MediWound Ltd. 2017 Form 20-F Summary
Business context and reporting period
MediWound Ltd. 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 the European Union, Israel and Argentina for eschar removal in adults with deep partial- and full-thickness thermal burns. The company sells primarily in Europe and Israel and through distributors elsewhere. The filing covers the fiscal year ended December 31, 2017, and is prepared under IFRS as issued by the IASB. The filing does not provide a separate fourth-quarter income statement.
As of December 31, 2017, MediWound had 27,047,737 ordinary shares outstanding, 76 employees and a controlling shareholder, Clal Biotechnology Industries Ltd., with approximately 34.9% beneficial ownership as of March 15, 2018.
Key financial metrics
| U.S. dollars in thousands, except per-share data | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $2,496 | $1,558 | +60% |
| Cost of revenues | $1,578 | $2,158 | -27% |
| Gross profit (loss) | $918 | ($600) | Improved by $1,518 |
| Gross margin | 36.8% | (38.5%) | Improved |
| Net R&D expense | $5,462 | $7,068 | -23% |
| Selling and marketing | $5,362 | $8,403 | -36% |
| General and administrative | $3,781 | $4,084 | -7% |
| Operating loss | ($13,687) | ($20,155) | Improved by $6,468 |
| Loss from continuing operations | ($14,533) | ($18,885) | Improved by $4,352 |
| Loss from discontinued operation | ($7,616) | $0 | Primarily PolyHeal provision and related items |
| Net loss | ($22,149) | ($18,885) | Increased by $3,264 |
| Basic and diluted loss per share | ($0.95) | ($0.86) | Worsened |
| Net cash used in continuing operating activities | ($14,892) | ($16,445) | Improved by $1,553 |
| Net cash used in operating activities, including discontinued operations | ($16,455) | ($16,445) | Comparable |
Cash and cash equivalents were $36.1 million at year-end 2017, compared with $28.9 million at year-end 2016. Including short-term bank deposits, liquidity was $36.1 million at year-end 2017 versus $30.0 million in 2016. Working capital was $36.1 million. Total assets were $44.1 million and shareholders’ equity was $9.6 million, compared with $7.8 million in 2016.
The company reported no long-term borrowings and stated that it had no material interest-rate exposure from debt. Long-term liabilities totaled $29.1 million, including $14.4 million of contingent consideration related to former Teva arrangements, $7.4 million of liabilities related to Israeli Innovation Authority grants and $6.0 million related to the discontinued PolyHeal operation.
Capital expenditures were $1.0 million in 2017, compared with $0.7 million in 2016. Net cash provided by financing activities was $23.0 million, primarily from the September 2017 follow-on offering, which generated $22.7 million of net proceeds. Management stated that existing cash, cash equivalents and short-term bank deposits were sufficient to satisfy liquidity requirements for the following 12 months.
Material changes versus the prior comparable period
- Revenue increased 60%, primarily from higher NexoBrid sales volume in the European Union.
- The company moved from a gross loss to a gross profit as revenue increased and cost of revenues declined.
- Net R&D expense declined despite continued NexoBrid development, mainly because BARDA and Israeli Innovation Authority participation increased to approximately $9.2 million from $7.7 million.
- Selling and marketing expense declined as launch-related European marketing activity and headcount decreased.
- Continuing operating loss improved materially, but total net loss increased because of a $7.6 million loss from discontinued operations associated primarily with the PolyHeal litigation provision and related impairment and legal costs.
- Shares outstanding increased from 21.9 million to 27.0 million following the September 2017 offering, creating dilution for existing shareholders.
- Inventory increased to $1.9 million from $0.8 million, while cash increased following the equity offering and BARDA funding.
Guidance, outlook, commentary and unusual items
- Management expects substantial expenses and operating losses for the foreseeable future and does not provide a quantified revenue or earnings forecast.
- The company expected to complete recruitment for the U.S. DETECT Phase 3 NexoBrid study around mid-2018 and report acute topline data around year-end 2018, subject to recruitment and follow-up. The study is intended to support a potential U.S. BLA and satisfy a European post-marketing commitment.
