Kamada Ltd. (KMDA) Q1 2016 Earnings Report, Transcript and Summary

Welcome to the Kamada 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded May 9th, 2016. I would now like to turn the conference over to Anne Marie Fields. Please go ahead Ma’am.

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, Deputy CEO and Chief Financial Officer. Earlier this morning, Kamada announced financial results for the 2016 first quarter. 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 6-K which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 9th, 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 today’s call. Throughout the first quarter, we made meaningful progress with strategic initiatives to grow our revenues and advance our clinical programs across a number of orphan indications. We continued to build our core Protein Plasma business, led by significant increases in the number of patients treated with Glassia in the U.S. through Baxalta which gives us confidence in our ability to achieve our revenue goals for 2016 and 2017. We are pleased with the consistently increasing number of patients treated by Glassia as recently reflected by achieving a sales milestone and expect this growth to continue in the coming years. We also made important progress with our clinical programs which I will review in a moment. But first, let me turn the call over to Gil Efron for a review of our financial performance for the first quarter of 2016. Gil?

Thank you, Amir, and good day, everyone. We are very pleased with our financial performance during the first quarter. We are also pleased to be introducing 2016 revenue guidance that underscores the progress we are making with our plasma-derived therapeutics. Our expectation for 2016 also gives us confidence in our ability to achieve our goal to reach $100 million in revenue in 2017, which includes mainly growth in Proprietary Product segment. Now let’s turn to our financial – first quarter 2016 financial results. Total revenues for the first quarter of 2016 of $14.8 million, compared with $8.9 million for the first quarter of 2015. Revenues from the Proprietary Product segment were $11.1 million, up from $3.3 million in the 2015 first quarter. You may recall, that during last year’s first quarter, there was a delay in the release of product batches as we awaited final validation of a filling process. That process was validated in April 2015 and the revenues delayed from the first quarter of 2015 were realized in the second quarter of 2015. First quarter 2016 revenues were inline with our expectations including our Glassia sales. As of the end of 2015, the cumulative remaining commitment from Baxalta for the year 2016 through 2018, was approximately $97 million, leaving a meaningful minimum purchase obligation in revenue stream for the coming years. 2016 order for Baxalta already exceeds the minimum commitment for 2016 and we expect that to continue through 2017 and 2019. For the first quarter of 2016, Distributed Products revenue was $3.7 million, compared with $5.7 million in the same quarter of 2015, with a decline largely due to timing of orders. Gross profit for the first quarter of 2016 was $4.8 million, compared with $0.4 million for the first quarter of 2015. Gross margin increased to 32% from 12% a year ago primarily as a result of higher Proprietary Products revenue and continuing the high margin we experienced in the fourth quarter of 2015. Looking now to the rest of the P&L. R&D expenses in the first quarter of 2016 were $4.1 million, up from $3.6 million in the first quarter of 2015. The increase is due to timing of chemical activities, such as costs associated with filing our MAA with the European Medicines Agency and submitting our BLA for our Anti-Rabies IgG in the U.S., our ongoing type-1 diabetes trial and the clinical trial in the U.S. for our inhaled AAT where we had our last patient out last week and we expect to report data in the second half of this year. Selling, general and administrative expenses in Q1 of 2016 of $2.6 million, increased modestly from $2.5 million a year ago. For the first quarter of 2016, we reported an operating loss of $2 million, compared with an operating loss of $5.8 million for the first quarter of 2015. The net loss for the first quarter of 2016 was $2.3 million or $0.06 per diluted share, compared with a net loss for the first quarter of 2015 of $5.3 million or $0.15 per diluted share. The adjusted net loss for the first quarter of 2016 was $1.9 million and this compares with an adjusted net loss of $4.8 million for the same period in 2015. Adjusted EBITDA for the first quarter of 2016 was a loss of $0.8 million, compared with an adjusted EBITDA loss of $4.4 million for the first quarter of 2015. Turning now to our balance sheet, as of March 31, 2016, Kamada had cash, cash equivalents and short-term investments of $35.5 million, compared with $28.3 million as of December 31, 2015. Our cash position during the first quarter of 2016 benefited from $6 million of revenue that was recognized in the fourth quarter of 2015, but collected in the first quarter of 2016, as well as from $0.6 million of cash from financing activities. During the first quarter of 2016, we generated $7.5 million in cash from operations and used $0.9 million for capital expenditures. Looking now at our newly introduced revenue guidance, we expect total revenues for 2016 to be between $75 million and $80 million, with revenues from our Distributed Product segment projected to be between $25 million to $27 million and revenues from our Proprietary Products segment projected to be between $50 million to $53 million. This represents growth in our Proprietary Products segment compared to 2015 where revenues from this segment were $43 million. In summary, throughout the first quarter, we made significant progress executing on our plans and are pleased with both our commercial and clinical progress. We continue to grow our core business which as I just reported provides significant cash flow and helps support our robust clinical development programs. We remain confident in our ability to achieve both our 2017 revenue goal of $100 million, as well as our revenue guidance for 2016. 