Kamada Ltd. (KMDA) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the Kamada 2015 Fourth Quarter and Full Year 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 February 2nd, 2016. I would now like to turn the conference over to Ann Marie Fields. Please go ahead madam.

Thank you, Regina. 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, Deputy CEO and Chief Financial Officer. Earlier this morning, Kamada announced financial results for the 2015 fourth quarter and full year. 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, February 2nd, 2016. 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 now like to turn the call over to Amir London. Amir?

Thank you, Ann Marie. And my thanks to our listeners for your interest in Kamada and for participating in todays call. 2016 has gotten off to a strong start supported by our many accomplishments last year. Specifically, during the fourth quarter we achieved a number of commercial and clinical milestones that position us for continued progress in the year ahead. One of those key milestones was execution of the third extension to our US distribution agreement with Baxalta. This extends our manufacturing supply of Glassia through 2018 and increases Baxalta's minimum revenue commitment by approximately $50 million to a total of $240 million for the period 2010 through 2018. This extension reflects a growing patient base for Glassia in gives us even greater confidence in our ability to achieve our 2017 revenue goal of $100 million. We also made important progress with a number of clinical programs, which I will review in greater detail in a moment. But first, let me turn the call over to Gil Efron, for a review of our financial performance for the fourth quarter and full year 2015. Gil?

Thank you, Amir and good day everyone. We are very pleased with our financial performance for 2015 fourth quarter and year, as reported record quarterly revenue and achieved our annual revenue guidance. Now let's take a closer look at our financial results. Total revenues for the fourth quarter of 2015 of $25.9 million compared with $24.9 million for the fourth quarter of 2014. Total revenue for the 12 months ended December 31, 2015 of $70.1 million compared with $71.1 million for 2014. Revenues from the Proprietary Product segment for Q4 was $17.7 million compared with $19.1 million in the year ago fourth quarter. Revenue in the Proprietary Products Segment for the year was $43.2 million compared with $44.4 million for the same period in 2014. The fluctuations are primarily due to ordering factor from Baxalta throughout the year and do not accurately reflect the growing patient base for Glassia that Amir mentioned. As a result of executing the third extension to our agreement with Baxalta in October this year, we added approximately $50 million of Glassia product sale to their minimum revenue commitment. This raised the minimum commitment to $240 million more than doubled the $110 million in the original 2010 agreement, and up from $191 million in the September 2014 extension of that agreement. At year end 2015, the cumulative remaining commitment from Baxalta is approximately $97 million for the year 2016 through 2018, leaving a meaningful minimum purchase obligation in revenue stream for the coming years. In addition to the increased minimum revenue, the revised agreement extends our manufacturing supply through 2018, which offer significant benefit as our recently approved enhanced manufacturing process provide greater capacity, improved efficiencies and higher gross margin. Turning to revenue from Distributed Product segment, for the fourth quarter of 2015 revenue was $8.1 million compared with $5.8 million in the same quarter of 2014, due to increased sales volume in multiple products. Revenue in the Distribution segment for 2015 year was $27 million compared with $26.7 million in the prior year. Gross profit for the fourth quarter of 2015 was $8.3 million compared with $7.5 million for the fourth quarter of 2014. Gross margin increased to 32% from 30% a year ago. Gross profit for 2015 year was $16 million compared with $15 million for 2014 year, with gross margin increasing to 23% from 21% in 2014. Gross profit in 2015 benefited from higher margins in the Proprietary Product segment, primarily because of a one time write-off in the amount of $3 million in 2014, somewhat offset by lower margins during the first three quarter of 2015 due to various operational reasons. Gross margin in the Proprietary Product segment was 40% in the fourth quarter, a two year record high. Looking now to the rest of the P&L. Research and development expenses in the fourth quarter of 2015 were $4.4 million, an increase from $3.4 million in the fourth quarter of 2014. For the year, we had $16.5 million in R&D expenses compared with $16 million in 2014. These increases are related to their location of facility capacity for R&D, including the preparation for our BLA submission for the Rabies IgG in USA later in 2016. Selling, general and administrative expenses in the fourth quarter of 2015 of $3 million increased from $2.4 million in the fourth quarter of 2014, due to extension of our sales and marketing staff [ph] and effort in additional countries outside the US. SG&A for the year was $10.8 million compared with $10.4 million a year ago. For the fourth quarter of 2015, the company reported operating income of $0.8 million compared with operating income of $1.6 million for the fourth quarter of 2014. The operating loss for 2015 of $11.4 million compared with an operating loss of $11.5 million in 2014. The company recorded net income for the fourth quarter of 2015 of $1 million or $0.03 per diluted share, compared with net income of $1.2 million or $0.03 per diluted share for the same period in 2014. Net loss for the year was $11.3 million or $0.31 per share compared with a net loss of $13.2 million or $0.37 per share for the 2014 year. The adjusted net loss for the fourth quarter of 2015 was $1.4 million compared with an adjusted net loss of $1.8 million for the same period in 2014. The adjusted net loss for the year was $9.4 million compared with an adjusted net loss of $9.5 million in 2014. Adjusted EBITDA for the fourth quarter of 2015 was a loss of $2 million compared with income of $2.8 million for the fourth quarter of 2014. Adjusted EBITDA for 2015 was a loss of $6.3 million compared with a loss of $4.9 million for 2014. Turning now to our balance sheet. As of December 31, 2015, Kamada had cash, cash equivalents and short-term investments of $28.3 million, compared with $51.9 million as of December 31, 2014. During 2015, the company used $13.9 million in cash to fund operations, $2.8 million for capital expenditures and $7.8 million for repayment of convertible debt. As of December 31, 2015, we had an increase of trade receivable compared to the end of 2014 in the amount of $8 million, as a result of the timing of certain product sales at the end of the fourth quarter. This amount was collected immediately after the end of the year, which represents a lower burn rate of approximately $6 million in 2015. This low burn strengthens our belief that we will not need to raise additional capital in the near future. We are pleased with both our commercial and clinical progress and the execution of our strategic plan to grow our four business, which provides significant cash flow and support our robust clinical development program. We remain confident in our ability to achieve our 2017 revenue goal of $100 million and plan to provide specific revenue guidance for 2016 when we report the first quarter of 2016 financial result. With that overview of our financial performance, let me now turn the call back to Amir.

