Earnings Call Transcript - MDWD Q2 2020

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Q2 MediWound 2020 conference call. 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.

Jeremy Feffer, Host

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. The 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?

Sharon Malka, CEO

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 in significant adverse impacts on international and local trade and business, we truly believe we overcame many of these challenges and have made tremendous progress recently. This quarter, we remained committed to execution, filed our NexoBrid BLA as planned, resumed patient 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 continued execution and progress. Let me now provide more detail and a review of what took place during the second quarter. Over the past several months, we implemented several measures in response to the COVID-19 pandemic to safeguard the health of our employees and healthcare providers and 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 on operations while ensuring full compliance with necessary regulations and directives. Management continues to assess the impact of the ongoing pandemic, its potential implications for business continuity, the necessary remedies required, and we will 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 patient 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 trial restrictions have been lifted in compliance with applicable governmental orders and clinical site policies and procedures. We are monitoring all study clinical sites and stand ready to swiftly resume enrollment at all sites as soon as it is practical. Since the reinitiation, we are on track with patient 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. 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 a market worth more than $1 billion and to have a meaningful impact on wound care treatment. Regarding our NexoBrid program, we are 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, who have been 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. 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 see an increase in 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 supplying NexoBrid to patients with severe burn 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. At this time, we do not expect any disruption to manufacturing operations and the global supply chain. On the commercial front, we continue to support healthcare professionals, 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 to 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?

Boaz Gur-Lavie, CFO

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 by stating that we're still implementing rigid and concise monitoring of 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 due to Vericel's 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% compared 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 the Vericel licensing agreement, net of expenses. Gross margin from product sales increased to 44% from 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 $1.6 million, compared with $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 the 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 the Vericel licensing agreement, net of royalty payments 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, the 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 the Vericel licensing agreement. As of June 30, 2020, the company had cash and short-term bank deposits of $24.4 million, compared with $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 COVID-19. With that, I've concluded the financial overview and will now turn the call back to Sharon. Sharon?

Sharon Malka, CEO

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 are 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, Operator

Your first question comes from the line of Raj Denhoy with Jefferies.

Unidentified Analyst, Analyst

This is Brianna 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.

Sharon Malka, CEO

First of all, we are very pleased with the resumption of patient enrollment in 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 patients into the study. We are monitoring all sites and stand ready to swiftly resume enrollment at all sites as soon as it's practical. What I can share is that since the reinitiation in 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. Lastly, regarding the potential metrics, we plan to share metrics on the EscharEx study once the uncertainty is alleviated, and we'll provide you with more insights on the EscharEx Phase study progress and recruitment base.

Unidentified Analyst, Analyst

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 distractions to potentially delay your delivery timelines further.

Sharon Malka, CEO

Thanks. 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 COVID-19 and shifting priorities. 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.

Operator, Operator

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

Kevin DeGeeter, Analyst

I have a couple of housekeeping items, particularly regarding the BARDA procurement. Your partner, Vericel, mentioned around $1 million in Q3 and another $1 million in Q4, which seems to align with your previous comments in response to the last question. Could you clarify how we should view the schedule for the BARDA procurements after the initial delivery in Q3?

Sharon Malka, CEO

Thanks, Kevin, for the question. What I can reiterate is what you just mentioned regarding our partner, Vericel. We have a $16.5 million procurement at a gross level from which Vericel will get about 34%, 35%. So correctly, in the third quarter, we planned or scheduled the first delivery for which we will get about $3 million gross, from which Vericel will get $1 million, as you mentioned. The same will apply to the fourth quarter, with the balance being spread in the first three quarters of 2021, pro-rata.

Kevin DeGeeter, Analyst

Can you remind me whether there will be a need for an increase in inventory before the U.S. launch of NexoBrid? If so, should we expect some of that inventory to be available in the first half of 2021 ahead of the launch? How should I consider the working capital impact of a potential NexoBrid U.S. approval?

