MediWound Ltd. (MDWD) Q2 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Q2 MediWound 2020 conference call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Jeremy Feffer. Please go ahead, sir.

Thank you, Tiffany, and good morning, everyone. Earlier today, MediWound issued a press release announcing financial results and provided a business update for the second quarter of 2020. You may access that release on the company's website under the Investors tab. With us today are Sharon Malka, Chief Executive Officer; 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 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 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 for factors that could cause the actual results to differ materially from those anticipated in the forward-looking statements. 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 over the call to Sharon Malka, Chief Executive Officer. Sharon?

Thank you, Jeremy. Good morning and good afternoon to our listeners in Israel. Thank you, everyone, for joining us today on our second quarter 2020 earnings call, which will provide business and financial updates. It has been an unprecedented first half unlike we or anyone could have anticipated. While the COVID-19 pandemic caused a never-seen disruption to humanity, resulting with a significant adverse impact on international and local trade and business, we truly believe we overcame many of these challenges and have made a tremendous progress recently. This quarter, we remained committed to execution and filed our NexoBrid BLA as planned, resumed patients' enrollment in our EscharEx trial, and continued our efforts to expand sales worldwide, all while ensuring the safety and well-being of our employees, healthcare providers and patients. We are looking forward to a very busy second half filled with the continued execution and progress. Let me now provide more detail and review of what took place during the second quarter. Over the past several months, we have implemented several measures in response to the COVID-19 pandemic to safeguard the health of our employees and healthcare providers and to ensure continued manufacturing and supply of NexoBrid to healthcare providers and patients with severe burn injuries. We also implemented expense reduction measures to minimize the impact to operations while ensuring full compliance with necessary regulations and directives. Management continues to assess the impact of the ongoing pandemic, its potential implications to business continuity, the necessary remedies required, and we'll adjust accordingly to the challenges created by this pandemic. We would like to thank all of our employees for their tremendous dedication, commitment and flexibility demonstrated during this crisis, enabling us to carry on critical business functions while maintaining operational capacity and flexibility. Moving to our EscharEx Phase II study for the treatment of venous leg ulcers. This trial is designed to assess the safety and efficacy of EscharEx compared to placebo-control and nonsurgical standard of care. We are very pleased to have reinitiated patients' enrollment this quarter after temporarily suspending the initiation of additional clinical sites and new patient enrollment last quarter. We are now actively recruiting patients in clinical sites where clinical trials restrictions have been lifted in compliance with applicable governmental orders and clinical sites policies and procedures. We are monitoring all study clinical sites and stand ready to swiftly resume enrollment at all sites as soon as is practical. Since the reinitiation, we are on track with patients' recruitment and are optimistic about our progress. We have a predefined interim assessment for futility and potential sample size adjustment once about 100 patients complete this treatment, which we anticipate to occur in the first half of 2021. And we look forward to providing more data later this year. We believe EscharEx, if successfully developed, will be a game changer in this sizable market. EscharEx, with its targeted product profile, has the potential to gain substantial share of more than $1 billion market and to have a meaningful impact on wound care treatment. With our NexoBrid program, we were encouraged with the submission of the BLA to the FDA as we planned at the end of June despite the COVID disruptions, which represent a meaningful milestone for us and for the long-term collaboration we have with BARDA. The BLA submission has been a collaborative effort with our partners, specifically BARDA and Vericel, being supportive of this filing. The BLA submission included a comprehensive set of manufacturing data, multiple preclinical and clinical studies, including our pivotal U.S. Phase III DETECT study. We expect to receive FDA acceptance and a PDUFA date in the coming weeks. And upon BLA approval, we are eligible to receive $7.5 million milestone payments from Vericel. As we await FDA review, we continue to enroll patients in our NexoBrid expanded access program in the U.S. And we see increase of the use of NexoBrid with more burn patients treated in more burn centers across the U.S. The NEXT program importantly and strategically keeps us engaged with all the key burn centers in the U.S. as our U.S. commercial partner, Vericel, is actively preparing for commercial launch. On the manufacturing front, we continue to manufacture NexoBrid, primarily focused on building an emergency stockpile for BARDA and supply NexoBrid to patients with severe burns injuries. The first delivery to BARDA is scheduled for later this quarter, while the majority of deliveries will occur in 2021. We maintain a significant safety stock to meet expected demand over the next several quarters. And at this time, we do not expect any disruption to manufacturing operations and global supply chain. On the commercial front, we continue to support healthcare professional, utilizing virtual tools where access was restricted, ensuring uninterrupted access to NexoBrid. We are pleased to see product revenues growing and the expansion of NexoBrid to new territories as we look forward, generating revenues from BARDA procurement starting from the next quarter. Our solid balance sheet will continue to support our growth as we execute on our strategic and development plan and will continue to strengthen our company. We remain firm in our commitment to bringing our life-saving treatment to burn patients everywhere. Now, it is my pleasure to turn the call over to Boaz for a summary of our financials this quarter. Boaz?

