Kamada Ltd. (KMDA) Q1 2020 Earnings Report, Transcript and Summary

Greetings, welcome to the Kamada Limited First Quarter 2020 Earnings Conference Call. At this time, all participants will be in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note that this conference is being recorded. At this time, I will turn the conference over to Bob Yedid with LifeSci Advisors. Bob, you may begin.

Thank you. Good morning, this is Bob Yedid with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer. Earlier this morning, Kamada announced financial results for the first quarter ended March 31, 2020. If you've not received this news release, then please check the company's website www.kamada.com and go to the Investors section. 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 this live broadcast May 18, 2020. 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, it's my pleasure to turn the call over to Amir London, Chief Executive Officer. Amir?

Thank you, Bob. And thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. I hope you all are keeping safe and healthy in these challenging times. As you know well, the ongoing COVID-19 global health pandemic continues to cause meaningful complications to daily lives and business operations. We are focused on the safety and well-being of our employees. We continue to find innovative solutions to support our patients and partners. We are grateful to the healthcare professionals around the world who are selflessly caring for patients on the front lines of this pandemic. And our thoughts go out to all those who have been affected. Let's now move on to our strong overall results in the first quarter of 2020. I am pleased to report that we delivered robust financial and operational results during the first three months of the year. In the first quarter, total revenues were $33.3 million compared to $26.8 million for the first quarter of 2019, representing an increase of 24%. This result was driven by 24% year-over-year increase in sales of both our Proprietary and Distributed products. From a profitability standpoint, our total gross profit for the first quarter of 2020 was $11.5 million and gross margins were 34%. This compares to $11.2 million of total gross profit and 42% margin in the first quarter of 2019. As it relates to the COVID-19 pandemic, to-date, our manufacturing plant remains operational with no effect on business continuity even amid the emergency regulations enforced in Israel in recent months due to the pandemic. Moreover, based on the most recent interactions with our US distribution partners regarding finished product inventory levels available for distribution in the US and our planned supply for the remainder of the year, we do not anticipate meaningful supply shortages in the foreseeable future in the US market for GLASSIA or KEDRAB. In addition, based on currently available inventory levels and planned supply of our Distributed products in Israel, we do not anticipate significant supply shortages in the foreseeable future. Going forward, although certain COVID-19 pandemic-related dynamics may affect market demand and production conditions, we intend to maintain our current manufacturing and supply plans, and we have increased inventory levels of raw materials through our suppliers and service providers in order to appropriately manage any potential supply disruptions and secure continued manufacturing. With all of this said, we are maintaining our previously provided full-year 2020 revenue guidance of between $132 million and $137 million. As we move forward in this COVID-19 environment, it's important to highlight that we maintain an extremely strong balance sheet. In fact, we continued to grow our cash position, which increased to $96.4 million as of March 31, 2020; a significant increase as compared to the $73.9 million at the end of 2019. This includes a $25 million private placement we closed earlier this year with FIMI Opportunity Fund, the leading Israeli private equity investor, which is our larger shareholder. I'd now like to discuss our plasma-derived hyper-immune IgG therapy for COVID-19 development program. As previously reported, during the first quarter, we were able to quickly focus our efforts on the development and manufacturing of the product, which leverages our proprietary IgG platform technology, as a potential treatment for COVID-19 patients. We are pleased to report today that we have secured adequate quantities of COVID-19 convalescent plasma from Israeli donors. This has enabled us to initiate manufacturing of the product, which is expected to be available during the next six weeks, by the end of the second quarter for compassionate use treatment in Israel. Concurrently, we have ongoing discussions with Israeli IMOH with regards to potential initiation of related clinical trials. In addition, we're excited to announce our global collaboration with Kedrion Biopharma, which will allow us to develop the product more rapidly and broaden our international reach. Based on the agreement, Kedrion will provide plasma collected at its KEDPLASMA centers, from donors who have recovered from the virus and, upon receipt of regulatory approvals, will be responsible for commercialization of the product in the US, Europe, Australia, and South Korea. We are responsible for product development and manufacturing, utilizing our proprietary IgG platform technology as well as clinical development with Kedrion's support and regulatory submissions. Kamada also have distribution rights in all territories outside of those under Kedrion's responsibility. The initial primary focus of the collaboration will be to provide the product as treatment to patients in Italy, Israel and the US through various clinical programs and then expand development and commercialization efforts to additional markets. We believe we have an important opportunity to make a significant impact for COVID-19 patients in need by leveraging both our strong working relationship with Kedrion and the unique capabilities of both companies. We look forward to providing you with further updates as warranted on this important development program over the coming weeks. I would now like to spend little more time discussing significant commercial progress we are making with our anti-rabies IgG products. In the US, KEDRAB's market share increased from approximately 10% in 2018 to approximately 20% in 2019. In Canada, where the product is known under the brand name KamRab, Kamada and its local partner Valneva, a well-established vaccine company, is commencing product distribution following the recently awarded supply tender. Moreover, KamRab sales in Latin America, commenced last year, are growing through the 2019 to 2021 tender from the Pan American Health Organization (PAHO), a specialized international health agency for the region. Moving on, I would like to also provide an update on the contract manufacturing program we've announced late last year. As you may recall, in December 2019, we entered into a binding term sheet with an undisclosed partner for contract manufacturing of an FDA-approved commercialized hyper-immune globulin product. The program is progressing according to the plan and we are working on the tech transfer of the product to our manufacturing facility. Commercial supply of a 12-year contract is expected to commence in early 2023 following the completion of the required tech transfer. Based on current market's volume, the new product is estimated to add approximately $8 million to $10 million in annual revenues to Kamada at estimated gross margin level similar to our average gross margin of the Proprietary Products segment. This agreement supports our strategy to leverage our experience and available manufacturing capacity at our FDA-approved manufacturing facility to initiate production of additional plasma-derived products following the planned transition of GLASSIA manufacturing to Takeda during 2021. Moving on, let's turn to the current status of our InnovAATe Phase 3 clinical program for our proprietary Inhaled AAT for the treatment of Apha-1 deficiency. You will recall the first patient in the Phase 3 trial in Europe was randomized in the fourth quarter last year. We are pleased with the rate of enrollment into the study through February 2020. However, in March, due to the effect of COVID-19 pandemic on healthcare system, recruitment into the InnovAATe study was temporarily halted. While the evolving healthcare environment makes it difficult to know when recruitment will resume, our current expectation is that this will occur during the third quarter of this year pending appropriate conditions at clinical trial sites. As a reminder, this study is being led by Dr. Jan Stolk, Department of Pulmonology, Member of the European Reference Network LUNG at the Leiden University Medical Center in the Netherlands. InnovAATe is a randomized double-blind placebo-controlled pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled AAT in patients with Apha-1 deficiency in moderate lung disease. Up to 250 patients will be randomized one-to-one to receive either Inhaled AAT at the dose of 80 milligram once daily or placebo over two years of treatment. The primary endpoint of the InnovAATe trial is lung function measured by FEV1. Secondary endpoint includes changes in lung density measured by CT scan as well as other parameters of disease severity, such as additional pulmonary functions, exacerbation rate and six-minute walk test. In connection with InnovAATe study, we are also happy to provide an update that we obtained FDA acceptance for the protocol design of a 30-patient sub-study, which is required by the agency designed to evaluate the effect of our Inhaled AAT on the pharmacokinetics of IV-AAT and collect safety and immunogenicity data, including the effect of anti-drug antibodies on AAT levels in plasma. Initiation of this sub-study has currently been delayed due to the pandemic. With that, I will now ask Chaime to review our financial results. Chaime?

