ReWalk Robotics (NASDAQ:RWLK) Q4 2017 Earnings Conference Call March 8, 2018 8:30 AM ET
Ilanit Allen - In-Site Communications, IR for ReWalk
Larry Jasinski - CEO
Ori Gon - CFO
Brandon Vazquez - Canaccord Genuity
Ian Mahmud - Barclays
Good day, ladies and gentlemen, and welcome to the Q4 2017 ReWalk Robotics Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded.
I would now like to introduce your host for the conference call, Mr. Ilanit Allen, you may begin now.
Thank you, Kevin. Good morning, and welcome to ReWalk Robotics fourth quarter and full year 2017 earnings call. This is Ilanit Allen of In-Site Communications, Investor Relations for ReWalk. With me on today's call are Larry Jasinski, Chief Executive Officer; Ori Gon, Chief Financial Officer of ReWalk; and Kevin Hershberger, former CFO. This morning, the company issued a press release detailing financial results for the three months and year ended December 31, 2017. This can be accessed through the Investor Relations section of the ReWalk website at rewalk.com, and you can also access the webcast of this call from there.
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 for the next two weeks. You'll find the dial-in information in today's press release. The archived webcast will be available for one year on the company's website, rewalk.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 8, 2017. Since then, ReWalk may have made announcements related to the topics discussed, so please reference the company's most recent press releases and filings.
And with that, I'll turn the call over to ReWalk's CEO, Larry Jasinski.
Thank you, Ilanit. Good morning, everyone from snowy Boston, thank you for joining us. Before I review our 2017 results. I'd like to discuss our announcement this morning that ReWalk and Timwell Corporation Limited, its affiliates and RealCan Ambrum Healthcare Industry Partnership Enterprise have entered into a broad strategic agreement. This agreement establishes a joint venture to develop, manufacture and market the ReWalk and Restore devices throughout China and includes an equity investment of US$20 million by Timwell in exchange for 16 million ReWalk shares which reflects a per share price of $1.25.
The equity investment will be structured as an initial $5 million investment in escrow to be released upon shareholder approval of the transaction. A $10 million investment upon the formation of the joint venture established in China between RealCan Ambrum and ReWalk, which is planned for mid-year and 5 million which is expected by year-end or no later than April 1, 2019.
In the near term we expect the joint venture to focus on the Restore soft suit exoskeleton for stroke patients in China with a number of stroke rehabilitation centers are expected to exceed those in the U.S. and EU combined by 2021.
Following that, we intend to commercialize our SCI products, ReWalk Personal 6.0, and ReWalk rehabilitation systems for the Chinese market. This significant expansion in to China is a key component of our robot strategy. It will allow us to increase revenue from new market segments and to expand into key markets. We also expect that the lower price of the soft exosuit will allow greater market penetration and allow us to lower our overall cost structure since we plan to develop the devices through local manufacturing with our Chinese partner.
The JV will primarily be funded by RealCan Pharma, a publicly traded, diversified medical products and services group with over $3.7 billion in sales that brings market knowledge and experience to the joint venture.
It is very important to note that this agreement reflects Timwell's belief in the value of our Restore technology to address the rehabilitation and mobility requirements for individuals with more than disabilities including stroke and Parkinson's disease. Stroke incidence in China is estimated to be 2.4 million individuals each year, approximately triple the U.S. annual incidence and is an opportunity for ReWalk to advance into the single largest market in the world with a strong partner. We look forward to updating you on our progress.
Returning now to our 2017 results, 2017 was an important year as we achieved several milestones in advancing our business and position ourselves for additional growth in 2018. The accomplishments include revenue of 7.8 million or growth of 32%, placement of 107 ReWalk systems in the United States and abroad bringing this to a total of 433 worldwide to-date. Positive reimbursement in Germany with pathway to expanding coverage for those that meet medical qualifications. Momentum in the United States now seeing 42 different commercial payers cover the device on a case-by-case basis.
On our last call we discussed our work with a large national commercial payer with whom we had submitted a proposal for a broad coverage policy. Despite encouraging discussions with the group and the depth of detail we provided they could not come to a consensus on coverage. They will continue to evaluate submissions on a case-by-case basis. While this was not the outcome we had hoped for we have built a strong foundation of supporting clinical evidence to the multiple payers that are already active with exoskeletons.
And last, importantly our development of the Restore soft suit exoskeleton for stroke patients has progressed on schedule with the first patients in the regulatory clinical study expected to occur in the next two to three weeks.
Now let me cover each of these in a bit more detail, first reimbursement. We made significant progress in Germany, last quarter we were pleased to announce coverage with Barmer, a large social health insurance group and DGUV, the governing body of workmen's compensation payers. To date we have 40 open claims with this groups and we are very pleased with the recent announcement that the National Association of Statutory Health Insurance Funds, the SHI, the governing body of Germany Statutory Health Insurance Provider has lifted the ReWalk Personal 6.0 exoskeleton system in the German Medical Device Directory, the MDD, which means that any German SHI beneficiary who is medically approved is eligible for reimbursement of the system. 90% of Germans are beneficiaries under SHI coverage. These formal decisions by the governing German authorities will translate into additional ReWalkers over to next 6 to 18 months.
