MediWound Ltd. Q1 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 MediWound 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Jeremy Feffer. Thank you. Please go ahead, sir.

Thank you, Brandy and good morning, everyone. Earlier today, MediWound issued a press release announcing financial results and provided a business update for the first 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 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 2019, as well as information contained in other documents filed with the SEC for 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. At this time, I would like to turn the call over to Sharon Malka, Chief Executive Officer. Sharon?

Thank you, Jeremy. Good morning everyone and good afternoon to our listeners in Israel. Thank you everyone for joining us today on our first quarter 2020 earning call, which will provide business and financial updates related to the COVID-19 pandemic. First, we are thankful to the healthcare workers for the critical efforts in the treatment and care of COVID-19 patients and our thoughts go out to those affected by the COVID-19 pandemic. We would also like to thank all of our employees for the tremendous dedication, commitment and flexibility demonstrated during this crisis enabling us to carry on critical business functions. We entered 2020 with great momentum after an extremely productive 2019, looking forward to another exciting year. This quarter has been unique and with the impact of the COVID-19 pandemic, unlike anything we could have anticipated when the year began. Let me walk through and review what took place during the quarter for us. Over the past several weeks, we have implemented a number of measures in response to the COVID-19 pandemic to ensure continuous manufacturing and supply of NexoBrid to healthcare providers and patients with severe burn injuries. We reinstated a global remote work policy with our employees who could work from home, while we implemented a modified work schedule for all the operational personnel working at our facility to ensure their safety. We leveraged virtual tools and digital communication to continue our interactions with all of our stakeholders and to support physicians in the regions where executive orders or hospital policies restricted access. As Boaz will cover in more detail in a moment, we also implemented appropriate expense reduction measures and adjusted our operating plan for 2020. While many of the COVID-19 related restrictions are still in place globally, we are now beginning to see the lifting or soon to be lifting of the restrictions in some countries and regions. In Israel, the government approved lifting further restrictions on businesses and public as it continued to gradually reopen Israel's economy amid the coronavirus pandemic. The reopening of Israel is a positive step in the right direction and hopefully a sign of better things to come as we begin to resume our normal routine. As previously reported on March 30, due to the continued uncertainties and hospital policies resulting from the impact of the COVID-19 crisis, we made the decision to temporarily suspend the initiation of additional clinical sites and new patient enrollment in our U.S. EscharEx Phase 2 study for the treatment of venous leg ulcer. While it was a difficult decision, it was the most prudent and practical course to protect the safety and health of our team, clinicians and patients. Patients who were already enrolled continued the treatment in accordance with the protocol and were monitored using remote site monitoring, and no patients have been lost to follow-up due to COVID-19 disruption. I'm pleased to say that we have resumed patient screening and randomization of our EscharEx study in regions where clinical trial restrictions have been lifted in compliance with applicable governmental orders and clinical site policies and procedures. Ultimately, the pace at which clinical trials resume will depend on several factors. First, on how state and local government policies evolve over the coming months. Second, the readiness and ability of individual facilities to resume clinical trials. And third, the willingness and ability of patients to return to the clinical setting. In light of the fact that several states have recently announced plans to lift restrictions on clinical trials, we are monitoring all sites and stand ready to swiftly resume enrollment at all sites as soon as it is practical. Consequently, the interim assessment is currently anticipated in the first half of 2021. NexoBrid has been less directly impacted by the pandemic, given the critical nature of severe burn injuries. We continue to involve patients in the NexoBrid expanded access program at the U.S. burn center. Additionally, patients’ long-term follow-up safety data collection in our pivotal Phase 3 DETECT study is ongoing. We are continuing to move forward with our plans and preparation for the NexoBrid BLA submission, as these activities have not been disrupted even with our remote work status. We continue to target the BLA submission to the FDA in mid-2020 and look forward to the U.S. commercial launch by our partner Vericel upon approval. On the manufacturing front, we fully continue our operations, maintaining a significant safety stock of all key raw materials and with sufficient inventory of NexoBrid on hand to meet expected demand over the next several quarters. At this time, the company does not expect any disruption to its manufacturing operations and global supply chain. Following the initiation of the procurement of NexoBrid for emergency response earlier this year by BARDA, we began manufacturing NexoBrid and building an emergency stockpile. Due to shifting priorities related to the pandemic, BARDA requested an adjustment to the delivery plan of the NexoBrid emergency stockpile. The first delivery of NexoBrid is currently expected in the third quarter of 2020, while the majority of the deliveries will occur in 2021. On the commercial front, we've continued to support healthcare professionals, utilizing virtual tools where access was restricted, ensuring uninterrupted access to NexoBrid. In view of the challenges of the healthcare system, the Italian Society of Burn Surgery published an official guideline for burn patient treatment during the COVID-19 pandemic in which it recommended to shift more burn patients from surgical treatment to non-surgical enzymatic care in order to alleviate the burden on acute care staff and inpatient operating room. Since the beginning of 2020, we expanded NexoBrid's global presence with a new distribution agreement in international markets such as Australia and Ukraine in which commercialization is subject to local marketing approval. In addition, we expanded NexoBrid's European presence with a distribution agreement in France, Switzerland and other EU countries where NexoBrid is already approved. The addition of this distribution agreement is an extension of our global commercial strategy to maximize NexoBrid's market potential as we continue to develop NexoBrid into a meaningful cash-generating product. Finally, we enhanced our Board with the appointment of Samuel Moed and David Fox. Samuel and David are highly respected, seasoned professionals who bring unique insights as we grow our company and move towards registration and commercialization. Now, it is my pleasure to turn the call over to Boaz to provide more details on our first quarter financial results and additional details on our overall financial position and COVID-19 response plan. Please, Boaz.

