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Edited Transcript of RWLK earnings conference call or presentation 7-May-19 12:30pm GMT

Q1 2019 Rewalk Robotics Ltd Earnings Call

May 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Rewalk Robotics Ltd earnings conference call or presentation Tuesday, May 7, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lawrence J. Jasinski

ReWalk Robotics Ltd. - CEO & Director

* Ori Gon

ReWalk Robotics Ltd. - CFO

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Conference Call Participants

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* Swayampakula Ramakanth

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

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the First Quarter 2019 ReWalk Robotics Ltd. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's call, Mr. Ori Gon, Chief Financial Officer. Sir, you may begin.

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Ori Gon, ReWalk Robotics Ltd. - CFO [2]

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Thank you, Lorinda. Good morning, and welcome to ReWalk Robotics' First Quarter 2019 Earnings Call. This is Ori Gon, ReWalk's CFO. With me on today's call is Larry Jasinski, Chief Executive Officer of ReWalk.

This morning, the company issued a press release detailing financial results for the 3 months ended March 31, 2019. This press release and a webcast of this call can be accessed through the Investor Relations section of the ReWalk website at www.rewalk.com.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ReWalk management as of today and involve risks and uncertainties, including those noted in this morning's press release and ReWalk's filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ReWalk specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

A telephone replay of the call will be available shortly after completion of this call. You will find the dial-in information in today's press release. The archived webcast will be available for 1 year on the company's website at www.rewalk.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 7, 2019. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.

And with that, I'll turn the call over to ReWalk's CEO, Larry Jasinski.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [3]

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Thank you, Ori. Good morning, everyone, and thank you for joining us. We are very satisfied with our Q1 progress as we have had successful execution with each aspect of our key strategic activities to build a sustainable and valued business enterprise. They include, one, overall sales results; two, market support in terms of reimbursement or payment for personal spinal cord injury systems in Germany, the U.S. and the U.K.; three, progress and preparation for entry into a major new market for stroke rehab; four, our financial strategy obtaining adequate cash for 2019 and beyond along with stabilizing our position with our NASDAQ listing; five, building the path for leveraging operations with multiple revenue streams in parallel with reduced expenses after our successful development efforts of the past 3 years.

So let's start with a more detailed examination of each of these 5 elements in Q1, starting with our Q1 2019 results. The EU has become predictable with strong quarterly sales that specifically tie to the achievement of a coverage code. The results of Q4 2018 were repeated in Q1 by additional approved trainings that lead to predictable sales occurred to support Q2 and Q3 sales.

In the EU, we have revenue of $1.1 million and a strong pipeline of approved trials, which includes 7 opportunities in trial as of March 31 and 9 cases that have completed their trial period and are pending insurance closures.

Our second major thrust has been with insurance coverage. With the multiple changes in coverage over the past 12 months and the resulting clinical successes as a baseline, we are now in the process of establishing direct insurance contracts with multiple statutory health insurance groups covering 34 million lives in Germany as well, with the head office of Workmen's Compensation, insurance covering 64 million lives. These contracts will define the training and purchasing process that will allow further growth and make our sales cycle shorter and more efficient for ReWalk and for the payer. 50% of our current project pipeline of claims are with these groups.

Also, in the U.K., we have seen assurance of a specific litigation code for the ReWalk in spinal cord injury cases, which is becoming the predominant method of payment for those personal systems in the U.K.

For the U.S., in February 2019, we were notified after extensive interaction and review of the clinical data that Cigna is removing the experimental and investigational designation for personal exoskeletons. This widespread designation by U.S. insurers historically has prevented clinical consideration of cases of individuals that sought to walk again. Cigna has a long history of progressive leadership in the industry, and this change was a very meaningful decision.

It is similar to what we experienced in Germany with Barmer leading an initial change that has led many other German insurers to provide systems for those qualified to walk once again. We anticipate that other U.S. insurers will follow the global and U.S. trends that have occurred as part of the marketing development for a personal ReWalk system.

In Europe, we experienced about a 9-month cycle before systems turned out on a regular basis. We expect the U.S. to be similar.

As an important measurement, we have seen the first Cigna patient move into training about 6 weeks after their changes in policy. We currently have 7 Cigna cases in the pipeline that we hope to see reviewed in 2019.

Our third major strategic effort has been driving force of the company for nearly 3 year and for almost 7 years to the extensive fundamental scientific research at Harvard University's Wyss Institute. Our entry with a versatile, functional, data-driven, lightweight economical design will expand and significantly change the market for robotic-assisted exoskeleton exosuit therapy. We are about to enter this market as our CE mark submission, and the FDA submissions are currently under review. We have had positive feedback from the CE about the submission and are currently in a interactive review process with the FDA on the 510(k). We have started our commercial production processes through our OEM manufacturer, Sanmina, which will allow an effective, large-scale high-quality launch. We have begun preliminary customer reviews of the technology and trained our German organization in April and are training the U.S. organization during May.

