Kamada Ltd. (KMDA) Q2 2015 Earnings Report, Transcript and Summary

Welcome to the Kamada second 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 July 30, 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 Amir London, Chief Executive Officer and Gil Efron, Chief Financial Officer and Deputy CEO. Earlier this morning, Kamada announced financial results for the second 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 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, July 30, 2015. 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, I would like to turn the call over to Amir London. Amir?

Thank you, Ann Marie. Many thanks to our listeners for your interest in Kamada and for participating in today’s call. I am very pleased to be addressing today for the first time as Kamada’s CEO. There are a number of reasons I am excited to be taking over the helm at Kamada. Primarily I am thankful to have inherited the rich legacy of innovation in the development of plasma derived protein therapeutics led by David Tsur, the co-founder and previous CEO of the company. Over the years a growing body of scientific and clinical knowledge about the underlying mechanism of action of our proprietary alpha-1 antitrypsin therapeutics or AAT continue to confirm its anti-inflammatory and immune modulatory properties. As such, we are investing in a rich clinical pipeline for AAT as a potentially safe and secure therapy for a number of immune related rare diseases. We also benefit from having a core competency in advancement of antitrypsin [ph] technology. Our state of the art production facility provides us with the ability to truly being a fully integrated bio-pharmaceutical company. Finally, we are in a very solid position financially. We have approximately $44 million in cash and a growing big business that provides significant cash flow to support our expanding late-stage clinical development program. Now let me turn the call over to Gil Efron, our CFO and Deputy CEO for a detailed review of our quarterly financials. After his financial overview, I will discuss our commercial and clinical programs before opening the call to your questions. Gil, please?

Thank you, Amir and good day everyone. We had a very solid financial performance with second quarter. In April, we completed the validation of the filing process, the delayed certain proprietary product revenue during the first quarter of 2015 and realized that revenue during the second quarter. As a result, we are in a good position to achieve our revenue target for 2015. With that, let me overview our second quarter results. Total revenue for the second quarter of 2015 was $19.2 million compared with $15.8 million in second quarter of 2014. Revenue from the Proprietary Products Segment was $12.7 million compared with $8.7 million in the 2014 second quarter and $3.2 million in the first quarter of 2015 for the reasons I just reviewed. As a result, we remain confident in our 2015 revenue guidance. Importantly, this delay did not cause any obstruction for Baxalta in supplying patients in the US as they were able to rely on their inventory. As a recap of our agreement with Baxalta, in September 2014, we executed an extension to our agreement with Baxalta that provides for 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 revenues from Baxalta have amounted to $121 million and we expect actual orders from Baxalta through 2018 to be above the minimum purchase obligation. Turning now to our Distributed Product. Revenue from this segment was $6.5 million compared with $7.1 million in the second quarter of 2014 and $5.8 million in the first quarter of 2015 and in line with our plan. Total revenues for the six months of 2015 were $28.2 million compared with $29 million in the 2014 period. Revenue in the proprietary product segment was $15.9 million compared with $16.1 million from the year ago first half and revenue from the distribution segment was $12.3 million compared with $12.8 million in the first half of 2014. Turning to the rest of the P&L. R&D expenses for the second quarter decreased to $3.4 million from $5.1 million in the second quarter of last year. R&D expenses for the first six months of 2015 of $7.1 million decreased from $8.4 million in 2014 as we continued to support various clinical studies while in 2014 costs also included manufacturing costs assigned to R&D. SG&A expenses in the second quarter 2015 decreased slightly to $2.7 million from $2.8 million in the prior year. SG&A expenses for the first half of 2015 decreased slightly to $5.2 million from $5.4 million in the first half of 2014. Second quarter gross profit was $3.6 million compared with the gross loss of $0.1 million in the second quarter of 2014 which was impacted then by a one-time $3 million inventory write-off. Gross profit in the distributed segment was lower than last year due to a different product mix sold during 2015 that had lower profitability compared to the year ago mix. Consequently gross margin grew to 19% from 0% in the second quarter of 2014. Eliminating the one-time write-off last year, our gross margin is below our historical levels for various operational reasons which we believe will improve in the future. Gross profit for the first half of 2015 increased to $4 million from $3.2 million in the first half of 2014, while gross margin grew to 14% from 11%. With a focus on operational loss of $2.5 million in the second quarter, compared with an operating loss of $7.9 million for the year ago second quarter, the operating loss for the first six months of 2015 was $8.2 million compared with operating loss of $10.6 million in the first six months of 2014. The company recorded a net loss for the second quarter of 2015 of $2.3 million or $0.06 per share compared with a net loss of $8.4 million or $0.23 per share for the same period in 2014. The adjusted net loss for the second quarter of 2015 was $1.8 million compared with an adjusted net loss of $7.4 million for the same period in 2014. Net loss for the first half of 2015 was $7.6 million or $0.21 per share compared with a net loss of $11.5 million or $0.32 per share in the same period a year ago. Adjusted EBITDA for the second quarter of 2015 was a loss of $1.1 million compared with a loss of $6.2 million for the second quarter of 2014 while adjusted EBITDA for the first half of 2015 was negative $5.6 million compared with negative $7.2 million in the first six months of 2014. Looking now to the balance sheet. As of June 30, 2015, we had cash, cash equivalents and short-term investments of $44.3 million which compared with $49.7 million as of March 31, 2015. During the second quarter of 2015, we used $5.7 million in cash to fund operations and $0.8 million for capital expenditures. During the first six months of 2015, we used $7.7 million in cash to fund operations and $1.3 million for capital expenditures. Turning now to our revenue guidance for 2015. We are affirming our previous guidance and continue to 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 relating to product sales denominated in euro and presume that U.S. revenue from the agreement with Baxalta 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 Amir.

