MediWound Ltd. (MDWD) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by and welcome to the MediWound Third Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Jeremy Feffer of Investor Relations. Please go ahead, sir.

Thank you, Lidia and good morning, everyone. Earlier today, MediWound issued a press release announcing its financial results and provided a business update for the third 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. Following management’s prepared remarks, we will open the calls for Q&A. Before we begin, I would like to remind everyone that statements made during the 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 the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and 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 statements 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, Jeremy. Good day everyone. And good afternoon to the Israeli listeners. Thank you for joining us today on our third quarter earnings call. We are excited to be here this morning to update you on the progress we have made in this quarter as we prepare for an eventful upcoming year. We have meaningful events coming up for both NexoBrid and EscharEx. We expect to initiate patient treatment in our adaptive Phase 2 study in EscharEx this quarter and are on track with plans for NexoBrid BLA filing in the second quarter of 2020. Let me now go into more details on each of our programs. Starting with NexoBrid. We had a productive pre-BLA meeting with FDA at the end of July and now has a clear pathway for a BLA filing for NexoBrid planned for the second quarter of 2020. We received FDA concurrence that takes listing safety and efficacy data, including the two Phase 3 clinical studies and the 12 month follow up safety data from the DETECT are adequate to allow for a BLA submission and review. Moreover, FDA concurred that the DETECT 24 months follow up safety data could be submitted as a safety update report as part of the post approval commitment. We are pleased to report that we completed the analysis of the DETECT follow up safety data collected in the 12 month follow up period and found it was comparable across all study arms, the NexoBrid arm, gen vehicle placebo and the standards of care arms. Third the cosmesis and function data measured by MVSS, Modified Vancouver Scar Scale was comparable between the NexoBrid and the standard of care arms, demonstrating that the treatment with NexoBrid does not have any deleterious effect on the quality of burn scar. Those results were confirmed by additional cosmesis and function data measured by POSAS, Patient and Observer Scar Assessment Scale. Second additional long term functionality evaluation, including lower and upper extremities and range of motion was comparable between all study arms. Third, the long term quality of life data measured by two separate questionnaires was comparable between all study arms. And finally, the overall safety profile of NexoBrid was consistent with previous data and no new safety signals were observed. Also, this quarter we initiated the NexoBrid expanded access treatment protocol NEXT in the U.S. to treat up to 150 patients with deep partial and full-thickness burns of up to 30% of total body surface area during the preparation and review of the NexoBrid BLA. The NEXT program, which is supported and funded by BARDA allows for the continued clinical use of NexoBrid for U.S. patients prior to NexoBrid approval by the FDA, as well as the use of NexoBrid in an undeclared emergency event. NEXT is designed to be consistent with the current real life treatment practices in the U.S. under the FDA expanded access program, which allows access to investigational products to treat patient all source of clinical trials when no comparable or satisfactory identities treatment are available. We believe the NEXT program will enhance national preparedness for burn mass casualty incidents and will further extend the number of burn centers trained and familiar with NexoBrid in the U.S. Our commercial partner in the U.S. Vericel continues to prepare for launch upon approval of NexoBrid. With a clear regulatory pathway for BLA submission, and the ongoing NEXT program, we are highly confident in our ability to bring NexoBrid to the U.S. market where it has the potential to meaningfully impact patient's lives. Moving on to EscharEx, the primary focus of our strategy going forward. Following the launch of the next stage of the U.S. clinical development program for EscharEx earlier this year, we have submitted and adaptive design protocol for our second generation EscharEx to the FDA and to Institutional Review Boards, IRBs. And we are on track to initiate patient placement in our U.S. Phase 2 adaptive design study for EscharEx this year - this quarter. The study will be multicenter, perspective, randomized, adequacy-controlled assessor-blinded study to evaluate the safety and efficacy of EscharEx in debridement of Venus Leg Ulcers in about 30 clinical sites, primarily in the U.S. The study will enroll 174 patients randomized to either EscharEx, gel vehicle or non-surgical standard-of-care, for either Santyl or Hydrogel at the ratio of 1:1:1 with a three months follow-up. The study includes a preplanned interim assessment for futility analysis and sample size adjustments, once approximately 100 patients enrolled and treated which we plan to have by year-end 2020. As agreed with the FDA, the primary endpoint will be incidents of complete debridement versus the gel vehicle placebo while incidents and time to achieve wound closure will be assessed as a safety measurement. Secondary endpoints will include reduction of pain, time to achieve complete debridement, reduction of wound area, granulation tissue, and quality of life and will be compared with gel vehicle placebo and standard-of-care. The study design enables us the ability to demonstrate efficacy, safety and clinical benefits over both placebo and standards of care as required by the FDA to address the market needs, and other stakeholders' interest, such as payers and healthcare professionals. And allows us a head-to-head comparison of EscharEx with the current U.S. non-surgical standard-of-care, including the current available enzymatic debridement engine. 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. We believe EscharEx has the ability to be a game changer. Addressing a significant unmet medical need for a non-surgical rapid and effective debridement therapy with a sizable market opportunity. We are encouraged by the strong interest expressed by the clinical community for participating in this study. And we look forward to working closely with both physicians and patients as we advance this exciting therapy. In summary, we are very excited as we actively progress towards several meaningful upcoming milestones in both programs. Now, it is my pleasure to turn the call over to Boaz for a summary of our financials this quarter. Boaz?