Thank you, Gil for that financial overview. Let me begin my review with our strategic partnership with Baxalta. As we discussed, there are number of reasons we are very pleased with the third extension to our agreement with Baxalta. The additional $50 million Glassia product purchase commitment, gives us greater visibility into our revenues for the coming three years, validate the increasing number of AATD patients being treated with Glassia in the US and underscores the importance of Glassia to Baxalta's AATD franchise. In addition, it further solidifies our partnership with Baxalta. As we are only ready infuse AAT product, Glassia offers competitive advantages for both patients and clinicians that we believe would continue to support a growing market share. We are not reflected in our 2015 revenues, largely due to Baxalta's ordering pattern, the number of patients being treated with Glassia increased by more than 25% in 2015. The extension of our agreement validates this growth and gives us assurance that the increasing growing number of patients treated with Glassia will be reflected in our 2016, 2017 and 2018 revenues. The AAT augmentation market is over $0.5 billion in the US annually, and is growing by approximately 10% a year, as a result of better diagnostics and disease state awareness program underway by all three major players to better identify patients with this genetic disease. Baxalta is doing a superb job leveraging Glassia's competitive advantages, commercializing the product in the US and growing its market share and we are very happy with the collaboration between our companies. In addition to AAT deficiency, we are working in partnership with Baxalta with a number of important clinical programs where our AAT mechanism of actions is so to have potential in a number of unmet orphan diseases, such as Graft Versus Host Disease or GvHD, as a preventive for lung transplant rejection. I will speak more on this in a few minutes. As I mentioned on our last call, we are enhancing our global AAT presence through a deflation of the product and expansion of our sales and marketing network in additional countries outside the US, where alpha 1 deficiency is precedent. In 2016, we plan on filing for Glassia registration in additional countries in Eastern Europe and Latin America. Turning now to our clinical development program. Let me begin with the topic [ph] of our late-stage program. As I mentioned earlier, we continue to advance the clinical development of our plasma-therapeutics in number of orphan indications, where there is considerable unmet medical needs in order to believe that the immunomodulatory, anti-inflammatory and tissue-protective properties of our highly purified AAT can positively affect these diseases. We are nearly done, preparing with those deals [ph] of the Phase 2/3 study of our inhaled AAT to treat alpha 1 deficiency and plan to submit the MAA with the European Medicines Agency next month. We remain confident that the combination of lung function improvement, symptom improvement and the safety profile of the product, along with the support we are receiving from the key opinion leaders and patient community will support a favorable decision. We believe our inhaled AAT represents an innovative, user-friendly, convenient and efficient treatment compared with the current AAT treatment that requires weekly intravenous infusion. It offers a significant opportunity to bring an enhanced therapy to patients suffering from this genetic lung disease, not merely as a more user-friendly treatment, but also because the targeted delivery and treatment rationale directly to the lung are expected to enhance efficacy. In the US, we completed enrollment in a double-blind placebo control Phase 2 study, evaluating the safety and efficacy of inhaled AAT and measuring AAT level in the lung and serum, as well as additional inflammatory biomarkers in 36 patients. The study involves the inhalation of 80 milligram or 160 milligram 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. We remain on target to have top line data in mid 2016. Our intention is to use this study, along with the complete data set from our European Phase 2/3 study to discuss a US regulatory path with the FDA during the second quarter of this year. As previously reported, we are working closely with our alpha 1 deficiency [indiscernible] orphan drug development in order to successfully navigate the US orphan regulatory landscape. Turing now to our Rabies program with Kedrion. In late December of 2015, we reported that the pivotal Phase 2/3 clinical trial