Kamada Ltd. (KMDA) Q1 2015 Earnings Report, Transcript and Summary

Welcome to the Kamada Ltd. first quarter financial results conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we'll hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded May 12, 2015. I would now like to turn the conference over to Ann Marie Fields. Please go ahead madam.

Thank you. Good morning. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from Kamada are David Tsur, Co-Founder and Chief Executive Officer; Amir London, currently Senior Vice President of Business Development and Gil Efron, Chief Financial Officer. Earlier this morning, Kamada announced financial results for the first quarter of 2015. If you have not received this news release or if you would like to be added to the company's distribution list please call LHA in New York at 212-838-3777 and speak with Carolyn Curran. 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 U.S. Securities and Exchange Commission including without limitation the company's Forms 20-F and 6K 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 the live broadcast, May 12, 2014. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. So with that said, I would like to turn the call over to David Tsur. David?

Thank you, Ann Marie and my thanks to all the listeners for your interest in Kamada and for participating in today’s call. ‘015 has gotten off to a strong start with important progress on a number of our clinical programs, especially with regard to our Phase 3 clinical trial of inhaled alpha-1 antitrypsin to treat alpha-1 deficiency. Our commercial progress was somewhat masked by our inability to release product batches as we awaited a validation of our filing process. The majority of those that delayed revenues are already delivered and we expect all delayed revenues to be recorded in the second quarter of ‘015. We remain confident in the value of our growing core commercial business and our ability to achieve both ‘015 revenue guidance and our longer term guidance as we grow the proprietary product segment. Kamada’s core business, also a significant value not only because it has substantial growth potential but because it provides us with significant cash flow which supports our expanding clinical development program. But before we go into the specifics of our commercial and clinical accomplishments, I will now turn the call over to Gil Efron, our CFO, for a detailed review of our first quarter results. Gil, please?

Thank you, David and good day everyone. With that brief overview, let me begin with a few of our first quarter results. Total revenue for the first quarter of 2015 was $9 million compared with $13.2 million in the first quarter of 2014. Revenue from the Proprietary Products Segment was $3.2 million compared with $7.4 million in the 2014 first quarter, due to a delay in our ability to release product batches as we awaited validation of our filling process. We received that validation in April and expect any delayed revenue from the first quarter in the second quarter. As a results, we are still confident in our 2015 revenue guidance. Importantly, this delay did not cause any obstruction for Baxter in 9 stations in the US as they were able to align on the inventory. As a recap of our agreement with Baxter, in September 2014, we executed an extension to our agreement with Baxter that provides to a minimum revenue from 2010 to 2017 of $191 million, up from $165 million in the 2013 extension and up from $110 million in the original 2010 agreement. At the end of 2014, cumulative order from Baxter have amounted to $121 million and we expect actual orders from Baxter through 2017 to be above the minimum purchase obligation. Turning now to our Distributed Product. Revenue from this segment was $5.8 million in both the first quarters of 2015 and 2014. Now to the rest of the P&L. R&D expenses for the first quarter increased modestly to $3.6 million from $3.4 million in the first quarter last year as we continued to support 3 key clinical trials and the closing and analysis of the European Phase 2/3 study of inhaled AAT. SG&A expenses in the first quarter 2015 decreased slightly to $2.5 million from $2.6 million in the prior year. First quarter gross profit was $0.4 million compared with $3.2 million in the first quarter of 2014. The decline was a result of slower proprietary product revenue for reasons I just discussed. Gross profit in the distributed segment was lower than last year due to changes during the quarter in the euro-US dollar exchange rate. Consequently gross margin declined to 4% from 25% in the first quarter of 2014. We reported an operating loss of $5.8 million in the first quarter compared with an operating loss of $2.7 million for the year ago first quarter. The company recorded a net loss for the first quarter of 2015 of $5.3 million or $0.15 per share compared with a net loss of $3.1 million or $0.09 per share for the same period in 2014. Adjusted net loss for the first quarter of 2015 was $4.8 million compared with an adjusted net loss of $2 million for the same period in 2014. Adjusted EBITDA for the first quarter of 2014 was a loss of $4.5 million compared with a loss of $1 million for the first quarter of 2014. Looking to the balance sheet. As of March 31, 2015 we had cash, cash equivalents and short term investments of $49.7 million which compared with $51.9 million as of December 31, 2014. During the first quarter 2015, we used $2 million in cash to fund operations and $0.5 million for capital expenditures. Turning now to our revenue guidance for 2015. We expect total revenue to be between $70 million and $73 million, with revenue from Distributed Product to be between $26 million and $28 million and revenue from Proprietary Products to be between $45 million and $47 million. These revenue projections take into account an expected negative foreign exchange impact of approximately $2 million in relation to product sales in Europe and Russia, and presume that U.S. revenue from the agreement with Baxter remains on track. In addition, we remain confident in our ability to achieve our 2017 revenue goal of $100 million which includes approximately 75% growth in the Proprietary Products segment of our business. With that overview of our financial performance, let me now turn the call back to David.

