2014

Funding Proposal
Hannah Phua z3372782
Judy Tran z3372603
Evan Wong z3374153
Yuen Tat Lin z3372172

Glass Valuation
Helping you see with transparency.
 Glass Valuation

TABLE OF CONTENTS sd
Table of Contents............................................................................................................................ 1
Executive Summary ........................................................................................................................ 2
1. Background.............................................................................................................................. 3
1.1 Business and product description ..................................................................................... 3
1.2 Current owners ................................................................................................................. 3
1.3 Management team, Personnel and Compensation ........................................................... 4
1.4 Analysis of market and industry competitiveness .............................................................. 4
1.4.1 Value-based healthcare ............................................................................................. 4
1.4.2 Regulatory pressures ................................................................................................. 5
1.4.3 Resource constraints ................................................................................................. 5
1.4.4 SWOT Analysis.......................................................................................................... 6
1.5 Production and Operational Strategy ................................................................................ 7
1.5.1 Funding Strategy ....................................................................................................... 8
1.5.2 Growth Strategy ......................................................................................................... 8
1.6 Use of proceeds.............................................................................................................. 10
1.7 Risk factors ..................................................................................................................... 10
2. Financial Analysis and Projections ......................................................................................... 10
2.1 Valuation based on peers and the industry average ....................................................... 10
2.1.1 Comparable firms .................................................................................................... 10
2.1.2 Market Comparables ............................................................................................... 12
2.2 Key valuation assumptions ............................................................................................. 13
2.3 Forecasting of future profitability and cash flows ............................................................. 14
2.4 capital budgeting for the investment proposal ................................................................. 16
2.4.1 DCF ......................................................................................................................... 16
2.4.2 IRR .......................................................................................................................... 16
2.4.3 ReWalk Enterprise Values Triangulation .................................................................. 16
3. The Deal ................................................................................................................................ 17
3.1 Pricing and Justification .................................................................................................. 17
3.2 Pre Money and Post Money Valuation implications ......................................................... 17
3.3 Provisions ....................................................................................................................... 17
3.4 Proposed Exit Strategy ................................................................................................... 18
4. Term Sheet ............................................................................................................................ 19
5. Conclusion ............................................................................................................................. 19
6. Bibliography ........................................................................................................................... 20
7. Appendices with Supporting Documentation.……..…..……………………..…..…………………21

1
 Glass Valuation

EXECUTIVE SUMMARY sd
This report evaluates the investment opportunity of ReWalk Robotics Ltd, an innovative
medical device company that is designs, develops and commercialises exoskeletons to enable
mobile-impaired patients to stand and walk.

Quantitative and qualitative analysis was undertaken to give the most holistic firm valuation.
Qualitative methods included examinations of market and industry competitiveness, production
and operational strategies, and SWOT analysis. The key methods of financial analysis
employed were peer analysis using comparable firms, and a Discounted Cash Flow Analysis
with a seven-year projection of cash flows. From this, we have also computed the internal
rates of return for ReWalk.

Analysis shows that ReWalk is a company that is set to become a market leader and has vast
potential for growth. It has invested largely in its FDA approvals, marketing, manufacturing and
has established a firm foundation for future growth. As such, ReWalk is reaching the stage of
high growth where it will return profits. Merits of this investment opportunity include:
 Pre-money valuation of $109,100,500 which has the potential to grow after more
funding
 Superior product that is FDA approved
 Early leader in the emerging space of building exoskeletons
 Expanding coverage and adoption
 Requisite intellectual property rights acquired to continue to operate and increase
value in market
 Alliance with Yaskawa, an large established corporation helps limit the risks for
investors

Glass Valuation has accounted for key limitations and risks imposed, which may affect the
investment opportunity. The most notable of these features are the company’s relatively
unproven financial history; particularly ReWalk’s net losses since inception and accountant’s
doubt that ReWalk’s is able to continue to operate as “going concern, the pricey nature of its
product and it exhaustible target consumer market.” A more detailed breakdown of ReWalk’s
market position is available in the SWOT analysis.

ReWalk is now seeking a late round of financing of $57,500,000 at a price of $296.89 per
share in exchange for a 34.51% stake in ownership. The increase in share price from $215.45
per share from the previous round of Series E financing is justified as the firm has established
the foundation for future profitability and the exit potential through an initial public offering is
foreseeable in the short term.

Although the firm still has a usually low revenue stream during this stage, we anticipate that
this round of financing is to allow the firm to increase its market share and global reach by
enabling it to obtain required medical approvals in foreign countries. Further profit margins are
set to increase with the recent manufacturing move and expected sales growth will result in
economies of scale.

In order to effectively provide quantitative data a number of assumptions have been made to
project the company’s expected performance. Thus valuation assumptions are used
conservatively, and sensitivity analysis has been conducted on various variables including
revenue growth rates, WACC, and the terminal growth rate in order to attain the most accurate
estimate of the firm’s value. While a number of the figures presented in this report may be
estimates, there is little chance of ReWalk being overvalued.
2
 Glass Valuation

1. BACKGROUND sd
1.1 BUSINESS AND PRODUCT DESCRIPTION
Rewalk Robotics Ltd was incorporated under the laws of the State of Israel on June 20, 2001. It is
a medical device company which designs and commercialise innovative exoskeletons to give the
ability for wheelchair-bound individuals to walk and stand again. The company offers two products:

ReWalk Personal ReWalk Rehabilitation

 Custom-fit for users and designed for
their everyday use at home and
communities
 Marketing in Europe with CE mark
clearance
 Received FDA clearance to market it
in the United States
 Provide valuable therapy and exercise in
the clinical rehabilitation environment
 Enables users to evaluate their ReWalk
Personal’ capacity in the future
 Use in rehabilitation centers and
hospitals in Europe and the United
States.