Thank you, Sharon and good morning, everyone. We are pleased with our financial performance in the third quarter of 2019, which was highlighted by growing revenues combined with disciplined cost management, with the continued support by BARDA. The financial results of the third quarter, and the 9 months of 2019 were significantly driven by the license agreement with Vericel and the revenue recognition of the multiple elements of this deal. NexoBrid has become a cash positive product in 2019 and we expect it to continue to support our balance sheet going forward. Additionally, we have strengthened our balance sheet with the PolyHeal settlement writing of the $6 million provision which netted in net profit of $2.8 million from discontinued operations. Turning now to our financial results. Revenues for the third quarter of 2019 were $5.1 million an increase of $4.2 million versus $0.9 million in the third quarter of 2018, primarily driven by revenues from development services. Gross profit for the third quarter of 2019 was $0.7 million compared with $0.5 million in the third quarter of 2018. Research and development expenses net of participation for the third quarter of 2019, were $1.4 million, compared with a $1.2 million for the third quarter of 2018. Selling, general and administrative expenses for the third quarter of 2019 were $2 million compared with a $1.5 million for the third quarter of 2018, primarily due to non-recurring costs. Operating loss for the third quarter of 2019 was $2.7 million, compared with the loss of $2.2 million in the prior period. The company's net loss for the third quarter of 2019 was $0.2 million or a loss of $0.01 per share, compared with a net loss of $2.9 million or a loss of $0.11 per share for the third quarter of 2018. The decrease in net loss was primarily due to settlement with certain PolyHeal shareholders, which resulted with a one-time profit from discontinued operations of $2.8 million. Adjusted EBITDA for the third quarter of 2019 was a loss of $2 million flat to the third quarter of 2018. Reconciliation of adjusted EBITDA to GAAP net income is included in the press release we filed with SEC earlier today. Moving now to financial results for the first 9 months of 2019. Revenues for the first 9 months of 2019 were $26.3 million, compared with a $2.4 million in the same period last year, driven by the $17.5 million upfront license payment from the Vericel agreement and revenues from development services of $6.3 million. Operating profit for the first 9 months of 2019, which includes a $15.8 million up from license payment net of deal related costs was $7.6 million. Excluding the upfront license payment, net operating loss for the first 9 months of 2019 was $8.2 million, which reflect an improvement of 12% from the $9.2 million loss in the first 9 months of 2018. The company's net profit for the first 9 months of 2019, which includes a $15.8 million net upfront license payment and $2.8 million profit from discontinued operation was $8.4 million or a profit of $0.31 per share, compared with a net loss of $11.7 million or a loss of $0.43 per share in the first 9 months of 2019. As of September 30, 2019, the company had cash, cash equivalents and short term bank deposits of $32.9 million, compared with $23.6 million at December 31, 2018. The company remained on budget, utilizing $9.2 million in the first nine months of 2019 for its operational activities. Throughout the remainder of the year, the company will continue to invest primarily in the research and development efforts for EscharEx, while NexoBrid research and development program will be funded by BARDA. As a result, the company updates its cash use for 2019 to be in the range of $10 million to $12 million, versus a previously reported guidance of $12 million to $14 million, including NexoBrid license related payments and repayment of contingent liabilities. With that, I have concluded the report of the financial results, and will now turn the call back to Sharon. Sharon?

