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Edited Transcript of KMDA.TA earnings conference call or presentation 12-Feb-20 1:30pm GMT

Q4 2019 Kamada Ltd Earnings Call

Feb 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Kamada Ltd earnings conference call or presentation Wednesday, February 12, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amir London

Kamada Ltd. - CEO

* Chaime Orlev

Kamada Ltd. - CFO

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Conference Call Participants

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* Keay Thomas Nakae

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics

* Rajbir Singh Denhoy

Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst

* Robert A. Yedid

LifeSci Advisors, LLC - MD

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Presentation

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Operator [1]

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Greetings. Welcome to Kamada Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Bob Yedid. Thank you. You may begin.

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Robert A. Yedid, LifeSci Advisors, LLC - MD [2]

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Thank you. Good morning. This is Bob Yedid with LifeSci Advisors. Thank you all for participating in today's call. Joining me today from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer. Earlier this morning, Kamada announced financial results for the fourth quarter and full year ended December 31, 2019.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Kamada. I encourage you to review the company's filings with the Securities and Exchange Commission, SEC, including without limitation, the company's Forms 20-F and 6-K, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, February 12, 2020. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, it's my pleasure now to turn the call over to Amir London, Chief Executive Officer. Amir?

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Amir London, Kamada Ltd. - CEO [3]

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Thank you, Bob, and thanks, also to our investors and analysts for your interest in Kamada and for participating in today's call. We are excited with the overall strong performance of our business throughout 2019. We delivered robust financial and operating results during the course of the full year. Of course, when reviewing fourth quarter year-over-year comparison specifically, it's important to remember that our fourth quarter 2018 financial results was significantly increased by our successful efforts to expedite the release and shipments of GLASSIA lots to the U.S. that were delayed from the third quarter 2018 due to the then labor strike.

With that said, I will now provide a brief overview of our results for the fourth quarter and full year 2019. In the fourth quarter, total revenues was $32.1 million. And for the full year, total revenues were $127.2 million compared with $114.5 million for the full year 2018, representing an increase of 11%. Importantly, our full year 2019 revenues were in line with our recent guidance of between $126.5 million and $127.5 million. From a profitability standpoint, our total gross profit for full year 2019 was $49.7 million, and gross margins were at 39%, an increase from $41.5 million of total gross profit and 36% in 2018.

Based on our strong performance in 2019 and our positive outlook for 2020, we are reiterating our full year 2020 total guidance of $132 million to $137 million. As a reminder, the year-over-year revenue growth in 2020 as compared to 2019 is expected to be driven by: increased sales of the company's proprietary IgG product portfolio in the international markets; expected growth in the Distribution segment in Israel; and improved sales of KEDRAB, our anti-rabies IgG product, in the U.S.

We continued to grow our cash position, which increased to $73.9 million of cash, cash equivalents and short-term investments at December 31, 2019, a solid increase as compared to the $50.5 million (sic) [$50.6 million] at the end of 2018. Our cash position sequentially further strengthened through the $25 million private placement we closed with FIMI Opportunity Fund, a leading private equity investor. We view this investment as a vote of confidence demonstrated in our business they've seen. We believe that FIMI, with its proven ability and significant financial resources, will support the continued execution of our business development strategy, which is focused on identifying new product opportunities for our manufacturing plant and seeking complementary products via licensing and acquisition.

Moving on to discuss our commercial operations. As previously communicated, we expect Takeda to complete the tech transfer process and transition GLASSIA manufacturing to its own facilities during 2021. Based on Takeda inventory planning for GLASSIA and as reflected in the recent expansion of our strategic supply agreement with Takeda for this product, we do not anticipate increased sales of GLASSIA to Takeda in 2020 as compared to 2019, although the number of patients using GLASSIA in the U.S. is expected to continue to grow. We anticipate revenues of approximately $65 million from sale of GLASSIA to Takeda in 2020 and in the range of $25 million to $50 million in 2021 based on Takeda supply agreement.