1.2 CURRENT OWNERS

The pie chart below shows the ownership stakes in ReWalk. The 5.1% total stake listed under
includes members of the board who individually have an ownership stake of less than 1%.

Ownership Stakes in ReWalk

Dr. Amit Goffer

Larry Jasinski 3.7%
1.9%
Other
5.1%

Previz Ventures L.P.

6.4%
Entities affiliated with
SCP Vitalife Partners
28.6%

Entities affiliated with

Pontifax
10.6%

Israel Healthcare
Ventures 2 L.P.
18.6% Yaskawa Electric
Corporation
25.0%

3
 Glass Valuation

1.3 MANAGEMENT TEAM, PERSONNEL AND COMPENSATION sd

Larry Jasinski has served as the CEO and board member of ReWalk since February 2012. From
2001, he has held the position of CEO and President in two different medical technology
companies.

Dr. Amit Goffer is the Founder of ReWalk and has served as the President and CTO since
February 2012. He has served as a board member since 2001, and as the CEO from 2001-2012.
He has also previously founded another medical technology company, Odin Medical Technologies
Ltd., where he served as the President and CEO before it was acquired in 2006.

Ami Kraft has been the CFO since January 2009. He has previously served as the CFO of many
international technology companies such as Zoran Corporation which was taken to IPO.

Name Age Position

Larry Jasinski 56 Chief Executive Officer and Director
Dr. Amit Goffer 61 Founder, President, Chief Technical Officer and
Director
Ami Kraft 71 Chief Financial Officer
Ofir Koren 44 Vice President, Research & Development
Jodi Gricci 46 Vice President, Global Marketing
Ori Schellas 38 Director of Operations
John Hamilton 60 Vice Preseident, Regulatory and Clinical
Miri Priente 37 Global Director of Quality
Jeff Dykan 55 Chairman of the Board
Dr. Hadar Ron 55 Director
Asaf Shinar 42 Director
Wayne B Weisman 58 Director
Aryeh Dan 55 Director
Yasushi Ichiki 46 Director
Glenn Muir 55 Director
Dr. John William Poduska 76 Director Nominee

The total compensation for directors and executive officers for the year ended 31 December 2013
was $1.8 million.

1.4 ANALYSIS OF MARKET AND INDUSTRY COMPETITIVENESS

The medical technology sector is weathering a perfect storm, caused by three concurrent trends;
the move towards value-based healthcare, growing regulatory pressures, and resource constraints
within the industry itself.

1.4.1 Value-based healthcare

The medical technology industry is feeling the effects of a shift towards improving health outcomes
in cost-efficient ways through budgetary cuts. Although it is a sector focused on developing
innovative products to save/improve lives, it is contributing to the spiralling costs of healthcare.
However, ReWalk may be in a unique position because not only is its product designed to
overcome paralysis, it effectively prevents secondary medical consequences resulting from
paralysis. The cost of treating these conditions is substantial. The National Spinal Cord Injury
Statistical Center (NSCISC) estimates that complications related to paraplegia costs approximately
$500,000.

4
 Glass Valuation

Another consequence of the move to value-based health care is a shift in customer base. Most
medical technology products which have traditionally been marketed to physicians is now being
sd
marketed to the patients as they are becoming more active and involved in purchasing and using
medical technologies to manage their health. Further a larger number of physicians are losing
autonomy to pick the devices they want to use as a result of becoming employees of large
hospitals with centralised systems. This is to be taken into account because ReWalk’s
commercialisation strategy is to penetrate rehabilitation centres, hospitals and similar facilities.

1.4.2 Regulatory pressures

Over the last few years, medical technology companies in major markets have also faced growing
regulatory scrutiny. In the US, the Sunshine Act now requires medical technology companies to
track and report any transfer of value with a medical practitioner, and some states have enacted
laws that restrict interactions between industry and health care providers. Meanwhile, regulators
have considered changes would make marketing approval more expensive and uncertain for many
classes of products.

1.4.3 Resource constraints

Another challenge faced by medical technology companies of all sizes in the last few years is a
dwindling pool of financial resources. This is driven by the fact that the medical technology now
face increased regulatory and reimbursement uncertainty, and lower grown prospects.

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.
Early-stage rounds are first and second-round VC investments.

5
 Glass Valuation

Further, since 2008, growth rates of medical technology companies have slowed to an average of
7%, compared to a historic rate of 13%. This accounts to a US$131 billion dollar drop in revenue
sd
between 2008 and 2012. As a result of this decline, companies have fewer funds to invest in R&D.

Source: EY and company financial statement data.

