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Edited Transcript of KMDA.TA earnings conference call or presentation 6-Aug-19 12:30pm GMT

Q2 2019 Kamada Ltd Earnings Call

Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Kamada Ltd earnings conference call or presentation Tuesday, August 6, 2019 at 12:30:00pm 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

* Paul J. Arndt

LifeSci Advisors, LLC - Head of IR and MD, Communications

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Presentation

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Operator [1]

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Greetings and welcome to Kamada Ltd. Second Quarter 2019 Earnings Call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Paul Arndt, Managing Director, LifeSci Advisors. Please go ahead, sir.

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Paul J. Arndt, LifeSci Advisors, LLC - Head of IR and MD, Communications [2]

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Thank you, operator, and thank you, everyone. Good morning. This is Paul Arndt with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer. Earlier this morning, Kamada announced financial results for the second quarter ended June 30, 2019. If you have not received this news release, or if you would like to be added to the company's distribution list, please e-mail Bob Yedid from LifeSci at bob@lifesciadvisors.com.

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, including, without limitation, the company's Forms 20-F and 6-K, which identify 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, Tuesday, August 6, 2019. Kamada undertakes no obligation to revise or update any statements to reflect certain events or circumstances after the date of this conference call. With that said, I would now like 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, Paul. My thanks also for listeners who are interested in Kamada and for participating in today's call. Let me begin by saying that we are quite pleased with our continued strong performance in 2019. We've generated significant momentum in all aspects of our business in the first 2 quarters of the year. In the second quarter, total revenue was $35.3 million, which represented a 4% increase compared to the second quarter of 2018. For the first 6 months of 2019, total revenues were $69.1 (sic) [$62.1] million, which represented a 21% increase over the first 6 months of 2018. This result was primarily driven by sales of GLASSIA and KamRAB, our anti-rabies IgG product.

From a profitability standpoint, our total gross profit for the first 6 months ended on June 30, 2019, was $24.8 million and gross margins were at 40%. In addition, our net income in 6 months ended June 30, 2019, was $6.1 million. We continue to maintain a solid cash position, which increased to $62 million of cash, cash equivalents and short-term investments at the end of the second quarter, which provide us with the financial resources needed to continue executing on our business plan.

Based on our continued strong performance in the second quarter and our positive outlook for the remainder of the year, we are reiterating our previously provided full year 2019 total revenue guidance of $125 million to $130 million which, if achieved, would represent another strong year of double-digit percentage growth over the full year 2018 total revenue.

As a reminder, our GLASSIA supply agreement with Takeda currently extends through the end of 2020. While the possible transition of GLASSIA manufacturing to Takeda will result in significant reduction of Kamada’s revenues, we are expecting a flow of future royalty payments for 20 years, until 2040.

Moving on to the status of our clinical pipeline. I will begin with the clinical program for our proprietary Inhaled AAT for the treatment of Alpha-1 Antitrypsin Deficiency, AATD. We intend to conduct a unified global pivotal Phase III clinical trail in the U.S. under an Investigational New Drug application, IND, and in Europe, under a Clinical Trial Authorization, CTA, in order to submit marketing applications for regulatory approval in both regions.

I'm pleased to report today that we have progressed with our Human Factor Study, HFS, which is required to support the combination product consisting of Kamada’s AAT for inhalation and investigational eFlow nebulizer system by PARI Pharma. We will submit the results of the HFS to the FDA as part of our upcoming IND filing. We expect to begin dosing the first patients in the Phase III trial in Europe before the end of this year and pending IND approval, will begin recruiting patients to this study also in the U.S.

As a reminder, the Phase III study protocol is designed to test the safety and efficacy of our Inhaled AAT product in patients with Alpha-1 deficiency, and it meets the requirements provided by the FDA and EMA. The protocol includes the enrollment of up to 250 subjects who will be randomized one-to-one to receive either Inhaled AAT at a dose of 80 milligrams plus daily or placebo for 2 years of treatment. The primary endpoint will be lung function measured by FEV1 and secondary endpoints would include lung density changes measured by CT densitometry as well as other parameters of disease severity. We are very excited about the prospects of this program in a market which currently already sells $1 billion of IV AAT, growing 6% to 8% annually.

