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Edited Transcript of MDWD.OQ earnings conference call or presentation 20-May-20 12:30pm GMT

Q1 2020 Mediwound Ltd Earnings Call

Yavne Jun 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Mediwound Ltd earnings conference call or presentation Wednesday, May 20, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Boaz Gur-Lavie

MediWound Ltd. - CFO

* Sharon Malka

MediWound Ltd. - CEO

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Conference Call Participants

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* Joshua Thomas Jennings

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Kevin Michael DeGeeter

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Swayampakula Ramakanth

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Jeremy Feffer

LifeSci Advisors, LLC - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q1 MediWound 2020 Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Jeremy Feffer. Thank you. Please go ahead, sir.

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Jeremy Feffer, LifeSci Advisors, LLC - MD [2]

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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 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 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?

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Sharon Malka, MediWound Ltd. - CEO [3]

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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 earnings 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 their 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 health care providers and patients with severe burns injury.

We instituted 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 regions where executive orders for hospital policies restricted access. As Boaz will cover in more details 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 routines.

As previously reported on March 30, due to the continued uncertainties and hospitals' 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 II 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 the 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 am pleased to say that we have resumed patient screening and randomization of our EscharEx study in regions where clinical drive restrictions have been lifted, in compliance with applicable governmental orders and clinical sites' policies and procedures. Ultimately, the pace at which clinical drive 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 the 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. Consequentially, 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 enroll patients in the NexoBrid expenses program at the U.S. burn centers.

Additionally, patients' long-term follow-up safety data collection in our pivotal Phase III 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 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 disruptions 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 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 continue to support health care professionals utilizing virtual tools where access was restricted, ensuring uninterrupted access to NexoBrid.

In view of the challenges of the health care 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 towards nonsurgical enzymatic care in order to alleviate the burden on acute care staff and inpatient operating rooms. Since the beginning of 2020, we expanded NexoBrid's global presence with new distribution agreements 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 distribution agreements 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. Sam 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.

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Boaz Gur-Lavie, MediWound Ltd. - CFO [4]

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Thank you, Sharon, and good morning, everyone. I would like to start with a 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 deferring nonessential capital projects in order to reduce the company's cash utilization while maintaining flexibility for additional expense reduction in the future, if necessary. As a result of the EscharEx study patients' enrollment suspension, variable costs associated with the clinical trial will lead to cost savings in the short term. Additionally, the overall SG&A cost will 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 year period.

R&D expenses, net of participation, for the quarter were $1.7 million compared with the $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 fourth quarter of 2019 associated with management changes.

Operating loss for the quarter was $2.2 million, a reduction of 38% compared with a 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 a 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 a loss of $2.9 million in the first quarter of 2019. A 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 reiterating our expectation of cash used 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?

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Sharon Malka, MediWound Ltd. - CEO [5]

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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 this storm. 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?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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Sharon and Boaz, I was hoping to start on a couple of questions on NexoBrid first. And it was great to hear that the BLA filing timing is unchanged. Maybe you could just help us think about what steps are left in the submission process? And what are the risks of hitting that time line as midyear 2020 is in the coming weeks to months?

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Sharon Malka, MediWound Ltd. - CEO [3]

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Thanks, Josh, for the question. We are pleased with our BLA progress and the collaboration we have with both Vericel team and BARDA team. And as I said before, despite the COVID-19 disruption, 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 QA of the different models, publishing, and we are there.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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Excellent. Thanks for that extra color. And then if we think about the BARDA procurements, I think you're talking about the third quarter where procurement will kick back in -- kick in. I believe Vericel in their earnings call talked about assuming nothing until 2021. And just wanted to sanity check, if that was their messaging? And what is the difference between your time line today? Has there been an update in the interim or -- just wanted to check in on that. And also in the same vein, we've historically assumed kind of a straight-line of BARDA procurement from a revenue modeling perspective to over 6 quarter time frame. And then should we continue to think about that type of modeling in terms of BARDA procurement, steady flow quarter after quarter?

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Sharon Malka, MediWound Ltd. - CEO [5]

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Thanks for the question. So to put us all on the same page with our expectations, 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 the revenue recognition is likely to occur starting from 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 of NexoBrid and building an emergency stockpile ready for delivery, which is currently we maintain it in Israel.

BARDA requested an adjustment due to the COVID-19 and shifting priorities to the delivery plan of NexoBrid emergency stockpile. While the definitive delivery plan is not yet scheduled, based on recent discussions we 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 a quarterly revenue recognition starting from the third quarter going forward.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [6]

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Excellent. If I can just shift over to EscharEx and thinking about the interim analysis time line in mid-2021, are you still targeting 100 patients for that interim analysis? And how should we think about the overall trial enrollment completion time line? Should we be thinking about that sometime in 2022?

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Sharon Malka, MediWound Ltd. - CEO [7]

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So the short answer for the first part of the question is that the targeting number of patients to be treated to -- for the interim assessment is around 100 as defined in the quarter call. 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 already enrolled before we suspend the study during the setup period continued 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 the COVID-19.