1.4.4 SWOT Analysis

Strengths Weaknesses

 More natural walking experience  Weight and bulk of the device

compared to competitors; allows users to
sit, stand, climb and descend stairs
 ReWalk users are able to independently
operate the devices
 Tilt-sensor technology and design of
device is patented in US and Europe
 First exoskeleton cleared by the FDA for
personal use
 Compelling clinical data which
demonstrates ReWalk’s potential as a
safe ambulatory device.
 Experienced management team and
employees with personal experience with
paralysis
 Health insurance in the US does not yet cover
the ReWalk; may be expensive for many to
afford
 ReWalk aims to expand product base to
quadriplegia and multiple sclerosis, stroke and
cerebral palsy patients. This will lead to
growing R&D expenditure
 Limited operating history
 Clinical data does not substantiates long term
health benefits of ReWalk, which could limit
sales
 ReWalk has incurred net losses since
inception and accountant’s report expresses
doubt about ReWalk’s ablity to continue to
operate as “going concern”

6
 Glass Valuation

Opportunities
 Strategic alliance with Yaskawa Electric
Corporation, which provides growth and
market penetration in Asian markets
 Contract with Sanmina Corporation
provides ReWalk security in sales, and
offers significant scale-up capacity
 Already have a strong presence in
leading rehabilitation centres, hospitals
and similar facilities in the US and
Europe, which will provide an avenue to
efficiently penetrate the market for
ReWalk Personal.
 The NSCISC estimates as of 2013 that
there were 273,000 people in the US
living with spinal cord injury, with an
annual incidence of approximately
12,000 new cases per year
Threats
sd
 Competitive industry that is subject to rapid
technological change
 Market for medical exoskeletons is new and
unproven, and important assumptions about
the potential market for ReWalk products may
be inaccurate
 Dependent on a single third-party to
manufacturer and a limited number of third-
party suppliers for certain components of
ReWalk
 Future growth and operating results will
depend on ability to develop and
commercialise new products and penetrate
new markets
 Competition may increase
 Subject to extensive governmental regulations
relating to the manufacturing, labelling and
marketing of products.

1.5 PRODUCTION AND OPERATIONAL STRATEGY

ReWalk has contracted with Sanmina Corporation to source all the required raw materials and
manufacture all of their products. The company is a well-established original equipment
manufacturer with expertise in the medical device industry which ReWalk hopes to provide security
with quality, price and scalability.

Additionally, ReWalk has entered in a strategic alliance with Yaskawa Corporation - a global leader
in the fields of industrial robotics and automation. Yaskawa will serve as the distributor in certain
Asian markets. Benefits that flow from this relationship include:

a) Opportunities for growth and market penetration provided by Yaskawa’s brand recognition
b) Product and quality improvements provided by Yaskawa’s expertise

ReWalk’s commercialisation strategy is to penetrate rehabilitation centres, hospitals and similar

facilities that treat patients with spinal cord injuries. While the majority of Rewalk’s sales to date
have been ReWalk Rehabilitation units, ReWalk aims to shift their primary focus to marketing the
ReWalk Personal for routine use at home, work or in the community. ReWalk Personal is to
account for the substantial majority of ReWalk’s revenues in the future.

7
 Glass Valuation

sd

A key element in sustaining the business strategy above is the continued expansion of their sales
and marketing infrastructure, through the hiring, training, retaining and motivating of skilled sales
and marketing representatives with industry experience and knowledge.

1.5.1 Funding Strategy

ReWalk currently rely primarily on self-payers but wishes to pursue third-party reimbursements and
various other funding sources for the payment of their products.

In meeting their funding goals, ReWalk will:

 Work with ReWalk users, health care practitioners, researchers, and the spinal cord injury
community to support efforts to demonstrate to insurance companies the health benefits
and the economic case for reimbursement of ReWalk Personal
 Sponsor clinical studies and academic publications that demonstrate the medical benefits
of ReWalk

In line with their funding strategy, ReWalk has already entered into a grant agreement with the
BIRD Foundation and Allied Orthotics & Prosthetics Inc, received funding of a total of $0.45 million
from the Office of the Chief Scientist and received a total of $0.1 million in funding from the Fund
for Promoting Overseas Marketing under the Israeli Ministry of Economy.

1.5.2 Growth Strategy

Rewalk’s vision in the short-term involves implementing more ReWalk Rehabilitation in United
States hospitals and rehabilitation centres as part of the rehabilitation and training of patients with
paraplegia. Utilising this point of entry, ReWalk aims to push sales for ReWalk personal which they
project to be their major revenue source. Further, Rewalk looks to expand internationally and in the
long-term, their vision involves addressing other medical conditions beyond paraplegia.

8
 Glass Valuation

sd
To achieve these visions, ReWalk plans to implement the following growth strategies:

ReWalk intends on increasing their sales force and

further strengthening their distribution network and
service, training and support functions.
This will allow them to establish a strong presence and
relationship with hospitals and rehabilitation centres,
creating an avenue to efficiently penetrate the market for
their projected main revenue source - ReWalk Personal.

Beyond expanding within the United States, ReWalk

intends to expand into Europe and through their
arrangements with Yaskawa, into Asia. However, this
strategy will involve understanding and overcoming the
different regulatory barriers in each new jurisdiction.

ReWalk intends to continue their work with hospitals,

rehabilitation centres, patient advocacy and support
groups and individual users.
This will provide them with the dual benefit of gaining
and maintaining expertise in the industry as well as
increasing the likelihood of additional third-party
reimbursements for their products which they hope to
prove economically and societally beneficial.

The core ReWalk technology was designed such that it

could easily be adapted to address medical indications
other than paraplegia.