We also have centers establishing additional research efforts to expand the published data about this unique and disruptive soft exosuit wearable design, and we have placed 2 ReStore units in 1 of the centers this quarter. We anticipate a rapid uptake of this design based on customer feedback regarding the economic value that they see, the clinical benefits of a predictable assistive system and the current payments in place to cover stroke rehab therapy.

We also see a favorable financial profile with the mix of the equipment for the initial set up combined with a strong recurring revenue stream from the disposables that will accompany this system.

As we launch the product, there is meaningful supporting clinical material regarding the ReStore exosuit. This design has already demonstrated its clinical value in 3 different published papers authored by researchers at Boston University and the Wyss Institute at Harvard. These studies have shown that the device has significant value for gait therapy of patients post-stroke. It improved their forward propulsion symmetry, reduced the metabolic burden associated with walking post-stroke and reduced compensatory behaviors such as hip hiking and leg circumduction. These clinical benefits as well as new studies currently underway on a new ReStore design will assist in establishing the world with post-stroke treatment protocols.

The fourth of the 5 key strategic areas are basic financial measurements. In the first 4 months of 2019, we have closed 2 separate fundraisings and have strengthened our balance sheet with $8.6 million in gross proceeds. On April 1, we implemented a 1-for-25 reverse stock split of our issued and outstanding shares of common stock. This reverse stock split was intended to increase deferred share trading price of the company's common stock and to regain compliance with continued listing requirements of the NASDAQ capital markets for our long-term position.

The fifth of the strategic areas is a combination of increased revenue and leveraged expenses. With the growth and reimbursement coverage for the ReWalk design, the revenue expectations from the sales of the ReStore soft exosuit and the addition of a stream of revenue from the disposable components for each stroke user, we anticipate meaningful top line growth. We have invested extensively in establishing these reimbursement positions and the development of the stroke rehab product and the clinical studies. We will be able to commercialize both of these offerings with our existing team and will be able to leverage the commercial costs very efficiently.

In addition, the expenditures for creation and basic extensive market-building activities will be significantly less for the short term. These factors allow a clearer path to breakeven operations from our investments over the last 5-plus years.

With that, I'll turn the call over to Ori to review our financial results. Ori?

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Ori Gon, ReWalk Robotics Ltd. - CFO [4]

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Thanks, Larry. I would like to start with a summary of our top line results. Q1 revenue was $1.6 million. This reflects placement of 14 units during the quarter. 10 units were placed in Europe, 3 were placed in the U.S. and 1 unit was placed in other markets.

During the quarter, we had 7 new rental purchase units placed, out of which, 2 have completed the trial period and were converted within the quarter. We also had 5 previously rented units convert to a purchase.

At the end of the quarter, we had 18 open trials including 8 active rentals and 10 claims that have completed their trial period and are awaiting a final insurance decision. We also had 186 pending insurance claims relating to coverage for ReWalk. This represents approximately $18 million in potential revenue.

Let's turn now to our gross margin. Our Q1 2019 gross margin was 59% compared to 43% in the prior year quarter. This increase is mainly due to our improved average selling price across all regions with all of our units sold this quarter coming from direct insurance.

Regarding our operating expenses. Q1 2019 OpEx decreased to $4.5 million compared to $6.5 million in the prior year period. This improvement is driven mainly by reduced personnel and personnel-related expenses as well as reduced staff consultants and R&D material, which was consumed in the beginning of 2018 as part of the ReStore development process.

Regarding our operating cash burn. We see that the first quarter of 2019 had a $4.1 million operating cash burn compared to $5 million in the prior year quarter. This quarter, we have also reduced our loan repayment by $0.5 million compared to prior year quarter due to our November 2018 agreement with Kreos to defer 50% of our 2019 capital payment into 2020 and until the first quarter of 2021.

Our net loss for the first quarter was $4 million compared to a net loss of $6.3 million in the first quarter of 2018. Our non-GAAP net loss for the first quarter of 2019 was $3.6 million compared to a non-GAAP net loss of $5.4 million in the prior year quarter.

Turning to our balance sheet. The 2 separate fundraising events that we have closed in 2019 strengthened our balance sheet and allowed us, together with the reverse split, to regain our NASDAQ compliance. We are working based on a defined plan to maintain our listing throughout 2019 and beyond. Our cash balance as of March 31, 2019, was $8.9 million. Our March 31, 2019, cash balance on a pro forma basis, which includes the equity rate completed on April 5, was $12.6 million.

With that, I'd like to turn the call back to Larry for some final remarks.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [5]

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Thanks, Ori. As we completed our prior quarterly review, I have laid out 8 key 2019 objectives and priorities for us. I'd like to cover the progress with each of these.