Before moving on to the U.S, I am pleased to note that, together with the efforts of our exclusive Italian distribution partners [Project Yomo Automatica Robotics], we were just recently able to secure Workmen's Compensation of reimbursement in Italy. This policy decision is a milestone in the adoption of exoskeleton technology for the people of Italy and has the potential to contribute as a precedent in helping many more people gain access to this breakthrough technology.
On the US front. As I noted earlier 42 different commercial payers are chosen to cover the ReWalk device on a case-by-case basis, we have modified our strategy focused on coverage with groups and active review cycles upcoming on the policy that had previously elected to reimburse SCI members on a case by case basis and where covered members have directly experienced a high levels success in using our technology.
During 2018, we will be submitting proposals for coverage policies to 25 progressive national, regional and state providers who have planned and scheduled upcoming policy reviews. To date, we have submitted coverage proposals to three U.S commercial groups and will update you on our progress with these additional submissions throughout the year.
Next, I would like to update you on our progress with the VA, the VA continues are purchase in to support their clinical study and additional eight units plan for Q4, 2017 has successfully completed the bid process and we expect will be purchased during the first half of this year, that gives ReWalk a total of 68 devices for the study. The study has now enrolled 57 patients at 10 sites and we’re now beginning to see patients roll out of a study as we have had first veteran receive a ReWalk device for home use following participation in the study.
Overall, the VA continues to be slow and resourcing in supporting their commitment to veterans under this [SOP]. Only 16 veterans have been covered under the policy date with four additional in progress. On our last call, I was pleased to report that the first veteran was able to train on the ReWalk device with a choice program, which allows veterans to train at local commercial facilities if the VA center is greater than 50 miles then home. Broader use of this program would solve the meaningful lack of access within the VA for many veterans. We're hopeful that progress will be made and more of our deserving veterans will receive support from the VA.
I would now like to turn to the Restore and continue in R&D work. In May 2016, we announced our collaboration with Harvard University's Institute to develop and commercialize the first ever lightweight exoskeleton for individuals with lower limb disabilities which did not require the structural support of a traditional exoskeleton. In less than two years we are now happy to report that our Restore device for stroke is on track to begin the regulatory study required for FDA clearance.
In parallel we’ve submitted the first DE mark clearance utilizing published clinical data from the programs in Harvard's Institute. The U.S driven clinical study for the FDA has attracted five of the top 10 rehabilitation institutes in the country based on the high potential value of this unique soft exosuit design. We're excited to begin the first session at Spaulding rehabilitation center in Boston and with the research team at Wyss Harvard in the next two to three weeks.
As a reminder, the clinical trial is the Restore is intended to assess the safety of the Restore system during gait training in stroke patients in rehabilitation setting. Based on the proposed study design we anticipate the study will involve 40 patients each participate in seven training sessions at the designated stroke research centers.
We believe the Restore's soft light weight design and affordability offers multiple advantages to stroke rehabilitation clinics as compared with other traditional therapies, devices and structural exoskeletons. A key feature is that the commission can set the variable current capacity with real-time adjustability and feedback which is management of software and sensors so the power is adjusted for improved walking symmetry and speed.
An additional key element is that the cost structure for the system and the existing payment models of the U.S. and Germany will enable us to offer a price point that is compelling and will support rapid market penetration. We plan to commercialize the Restore exoskeletons for use to stroke patients in Europe and the United States in early 2019 subject to the timing and receipt of CE mark and FDA clearance. We will provide more information on our timeline for China in subsequent calls.
Next, I would like to outline our near-term financial strategy, we believe our plans to grow sales through new products, entering new geographic markets and by achieving greater insurance coverage will result in a path to profitability. This requires a management focus on margin improvement and a more efficient operating cost structure. We see reduced cost of goods opportunities through volume gains and in the unique soft suit exosuit design.
Our efforts in China will enable us further and as we continue to grow the business we will continue to adjust our operating model by refining our operations take advantage of the cost savings and operating efficiencies. We expect cost savings to approach 10% in 2018, regard to our capital structure, the investment from Timwell that we just announced is a key first step as we strengthen our balance sheet.
In 2018 we expect to achieve sales of between 9 million 11 million of SCI exoskeletons with lighter sales in the first quarter and first half of the year, picking up in the second half of 2018 driven by reimbursement cycles. We expect the first quarter sales of 1 million to 1.5 million largely impacted by the pace of the VA support for veterans. Any sales of Restore once cleared would be added. As we reach 2019 we see broader coverage for SCI systems and the launch of Restore system in multiple markets as key revenue drivers.
So, as we move into 2018 let me outline are key priorities, first, we will continue to focus on achieving broader reimbursement policies in the United States and leveraging our reimbursement wins in Germany as a basis for increasing our current growth rates. Second, we plan to advance Restore through critical studies with a focus on launching in early 2019.
Third, we will establish a China joint venture by midyear and will focus on detail plans for the Chinese market and producing the Restore for China as part of a cost of goods reduction initiative.
