MediWound Ltd. (MDWD) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter Mediwound 2019 Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeremy Feffer with Investor Relations. Please go ahead, sir.

Thank you, Sydney, and good morning, everyone. Earlier today, MediWound issued a press release announcing financial results and provided a business update for the fourth quarter and full year of 2019. You may access that release on the company's 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 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 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 the 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 notes set forth in today's press release, as well as the risk factors set forth in MediWound's annual report filed with the SEC. Factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. This conference call is the property of Mediwound, and any recording or rebroadcast is expressly prohibited without the written consent of Mediwound. Now I would like to turn the call over to Sharon Malka, Chief Executive Officer. Sharon.

Thank you, Jeremy. Good morning to our U.S. listeners, and good afternoon to our listeners in Israel. We appreciate you joining our call to review our fourth quarter and year-end 2019 financial earnings and corporate update. 2019 was an extremely productive year. And we are very encouraged as we look back at our accomplishments for the year. We are very pleased to be here today to provide an update on our progress. To begin, we generated total revenues of $31.8 million in 2018, a testament to our execution with a Vericel license and supply agreements, data development services and sales in Europe and other international markets. We are also proud to report that NexoBrid has become a cash flow positive product in 2019, and we expect it to continue support our balance sheet going forward. In our NexoBrid program, we had meaningful progress forward with the signing of commercial license and supply agreements in the U.S. with our partner, Vericel, which we believe is well positioned to leverage the medical need and to maximize the commercial potential of NexoBrid in North America. We are looking forward to filing a BLA with the FDA targeted for midyear 2020, in tandem with a commercial launch preparation. We expanded access in the U.S. with an NexoBrid expanded treatment protocol is up and running, allowing for the continued clinical use of NexoBrid for U.S. patients during the preparation and review of NexoBrid BLA. Recently, BARDA has begun procuring NexoBrid for emergency stockpile as part of the U.S. Department of Health and Human Services mission to build national preparedness for public health, medical emergencies. The initial BARDA procurement is valued at $16.5 million and the purchased inventory will be managed by MediWound under vendor managed inventory. We are currently manufacturing the emergency stock with the first delivery of NexoBrid expected by end of the first quarter of 2020. We believe that the availability of NexoBrid for emergency response will significantly increase U.S. readiness for burn mass casualty incidents. While the increasing number of burn centers enrolling in the next programs will help to ensure that major burn centers across the country are trained and experienced in the use of NexoBrid, should such an event take place. Globally, we continued to monetize NexoBrid through new distribution agreements in Australia, Ukraine and additional EU countries. And we look for additional distribution partners in the appropriate markets to expand global outreach of NexoBrid. In EscharEx, we launched our U.S. Phase II adaptive design study for treatment of venous leg ulcers and eagerly anticipate success as this study gets underway. The study is designed to assess the efficacy and safety of EscharEx compared to Gel Vehicle placebo control, as well as head-to-head with a current nonsurgical standard of care in the U.S. and include a predefined interim assessment anticipated by the end of 2020. Now for a little more detail and look forward for what you can expect in the year to come. In NexoBrid, we are on track with the BLA preparation. Our last quarterly -- on our last quarterly update, we briefed you on our constructive pre-BLA meeting with the FDA last year and continue to believe we have clarity on our regulatory path. We received FDA concurrence that the existing safety and efficacy data, including the 2 Phase III clinical studies and the 12-month safety follow-up data from our U.S. Phase III DETECT study are adequate to allow for BLA submission and review. As a