Earnings Call Transcript - MDWD Q3 2023

Operator, Operator

Good day, and welcome to MediWound Third Quarter 2023 Earnings Call. Please note that today's conference is being recorded. At this time, I would like to turn the conference over to Dan Ferry of LifeSci Advisors. Please go ahead.

Daniel Ferry, Investor Relations

Thank you, operator, and welcome, everyone. Earlier this morning, MediWound issued a press release announcing financial results for the third quarter ended September 30, 2023. You may access 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. Following our 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 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'd like to turn the call over to Ofer Gonen, Chief Executive Officer of MediWound. Ofer?

Ofer Gonen, CEO

Good morning, everyone, and thank you, Dan, for the introduction. I'm pleased to welcome you to our third quarter 2023 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. I want to start by expressing a sincere thank you from the entire MediWound family for the overwhelming support through emails, calls, and messages that we have received from many of you since the terror attack on October 7th. This war has significantly impacted the lives of many of our employees and their families. We feel privileged that our products can contribute to helping victims and make a difference. Our team is working around the clock to ensure we meet the needs of our community, customers, patients, and partners. This quarter marks a pivotal period for us with significant achievements that set the stage for consistent future revenue growth. The next upgrade was successfully launched in the United States and Japan. In Europe, we expanded both our presence and the target population. Global demand has risen, fueled in part by world conflict and governmental actions. We have responded with the necessary relocation of resources to meet this increase and continue with our plans to aggressively expand our manufacturing capabilities. Looking ahead, preparation for the Phase III study of EscharEx is progressing with an updated protocol shaped by both the FDA and EMA guidance. Anticipated enrollment is set to begin in the second half of 2024. A new collaboration with the industry leader, 3M Healthcare, further validates EscharEx's anticipated impact on the wound care market. Let's have a more detailed look at NexoBrid. It has been a very busy and productive period. Notably, at the end of the quarter, we announced United States commercial availability through our partner Vericel. Vericel’s launch of NexoBrid is progressing swiftly. Patients started treatment soon after its commercial release. Vericel is dedicated to securing market access, obtaining P&T committee approvals, and training staff at burn centers. Given the burn care community's positive response to NexoBrid, Vericel expects rapid adoption and significant growth of their burn franchise in 2024 and beyond. Further supporting the commercialization efforts in the U.S. and elsewhere, the Journal of Burn Care and Research published results from the DETECT Phase III study. The study demonstrated that treatment with NexoBrid resulted in early complete eschar removal in more than 90% of treated burn patients and reduced the need for surgical excision compared to a gel vehicle and the standard of care. With Vericel's early success, enthusiastic reception, and strong published data, we feel quite confident about NexoBrid's future in the United States. Similarly, in Japan, another major market, NexoBrid was launched this quarter through our partner Kaken Pharmaceutical. The initial feedback from Kaken is positive, and they are working diligently to secure contracts in key hospital systems. In Europe, two recent developments are expected to bolster our sales. The first is that the CHMP recommended the NexoBrid label extension to include pediatric indication, expanding NexoBrid availability to all age groups. This recommendation was based on a global Phase III study evaluating NexoBrid in hospitalized pediatric patients as well as additional data from ARIA trials. Pediatric patients with severe terminal burns represent approximately 30% of the total burn population. Therefore, this label extension will significantly increase NexoBrid's addressable market. Secondly, our recently announced collaboration with PolyMedix, a burn care market leader, will further the adoption of NexoBrid in Europe, expanding our marketing activities in Germany, Austria, Belgium, the Netherlands, and Luxembourg. This collaboration followed NexoBrid's impressive presence at the recent European Burn Association Congress, where NexoBrid was featured in 20 oral and poster presentations. In addition to these three key markets, the United States, Japan, and the EU, there has been a noticeable rise in global demand for NexoBrid, driven in part by geopolitical conflicts. In Israel, the entire non-U.S. NexoBrid inventory has been deployed to hospitals and military to successfully treat those affected by the war. The positive outcomes achieved with NexoBrid in the field have prompted additional interest from various governments, including Ukraine, for stockpiling the product. In the United States, we secured a $6.5 million R&D budget from the Department of Defense to advance the development of a new temperature-stable formulation for NexoBrid. It is planned to be the first-line, non-surgical solution for field care burn treatment for the United States Army. All of these developments—major market launches, indication expansion, DoD funding, governmental interests—will accelerate the demand for NexoBrid worldwide. It is therefore critical that we expand our operational capabilities to address this need. Our primary goal is to ensure that our new GMP-compliant state-of-the-art facility is on schedule for completion by mid-2024, reaching full-scale manufacturing capabilities in 2025. To this end, we are focused on assembling the right team and allocating the necessary resources for that. We are thrilled to welcome Dr. Shmulik Hess as our recently appointed Chief Operating Officer and Chief Commercial Officer. With his extensive experience, we are confident that Dr. Hess will play a pivotal role in ensuring the success of our upgraded production and help us refine our commercial strategy. His expertise will undoubtedly contribute to the efforts to meet the escalating market demands effectively. Now I would like to provide an update on our EscharEx program. We have received guidance from both the FDA and EMA on the protocol for the global Phase III study, indicating our pathway towards approval. With the strong data from our Phase II studies and with the added information we made to the protocol, we are entering the Phase III portion of our clinical development program with great confidence. The Phase III trial is a multicenter, prospective, randomized, placebo-controlled study evaluating the safety and efficacy of EscharEx in patients with venous leg ulcers. The trial will enroll 216 patients equally randomized between EscharEx and the placebo gel vehicle. The trial will focus on two co-primary endpoints: the incidence of complete debridement at the conclusion of the daily visit period, and the incidence of wound closure by the end of the weekly follow-up period. An interim assessment is planned after 67% of the patients have completed the trial. We are currently finalizing the logistics of the trial and anticipate submitting an updated protocol to the FDA in the first quarter of 2024, with patient enrollment to follow in the second half of 2024. At the same time, we are also advancing plans for exploratory studies, including a pharmacokinetic study and a human factors study. These are designed to support the BLA of EscharEx and to improve our future commercialization and market access strategies. Much like NexoBrid—demonstrating notable impact in the burn care market—EscharEx is also attracting significant interest in the chronic wound care sector. This is demonstrated by the expected interest from key market leaders to form research collaborations around our study. To tell you more about these collaborations, I will now turn the call over to Barry. Barry?