So the first one. Completion of the submission for our 510(k)-supported FDA clearance of the ReStore exosuit. Well, the status, done. We submitted it on February 14, 2019.

The second one, prepare for the EU launch of the ReStore in mid-2019 if CE clearance is granted. We discussed the review of our submission with the government authorities during March and answered all open questions within a few days of that discussion. We anticipate a clearance in Q2. As a result, we have trained our German team in April and have begun teaching customers about the ReStore. Status, on target.

Third, prepare for the U.S. launch of ReStore in late Q2 or Q3 if FDA clearance is granted. While we have entered an interactive review process with the FDA regarding our submission and have elected to train our U.S. team in May. We also worked with 3 sites for continuing studies regarding this unique system that will provide additional data to the marketplace. Status, on target.

Fourth, support the demand from German reimbursement with SCI sales in Germany. We have now expanded direct contact discussions with the major groups in procuring products over the last 6 months. These will be completed with the key groups in 2019 and shorten the overall time cycle for those that are seeking to walk again. Status, contracts, expected in 2019.

Fifth, continued support of the U.S. VA and ongoing engagement with national and regional U.S. insurers to support broader reimbursement coverage. The VA continues to perform well with a randomized study on the ReWalk. They remain on target with 114 patients now enrolled out of the 160 targeted. This data will offer the most extensive information in the industry on the results of being able to walk once again. We now also see the first patients acquiring systems after they completed all of their follow-up obligations to the study. Status, study on target, post-study product acquisition starting.

Sixth, to initiate commercial preparation in China with Timwell, RealCan or one of our identified alternative partners. We view China as a key strategic part of our plan. The major driver is a disruptive soft exosuit for stroke rehab and the size of the China marketplace. We have active discussions with RealCan on a modified working arrangement and in parallel, we have other groups that are also pursuing a potential partnership in this space. Status, we have high interest and we'll continue to pursue.

Seven, we'll effectively leverage our sales, training, service, manufacturing and reimbursement organization using the existing personnel to effectively manage the ReWalk SCI sales growth and to enter the much larger stroke rehab market effectively. Our team is now trained and in place to manage both of these product lines through the launch cycle. There's an ideal synergy in the skill sets and the organizational structure that will work to our benefit in 2019. Status, training nearing completion.

And finally, to achieve at least a 10% reduction in operating expenses compared to 2018 as we complete the regulatory and key development milestones related to ReStore launch, which we believe will reduce our bone rate and to establish the pathway to breakeven. We have continued to reduce expenses as efficient systems are now in place that are continuing to be favorable year over year over year. We are on the path we have identified. Status, adjustments to achieve targets have been made.

Q1 was an excellent quarter when measured against our goals and the potential of multiple product lines on our offering. We remain confident that we're on the right path to meet our long-term goals, and thank you for your continued support.

At this time, I'd like to turn the call over for questions. Operator, can you please...

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from S. Ramakanth from H.C. Wainwright.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [2]

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Congratulations on first quarter. Certainly a lot of things moving in the right direction. So just to start off in terms of units placed, certainly it's encouraging that you're placing more personnel. If you just go by numbers, they're less compared to the previous period. Is that basically because you are not placing as many rehabilitation units for the SCI and you're trying to do -- trying to get more into the personal market other than the rehabilitation market?

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [3]

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No. Ori will answer. Ori, go first.

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Ori Gon, ReWalk Robotics Ltd. - CFO [4]

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Yes. So I think first quarter 2018 we still had some order for the VA co-op study that we got, so that was at least -- we still had some of them in 2018. We have completed, I would say, the material part of those orders and maybe in the future, we'll have some or not depending on the study progress. But that's the main difference to Q1 2019. That's it for me. Larry?

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [5]

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Yes. I would say from a market point of view, the number of training centers that are in place in our key areas where we have insurance, specifically Germany, United States and U.K., to the -- for the groups are sufficient. So at this point, our focus is more on the personal, which is by far the larger market. And as we solve the reimbursement piece, we believe that will be the area of growth. Our rehab center side is much more on the stroke product, which we're very close to, but you'll see those units as soon as we can give them to you.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [6]

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No. Perfect. I'm just confirming my thoughts. That's good. In terms of the ReWalk Personal signal, which is again encouraging that they decided to remove the experimental designation and start a case-by-case approval. And also we have seen 1 case approval beyond -- after that reversal. I know you stated broadly that you're expecting other private payers also to come forward. Could you give us some color as to where discussions are with the other payers? And is this the normal -- is this the way it's going to be in the sense payers are going to become [more lenient]into case by case initially and based on their own experience and data that comes out safe on the VA, it would be converted into not case by case, but a regular reimbursement situation? I'm just trying to understand the dynamics of how that is going to work out from here in the U.S. for the ReWalk Personal.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [7]