Kamada continues to consider all strategic options in order to maximize its value, including potentially seeking a partner in Europe and/or the U.S. We look forward to providing you with further updates as our Inhaled AAT program continues to advance.

Moving on, let me provide you now with update on some of our ongoing IV AAT pipeline programs. First, with regard to IV AAT for the treatment of acute Graft versus Host Disease, GvHD, we concluded enrollment in the proof-of-concept clinical trial. As a reminder, the trial is assessing the safety and preliminary efficiency of IV AAT as preemptive therapy for patients at high-risk for the development of steroid-refractory acute GvHD. This study is being conducted through an innovative collaboration with Mount Sinai acute GvHD International Consortium, MAGIC. And it is an investigator-initiated study, co-funded by Mount Sinai and Kamada. We have exclusive right to develop and commercialize our IV AAT product for the preemption of GvHD using the biomarkers [utilized in] the study.

Second, our Phase II trial of IV ATT for the prevention of lung transplant rejection, which is being conducted in collaboration with Takeda. We've now completed the study and data analysis is ongoing. We continue to expect the total results of this study to be announced by the end of this year.

You will recall that we announced interim results for 1 year of treatment for all patients in this study in the first quarter of 2018. We are pleased to report that Kamada's IV AAT demonstrated a trend toward improvement in multiple key clinical outcomes, including days on mechanical ventilation post-transplant, pulmonary function at week-4 and week-48 post-transplant and the 6-minute walk test.

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

Now I'd like to turn to business development, which remains a significant area of focus for Kamada. We're currently evaluating potential transactions, including co-development opportunities and investments in other plasma-derived protein-related assets or other assets in our specialty field, such as AAT deficiency, pulmonary therapeutics, GvHD and transplant.

Importantly, our strong balance sheet and positive cash flow allow us to expand both our current clinical pipeline if there are potential value-enhancing partnerships, licenses and/or acquisitions. With that, I'll 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're very pleased with our strong financial performance across the first 6 months of 2019. During the first half of 2019, we delivered double-digit percentage revenue growth in our profitability metrics, including adjusted EBITDA, operating income and net income were all solid.

With that, let me discuss our specific financial results. I will begin with the 3 months ended June 30, 2019. Total revenue was $35.3 million in the second quarter of 2019, a 4% increase from the $33.8 million recorded in the second quarter of 2018. Revenues from the Proprietary Products segment in the second quarter of 2019 were $27.3 million, a 5% increase from the $26 million reported in the second quarter of 2018, primarily driven by increased sales of both our core products, GLASSIA and KEDRAB.

Revenues from the distributed products segment were $8 million in the second quarter of 2019, a 1% increase compared to the second quarter of 2018.

Gross profit was $13.6 million in the second quarter of 2019, a 27% increase from the $10.7 million reported in the second quarter of 2018. Gross margin increased to 39% from 32% in the second quarter of 2018. Such increase is primarily driven by improved manufacturing efficiencies and favorable product sales mix. Net income was $6.1 million or a profit of $0.15 per diluted share in the second quarter of 2019 compared to net income of $5.7 million or a profit of $0.14 per diluted share in the second quarter of 2018. During the second quarter of 2019, we generated positive cash flow from operations of $6.8 million.

With that, I will now review the 6-month period ended June 30, 2019. Total revenue for that period was $62.1 million, a 21% increase from the $51.3 million reported in the same period of 2018. Revenues from the Proprietary Products segment were $47.7 million, a 25% increase from the $38.2 million reported in the same period of 2018. Revenues from the distributed products segment were $14.4 million, a 10% increase from the same period of 2018. Gross profit was $24.8 million, a 40% increase from the $17.7 million reported in the first 6 months of 2018. Gross margin in the first 6 months of 2019 increased to 40% from 35% in the same 6 months of 2018.

I should point out that while we expect our overall annual results to improve over 2018 results, our overall gross margin in the second half of 2019 will be slightly reduced due to an expected different product sales mix.