9
 Glass Valuation

sd
1.6 USE OF PROCEEDS
The company utilises the net proceeds for general corporate purposes including marketing and
sales expenditures in order to grow its business and the expenditures on research and
development focused on product development. The company expects that the net proceeds are
able to expand its sales, marketing and train infrastructure and other current development activities
such as the development of its next generation of ReWalk and to get with it for other indications.
Also, the net proceeds may be used for making investments or acquisition in complementary
companies or technologies although the company does not have any understanding or agreement
on such investments and or acquisition at this time.

1.7 RISK FACTORS

The following are a summary of risks associated with investing in ReWalk which may adversely
affect the financial and operational health of the business:

 The products may not be accepted by the market. This is a highly uncertain risk since the
market for medical exoskeletons is new and unproven.
 ReWalk has a limited operating history which makes evaluations difficult.
 The health benefits of ReWalk have not been supported by long-term clinical data.
 ReWalk depends on a single third-party manufacturer who uses a limited number of
suppliers of raw materials.
 ReWalk has incurred new losses since inception.
 The business is subject to extensive governmental regulations relating to the
manufacturing, labeling and marketing of their products.

2. FINANCIAL ANALYSIS AND PROJECTIONS

2.1 VALUATION BASED ON PEERS AND THE INDUSTRY AVERAGE
ReWalk is currently still in early stage development, hence their shares will be difficult to value. In
order to forecast ReWalk’s intrinsic value if it is successful, and how the market might react in the
short-term, we have looked at some comparable companies that have gone to IPO in the spinal
therapy area for clues.

2.1.1 Comparable firms

K2M (KTWO)

K2M is a medical device company that develops proprietary complex spine technologies and
techniques. Its instruments are primarily marketed and sold to hospital for spinal surgeons to treat
difficult and challenging spinal pathologies, such as scoliosis, trauma and tumor. K2M was founded
in 2004 and is headquartered in Leesburg, Virginia.

Globus Medical Inc (GMED)

Globus Medical is a leading musculoskeletal implant manufacturer and is driving significant

technological advancements across a complete suite of spinal products. It provides a portfolio of
10
 Glass Valuation

over 110 products, addressing a range of spinal pathologies, anatomies and surgical approaches.
Founded in 2003, Globus’ single-minded focus on advancing spinal surgery has made it the fastest
sd
growing company in the history of orthopedics.

Intuitive Surgical (ISRG)

ISRG manufactures and markets da Vinci Surgical Systems, and related instruments and
accessories. ISRG is a very mature, but an example of a high-end robotic medical technology that
took many years to adopt. ISRG markets its products directly and through distributors in the United
States and internationally. The company was founded in 1995 and is headquartered in Sunnyvale,
California.

Amedica Corporation (AMDA)

Amedica is a commercial biomaterial company focused on using its silicon nitride technology
platform to develop and manufacture a broad range of medical devices including spinal fusion
products. It markets and sells its products to surgeons and hospitals in the United States, Europe,
and South America through a network of independent sales distributors. Amedica was founded in
1996 and is headquartered in Salt Lake City, Utah.

Stryker (SYK)

Stryker Corporation operates as a medical technology company in three segments:

Reconstructive, MedSurg and Neurotechnology & Spine. The company markets its products to
doctors, hospitals, and other healthcare facilities in the United States, as well as sells its products
through local dealers, direct sales, and third-party dealers and distributors in approximately 100
countries worldwide. Stryker Corporation was founded in 1941 and is headquartered in
Kalamazoo, Michigan.

Ekso Biononic Holdings Inc (EKSO)

Ekso Bionics Holdings, Inc. is closest direct competition to Rewalk as the company designs,
develops, and commercializes exoskeletons for applications in medical, military, industrial, and
consumer markets in North America and Europe. It offers Ekso, a bionic suit or wearable robot,
which helps individuals with lower-extremity weakness to stand up and walk with a natural, fully
weight bearing gait. The product is used primarily in a clinic or rehab under the supervision of a
physical therapist. The company was founded in 2005 and is based in Richmond, California.

Inogen Inc (INGN)

Although Inogen is unrelated to spinal therapies, it is similar to ReWalk in the sense that it
produces new, superior technology with substantial quality of life benefits that needs to get through
the adoption and regulatory process to become mature.

Inogen makes portable oxygen concentrators. Its oxygen concentrators are used to deliver
supplemental long-term oxygen therapy to patients suffering from chronic obstructive pulmonary
disease and other chronic respiratory conditions. These portable devices are marketed to patients,
insurance carriers, home healthcare providers, and distributors. The company sells its products in
the United States and internationally. Inogen was founded in 2001 and is headquartered in Goleta,
California.

11
 Glass Valuation

2.1.2 Market Comparables

sd
Financial Aggregates

Market Enterpri
Cap Price se Value Revenue EBITDA R&D EPS Employee
KTWO 519.65 14.00 492.72 170.02 -10.29 12.40 -1.00 414
GMED 1880.00 19.89 1600.00 450.21 154.36 27.93 0.88 850
ISRG 17080.0 475.21 16110.00 2050.00 731.80 170.00 12.17 2806
AMDA 14.89 1.20 23.46 22.22 -17.36 3.46 -4.01 74
SYK 31.24 82.51 30360.00 9290.00 1410.00 536.00 1.79 2500
ESKO 83.21 1.06 72.38 3.88 -12.06 2.21 -0.39 60
INGN 393.98 21.60 338.35 93.57 17.63 2.40 0.39 364

The EBITDA and EPS values are negative for KTWO, AMDA and ESKO, therefore multiples and
ratios containing these variables cannot produce a meaningful valuation. Hence when computing
the enterprise value of ReWalk, we looked at the revenue streams, R&D and employee numbers of
the comparable firms.