with our human rabies Immune globulin IgG therapy to the first exposure treatment for rabies successfully met the trial primary endpoint of the non-inferiority when measured against an IgG investment product. To clarify, this product is branded KamRAB in 10 countries worldwide and subject to marketing approval for the FDA it will be branded KedRAB in the US by Kedrion. To date, more than 1 million buyers of the product have been sold outside the US in countries such as India, Thailand, Australia, Israel and more. The Phase 2/3 clinical trial was a prospective, randomized, double blind, non-inferiority study of 118 healthy subjects. The study evaluated pharmacokinetics parameters of anti-rabies IgG levels in serum at different time points. Result showed that Kamada’s IgG was safe and well tolerated with no drug related serious adverse event and with no interference with the development of self-active antibodies. We are very excited about the commercial potential for KedRAB in the US, where there are approximately 40,000 post-exposure prophylaxis treatment administrated each year, representing an annual market opportunity of more then $100 million. With one predominant rabies prophylaxis provider in the US, we anticipate that the healthcare professionals will want to diversify their source of supply, particularly if a competing high quality product, such as KedRAB, is approved for use. We look forward to filing a BLA with the FDA in mid 2016 and upon a favorable regulatory outcome to the successful launch of the product with our partner Kedrion. Turning now to our clinical program for our intravenous or IV AAT. In addition to Glassia use [ph] as an AAT augmentation therapy, we also continued to advance the clinical trials underway with our IV AAT to treat newly diagnosed type 1 diabetes, GvHD and to prevent lung transfer rejection. Let me being with GvHD where we recently announced interim data from Phase 1/2 study. In early January, we were delighted to support all the positive interim result from the Phase 1/2 clinical trial of our IV AAT to treat steroid-refractory GvHD. This study is being conducted in collaboration with Baxalta and the Fred Hutchinson Cancer Research Center in Seattle, Washington. This interim result of our Phase 2 open label, single site study of patient with steroid-refractory GvHD following stem cell transplantation we received IV AAT. We reported on outcome from the 12 subjects enrolled in Cohorts 1 and 2 who were treated at two dose levels of AAT. All subjects had GvHD of Grade III or IV with stage 4 intestinal involvement. The primary outcome of the study was improvement in severe intestinal inflammation associated with GvHD. The interim results showed that plasma AAT levels increased in both cohorts and remained stable for the duration of treatment. 8 of the 12 subject showed an overall response to treatment, four of which were complete responses and four were partial responses. Importantly, this interim result support earlier pre clinical studies that showed AATs therapy to suppress the severe inflammatory process associated with GvHD. We have been granted Orphan Drug Designation for our IV AAT therapy to treat GvHD in both Europe and the US. We took forward the global regulatory and development strategy in this indication with the market opportunity in excess of $500 million, and we have as high as $1 billion. We look forward to the completion of the phase 2 study and its continued encouraging results we intend to develop lands for larger randomized pivotal trial to confirm the efficacy of our IV AAT in the treatment of GvHD. Moving on to our plans in lung transplant rejection. We are looking forward to initiating Phase 2 proof of concept study with the IV AAT as a protective therapy to enhance patient’s acceptance of their new lung in lung transplantation. The study which is also being conducted in collaboration with Baxalta, we believe that Professor Mordechai Kramer, Director of the Institute of the Pulmonary Medicine, at 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. We expect to enroll the first patient study by the end of the first quarter of this year and we are looking aforementioned [ph] regarding the study design and its endpoint at that time. As reported by the Registry of the International Society for Heart and Lung Transplantation, as many as 55% of lung transplant recipients are treated for acute allograft rejection in their first year after transplantation, and only 50% of lung recipients are alive 5 years after transplant. The increased risk of the lung to injury, infection, and