reminder, in early 2019, we announced the results of the U.S. Phase III DETECT study, which will pass across all endpoints. The study met its primary endpoints and all of its secondary endpoints. Subsequently, we reported a 12-month follow-up safety data, which was comparable across all study arms and consistent with previous data with no new safety signals observed. We are pleased with the progress in the DETECT study where the 24-month long-term safety follow-up data is being collected and will be submitted as a safety update as a post-approval commitment. We are currently targeting the next of our BLA submission for midyear 2020 and expect for a PDUFA date around mid-year 2021. Our commercial partner in the U.S., Vericel, is actively preparing for commercial launch and pending approval plans to launch the product shortly thereafter. In tandem to those endeavours, 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. Consistent -- the NEXT program, which is supported and funded by BARDA is designed to be consistent with current, real-life treatment practices in the U.S. under the FDA expanded access program. We believe the next program will further extend the number of burn centers trained and familiar with NexoBrid, and will enhance national preparedness for burn mass casualty incidences. We are confident in our ability to bring NexoBrid to the U.S. market, where it has the potential to meaningfully impact patients' lives and look forward to successfully launching by our partner, Vericel, subject to its approval. Now on to EscharEx, our topical biologic drug candidate for enzymatic debridement of chronic wounds, which is designed for the outpatient setting. We are very excited to have initiated our Phase II adaptive design study for treatment of venous leg ulcer, and we are now actively enrolling patients. We are encouraged by the strong interest expressed by the clinical community in the U.S. for participating in this study. And we look forward to working closely with physicians and patients as we advance this study. This study is a multicenter, prospective, randomized adequacy control, assessor-blinded study to evaluate the safety and efficacy of EscharEx in deployment of venous leg ulcer in about 30 clinical sites, primarily in the U.S. We plan to enroll 174 patients, randomized to either EscharEx arm, Gel Vehicle Placebo arm or Non Surgical standard of care at a ratio of 1:1:1 with a 3-month follow-up. This study include a pretty -- planned interim assessment for futility and potential sample size adjustment, once approximately 100 patients enrolled and treated, which we anticipate to occur by year-end 2020. We agreed with the FDA that the primary endpoint will be incidence of complete debridement versus the Gel Vehicle placebo, while incidence and time to achieve wound closure will be assessed as a safety measurement. 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 Gel Vehicle placebo and Standard of Care. This study design enables to demonstrate efficacy, safety and clinical benefit over both placebo and Standard of Care as required by the FDA, as well as other stakeholders such as payers, patients and health care professionals. 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 requires for a BLA submission. We recently updated and refined our previously EscharEx market research, incorporating in-depth secondary research as well as qualitative and quantitative feedback from U.S. health care professionals. This market research indicates that in the U.S. alone, about 1 million VLU patients and about 1 million patients with DFUs are eligible for debridement in a given year. Moreover, it clearly indicates that there is a significant, unmet medical need for rapid-acting and safe enzymatic agent, as the current enzymatic use is limited due to perception of low efficacy. We believe EscharEx, if successfully developed, will be a game changer in this sizable market. We believe EscharEx, with its targeted product profile, has the potential to achieve substantial market share of this over $1 billion market and to have a meaningful impact on wound care treatment in this setting. In summary, we are very excited about where we are now with the 2 very attractive late-stage assets, NexoBrid and EscharEx, strong scientific support, meaningful partnerships and solid balance sheet supporting our development activities. We are actively progressing towards several meaningful milestones in both programs this year and believe, we are on the cusp of transformational year at Mediwound. Now it is my pleasure to turn the call over to Boaz for a summary of our financials. Boaz?