With regards to KEDRAB, we, along with our partner, Kedrion, expect the results in an FDA-required post-marketing trial in the U.S. aimed at confirming the safety of KEDRAB in children aged 0 to 17 years in the second half of 2020. Importantly, U.S. sales of KEDRAB and its market share, which was approximately 10% in the launch year of 2018, grew in 2019 and is expected to continue growing in 2020.

Looking further ahead, we executed 2 important business development transactions in the fourth quarter of 2019, which will contribute to our future growth. First, we entered into an agreement with Alvotech, a global biopharmaceutical company, to commercialize Alvotech's portfolio of 6 biosimilar product candidates in Israel upon receipt of regulatory approval from the Israeli Ministry of Health. Alvotech's pipeline includes biosimilar product candidates aimed at treating autoimmunity, oncology and inflammatory conditions. Subject to approval by the Israeli MoH, Kamada expects to launch the first of these products, PF708, in Israel during 2022.

PF708 is a biosimilar candidate to an FDA-approved product marketed by Eli Lilly under the brand name FORTEO for the treatment of osteoporosis in patients with a high risk of fracture. PF708 recently received FDA approval and is known by brand name, Bonsity. Following the receipt of FDA marketing approval by Alvotech, the remaining 5 products included in the agreement are, subject to approval by the Israeli MoH, expected to be launched in Israel during the years 2023 and 2025.

Importantly, the current Israeli market for the approved reference products, to which Alvotech’s 6 biosimilar products are targeted, is estimated to be in the range of $125 million to $150 million annually. And we anticipate the potential collective peak sales, achievable within several years of launch, generated by the distribution of all 6 biosimilar products to be in the range of $20 million to $30 million annually.

Moreover, we also entered into a binding term sheet during the fourth quarter for a 12-year contract manufacturing agreement with an undisclosed partner to manufacture an FDA-approved and commercialized specialty hyper-immune globulin product. Following execution of the required technology transfer from the current manufacturer and pending obtaining all required FDA approvals, Kamada is expected to commence commercial manufacturing of this product in early 2023. We expect this agreement to be finalized during 2020.

The execution of this binding term sheet is in line with our recently communicated business development strategy to proactively explore opportunities to leverage our expertise and manufacturing capacity to initiate the production of new plasma-derived products at our FDA-approved manufacturing plant following the completion of the transition of GLASSIA manufacturing to Takeda. We expect that these activities, including the continued growth of KEDRAB in the U.S. market, the growth of our immunoglobulin product and GLASSIA in existing and new markets in Asia, Latin America and other international markets will enable us to utilize significant portion of our plant's available capacity.

Moving on to the status of the clinical pipeline. I will begin with the development program named InnovAATe for our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency, AATD. We are happy to announce in the fourth quarter that the first patient in the Phase III trial in Europe had been randomized. The study is being led by Jan Stolk, M.D., Department of Pulmonology, Member of the European Reference Network LUNG at the Leiden University Medical Center in the Netherlands.

InnovAATe is a randomized, double-blind, placebo-controlled, pivotal Phase III trial designed to assess the efficacy and safety of inhaled AAT in patients with AATD and moderate lung disease. Up to 250 patients will be randomized 1:1 to receive either inhaled AAT at a dose of 80 milligram once daily or placebo over 2 years of treatment. The primary endpoint of the InnovAATe trial is lung function measured by FEV1. Secondary endpoints include lung density changes measured by CT scan as well as other parameters of disease severity, such as additional pulmonary functions, exacerbation rate and 6-minute walk test.

Based on feedback received from the FDA regarding antidrug antibodies, ADA, to inhaled AAT, we intend to concurrently conduct a sub-study in North America in which approximately 30 patients will be evaluated for the effect of ADA on AAT level in plasma with inhaled AAT and IV-AAT treatment. We believe that inhaled AAT represents a substantial potential market opportunity for Kamada. As a reminder, if approved, this product will enter a market currently valued at approximately $1 billion and growing 6% to 8% annually. We continue to consider all strategic options for this program in order to maximize its value, including potentially seeking a commercialization partner in Europe and/or the U.S.