Barry Wolfenson, EVP of Strategy and Corporate Development

Thanks, Ofer. This quarter we secured an additional research collaboration partner for a Phase III study, 3M Healthcare, which is in addition to the previously announced ones by MIMEDX and Molnlycke. Our primary goals in securing these agreements were to ensure that we minimized as much as possible the variability between study arms and to provide best-in-class products for patients in our study. As a reminder, we focused on three key areas of venous leg ulcer management. One, compression therapy; two, advanced wound dressings that provide optimal moisture management; and three, a cell or tissue-based product to drive active closure, which is key to our endpoint of incidents of wound closure. Compression therapy is part of the gold standard for the management of venous leg ulcers and is an essential component in all validated clinical practice guidelines for this indication. The superior benefits of 3M Healthcare's Coban 2 and Coban 2 light were confirmed in a recent real-world evidence retrospective study presented at both the Symposium on Advances in Wound Care and the European Wound Management Association conference this year. These are the two largest annual global wound care conferences. Given the prominent position of this product in the market, we are quite pleased that 3M Healthcare will be supplying them for the patients in our study, as well as providing the investigators and their teams with the training required to use them appropriately. What happens under the compression wrap system is equally as important. Venous leg ulcers are known to have high levels of wound fluid drainage, and since systems such as Coban 2 are designed to remain in place for up to one week, managing this moisture so that it is all handled by the dressing is key. For this, Molnlycke will provide their category-leading Mepilex foam dressings, as well as their Exufiber and Exufiber-Ag dressings. Mepilex is the top brand in the largest category of advanced wound dressings called foam dressings. Exufiber will be included for added moisture management and Exufiber-Ag for the additional management of localized bioburden. Lastly, a key goal of our Phase III study is to demonstrate that EscharEx significantly improves the facilitation of active closure. Due to the extensive clinical data supporting its use, along with its demonstrated ease of use, the cell or tissue-based product to be used in our Phase III study will come from MIMEDX, who will provide EPIFIX, their placental tissue allograft. EPIFIX will be used on study subjects as soon as the wound is completely debrided and has a hundred percent granulation tissue when autographing is not an option. As a whole, these three class-leading collaborations underscore just how significant of a trial this is in the field of wound management and to the anticipation of what EscharEx can mean to the market upon its approval. With that, I'll hand it back to you, Ofer.