Thank you, Amir, and good day everyone. As Amir mentioned earlier, we are very pleased with our strong financial performance during the first quarter ended March 31, 2020, especially in light of the operating challenges posed by the COVID-19 pandemic. We grew the topline significantly with meaningful contributions from both the Proprietary and Distribution product segments. Total revenue was $33.3 million in the first quarter of 2020 compared to the $26.8 million recorded in the first quarter of 2019. Total revenues were comprised of $25.3 million generated by the Proprietary Products segment and $8 million from the Distribution segment; each representing a 24% increase compared to the prior year period. Gross profit was $11.5 million in the first quarter of 2020; a 2% increase from the $11.2 million reported in the first quarter of 2019. Gross margin in the first quarter of 2020 was 34% compared to 42% margin in the first quarter of 2019. This difference was driven by a different product sales mix year-over-year. Specifically, during the first quarter of this year, our Proprietary Products sales weighted more toward GLASSIA as compared to KEDRAB; while in the first quarter of 2019, the share of KEDRAB, our product with the highest margin was significantly larger. The different mix is a result of inventory management by our distributors and timing of our product shipments. Similar influences also affected the Distribution segment profitability this past quarter. Operating expenses, including research and development, sales and marketing, G&A, as well as other expenses, totaled $6.6 million in the first quarter of 2020 as compared to $6.0 million in the first quarter of 2019. This increase, which we guided the markets toward, was primarily driven by increased research and development expenses, specifically related to the initiation of the company's pivotal Phase 3 InnovAATe clinical trial, which was discussed earlier by Amir. Moving on, net income was $5.2 million or $0.12 per share in the first quarter of 2020 as compared to net income of $4.9 million or $0.12 per share in the first quarter of 2019. During the first quarter of 2020, cash used in operating activities was $1.9 million. Operating cash flows were mainly affected by the timing of payments due to suppliers and services providers, mainly on account of inventories acquired during recent months, which are expected to be sold later this year; at which point, we will recognize the cash flow generated by operating activities. We maintain a strong balance sheet. As of March 31, 2020, the company had cash, cash equivalents and short-term investments of $96.4 million as compared to $73.9 million at December 31, 2019. This includes the $25 million private placement closed with FIMI Opportunity Fund in February 2020. Overall working capital increased by approximately $30 million during the quarter, which represents the secured private placement and quarterly earnings. I would like to reiterate a point raised by Amir earlier. While future development of COVID-19 pandemic may have an effect on market demand, raw material and employees' availability as well as other operational factors, based on actions taken thus far and our current available forecast, we are maintaining our previously provided full-year 2020 revenue guidance of between $132 million and $137 million. That concludes our prepared remarks. We will now open the call for questions. Operator?

