timeline.

Okay, makes sense. And will you release the one year results publicly before the BLA submission?

I assume we will announce the 12 months data ahead of the BLA submission and communicate it to the street.

Okay, thank you. And then lastly, does the creation of the NEXT protocol change your expectation regarding the $16.5 million procurement commitment from BARDA in any way? And maybe if you could just say plainly, what are your latest expectations for procurement in the second half of this year and next year? Thanks for taking my question.

Thank you. So basically from our end and from BARDA discussion that we have, the next study provide BARDA another trigger to initiate the procurement. Because currently they have the FDA eligibility to use the product NexoBrid in case of mass casualty event, with another trigger to procure the product before BLA approval. Regarding the expectation, so our current expectation is that BARDA will initiate the procurement in this year, towards the first quarter of this year, the majority of which will be next year and the balance if any will be in 2021.

Thank you. And our next question comes from Kevin DeGeeter with Oppenheimer. Your line is open.

First question from me. Can you just comment with regard to the expanded excess funding through BARDA? Are there any restrictions on what type of clinician or site that capital could be allocated to? And operationally, can you just remind me who is the primary driver of the interaction with the clinical sites under that structure at the moment, is it primarily representatives of Vericel or MediWound?

Thank you, Kevin. So I’ll first talk to the NEXT study. The NEXT study basically provides us with the opportunity to treat up to 150 patients in accordance with the protocol approved by the FDA in about 30 burn centers across the U.S. We of course will start with a site that already has hands-on experience and participated in either of the DETECT study or the pediatric study and expand it to additional burn centers going forward. So this regards the protocol itself. As to the control of this study, so this study is conducted under the BARDA agreement. Currently the BARDA agreements are conducted and managed by MediWound with oversight of Vericel. Vericel as part of the collaboration agreement assume all the U.S. rights and effective control for the U.S. development and commercialization. But currently we are conducting the development. We are managing the development in the clinical sites with oversight of the Vericel team and with the collaboration of the Vericel team. We enjoy a lot of experience and a track record of the Vericel team which are joined together with our experience team. We have been together with Vericel team and with the BARDA team at the FDA pre-BLA meeting and we worked together to submit this BLA and to have it successfully approved. And we had sponsors of all clinical studies. The NEXT study, the DETECT study which still has follow-up till 24 months, follow-up, and the pediatric study.

Great, that’s extremely helpful. And then just maybe one more from me, and it is a housekeeping item. And that is, when we think about from a financial modeling standpoint, participation from BARDA kind of as a percentage of R&D spending obviously moves around quarter-to-quarter but sort of been 60%, 70% of kind of that gross R&D line for the last several quarters. At least by our thinking that, that sort of your contribution should evolve over the next kind of call it two to four quarters, can you just provide us from a modeling perspective just some way to think about sort of the magnitude of the contribution from BARDA and the context of kind of an aggregate R&D budget, including more spending on EscharEx?

Thank you for the questions. So first of all, the -- all NexoBrid development programs are fully funded by BARDA. We have two contracts with BARDA. One is the thermal burn contract and the second one is burns caused by sulfur mustard gas, chemical burn basically. And we have an overall support of up to $87 million for the development. Today, we got already around $34 million out of reach. And the way to look at it is not as a percentage of the overall R&D expenses, but rather a full coverage of reimbursement of all the NexoBrid development. While the R&D net primarily is as a result of the EscharEx development in our third product 003. One thing I want to highlight that starting from this quarter, and as a result of the Vericel deal, the reimbursement from BARDA which was till now classified as a participation by BARDA as a net R&D expenses, now going forward will be classified as revenues from development services that we are providing with the cost of revenues and the net of the fee that we get on BARDA is part of our gross margin now.

Thank you. [Operator Instructions]. And our next question comes from Sameer Kandola with Wells Fargo. Your line is open.

Yes. Hi. Can you just remind us on the logic behind the deal with Vericel. Why did you choose them and what do you think investors are misunderstanding about the agreement if anything? Thank you.

Thanks, Sameer. So we explored the merit option during the strategic process we held last year till May this year. We believe that EscharEx could generate more value for shareholders and by it -- or through the commercial partnership for NexoBrid and monetizing NexoBrid, we believe that in addition to the fact that we find an ideal partner to maximize the potential market, or the potential in the U.S. market, we got proceeds that enable us to progress and advance the development of EscharEx going forward, generating more value with EscharEx into asset of MediWound. And we are confident we can replicate later on with EscharEx, which is much larger potential opportunity.

And do you think something is being misunderstood or not?

I don't know to point out exactly, but I believe you are well familiar with the street, which is basically it’s part of expectation. So we shared all during the process that we are considering all structures, all different structures and we are discussing several alternatives. At that time we found that the best alternative going forward for MediWound is to monetize the most advanced or the late advanced development asset NexoBrid while keep EscharEx and develop it to the next stage and then consider monetizing EscharEx in different structures going forward.

Thank you. And our next question comes from Swayampakula Ramakanth from H.C. Wainwright. Your line is open.

Good morning Sharon this is RK from H.C. Wainwright. A couple of quick questions. Thinking about the EscharEx 2 product, you stated that you’re starting the trial later this year and potentially there’s going to be an interim look on the end of 2020. So I'm just trying to understand, do you need to wait for that study to complete before you start the second study which is because as you said you require two studies to file the BLA. I am just trying to understand the timing of these two studies? Or can you start the second study as we get an interim look and can get a feel for how that first study is going?

Thanks for the question. Because we are data driven, so it’s all about the data we will generate in the interim assessment with the limitation of interim assessment. If the data will be supportive, we can start planning and preparing for the study, the next pivotal study. If we will be required to have because data will not support the planning, so we will have to wait till the end of the study. But anyway it seems in terms of planning go to safe part of the time between this study to the next study will be -- we will try to minimize the period between this study and the next study by preparing, by having the same CRO, by using the same clinical site active in the first study to leverage all of those infrastructures going forward to the next one.

Thank you. And then regarding the next protocol, how does that protocol help Vericel and yourselves in trying to commercialize NexoBrid and any of that data need to be submitted to the FDA at any point?

So the next protocol is an open arm and a single arm protocol, it’s a treatment protocol in accordance with treatment program of the FDA, which was approved by the FDA. And again, this NexoBrid expanded access treatment protocol allows U.S. burn centers to treat patients with NexoBrid prior to BLA approval in accordance with this protocol as well as to use this protocol and use NexoBrid in an undeclared emergency event. The contribution has several aspects. On one hand there will be at the end of this processed, increased number of burn centers trained in the use of NexoBrid across the U.S. which is furthering the national preparedness on mass casualty burn incidents and this is the trigger from BARDA’s standpoint and the FDA’s standpoint. From Vericel’s standpoint with this protocol running, we basically educate the market, generate hands-on experience with more and more potential customers. But by the end of the day the customers and users for NexoBrid are the same burn centers. So it’s ultimate prelaunch activity that anyone can foresee.

Thank you. And I'm showing no further questions. At this time, I’d like to turn the call back to management for any closing remarks.

Thank you. Thank you everyone for joining us today. We look forward to updating you again on our next quarterly update call. Thank you and have a nice day.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day.