Thank you, Sharon. Good morning everyone in the U.S., and good evening to the listeners in Israel. I'd like to start the financial overview, stating that we're still implementing rigid and concise monitoring to the COVID-19 implications and continue to adjust our 2020 plan, including cost reduction of operating expenses and material purchases. We're also very pleased with our NexoBrid revenue growth and global expansion, increasing its positive cash flow generation to further support our cash position. I would like now to provide you with an update on our financial performance for the second quarter of 2020. Revenues for the second quarter of 2020 were $4.0 million, compared with $20.7 million for the second quarter of 2019 as a result of Vericel upfront payment of $17.5 million for NexoBrid. Excluding that, revenues from product in the second quarter of 2020 were $1.1 million, reflecting an increase of 17% in comparison to the prior year quarter, and an increase of approximately 50% compared to the first quarter of 2020. Looking ahead, we expect revenues from products to grow with the delivery to BARDA starting from the third quarter of 2020. Gross profit for the second quarter of 2020 was $1.2 million, compared to a gross profit of $17.5 million for the second quarter of 2019, which included $16.8 million from Vericel licensing agreement, net of expenses. Gross margin from product sales increased to 44% from the 29% in the second quarter of 2019 as a result of increasing product sales and improvement of our manufacturing processes. Research and development expenses for the second quarter of 2020, net of participation, were at $1.6 million, compared with a $0.4 million for the second quarter of 2019, primarily due to the decrease of participation by BARDA and the Israeli Innovation Authority. Selling, general and administrative expenses for the second quarter of 2020 were $2.3 million, in line with the second quarter of 2019. Operating loss was $2.7 million, compared with an operating profit of $13.9 million for the same period in 2019, which included the upfront payment of $17.5 million from Vericel licensing agreement, net of royalty payment of $0.7 million and $0.8 million of other expenses. The company posted a net loss of $3.1 million, or $0.11 per share, for the second quarter of 2020, compared with a net profit of $12.7 million, or $0.47 per share, for the prior year quarter of 2019, which included the $17.5 million upfront license payment, net of royalty payment of $0.7 million and $0.8 million of other expenses. Excluding the upfront license payment, net of deal-related costs, net loss for the second quarter of 2019 was $3.3 million, or $0.12 per share. Adjusted EBITDA, as defined below, was a loss of $2.1 million, compared with a profit of $15.4 million for the second quarter of 2019, which included the upfront payment of $17.5 million from Vericel licensing agreement, net of royalty payment of $0.7 million. Moving now to year-to-date 2020 financial results. Revenues for the first half of 2020 were $8.5 million, compared with $21.2 million in the first half of 2019, which included the $17.5 million upfront payment from Vericel licensing agreements for NexoBrid. The company net loss for the first half of 2020 was $5.6 million, or a loss of $0.20 per share, compared with a net profit of $8.6 million, or a profit of $0.32 per share, for the first half of 2019, which included the $17.5 million upfront license payment, net of royalty payment of $0.7 million and $0.9 million of other expenses. Excluding the upfront license payment, net of deal-related costs, net loss for the first half of 2019 was $7.3 million, or $0.27 per share. Adjusted EBITDA was a loss of $3.9 million, compared with a profit of $12.4 million for the first half of 2019, which included the upfront payment of $17.5 million from Vericel licensing agreement. As of June 30, 2020, the company had cash and short-term bank deposits of $24.4 million, compared with the $29.5 million as of December 31, 2019, and has no debt. The company will continue to invest primarily in research and development efforts for EscharEx, and we reiterate our expectations for cash use for operating activities in 2020 to be in the range of $8 million to $10 million. While at this time, the company cannot predict the extent or duration of the impact of the COVID-19 outbreak on its ongoing financial and operating results, we will continue to closely monitor our operations and assess the impact of the COVID-19. With that, I've concluded the financial overview and will now turn the call back to Sharon. Sharon?

Thank you, Boaz. Looking ahead, we anticipate FDA acceptance of our BLA for NexoBrid soon and will continue our commercialization activities with our partner, Vericel. For EscharEx, we are actively enrolling patients and will continue moving forward with the study. While uncertainties remain, we remain highly confident in the fundamentals of our business, and we will continue executing our plans and actively progressing towards several meaningful milestones in both programs. That concludes our prepared remarks. It is now my pleasure to open the call for Q&A. Operator?

