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Edited Transcript of RWLK earnings conference call or presentation 8-Aug-19 12:30pm GMT

Q2 2019 Rewalk Robotics Ltd Earnings Call

Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Rewalk Robotics Ltd earnings conference call or presentation Thursday, August 8, 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 morning, ladies and gentlemen, and welcome to the Q2 2019 ReWalk Robotics Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to your host, Mr. Ori Gon, CFO. Please go ahead, sir.

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

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Thank you, Tiffany. Good morning, and welcome to ReWalk Robotics' Second 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 its financial results for the 3 months ended June 30, 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, focus, 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 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 August 8, 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 we appreciate your joining us. The second quarter had milestone achievements for the ReStore stroke program with CE and FDA clearance, successful production, initiation of sales activities and shipment of delivery of the first soft wearable robotic system for stroke patients. Broadening the foundation of the company with commercialization of a unique and disruptive technology into a second and much larger market has been a key strategic objective of the company over the past 3 years, and it will be the basis for substantial growth in its revenue in the coming years.

Our ReWalk spinal cord injury product had an uneven sales pattern this quarter, with many of the expected Q2 sales deferred until July. The spinal cord injury, or SCI, product line will remain choppy until we finalize contracts with the German payers and expand our reimbursement coverage in the United States. Importantly, with the second quarter fundraising and continuing expense management, we have strengthened our balance sheet and have established a financial runway where we can demonstrate the potential and growth of our offering.

Next, I want to provide more detail on the ReStore stoke exo-suit activities and on our Q2 ReWalk SCI revenue. With ReStore, we received our CE and FDA clearances on May 29 and June 3, respectively. Our first products were ready in our warehouse on June 21, which allowed us to initiate commercial demonstrations to stroke clinics. Over the first 6 weeks, we have presented to 88 accounts in the United States with 21 hands-on demonstrations involving multiple therapists and 13 patients and to 34 accounts in the EU with 7 hands-on demonstrations with 30 patients in the system.

We have learned a great deal from these 122 account interactions. A clinical demonstration is currently a necessary step in the sales process as this is the first technology that has succeeded in providing targeted assistance to plantarflexion for improved forward propulsion of the ankle. Simply, they need to see it to believe it.

We expect the cycle time from clinical acceptance to issuance of a purchase order is 60-plus days for accounts that are leasing through an operating budget. For capital equipment, it is more defined by the clinics' budget cycles. We have found a high level of clinical acceptance of the value and need, particularly in the 28 hands-on demonstrations in the clinics. We also understand that obtaining purchase orders will require a solid outcomes and economic value consideration from the business and financial segments of these centers.

We are building a solid pipeline and have placed 3 systems to date. Of note is the diverse placements we have had in the United States that match our main stream goals. The first systems include placement at Barrow's Neurological Institute in Phoenix, which is a national leader for rehab; placement at the Center for Neurological Development in Burkettsville, Ohio, which have provided free therapeutic services for adults and children for 30 years; and in Japan as they have a sizable stroke population.

The sponsor for the unit in Burkettsville, Ohio, [DJ Westride], made the following comment about their experience. "Learning how to use the device was quite easy. We actually had a client that was 27 years post-stroke try the unit. We were absolutely astonished when she instantly improved her walking gait. This is a game changer for our clients that wish to improve their walking abilities, and we purchased the unit on the spot."

We are encouraged from the feedback over the first 6 weeks. The key measurement going forward is our capacity to convert this clinical interest into account placements and treatment of patients. By working directly with the clinics rather than insurers for these transactions, we have a more predictable cycle time and pathway for the decision process. Longer term, our success in building broader published scientific data that builds on the Harvard studies and on our clinical trial will be essential in building the market.

Our go-to-market targets are well defined in the United States, Germany and the U.K. The initial U.S. targets consist of approximately 1,529 centers that are certified by the Joint Commission on Healthcare Organizations (sic) [Joint Commission on Accreditation of Healthcare Organizations]. And there are additional satellites that are attached to these groups. The German focus has started with 188 inpatient and 92 outpatient centers. The U.K. targets will include 191 national health service rehab centers and 65 private rehab centers. Each of these centers are realistic targets, and most are large enough to acquire multiple systems to meet their needs.