Moving on, let me now provide you a short update on some of our ongoing IV-AAT pipeline program. First, regarding proof-of-concept study for IV-AAT for the preemptive treatment of acute graft versus host disease conducted in collaboration with the Mount Sinai Acute GvHD International Consortium, top line data from these studies are expected during 2020. Second, we plan to announce top line results in the Phase II trial of IV-AAT for the prevention of lung transplant rejection also during 2020.

As a reminder, Takeda has distribution rights and an exclusive license to Kamada's plasma-derived IV-AAT products for all IV indications in the U.S., Canada, Australia and New Zealand, while Kamada maintains rights to the other territories in all other AAT routes of administration, including inhaled AAT.

With that, I will now ask Chaime to review our financial results. Chaime?

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Chaime Orlev, Kamada Ltd. - CFO [4]

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Thank you, Amir, and good day, everyone. We are very pleased with our strong financial performance during the fourth quarter and the year ended December 31, 2019. For the full year, we grew the top line significantly and multiple profitability metrics, including adjusted EBITDA and operating income, showed meaningful improvements. With that, let me discuss our specific financial results. I will begin with the 3 months ended December 31, 2019.

Total revenue was $32.1 million in the fourth quarter of 2019, a decrease from the $48.2 million recorded in the fourth quarter of 2018. As Amir noted, when comparing our fourth quarter financial results with the prior year period, it is important to consider the significant benefit our fourth quarter 2018 results received from our efforts to expedite the release and shipments of GLASSIA lots to the U.S. that were delayed from the third quarter of 2018 due to the labor strike.

Net income was $5.4 million or a profit of $0.13 per diluted share in the fourth quarter of 2019 compared to net income of $17.7 million or $0.44 per diluted share in the fourth quarter of 2018. During the fourth quarter of 2019, we generated positive cash from operations of $8.6 million.

With that, I will now review the results of the year ended December 31, 2019, that we believe are more meaningful for investors and analysts in analyzing our performance. Total revenues were $127.2 million, up 11% from $114.5 million in the year ended December 31, 2018, primarily driven by increased sales of both of our core products, GLASSIA and KEDRAB.

Revenues from the Proprietary Products segment were $97.7 million, up 8% from the same period of 2018. Revenues from the Distribution segment were $29.5 million, up 25% from the same period in 2018. I'm pleased to report that this represents the highest full year revenue delivered from the Distribution product segment in the company's history. Gross profit for the year ended December 31, 2019, was $49.7 million, an increase from the $41.5 million recorded in the year ended December 31, 2018. Gross margin for the year ended December 31, 2019, increased to 39% from 36% in the same 12-month period of 2018.

For the year ended December 31, 2019, research and development expenses increased to $13.1 million from $9.7 million recorded in the year ended December 31, 2018. This increase was primarily driven by increased R&D expenses specifically related to the initiation of the company's Phase III InnovAATe clinical trial. Net income was $22.2 million or a profit of $0.55 per diluted share for the year ended December 31, 2019, compared to net income of $22.3 million or $0.55 per diluted share during the same 12-month period of 2018.

During the year ended December 31, 2019, we generated cash from operations of $27.6 million, which contributed to our strong financial position. As of December 31, 2019, the company had cash, cash equivalents and short-term investments totaling $73.9 million, a $23.3 million increase compared to the December 31, 2018. As indicated by Amir, this does not include the $25 million private placement closed with FIMI Opportunity Fund in February 2020.

Looking ahead to 2020, as previously communicated, we expect a change in product sales mix with increased sales of the company's proprietary IgG product portfolio in the international market, expected growth of the Distribution segment in Israel and increased sales of KEDRAB. As mentioned, GLASSIA sales to Takeda in 2020 are expected to be consistent with the level in 2019. The change in product sales mix as well as the reduced plant utilization are anticipated to result in an overall decrease in the Proprietary Products segment full year gross margin of approximately 3 to 5 percentage points as compared to 2019.