Thank you, Gil for that financial overview. So let me begin with a brief discussion of our proprietary highly purified liquid form of human AAT. Kamada has been and continues to be an innovative leader in the commercialization and development of AAT. In addition to developing the first and only ready-to-infuse IV AAT, Glassia and inhaled AAT for the treatment of AAT deficiency, we are leveraging the immunomodulatory mechanism of action of AAT to address unmet medical needs in a number of rare diseases and severe conditions. There is a growing body of clinical and scientific data explaining the mechanism of action of AAT to demonstrate how it influences the immune system in order to modulate and/or prevent immune reaction which could translate to broad therapeutic potential. In recent years, AAT has been investigated extensively and was found to have immunomodulatory anti-inflammatory, tissue-protective and anti-apoptotic properties, in direct or indirect consequence of its underlying anti-protease capabilities. Data published in peer-reviewed journals such as Blood and Journal of Diabetic Science and Technology highlights how these properties may improve the disease state by lowering levels of pro-inflammatory mediators. Publication such as these are very promising and encouraging supporting our decision to continue to pursue our global clinical development plans for AAT in treating and preventing GvHD, type 1 diabetes and organ transplant rejection, each of which I will speak about in greater detail. First, let me address our commercial operation and partnership with Baxalta. Our relationship with Baxalta 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 globally and specifically in the US. We believe with Baxalta can continue to increase the number of the patients on Glassia and gain market share in over $0.5 billion market in the US, a pigmentation [ph] market. It is growing at approximately 10% a year due to better diagnostics and increased disease awareness. In addition to being the only ready to infuse AAT therapy, Glassia will receive FDA approval for an enhanced infusion rate of Glassia. This along with its ready to use feature makes Glassia a highly user friendly and convenient product to support patient quality of life. We believe these competitive advantages will allow Glassia to continue to increase its market share. Importantly we continue to expand our partnership with Baxalta to collaborate on the development of additional indications such as our intravenous AAT product to treat GvHD and as a preventive treatment for lung transplant rejection. Turning now to our robust clinical development program. Let me begin with our European phase 2/3 study of enhanced AAT to treat alpha 1 deficiency. In May of this year, we also had a panel discussion titled New Treatment Prospects for AATD Patients: Results from a Phase 2/3 Inhaled AAT Trial led by key opinion leader, specialized in treating patients with alpha 1 deficiency, at the ATS International Conference in Denver, Colorado. The panel of experts highlighted additional analyses which demonstrated that inhaled AAT is able to change the nature of exacerbations to events with fewer symptoms, a clinically significant change that correlates with the clinically and statistically significant benefit seen in lung function as previously sorted by Kamada. We believe the combination of lung function improvements which are the gold standard measurement for pulmonary diseases, symptom improvement, the safety profile of the product along with the support from the key opinion leaders and the patients’ organizations give us confidence that this data support our marketing authorization application with the European medicine agency. Currently we are in the process of compiling all the necessary data required for the submission of the MAA by the end of this year. In the US we are conducting a double-blind placebo controlled phase 2 study evaluating the safety and efficacy of inhaled AAT and measuring AAT levels in the lung and serum as well as additional inflammatory biomarkers in 36 alpha-1 deficient patients. The study involves the inhalation of 80 mg or 160 mg of human AAT 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. This study should complete enrollment by year end and we should have certain data by first half of 2016. Our intention is to file the results from this study [indiscernible] data sets from our European study to discuss a regulatory path forward in the US with the FDA. As previously reported, we are working closely with the US experts in orphan drug development in order to successfully navigate the US orphan regulatory landscape. We are hopeful that the clinical meaningful and statistically significant lung functions and symptom improvement data seen in our European trial will provide a clear direction for the regulatory path forward for our inhaled AAT also in the US. Turning now to our clinical program to other indications for our IV AAT. In addition to our inhaled AAT, we also continued to advance the clinical trial underway with our IV AAT to treat newly diagnosed type 1 diabetes and to treat GvHD and are in the initiation stage of a phase 2 proof of concept study with our collaborative partner Baxalta to evaluate our IV AAT for the preventive treatment for lung transplant rejection. GvHD is an immunologically-based disease that may result in significant damage to multiple organs and tissues such as the liver, gastrointestinal tract [ph]. It’s one of the key life threatening complications of stem cell transplantation. GvHD is a disease of significant unmet medical needs and both the disease and current therapy carry considerable devastating side effect. Preliminary human and animal studies indicate that AAT may be able to treat and reduce the severity of GvHD which tissue destruction also leads to increased inflammatory signals affecting and augmenting the disease process by contributing to the cytokine storm that fuels GvHD even further, and thereby the damage continues and its intensity is increased. Glassia is expected to decrease GvHD related symptoms, including progressive tissue damage and as a result, to