The key elements of the value proposition for these groups are the outcomes data and the business value of this new technology for treating their patients. The supporting publication consists of 3 primary papers on the results of exo-suit testing at Harvard's Wyss Institute, along with review papers, including the American Heart Association's, AHA, guidelines for stroke rehabilitation and recovery and other reviews, such as one by S.A. Roker, et al, published in Gait & Posture in February 2019. These publications highlight the importance of activity-specific functional gait practice and the role of rehabilitation techniques, targeting plantarflexion function for improving post-stroke mobility outcomes. This matches the unique design functionality in the ReWalk ReStore system. The business value of this technology is demonstrated in its ability to facilitate clinics' justification for insurance coverage of additional patient therapy sessions by enabling and documenting patients' continued progress.

Additional benefits of the ReStore technology includes improved clinical staffing allocations due to fewer therapy sessions requiring multiple therapists and more reliable patient attendance due to improved patient engagement. Company-sponsored white papers describing the use, technique and value of the ReStore technology as well as submissions for publications of the clinical trial data are planned in the coming months. Additional clinical studies are also in progress at several sites from the clinical trial.

As we consider the revenue profile, in addition to an initial system, we have 2 parts that are in disposables: the liners provided for each patient and the drive cables. The cables have a planned use of approximately 300,000 cycles or changed once every 3 to 6 months. We estimate to have additional revenue of approximately 15% of the device purchase price every year from each unit we place based on moderate usage patterns by the clinic.

Overall, we are very pleased with the customer reaction to the system over these first 6 weeks. We have confirmed many of our assumptions about the market and system function, and we are understanding what adjustments and areas of emphasis are required moving forward.

Next, let's examine the Q2 spinal cord injury placements and the market trends. Globally, we had a number of systems expected to close by the end of Q2 that were not concluded until July, which left us with lower-than-expected Q2 results as we achieved $877,000 in recognized revenue. In the first 5 weeks of the third quarter, we have already received orders of $900,000, with $700,000 already delivered, as many of these cases pending at the end of June completed their conversion.

For the EU in Q2, we placed 9 new units and had a total of 20 units that are in trial or currently pending insurance decisions. In the EU, we had solid placements in Q4 2018 and Q1 2019, but were not able to convert as many rentals in June as that was a primary reason for the lower revenue this quarter. The delays were caused by the pace of MDK governing body that performs assessments on patient qualification, disputes between insurers and OP&R Shops on commissions and the long cycle of completing operating contracts with key insurers. Presently, we have 3 pending contracts with insurers. We expect to complete at least 2 in the second half of 2018. These targeted groups have 56 pending patients within our pipeline.

The U.S. is still based on case-by-case reviews with private payers who remain unpredictable. We recognized and placed 4 units in the U.S. during the second quarter. We had 3 additional approved insurance placement authorizations for ReWalks where final pricing was not confirmed by June 30, and thus were placed at the start of Q3. Although the numbers are still low, we're encouraged by the fact that we already have 7 positive insurance decisions in 2019, which is equivalent of the number we had in the full year 2018. And we believe it is mostly because of the shift we have made to patient appeals under the Affordable Care Act.

As we look forward, we expect additional units from the VA as their randomized study completes patients, and Cigna has stated their intent to publish their updated policy in Q3. Each of these make ReWalks available to more users.

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 additional details regarding our top line results. During the second quarter, we placed a total of 14 units, out of which 13 were ReWalk SCI units and 1 was ReStore for stroke. The geographical split of the 13 placed SCI units was the following: 9 units in Europe and 4 in the U.S. The ReStore device was placed with one of our distributors in Asia. When you break out the SCI units by sales and rental, we had 10 new rent-to-purchase units placed and 3 direct purchases. We also had 3 previously rental devices convert to a purchase and 1 unit that started as a rental unit during the quarter and converted to a purchase by quarter end.