Thank you, Gil for the financial overview. So let me begin with a brief discussion of our intravenous alpha-1 antitrypsin to alpha-1 deficiency business and our specific immunoglobulin business. We discuss in the prior quarter our plan to reach $100 [ph] million of revenue in ‘017 with growth driven from our proprietary segment, most specifically from our Glassia product to treat alpha-1 deficiency. We continue to see growth in the number of additional patients treated with Glassia and are on track to achieve this goal. This business is driven by our relationship with Baxter, our US strategic partner. Glassia is only ready to infuse product in the market. This along with a infusion time with Glassia’s significant competitive advantage strengths this strategic partnership between Kamada and Baxter. Our relationship with Baxter remains strong as we collaborate to grow sales and expand use to other indications of unmet medical need. We are pleased with the consistently increasing number of patients treated by Glassia which increased 25% in ‘014 [ph]. We expect this growth to remain a strong contributor to our revenue growth. We are expanding our collaboration into developing additional indications such as intravenous alpha-1 antitrypsin product, GvHD, and potentially additional transplantation indication under review with Baxter. Turning to our clinical development programs. Let me start with our most advanced program, our European Phase 3 clinical study for inhaled alpha-1 antitrypsin to treat the deficiency. During the quarter, we completed and reported financial results from the study which showed clinically and statistically significant improvements in spirometric measures of lung function, particularly in bronchial airflow measurements FEV1 (L), FEV1% predicted and FEV1/SVC. These favorable results were even more evidenced when analyzing the overall treatment effect throughout the full year. These data are particularly exciting as this is the first time a randomized controlled trial in alpha 1 deficiency has demonstrated efficacy using widely accepted clinical endpoints such as lung function. We believe the combination of lung functions, which are the gold standard measurements of pulmonary diseases, and symptom improvements, along with the safety profile of the product, gives us confidence that these data support our decision to submit Marketing Authorization Application with European Medicine Agency of our inhaled alpha-1 antitrypsin therapy to treat alpha 1 deficiency patients. We are in the process of compiling all necessary toxicology, CMC and clinical data required for our submission and expect to file the MAA by the end of this year. Next week, we look forward to all seeing the panel discussion titled New Treatment Prospects for Alpha-1 Deficiency Patients, it’s just from efficaciously inhaled alpha-1 trial during the American Thoracic Society in Denver, international conference. The panel will be led by five key opinion leaders who specialize in treating the patients with alpha-1 antitrypsin deficiency and will be chaired by Dr. Sandhaus, the Founder and Director of the Alpha1-Antitrypsin Deficiency Program at National Jewish Health hospital in Denver, Colorado and the clinical director of US Alpha-1 Foundation. We look forward toward the discussion and the potential of our inhaled alpha-1 antitrypsin deficiency, especially these are the first efficacy data using clinically effective and meaningful lung function and quality of life measures. For those of you who are interested, we will have a video recording of the event posted to our website a few days after the session. We’re also evaluating our inhaled alpha-1 antitrypsin in the US Phase 2 study which is expected to complete by the end of this year. We expect to use the results from this better aligned placebo controlled study, evaluating the safety and efficacy of the inhaled alpha-1 antitrypsin and measuring alpha-1 