[Operator Instructions]. Your first question comes from the line of Raj Denhoy with Jefferies.

This is Brianna [ph] on for Raj. So congrats on reenrolling patients into the U.S. EscharEx study. We were just wondering how many sites in the U.S. have reopened and if you're targeting additional sites, and then when you expect to have all the sites up and running.

First of all, we are very pleased with the resume of patients' enrollment of our EscharEx study despite the challenges we have with COVID. In general, we plan to have about 25 to 30 sites participating in this study, primarily in the U.S. We are now actively recruiting patients in about 20 clinical sites in the U.S. and in Israel that are, under the current local regulations, allowed to enroll patient into the study. And we are monitoring all sites and stand ready to swiftly resume enrollment at all sites as soon as it's practical. What I can show you also is that since the reinitiation early June, we are on track with patient recruitment and are optimistic about our progress towards the interim assessment, which we anticipate will occur in the first half of 2021. Of course, we need more time to evaluate the pace of recruitment, which is subject to governmental policies, the individual facilities' policies, and of course the willingness and ability of patients to return to clinical settings. And lastly, regarding the potential metrics, we plan to share metrics on the EscharEx study, once the uncertainty is wavered, and we'll provide you with more insights of the EscharEx Phase study progress and recruitment base.

Thank you so much. And then also congrats on submitting the BLA for NexoBrid in the U.S. I do have a quick question on the BARDA procurement of NexoBrid for the emergency stockpile. So has BARDA maintained the previously adjusted scheduling to begin procurement in 3Q 2020? I believe you said that. But I was just wondering if the cadence through 2021 has shifted and if you expect any COVID-19 related distraction to potentially delay your delivery timelines further.

Thanks. So following the initiation of the procurement of NexoBrid for emergency response earlier this year, we began manufacturing NexoBrid and building an emergency stockpile, ready for delivery, which is currently stored in our facility in Israel. As a reminder, last quarter, BARDA requested an adjustment of the delivery plan due to the COVID-19 and shifting priorities. And currently, the first delivery to BARDA is scheduled to take place later this quarter in the third quarter, followed by subsequent deliveries in the following 4 to 5 quarters on a pro rata basis of the $16.5 million.

Your next question comes from the line of Kevin DeGeeter with Oppenheimer.

Just a couple of housekeeping, maybe following up on the BARDA procurement. I believe your partner, Vericel, sort of alluded to kind of $1 million in 3Q and $1 million in Q4, which I think is probably generally consistent with your prior -- your comments in response to the last question. But can you kind of clarify how we should think about the schedule for the BARDA procurements I guess sort of after this initial 3Q delivery?

Thanks, Kevin, for the question. So what I can is to reiterate what you just mentioned regarding our partner, Vericel. As a reminder, we have a $16.5 million procurement on a gross level from which Vericel get about 34%, 35%. So correctly, in first quarter -- the third quarter, we planned or schedule the first delivery for which we will get about $3 million gross, of which Vericel will get $1 million, as you mentioned. And it will be the same in the fourth quarter, means that the balance will be spread in the first three quarters of 2021, pro rata.

Very helpful. And a bit of a housekeeping item. Can you remind me whether there will be the need for an increase in inventory, an inventory build prior to the U.S. launch of NexoBrid? And to the extent that there is -- should we think about perhaps some of that inventory flowing through in the first half 2021 prior to the launch? Just how do I think about sort of working capital impact of potential NexoBrid U.S. approval?

Yes. So in tandem to manufacturing and building the emergency stock for BARDA, we assume and we plan that Vericel should acquire or procure from us a launch inventory towards the potential approval mid-2021. So as you said, we expect that in the first half of 2021, we should manufacture and prepare a safety stock or a launch stock for Vericel to be procured by them around the end of first quarter or something like that. We do not foresee a significant impact on the working capital. You will -- we will give a guidance for cash for 2021. It will be include also building this stock as we build this year for BARDA emergency stock.

Super helpful. And then just lastly, in terms of refining a potential timeline for BLA approval around NexoBrid, I think we've kind of penciled in June based on the timing, June 2021 based on the timing of the filing. Is there -- can you just comment as to whether there's any puts or takes that you think could logically result in sort of a different timeline approval?

Sure. Typically, review process takes 10 months following the 60 days acceptance of the filing. Thus, we expect a PDUFA date to be around mid-2021. FDA issued guidance letter stating that they will strive to meet PDUFA deadlines despite the COVID-19 related disruption. And if the goal will miss, FDA should and will communicate with the sponsors. So currently, as you mentioned, we anticipate PDUFA date around mid-2021.