potentially increase survival rates and possibly reduce or eliminate the need for steroid therapy. We are supporting a phase 1/2 study of our IV AAT to treat and prevent GvHD that is being conducted by the Fred Hutchinson Cancer Research Center in Seattle, Washington in cooperation with Baxalta. The study is an open label, dose escalation, safety and efficacy study. The study is evaluating 24 GvHD patients who suffer from inadequate response to steroid treatments following stem cell transplantation. The patients are enrolled into four dose cohorts. The primary outcome of the study is to evaluate the efficacy of AAT and improving the severe intestinal inflammation associated with GvHD. Preliminary results from this study were refocused at the American Society of Hematology Annual Meeting at the end of 2014. The data indicated that continuous administration of AAT as therapy for steroid-resistant gut GvHD is feasible in the patient population. The indication of healing of the bowel mucosa was seen to decrease in diarrhea, intestinal protein loss, including the AAT protein 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 additional interim data would be presented at this year’s ASH 2015 meeting in early December. In March of this year, we were granted orphan drug designation for our intravenous AAT therapy to treat GvHD in Europe. It followed a previously granted ODG for GvHD in the US, which is a key milestone to support the global regulatory and development strategy in this indication with the market opportunity in excess of $500 million, up to $1 billion. We believe that the GvHD indication is also an entry into the organ transplants market due to the similar mechanism of action. Towards this end, we recently announced our collaboration with Baxalta for the development of IV AAT to treat patients undergoing lung transplantation and we plan to initiate a phase 2 proof of concept study. The lung has the highest rate of rejection among transplanted solid organs. Approximately one third of lung transplant recipients experience an episode of acute rejection within the first year and 50% of lung transplant recipients will develop chronic rejection within the first 5 years. Our aim is to develop AAT as a protective, immunomodulation therapy that would enhance patients’ acceptance of their new lungs in this life-saving transplant. We look forward to advancing these plans with Baxalta and Professor Mordechai Kramer, director of Institute of Pulmonary Medicine, in the Rabin Medical Center Beilinson Hospital in Israel. Professor Kramer is a renowned expert in pulmonary care and a top specialist in his field. He completed several fellowships in the U.S. in pulmonary care and lung transplantation, and has published many articles in leading scientific publications. We expect to initiate this study by early 2016 and will apprise regarding our progress. Looking now to our development program for IV AAT to treat newly diagnosed type 1 diabetes. The scientific rationale for administrating AAT to treat type 1 diabetes is also based on the immunomodulatory activities of AAT which was published in the Journal of Diabetes Science and Technology. This mechanism of action supports beta-cells’ recovery process 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, and most importantly, reduction of diabetes complications. We reported additional data from the ongoing expansion study of our open label phases 1/2 clinical trial in this indication which showed that the majority of the patients who continued treatment with AAT maintained capability of insulin secretion and attained glycemic targets with HbA1C level below 7.5% for more than 2 years after their diagnosis of type 1 diabetes. This positive data supports the earlier results from this study and demonstrates the ability of the effects of our AAT treatment in this orphan indication. Earlier this month we were delighted to have positive data published in the peer reviewed journal Pediatric Diabetes. They support results from previous studies which showed AAT’s therapy to reduce pro-inflammatory markers and protect pancreatic islets from autoimmune responses in newly diagnosed diabetic patients. The article featured data from our phase 1/2 study of IV AAT to treat type 1 diabetes and demonstrated profound safety of multiple intravenous doses of IV AAT therapy while maintaining glycemic control and less of a decrease in C-Peptide levels. Moreover glycemic control parameters improved during the study in all groups, independent of dosage. We continue to enroll patients in our current Phase 2/3 study of AAT to treat newly diagnosed type 1 diabetic patients and look forward to advancing this important trial, which we believe may change the treatment paradigm for this disease. Finally for an update on our Rabies product. The results from the Phase 2/3 clinical trials for Rabies IgG conducted by our partner, Kedrion BioPharma, will be released in the fourth quarter of this year due to a delay in finalizing the closing activities of the study. As a result, the BLA is now planned to be submitted to the FDA in the first half of 2016. In closing, as you can see this is a very active and exciting time to be taking over as CEO of Kamada. Our strong and growing base business along with our robust clinical pipeline of innovative treatments for orphan indications strengthen our leadership position in the plasma-derived protein therapeutics market. I am privileged to be working with a dynamic team of skilled and talented professionals who share our founder’s passion for bringing new medicine to patients in need. Together, we look forward to achieving a number of important value-creating milestones in the near future as we advance our innovative AAT franchise in a number of important commercial and clinical areas. I look forward to getting to know you all better in the coming months. Towards that end, Gil and I will be in the United States on business and meeting with investors the week of August 10. For those who would like to meet us, with us, please contact Anne Marie Fields of LHA at 212-838-3777 as she is keeping our schedule. And now please open the call for questions.