At the end of the quarter, we had 23 open trials, including 13 active rentals and 10 claims that have completed their trial period and are awaiting a final insurance decision. This represents approximately $2.5 million in potential revenue. Our total pending insurance claim relating to coverage for our ReWalk SCI product was 172, and we are working to process these claims within the payer system.

On the expense side, the 2019 second quarter operating expenses were $4.7 million compared to $6 million in the prior year period. The reduction was driven mainly by reduced G&A expense. If you look at our operating expenses development from the first quarter of 2019, then you will notice a slight increase of $200,000. This increase is mainly due to a onetime expense related to our CE and FDA milestone achievement. When we look forward into Q3 and Q4, then we generally expect to sustain the current company structure and channel our resources strategically with a focus on growing our revenues on both products within our main markets.

Looking at our year-to-date operating expenses, we have already reduced 27% compared to the prior year period, which is in line with our projections at the beginning of the year. Our net loss for the second quarter was $4.6 million compared to a net loss of $5.8 million in the second quarter of 2018. Our non-GAAP net loss for the second quarter of 2019 was $4.2 million compared to a non-GAAP net loss of $4.7 million in the prior year quarter. On the balance sheet side, we have closed the quarter with $24 million in cash, which provides us runway to focus on our key operating objectives.

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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Thank you, Ori. Now at the start of the year, I have laid out 8 key 2019 objectives and priorities. We have successfully executed 5 of these objectives already this year, and the other 3 are on track and in progress. I'd like to lay out our new key objectives for the remainder of 2019, as we have now transitioned primarily to commercial activities.

So the key measurements for the rest of this year are: one, sales growth with the ReWalk SCI line based on completing operating contracts with at least 2 German insurers; two, demonstrating market acceptance and penetration of ReStore in more than 40 accounts and building a strong pipeline for 2020 placements; three, broad distribution and presentation of supporting white papers on the value proposition for this option; four, continued support of the U.S. VA and ongoing engagement with national or regional U.S. insurers to support broader reimbursement coverage. The VA continues to progress with its randomized study on the ReWalk, as they remain on target with 120 patients now enrolled of the 160 planned. Five, China. During the second quarter, we have continued the discussions with Timwell/RealCan on a modified working arrangement and are planning to continue to explore this option as well as others in order to expand our market to reach the single largest stroke market in the world.

The second quarter met our key strategic milestones of building a foundation. It did not demonstrate growth at an acceptable or sustainable level, and that must be the primary change that we achieve as a measurement over these next 5 months. We believe we are on the right pathway for this growth, both long term and short term, and success. I look forward to reporting these results in the coming quarterly calls.

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) And we do have a question in queue. Our question comes from the line of Swayampakula with Ramakanth.

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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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This is RK from H.C. Wainwright. You certainly provided details regarding your commercialization strategy for ReStore. So given that it's only been a few weeks since you started commercializing, what is your confidence level in placing a meaningful number of units in the next 5 months for this year?

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

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Yes. This is Larry. I'll answer first. Our confidence level is high because the accounts we've talked to have given us pretty much universal positive feedback. The main question is timing and how many will be sales or how many will be leased.

We laid out that goal of a penetration number that I listed as a measurement. That we want to demonstrate that we're in more than 40 accounts. And there's 2 reasons for that. One is it gets beyond just the research centers that want this because it's a fantastic product to study. It really gets us into where we have centers that we can refer to. One of the reasons we have to do demos everywhere, I only have 5 clinical study sites around the United States. And like for Barrow's, for example, one of the more recent customers, we had nobody near them and it was easiest to go out and demo. So once we have a base of centers around the United States, it will help us on referring other centers, so that's the reason that is a stated goal.

In addition, we do expect that most of these accounts will look to get multiple units. Both price point and patient volume supports that. So for the rest of this year, we do expect these 122 accounts and the additional accounts will be seen to make it into our pipeline as well as with many of them converting to give us good numbers for the remaining 5 months of this year.

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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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And it was very encouraging to hear some of those anecdotes regarding ReStore, and I understand your goals in terms of placements. But how are you prioritizing your resources between the 2 devices, ReStore and ReWalk? And obviously, you want to make sure that you balance things out. How is that working out?

