MediWound Ltd. — 2018 Form 20-F Summary
Business context and reporting period
MediWound is an Israeli biopharmaceutical company focused on severe burns, chronic and hard-to-heal wounds, connective-tissue disorders and related indications. Its commercial product, NexoBrid, is approved in Europe, Israel, Argentina, South Korea and Russia for eschar removal in adults with severe burns. EscharEx remains investigational for chronic and hard-to-heal wounds, while MWPC003 is in preclinical development for connective-tissue disorders.
This filing is an annual report for the fiscal year ended December 31, 2018, prepared under IFRS as issued by the IASB. The source does not provide a separate quarterly financial statement for fourth quarter 2018, although certain settlement-related items were recorded in the fourth quarter.
Key financial metrics
| U.S. dollars in thousands, except per-share data | 2017 | 2018 | Change |
|---|---|---|---|
| Revenue | 2,496 | 3,401 | +36% |
| Gross profit | 918 | 1,313 | +43% |
| Gross margin | Approximately 36.8% | Approximately 38.6% | Improved |
| Operating loss | (13,687) | (3,960) | Improved |
| Loss from continuing operations | (14,533) | (5,665) | Improved |
| Net loss | (22,149) | (1,057) | Improved |
| Basic and diluted loss per share | $(0.95) | $(0.04) | Improved |
| Cash used in continuing operating activities | (14,892) | (12,154) | Lower use |
| Cash and cash equivalents | 36,069 | 6,716 | Decreased |
| Short-term bank deposits | — | 16,917 | Increased |
| Cash, cash equivalents and short-term deposits | 36,069 | 23,633 | Decreased 35% |
| Working capital | 36,087 | 27,816 | Decreased |
Gross research and development expense increased from $14.6 million to $17.9 million, but BARDA and Israeli Innovation Authority participation increased from $9.2 million to $13.8 million, reducing net research and development expense from $5.5 million to $4.1 million. Selling and marketing expense declined from $5.4 million to $4.2 million, while general and administrative expense was broadly stable at approximately $3.8 million.
Cash used in investing activities was $17.0 million, primarily reflecting a $16.6 million investment in short-term bank deposits. Financing activities provided only $46 thousand in 2018, compared with $23.0 million in 2017 from the follow-on equity offering. Capital expenditures were $0.5 million.
The company reported no long-term borrowings and stated that it had no material interest-rate exposure from debt. Material liabilities included approximately $7.7 million related to Israeli Innovation Authority grants, $6.3 million of contingent consideration to Teva after the subsequent settlement adjustment, and $6.0 million related to the discontinued PolyHeal operation.
Material changes versus the prior comparable period
- NexoBrid revenue increased by approximately $0.9 million, reflecting higher sales volumes, primarily in Europe.
- Gross margin improved as cost of revenues declined from approximately 63% of revenue to approximately 61%.
- Gross R&D spending rose 22%, mainly from higher subcontractor costs and manufacturing activity related to NexoBrid and EscharEx, while external funding increased substantially.
- Operating loss narrowed by approximately $9.7 million, supported by higher revenue, increased government participation and lower selling and marketing costs.
- Net loss declined sharply because 2017 included a $7.6 million loss from the discontinued PolyHeal operation, while 2018 included $4.6 million of profit from that operation and $7.5 million of other income related to the Teva settlement.
- Cash and short-term deposits declined by approximately $12.4 million despite lower operating cash use, largely because of investments in short-term bank deposits and ongoing development spending.
- The company adopted IFRS 15 using the modified retrospective method, increasing opening accumulated deficit and deferred revenue by $249 thousand. The filing states that 2018 revenue would have been $3.357 million and net loss $0.937 million without the standard’s adoption.
Guidance, outlook, risks and unusual items
- Management stated that existing cash, cash equivalents and short-term bank deposits were expected to satisfy liquidity requirements for at least the next 12 months, but also acknowledged that additional financing may be required as development and commercialization spending continues.
- The company planned to submit a U.S. Biologics License Application for NexoBrid in the second half of 2019, subject to FDA concurrence regarding the timing and sufficiency of available follow-up data. NexoBrid was not approved in the United States as of the filing date.
- The U.S. Phase 3 DETECT study reported positive top-line results after year-end, meeting its primary and secondary endpoints. Long-term safety follow-up remained ongoing, and FDA acceptance or approval was not assured.
- The pediatric CIDS Phase 3 study was ongoing and funded by BARDA. EscharEx development remained subject to FDA concurrence and successful future clinical trials.
- BARDA contracts provided potential funding of up to $132 million for NexoBrid development, manufacturing and procurement, plus a separate sulfur-mustard injury contract with approximately $12 million of base funding and options of up to $31 million. BARDA could terminate the contracts at its convenience, and procurement funding was contingent on regulatory authorization.
- The company depends on a single supplier for bromelain SP and a single manufacturing facility in Yavne, Israel. Management estimated that existing bromelain SP inventory could support approximately two years of full-capacity operations, but supply disruption remains a material risk.
- The company expected to spend approximately $8 million to $12 million to scale manufacturing capacity, subject to regulatory qualification, with capacity expected to be valid during 2022.
- On March 24, 2019, MediWound entered into settlements with Teva and PolyHeal-related plaintiffs. Teva agreed to pay $4.0 million, reduce future NexoBrid-related royalty obligations to 15% of recognized revenue up to $10.2 million, and provide other releases. The PolyHeal settlement remained subject to Israeli Supreme Court approval and included potential indemnification exposure of up to $10 million for specified claims received before December 31, 2023.
- The company continued to incur operating losses, had an accumulated deficit of $130.7 million, and stated that substantial losses were expected for the foreseeable future. The filing does not provide profitability guidance.
Most important facts for an investor to verify
- Whether the FDA accepted and subsequently approved the NexoBrid BLA, including the effect of long-term safety follow-up requirements.
- The timing, amount and conditions of the $4.0 million Teva settlement payment and the final value of future Teva royalties.
- Whether the Israeli Supreme Court approved the PolyHeal settlement and eliminated the remaining potential share-purchase liability.
- The company’s post-year-end cash balance, operating cash burn and need for additional equity, debt or partnership financing.
- Actual NexoBrid sales growth, geographic mix, pricing and reimbursement progress, particularly outside Europe.
- Whether BARDA continues funding and exercises procurement or development options.
- Progress, trial results and regulatory milestones for EscharEx and the pediatric CIDS program.
- Supply continuity for bromelain SP, manufacturing-capacity expansion, and compliance with FDA, EMA and other cGMP requirements.