[Operator Instructions] Our first question is from the line of Adnan Butt with RBC Capital Markets.

A couple of questions from me. First, you mentioned that patient supply was not disrupted because Baxalta used inventory. So is the inventory built back part of the guidance for 2015? And secondly, on the inhaled AAT program, has Kamada held meeting with the repertoire and core repertoire yet and what’s the feedback been so far?

Thank you, Adnan and good morning. With regard to the Baxalta order, these are based on the Baxalta demand and I cannot speak about the inventory but it’s based on what we know from the older real estate [ph].

In regard to the inhaled program, yes, we are in a continued dialogue with the repertoire and based on that dialogue we are continuing with our plan for submission of the MAA by the end of the year.

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

Thanks for the follow up. I am just curious it might be too early, would you be able to describe what the different doses would be amongst all the clinical programs that Kamada and Baxalta are embarking on, that’s inhaled AAT, GvHD, transplant et cetera?

So the inhaled – of course, it’s a different dose and we talk about the IV indication. I believe you are referring to the GvHD and the lung transplant. In terms of the lung transplant, we are finalizing the data protocol and once it’s finalized, we will be able to share the details of it with the public. In regard to the GvHD, I believe this information is public. You can go and check and in any case, we will get back to you on that. End of Q&A

At this time there are no further questions. Please proceed with your presentation or any closing remarks.

I would like also to note that we will be participating in the upcoming Rodman & Renshaw Annual Investment Conference taking place on September 8 in New York and at the Morgan Stanley Global Healthcare Conference taking place from September 16 till 18 also in New York. For those attending the conferences and would like to meet with us, please reach out to your Rodman & Renshaw or Morgan Stanley representatives or contact Anne Marie Fields of LHA at 212-838-3777. Thank you for your questions and for your continued interest in Kamada. We look forward to updating you again when we report our third quarter 2015 financial results. Have a good day.

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