Your next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright.

This is RK from H.C. Wainwright. A couple of quick questions. Could you comment on the enrollment status for the next program?

Sure. So as mentioned during this call, we see continuous growth in the use of NexoBrid with more patients treated by more burn centers across the U.S. in the next expanded access program. Currently, we have 15 active sites across the U.S. that actively treating burn patients with NexoBrid, while another 5 sites are in activation process. Our goal with BARDA is to have about 30 sites participating in this expanded access program. Overall, the protocol is aimed for treating 150 patients to be treated by the PDUFA date by mid-2021. And if required, we will adjust this protocol. And currently, we treated already 40 patients in those 15 active sites. And the next program, as you know, is importantly and strategically keeps us engaged with all key burn centers in the U.S. as our U.S. commercial partner, Vericel, is actively preparing for commercial launch, while enhancing the U.S. preparedness for a mass casualty event.

Thank you for that. Regarding the VLU study with EscharEx, from a different sponsor who is trying to do a study in VLU be here, they are not as successful as they had expected in terms of enrollment. Are you seeing any issues? Are you concerned about the speed of enrollment into your study? Or otherwise, are you pretty comfortable with the way things are going?

I'd say discussed before, currently, we are on plan with recruitment, and we are optimistic about our progress towards the interim assessment, which we target first half of 2021. Of course with the uncertainty, given the uncertainties of the COVID, things can be changed going forward. But we are supported also by some sites from Israel, and we are in the process of qualifying additional sites out of the U.S. to support and extend a number of sites in the U.S. as a backup site. So currently, we are optimistic to meet our goal.

Thank you. One last question from me. As far as milestone payments from Vericel, outside of the $7.5 million that you expect to receive upon approval, are there any additional milestone payments in the interim before we get to the approval?

No. It is the next milestone upon approval.

Our next question comes from the line of Josh Jennings with Cowen. We'll go to the next question. Your next question comes from the line of Jacob Hughes with Wells Fargo.

This is Nick Youtrail [ph] on for Jacob. We were wondering if you could comment on the percent enrollment of the EscharEx Phase II study. And also, what are your expectations for the interim assessment?

So currently, it's very difficult and challenging to share data because we are in a, like a setup process of this reinitiation of the study. And we need more time to evaluate the pace of recruitment, which is due to several parameters, i.e., the governmental policies, the local policies, and of course, the patients' willingness to get the treatment. But since reinitiation in early June, we are on track with patient recruitment for this stage of the setup and building up the sites ready for recruitment. And we are on plan with the progress of this study towards the interim assessment, which we anticipate to occur in the first half 2021. And as mentioned before, we plan to share metrics and additional insights of the EscharEx phase in the next part of this year where we have more clarity and the uncertainty will wave.

[Operator Instructions]. Your next question comes from the line of Josh Jennings with Cowen.

This is Brian here for Josh. I have a question on NexoBrid to start. Just on the BLA submissions, what are the milestones in the review process once the filing is accepted? For instance, is there a mid-cycle review meeting? Or do you need to meet with the FDA when you supplement the filing with the 24-month data?

So thank you, Brian, for the question. So this BLA is supported by the DETECT study, the acute phase and the 12 months. The 24-month data will be provided as a post-approval commitment, not as part of the review cycle of the BLA. This is what was agreed with the FDA at the pre-BLA meeting. Regarding the key milestones, within the 10 months I mentioned before, the review following the 60 days acceptance, we do anticipate after 5 months, after receipt of the file, a mid-cycle meeting with the FDA. And there is another one towards month 9 after which is a late-cycle meeting. And after that, it's the resolution of the FDA.

Okay. That's helpful. And then on the EscharEx trial, is it fair to assume that you can complete enrollment around year-end 2021, whether you're enrolling the planned 174 patients or if you need to enroll out to the 225 patient cap? And I guess I'm asking because it seems like with 25 to 30 centers participating, an expansion of the enrollment plan shouldn't really tack on too much additional time just given that involves around two patients per site. Is that a fair assumption?

Yes. So it depends on what will be the final sample size, if you will keep the original sample size based on the interim assessment. So it's fair enough to anticipate a complete recruitment by year-end 2021. If you will need to increase the sample size, so it will push to the first half of 2022.

At this time, I'm showing no further questions in queue. I will now turn the call back over to Mr. Sharon Malka for any closing remarks.

Thank you. Thank you, everyone, for joining us today. We are continuing to executing on our strategy and bringing new therapies to market and to updating you again on our next quarterly update call. Thank you very much. Have a nice day.

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