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Edited Transcript of RWLK earnings conference call or presentation 13-Nov-19 1:30pm GMT

Q3 2019 Rewalk Robotics Ltd Earnings Call

Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Rewalk Robotics Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 1:30:00pm 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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Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2019 ReWalk Robotics, Ltd. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Ori Gon, Chief Financial Officer. Thank you. Please go ahead, sir.

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

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Thank you, Jimmy. Good morning, and welcome to ReWalk Robotics third quarter 2019 earnings call. This is Ori Gon, ReWalk CFO. With me on today's call is Larry Jasinski, Chief Executive Officer of ReWalk.

This morning, the company issued a press detailing financial results for the 3 and 9 months ended September 30, 2019. This press release and the 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.

The archived webcast will be available on the company's website within the Investors section. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 13, 2019. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press release and SEC filings.

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

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

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Thank you, Ori. Good morning, everyone, and thanks for joining us. Third quarter was the first full quarter of commercialization of the ReStore Exo-suit for stroke rehabilitation following FDA and CE clearance.

During this quarter, we were able to place units and, most importantly, we have developed a strong pipeline as we look forward into 2020.

Regarding the ReWalk 6.0 Spinal injury -- spinal cord Injury product, a public tender has been published in the German government's Federal Gazette. Once finalized, this will allow a shorter sales cycle and higher levels of placements as we look forward into 2020.

Let me start with a summary of our third quarter results. We had a total of $1.2 million in revenues which as a result -- which was the result of 17 units placed, 12 of them were ReWalk Personal 6.0; 5 were ReStore products.

The ReStore design culminates 3 years of development at ReWalk that was preceded by 5 years of fundamental research by Harvard's Wyss Institute and multiple clinicians. In this first quarter of introducing the product, we are finding broad and wide-scale acceptance of the value this design offers. We have also learned that it is so unique and disruptive compared to other therapies that progression to purchase is guided by hands on use.

Here's an e-mail from a recent clinic, soon to be buyer. "We even did some recording in our lab, and we found out in the assistive mode, her propulsive ground reaction force, GRF, was clearly increased, while breaking GRF was decreased. During 20- to 30-minute training sessions, several assistive modes were tested, and they both like most a fairly low assistant level of 30% to 40%." They also mentioned using the device during early rehab after stroke could have helped them to learn walking more quickly. "We now have the confidence to purchase."

Scheduling and conducting a patient trial is a predictor of the path to a sale. We have seen this pattern in almost every trial conducted to date. The time line to final purchase is defined by each clinic's capital models, but early data appoints to widespread adoption.

So here is an outline of our activities to date. First, let's discuss customer activity. We have identified and initiated contact with over 400 accounts, and they are currently in different stages of the sales cycle. Within this number, there are approximately 25 accounts that have successfully conducted patient use sessions. These accounts have stated that they want a device, and we are currently working with them on a financial proposal to place units.

Our pipeline is diversified and consists of inpatient as well as outpatient clinics, along with the VA sites. The clinical value and cost-effective model we have with ReStore is generating opportunities. The model and need for a patient session will lessen greatly as the device becomes more widely used, and those accounts adding multiple systems will also increase our pace.

For example, our early customers have already commented on the need to share the device among multiple settings, such as inpatient, outpatient and wellness therapy areas. We feel this multi-setting usability and the device's applicability to a broad range of clinic patients will result in clinic seeking multiple units to meet their needs.

Second, let's explore what we're learning about the sales cycle. Even at the low price point and the monthly lease level of $1,100 to $1,300 a month, most accounts plan this as a capital purchase. Our first focus has been to document in places properly within the account's capital plans. We have developed all supporting materials for our sales force to assist them in the process. We've also added additional sales reps with extensive capital sales experience. In parallel, as many accounts recognize an immediate value, they've asked and we are working with them on flexible models, such as rent to purchase for early replacements.

Third, what are we hearing from clinics? One of the ReStore placed in Q3 came from MossRehab, which was 1 of the 5 leading rehabilitation centers that co-led a national clinical study of the ReStore in 2018. The other centers in that study are also in process of additional studies and working through the procurement process. Moss' study was led by Dr. Alberto Esquenazi, the Chief Medical Director at MossRehab. He said the following about this new placement. "We at MossRehab are very excited to be among the first places in the U.S. where ReWalk ReStore is available for clinical use. This is the second time MossRehab and ReWalk have collaborated in bringing to the clinic technologies that are at the forefront of rehabilitation care where patients and clinicians have provided input. And the manufacturer has listened and produced clinically relevant therapeutic interventions. With this new device, we look forward to improving gait training for many patients after stroke."