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. This partnership continues to strengthen as we work together to grow Glassia revenues and to expand its use into other orphan indications. As you certainly remember, late last year, we were pleased to announce a third extension to agreement with Baxalta. Not only that this latest extension had approximately $50 million in minimum revenue commitment, but it also extends the timeframe in which Kamada will continue to manufacture the products for Baxalta. This is important because it provides efficiencies and higher gross margins for Kamada and it gives us visibility into our revenues for the coming three years. Furthermore, it underscores the growing number of AATD patients being treated with Glassia in the U.S. and validates Baxalta's confidence in its growth over the coming years. We remain confident in Glassia’s ability to continue to grow and take market share due to the unique competitive advantages it offers patients and physicians. Glassia is the only ready-to-infuse AAT product and has an enhanced infusion rate which is a meaningful difference for both patients and physicians. The AAT augmentation market is over $0.5 billion in the U.S. annually, and it’s growing by approximately 10% a year as a result of better diagnostics and disease state awareness programs underway by all three major players. Baxalta is doing a superb job leveraging Glassia’s competitive advantages, growing Glassia by much more than the industry average and gaining market share. In addition to the U.S., we are expanding our global AAT presence through registrations of products and expansion of a chosen marketing network in different countries where AATD is prevalent. During 2016, we plan to file Glassia registration in the different countries in Eastern Europe and Latin America. Let’s turn now to our clinical development programs starting with our later-stage program. In late March of this year, the European Medicine Agency, EMA, validated our Marketing Authorization Application, MEA for our inhaled AAT to treat AAT deficiency. The EMA has agreed to evaluate the totality of the data from our innovative Phase 2/3 study. Based upon orphan designation of the drug, we are discussing with regulators the strength of this data, the support we get from the key opinion leaders, and the patient community, and the persistent unmet need in this chronic disease, we are highly optimistic of a favorable determination. We believe our inhaled AAT represents an attractive alternative, compared with the current AAT treatment that requires weekly intravenous infusion. It offers a significant opportunity to bring an inhaled therapy to patients suffering from the 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. Indeed, our Phase 2/3 study demonstrated enhanced lung function measurements and symptom improvements which are the gold standards in pulmonary diseases. This, along with the strong safety profile, gives us confidence this data meets the risk benefit profile required by EMA. In connection with our MAA submission, we received a milestone payment from Chiesi Pharmaceuticals, our European marketing partner for our inhaled AAT. We expect to have a decision on our MEA in mid-2017. Our U.S. Phase 2 study of inhaled AAT is nearing completion, as we just had our last patient on to this study last week and we have the data from this trial in the second half of this year. Prior to that, we expect to meet with the FDA by mid-year to discuss a regulatory path forward in the U.S. We expect to use the FDA inputs, as well as data from our U.S. Phase 2 study along with the data from our Phase 2/3 European study to determine the best course and we continue to work closely with KOLs and U.S. experts in orphan drug development to successfully navigate the U.S. orphan regulatory environment. Moving on to our Rabies program with Kedrion. In late December 2015, we reported 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’s primary endpoints of the non-inferiority when measured against an IgG reference product. To clarify, this product is branded KamRAB in ten countries worldwide and subject to marketing approval from the FDA, it will be branded KedRAB in the U.S. and it will be commercialized by our partner Kedrion. To-date, more than 1 million - of the product have been sold outside of the U.S. in countries such as India, Thailand, Australia, Israel, Mexico, Russia and more. We are very excited about the commercial potential for KedRAB in the U.S., where there are approximately 40,000 post-exposure prophylaxis treatments administrated each year, representing an annual market opportunity of more then $100 million. With one predominant rabies prophylaxis provider in the U.S., we anticipate that 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 favorable regulatory