Earnings Call Transcript - MDWD Q2 2023

Operator, Operator

Good day, and welcome to MediWound Second Quarter 2023 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Monique Kosse of LifeSci Advisors. Please go ahead.

Monique Kosse, LifeSci Advisors

Thank you, operator, and welcome, everyone. Yesterday after the market closed, MediWound issued a press release announcing financial results for the second quarter ended June 30, 2023. You can find that release on the company's website under the Investors tab. With us today are Ofer Gonen, Chief Executive Officer of MediWound; Hani Luxenburg, Chief Financial Officer; and Barry Wolfenson, Executive Vice President of Strategy and Corporate Development. After our prepared remarks, we will open the call for questions. Before we begin, I want to remind everyone that statements made during this call, including the Q&A session, regarding MediWound's expected future performance, business prospects, or events and plans are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. While the company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, actual outcomes and results may vary significantly due to various risks and uncertainties beyond MediWound's control. The company is not obligated to update or supplement any forward-looking statements as a result of new information, future events, or otherwise. Participants are encouraged to review the cautionary notes in today's press release and the risk factors detailed in MediWound's annual report filed with the SEC, which outline factors that could lead to actual results differing from those anticipated in the forward-looking statements. The conference call is the property of MediWound, and any recording or rebroadcast is strictly prohibited without MediWound's written consent. Now I would like to turn the call over to Ofer Gonen, Chief Executive Officer of MediWound. Ofer?

Ofer Gonen, CEO

Thank you, Monique, and good morning, everyone. By the way, this call is not recorded, although the operator said so. So I'm live. It's a pleasure to welcome all of you to the second quarter earnings conference call. Joining me today are Hani Luxenburg, our Chief Financial Officer; and Barry Wolfenson, our Executive Vice President of Strategy and Corporate Development. After our prepared remarks, we will open the call for a Q&A session. I'd like to begin with a comprehensive overview of MediWound's recent progress. We are focused on advancing our commercial product portfolio, expanding our pipeline, strengthening our strategic partnership, building new alliances and expanding our manufacturing capabilities. With a solid financial foundation, we are well positioned to achieve our goals and ultimately become a profitable global biopharmaceutical company. Let's start with a more detailed update on NexoBrid. We received approval in the United States last December. Since the achievement of this important milestone, we are focused on manufacturing and delivering products to our partner Vericel for their U.S. commercial launch. We shipped NexoBrid to Vericel in June 2023. However, at this time, Vericel is unable to release the product for commercial distribution due to a deviation associated with a third-party testing lab used during the manufacturing process. We have conducted extensive testing and completed a detailed risk assessment determining that this deviation presents no incremental risk to finished product quality and patient safety. Vericel and MediWound continue to engage constructively with the FDA concerning NexoBrid, and we remain hopeful that the product will be commercially available in the United States in the near term. Vericel has guided its NexoBrid commercial launch in the United States market to the first quarter of 2024. This timing will not affect our expected NexoBrid revenues in 2023 and 2024 as there are multiple other partners to whom we can sell the inventory. In the meantime, we are in the process of manufacturing the next batches of NexoBrid for delivery to Vericel. These batches will not be impacted by this variation. Prelaunch activities remain on track and the Vericel team has generated significant interest and enthusiasm for NexoBrid in the burn care community. Additionally, we are on track to submit our sBLA for the pediatric indication in the second half of 2023. Our relationship with BARDA remains strong as we are awarded with an additional $10 million in funding to support the $3 million replenishment, the sBLA submission for the pediatric indication and the enrollment of an additional 50 patients into our NEXT program. To date 237 burn patients have been treated across 26 sites in the United States in this expanded access program. Moving to the rest of the world. In Japan, Kaken Pharmaceutical has successfully launched NexoBrid commercially. Kaken is a notable pharmaceutical company and holds an exclusive partnership with us. The Japanese market is substantial with over 6,000 patients annually receiving treatment for severe burns. A majority of these patients undergo eschar removal as a crucial initial step. Notably, Japan is the first territory where NexoBrid is approved for both adult and pediatric patients. In Europe, we continue to see demand for NexoBrid EscharEx as it is adopted more broadly. We are also awaiting a decision from the European Commission on the pediatric indication, which we anticipate in the second half of this year. In response to the increasing demand for NexoBrid and the upcoming products, we have finalized a long-term lease for the production sites. This guarantees continuous manufacturing of NexoBrid and EscharEx. We have also initiated a project to expand our current facility to accommodate the rising global need for NexoBrid. We anticipate completing the expansion of this facility by mid-2024 and reaching full manufacturing capacity in 2025. Moving now to our EscharEx program. We are gearing up for the launch of our Phase III study, focusing on venous leg ulcers. Our carefully structured trial adopts a multicenter prospective, randomized and placebo-controlled methodology to rigorously evaluate EscharEx's potential. The study aims to enroll 244 patients who will be equally distributed between EscharEx and placebo treatments. Given the study's manageable size and the lack of direct competition, we are optimistic about expedited patient enrollment. Encouraging feedback from both EMA and the FDA has solidified our confidence in EscharEx's global approval trajectory. We are in the process of qualifying the study sites, selecting all the vendors, including CRO, data management and central labs. And of course, we are manufacturing the final batches of EscharEx for the clinical study. These activities are expected to be completed by the fourth quarter of 2023 with patient enrollment in the Phase III study expected to begin in early 2024. Furthermore, EscharEx has been a focal point of interest among potential partners in the advanced wound care domain, who are interested in game-changing modalities. The fact that the largest players in the market today are eager to take part in this venture is yet another indication of the great promise of our study. I would like to hand over the call to Barry, who will provide more color around our strategic opportunities, including two announcements that we made just yesterday.