levels in the lung and serum as well as additional inflammatory biomarkers in 36 alpha-1 deficient patients. This study involves the inhalation of 80 mg or 160 mg of human alpha-1 antitrypsin or placebo twice daily for 12 weeks. All patients are able to enter an additional 12-week open-label extension study with the active drug to further assess safety and tolerability. We plan to use the results from the US study along with the complete data based on the European phase 3 study, to discuss regulatory push forward in the US with the FDA. Towards that end, we have engaged US experts in variety of developments such as [indiscernible] to provide us with expert advice to successfully navigate in the US open regulatory landscape prior to establishing the consultancy with our corporate chief medical officer of The National Organization for Rare Disorders and the direction of the FDA office of Orphan Products Development. We are encouraged with by the clinically meaningful and statistically significant lung function data seen in our European phase 3 trial and we look forward to gaining a clear direction for the ever growing pace of our inhaled alpha 1 in the US by the end of this year. In addition to our inhaled alpha-1 antitrypsin, we also continue to advance our clinical development programs for our IV alpha-1 antitrypsin to treat newly diagnosed type 1 diabetes and treat Graft-versus-host-disease, both orphan indications with significant unmet medical need. In March, we were granted orphan drug designation for our IV alpha-1 antitrypsin therapy to treat GvHD which is a key milestone to support our global regulatory and development strategy in this indication. GvHD is a disease of significant unmet medical need and both the disease and current therapy options carry considerable, debilitating side effects. Preliminary human and animal studies indicate that AAT may be able to treat and reduce the severity of GvHD, which is one of the key, life-threatening complications of allogeneic stem cell transplantation. GvHD is an immunologically-based disease that may result in significant damage to multiple organs and tissues such as the liver, gastrointestinal tract, skin and mucosal membranes. Tissue destruction also leads to increased inflammatory signals, perpetuating and augmenting the disease process by contributing to the cytokine storm and fuels GvHD even further and, thereby, the damage continues and its intensity is increased. Glassia is expected to decrease GvHD-related symptoms including the progressive tissue damage and as a result could potentially increase the survival rates and possibly reduce or eliminate the need for steroid therapy. Preliminary results from an open label dose escalation safety and efficacy study, with evaluating 24 GvHD patients who suffer from inadequate response to steroid treatment following HCT indicated that continuous administration of AAT as therapy for steroid-resistant gut GvHD is feasible in the subject population. Indication of healing of the bowel mucosa was seen in a decrease in diarrhea, in intestinal protein loss, including AAT and in endoscopic evaluation. Additionally, the preliminary results showed that following examination of pro-inflammatory cytokines, AAT administration suppressed serum levels of pro-inflammatory cytokines and interfered with GvHD biomarkers. We expect to report additional interim data through ‘015. These positive interim results are very encouraging and support continuation of our global clinical development plans for AAT in treating and preventing GvHD. A potentially life threatening disease with the market opportunity to exceed $500 million. Importantly, recent publication of preclinical data in Blood support this positive interim results, which are aimed at treating the gut involvement in steroid-resistant GvHD. With continuous encouraging results, we intend to commence a Phase 3 trial in ‘016. This proof of concept