constant environmental exposure with local innate immune activation likely contribute to the high rates of rejection. Current treatment option such as steroids, in house chemotherapy further compromise a better immune system and cause a host of comorbidities. The immunomodulatory and anti-inflammatory mechanism of action of our IV AAT gives us confidence in moving forward to develop this indication with a goal help increase – provide them [ph] and enhance this patient quality of life. More importantly, it gives hope to patients to start up with the body rejection of the new lung. Looking now to our development program for our IV AAT to treat newly diagnosed type 1 diabetics. In early December we were pleased to announce plans to un blind the current Phase 2/3 clinical trial of our IV AAT to treat newly diagnosed pediatric and young adult patients with type 1 diabetes at the planned interim analysis. This change will accelerate the timeline for future commercialization of the product, should the analysis be positive. The planned interim analysis was intended to establish trial safety and provide futility analysis for approximately 90 patients after one year in the trial, while maintaining the blinding of the trial. After thorough examination of the content of such an analysis, we have concluded that the blinded results will not provide us with sufficient information for discussions with potential strategic partners and/or to determine whether to continue with the study. In consultation with our regulatory and clinical advisors, as well as with the trial investigators, we have decided to generate the final report based on clinical data from approximately 70 patients who have completed one year of therapy. And we believe this will be sufficient to allow us to explore the differences between treatment groups without the limitations of the blinding. We completed enrollment of the 70 patients already few weeks ago and expect to have top line data by mid 2017. To date the safety profile of AAT is excellent, without any major adverse events both in the current trial, which includes pediatric patients, as well as in commercial settings, where the drug has been used to treat hundreds of alpha 1 deficiency patients. Further, preclinical data published in Pediatric [ph] Diabetes and the Journal of Diabetes Science & Technology regarding the mechanism of action of AAT support the positive data demonstrated in the Phase 1/2 clinical trial of AAT for the treatment of newly diagnosed type 1 diabetes. We firmly believe that obtaining the data more than two years sooner than under the original plan gives us a number of significant advantages, as it will provide data to discuss with potential strategic partners and to plan a pivotal trial, which would allow us to accelerate product commercialization. We are very excited about the opportunities for this indication and look forward to updating you on development with this program. So in closing, we continue to make progress, executing our commercial and clinical strategies both on our own and in collaboration with partners. We have a growing revenue base supported by minimum purchase commitments from our US strategic partner Baxalta which gives us confidence in our ability to achieve our 2017 revenue goal of $100 million. Our robust product pipeline is broadly distributed across several important disease states with significant unmet medical needs, which then specifies our risk and offers multiple opportunities for partnerships and additional sources of revenue. We are in a solid financial position, permits to execute our plans and expect to achieve a number of key commercial and clinical milestones in the coming months which should enhance our shareholder value. And operator, please open the call for questions.

[Operator Instructions]

While we are waiting for the first question, I would like to note that we will be participating in the upcoming BIO CEO Conference taking place February 8, and 9 and the Source Capital 2016 Disruptive Growth & Healthcare Conference taking place on February 10 and 11 both of which are in New York City. For those attending the conferences who would like to meet with us please contact Ann Marie Fields at LHA at 212-838-3777.

[Operator Instructions] And at this time there are no questions. I would turn the conference over to Mr. London for any closing remarks.

Thank you for your continued interest in Kamada. We look forward to updating you again when we report our first quarter 2016 financial results. Thank you and 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.