outcome to successful launch of this product with Kedrion. Looking now to our clinical program of our intravenous IV AAT. In addition to Glassia used as an AAT augmentation therapy, we also continued to advance the clinical development of our IV AAT in a number of orphan indications where there is a considerable unmet medical need in where the immunomodulatory, anti-inflammatory and tissue protecting properties of our highly purified AAT may positively treat these diseases. Let me begin with our work in lung transplant rejection. We have initiated our Phase 2 proof-of-concept study with IV AAT as a protective therapy to enhance patients’ acceptance of their new lungs in lung transplantation. The Phase 2 trial is a randomized open-label, single-site study of 30 lung transplant recipients to evaluate the safety and efficacy of IV AAT on top of standard-of-care versus standard-of-care alone. The study is randomized 2 to 1 with 20 patients in the treatment group receiving IV AAT treatment every other day for 14 days, then once every two weeks until week eight, followed thereafter by monthly treatments. The ten patients in the control group will be treated with standard-of-care, which includes systematic steroids, and immunosuppressants following one year of AAT treatment, there will be a one year follow-up. The primary endpoints of this study includes safety and tolerability. The incidents of acute lung transplant rejection and changes in force, expiry, volume, FEV, from baseline and overall effects. Additional endpoints will include various inflammatory biomarkers and functional capacity. The study is being conducted in collaboration with Baxalta and is being led by Professor Mordechai Kramer, Director of the Institute of Pulmonary Medicine at the Rabin Medical Center, Beilinson Hospital in Israel. Professor Kramer is a renowned expert in pulmonary care and a top specialist in his field. As reported by the Registry of the International Society for Hearth and Lung Transplantation, as many as 55% of lung transplant recipients are treated for acute allograph injection in the first year after transplantation and only half of lung recipients are alive five years after transplant. Current treatment options such as steroids, in-house chemotherapy, further compromise the body immune system and cause a host of comorbidities making this a significant unmet need with an estimated market opportunity of approximately $400 million per year. Moreover, lung transplantation is an entry-point for potential other solid organ transplantation, which will present an even bigger market opportunity. 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 to help increase survival and enhanced quality of life. More importantly, it gives hope to patients who suffer with their body’s rejection of their new lungs. Moving on to our plans in Graft versus Host Disease, GvHD. In early January, we were delighted to report additional positive interim results from a 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. The interim results were from an open-label, single-site study of patients with steroid-refractory GvHD following stem cell transplantation who received our IV AAT. We reported on outcomes 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 a severe intestinal inflammation associated with GvHD. The interim results showed that plasma AAT level increased in both cohorts and remained stable for the duration of the treatment. Eight of the 12 subjects showed an overall response to treatment, four of which were with complete responses and four were partial responses. GvHD is a common complication following allogeneic tissue transplantation. It’s typically associated with stem cell transplantation, but also applies to other forms of tissue grafts. GvHD occurs in 30% to 70% of patients who undergo stem cell transplantation. More than 50% of patients do not respond well to steroids and consequently have very low survival rates. We have been granted orphan drug designation for our IV AAT therapy to treat GvHD in both Europe and the U.S., which supports our global regulatory and development strategy in this indication with a market opportunity in excess of $500 million and to have as high as $1 billion. We look forward to the completion of the Phase 1/2 study and with continued encouraging results, we intend to enter into an additional advanced clinical trial in GvHD by the end of this year. Lastly, let’s move on to our development program for our IV AAT to treat newly diagnosed Type 1 diabetes. Late last year, we announced plans to unblind the current Phase 2 clinical trial of our IV AAT to treat pediatric and young adult patients newly diagnosed with type 1 diabetes at the planned interim analysis with approximately 70 patients included in this trial. This change accelerates the timeline for future commercialization of the product, should the analysis be positive. Enrollment of the 70 patients is now complete and we expect to have top-line data by mid-2017. The opportunities for this indication are very encouraging and we look forward to updating you on developments with this program. So in closing, we have an exciting year ahead of us, as we look forward to achieving a number of important milestones. We are projecting solid revenue increases in 2016, which along with our continued clinical progress in the various programs and a positive regulatory determination in Europe should strengthen our company and enhance shareholder value. And now operator, please open the call for questions.