study in GvHD was also designed to serve as a platform to expand the AAT indications to include general organ transplantation based on a similar mechanism of action. Toward that end, we plan to initiate a Phase 2 proof-of-concept study with IV alpha-1 antitrypsin to treat patients undergoing lung transplantation. We look forward to invest in these plans with Baxter [indiscernible] and we will keep you apprised on our progress. We continue to advance our IV alpha-1 antitrypsin therapy as a traditional for newly diagnosed type 1 diabetes and pediatric patients. The scientific rationale for initiating alpha-1 to treat type 1 diabetes is based on anti-inflammatory and immune modulatory activity of AAT which was published in the Journal of Diabetes Science and Technology whose mechanism of action support beta-cells’ recovery processes from autoimmune-mediated tissue injury. Treatment of type 1 diabetes patients with Kamada’s AAT may have several medical benefits including slowing the progression of the disease, improved metabolic control, reduction of daily insulin dose requirements, and most important, reduction of diabetes complications. We reported additional data from ongoing expansion study for our open label phases 1/2 clinical trial in this indication which showed that the majority of the patients who continued treatment with alpha-1 antitrypsin maintained capability of insulin secretion and attained glycemic targets with HbA1C level below 7.5% for more than 2 years after the diagnosis of type 1 diabetes. This positive data supports the earlier results from this study and demonstrates with the ability of the effects of alpha-1 antitrypsin in this orphan indication. We continue to believe that our alpha-1 IV can be a groundbreaking treatment for newly diagnosed type 1 diabetes patients as it may demonstrate the ability to halt disease progression and allow the pancreas to maintain secretions of self- insulin. Moreover these several data validate our enthusiasm as we continue to enrol patients to our phase 2/3 clinical study undergoing in the world. We’ve also initiated discussion with EMA and FDA for further development of this indication for the US market. Lastly, we continue to await the final results from US phase 3 rabies trial from our US partner Cabrion [ph]. Once we receive those, we will report publicly and finalize our proposition, the BLA submission which is under way. Finally, we announced some important senior management changes. As recently announced and after more than 30 years in the industry, I am pleased to be transitioning to an active advisory role in the company where I will become Deputy Chairman of the Board. On that front, I founded Kamada over 25 years ago with a vision and passion to develop novel therapeutics for patients in need. It is my great pride and I reflect upon the significant progress Kamada has made in recent years with a strong base business with 10 products selling in over 15 countries, with strong alliances with major pharmaceutical partners global wide. Importantly, we have a very promising pipeline of therapeutics that address significant unmet medical need, in addition, to develop treatment and benefitting patients worldwide. We have developed a talented and dedicated senior leadership team to share in my passion and innovation. I will now leave the daily management of Kamada in the strong hands as I transition to a strategic advisory role in the board. So those of you who do not know Amir, he is a proven business leader with over 20 years of industry experience. Amir Joined Kamada one and half years ago with a goal to transition into CEO role. Since that time, he demonstrated his command of the clinical, commercial, manufacturing and corporate development aspects of Kamada and he is ready to take over the helm. In partnership with Gil Efron, we can ensure of a seamless transition of the execution of Kamada’s growth strategy. Amir?