Multiples and Ratios

EV/Rev EV/R&D EV/Employee Price/Rev Price/R&D Price/Employee

KTWO 2.898 39.735 1.190 0.082 1.129 0.034
GMED 3.554 57.294 1.882 0.044 0.712 0.023
ISRG 7.859 94.765 5.741 0.232 2.795 0.169
AMDA 1.056 6.778 0.317 0.054 0.347 0.016
SYK 3.268 56.642 1.214 0.009 0.154 0.003
ESKO 18.655 32.751 1.206 0.273 0.480 0.018
INGN 3.616 141.097 0.956 0.231 9.008 0.061
Min 1.056 6.778 0.317 0.009 0.154 0.003
25th 3.083 36.243 1.073 0.049 0.413 0.017
Median 3.554 56.642 1.206 0.082 0.712 0.023
75th 5.737 76.029 1.548 0.231 1.962 0.047
Max 18.655 141.097 5.741 0.273 9.008 0.169
Mean 5.844 61.295 1.787 0.132 2.089 0.046

ReWalk Valuation – Enterprise Value

Min 25th Median 75th Max Mean

EV/Rev 1.677 4.896 5.644 9.111 29.624 9.280
EV/R&D 16.695 89.267 139.509 187.261 347.521 150.969
EV/Emp 19.339 65.451 73.586 94.451 350.217 108.992

12
 Glass Valuation

ReWalk Enterprise Value Range - Box & Whisker Chart

sd

EV/Employees

EV/R&D Mean

EV/Revenue

0 50 100 150 200 250 300 350 400

Enterprise Value ($mil)

2.2 KEY VALUATION ASSUMPTIONS AND HOW THEY CAN BE LINKED TO

MARKET AND STRATEGY ANALYSES

Risk Free Rate The risk free interest rate (2.6%) is based on the yield from U.S. Treasury zero-
coupon bonds with a term of X years, equivalent to the contractual life of the
options. Market risk premium is calculated to be 6.55% based on an
annualised S&P 500 historical 10-year return of 9.15%.

Beta The average beta of comparable firms, excluding outliers, is 0.815. This is
consistent with the medical device sector. ReWalk is a smaller firm that is at an
earlier stage of development, we compute the beta to be 0.9 to account for this
higher risk.

Cost of Equity The cost of equity is determined to be 8.495% using CAPM.

r(e)= r(f) + B(r(m)-r(f))
= 0.026 + 0.9(0.0655)
= 0.08495

Tax Rate Taxable income of Israeli companies is subject to tax at the rate of 25% in
2012 and 2013, and 26.5% in 2014 and onwards.

Discounting Free ReWalk is at the second stage of growth because it currently has a finished
Cash Flows product and is looking to expand its product line and geographical reach.
Although it doesn’t currently have established profits, the net losses can be
justified by the high initial outlay that is inherent in the medical technology
industry. Generally firms in this stage have a discount factor between 25-40%.
ReWalk has a strong and growing revenue stream and the riskiness of its cash
flows is mitigated by its competitive advantages:
 Superior, patented exoskeleton technology
 First medical exoskeleton to be cleared by the FDA for personal use

13
 Glass Valuation

in the US
sd
 Established arrangements with experienced electronic
manufacturers and distributors
 Experienced management team
 Supporting clinical data

Further, ReWalk’s liquidity premium can be priced at a lower range of 9-19%

due to the stage of the firm and its high cash reserves. Therefore, a discount
factor of 25% is justified.

WACC The weighted average cost of capital (WACC) is the company rate that
expected to pay on average to all its security holders to finance its assets.
ReWalk currently has no outstanding debt. This is consistent with the medical
device sector, and especially private firms, which are predominantly funded by
equity. Therefore, WACC is estimated at the cost of equity which is 8.495%.

2.3 FORECASTING OF FUTURE PROFITABILITY AND CASH FLOWS

Sales Growth ReWalk is still in the very early stages of implementing its growth strategies,
with the marketing and push for sales force on its expected main revenue-
generating product, the ReWalk Personal, still to be implemented. Further, its
competitors are faced with a high regulatory barrier to entry. Therefore, a
continued estimated sales growth of 63% for the next two years is reasonable.
Sales growth will start to stabilise as market opportunities start to become
exhausted, due to the niched nature of the market.

Cost of Revenue Between 2013 and 2014, ReWalk transferred all manufacturing to Sanmina
Corporation. Despite the historical cost of revenue being higher than the sales
revenue, this manufacturing shift will lead to higher efficiency and develop
economies of scale. This will reduce the unit cost of revenue as sales revenue
increases. ReWalk’s cost of revenue will be a function of sales, and we initially
forecast this to be 70% in the first year. This will decrease as ReWalk develops
greater economies of scale.

Depreciation Most of ReWalk’s depreciation expense is attributed to property and equipment

which is calculated using the straight line method. Taking into account the
acquisition of new assets, it is reasonable to assume that depreciation will be
expensed at a stable rate of 5% of revenue based on historical data.

