Business context and reporting period
ReWalk Robotics Ltd. (the issuer named in the filing; the request metadata identifies Lifeward Ltd.) filed this unaudited Form 10-Q for the quarter ended June 30, 2019. It develops and commercializes robotic exoskeletons, including ReWalk devices for spinal cord injury and the ReStore soft exo-suit for stroke rehabilitation. ReStore received U.S. FDA clearance and EU CE marking in June 2019.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are in thousands unless stated otherwise.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $877 | $1,770 | $2,458 | $3,349 |
| Gross profit / margin | $435 / 50% | $767 / 43% | $1,361 / 55% | $1,449 / 43% |
| Operating expenses | $4,670 | $6,043 | $9,171 | $12,567 |
| Operating loss | $(4,235) | $(5,276) | $(7,810) | $(11,118) |
| Net loss | $(4,587) | $(5,797) | $(8,587) | $(12,124) |
| Net loss per share | $(0.88) | $(4.42) | $(2.03) | $(9.65) |
- Q2 revenue fell 50% year over year; first-half revenue fell 27%. Management attributed the decline mainly to fewer units placed with the VA for its ongoing clinical study. The company placed 14 units in Q2 (13 ReWalk Personal and one ReStore), compared with 21 units a year earlier.
- Gross margin improved, which management attributed mainly to higher average selling prices and sales mix. First-half gross margin was 55%, versus 43% a year earlier.
- Operating expenses declined year over year in both periods. Management cited lower personnel, consulting, legal and other costs; Q2 R&D also included increased one-time Harvard-license milestone-related costs.
- Cash and cash equivalents were $24.1 million at June 30, 2019, versus $9.5 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $24.9 million. Current assets were $28.5 million and current liabilities $8.4 million.
- First-half operating cash use was $8.0 million, compared with $9.1 million in 2018; financing provided $22.5 million, primarily from equity transactions. Investing cash use was nil. Cash and restricted cash increased $14.5 million.
- Long-term loan principal outstanding under the Kreos agreement was $7.9 million at June 30. Balance-sheet loan liabilities were $7.9 million in total, split between $3.5 million current and $4.4 million long-term. The loan bears 10.75% annual interest and is secured by company assets.
- Shareholders’ equity was $17.3 million, compared with $1.9 million at year-end 2018. The company issued shares and warrants through multiple 2019 offerings; outstanding shares increased from 2.81 million to 7.29 million. Per-share and share-count comparisons reflect the April 1, 2019 one-for-25 reverse split.
Material changes, outlook and risks
- Management plans to fund operations over the next 12 months with available cash, spending reductions and possible equity or debt financing. It expects continued losses and warned that additional funding may be needed if cash needs exceed expectations. No quantified revenue or earnings guidance was provided.
- The filing states that the approximately $162 million accumulated deficit, operating cash outflows and expected further losses raise substantial doubt about the company’s ability to continue as a going concern.
- The planned remaining $15 million investment from Timwell was no longer considered achievable on the original terms. Discussions with Timwell affiliate RealCan about alternative arrangements faced significant execution risk.
- As of August 9, 2019, the company said Form S-3 limits prevented further primary securities sales under that registration statement, after approximately $13.7 million of sales over the preceding 12 months. Further financing could require costlier or slower alternatives and dilute shareholders. The company had raised approximately $24.4 million through February, April and June 2019 equity transactions, according to the risk-factor discussion.
- Nasdaq listing compliance remained a risk: the company had regained compliance with the shareholders’ equity requirement, but Nasdaq would continue monitoring it. Additional share issuance and warrant exercises could materially dilute existing holders; the company disclosed about 2.85 million shares issuable under warrants at June 30.
- FDA postmarket surveillance enrollment was inadequate: 12 subjects had enrolled by June 30, only two sites had enrolled patients, and the FDA characterized progress as inadequate. Failure to satisfy requirements or unfavorable results could lead to restrictions or loss of U.S. marketing permission for ReWalk Personal. The filing says U.S. ReWalk sales represented 37.6% of first-half revenue.
- The company disclosed a Class II recall/corrective action relating to ReWalk use instructions and reported serious injury/fracture events. Its recall-termination request remained under FDA review. One IPO-related shareholder action had been dismissed, but the plaintiff appealed; the company recorded no reserve because it could not reasonably estimate a possible loss.
- Other commitments included $1.35 million of non-cancelable purchase obligations, $2.60 million of future lease payments and $3.26 million of Harvard collaboration/license obligations in the contractual-obligations schedule. IIA royalties of approximately $1.5 million were contingent on relevant product sales.
- Management said gross margin could remain near current levels or improve with scale and lower manufacturing costs, but ReStore launch margins and higher component costs could offset improvement. Priorities include ReStore commercialization, reimbursement coverage for ReWalk Personal, and continued R&D.
Important facts for investors to verify
- Whether ReStore sales and unit placements grow following FDA clearance and CE marking, and whether ReWalk Personal volumes recover from the VA-study-related decline.
- Cash burn, financing runway, access to capital after Form S-3 limits, and progress toward maintaining Nasdaq listing compliance.
- Kreos repayment terms and the company’s ability to service secured debt while funding operations.
- FDA correspondence, postmarket-study enrollment and outcomes, recall status, and any further product safety or marketing actions.
- Potential dilution from outstanding warrants, future equity raises, and the effect of the reverse split on share and per-share comparisons.
- Any change in the going-concern assessment, Timwell/RealCan discussions, or potential losses from the appealed shareholder litigation.