Fourth, let's look at the development of the sales channel. The reaction to date supports expansion of our field sales team and increasing the number of experienced capital sales representatives. We've added new team members with extensive experience in completing capital cycle sales to broaden coverage. We have -- we'll have doubled our U.S. team by year-end and have successfully recruited the skills we sought. We will keep looking at other potential additions to the team, but we'll also be careful with our spend level.

Fifth, clinical data from the FDA studies and new research from leading research centers. The primary data from the study is anticipated to be published in Q4. An additional gait map data from the study is being submitted for publication now. One encouraging result was that of 36 patients who completed all study activities, the majority increased their walking speed from the first to the seventh visit.

There are at least 4 centers that have initiated new studies. One, we'll compare the therapeutic benefits of exo-suit-assisted therapy versus traditional therapy approach. A second will focus on the profile of stroke patients that is -- this design is best suited to. A third is looking at the operational and economic benefits from using the exo-suit program. And the fourth, we'll compare long-term gait training of an exo-suit compared to a traditional AFO.

We're encouraged with the ongoing studies, and we are positive that the results of these studies will support more clinics' decisions to place a unit in their facility.

Finally, our expectations for the future for the ReStore device, based on this first quarter of field interaction, is positive from our customers, with our patients and with data that remains consistent with all of our prior studies and design goals. We continue to see this as a widespread main street system for the marketplace.

Next, I would like to discuss spinal cord injury device progress. There was a major announcement in the German Federal Gazette in October. Let me read the key elements. Techniker Krankenkasse, BARMER and DAK-Gesundheit have joined forces to form ARG Contracts Exoskeletons. One of the aims of the health insurance funds is to conclude contracts with suitable companies in accordance with 1271 SGB VI for the supply of aids for their insured persons. ARG Contract Exoskeletons intends to conclude new contracts for the supply of its injured persons with exoskeletons product type 23-29-01 of the list of registered aids. With this in the scope of this announcement, Techniker Krankenkasse is the sole contact for interested service providers on behalf of the aforementioned health insurance funds and is authorized to issue, accept and perform all legal transactions, declarations and legal acts required for the conclusion of contracts in accordance with the German Social Code.

This publication signals a major change. And once finalized, it will expand the use and placement of exoskeletons for paralyzed individuals across Germany. It defines all details of supply, moves the placement to occur directly between the insurer and ReWalk and simply will allow the backlog of patients to get systems for their everyday use. The level of detail defined, the direct placement with the third parties and defined policies with these leading insurers will allow qualified patients ready access to our ReWalk systems as a standard of care. These groups and the tender process are covering 25 million lives, and we currently have 30 pending patient cases with them in our pipeline.

In Q3, we had 7 new positive reimbursement decisions and a total of 17 additional cases that are currently in a paid trial period or are pending the decision, which are expected to convert within the next 3 to 6 months.

I'd also like to share with you a summary of a survey that we performed to 27 of our German customers regarding their usage patterns with the device as well as the main benefits they have walk in, in our system. The results are ratification that we have the right solution for this population. We found that 78% of the users use the system at a high frequency to reach the published threshold for health benefits; 65% use it independently; 69% use it outside for general walking. These results show that the insurance provided systems to everyday users with proper patient selection, 24/7 reporting service and regular use patterns will allow the patient to achieve the benefits shown in the clinical studies. The health and economic value of enabling walking once again has a meaning to society and these users. In parallel, the data will also continue to expand as we see 2 larger scale publications in 2020 on the experiences with home use.

I'd like to finish this section with a VA story about -- along with noting -- along with more representatives, will increase our VA focus as they complete their enrollment in the study in the next few months. The first veteran to get a system over 5 years ago has had many health challenges from her various illnesses and paralysis, but she never stopped walking. Well, in the past 15 months, she have logged more than 200 miles in training and everyday use. On Sunday, November 4, she completed 26.5 hours of walking to travel every inch of 26.2 miles as she became the first paralyzed U.S. veteran to walk across the New York City Marathon finish line. While the system worked perfectly in some cold conditions and some sizable hills in Central Park, the real story was the determination of a veteran to complete a path she pursued, regardless of the training, cold, endurance and any fatigue she may have had. Congratulations to Retired Sergeant, Theresa Hannigan Vereline.

With that, I'll turn the call over to Ori to review the 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 by providing some additional details regarding our top line results.

During the third quarter, we placed a total of 17 units, out of which 12 were ReWalk SCI unit and 5 were from our new ReStore device. The geographical split of the 12 placed SCI units was the following: 9 units placed in Europe and 3 in the U.S. The 5 ReStore devices were all placed in the U.S.