Operational Costs R&D: ReWalk currently has plans to expand the application of their core
technology into medical indicators outside of paraplegia. Therefore, it would be
reasonable to expect that R&D will be maintained at its current level of around
$2 million.

Sales & Marketing: Re Walk intends to continue to expand their sales and
marketing activities and therefore anticipate that this expense will increase in
the future as sales representatives will increase with revenue. However, taking
into account that historical sales and marketing expenses are significantly high

14
 Glass Valuation

in early stages, this expense is expected to decrease and stabalise at a

constant rate of 10% of revenue.
sd
General and Administrative: Given that ReWalk’s general and administrative
expenses mainly consists of salaries, related personnel costs and share-based
compensation for administrative, finance, general management personnel and
legal and accounting consultants, it is expected that this expense will remain
relatively stable in absolute dollar terms.

Change in NWC As ReWalk expands its sales, working capital will inevitably increase due to a
and Capital higher requirement for investment in inventory and an increase in receivables.
Expenditure Therefore, changes to NWC can be reasonably assumed to be grow at the
same rate as revenue growth. However, the starting value for change in NWC
should not be on the historical value of change from 2012-2013. This figure is
at $9.066million and is an outlier and too large because:

 ReWalk converted all convertible loans to equity, and thus, significantly

reduced the current liabilities total in 2013
 ReWalk increased its inventory level in 2013 substantially in preparation
for a high-growth in sales
 ReWalk accumulated a significant holding of cash in 2013, above 2012
that is not necessary to match the increase in sales but is as a result
from the sales (significantly increasing the total current assets)

Therefore, the change in NWC will be estimated to start at $0.25million in 2014

as inventory levels have already been increased, and thus, less of a change in
NWC will be needed to meet sales growth levels.

Recently, substantial expenses have been incurred in moving manufacturing to

Sanmina. This however is a one-off expenditure made for a long-term
manufacturing commitment. There are no expected large capital expenditures
in the future ReWalk will not require any investments in plant, property or
equipment, and as such, a forecast of 1% of revenue is reasonable.

Terminal Growth As ReWalk reaches a steady state, growth should be maintained at a relatively
Rate and Terminal low level. This is in light of ReWalk’s highly innovative product which is
Value differentiated from competitors in the market. As such, it is assumed that other
firms and future competitors entering the market will invest in the same
technology and infrastructure currently employed by ReWalk. This will alleviate
any competitive advantage that ReWalk current holds. Therefore, terminal
growth rate is approximated to be 3%.

15
 Glass Valuation

2.4 CAPITAL BUDGETING FOR THE INVESTMENT PROPOSAL sd

2.4.1 DCF
The NPV of ReWalk’s future free cash flows from a DCF analysis is $100,614,300 (Appendix
Figure 1). It is notable that this NPV is currently forecasted without any venture capital
investments. As the forecast relies on many projections, a sensitivity analysis has been conducted
with respect to the revenue growth rate patterns, WACC and terminal growth rate.

Sensitivity Analysis Results

NPV ($mil)

0 50 100 150 200 250 300 350

Revenue Growth
High
Moderately High
WACC
Moderately Low

Terminal Growth Low

2.4.2 IRR
The fund IRR of ReWalk based on the free cash flows projected in the DCF analysis is 10%. It is
important to note that the cash flow projections are those expected prior to funding, and therefore
the IRR is understated. However, the relatively low IRR reflects the lower risk of any new venture
fund investors in ReWalk as it is now in a later stage of development.

2.4.3 ReWalk Enterprise Values Triangulation

400.000

350.000

300.000
Enterprise Value ($mil)

250.000

200.000

150.000

100.000

50.000

0.000
EV/Revenue EV/R&D EV/Employees DCF

16
 Glass Valuation

The line of best fit in this triangulation gives ReWalk a valuation of $109,100,500. We are confident
that this is a fair valuation based on our projections and analysis, especially as this value is close
sd
to that given by both DCF and comparable multiples analysis.

3. THE DEAL
3.1 PRICING AND JUSTIFICATION
Based on financial analysis of ReWalk’s historical results and our projections, the pre-money
valuation is $109,100,500. ReWalk aims to raise an additional $57,500,100.00 in this round of
funding. As such, the post-money valuation is $109,100,500 + $57,500,100 = $166,600,500.

This implies a share price of $296.89 per share, in return for a 34.51% stake in ownership.

3.2 PRE MONEY AND POST MONEY VALUATION IMPLICATIONS

This round of financing aims to raise $57,500,000 at a price $296.89 per share. Although this is a
large increase from the previous Series E price of $215.45 and would thus give a lower ownership
stake relative to invested capital, this reflects the lower risk of a later round financing.

This investment would still give the new investors a combined ownership stake of 34.51%, and
therefore would dilute the holdings of current shareholders. This would also impact significantly on
the ownership structure because if only one venture capitalist fund invests in this round of
financing, they will gain a stake greater than any current investor or fund.

3.3 PROVISIONS
Despite the potential of ReWalk, it is currently making losses and is projected to do so in the short-
term future. Thus, it is expected that they would not be going public any time soon and thus, the
security that will be issued will be convertible preferred stock. This provides the shareholder with
the option to convert their preferred stock into common stock and therefore, whether to take their
returns through liquidation or a common equity position in the event the company is acquired. This
is the most appropriate because it allows the investor to convert to common equity if the value
offered for the company exceeds the total implied enterprise value whilst allowing the investor to
recoup their investment in the event that the value offered is below the total implied enterprise
value. ReWalk would also be satisfied with this arrangement since it does not allow investors to
‘double-dip’ and also provides them with an incentive to help ReWalk in bad times.