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Okay. Well, for the U.S., I think the model might be similar to Germany at the end of the day. But what we've done in the U.S. first is the data continues to expand from different publications. Ideally longer term, a large scale randomized study independently conducted by the United States government is going to be incredibly valuable to us, but that study still has a year to run. So we believe in the current year, what we'll see is we have given the same type of data and submission updates to other top 5 insurers, particularly after the Cigna change. So it is ongoing review. I can't forecast what they will be specifically be, but they're well aware of the decisions made in the new data and expanding data that's come out there. And I do believe to your comment, some may -- to separate approach, case by case may be a common starting point leading to a contracted approach later, which is what we're seeing in Germany.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [8]

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Okay. That's great. And then regarding the VA study itself, how will the share of flow be? Either -- is it all dependent on obviously, it's different on how VA wants to do it. But is there any say on your part regarding how the data could be released? And in addition to that, will there be any additional data presented at any conferences or any other place so that we can have a look at how the device is helping our patients just so that we have an understanding of what the private payers are looking at?

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [9]

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Yes. First, the VA, this is an independent study funded solely by the United States government, so we have no involvement or control other than the supply of the systems and the training and the service. So when they choose and how they choose to publish is up to them. I would say several of our key presentations, which support coverage already came out of the VA because their data is -- that preceded the randomized study was quite strong and frankly, the strongest single base of data in the world today. The study we, again, have no visibility, but it is reasonable to assume that it will have similar data as the prior just given the pure numbers. But we do not have access to the data, so I can't answer that. Relative to additional data outside of the VA, there is growing data from other sources, in particular, there's a European database that has been started that we'll be publishing, and we as a company will also continue to bring more data into the market in some efforts we're doing through our post-market efforts with the FDA. So there's additional data sources beyond the VA, but the VA can afford one bigger than anybody else in terms of what they've invested in this study.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [10]

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And regarding your interactions with the FDA for the ReStore product. From your comments, it looks things are going in the right direction again. How -- is there any additional color you can give us, especially regarding the FDA where timing is a little bit more predictable than the CE mark. How confident are you about that the CE mark should be available this quarter as you're seeing and -- with the FDA within 1 quarter or 2 based on your interactions so far, both either verbally or through sending back answers to their questions?

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [11]

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Well, first, we felt particularly good about our submissions in both the CE and U.S. market, and our clinical study results were also done by really the leading centers in the U.S. with results that we felt quite good about. But I think the important measurement to confidence is while we're confident in our studies, probably what's more important is what kind of questions they ask us. And we have now been through both with the CE and with the FDA have had interaction in terms of informal questions. And based on those questions, that's part of why we've decided to create our sales force and go forward with production. I can't give you specific timing, weeks or days or months, but every indication as we trade it wide out as we'll be launching the product here in Q2 and Q3, and I can't predict governments more than that though, I'm afraid. Sorry.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [12]

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Yes. I think we'll be doing -- it will be amazing if you can actually predict the governments and the courts. In terms of commercial structure and developing the commercial structure, both in Germany, and I'm trying to initiate the process here in the U.S., you stated certain things in Germany. So how should we think about this? And how does it impact your expenses on the SG&A line from here to the end of the year as you're trying to do things in anticipation of launches, both in Germany and in the U.S. or the rest of the world?

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [13]

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And Ori and I can both answer this. I'll just start with just the personnel. And the call point is the same, so the clinic that we normally are working through with our ReWalk spinal cord injury product is the same one we're going in with the ReStore. So we can use the same sales rep. Most of our sales reps have an extensive background as a PT or in the industry. So it's a good cause, same trainer, same service person. So I don't have to add anybody to do the product launch. It's probably most important.

Ori, you want to talk about it more of the financial structure and how we try to manage because some other things we don't have to pay for such as clinical trials on the ReStore end further and things of that type.

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Ori Gon, ReWalk Robotics Ltd. - CFO [14]

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Yes. So no problem. So I think that in general, we anticipate, say, a minimum or in area of 10% operating expense decrease. We've -- and this is our target in 2019 compared to 2018. I think that while some adjustments that we've made were not specific into some region or to some department, we just are refocusing some of our efforts that are more closer to the new product for the ReStore. But all together, it's in the area of 10%. Some of it is just because we end -- we anticipate to end our regulatory and R&D activities for the ReStore, so.

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Operator [15]

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(Operator Instructions) I'm showing no further questions at this time. I'd now like to turn the call over to Larry Jasinski for closing remarks.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [16]

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Thank you very much, operator. Everybody, we appreciate your time on today's call. And if you have further questions, please reach to the company through Ori or I. So have a good day. Thank you very much.

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Operator [17]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.