Before I end my remarks, I'd like to relate the recent experience of one of our ReWalkers, retired police officer Jeremy Romero of New Mexico. He was injured in the line of duty and then his clinicians and his gen-x case management team quickly facilitated provision of his own personal ReWalk system. Because of his progress and improved health, you can see a ReWalk of the campaign trail as he runs for Sheriff of Guadalupe County. We hope he has a great-campaign are proud to have in part facilitated additional run for office.
Before I will turn the call over to Ori, to review our financial results and I want to acknowledge Hershberger's extensive contribution to ReWalk and extend management and the board's appreciation for his leadership and guidance in building the finance team and helping to propel this business forward. As we previously announced, Ori assumed the CFO role in mid-February. Ori was hired by and as work closely since 2015. Therefore, he is intimately familiar with ReWalk and I am confident in a very smooth transition.
With that I would like to turn the call over to Ori, who will our fourth quarter and full year 2017 financial results. Ori.
Thanks Larry, Q4 revenue was $1.5 million compared to $1.6 million in the prior year quarter and included 10 favorable commercial coverage decisions of which one was from the VA. For the full year, we had revenue of $7.8 million, an increase of 32% compared with $5.9 million in 2016. This increase is primarily due sales mix, increase sales for the VA and our ability to convert previously rented units into purchases. We placed a total of 23 units in Q4 of which four where in the U.S 12 in our direct markets in Europe and seven in auto market. So, the full year, we placed 107 units of which 57 were in the U.S, 37 were in direct markets in Europe and 13 in other markets. During the quarter we had nine new rented purchase units placed, and four previously rented units convert the purchase.
During the year 23 units converted from rental to purchases including 19 converted units which were covered by commercial payers and the VA. We currently have 30 open flyers, including 25 active rentals and five claims that have completed the trial period and are awaiting a final insurance decision. As of the end of 2017, we had 222 pending insurance claims relating to coverage for ReWalk compared to 199 in the same time last year.
Gross margin improved to 40% during the fourth quarter compared to negative 8% in the prior year quarter. For the year gross margin was also 40% compared to 13% in 2016. The improvement was driven by sales mix, the increase in the conversion of rental units to purchases and lower product cost.
Total operating expenses for the quarter was $6.2 million compared to $7.9 million in the prior year period. For the year operating expenses decreased $25.1 million compared to $31.2 million in 2016.
Net loss for the fourth quarter was 6.2 million compared to a net loss of $8.5 million in the fourth quarter of 2016. Full year net loss was $24.7 million compared to $32.5 million in the prior year. We ended the quarter with $14.6 million in cash.
With that, I'd like to open the call for question, operator please go ahead with instructions.
[Operator Instructions]. Our first question comes from Brandon Vazquez with Canaccord Genuity.
I just wanted to focus first on Germany, can you just give us some color maybe on what the process is like for patients that are currently filing claims with Barmer. I am just trying to understand how long is that process taking, how smooth is it going and how do you expect maybe that timetable to -- for those patients, the trend going forward?
The process is getting well defined, with the policy approval in October and then the more recent listing in the medical device directive, it is starting to create a very routine process, there is one more step which we will also have is a formal process defined, that will be in place here at the end of the quarter. So, any patients will actually know how it's going to work. The process in Germany looks like it's going to develop where they will do in an evaluation period. And approximately three months or it could vary a little bit depending on the patient's results, but it will get us to a predictable pattern of about six months, is what we believe going forward for German user to be go from a point of wanting a unit to the point where he takes one home. There will be some variability dependent on the patient but that I believe it makes it predictable for the individuals that have waited as many as three or four years, so they are quite excited.
Our next question comes from Ian Mahmud with Barclays.
I just want to focus on U.S. reimbursement a bit, because you alluded to it in your press release and you mentioned that these reimbursement efforts underway with national regional providers and I'm just curious at this point what's the sort of sticking point there, what are the areas of pushback and how do you see yourself kind of overcoming those areas?
Well the sticking point is really been a combination of data and belief in utilization and the things that have happened from the time we got FDA clearance whether it was quickly several non-coverage decisions based on the FDA data not being sufficient in the view of many of the insurers. At the time we got FDA clearance in June of 2014 we had roughly 12 significant published papers.
What has happened in the time since and really what drove the German and Italian reimbursement decisions were a lot of the additional papers including our meta-analysis by Dr. Miller, for example of 113 patients that had been provided. So, we are now up to almost 50 papers in sight when we are going forward with this.
And the other variable that's changed in June of 2014 we had very many users out there. We now have 433 systems in the marketplace. So, the users themselves are also providing data, so the progress you saw in Germany was a progress -- was a development built on data and experience. We expect the U.S. will follow the same pattern.
And I’m not showing any further questions at this time. I would like to turn the conference back over to our host.
Good morning everyone and we very much appreciate you join us today. We look forward to answering and providing any further information as you request. So, thank you and have a great day.
Ladies and gentlemen that conclude today’s presentation. You may now disconnect and have a wonderful day.