In light of the fact that several states have recently announced plans to lift restriction, we are monitoring site by site 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 3 main factors. One is, of course, the governmental policies, which is evolving. And hopefully, in the coming months, you will see more and more lifting of these restrictions. Two, the readiness and ability of individual facilities to resume clinical trials because it's site-by-site policy. And the third one, which is not less important, is the willingness and ability of patients to return to clinical settings. As said previously, we expect to have our interim assessment in the first half of 2020. And lastly, to your question regarding the potential metrics, we plan to share metrics on the EscharEx study once the uncertainty is wavered, and we will provide you with more insights of the EscharEx Phase study progress and recruitment base.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [8]

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Great. And then I'm just thinking about -- you historically talked about the second trial with EscharEx, I believe, in either VLU or DFU based off of the interim analysis, and that could potentially start most of your analysis data in hand. Any updated thoughts or strategies on a potential second trial?

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Sharon Malka, MediWound Ltd. - CEO [9]

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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 this study, this will be the data that we will use to discuss with the FDA and discuss within the next step of the development. And our plan remains the same.

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Operator [10]

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

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [11]

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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 nonsurgical 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?

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Boaz Gur-Lavie, MediWound Ltd. - CFO [12]

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Thank you for the question, Kevin. So generally speaking, as I said before, we know that NexoBrid has been less directly impacted by the pandemic, giving the critical nature of the severe burns. On one hand, we've been discussing with some of the brand centers, and we are keeping a close relations with all our customers and our stakeholders also in the U.S. as part of the clinical setting and -- which have been communicating on the fact that with the less industrial activity, less burn patients have been admitted for treatment recently.

Having said that, on the other hand, we were encouraged from the recent guidelines, such as the Italian guidelines that are recommending to shift more than patient and treatment from the surgical treatment towards the nonsurgical treatment or most specifically to the nonsurgical enzymatic care in order to alleviate the burden on acute care staff and inpatient operation room. And we believe this will enhance NexoBrid as a standard of care and underscoring its role as of dramatic debridement for burn care in emergencies.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [13]

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Great. That's extremely helpful. And then maybe following up on some of the earlier 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 open during Q1 are under current local regulations allowed 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?

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Operator [14]

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(Operator Instructions)

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

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [15]

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Sharon and Boaz, most of my questions have been answered, but just want to follow up a little bit on the NexoBrid delivery to BARDA. I'm just trying to understand how confident are you about your delivery time lines considering COVID-19? And also how confident are you of BARDA going through the whole procurement, not only for the $16 million -- initial $16 million, but also the additional agreement that you got into BARDA with? Hello?

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Operator [16]

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And excuse me, this is the operator. I apologize about the interruption.

(technical difficulty)

And this is the operator. We do have our speaker back on. You may resume with your questions.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [17]

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

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Sharon Malka, MediWound Ltd. - CEO [18]

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Yes. First of all, I apologize to all. And Kevin, I hope you've heard my response to your question. And if no, I will repeat it. Go ahead, RK.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [19]

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Okay. As I was saying, most of my questions have been answered. But just trying to follow up on the NexoBrid delivery to BARDA. How confident are you on delivering the current procurement order and also your confidence on BARDA, not only filling through the $16 million but also the additional ones that you had announced earlier. Just trying to get a feel for like how confident both of them are going to happen.

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Sharon Malka, MediWound Ltd. - CEO [20]

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So I will start with the first one, the committed one, which BARDA initiated the procurement earlier this year. So for that part of the $16.5 million growth, we are fully confident and highly confident. As I said, we began manufacturing of this stock and we stockpile currently the stock and maintain it in Israel until we will be able to deliver in light of the restriction, air restriction or any other restrictions as a result of the COVID-19. Following those restriction and due to shifting priorities, BARDA just requested an adjustment to the original delivery plan, which we made. And currently, we are discussing together, BARDA and our team, and currently the tentative delivery day for the first delivery is expected in the third quarter, early third quarter, means that we are highly confident that we do expect to recognize revenue in the third quarter and in the fourth quarter going forward to 2021.

As to the second part, which is the option of BARDA to increase the procurement by up to additional $50 million, this is subject to BARDA's sole discretion. And as a reminder, this option can be utilized on -- targeted to be utilized either when the initial stock will be expired in order to rotate this expiry stock or to extend or increase the safety stock that BARDA defined originally back in 2015.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [21]

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Okay. Great. And then on the EscharEx study in the United States, maybe I'm not sure if you answered this question yet, how many centers are open at this point [tradition --] randomization? And how is the randomization going at this point?

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Sharon Malka, MediWound Ltd. - CEO [22]

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Okay. So I will repeat what I stated to respond to Kevin before we hung up, and it will provide you the full answer. At the date of the suspension of the study, we've been in a position at about 20 sites overall were active after [SIVs] ready for enrollment. Our plan is to have, as a reminder, about 25 to 30 sites overall, the majority of them in the U.S. Currently, following the discussion with PIs and input we get from the sites, we resume the activity in regions where restrictions have been lifted. And we have about 70%, 75% of the active sites ready. And we plan to gradually have all the 25 sites in the coming few months, subject, of course, to local government policies' evolvement over the coming months.

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Operator [23]

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

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [24]

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Just really a housekeeping question 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 some of the operating expense adjustments you described in the call.

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Sharon Malka, MediWound Ltd. - CEO [25]

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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.

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Boaz Gur-Lavie, MediWound Ltd. - CFO [26]

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

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Operator [27]

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And there are no further questions at this time.

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Sharon Malka, MediWound Ltd. - CEO [28]

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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.

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Operator [29]

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