[Operator Instructions] Our first question…

While we are waiting for the first question, I’d like to note that we will be participating in the upcoming Jefferies Healthcare Conference taking place June 7, through 10 in New York City. For those attending the conference, would like to meet with us, please contact Anne Marie Fields at LHA at 212-838-3777. Thank you.

Our first question is from the line of Raj Denhoy with Jefferies. Please go ahead.

Hi, good morning. I wonder if I could, maybe, start on the guidance, particularly the $100 million guidance for 2017 that you are sticking with. I don’t think it’s was anybody the sharp step-up in revenue growth you are going to need to see in 2017 to achieve that from the guidance you’ve given here in 2016. And so the question is really around, where you’ll see that growth? Is it going to come from – partially from the Rabies approval you are expecting in 2017? Do you expect to see an acceleration in the AAT business? Just really any help around how you get comfortable with that sharp acceleration actually be helpful.

Raj, thank you for the question. As we have mentioned before, we did not assume a Rabies or inhaled revenues in the 2017 guidance. And we do see growth coming from the Proprietary Product segment and more specifically from Glassia sales. I think you have few indications for the basis for our confidence in this number and this is related to the achievement of the sales milestone very recently for sales in the U.S. For Glassia, as well as for the level or the coming orders from Baxalta for 2016, which already exceeded we are having as a minimum commitment for this year. And we believe this trend will continue through 2017 and, okay, Amir?

Thank you, Raj, it’s Amir. The majority of the increase will be coming from the increase in number of patients treated with Glassia in the U.S. We see this growth coming and that is the main contribution for the increase compared to 2015 and 2016.

Right, now, I guess, I understand that. But just, just be sure, if you look at the growth rates, right, if you – most of the growth into next year is going to come from proprietary products. That segment has to grow something, 35% to 40% assuming that Distributed Products is roughly flat, which you haven’t seen that kind of growth really ever in that product line as long as we’ve been following you guys. And so, I suppose you have better visibility into the underlying patient trends, but, again, just trying to be comfortable with the fact that you can see that level of step-up and growth, when you are out from now.

Correct. Yes, like I said, what you – and we talked about in the past, based on the minimum commitment that Baxalta has in the original contract with Kamada, there has minimum commitment of purchasing, and the increasing number of patients treated with Glassia in the U.S. has not been reflected in our sales to Baxalta in the last three to four years. But this increase is happening and starting this year, and in greater next year, this is going to be reflected in our sales to Baxalta. So it’s in inventory management aspects, the two of them are now changing and will be reflected in our sales will be reflected in our sales to Baxalta starting this year and continuing in greater rate next year.

Okay, that’s helpful and just one last one for me, just with inhaleable submission in Europe, perhaps you could just provide us with some milestones we can look forward to really timing of events that we can look to over the next several quarters and months?

There is a formal process that is being managed by EMA. And so, if you follow that process starting when, we announced the fact that our submission was validated. The next step for us will be with call day 120, that’s when we get the questions from EMA. And that you know, we will kick-off a process of asking us questions, providing answers, usually it takes few intervals of those question answers, and then finally, we expect in mid-2017 to get the final call from EMA.

Okay, that’s helpful. Thank you.

You are welcome.

That is all the questions we have for today. I will now turn the call 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 second quarter 2016 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.