Mediwound Ltd (MDWD)

[realfast95]

Mediwound, An Attractive Opportunity Through The Coronavirus Crisis
May 28, 2020 8:57 AM ET|
https://seekingalpha.com/article/4350515-mediwound-attractive-opportunity-through-coronavirus-crisis

Summary

The share price of Mediwound has been declining especially during the recent Coronavirus outbreak.

Mediwound will submit BLA for NexoBrid in mid 2020.

Positive clinical trial results create an excellent investment opportunity for Mediwound.

There is an interesting story about Warren Buffet. At a young age, he was introduced to the local horse track Ak-Sar-Ben in Omaha. While he was not able to spend money on the race, he noticed that people would sometimes throw winning tickets away. These were of course not the big winners, but for smaller prices when the horse finishes second or third. Some people were thinking that they would only receive prices when their horse finishes first. This practice was called stooping.

When looking at Mediwound (MDWD), you would find some similarities to the story. This small biotech company from Israel has a product called NexoBrid. It contains a proteolytic enzyme mixture including bromelain, an enzyme known to be found in pineapples. The product is used to remove dead tissues in severe skin burns. Although the target market is not as huge and popular as bigger biotech, such as the Covid-19 vaccine, it is one promising approach to help patients with burn damage. Anyone who has experience in biotech knows that with each new platform, a new race for FDA approval is launched. Now, Vaccine companies such as Moderna or BioNTech are the favored Biotech horses. However, this race is still ongoing and the outcome is difficult to predict. Here, the big winner will be made but also big losses are anticipated.

However, if you are looking for a stooping opportunity to pick up a smaller winner in the biotech race then Mediwound might be an interesting choice. Its product Nexobrid is already approved by the European Medicines Agency (EMA) in 2012 and the company presented positive top-line results in the US in Jan 2019. Furthermore, it plans to submit the Biologics License Application (BLA) in the second quarter of 2020 despite the current COVID situation. After this approval, the company will gain access to the biggest and most profitable biotech market on the planet. However, the stock price has declined dramatically in the recent past, leading to a chance to pick up this hidden gem.

Burn therapy

Every year, over 1 million Americans suffer from burn injuries, which requires medical attention. 50,000 of these cases require hospitalization, leading to a total death toll of approximately 4,500 per year. To set this in relation, this is a similar number to all foodborne diseases.

Burn injuries treatment still heavily depends on the patient’s self-healing ability. Although antipruritic (relieve itching), analgesics (relieve pain), antibiotics (prevent bacterial infection) lubricants and dressing can help against burn injuries related symptoms, the patient’s skin still needs to regrow on its own. The last quantum leap for burn injuries treatment occurred in 1870 with the introduction of skin graft, a revolutionary work by Swiss doctor Jacques-Louis Reverdin. Here, a healthy skin area from the patient or a donor is transplanted to the damaged skin area.

Figure 1: Treatment algorithm for burn treatment. Patients with severe burn injuries must go through debridement and skin grafting to restore burned skin areas while less serious injuries are left to self-heal. Several medications, such as antipruritic, analgesics, lubricants, or dressings are applied to relieve symptoms.

To enable this process, the skin must go through the debridement to remove dead and damaged skin areas. There are multiple ways to do this. Currently, the standard of care (SoC) is still surgical excision, leading to blood loss and long healing time. On the other hand, enzymatic approaches like NexoBrid provide clear benefits, such as increased dermal preservation, reduction in hospital length of stay, reduction in blood transfusion, reduction in skin transplantation, and potentially improved scar outcomes.
Competition

Apparently, there are multiple methods for debridement. As stated by the EMA, the current SoC is still the surgical excision, which can be accomplished by using a Watson or Goulian blade.

In other studies on burn wound management, the hydrosurgical excision tool Versajet was also mentioned. It showed promising results in some trials. However, the National Institute for Health and Care Excellence (NICE) published a guideline where the system showed possible adverse events, such as blood vessel damage leading to high blood loss. Furthermore, the initial high cost for the gadget (£5000+VAT for the console and £230+VAT for each single-use handpiece) and training for professionals is a reason why this has not become commonly available.

In comparison, several independent studies showed that Nexobrid provides better outcomes and therefore lowering costs, such as for hospital stay, escharotomy, autograft, and blood transfusion.
Scientific aspects and Clinical results

Although it might seem to be a very simple approach to use proteolytic enzymes for debridement, the technological process still took more than 30 years to develop a safe and practical product. The problem was to find Enzymes that have high specificity for removing burn eschar, allowing them to maintain viable tissues around the burned area. The first success was achieved in animal studies and then later translated to humans.

Figure 2: NexoBrid specifically removes burned and damaged areas leading to better wound management.