- The pediatric CIDS Phase 3 study was being expanded into U.S. sites. Interim results were expected in the second half of 2022 and final results in the second half of 2023.
- For EscharEx, MediWound planned to finalize its U.S. clinical program and submit a protocol to the FDA in the second half of 2018. EscharEx remained in Phase 2 development and had not received marketing authorization.
- BARDA’s modified contract had a potential value of up to $132 million, including up to $56 million for development, approximately $16.5 million for procurement contingent on FDA authorization or emergency use authorization, and additional options. BARDA had funded approximately $14.9 million by year-end 2017 and could terminate the contract at its convenience.
- The company planned a new manufacturing facility, targeted for qualification in 2022, with estimated cost of approximately $12 million to $15 million.
- MediWound depends on a single supplier for bromelain SP, an intermediate material used in NexoBrid, EscharEx and pipeline products. The company estimated that stored inventory supported approximately two years of full-capacity operations, but acknowledged that supply disruption could delay production and clinical development.
- A Tel Aviv District Court ruling required MediWound to purchase PolyHeal shares for approximately $7.5 million including interest. The company recorded the full provision, paid approximately $1.5 million in 2017, appealed the ruling and could face an additional payment of approximately $6 million if unsuccessful or unable to settle with Teva. The appeal was scheduled for January 2019.
- IFRS 15 adoption beginning January 1, 2018 was expected to increase deferred revenue and accumulated deficit by approximately $249,000 under the modified retrospective method.
- Foreign currency exposure was significant: approximately 40% of 2017 expenses were denominated in Israeli shekels, and management estimated that a 10% movement in the shekel and euro against the U.S. dollar would have changed 2017 net loss by approximately $0.4 million.
Principal risks and contingencies
- Regulatory approval risk remains substantial, particularly for NexoBrid in the United States and for EscharEx and other pipeline candidates.
- The company relies heavily on the commercial success of a single marketed product, NexoBrid, and remains dependent on European market access, hospital purchasing and reimbursement.
- Clinical trials may fail, be delayed, require additional studies or produce safety findings that could restrict commercialization.
- BARDA funding is material to U.S. NexoBrid development but is subject to contractual conditions and termination at BARDA’s convenience.
- MediWound has a history of significant net losses, negative operating cash flow and an accumulated deficit of $129.4 million at year-end 2017; additional capital may be required and could dilute shareholders.
- Manufacturing is concentrated in one Yavne, Israel facility, while bromelain SP is sourced from a sole supplier. War, terrorism, equipment failure, contamination, cGMP deficiencies or supply interruptions could materially affect operations.
- The company is exposed to pricing, reimbursement, market acceptance, competition from surgery and alternative products, intellectual-property challenges and product-liability claims.
- Israeli Innovation Authority funding creates royalty obligations and restrictions on transferring funded technology or manufacturing outside Israel.
- The PolyHeal litigation and former Teva arrangements could result in additional cash payments, royalties, litigation costs or management distraction.
Important facts for investors to verify
- Progress, enrollment, topline results and regulatory strategy for the DETECT and CIDS NexoBrid studies.
- Whether and when NexoBrid receives FDA authorization or emergency use authorization and whether BARDA exercises procurement options.
- European NexoBrid sales growth, pricing, reimbursement, distributor launches and gross-margin sustainability.
- EscharEx’s FDA protocol, Phase 3 requirements, funding needs and probability of eventual approval.
- Remaining cash runway after operating losses, clinical spending, manufacturing expansion and the PolyHeal obligation.
- Outcome of the PolyHeal appeal and any remaining obligations to PolyHeal shareholders or Teva.
- Reliability and duration of bromelain SP supply and the timing and cost of the planned manufacturing expansion.
- Potential dilution from future equity financing and the company’s contingent royalty obligations to Teva and the Israeli Innovation Authority.
- The effect of IFRS 15 adoption and any subsequent accounting changes on deferred revenue, equity and reported revenue trends.