Mediwound Ltd (MDWD)

[midastouch017]

MediWound: A Collectable Investment Worthy Of A Long-Term Hold

Dec. 22, 2020 1:03 PM ET|5 comments | About: MediWound Ltd. (MDWD), Includes: VCEL

https://seekingalpha.com/article/4395833-mediwound-collectable-investment-worthy-of-long-term-hold

Biologics
Long/Short Equity, Deep Value, Growth, Biotech
(5,023 followers)

Summary

MediWound recently reported an encouraging Q3 with a beat on EPS and revenue. It looks as if the company is easily weathering the pandemic with support from BARDA purchases.

I have already established a speculative position ahead of a potential NexoBrid approval. Now, I am looking to stick my MDWD in the back of my sock drawer.

I reassess my thesis and discuss why I plan manage my small position in the coming years.

After years of surveillance, I finally decided to add MediWound (MDWD) to my speculative portfolio. In the past, I would always find a reason to bail before clicking the buy button, but I could no longer talk myself out of committing to MDWD. The company is starting climb a key inflection point of strong revenue growth with the potential to unlock additional commercial value in the near-future. I anticipate the market will eventually recognize MDWB’s prospective value and its limited downside risk. As a result, I am going to continue to make small additions to my miniscule position ahead of NexoBrid’s PDUFA in June of 2021 in anticipation that MDWD will become a long-term hold in my collection of speculative biotechs.

https://static.seekingalpha.com/uploads/2020/9/4/48523746-15992674183830786.jpg

Image Source: MDWD

I intend to highlight some of the bullish aspects from the company’s recent quarterly report. In addition, I plan on reviewing the details of MediWound’s commercial partnership with Vericel (VCEL). Finally, I reveal my plans for adding to my position ahead of the PDUFA date.

Preparing NexoBrid For U.S. Market

Despite the ongoing pandemic, MediWound believes they will maintain growth which will be amplified by the global expansion of NexoBrid to new territories.

Back in September, the FDA accepted NexoBrid’s BLA submission for eschar removal of deep partial thickness and full-thickness burns and set the PDUFA for June 29th. The BLA is supported by the company's Phase III DETECT study, which met its primary endpoint and its secondary endpoints. In addition, MediWound reported a 12-month follow-up safety data, which was similar thru all study arms with no accounts of safety concerns. The 24-month safety data was similar across all study arms. So, investors should feel confident that NexoBrid has a good shot at being approved.What is more, MediWound recently publicized they completed enrollment in the Phase III CIDS study for the use of NexoBrid in the pediatric population. MediWound expects to report the CIDS top-line results during the second half of 2021.

If approved, MediWound’s commercial partner, Vericel, is organizing for a commercial launch and has already expanded its burn sales team and commercial support structure. If all goes well, Vericel will be launching NexoBrid into a $200M+ total addressable market with 140 burn centers in the U.S., most of which are currently Vericel’s clients.

Vericel Agreement

According to the agreement, Vericel made an upfront payment to MediWound of $17.5M, and will pay $7.5M upon FDA approval. What is more, Vericel has committed to pay up to $125M in annual sales milestones. In addition, Vericel has committed to tiered royalties on net sales stretching from single-digit to low double-digit, and a percentage of gross profits on BARDA procurement orders. Moreover, MediWound will manufacture NexoBrid at a supply price of cost plus a fixed margin percentage.

Overall, the NexoBrid agreement with Vericel appears to be extremely beneficial for MediWound. However, the first sales milestone of $7.5M would be activated once NexoBrid’s annual net sales in North America surpass $75M, so we might not see that in the first year. Still, a solid royalty and supply agreement should keep a solid revenue stream coming in.



Figure 1: Product Candidates (Source: MDWD)

Q3 Numbers Show Strength
MediWound investors should be very pleased with the company’s Q3 financial results as the company recorded strong revenue growth due to BARDA’s first procurement of NexoBrid for emergency response preparedness. The first BARDA delivery will start to unlock additional payments which will equal about $3.7M in 2020, with the gross initial procurement of BARDA coming in at $16.5M. Of that $16.5M from BARDA, MediWound will get $10.5M, and Vericel will receive the remaining the balance. Quarterly revenue came in at $6.6M, which up 29% from Q3 of last year and gross margins increased about 23% over Q3 of last year.

OpEx did see a bump, with R&D expenses rising up to $2.1M from $1.6M in Q3 of last year. As for SG&A expenses, they came in at $2.2M, which was in-line with the Q3 of last year. However, the revenue growth outpaced the spending escalation with net loss coming in at $1.9M, which down from the $3M net loss (adjusted for discontinued operation profit) for Q3 of last year.

In terms of the balance sheet, the company ended Q3 with $25M in cash and short-term investments and with no debt. MediWound did reiterate their cash use for operating activities for the full year to be $8M-$10M, so it is possible the company won’t be forced to execute a public offering in the near-term.

Overall, the company’s Q3 numbers show growth while conserving an amiable cash position.

A Collection Investment

I am going to take a “baseball card” approach to MDWD by looking at the player’s prospects and potential to become one of the best players in their position during a specific era of baseball. It might not be worth that much at first, but as the player racks up stats and establishes himself as one of the best in the league, the card quickly accumulates value. I believe MDWD will become one of the best small caps to produce proteolytic enzyme products to treat severe burns, chronic and other hard-to-heal wounds. It might not be one the most eye-catching and entertaining investments… but there is still pending value to be obtained in the coming years.

I have already established a minuscule position in anticipation the FDA will approve the company’s BLA for NexoBrid and the company’s commercial partner, Vericel, will be able to execute commercially. Now that the company has a June PDUFA date, I am looking to make a several technical additions ahead of the FDA’s decision.



Figure 2: MDWD Daily (Source: Trendspider)

I am looking to buy MDWD once it breaches and holds above $4.00 per share. If it is able to close a week above $4.00 per share, I will look to make another addition and will wait for a sector sell-off to make one final addition ahead of the PDUFA date.

If approved, I will still look to book some profits and will hold the remaining shares for a long-term speculative position. Indeed, I am sticking to my original idea of not committing a large position in MDWD but I have changed my time horizon from about 5 years, to 10 years due to the potential revenue growth of NexoBrid and EscharEx.

Figure 3: MDWD Revenue Estimates (Source: Seeking Alpha)

It looks as if the Street expects MediWound to start recording some impressive revenue growth in the coming years and will ultimately cross above $150M in annual revenue (Figure 3). Using the industry’s average price-to-sales of 5x, I have set my investment target price to $27.50.

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.