Barry Wolfenson, Executive Vice President of Strategy and Corporate Development

Thanks, Ofer. One of the most important aspects of running a study in order to achieve the desired positive outcome is to, as much as possible, reduce variability between study wounds. Towards this goal, we are limiting the various products that sites will be able to use as they manage the wounds to closure, while still providing best-in-class options for them and their patients. For a venous leg ulcer study, there are three key product categories that are essential to driving positive wound outcomes: compression therapy, wound dressings that provide optimal moisture management and most importantly, a cell-based product that could drive active closure. After reviewing available options, we set our sights on the best manufacturers and brands for each of these to offer sites and their patients the best-in-class products, while also making the protocol and product fulfillment as easy as possible. As we announced yesterday, two of these manufacturers are MIMEDX and Molnlycke, both of whom are leaders in their respective categories. MIMEDX will provide EPIFIX, their placental tissue allograft to be used on study subjects as soon as the wound is completely debrided and has 100% granulation tissue. EPIFIX is one of the most widely studied products in its category with strong evidence on venous leg ulcers. Additionally, being a room temperature stable product, it is easy to ship, store and use. Molnlycke will provide the new Mepilex up dressing, a recent line extension to their category-leading brand Mepilex, specifically designed to handle the unique fluid management demands of venous leg ulcers. They will also be providing their novel Exufiber and Exufiber-Ag for additional fluid management, as well as for coverage when high levels of bioburden are present. Importantly, both companies will also provide training as required for the investigators and their clinical research teams. This is of great benefit to the study, not only keeping variability of products to a minimum, but also ensuring that each product is used as per the manufacturers' guidelines and instructions. We are close to having a finalized agreement with our third research collaboration partner, and we expect this to be announced in the coming weeks. With that, I'll hand it back to you, Ofer.

Ofer Gonen, CEO

Thank you, Barry. So before concluding, I would like to emphasize some pivotal updates regarding MW005. We have recently released promising results from our Phase I/II study on basal cell carcinoma. The data validates our clinical efficacy, as demonstrated by clearance of target lesions. Impressively, 11 out of 15 trial participants achieved total lesion removal with a significant number of these clearances being histologically confirmed. This is an addition to the previously published results of seven out of seven lesions that were totally cleared. Furthermore, MW005's impressive safety profile and positive patient feedback are notable. And with these encouraging results, we are confident about forming strategic partnerships for next clinical development stages of MW005. Finally, I would like to welcome Mr. Milky Rubinstein to our Board as an Independent Director. Milky brings a distinguished record of pharmaceutical and biotech leadership, experience and he will add much to our Board. Milky is joining as Assaf Segal is stepping down after six years with us. I would like to thank him for all his contributions over those years. In summary, we are diligently progressing with our strategic long-term visions, ensuring that we remain poised for future success. As we gear up to initiate our Phase III study for EscharEx targeting venous leg ulcers, we take pride in collaborating with distinguished partners in the industry. Concurrently, we are expanding our manufacturing capacities and are ready to launch NexoBrid in the United States. Encouraging data from MW005 further solidified our position for upcoming business development endeavors. Our robust balance sheet with over $51 million in cash enables us to execute these pivotal initiatives. With that said, I now hand over to Hani for a brief review of our financials. Hani?

