ReWalk Robotics' (RWLK) CEO Larry Jasinski on Q3 2017 Results - Earnings Call Transcript
Nov. 4, 2017 9:31 AM ET| About: ReWalk Robotics (RWLK)
Q3: 10-30-17 Earnings Summary
10-Q News Press Release
ReWalk Robotics (NASDAQ:RWLK)
Q3 2017 Earnings Conference Call
November 2, 2017 08:30 AM ET
Executives
Ilanit Allen - In-Site Communications, IR for ReWalk
Larry Jasinski - CEO
Kevin Hershberger - CFO
Analysts
Christian Moore - Jefferies
Larry Jasinski
Thank you, Ilanit. Good morning, everyone, and thank you for joining us. Our business continues to deliver growth with sales advancing to $6.2 million or 46% growth for the first nine months of 2017 compared to the prior year period. For long-term market expansion, our major goals of achieving insurance reimbursement coverage for the ReWalk personal device and progressing our innovative soft suit exoskeleton product designs have made meaningful and encouraging progress.
Let's start with commercial insurance reimbursement as we achieved a major milestone with coverage in Germany. We now have our first broad German coverage physicians with Barmer and the DGUV. Broader reimbursement coverage has been a key strategic goal for ReWalk and for the industry to allow individuals who want to walk again access to exoskeleton technologies. These coverage achievements require expansion of scientific data, favorable court release that these devices are medically necessary and detailed educational efforts with these payers over the past three years. We anticipate these positive coverage decisions will influence other major insurers in Germany and in Europe.
As we previously reported, Barmer, a national social health insurance provider, which covers nearly 10 million lives, confirm that they will provide ReWalk systems to all qualifying beneficiaries that meet the specified inclusion criteria and assessment by the German health insurance medical system. As we previously reported, this group currently has 16 pending insurance claims and has already began processing claims of users, entering retraining for in-home use of an exoskeleton.
And today, we are pleased to announce that the German social accidents insurance provider, the DGUV, has become the second group in Germany to allow reimbursement of the ReWalk personal device. The DGUV is comprised of 35 different insurers, which provide work-related accident coverage for more than 70 million individuals in Germany.
To date, 12 of the 35 insurers have initiated procurement of systems for beneficiaries. Coverage for spinal cord injury primarily occurs through the BG, a national workmen's compensation group. The DGUV recently issued a procedural letter, stating they are entitled to grant reimbursement for robotic exoskeletons. Additionally, the BG Group has indicated it is developing and issuing a training and procurement program for its member groups.
Since September 2015, we've made good progress with these groups and have provided 20 units to BG centers. Of these, 11 have been taken home, seven are still in training and two were not successful in training. The BG has 25 ongoing applications for future potential use. The letter and policy development are expected to increase the pace of system placements.
Now let's turn to the US. The goal for the industry as a whole is to gain coverage and increase access to exoskeleton systems for the spinal cord injured community. A meaningful supporting step has been a recent establishment by the North American Spine Society, NAS, of a spinal cord injury section as a distinct standalone group. This will provide the industry with a forum for expanded scientific data discussions and for occupancy for policies based on this data.
On our last call, we indicated that we have included a comprehensive policy review submission with a large national commercial payer with an expectation for a decision within 60 days. While the review is still ongoing at this time, we are encouraged by the discussions of the group and the level of additional detail they requested as they continue to evaluate the coverage policy. We are expecting to conclude this process by the end of the year.
In Q4, we're also submitting request for coverage consideration submissions to two additional US commercial groups for policy reviews. As the scientific data has expanded, we are now better positioned for formal policy reviews with regional providers and will keep you posted on developments in due course.
Additionally, we had our first session with the CMS innovation group in October to explore pathways for coverage for the underserved SCI population, including the use of an exoskeleton in an advanced payment model with risk-sharing elements seeking savings for the overall system.
And finally, with regard to the VA, we continue to expand our business with the VA in multiple areas. During the quarter, the VA purchased four additional devices for use in its ongoing clinical study. This represents total of 60 devices purchased for the study, which now has enrolled 49 patients at a total of ten sites. Additionally, we continue to work with the VA to expand their ability to train patients under the current program to provide ReWalk personal devices to veterans who qualify. We have been working with the VA to expand their choice program, which allows veterans to be treated at a local center if a VA facility is more than 50 miles from an individual's homes.
We are happy to report that the VA has proposed training its first veteran at a local center under this program. We are encouraged by the progress and hope to continue to expand it in the future. Overall, we believe there is momentum with ReWalk system and that we will see more systems being used at home and in the community as reimbursement expands.
I'd like to now turn to the Restore and our continuing R&D work. In June, we unveiled our lightweight soft suit exoskeleton that is the commercial design for clinical studies and eventual launch. The exoskeleton suit consist of lightweight fabric-based structure that wraps around the waist and supports an actuator with a motor, computer and cable, along with sensors attached to a stable point on the user's calf and footplate in user's shoe.
This design transfers force in a controlled manner, enabling both powered plantarflexion or bending to decrease the angle between the sole of the foot and the back of the leg and powered dorsiflexion or bending to decrease the angle between the upper surface of the foot and the front of the leg. We have established a price target of $19,500 for this base exoskeleton system. We believe this price will allow rapid market penetration because of meaningful economic benefits to the rehab centers from using existing treatment codes for gait training and do the cost savings for staff expenses.