Thank you, Sharon and good morning, everyone. I would like to start with the financial overview of our response to the COVID-19 crisis. We have adjusted our 2020 operating plan and implemented prudent measures to reduce operating expenses and defer non-essential capital projects in order to reduce the company's cash utilization, while maintaining flexibility for additional expense reductions in the future if necessary. As a result of the EscharEx study patients' enrollment suspension, variable costs associated with a clinical trial will lead to cost savings in the short-term. Additionally, the overall SG&A costs would be reduced on an annual basis. I would like now to provide you with an update on our financial performance for the first quarter of 2020. Revenues for the first quarter of 2020 were $4.4 million versus $0.5 million in the first quarter of 2019, primarily driven by revenues from development services. Gross profit for the first quarter of 2020 was $1.2 million compared with $0.2 million in the prior period. R&D expenses, net of participation for the quarter, were $1.7 million compared with $1.3 million for the first quarter of 2019, primarily driven by EscharEx development costs. SG&A expenses for the quarter were $1.7 million compared with $2.4 million for the first quarter of 2019, primarily as a result of cost containment measures and one-time costs in the first quarter of 2019 associated with management changes. Operating loss for the quarter was $2.2 million, a reduction of 38% compared with the loss of $3.6 million in the first quarter of 2019. The company's net loss for the quarter was $2.5 million or a loss of $0.09 per share compared with a net loss of $4.1 million or loss of $0.15 per share for the first quarter of 2019. Adjusted EBITDA for the quarter was a loss of $1.8 million compared with the loss of $2.9 million in the first quarter of 2019. The reconciliation of adjusted EBITDA to GAAP net income is included in the press release we filed with the SEC earlier this morning. Operating cash flow for the quarter was $2.1 million and as of March 31, 2020 the company had cash and short-term bank deposits of $27.3 million and carried no debt. The company will continue to invest primarily in research and development efforts for EscharEx and reiterate our expectation of 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 operational results, we will continue to closely monitor our preparation and assess the impact of the COVID-19. With that, I have concluded the financial overview. I will now turn the call back over to Sharon. Sharon?

Thanks, Boaz. Despite the uncertainty caused by the COVID-19 crisis, we remain highly confident in the fundamentals of our business. We appreciate the support of our Board and we are also grateful for the tremendous effort and commitment of our management and employees as we face this pandemic together. We are fortunate to have a strong balance sheet to help us weather the storm. The EscharEx trial is once again underway at most clinics, and we eagerly anticipate our NexoBrid BLA filing soon. Our confidence in our strategy and our programs has not wavered. We will continue executing our plans and actively progressing towards several meaningful milestones in both programs. That concludes our prepared remarks. Now, I'd like to operator to open the call for your questions. Operator?

Your first question comes from the line of Josh Jennings with Cowen.

Hi. Good morning, Sharon and Boaz. Thanks for the update. I was hoping to start with a couple of questions about NexoBrid. First, it's great to hear that the BLA filing timing is unchanged. Could you help us understand the remaining steps in the submission process and the risks associated with meeting that timeline as midyear 2020 approaches in the coming weeks?

Thanks Josh for the question. We are pleased with our BLA progress and the collaboration we have with both the Vericel team and BARDA team. And as I said before, despite the COVID-19 disruptions, we remain on track with the preparation and submission, and believe that we will submit the BLA no later than early July. We are currently at the final stage of quality assurance of the different models, publishing and we are there.