Hani Luxenburg, CFO

Thank you, Ofer. Let me begin with our revenue. For the second quarter of 2023, we recorded revenues of $4.8 million, a slight uptick from the $4.7 million in the same quarter last year. Gross profit for both Q2 2023 and Q2 2022 remains consistent at $1.1 million representing 24% of our total revenues. Now turning to our operating expenses. Our R&D expenses for the quarter amounted to $2 million, slightly down from the $2.2 million in Q2 2022. Selling, general and administrative expenses saw an uptick to $3.1 million, mainly attributed to the addition of full-time employees to support future growth, along with an increase in share-based compensation expenditure. This is an increase from the $2.3 million reported in Q2 2022. Operating results for the quarter demonstrated an operating loss of $4 million, a modest increase from the $3.7 million loss in the same period last year. The net profit of the quarter was $0.9 million or $0.10 per share, a positive shift from the net loss of $4.4 million or $0.29 per share in Q2 2022. This favorable turn may result from the revaluation of our warrants. Our adjusted EBITDA for the quarter was a loss of $3 million, slightly more than the $2.8 million loss in Q2 2022. Moving to our year-to-date highlights. Revenues summed up to $8.6 million in comparison to the $9.1 million recorded during the first half of 2022. This decline is primarily due to BARDA's emergency stockpile order in 2022. Our operating loss for the quarter reached $8.4 million, higher than the $7 million loss from the first half of 2022. The net loss for the period was $2.8 million or $0.32 per share compared to the $7.9 million loss or $1.79 per share during the same period last year. Adjusted EBITDA for the first half of 2023 was a loss of $6.4 million, up from the $5.4 million loss in the first half of 2022. Balance sheet overview. As of June 30, 2023, our cash and short-term deposits amounted to $51.3 million. This is a positive climb from the $34.1 million reported on December 31, 2022. In the first quarter of this year, we raised a gross amount of $27.5 million from our February 2023 offering. The second quarter demonstrated use of $6 million to fund our ongoing operations. Based on our current financial standing, we anticipate that the existing cash will sustain our operations through profitability. With that, I will now turn the call back to Ofer. Ofer?

Ofer Gonen, CEO

Thank you, Hani. So we remain committed to our strategic execution and encouraged by increasing industry-wide interest in our product. NexoBrid, EscharEx and MW005 are not only additions to the market, they also hold promise to redefine the norms of medical practice. As we progress, we eagerly anticipate several milestone events, including the launch of our pivotal Phase III trial of EscharEx, which is slated for the first quarter of 2024. This is more than a clinical milestone. It targets a lucrative $1 billion niche. Our partnerships with the world's leading advanced wound care companies fortify our unwavering drive to achieve positive results in this study. Also, we anticipate a rise in NexoBrid revenues, supported by our strategic commercial initiatives in the primary markets. This momentum is expected to be further strengthened by a U.S. launch and by an expansion of the label to include pediatric population. To match the increasing or escalating demand of NexoBrid, we are increasing our manufacturing capabilities. Our state-of-the-art facility is on track to be constructed by mid-2024 and should be active for full-scale production by 2025. Thank you all for joining our promising journey. And now we will open the call for a Q&A session. Operator?

Operator, Operator

We will now begin the question-and-answer session. The first question today comes from Josh Jennings with TD Cowen. Please go ahead.

Josh Jennings, Analyst

Hi. Good morning. Thank for taking the questions and I appreciate the thorough update. I wanted to just ask about the Phase III EscharEx, VLU trial and the enrollment kickoff early next year. I was hoping you guys made a lot of progress. It seems like the start of that enrollment, the start of that trial has been nearly fully derisked. But maybe Ofer, if you could just line up what remaining boxes need to be ticked before that trial kicks off? I know you listed a couple of them on the call, but just to make sure we're clear.

Ofer Gonen, CEO

Thank you, Josh, for your question. This Phase III study is the largest and most comprehensive trial involving VLU patients in over a decade. It is a complex and extensive study that includes various collaborations across all program levels. We have several partnerships with principal investigators, study sites, and various wound care companies. While we've only mentioned two collaborations so far, there are more on the way. We're also working with contract research organizations that manage complex data. These collaborations are intricate and may reduce our agility. It is crucial for us to ensure that this trial meets its endpoints. We don't want to quickly recruit over 1 million VLU patients in the U.S. within six months only to make mistakes in selecting ideal participants. Therefore, we are planning a careful approach and are confident in our ability to execute and achieve all endpoints.