Lastly, as previously communicated, due to the planned acceleration in 2020 of the Phase III InnovAATe clinical trial, Kamada expects an approximately 20% to 25% increase in R&D expenses in 2020 as compared to 2019. Such increase is higher than previously reported due to the delay of certain activities originally planned for 2019, which are currently expected to take place in early 2020.

That concludes our prepared remarks. We will now open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Raj Denhoy with Jefferies.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [2]

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I want to ask a couple questions, but the audio on the call was a little bit difficult, so we didn't really catch a lot of the prepared remarks. But one of the things I wanted to clarify that you mentioned was the revenue from KEDRAB. I think you noted that in 2018, when you first launched, you were at 10% market share. I don't think you gave an update in terms of where you were in 2019, but perhaps you could kind of ground us on how that product has been doing in the U.S. market thus far?

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Amir London, Kamada Ltd. - CEO [3]

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Thank you, Raj. We had a significant growth of KEDRAB in the U.S. market in 2019. We will report the full data set in our annual report on 20-F by end of this month. So we're collecting all the data and everything will be shared with the public by end of the month.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [4]

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But I think -- but your -- I guess your comment though was that it grew significantly here in 2019. But you'll have to wait until we get the final numbers to quantify exactly how much?

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Amir London, Kamada Ltd. - CEO [5]

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Correct. Significant increase. Final numbers we'll have by the end of the month. We expect another significant growth for 2020.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [6]

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Okay. And maybe just for a second question, I can kind of ask a bit of a broader one. So you -- I think you're starting to put a finer detail around the kind of complexion of the revenue over the next couple years with the Takeda standoff, but then also some of your initiatives to kind of backfill the revenue. But I guess what we're still struggling with a little bit is how all this ultimately plays out. So you've given guidance next year of kind of in that $135 million range. It will fall significantly in 2021, as you've mentioned. But then with Alvotech kicking in and this undisclosed agreement -- the supply agreement behind that, how do -- how should we think about what revenue does? So if next year is $135 million with the falloff in Takeda, but then the offset from these other things, is 2021 something in the $100 million range and then it starts to build from there? Is there anything you would just sort of offer in terms of how we should be modeling this going forward?

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Amir London, Kamada Ltd. - CEO [7]

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You know what, I will not give now specific numbers for 2021 and 2022, but I will definitely talk about the trends and the business activities that we are doing. So you -- for 2020, we are going to keep growing the business. 2021 will be impacted by the transition of GLASSIA to Takeda. In 2022, seeing what we are seeing and based on all the activities that we're doing, in -- starting 2023, we expect that the trend will change, we'll stop growing in revenue and in profitability. And the different element -- the different component of that growth has to do with KEDRAB continue to grow in the U.S. with the Proprietary Product, the IgG and GLASSIA growing in the international markets. It's already happening, and it is part of our growth focus for 2020.

The Distribution business is growing during 2019, expected to continue growing in 2020 and moving forward. The deal with Alvotech is definitely an important component to the growth, but not that by itself. Other products with another unit we are signing in terms of top line and profitability of the Distribution business is improving. The contract manufacturing agreement we signed will commercially kick in, in 2023. It will have its contribution. And of course, the royalties from Takeda that will start in second half of 2021 and will grow 2022 and moving forward.

So when you look on all those components, KEDRAB, Proprietary Product international market, Distribution business, contract manufacturing, royalties, this is before any additional business development initiatives. We are definitely very encouraged by the solid business that we are building and by the multiple channels and revenue streams for the company that will make it a very stable, solid and successful company moving forward.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [8]

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No, it's very helpful. And maybe -- sorry, just 1 last one. I'll ask on the inhaled trial in Europe. Encouraging to see the first patient enrolled in the study. Have you had any kind of updated thoughts now that you've started this trial in terms of how long it will take to complete? Our understanding is, given the necessity to have AAT native patients that enrollment could take some time. But are -- is that true? Are you more encouraged perhaps or maybe less so, given what you've seen early on in the study?