Ofer Gonen, CEO

Thank you, Barry. In summary, we're making substantial strides towards achieving our strategic goals. NexoBrid has successfully launched in the United States and Japan and is expanding its addressable markets and commercial presence in Europe. The construction and commissioning of our new manufacturing facility that will support this increased demand are on track. Additionally, EscharEx has attracted collaborations with industry leaders 3M, MIMEDX, and Molnlycke, and we are well positioned for our pivotal Phase III trial. Finally, our solid balance sheet with $46 million in cash is a key strategic asset that empowers us to successfully execute on our main goals: increase NexoBrid revenues, develop EscharEx through FDA approval, and reach profitability. To discuss our financials in more detail, I will now hand it over to Hani. Hani?

Hani Luxenburg, CFO

Thank you, Ofer. Let me begin with our revenues. In this quarter, the company reported revenue of $4.8 million, which is a decrease from the $5.8 million reported in the same quarter of the previous year. This decrease is primarily due to the absence of non-recurring income from BARDA. Gross profit for the quarter stood at $0.9 million or 19% of total revenues compared to the $2.4 million or 41.9% of total revenue in the third quarter of 2022. The decrease in gross profit is mainly attributed to the absence of non-recurring income from BARDA. Turning to our operating expenses, the company's R&D expenses amounted to $1.5 million, a decrease from $2.9 million in the third quarter of 2022, mainly due to the completion of the EscharEx Phase II study. SG&A expenses were reported at $2.6 million compared to $3.1 million in the same quarter of the previous year. The operating loss for the quarter was $3 million, showing an improvement from a $3.5 million loss in the third quarter of 2022. The net loss was reported at $2.2 million or $0.24 per share compared to the net loss of $4.2 million or $0.88 per share in the same quarter last year. This improvement is mainly attributed to a favorable adjustment from the revaluation of Florence. The non-GAAP adjusted EBITDA for the quarter was a loss of $2.6 million compared to a $2.5 million loss in the third quarter of 2022. Now let's look at the year-to-date financial highlights. The company's revenue for the first nine months of 2023 totaled $13.3 million, a decrease from $14.9 million in the first nine months of 2022. The operating loss for this period was $11.4 million compared to the operating loss of $10.5 million recorded in the same period last year. The net loss for the first nine months was $5 million or $0.56 per share, which is a significant improvement from a net loss of $12.1 million or $2.67 per share for the first nine months of 2022. The non-GAAP adjusted EBITDA showed a loss of $9 million compared to a loss of $7.9 million reported in the first nine months of 2022. And now a few words about the balance sheet. As of September 30th, 2023, the company's cash, restricted cash, and investments were at $46 million, an increase from $34.1 million reported on December 31, 2022. In the first quarter of 2023, the company successfully raised a gross amount of $27.5 million. During the third quarter of 2023, the company used $5.4 million to fund its activities. With the current financial standing, the company's cash reserves are expected to support its operations through profitability. With that, I will now turn the call back to Ofer. Ofer?

Ofer Gonen, CEO

Thank you, Hani. This quarter is marked by significant progress for MediWound. Our optimism for NexoBrid's global revenue growth is high, driven by its commercial launches in the United States and Japan, growing presence in the European market, and rising global governmental interests. Addressing this surging demand is our foremost priority in the coming months. We are committed to maintaining our manufacturing targets and expanding our production capabilities. We anticipate a substantial increase in NexoBrid's revenue following the completion of this scale-up. In parallel, our EscharEx Phase III global study is progressing towards the initiation, guided by the FDA and EMA, and bolstered by partnerships with three top global wound care companies. EscharEx stands at the forefront of the $2 billion chronic wound debridement market and holds the promise of enhancing the lives of millions. With that, we will now open the call for your questions. Operator?

Operator, Operator

Thank you. And today's first question comes from RK with H.C. Wainwright. Please go ahead.

Unidentified Analyst, Analyst

Thank you. Good afternoon, Ofer and Hani. Hope you folks are doing well and your families are doing well. So, to start off with NexoBrid, in terms of Japan, you said you're getting good feedback, and I'm just trying to see if you can expand on that comment a little bit more. And also, in terms of how does commercialization work in Japan for a product like this? So, if you can highlight on both of those, that'll be helpful.