Thank you, Sharon, and good morning to our U.S. listeners and good afternoon to our listeners in Israel. We are pleased to provide you with an update on our fourth quarter of 2019 financial performance, which was highlighted by growing revenues combined with disciplined cost management and with the continued support by BARDA. The financial results of 2019 was significantly driven by the license and supply agreements with Vericel, for which we received $17.5 million upfront license payment that was recognized as revenues from license agreements. As a result of the Vericel license and supply agreement, we now generate also revenues from development services provided to BARDA as funding by BARDA is classified as revenues from development services. We're also very proud to report that NexoBrid has become a cash positive product in 2019, and we expect it to continue to support our balance sheet going forward. Turning now to our financial results. Revenues for the first quarter of 2019 were $5.4 million, an increase of $4.4 million versus $1 million in the fourth quarter of 2018, primarily driven by revenues from development services. Gross profit for the fourth quarter of 2019 was $1.1 million compared to a gross profit of $0.3 million for the first quarter of 2018 due to the increase in revenues. Research and development expenses, net of participation for the first quarter of 2019 were $1.7 million compared with $0.3 million for the first quarter of 2018. The increase is primarily driven by the initiation of our U.S. Phase II adaptive design study of EscharEx for the treatment of venous leg ulcers. Selling, general and administrative expenses for the first quarter of 2019 were $2.4 million compared with $2.2 million for the fourth quarter of 2018. Operating loss was $3.1 million compared with the loss from ongoing operational activities of $2.2 million in the first quarter of 2018. In the fourth quarter of 2018, we recognized onetime other income from settlement with Teva of $7.4 million, resulting in operating profit of $5.3 million. Net loss for the fourth quarter of 2019 was $3.4 million or a loss of $0.13 per share compared with a net profit of $10.6 million or $0.39 per share for the fourth quarter of 2018. The company's net profit in 2018 included onetime other income of $12.1 million as a result of the settlement with Teva, which was partially recorded as discontinued operations. Adjusted EBITDA is defined below for the first quarter of 2019 was a loss of $2.4 million compared with a loss of $1.9 million in the first quarter of 2018. Looking now at 2019 full year results versus the prior year, revenues for the year ended December 31, 2019, were $31.8 million compared with $3.4 million for the year ended December 31, 2018. The increase was primarily due to the upfront license payment of $17.5 million from Vericel and 10.7 million development services provided to BARDA. Gross profit for the year ended December 31, 2018, was $19.9 million and 63% compared with a gross profit of $1.3 million and 39% in the prior year period. Operating profit for the year ended December 31, 2019, which included $17.5 million upfront license payment and $1.7 million of deal-related expenses was $4.5 million. Operating loss for the full year of 2018, which included onetime income of $6.8 million was primarily the result of the settlement with Teva of $4 million. The company's net profit in 2019, which includes $17.5 million upfront license payment from Vericel, net of $1.7 million related onetime expenses and $2.8 million of profit from discontinued operations was $5 million or a profit of $0.18 per share, compared with a net loss of $1.1 million or a loss of $0.04 per share for the same period in 2018. Adjusted EBITDA is defined below for the year ended December 31, 2019, was a profit of $8 million compared with a loss of $9.5 million for the prior year period. As of December 31, 2019, the company had cash, cash equivalents and short-term bank deposits of $29.5 million compared with $23.6 million as of December 31, 2018. The company utilized $11.6 million in cash to fund its ongoing operating activities, NexoBrid license related payments and repayment of contingent liabilities, which is in line with the company's guidance of $10 million to $12 million. The company will continue to invest primarily in research and development efforts for Escharex, while NexoBrid is expected to be cash positive, primarily due to anticipated interest in BARDA and the collaboration with Vericel. As a result, the company expects cash used for 2020 to be in the range of $11 million to $13 million, including repayment of contingent liabilities. I will now turn the call back over to Sharon. Sharon?