Now let's break out the units by sales and rentals. With the SCI product, we had 7 new rent to purchase units placed and 5 direct purchase. We also had 5 previously rent-a-device convert to a purchase during the quarter. The breakdown of the ReStore placement this quarter shows 4 direct purchases and 1 rental.

At the end of the quarter, we had 18 open trials, including 13 active rentals and 5 claims that have completed their trial period and are awaiting a final insurance decision. This pipeline represents approximately $1.8 million in potential revenue. Our total pending insurance claims relating to coverage for ReWalk SCI products was $143 million, and we are working to process these claims within the payer system.

If we take a look at our gross margin, we see that our third quarter 2019 gross margin was 53% compared to 47% at the prior year quarter. This improvement is also shown in our 9-month figures, with 54% in 2019 compared to 45% in 2018. The main reasons for this increase is higher ASP and fewer costs related to inventory write-offs.

On the expense side, the 2019 third quarter operating expenses were $3.7 million compared to $4.9 million in the prior year period. The reduction was driven mainly by reduced R&D expenses and sales and marketing expenses. The decrease in R&D expenses is due to lower costs associated with the development and clinical study of our ReStore software. The decrease in sales and marketing expenses is mainly due to lower consulting expense for activities we have taken in-house as well as lower personnel and personnel-related costs. As Larry mentioned, during the third quarter, we have executed on our plan to grow our sales team in order to support ReStore launch, so we expect to see an increase in this area going forward.

Looking at our year-to-date operating expenses, we see a reduction of 25% compared to the prior year period, which shows our commitment to manage our spend level is ongoing and is based on the plans we put in place at the beginning of the year.

Our net loss for the third quarter of 2019 was $3.4 million compared to our 2018 net loss of $4.5 million in the third quarter. Our non-GAAP net loss for the third quarter of 2019 was $3.1 million compared to a non-GAAP net loss of $3.9 million in the prior year quarter.

On the balance sheet side, we have closed the quarter with $20.4 million in cash. In terms of our cash flow, you can see that our average operating cash burn in the last 4 quarters is $3.5 million per quarter, and our expected principal loan payments for the next 12 months is $4.4 million.

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

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

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Thanks, Ori. Last quarter, I summarized key measurements for the remainder of the year as we have now transitioned primarily to commercial activities. Today, I want to update our status with these key measurements for the rest of the year.

So they are: sales growth with ReWalk SCI line based on completing contracts with at least 2 German insurers. Well, the results, we are on track to secure these German contracts.

Second, demonstrating market acceptance and penetration of the ReStore in more than 40 accounts and building a strong pipeline for 2020 placements. We will certainly have 40 in line, the number of completed POs may be a bit less.

Third, broad distribution and presentation of supporting white papers on the value proposition for the soft suit. This is underway, along with peer-reviewed papers in process.

Fourth, continuing support of the U.S. VA and ongoing engagement with national and regional U.S. insurers to ensure broader reimbursement coverage. The VA continues to progress in its randomized study on ReWalk. They remain on target with about 140 patients now enrolled out of the 160 planned. Our expanded U.S. sales team will be able to increase our time and focus on VA patients as the enrollment for the randomized trial is completed. Our additional regions are aligned with these key centers that have been in the study and that are well set up for training and supplying patients going forward when the focus of the VA moves from the study to everyday patient needs and care of the spinal cord Injury community.

And fifth, China. During the third quarter, we have continued discussions with Timwell RealCan on a modified working arrangement. Although we continue to discuss, we have increased our interaction with alternatives as the delay has let us uncertain of their capacity to complete this important initiative.

To close today, the advent of contracts for the supply of the ReWalk system in Germany and the positive results with the centers that acquired the ReStore for stroke rehabilitation are the basis for our shift to a commercially driven company. We look forward to reporting the progress in each of the coming quarters.

I will now turn the call back to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Swayampakula Ramakanth with 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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Can you hear me clearly?

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

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Yes, we can. I can.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [4]

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In the start of the call, you're talking about how you expect the sales cycle to shorten from here in Germany. So what has been the current sales cycle time? And how short would it become in the future?

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

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Okay. This is Larry. The sales cycle in Germany has been very broad. It's ranged from 9 months to 3 years, in some cases, because of the lack of certainty, both in the code and of the process. This cycle should bring it down to months. So we believe we're going to take a lot of those patients that have been waiting so long and take care of them. And then we will be able to get the cycle downwards. It's very predictable, and it should be 3 to 6 months on average.