Ofer Gonen, CEO

Hi. Okay. I hope you're well as well. Thank you for the question. So, as I said, in Japan, Kaken Pharmaceutical has successfully launched NexoBrid commercially. The Japanese market is quite substantial, with more than 6,000 patients annually receiving treatment for severe burns, and the majority of them undergoing eschar removal as a critical first step. The initial feedback, as someone who licenses the product, we get periodic input from them. So, the initial feedback is very positive. They are working diligently to secure contracts in key hospital systems. In Japan, there are approximately 420 relevant hospitals. For instance, in the United States, the number is only about 120, so there are 400 hospitals they approached already, exposing the products and giving training to many dozens of healthcare professionals. Initially, after deploying them, the first few batches increased their order. But as we have stated in the last quarter or two, currently, there is much more demand for NexoBrid than we can actually manufacture and supply. We will keep our initial commitment according to the contract, but the Japanese launch is going better than expected.

Unidentified Analyst, Analyst

Very good. Then with the added indication of pediatrics in Europe and the new collaboration with Polymedics, how is this going to work for you folks? And do you think that Polymedics collaboration will give a little bit of a win, especially since you have been in Europe for a while?

Ofer Gonen, CEO

So again, it's an interesting question. The recommendation for the label extension to include also a pediatric indication is quite substantial in Europe because around 30% of all burn patients are considered children. We got 100% of what we asked from EMA; the label that we received is exactly what we aimed for. The collaboration with TMI, of course, the impact in the near term will not be substantial, as Europe reflects what we see in other territories. We have much more demand than we can actually supply. But we are looking now to 2025 and 2026. We want to have a very strong presence in Germany, Austria, Belgium, the Netherlands, and Luxembourg. By 2026, we are expected to have full manufacturing capabilities. We want our spread in Europe to be as strong as we can, and PMI is quite an ideal partner. If you go to European Burn Association Congresses, you will see very few strong companies in wound care, but PMI is very strong in this area, and we think it'll justify this collaboration.

Unidentified Analyst, Analyst

And then the last question is on the manufacturing piece. So, as you said, you have larger demand than what you can supply. And you were saying that by early 2025 you should have manufacturing coming from the new plant. Do you think you have enough material to support commercialization until then so that you are not losing on any contracts between now and early 2025?

Ofer Gonen, CEO

So, this is a tough question. We have a commitment to support our clients and our partners, and we are also currently on schedule to complete the GMP-compliant state-of-the-art facility by mid-2024. We hope to reach full-scale manufacturing capabilities in 2025. In terms of EMA, it could be quicker. We need to set priorities and I think we are very clear on that: the United States and Japan are our top priorities because these are the most important markets. After that, we have Europe, EU5, and the rest need to wait. We might lose some partners in very small countries, but that is the reality.

Operator, Operator

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

Francois Brisebois, Analyst

Thanks for taking my question. In terms of the EscharEx trial, can you help us understand maybe the timelines? You talked about an interim assessment; the start of the trial enrollment starts in the second half of next year, but do you have an idea when that interim assessment could happen and what we can expect to see there in terms of outcomes? Is there a look on potential efficacy? Is there an opportunity to end the trial early because of overwhelming good efficacy? Any color on timing and interim assessment expectations? Thank you.

Ofer Gonen, CEO

I appreciate the question. Yes. The Phase III protocol, we have been going back and forth with EMA and the FDA to ensure they are aligned with the same requirements because we want EscharEx to be approved globally. We've managed to approve an interim assessment. This is our plan after 67% of the participants have completed the trial. We managed to reduce the number of patients; last time we said we would need to recruit 244 patients. Now, especially due to the fact that we have an interim analysis, we're able to do a shorter trial. So now we are guiding for a shorter trial, not for 24 months rather than 18 months. The interim assessment will happen after about 15 months, and the data will involve efficacy data, not safety data. There isn't a stopping rule for the interim assessment. If we see that we don't have enough power for succeeding in the endpoints, we might increase the number of patients, but we will not be able to decrease it. The plan is for 216 patients, and I hope I answered your question.

Francois Brisebois, Analyst

Yes. Thank you. Obviously, it is very unfortunate the reasons for why NexoBrid isn't in such high demand. But can you help us to quantify maybe by a multiple or how much is the demand superior to the supply? Is it 2x, 3x? And will the manufacturing capability and building be enough for the supply? Or is it kind of a surge in supply? Just any comment there on manufacturing goals? Would it completely resolve the greater demand than supply? And what would that do to your balance sheet? Thank you.