Sharon Malka, CEO

Yes. In tandem with manufacturing and building the emergency stock for BARDA, we assume and plan that Vericel should acquire or procure from us a launch inventory towards the potential approval mid-2021. 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 the first quarter or something like that. We do not foresee a significant impact on the working capital. We will provide guidance for cash for 2021, which will include building this stock as we build this year for BARDA emergency stock.

Kevin DeGeeter, Analyst

Super helpful. Lastly, regarding the timeline for BLA approval for NexoBrid, we are aiming for June based on the filing schedule. Can you comment on any factors that might affect a different approval timeline?

Sharon Malka, CEO

Sure. Typically, the review process takes 10 months following the 60 days acceptance of the filing. Thus, we expect a PDUFA date to be around mid-2021. The FDA issued a guidance letter stating that they will strive to meet PDUFA deadlines despite the COVID-19 related disruptions. If the goal is missed, the FDA will communicate with the sponsors. Currently, as you mentioned, we anticipate a PDUFA date around mid-2021.

Operator, Operator

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

Swayampakula Ramakanth, Analyst

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

Sharon Malka, CEO

Sure. 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 are actively treating burn patients with NexoBrid, while another 5 sites are in the activation process. Our goal with BARDA is to have about 30 sites participating in this expanded access program. Overall, the protocol aims for treating 150 patients to be treated by the PDUFA date by mid-2021. If required, we will adjust this protocol. Currently, we have already treated 40 patients in those 15 active sites. The next program is important 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.

Swayampakula Ramakanth, Analyst

Thank you for that. Regarding the VLU study with EscharEx, from a different sponsor who is trying to do a study in VLU 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?

Sharon Malka, CEO

As discussed before, currently, we are on plan with recruitment, and we are optimistic about our progress towards the interim assessment, which we target for the first half of 2021. Of course, with the uncertainty regarding COVID, things can change going forward. We are supported by some sites from Israel, and we are in the process of qualifying additional sites outside of the U.S. to support and extend the number of sites in the U.S. as backup. Currently, we are optimistic to meet our goal.

Swayampakula Ramakanth, Analyst

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?

Sharon Malka, CEO

No. It is the next milestone upon approval.

Operator, Operator

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.

Unidentified Analyst, Analyst

This is Nick Youtrail 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?

Sharon Malka, CEO

Currently, it's very difficult and challenging to share data because we are in a setup process of this reinitiation of the study. We need more time to evaluate the pace of recruitment, which is due to several factors, including governmental policies, local policies, and of course, the willingness and ability of patients to get the treatment. However, 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. We are on plan with the progress of this study towards the interim assessment, which we anticipate to occur in the first half of 2021. As mentioned before, we plan to share metrics and additional insights on the EscharEx phase in the next part of this year when we have more clarity and when the uncertainty has dissipated.

Operator, Operator

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

Unidentified Analyst, Analyst

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?

Sharon Malka, CEO

Thank you, Brian, for the question. The 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 was agreed upon with the FDA at the pre-BLA meeting. Regarding the key milestones, within the 10 months I mentioned before, after the 60 days acceptance of the filing, we do anticipate a mid-cycle meeting with the FDA after about 5 months, followed by another one towards month 9, which is a late-cycle meeting. After that, it will be the resolution of the FDA.

Unidentified Analyst, Analyst

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? It seems that with 25 to 30 centers participating, an expansion of the enrollment plan shouldn't really tack on too much additional time given that involves around two patients per site. Is that a fair assumption?

Sharon Malka, CEO

Yes. It depends on what the final sample size will be, if we keep the original sample size based on the interim assessment. It is fair enough to anticipate completion of recruitment by year-end 2021. If we need to increase the sample size, it may push into the first half of 2022.

Operator, Operator

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

Sharon Malka, CEO

Thank you. Thank you, everyone, for joining us today. We are continuing to execute 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.

Operator, Operator

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