Thank you, Boaz. Looking ahead, we will continue actively enrolling patients in our U.S. Phase II adaptive design study for EscharEx, and we expect to report interim assessment data by the end of 2020. And we are targeting NexoBrid BLA submission for mid-year 2020. We also will continue executing our plans and moving our program forward. With that, it is now my pleasure to open the call for Q&A. Operator?

[Operator Instructions]. And our first question comes from Josh Jennings with Cowen.

So I'll just start off on the NexoBrid platform of program and submission for BLA midyear. Can you just help us understand what's remaining on your side in front of the submission? What are the remaining steps that MediWound needs to take before finalizing that submission?

Thank you for the question. We are currently crafting the BLA, different models. And what we are mainly dealing with is the authoring of certain sections of the BLA models, which takes somewhat longer than we originally projected, mainly due to the fact that currently, 3 parties are involved in this review of the BLA models, which are MediWound team, Vericel team and BARDA team. But what we believe is instead of compressing the time line, we believe that we want to ensure an appropriate amount of time for QA and review about all of those parties. And that is why we believe that the submission is targeted for midyear.

And just on the -- just the $50 million of option that NexoBrid has to procure -- sorry, excuse me, that BARDA has to procure NexoBrid. What do you think you will -- BARDA will inform MediWound or Vericel of the decision relating to this option? Is that maybe later this year? Or is that a 2021 event? Or how does that communication get passed on? How the decision may get made? And how is that communicated?

So first of all, in terms of expiration of this option. So I believe that the expiration of this option is at least, 3, 4 years from now. Regarding the timing, we have to take one step back. The reason for this option is for several alternatives. One is to increase the level of stock that currently is incorporated in the initial procurement, currently it's the $16.5 million. If SNS will decide the level of emergency stock of NexoBrid should be higher than what they calculated back in 2015, so this is one scenario in which they will utilize or exercise part of the $50 million option. The second alternative is to rotate expiry stock. We will provide BARDA with $16.5 million initial stock emergency stock our product has a shelf life of two years. And after two years, they will have to rotate this emergency stock. So this is another reason for them to exercise part of all of this option. And the third one is, we have additional contract, separate contract with BARDA for the development of NexoBrid to treat burns caused from sulfur mastered gas. In this contract, BARDA no procurement claim or no procurement option. And they can use this option, the $50 million option also, to have a supplier of emergency stock for this sulfur mustard indication.

Great. Can i just squeeze one in on EscharEx. It sounds like you're still on track to have the interim analysis ready for the -- by the end of this year. Any other color you can give to investors around just where patient enrollment stand? I know it's still very early, or how many centers are up and running and enrolling? And where do you expect that center number to be by the end of next quarter? Or any of those metrics would be just helpful.

So currently, as I said, we are in an early stage of this study, what we call the set-up phase of this study, which we anticipate to complete by end of March. And what I mean to complete, is having the -- about 25 to 30 clinical sites, primarily in the U.S., active and enrolling. We have to date, about 17 sites already opened and after SIVs. And I assume that during the second quarter, towards the end of the second quarter, the first quarter that the study will be active in all sites, we will start sharing some metrics with investors and analysts regarding the enrollment phase and other parameters. And regarding to the time line, yes, we are still believe or anticipate to add the interim assessment by year-end 2020 following the completion of this set-up phase by March -- by end of March 2020.

Our next question comes from Raj Denhoy with Jefferies.

This is Brianna on Raj. I was just hoping you could further characterize the complexion of the 4Q revenue. So what percent of revenue was attributed to NexoBrid sales that the U.S. in the quarter? And then, can you just provide any detail on demand you're seeing for NexoBrid outside the U.S.?

Yes, thank you for the question. So regarding the revenue breakdown, I will turn over to Boaz to share with you the breakdown of the Q4 revenues. And he will provide it in a moment, please.

Yes. So thank you for the question. So the revenues breakdown was a 4.4 -- yes, $4.4 million of services.

The overall revenues for the fourth quarter was $4.4 million. It was comprised of two elements. About $1 million was as a result of revenues from sales of product and $3.4 million from revenues from development services provided to BARDA.

Okay. And then if I could, so none of that revenue was actually recognized from BARDA sales during the quarter as part of the initial procurement, correct?

No, that was not -- it is expected to happen in 2020, with the first delivery as said in Q1 2020.

So then what are your expectations for BARDA sales in 2020?

So as we already shared the -- after the initiation of the procurement, we believe or we expect that the first delivery will occur towards the end of this quarter, the first quarter. As a reminder, the initial BARDA procurement is valued at $16.5 million, while the revenues net $10.5 million, net of Vericel portion, which is $10.5 million will be equally recognized in 2020 and 2021. And it will be linear spread across 6 quarters starting from Q2 2020.

Our next question comes from Swayampakula Ramakanth with H.C. Wainwright.