We believe the Restore system's soft, lightweight material will facilitate a natural walking pattern for patients using the device and provide advantages to stroke rehabilitation clinics as compared with other traditional therapies and devices, by minimizing setup time, maximizing session productivity and reducing staffing requirements, staff fatigue and the risk for potential staff injuries.
In October, we announced the start of preclinical testing with the first user utilizing the Restore system to study safety and use in the rehabilitation setting for the mobility needs of stroke patients. We have identified the study centers and are targeting a formal clinical trial with the Restore system to begin into early 2018.
We aim to commercialize the system for use by stroke patients in Europe in late 2018, followed by the United States in late 2018 or early 2019, subject to the timing and receipt of CE mark and FDA clearance.
The perspective clinical trial on the Restore system 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 that the study will involve 40 patients, each participating in seven training sessions at designated stroke research centers. And as I mentioned earlier, we expect the first patient enrollments in study to begin in early 2018.
The Restore system for stroke is a platform technology, which we believe has significant application beyond stroke. Through our collaboration with the Wyss Institute at Harvard University, we have already begun research efforts into the next generation and additional applications for the device as we see this applicable to multiple sclerosis, Parkinson's disease and other lower limb disabilities. We look forward to updating you on these efforts in the future.
Overall, we have made important progress on two key fronts. First, ensuring that individuals of spinal cord injury can obtain a ReWalk personal device through insurance reimbursement and can therefore, benefit from the health and social benefits of walking. And secondly, by progressing our soft suit Restore exoskeleton for stroke patients and as a platform for other lower limb disabilities.
With that, I'd like to turn the call over to Kevin to review our second quarter 2017 financial results.
Kevin Hershberger
Thanks, Larry. Q3 revenue was 1.7 million compared to 1.4 million in the prior year quarter and included seven favorable commercial coverage decisions. We placed a total of 16 units, of which 10 were in the US, three were in our direct markets in Europe and three in other markets.
During the quarter, we had three new rent-to-purchase units priced and eight previously rented units converted to a purchase. We currently have 25 open trials, including 20 active rentals and five claims that have completed their trial period and are awaiting a final insurance decision.
Our nine-month year-to-date revenue is 6.2 million in 84 units versus 4.3 million with 80 units for the comparable period in 2016. This increase reflects our ability to convert previously rented units in the purchases and higher sales to the VA. During the year, we converted 19 rental units in total, 12 of which were placed in 2016. At the end of the third quarter, we had 218 pending insurance claims compared to our 149 at the same time last year.
Gross margin improved to 41% compared to 21% in the prior year period, driven by sales mix, conversion of rental units and lower product costs. Total operating expenses for the quarter were 6.1 million compared to 7.7 million in the prior-year period. Net loss was 5.8 million compared to a net loss of 7.9 million in the third quarter of 2016. And finally, we ended the quarter with 12.9 million in cash. We've effectively utilized our ATM equity program and managed our operating expenses. As we continue to focus on our critical milestones.
And with that, I'd like to open the call for questions. Operator, please go ahead with the instructions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of Christian Moore from Jefferies.
Christian Moore
Maybe just one on Restore. It was definitely helpful to hear ASP being set at $19,500, maybe if you could just take us through how you came to that price and then what your strategy will be with regards to reimbursement for that system?
Larry Jasinski
We focused on price based on several metrics, but we started with the market. And as we looked at and surveyed numbers of customers and looked at what they can get for codes and payment in their rehab centers that pricing was a number which worked for them. And, of course, from an operating point of view, we looked at what the cost of goods for the device would be and what we thought we can produce it for and it hit a business model that we've thought was a very, very attractive, both for the rehab centers and for us as an industry.
Christian Moore
And then maybe kind of probably still in the early innings here, but what do you see in terms of the size of this market for [indiscernible] for stroke patients? Do you have any view on how big it could be in the US?
Larry Jasinski
Well, the number of patients is quite large, estimated when you go through every parameter that qualifies in excess of about 700,000 US and then comparable numbers in Europe and perhaps even greater numbers in Asia. But initially, we are selling to rehab centers. And between the United States and Europe, you got a universe of approximately just under 2,000 rehab centers that are readily active and they could possibly use multiple units. So that would be the initial target for the product as I've described it. We see this similar to what we learned with the spinal cord injury product. We got a very good base in rehab centers and then eventually we see development of a product a situation where we would have been taking it home, so may out years, you would see a personal unit, which would be a later approval for us.
Christian Moore
And then maybe just one last one on the rest of the world segments, so is the third quarter that we haven't seen any commercial activity there, but last year, really picked up in 4Q. Is that something that you will be expecting again, just in terms of cadence for how we should build our expectations for the year to finish up?
Kevin Hershberger
For Q4 for Asia, to be specific, is that question?
Christian Moore
Yes. That's the question just because we haven't seen any progress.
Kevin Hershberger
At present, most of our growth is focused on the European and US markets. What we see developing in Asia is a push primarily for regulatory clearances in some other countries, specifically Korea and Taiwan and then China to follow is our goal. But I expect most of our increased activity in Asia will be in 2018, and most of our growth will come from our successes in Germany and United States.
Operator
[Operator Instructions] And speakers, I'm not showing any questions at this time.
Larry Jasinski
We are in pretty good shape then. And operator, thank you very much for your support this morning, and for everybody who joined the call. Thank you, and have a great day. And if you have other questions, you can reach us directly. Thank you.