The problem with convertible preferred stock is that it heavily favours early-stage investors.
Therefore, a weighted average anti-dilution provision will be affected that adjust the conversion
price downwards should the company sell stock below the share price at which the investor
entered. This provision would encourage investors to invest in later rounds of ReWalk where
capital is much needed for its planned expansions.

The capital provided to ReWalk will be staged and subject to performance hurdles. This is to
prevent squandering and inefficiency that accompanies a large amount of available funds. Further,
the performance hurdles will push ReWalk to meet their goals whilst providing the investors with
the option to cease further investment if ReWalk does not meet their performance expectations.

17
 Glass Valuation

3.4 PROPOSED EXIT STRATEGY sd

Initial public offering (IPO) is one of the strategies for the company to exit. This strategy provides
the ability of the company to continue to operate by increasing additional funds to finance its
operations. Also, the company will be able to obtain an adequate level of funds to commercialize
its products and for the long-term development by selling its securities listed on the NASDAQ
Global Market.

Another exit strategy for the company is private sale. However, this strategy is unlikely to utilise as
the company has run by the management team from the start and they enjoyed their freedom in
day-to-day operations. The company has less incentive to make a private sale because there will
be a cultural conflict with new management team which causes less efficient to the employees.

18
 Glass Valuation

4. TERM SHEET sd

Issuer ReWalk Robotics Ltd.

Offer Amount $57,500,000
Price per share $296.89
Security Convertible Preferred Stock
Liquidation Preference Proceeds will be distributed to preferred stockholders prior to
common stockholders.
Voting Rights Each share of preferred share shall be entitled to the number of
votes equal to the number of shares of ordinary shares which can be
converted according to the conversion rate.
Optional Conversion At the current conversion prices, each share of Series A, Series
B, Series C and Series D will convert into ordinary shares on a 1-for-
1 basis.
Anti-Dilution provisions A weighted average provision will apply where the share price sells
below the price at which the existing shareholders entered the
investment.
Protective Provisions As a preferred convertible stockholder in the event or acquisition, the
stockholder has the option whether or not to convert their preferred
stock into common stock.
Staging Funds will be disbursed upon meeting performance hurdles.
 An initial $15 million will be disbursed immediately.
 The remaining amount will be disbursed if ReWalk is able to
commercialize their products in Europe or Asia.
Dividends No payment of any dividends shall be declared or paid on any class
of shares of the Company unless an equal and ratable dividend is
first declared and paid to holders of series C Convertible Preferred
and Series D Convertible Preferred shares.
Liquidation  Holders of participating convertible preferred stock will be paid a
per share amount equal to the original issuance price for each
of their shares.
 All remaining assets shall be distributed among all the
shareholders pro rata in proportion to the number of shares held
by them on a converted basis.
Information rights Apart from ongoing monitoring, financial statements will be released
to all major shareholders.
Exits The company plans to IPO in the future and an acquisition is unlikely
to occur.

5. CONCLUSION

Despite net losses since inception, ReWalk has now laid out much of the foundation necessary for
its growth and future success. Being in one of the later stages development, if the medical
technology market responds positively, ReWalk can be expected to maintain high growth rates,
making it an attractive investment option. However, as with any company with limited operating
history especially in an undeveloped market, there are risks which must be considered.

19
 Glass Valuation

6. BIBLIOGRAPHY sd
Ernst & Young. (2013). Pulse of the industry Medical technology report 2013. Available:
http://www.ey.com/Publication/vwLUAssets/Pulse_of_the_industry_%E2%80%93_medical_technol
ogy_report_2013_-
_Redefining_innovation/$FILE/Pulse_Redefining_medical_technology_innovation.pdf. Last
accessed 30th September 2014.

Fusion Media Limited. (2014). K2M Group H (KTWO).

Available: http://www.investing.com/equities/k2m-group-h-income-statement. Last accessed 30th
September 2014.

Harrigton, Scott “Cost of Capital for Pharmaceutical, Biotechnology, and Medical Device Firms”
(DRAFT) (2009), prepared for The Handbook of Economics of the Biopharmaceutical Industry.
Available online at:
http://www.scottharringtonphd.com/Harrington%20cost%20of%20capital%20handbook%20draft.pd
f

MarketWatch, Inc.. (2014). Ekso Bionics Holdings Inc.

Available: http://www.marketwatch.com/investing/stock/ekso/financials. Last accessed 30th
September 2014.

MarketWatch, Inc. (2014). K2M Group Holdings Inc.

Available: http://www.marketwatch.com/investing/stock/ktwo/financials. Last accessed 30th
September 2014.

ReWalk Robotics. (2014). Company.

Available: http://www.rewalk.com. Last accessed 6th October 2014.

ReWalk Robotics Ltd Registration Statement 2014, ReWalk Robotics Ltd Form F-1 Filing, United
States Securities and Exchange Commission, Washington D.C.

Yahoo! Finance. (2014). Amedica Corporation (AMDA).

Available: https://au.finance.yahoo.com/q/ks?s=AMDA. Last accessed 30th September 2014.

Yahoo! Finance. (2014). Ekso Bionics Holdings, Inc. (EKSO).