Ofer Gonen, CEO

Thank you for that, Frank. As I said, our current sales are limited only by our production facility. We have almost zero inventory. If you look at the financial statements, you'll see that inventory is always marginal. We have at least 3x demand more than we can produce. The scale-up is planned to do 6x. If we work in two shifts, it's actually 11x. So, we don't see a reason why this manufacturing facility will not be enough to manufacture everything that NexoBrid needs in the foreseeable future. Just to address the second part of your question: if the demand today is 3x the current manufacturing capacity, we see no reason why, in 2025 and 2026, when we have full manufacturing capabilities, we wouldn't be able to sell 4x or 5x, because currently, we are just limiting our sales force in order to keep as many partners happy. We cannot supply everything.

Operator, Operator

And our next question comes from Michael Okunewitch with Maxim Group. Please go ahead.

Michael Okunewitch, Analyst

Thank you for taking my questions today. I would just like to follow up on the discussion around the manufacturing scale-up. In particular, how does this play into your guidance for tasks supporting you through profitability? I would like to get a sense of what timelines are kind of baked into that assumption. Is the expectation here that the manufacturing scale-up, given the excess demand, could push you into profitability relatively quickly after it's fully up and running?

Ofer Gonen, CEO

I think Michael, I think Hani will take that question.

Hani Luxenburg, CFO

Hi, Michael. I appreciate your question. Our cash, restricted cash, and investments total $46 million as of the end of the quarter. We have two major expenses going forward. The first one is the Phase III program, which will probably cost approximately $30 million. The second is the remaining cost of the facility scale-up, which totals about $6 million. We expect about $1 million to be covered by BARDA. Assuming we meet the scale-up timeline according to plan, which means that the construction will be completed by mid-2024, and full-scale manufacturing is expected in 2025. So, the next NexoBrid upgrade is expected to generate meaningful revenue in 2025 and going forward. Accordingly, we anticipate profitability in 2026 or 2027.

Michael Okunewitch, Analyst

Alright, thank you very much. I would also like to ask a little bit deeper about the research partnerships, particularly now that we have 3M joining in. Do research partners get earlier access to the data or get to follow the trial more closely? I'd like to understand if there's some benefit here for partnering or even potential acquisition discussions. The reason I ask is that EscharEx seems like it could be a really attractive compound for someone, especially like 3M if they're looking to compete with Santel.

Ofer Gonen, CEO

That's a very important question, and Barry, can you please provide more detail on that?

Barry Wolfenson, EVP of Strategy and Corporate Development

Sure. Thank you for the question. As far as the data that they're going to receive, they won't have any early access. At the time that we file the BLA, they will get a package of information that focuses on their specific product and how it fared across the various arms in the study. For them, they will get a solid amount of data. There are not too many Phase III studies that are done in this space, especially with the rigor with which this study is being conducted. They will receive a good set of data from an actual controlled study. They will have the marketing capability to state that in the most important Phase III study to come around in wound care for decades, their product was used as standard of care. As to the question about M&A licensing and any other business development activities, you are right to speculate. Just as an additional note, 3M is splitting off its healthcare division into a listed entity, which I believe will occur in 2024. They just announced the new name of this entity in the past week. This spinoff's intent is to unlock innovation in that division, which does about $8 billion in sales a year. So, would they be a potential acquirer or licensor of EscharEx? Absolutely. Of course, our stated intention at this point is to not only bring EscharEx across the finish line but to commercialize it as well, as we believe that is what will maximize value for our shareholders. But of course, when we get there, we will always be open to see what the prevailing trends are and what the market bears.

Michael Okunewitch, Analyst

Thank you very much. Lastly, I would like to ask if you could expand on the exploratory studies for EscharEx. Would you be more geared towards generating additional marketing data in VLU or potentially layering in additional indications?

Ofer Gonen, CEO

When we are speaking about exploratory studies at this stage, we're referring to guidance that we received from the FDA. The FDA is interested in us showing the PK profile of the drug, and this study will be relatively small, around 20 patients. Also, since EscharEx is a drug that will be used at home, the FDA also wants us to conduct something known as a human factors study. This is to ensure that patients are able to read the instructions for use. Again, it will be a very small study, potentially without patients, just healthy volunteers. We might also consider conducting an additional one or two studies that will serve market access, ensuring we are ready to maximize pricing after EscharEx is approved. Once we know exactly what we will be doing, we will share that information with you and the public.

Operator, Operator

And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Ofer for any closing remarks.

Ofer Gonen, CEO

Thank you everyone for joining us today. We look forward to updating you again on our next call.

Operator, Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.