Josh Jennings, Analyst

Thank you for that. Please continue.

Ofer Gonen, CEO

No, I just wanted to ask if I answered your question.

Josh Jennings, Analyst

Yes, I appreciate that. You've had success attracting interest from partners such as Vericel, MIMEDX, and Molnlycke. In your prepared remarks and the press release, you mentioned being actively engaged with additional prominent companies for collaboration opportunities. Are these similar collaborations for the Phase III trial, or are there other potential partnerships outside of it? Thanks for taking the question.

Ofer Gonen, CEO

So Barry, can you step in and address that?

Barry Wolfenson, Executive Vice President of Strategy and Corporate Development

Yes. We do have one or more within the Phase III study. But I would say outside of it that given the size of the enzymatic debridement market in the U.S. and its unique competitive landscape, EscharEx has definitely gained the attention of most of the key strategic players in the market. A topical debridement agent with the competitive advantages of EscharEx will be a significant step forward for patients and caregivers. And we, as a company are thrilled to have the funding to advance this program as quickly as possible and are confident that EscharEx has incredible potential to unlock significant shareholder value. And to maximize this value, we are committed ourselves to launching EscharEx in the U.S. upon its approval by the FDA. And so concurrent with the execution of the Phase III program over these next several years, we'll be taking every step necessary to prepare us for this meaningful launch. So that's where our focus is right now. And if there's anything additional to report about EscharEx, We will. I know Ofer mentioned with regard to MW005. We've got a good package of data right now, and we're confident that at some point here soon, we'll initiate a program to get some collaboration partners for commercialization and research and development partners on that asset. And when we make progress on that, we'll report that as well.

Josh Jennings, Analyst

Excellent. Thanks again.

Operator, Operator

The next question comes from Francois Brisebois with Oppenheimer. Please go ahead.

Francois Brisebois, Analyst

Hi. Thanks for taking the question. Just a few here. So in terms of not necessarily enrolling, if you go too fast in the enrollment and you mentioned not enrolling the ideal patients, can you just help us understand what that would mean in terms of wound maybe?

Ofer Gonen, CEO

We have successfully conducted three robust Phase II studies, and in those studies, we observed that EscharEx is very effective. It can debride a wound within a week and prepares the wounds for closure in 11 days. When compared to the gel vehicle, the evidence shows a significant difference: one week versus roughly 30 days, and 11 days compared to about 85 days. The discrepancies are substantial. Therefore, we are confident in our ability to meet the milestones. However, we do not want to recruit patients who have chronic wounds but are not severe enough; we aim to avoid a situation where the gel vehicle arm unexpectedly achieves closure. Our goal is to ensure that the results are strong and that we meet all relevant milestones. While we believe we can complete the trial sooner, we are focused on enrolling the appropriate patients with the same severity and size of wounds observed in the Phase II trials, as this is where the gap between our product and the gel vehicle is largest. We want to ensure the success of the study because we have seen that obtaining approval in this market leads to remarkable results.

Francois Brisebois, Analyst

Understood. Regarding the Vericel issue, you mentioned that you don’t expect it to affect your revenues, even if they don't plan to sell until 2024, because of the potential to sell inventory to other partners. Is that a straightforward process, or will it require significant effort? Additionally, what gives us confidence that future batches won't be impacted by these variations? Thank you.

Ofer Gonen, CEO

Okay. So let me start with the last question, which is the easiest one. The next batches that will be manufactured will be tested directly by MediWound, not by this lab in Taiwan. MediWound is an approved testing site by the FDA. So there will be no issues. So therefore, there is 100% confidence that the next batches will be fine. As for the revenues in 2023, 2024, currently, we have between 2 to 3 times or two to threefold more demand for NexoBrid than we can supply. We are all time shifting between customers. Currently, we're keeping aside enough NexoBrid in order to support a successful launch in the United States. But if we see, in the coming weeks, that the issue with the FDA is not resolved, we are going to sell it elsewhere. We have the demand for that, and you can feel very comfortable about it.

Francois Brisebois, Analyst

Thank you.

Operator, Operator

The next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please go ahead.