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Amir London, Kamada Ltd. - CEO [9]

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So current focus hasn't changed. We anticipate that recruitment will take up to 2 years. And then we have 2 years of treatment. So the program is around 4 years. And then you need to add, of course, submission and review by the regulators. So the target of 2025 still remains our focus for the launch, if the trial is successful, of course.

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Operator [10]

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Our next question is from Keay Nakae with Chardan Capital Markets.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [11]

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First with GLASSIA, with tech transfer. What now do you view the prospects for selling it OUS? And also, does Takeda -- if they're going to control the manufacturing for the product in the U.S., have they expressed an interest in obtaining rights to sell it OUS?

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Amir London, Kamada Ltd. - CEO [12]

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I'm not sure if I understood the question, but did you ask about rights outside of the U.S.?

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [13]

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Yes. You sold a little bit of product currently outside the U.S. What are the prospects for expanding sales there?

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Amir London, Kamada Ltd. - CEO [14]

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Thank you. So yes, as we discussed in the past, we are selling GLASSIA outside of the U.S. in different countries where alpha deficiency is prevalent, primarily in Latin America, Russia, Israel and few additional countries. We work through local distributors. We are very happy with the performance of those distributors who are specialized in those types -- in this type of product, [also in preliminary stage.] Growing the potential is significant, not as much, of course, as U.S. and Europe, but there is potential. And we believe that we are making good progress in identifying different patients, getting reimbursements for treatment and growing that both territories in terms of new registrations. Currently, it's in the hands of our network of distributors.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [15]

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Now that Takeda's going to be making the product in -- for the U.S. sales and have the ability to gain an advantage and scale of increased revenue, have they expressed an interest in licensing OUS sales?

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Amir London, Kamada Ltd. - CEO [16]

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Kamada will continue to make GLASSIA for ex U.S. territories. The agreement with Takeda is for U.S., Canada, Australia and New Zealand. If there's any progress with Takeda in regards to other territories, we will, of course, announce it publicly.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [17]

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Okay. And with respect to the inhaled study, can you tell us, is there a target for percent of patients you're going to enroll in the U.S. versus in Europe? And when do you expect to enroll the first patients in the U.S.?

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Amir London, Kamada Ltd. - CEO [18]

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Thank you. So we are in the process of initiating the U.S. portion of the study. Once we have first patient being in the U.S., we will announce it. We don't have specific targets in the U.S. versus Europe in terms of recruitment. The total recruitment target is around 250 patients. We will open site throughout Europe and the U.S. as needed. And based on progress, we will decide if we need to add more sites in either one of the territories. So there are no specific targets. Patients will be recruited in both territories, but there's no specific target for how much we need in Europe versus in the U.S.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [19]

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Okay. And just a final question. You have announced some business development activities to utilize your manufacturing capabilities. Is there -- beyond what you've already announced, is there additional products that you're targeting that you could make through your facility?

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Amir London, Kamada Ltd. - CEO [20]

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We have ongoing proactive development activities. We are talking to different potential partners in our facilities that's been approved. We have a technology to make a range of plasma-derived product. Once we have any news in regards to an additional transaction, of course, we'll report it with ongoing proactive business development activity and initiatives, which are being assessed by us and our partners.

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Operator [21]

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We have reached the end of the question-and-answer session. I would like to turn the conference back over to Amir for closing remarks.

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Amir London, Kamada Ltd. - CEO [22]

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Thank you. In summary, we are pleased with how our business performed across all facets in 2019. We are focused on driving strategic growth as evidence of the recent equity raise and key business development transactions we entered in the fourth quarter.

We will continue to pursue this business development initiatives and prioritize the business product licenses and acquisitions. We are also very excited to have initiated the InnovAATe pivotal Phase III trial for unique inhaled AAT program, which has the potential to be another important source of long-term value creation for our shareholders.

We remain highly confident in Kamada long-term prospects of success. Thank you for joining us today. We look forward to providing you with further updates on our progress in the coming months. Thank you very much.

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Operator [23]

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Thank you. This does conclude today's program. You may disconnect your lines at this time, and thank you for your participation.