Thank you for the added insights. Regarding the BARDA procurements, I believe you're referring to the third quarter when procurement activities will resume. In their earnings call, Vericel mentioned they would not be assuming anything until 2021. I wanted to confirm if that was their stance and understand how it compares to your current timeline. Has there been any update since then? Additionally, we’ve traditionally anticipated a consistent flow of BARDA procurement revenue over a six-quarter period. Should we continue to approach that modeling with the expectation of steady BARDA procurement each quarter?

Thanks for the question. So, to put us all on the same page with our expectation, I will start with our previous announcement which indeed specified the first delivery by end of the first quarter of 2020. While we have also indicated that revenue recognition is likely to occur starting from the second quarter due to BARDA acceptance processes. Following the initiation of the procurement of NexoBrid for emergency response, earlier this year, we at MediWound began manufacturing NexoBrid and building an emergency stockpile ready for delivery, which is currently we maintain in Israel. BARDA requested an adjustment due to the COVID-19 and shifting priorities to the delivery plan of the NexoBrid emergency stockpile. While the definitive delivery plan is not yet scheduled based on recent discussions we have had with BARDA, the first delivery is currently expected in the third quarter of 2020, followed by subsequent deliveries in the following quarters. So, we do expect revenues from BARDA procurement in the second half of 2020, while the majority of the deliveries will occur in 2021. And the linear split, as we said before, this is quarterly revenue recognition starting from the third quarter going forward.

Excellent. If I could shift over to EscharEx and consider the interim analysis timeline in mid-2021. Are you still aiming for 100 patients for that interim analysis? When should we expect the overall trial enrollment to be completed? Should we be looking at that sometime in 2022?

So, the short answer for the first part of the question is, yes. The targeting number of patients to be treated for the interim assessment is around 100, as defined in the protocol. What I can share with you is that we are very pleased that we were able to resume the study in regions where restrictions have been lifted, and we now can screen and randomize patients. As you may recall, the first quarter of 2020 was the setup period of this study, focusing on sites opening and staff training. Patients who were already enrolled before we suspended the study, during the setup period continued the treatment in accordance with the study protocol and were monitored using remote site monitoring tools, and none of these patients have been lost to follow-up due to COVID-19. In light of the fact that several states have recently announced plans to lift restrictions, we are monitoring side by side and stand ready to swiftly resume enrollment at all sites as soon as it is practical. And I believe that we need more time to evaluate the pace of recruitment, which is subject to three main factors. One is, of course, the governmental policies, which is evolving. And hopefully in the coming months, we'll see more and more lifting of the suspensions. Two, the readiness and ability of individual facilities to resume clinical trials, because it's side by side policies. And third, which is not less important, is the willingness and ability of patients to return to clinical settings. As I said previously, we expect to have our interim assessment in the first half of 2021. And lastly, to a question regarding potential metrics, we plan to share metrics on the EscharEx study once the uncertainties wavered and we will provide you with more insights on the EscharEx study progress and recruitment base.

Great. I was thinking about the second trial with EscharEx, which I believe relates to either VLU or DFU based on the interim analysis that you have in hand. Do you have any updated thoughts or strategies regarding a potential second trial? Thank you for addressing my questions.

Thank you. So, currently we did not change the strategy. The strategy remains the same, means we have the same plan. And as you know, we are a data-driven company and based on the data that we will have and the results in the interim, later on in the final results of the study, this will be the data that we will use to discuss with the FDA and discuss the next steps of the development and our plans remain the same.

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

Hey, great. Thanks for taking my questions guys. Can you talk a little bit about changes you may be seeing in response to COVID-19 in practice protocols, specifically have you seen either any survey work or plan to do any survey work yourself to capture whether or not there's a shift away from surgical debridement towards non-surgical methodologies? And how are you thinking about the best way to monitor whether there will, in fact, be a sustained change in burn protocols with regard to debridement cleaning of wound?

Thank you for the question, Kevin. Generally speaking, as I mentioned earlier, NexoBrid has been less affected by the pandemic due to the essential nature of severe burns. We have been in discussions with some of the burn centers and maintaining close relations with our customers and stakeholders in the U.S. as part of the clinical setting. They have communicated that, due to reduced industrial activity, fewer burn patients have been admitted for treatment recently. However, we have received positive feedback from recent guidelines, such as the Italian guidelines, which suggest shifting more burn patients from surgical to non-surgical treatment, particularly towards non-surgical enzymatic care. This transition aims to reduce the strain on acute care staff and inpatient operating rooms. We believe this change will enhance NexoBrid's status as a standard of care and highlight its crucial role in emergency burn debridement.