Empiric results for Nexobrids success are documented by scientific publications and clinical trials. In the latest US Phase 3 trial, the product showed clearly favorable outcomes when compared to the recent standard of care. These results are especially robust, as the therapy is already approved in 2012 by the EMA.

Figure 3: Mediwound's US Phase 3 results showed that the therapy was able to remove eschar faster with fewer side effects and without complications.

Here, additional Phase 3 results from the European trial can be added to our analysis, showing that the therapy is superior to the standard of care with a similar safety profile.

Figure 4: Mediwound's results in the EU phase trial NexoBrid showed completed debridement with less incidence of excisions, autografting, and scarring.
Market potential

Besides NexoBrid, Mediwound is developing two other products, namely EscharEx and MWPC003. The company expects a target addressable market of $200 M alone for NexoBrid.

Figure 5: The targeted Market for NexoBrid is $200 M (4x of Mediwound’s current market cap).

With the anticipation of a potential approval for NexoBrid and EscharEx, sales numbers can climb very fast in the upcoming years. EvaluatePharma for example expects over $100 M in 2024, with a CAGR of 75%.

Global sales ($m)

Product


Status


2018e


2020e


2022e


2024e


CAGR

NexoBrid


Marketed


4


15


36


71


+65%

EscharEx


Phase II


-


1


5


31


n/a

Total


4


15


41


103


+75%

Source: EvaluatePharma
Risks

Moderate sales numbers in Europe after its introduction might be a reason why investors are not particularly enthusiastic about Mediwound’s upcoming BLA approval. However, the therapy has shown tremendous success since its introduction. More and more scientific publications are hinting doctors to put away their knives to achieve better outcomes for their patients. However, doctors are not particularly fast in adopting new techniques and Europe is a rather challenging inhomogeneous market. Therefore, the marketization of such a new therapy was very difficult, especially for a small biotech company like Mediwound.

The American market on the other hand is a much more promising homogenous market with burn centers, which are highly specialized and faster in adopting new techniques. Furthermore, Mediwound has partnered with Vericel (VCEL), a highly symbiotic partnership.

Another significant risk is the current Coronavirus crisis leading to the delay of further development of EscharEx. However, burn injuries are always acute and have to be treated as soon as possible; therefore, sales should not be delayed by the current situations.
Financials and Valuation

Mediwound has already an approved product in Europe, but it is still burning significant amounts of money for its R&D activities. Despite this, the company gained significant amounts of milestone payments from its partners. The company has a small amount of debt and currently ~ $ 27M cash on hand leading to an attractive ~ $ 27M enterprise valuation. Furthermore, the company has teamed up with Vericel leading to a potential $ 7.5M payment upon BLA approval and up to $ 125M in annual sales milestones.

Besides, the company is supported by the Biomedical Advanced Research and Development Authority (BARDA) by covering R&D costs and initial procurement of $ 16.5 M for Emergency Response and up to $ 50 M in total. With a reported $ 4.4 M in revenue in Q1 2020, the company might reach a full-year revenue of $ 17.6 M together with $7.5 M from the milestone payment resulting in $25 M for FY 2020, therefore, topping analysts' expectations by 67%.

With an expected CAGR of 75% for sales in the upcoming years, Mediwound is poised to grow very fast. Furthermore, the positive phase 2 clinical development of EscharEx is also a possible moonshot. This is a product working with the same mode of action but for different indications, therefore derisking a chance of failure.

Here, it is possible to assume two possible scenarios, if Mediwound’s BLA approval is not received, the market cap might fall back to its cash & equivalent level of $18 M ($9 M cash burn FY 2020) resulting in a 69% drop of the current stock price. On the other hand, possible approval could result in $25M in revenue ($ 17.6 M + $7.5 M milestone payment) for FY 2020. If we apply an EV/R ratio of 6x for the company, we see 237% upside potential for the stock.


Current state


No Approval (end 2020)


Approval (end 2020)

Market cap


$ 54 M


$ 18 M


$ 127.8 M

(Revenue excluding $ 7.5 M milestone payment * 6 + Cash - Debt)

Cash & Equivalent


$ 27 M


$ 18 M

(Cash - Cash burn)


$ 25.5 M

(Cash - Cash burn + $ 7.5 M mile stone payment)

Debt


$ 3.3 M


Cash burn


$8 – 10 M


Upside (Downside)


(69%)


237%

Besides the attractive financial opportunity, it is also important to look at the scientific and clinical proof for NexoBrid. Here, the data clearly favors the enzymatic debridement versus surgical excision. Furthermore, Mediwound has two successful Phase 3 trials and several years of clinical experience from Europe to provide regulatory information to the FDA. In addition, there is a very high probability of transition between BLA to FDA approval (88% for biologics). Therefore, Mediwound is a very attractive candidate to look out in the recent future.

Disclosure: I am/we are long MDWD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.