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

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Well, they are similar call points. So the majority of the early targets, we already have a base with many of them from spinal cord injury. So we're focusing a little more heavily in the 122 we've gotten to, the centers that we, for the most part, already have some level of relationship with, so it made it fairly efficient for us.

But our sales force is clearly guided and incentified for both products. We believe that we are well positioned for at least the numbers that we are targeting in the future. As we grow, we will need to increase the size of the sales force because eventually, we'll get beyond our capacity. But we feel pretty good about what we've got for the remainder of this year and going into next year.

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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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Okay. And then you also stated regarding how some of the ReStore units got converted after June 30 into revenue line. So what -- how are you trying to build that pipeline and trying to maintain a steady flow of ReWalk-based revenues during the quarter? And are there certain things that we need to understand in terms of timing regarding how these get converted into revenue line?

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

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Well, for Q3, it's a little easier than Q4. We literally have the list of the ones that we expect to convert for both ReWalk and ReStore, so we are targeting and we're working them to our schedule. With Q4, we -- the list is not quite as defined. We have the accounts. We just haven't prioritized them at the same level, and the same thing going into Q1 next year. That's part of building the pipeline.

So of the 122 we've talked to, we've identified which ones have cycle times that match us in Q3, which ones have cycle times we think that fit better in Q4 and a few that have longer-term capital budgets that may fall into next year. So we've been able to break that out, and as we get to new centers, we'll categorize them accordingly. We may have centers that are -- such as the one we dealt with in Burkettsville, and they were somewhat of a unique center. They had the funding and once they saw how it worked for their patients, they made their decision rather quickly, literally on the spot.

I believe there will be some of those. It really comes down to the funding status and structure of the group. Groups like Barrow's, I think use the product on a significant number of patients, reach their conclusion. From the date at which they used it to the date they gave us the PO, that was about 3 weeks, so about a week of time, getting the demonstration and getting the unit into their hands and getting them to patients and about 3 weeks or so of time for the purchase order actually being issued. So those 2 are in the shorter cycle. Some of the others will be more like 60 or 90 days. It varies quite a bit by account in terms of their budget and what they have.

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Ori Gon, ReWalk Robotics Ltd. - CFO [8]

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Also just to add something, RK, about the SCI. So we did -- we keep on monitoring the open trials and the pending insurance short-term decisions. So you had 23 in the end of June. Those are units that are either currently in trial where we have 13 of those, and 10 have completed their trial and we are waiting for final insurance decision. Those are, I would say, the really short term.

Now there are other -- the larger amount, the pending insurance claims, those are -- these are working their way through the process of the insurance. It can suddenly come without expectation, but then there is -- but there is some process in it. But I think that for the short term, this is where we focus our main conversions. And Q2, we had these names, and it just take couple of more weeks for several accounts to convert. So I would try to look at this also this way for the SCI product line.

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

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And I'll add a little to that as well. We had identified, for example, that the 3 insurers that we have been working with in developing contracts have about 56 patients in their queue. Now first, the status of the contracts is later stage. We're not at the beginning, we've been discussing and negotiating and working through the detail of these contracts for some time. So we anticipate that we will get them to completion. And then what will happen with those 56, some number of them will fall into Q3 and some into Q4 and many into Q1. So there's a bit of a pipeline there, but we at least know exactly what we're looking at as a growth element for us because of those contracts.

In the United States, as we had indicated, we have discussed Cigna in the past. They had stated that their publication of their policy will be with their overall policy revision that's issued in -- here in Q3. And that also will help us with some of the patients they have that we've been sitting on for a little while. So there are specific targeted patients for SCI as well as ReStore.

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Operator [10]

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At this time, there are currently no further questions in queue. I will now turn the call over back over to Mr. Jasinski.

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

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Okay. For everybody, we appreciate the time you've taken to join us today. We are glad to provide information, and we'll put out information as things develop with the company. So thank you, and have a wonderful day.

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Operator [12]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day.