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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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So you said -- I'm understanding that this was some sort of a legislation that has passed. So from the legislation to execution, do you expect any lag time? Or is it pretty much a done deal and it's just traffic of processing from your -- for these patients who have been waiting for so long?

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

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It's going to be relatively quick. We already see movement on patients because this has gone so far, so there won't be a long lag time. It will take a few months to get all these patients in the line. And then after that, as it gets predictable, I think we'll be able to give numbers that we actually will be able to accurately predict at one end to the other.

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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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And is -- was that 40 patients that were waiting in Germany, or I think for this insurance take a look of approval process? I thought I heard that number. Is that correct, what I heard?

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

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Okay. I'm going to -- could you repeat that? Why don't I let Ori go first, yes.

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Ori Gon, ReWalk Robotics Ltd. - CFO [10]

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I think you try to see what was the number of patients with the payers that is currently in the pipeline, right?

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [11]

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Yes, yes, sure. Yes.

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Ori Gon, ReWalk Robotics Ltd. - CFO [12]

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So it's 30. We had 30 pending patients within the groups of payers that are included in this center. So that will be even a little bit faster because they are already -- they have already passed the file and they're already qualified for units. So they should be the first in line with this group of payers.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [13]

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Okay. Perfect. And then for ReStore, it's great that you placed 5 units in the U.S. and all of those 5 were direct sales. But also you had suggested that there are certain accounts who are looking for flexible models of funding. So if you had these flexible models at this time, how many more than the 5 units that you placed could you have gotten by this time?

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [14]

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Well, as we had indicated, we've had about 25 other accounts and currently intent to purchase. And they're just -- we're working through the processes with them. So we have clinical buy-in at the director of research level. So we are now working with purchasing and the exact timing, which purchasing is a little less clear. Some of them are trying to do it immediately through the rent to purchase type models. And some of the others are focused a little more on putting in their capital cycle, which may start in January or may start in April. But we anticipate the majority are going to come pretty quickly.

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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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Okay. And also, sorry to jump back and forth, but on the SPI device, you had said that there are certain units, which are about 7 units have been sold on a rental basis. But what has been your rent to direct purchase conversion rate?

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Ori Gon, ReWalk Robotics Ltd. - CFO [16]

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So yes, I can take this. So normally, our conversion rate to date is 60% to 70%. The reason I'm saying it's a range because what we do is when a device is ending a rental, it should be immediately convert, right? Sometimes it takes some time. So this is why we segregate between the rentals -- the active rentals and the pending insurance claims. So the pending insurance claims are somewhere in between of closed 1 and -- or maybe loss, in some cases. So this is why it's still a range, but it's about 60% to 70%.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [17]

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Okay. And I would add, we do lose some for other reasons, but they can come back. And I'll be specific, one of the patients we have, our indication for use requires relate to the under 100 kilos or 220 pounds. And patient at the time that he went in was much less than that, not much. He was 90s. Right now, he's at about 105 or so, so he has to lose some weight, so he may come back into the system. But we deal with that or other things that change in their life that sometimes delay them is the best way to describe it, we hope.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [18]

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The last question for me is you're talking about the VA trial. And now we have 140 of the 160 patients that need to be enrolled. So based on the momentum in terms of enrollment rate, what's the expectations there for getting the enrollment done? And also potentially, when could we expect the data from this study? I would imagine this is something, which you're watching very closely. So that --

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [19]

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Yes, we are.

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Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [20]

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With the additional reimbursement.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [21]

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Yes. They have enrolled an average of about 3 a month, and that's ramped up a little more recently. It's been a little higher, closer to 4 to 4.5. So with the 20 remaining that was reported to us about a month ago, so if they stay consistent, they'll finish somewhere around year-end early next year, January, February. So now that also means, those 3 or 4 patients a month may well be available to us at the SOP where we had not been selling products so much because they're all going to the study, and they already have the products. So that will help us on the revenue side.

To your question on the data, the data is totally controlled by the VA, so it's harder for us to speak for them. We do know they would complete the follow-up data 6 months after the last patient. So if that occurs right around the beginning of next year, that they would have their follow-up data around the middle of next year. And their plans for publication, again, are not publicly stated, but we would expect them to be available around the end of next year.

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Operator [22]

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And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Larry Jasinski for any closing remarks.

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Lawrence J. Jasinski, ReWalk Robotics Ltd. - CEO & Director [23]

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Thank you very much, Jimmy. And for everybody who attended, thank you for joining. If you have other questions, please reach out to the company. Have a wonderful day. Thanks.

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Operator [24]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.