Great. That's extremely helpful. And then, maybe following up on some of the questions with regard to metrics to think about enrollment of the EscharEx study. I appreciate that. There’s a lot of uncertainty at the moment and perhaps you can frame for us though, what portion of sites that were opened during Q1 are under current local regulations allow to consider reinitiating patient enrollment into the study. Is it 90%, is it 60% of the sites that you open? Because it is a little bit difficult to measure just given how variable and heterogeneous some of these local policies are to understand the impact on a specific study.

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

Good afternoon, Sharon and Boaz. I hope you guys are doing well. Most of my questions have been answered. But just want to follow-up a little bit on the NexoBrid delivery to BARDA. Just trying to understand, how confident are you about your delivery timelines considering COVID-19? And also how confident are you that BARDA will go through the whole procurement, not only for the initial $16 million, but also the additional agreement that you got into BARDA with? Hello?

Excuse me, this is the operator. I apologize about the interruption. Please pause as one of our speakers has lost a connection. And this is the operator. We do have our speaker back on. You may resume with your question.

Sure. Thank you. Hi, Sharon, Boaz. Good afternoon. Can you guys hear me now?

Yeah. First of all, I apologize to all. And Kevin, I hoped you've helped my response to the question. And if no, I will repeat it. Go ahead RK.

Thank you for taking my questions. Most of them have been answered, but I wanted to follow up on the upcoming NexoBrid delivery to BARDA. How confident are you in fulfilling the current procurement order? Additionally, what is your level of confidence regarding BARDA, not just in relation to the $16 million but also the other announcement made earlier? I'm trying to gauge how certain you are about both of these developments.

I will start with the committed order that BARDA initiated earlier this year. We are fully confident in the $16.5 million growth. We began manufacturing this product and are currently stockpiling it in Israel until we can deliver it due to restrictions related to COVID-19. BARDA has requested an adjustment to the original delivery plan, which we have accommodated. We are discussing with BARDA, and we expect the first delivery to take place in the early third quarter, so we are confident that we will recognize revenue in the third and fourth quarters moving forward into 2021. Regarding the second part, BARDA has the option to increase the procurement by up to an additional $50 million, which is still under discussion. This option can be utilized either when the initial stock expires to rotate that stock or to extend or increase the safety stock that BARDA originally defined in 2015.

Okay. Great. Regarding the EscharEx study in the United States, how many centers are currently open for randomization, and how is the randomization process progressing?

Okay. I will repeat what I started to respond to Kevin before we hung up to provide you with the full answer. At the date of suspension of this study, we had about 20 sites overall active after SIVs ready for enrollment. Our plan is to have about 25 to 30 sites overall, with the majority located in the U.S. Currently, we are in discussion with principal investigators, and the feedback we receive from the sites suggests that we expect activity in regions where restrictions have been lifted. We have approximately 70% to 75% of the active sites ready, and we aim to gradually have all 25 sites operational in the coming months, depending on how local government policies evolve in the near future.

Okay. Thank you very much. Thanks for taking the questions.

And we do have a follow-up question from the line of Kevin DeGeeter with Oppenheimer.

Great. Just really housekeeping questions for me. Can you provide just some additional metrics as to how to think about within the $8 million to $10 million burn guidance, a range of assessment for potential BARDA procurement contribution or some other metric with regard to the top line contribution? Just to be able to more fully appreciate perhaps the magnitude of someone's operating expense adjustments you described in the call.

Thanks, Kevin for the question. I will turn the call over to Boaz and he will in response provide you with an answer. Please Boaz.

Hi, Kevin. So, first, we'd like to mention that we feel very comfortable with our liquidity position and the cash we have on hand. And the fact that we have no debt. And NexoBrid is a cash-generating product. While there is a shift of revenues from BARDA procurement to 2021 and Sharon indicated we expect to see cost savings in the short term as a result of the EscharEx study suspension and reduction in associated variable costs. In addition, we've also deferred some of the capital projects in order to reduce cash utilization. Overall, I think if we look at the range, in the upper range previously, I think right now, not only that we maintained cash operating, but we see a slight improvement in the guidance. But we still want to remain at that range.

Great. Thank you for that.

And there are no further questions at this time.

Thank you everyone for joining us today. We look forward to continuing executing on our strategy and bringing new therapies to market and to updating you again on our next quarterly update call. Thank you and have a great day.

This concludes today's conference call. You may now disconnect.