Available: https://au.finance.yahoo.com/q/ks?s=EKSO. Last accessed 30th September 2014.

Yahoo! Finance. (2014). Globus Medical, Inc. (GMED).

Available: https://au.finance.yahoo.com/q/ks?s=GMED. Last accessed 30th September 2014.

Yahoo! Finance. (2014). Inogen, Inc. (INGN).

Available: https://au.finance.yahoo.com/q/ks?s=INGN. Last accessed 30th September 2014.

Yahoo! Finance. (2014). Intuitive Surgical, Inc. (ISRG).

Available: https://au.finance.yahoo.com/q/ks?s=ISRG. Last accessed 30th September 2014.

Yahoo! Finance. (2014). K2M Group Holdings, Inc. (KTWO).

Available: https://au.finance.yahoo.com/q?s=KTWO. Last accessed 30th September 2014.

Yahoo! Finance. (2014). Stryker Corporation (SYK).

Available: https://au.finance.yahoo.com/q/ks?s=SYK. Last accessed 30th September 2014.

20
7. APPENDICES WITH SUPPORTING DOCUMENTATION
Appendix Figure 1 – DCF Calculation
Historical Forecasted
Effective Tax Rates 25% 25% 25% 26.50% 26.50% 26.50% 26.50% 26.50% 26.50%
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue 972 1588 2588.44 4219.1572 6328.7358 8860.23012 11518.29916 13821.95899 16586.35078
Revenue Growth 0.63 0.63 0.63 0.5 0.4 0.3 0.2 0.2
Cost of Revenue % 0.7 0.6 0.55 0.5 0.5 0.45 0.45
(Cost of Revenues) -983 -2017 -1811.908 -2531.49432 -3480.80469 -4430.11506 -5759.149578 -6219.881544 -7463.857853
(Operating expense: -1757 -2463 2000 2000 2000 2000 2000 2000 2000
R&D)
(Operating expense: -2334 -4091 -1811.908 -421.91572 -632.87358 -886.023012 -1151.829916 -1382.195899 -1658.635078
sales and marketing)
(Operating expense: -1657 -1762 -1750 -1750 -1750 -1750 -1750 -1750 -1750
general and
administrative )
EBITDA -5759 -8745 -785.376 1515.74716 2465.05753 3794.092048 4857.319662 6469.881544 7713.857853
(Depreciation) -61 -92 -129.422 -210.95786 -316.43679 -443.011506 -575.9149578 -691.0979494 -829.3175392
EBIT -5820 -8837 -914.798 1304.7893 2148.62074 3351.080542 4281.404705 5778.783595 6884.540314
(Tax) -21 -22 0 - -569.3844961 - -1134.572247 -1531.377653 -1824.403183
345.7691645 888.0363436
Net Profit/Loss -5841 -8859 -914.798 959.0201355 1579.236244 2463.044198 3146.832458 4247.405942 5060.137131
Add back: Depreciation 61 92 129.422 210.95786 316.43679 443.011506 575.9149578 691.0979494 829.3175392
and Amortisation
(Change in NWC) 363 -8340 -250 -407.5 -611.25 -855.75 -1112.475 -1334.97 -1601.964
(Required Capital -25.8844 -42.191572 -63.287358 -88.6023012 -115.1829916 -138.2195899 -165.8635078
Expenditure)
Free Cash Flow -11258 -25966 -1976.0584 1679.306559 2800.37192 4424.747602 5641.921882 7712.720244 9181.764293
Discount Factor 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Discount Free Cash Flow -1580.84672 1343.445247 2240.297536 3539.798081 4513.537506 6170.176195 7345.411434
PV of Discounted FCF -1580.84672 1238.255447 1903.207993 2771.719754 3257.453006 4104.393065 4503.578963
Terminal Value 137684.6911
PV of Terminal Value 84416.49375
Enterprise Value 100614.2553
Appendix Figure 2 – Sensitivity Analysis

Revenue Growth Rate NPV ($mil)

High (Revenue Growth = 70%, 60%, 45%, 35%, 20%) 123.821
Moderately high (Revenue Growth = 63%, 55%, 40%, 30%, 20%) 103.8313
Forecasted (Revenue Growth = 63%, 50%, 40%, 30%, 20%) 100.6143
Moderately low (Revenue Growth Rate = 63%, 45%, 30%, 20%) 84.47348
Low (Revenue Growth Rate = 56%, 40%, 35%, 25%, 20%) 78.32816

WACC NPV ($mil)

High (WACC = 14%) 44.26929
Moderately high (WACC = 10%) 76.221.49
Forecasted (WACC = 8.495%) 100.6143
Moderately low (WACC = 7%) 143.293
Low (WACC = 5%) 301.102

Terminal Growth Rate NPV ($mil)

High (g = 5%) 151.4984
Moderately high (g = 4%) 120.3963
Forecasted (g = 3%) 100.6143
Moderately low (g=2%) 86.92371
Low (g = 1%) 76.88642

Appendix Figure 3 – Internal Rate of Return (using Excel Solver)

Initial Outlay -57500
Net Income 2014 -1580.84672
Net Income 2015 1343.445247
Net Income 2016 2240.297536
Net Income 2017 3539.798081
Net Income 2018 4513.537506
Net Income 2019 6170.176195
Net Income 2020 91761.90518
IRR 10%