This is RK from H.C. Wainwright. Sharon, most of my questions have been answered, but I just have quick couple ones. On the NexoBrid EAP, has there been any recruitment of patients in 2019 into this program? And could you provide us any commentary on how that is helping increase awareness, as you suggested?

Yes. So as a reminder, we plan to have about 30 sites in the U.S. participating in the next program by the end of 2019, we have about 10 to 12 sites opened and active and we have several patients already treated in the last month of 2019, what the goal for 2020 is to open additional sites up to 30 sites. And we have currently a quarter of about 150 patients that can be treated under this protocol, still the BLA will be reviewed by the FDA so our plan is to recruit around 60 to 80 patients throughout 2018 in those sites in the U.S.

The next question is on EscharEx. So you gave very detailed -- I mean, a lot of details on your first EscharEx study, which you have initiated. Do you need -- do you plan to wait for this study to complete before you have to start the second study. As you said, your required two studies to file for the regulatory submission.

Yes, correct. So as you said, regulatory wise, we need to adequately control study for a bit to support BLA submissions. We believe that this study if successful can be considered as one of those two studies, but in order to discuss this with the FDA, we, first of all, have to have -- need to have the data. And assuming that data will be robust or will replicate what we had in the previous phase II study with EscharEx's first generation, it will enable us to discuss with the FDA. But as you know, any discussion with the FDA should be -- it's better to have it based on data as a data-driven discussion and not theoretical discussion. So yes, we will wait for the results of this study and then start the discussion with the FDA.

One last question. In the last couple of months, you've been putting out as -- certain announcements regarding collaborations outside of the U.S., especially in Australia, I guess, Ukraine and other countries. How meaningful are these collaborations for NexoBrid commercialization? And what are your expectations in terms of timing in these regions?

So these collaboration agreements or distribution agreements signed in several countries such as Australia, Ukraine and other EU countries, is part of our strategy to expand the global outreach of NexoBrid. As a reminder, we are signing distribution agreements with local distributors that have the relevant expertise, both in terms of regulatory requirement in this -- in the country, as well as market access expertise. Those distributors are responsible for; one, get the product approved and then commercialize it in the territory. In some countries, it can take faster in some countries, the regulatory passthrough -- regulatory approval takes 1 to 2 years. Usually, this build is about 1 to 2-year, still they get the products approved. And then, they can launch the product in those countries. As we mentioned in some of those distribution agreements, our distributor managed to get a specific program, like in Australia, in which you can treat patients before getting the approval, the marketing approval of NexoBrid.

And our next question comes from Kevin DeGeeter with open Harmer.

This is Susan covering for Kevin DeGeeter. So I wanted to follow-up on the next protocol. Do you guys have any feedback from surgeons on ease of use? And just any sort of qualitative feedback on the product?

Not yet. As I mentioned before, we have several patients with -- under this protocol. The first 10 sites that were opened already are sites that already have hands-on experience from either the DETECT study or previous studies that we are running in the -- we ran in the U.S., so they are familiar with the NexoBrid. What I can show you in the next quarter call is based on the routine practice of -- in the experience center as opposed to the DETECT study, which has much more complex protocol and comprehensive protocol in the next study. So I assume that the ease of use in terms of overload in those centers will be better or will be easier as opposed to what they have in the detect study.

One more question. So as the EscharEx study ramps up in 2020, do you have the guidance on cash burn rate going up or anything like that?

Yes. So as mentioned by Boaz at the end of the financial review, we will continue to invest in -- primarily in research and development associated with EscharEx as NexoBrid is expected to continue to be cash positive, cash flow positive going forward. And as a result, we expect the cash use for 2020 to be in the range of $11 million to $13 million, including repayment of contingent liabilities.

And I'm not showing any further questions at this time. I will now turn the call to Sharon Malka for any further remarks.

Thank you very much. Thank you, everyone, for joining us today. And thank you to our team, who have done so much this past year and who continues to execute at a very high level. We look forward to an exciting year and to updating you again on our next quarterly update call. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.