Net income was $11.1 million or a profit of $0.27 per diluted share in the first 6 months of 2019, a substantial increase compared to the net income of $6.9 million or a profit of $0.17 per diluted share in the same period of 2018.

Looking ahead from a P&L perspective, as we begin our Phase III study for Inhaled AAT program, which Amir outlined earlier, we expect that our R&D spend will continue to increase throughout 2019.

During the first 6 months of 2019, we generated cash from operations of $12.8 million, which contributed to our strong financial position. And as of June 30, 2019, the company had cash, cash equivalents and short-term investments totaling $62 million, an $11.4 million increase compared to $50.6 million at December 31, 2018.

Kamada is well-positioned for business development initiatives with a focus on adding new sources of growth and for investments in our R&D pipeline.

With that, I'll 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 comes from the line of 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 [2]

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Yes. So first question has to do with your business development efforts. If you're looking to add existing commercial products into the mix, can you tell us what type of metrics you might be looking at in terms of either the dollar amount of annual sales and does it have to be currently profitable? Or can you give us an idea of some of the parameters that such an acquisition would have to meet in order for you to seriously consider it?

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Amir London, Kamada Ltd. - CEO [3]

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Keay, thank you for the question. So we are looking in terms of business development for opportunities that are in our speciality fields, AAT deficiency, also on pulmonary GvHD and transplant as well as plasma-derived proteins. We have not announced specifically that this has to be commercial-stage product or an advanced clinical-stage product, and we will announce after due diligence a transaction, then we will provide all the details about it. We're currently not restricting ourselves to either the commercial stage or clinical stage. But this is open and under evaluation.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [4]

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Okay. In terms of the comment about the product mix in the second half of the year, should we assume that that's due to lower sales of KEDRAB in the back half of the year?

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Amir London, Kamada Ltd. - CEO [5]

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I think in general, our sales should be primarily assessed on an annual basis. We have orders and forecast from Takeda for the AAT products, GLASSIA and for KEDRAB from Kedrion. And the mix will kind of even out throughout the year. The first 6 months, we had a specific mix, and over the course of the year, we expect to have higher AAT compared to KEDRAB which will lower a little bit our average gross profitability for the entire year. As we have announced in the past, KEDRAB is the product with highest gross profit with very [unspecific quarter or for 3 to 6 months,] where we sell no KEDRAB to Kedrion then it increases our average GP for that quarter -- or 2 quarters. But then it will level down or level out throughout the rest of the year.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [6]

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Okay. And then finally, with respect to Inhaled AAT, with respect to the Human Factor Study, do you anticipate that, that will be relatively straightforward to complete that study? And when do you expect to submit the IND to the FDA?

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Amir London, Kamada Ltd. - CEO [7]

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Yes. So HFS is progressing according to our plan, both in terms of schedule as well as what we expect the results to be. We are planning to submit the IND over the next few weeks, so that's the aim. We are close to the conclusion [and position] and then the FDA will have its review, and hopefully, things will be approved, and we can get started also with the U.S. site. As for the European site, we are moving forward. And as we mentioned, we expect to recruit the first patients [definitely] before the end of this year into the study.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [8]

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Do you have a target number of sites in the U.S. that we -- you're looking at?

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Amir London, Kamada Ltd. - CEO [9]

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So number of sites and the distribution of sites between the U.S. and Europe is still being determined by our team. We will open sites in both territories, the first few sites are already engaged, and we will conclude the decision in terms of how many sites and which sites [from at] least the potential sites over the next few months.

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Operator [10]

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Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Amir London for closing remarks.

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Amir London, Kamada Ltd. - CEO [11]

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Thank you. In summary, we continue to be pleased with how our business is performing across all platforms through the first half of 2019. Our revenue growth remains strong, our profitability metrics are improving, and we have a strong balance sheet. We are very excited about our advancing Inhaled AAT program, which has the potential to be an important source of value creation for our shareholders, along with other [multiple] significant pipeline of opportunities ahead of us. We remain highly confident in Kamada's long-term prospects for success. Thank you for joining us on today's call. And we look forward to providing you with further updates on our progress in the second half of the year. Thank you.

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Operator [12]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.