Thank you, David for those kind words. Good morning everyone. I am pleased to be taking over the CEO role of Kamada at this exciting time in the company’s growth. I look forward to continuing the good work started by the David and Rose [ph]. I would be addressing you on the next quarterly teleconference. Thank you everyone.

Thank you, Amir. In addition, I would like also to note that during the first quarter we strengthened the senior leadership team with the appointment of Dr. Eran Schenker, as Vice President-Medical Director. Moving ahead, we look forward to growing our core commercial business and advancing our clinical progress. As such, we expect to achieve a number of important milestones throughout the balance of ‘015 that should enhance our shareholder value. Now operator, please open the call for questions.

[Operator Instructions]

While we are waiting for our first question, I would like to note that we will be participating in the upcoming Jefferies Healthcare Conference taking place beginning in June in New York. For those attending the conference who would like to meet with us, please reach out to your prospective Jefferies representative or contact Anne Marie Fields at LHA at 212-838-3777. Operator, let’s take our first question.

Yes, sir. Your first question comes from the line of Adnan Butt with RBC Capital.

First, in terms of the proprietary product delay, is that mostly related to Glassia and was any patient probably disruptive and then are -- the batches would leave this quarter?

Thank you, Adnan. And it was related to different products, not in Glassia and we are already behind this delay when we already started shipping products just in May. .

And then I heard David say that the company is looking to add to capabilities of targeting specifically orphan diseases in the US. Now is that in relation to the start of a confirmatory phase 2/3 trial in AAT deficiency and then what would be the timing of that start? Does that have to coincide with the MAA filing?

Thank you. In order to clarify, we will be looking for guidance on the FDA based on our European phase 3 trial and design and data from our US phase 2 trial, we are going to meet sometime during second half of this year with FDA. To guidance as to what is the regulatory pathway to reduce our inhaled alpha 1 in the US market. So this is the idea.

So at this time, are there any plans to conduct another study and you can file in Europe even without another study ongoing? That’s the last question.

Yes, we are going to file in Europe. We assume there is no wanting for additional phase 3 trial in Europe and we will discuss it if there are any requirements before filing in the US.

Your next question comes from the line of James Franciscon [ph] with Morgan Stanley.

I wanted to start off with some guidance for both 2015 and 2017. Obviously you are still confident of getting to the $100 million goal by 2017, at the same time expectation for 2015 appears to suggest that the growth will be limited this year. So can you just comment on why the growth plan is so back end loaded and why you are confident that, that results will improve so meaningfully in ’16 and ’17?

As we mentioned before, with the growth in revenue that we expected, to be through 2017 is driven mainly in the proprietary product segment and a lot of it has to do with the increased number of patients treated with Glassia and additional products that will be sold in related to that. Then as we grow that patient base, and then better managing the inventory, we think that will be more significant toward the next year. In addition, as I mentioned, in the guidance in 2015, we see an effect of the exchange rate, mainly the euro-US dollar exchange rate and about $2 million compared to revenues that we had in 2014 and this is another part, but not a significant part of it. I would say that the revenues from Glassia, a lot of it is a minimum commitment that we have from Baxter and then we are looking to sales not on the US for Glassia but also in additional countries worldwide.

And just from a more near term perspective, what can you tell us about how you expect of the pacing of the recovery of the revenue and gross margin that you estimate for your first quarter. Does most of that come back in the second quarter or is it going to spread more through the remainder of the year?

There is always a difference in terms of the revenue between the quarters, during the year, and then we expect the first half to be similar to the trends we saw in the previous year, but as we say we are going to catch up the Q1 delays in Q2. As to the profitability, we did not guide profitability but then I would say you should expect to see a very similar profit margin that we had in prior quarter, and there is always a level of a base – fixed cost in our cost of goods that affect the gross profit but as we are able to increase revenue, this has a less effect. We saw the first I would say in Q1 and then we will see that improving significantly in Q2 compared to Q1.

[Operator Instructions] Next, you have a follow up question from the line of Adnan Butt with RBC Capital Markets.

David, I just wanted to make sure, did I hear the company say that there could be a phase 3 starting for GvHD in 2016? Is that correct?

Yes.

So the company’s current – would you need to see any more data from either the ongoing GvHD study or the planned lung transplant on study before starting the phase 3 please?

No, we have encouraging and supportive data and we are confident that there is a clinical benefit and just application to move to the next phase which is phase 3 in collaboration with Baxter.

And how do the pilot commences get shared if it’s some collaboration with the Baxter?

This is something we have not released yet and maybe we will be able to release it on a due time. Anyway Baxter has the distribution rights for the product in the US, Canada and New Zealand, Australia and Kamada in all other countries. End of Q&A

[Operator Instructions] And there are no further questions at this time. Please proceed with your presentation or closing remarks.

Thank you for your questions and for your continued interest in Kamada. We look forward to updating again when we report our second quarter, or to see you next week in Denver. And I would say, thank you everybody.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.