Thank you, Boaz. Looking ahead, we anticipate initiating patient treatment in our Phase 2 adaptive design study for EscharEx in this quarter of 2019. Additionally, we anticipate NexoBrid BLA filing in the second quarter of 2020. We also will continue executing our plans and moving our programs forward. With that it is my pleasure to open the call for Q&A. Operator?

[Operator Instructions] And our first question is coming from the line of Raj Denhoy with Jefferies. Your line is now open.

Hi. This is Zach [ph] in for Raj. Just one question on BARDA payments. Last quarter, you'd received roughly $35 million in R&D reimbursement. Just curious what that number looks like this quarter. And then moving forward, what are the triggers and timing for your next payment?

So starting from - first of all, thank you for the question, Anthony. Starting from the Vericel deal on May 2019. The reimbursement form BARDA was classified as revenues from development services. As part of the revenue was the actual cost of development is part of the cost of goods in our financials. In quarter two the actual development services revenues was about $2.3 million, while now we have for the nine months around - we have additional six - general total of $6 million of revenue from development services. And the average value of these services is about $1 million to $1.5 million per month.

Okay, thank you.

And our next question coming from the line of Josh Jennings with Cowen. Your line is open.

Hi, this is Bryan here for Josh. Thank you for taking my questions. On the DETECT study, have you analyzed the primary endpoint at 12 months? And are those results needed for the BLA filing or is the filing sufficient with the acute primary endpoint data and the longer term safety data you've generated?

Thank you for the question Bryan. So I will split the answer in two. Regarding the primary end points. So the primary endpoint as well as all secondary endpoints and safety - general safety endpoints are all measured only in the acute phase at the end of the treatment of patients. The 12 months a follow up data is mainly safety measurement related to the scar quality, cosmesis and function, functionality and quality of life. This is the first part of your question. Regarding the second part of your question. We received the FDA concurrence that the BLA submission will be - will include the two Phase 3 clinical studies and the 12-months follow up safety data collected from the DETECT study. And this will be adequate for a BLA submission as well as for the BLA review by the agency. The FDA concurred that they DETECT 24 months follow up safety data will be submitted as a safety efficacy report, as part of the post approval commitment. That address your question?

It does, thank you, that’s helpful. And can I have one on the next protocol? Is it your expectation that BARDA will fulfill its procurement obligations, mainly through activity of these NEXT trial sites? And I guess, will there be any inventory build for readiness purposes at these sites?

So, the next protocol clinical supply is separate procurement from BARDA which is not part of the $16.5 million commitment for stockpiling. And this clinical supply for the NEXT will be achieved throughout the period of this study as part of our revenue. Regardless this clinical supply for the NEXT, BARDA is committed to procure $16.5 million of NexoBrid for stockpiling which we believe, based on discussion that we have with BARDA, that they can or will trigger throughout the end of this year, enable us to start recognizing revenues upon deliveries from the first quarter of next year.

Okay, that’s helpful. Thank you again.

You are welcome.

[Operator Instructions] And our next question is coming from the line of Sean Kang [ph] with H.C. Wainwright. Your line is open.

Hi, thank you for taking my question. This is Sean Kang, H.C. Wainwright. Could you provide little bit more color on EscharEx launch timing? So pending the successful Phase 2 study should we expect similar duration for the Phase 3, because you said you only knew one pivotal study?

So, regarding the upcoming Phase 2 adaptive design study which we planned to enroll 174 patients. As we already provided guidance, we plan to have the interim assessment after treating about 100 patients around year-end 2020, and this study should be finalized and concluded by year end 2021. The next pivotal study - Phase 3 study will be probably in the same duration, because we believe it’ll be the same ballpark of sample size, around the 150 to 200 patients.

I see, thank you. And regarding the 16.5 million procurement of BARDA, in terms of booking, is it going to be spread out over a certain period or it’ll be more like a lump-sum payment?

So, BARDA - the rate work at BARDA will provide us with a purchase order for all the 16,000 units which is a 16.5 million unit. In terms of revenue recognitions in our financial, it will be based on deliveries of actual products to BARDA’s warehouses in the U.S. And in accordance with the delivery schedule, I agree with BARDA which is based on our capacity and manufacturing plan. It will be recognized upon six quarter starting from the quarter after we trigger this procurement, and will be recognized throughout those - this period.

Okay, thank you. That’s all for now.

Thank you. And I'm not showing any further questions at this time, I would like to turn the conference call back over to Sharon Malka for 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, this concludes today’s conference call. Thank you for participating, you may all disconnect.