Thank you. At this time, we'll now be conducting the question-and-answer session. [Operator Instructions]. Thank you. Our first question is from the line of Raj Denhoy with Jefferies. Please proceed with your questions.

Hi, good morning. I wonder if maybe I could ask a couple of clarification questions on the hyper-immune product you're developing for COVID. From the press release, it sounds like you have kind of parallel programs. You are doing one for Israel, where you've actually sourced the plasma yourself and you're developing a product and you'll start to market in Israel by the end of the second quarter, but then you also have the agreement with Kedrion. And so I'm curious how those two [tabs] work side-by-side or if they are actually the same products? Maybe some clarification would be helpful.

Thank you, Raj. It's Amir. These are not two different programs. This is one program that was initiated by Kamada in -- soon after the pandemic kind of broke, and throughout the process of us developing the product, we have broadened the program and signed the agreement with Kedrion, which allows us to have greater access to plasma outside of Israel and all the global collaborations that we are leveraging and building on the successful partnership we have developed with Kedrion over the last few years in regards to KEDRAB. So this is one program. The first available product that will be available in a matter of no more than six weeks will be for the Israeli market because it is based on the Israeli plasma. But as we get plasma, receive plasma from Kedrion, the product will be manufactured also from ex-Israel territories. So again, one product that is being developed by us in collaboration with Kedrion.

And is there anything you can provide in terms of the timing on the international products or the product that will be developed for the markets outside of Israel?

No, not yet. So things are in the works and progressing. Once we have update in regards to the global progress, we will definitely share it with the public. I think it's highly encouraging and we're very excited on the rapid pace we were able to develop the product and to have it available as a final product for therapeutical use already in less than six weeks.

That's helpful. And maybe just one last one on this. There is this global consortium being led by Takeda as I'm sure you're aware. How does your program sort of drive with what's happening on that front? Will you eventually join? Will they be separate programs? And how do you really imagine this plays out?

So currently, it is separate programs. There is also a program developed by other plasma companies, which are not part of the consortium. We are happy for all the plasma companies. I believe that all major plasma companies globally are actively involved in the development of an anti-COVID hyper-immune product. I think it emphasizes the importance of the plasma industry in general. And now in this specific pandemic, in finding different cures for the disease, most likely the fastest product to reach the market will be a plasma-derived hyper-immune IgG. So we are very happy for the progress. We are moving fast, very fast and we encourage all other plasma companies to also move fast and then develop sufficient quantities that will help the pandemic globally.

Understood. And I apologize, two last ones on this as well. So I appreciate it's probably not the main reason that you're doing this. But how do you think about the economic impact to the company from this product? And the second question to that is, how do you imagine it plays out on an annual basis? Do you view this as being sort of a seasonal product for you going forward? And how do we think about the economic impact?

I think it's a little bit premature Raj to be able to give educated answers to those questions. We're definitely working also on the economics of it in terms of what does it mean in terms of our capacity, how do we scale up production, how do we secure sufficient levels of plasma, and that was, like I mentioned, a part of the collaboration with Kedrion. But I think it's little bit premature. We don't know -- I think no one really knows yet how this COVID pandemic is going to evolve in terms of 2021, 2022 and moving forward. We will be equipped and we will have the capacity to support it as needed moving forward.

Thank you. Our next question is from the line of Keay Nakae with Chardan Capital Markets. Please proceed with your question.

Yes. Just again some follow-ups on your hyper-immune for COVID-19. So, with respect to making it available in Israel, do you have a clinical trial design that you proposed with the Israeli Ministry of Health?

Hi, Keay. Yes. So it's impossible to having the product available for compassionate use like I mentioned within the next six weeks in Israel. We are also working very closely with the Israeli Ministry of Health on the protocol and the design of a clinical trial that we are planning to initiate in -- soon. So these are two kind of parallel avenues that we are taking, developing the product, manufacturing the product, having it available very soon and then using it for compassionate use for the patients -- COVID patients and treating -- using it as part of clinical trials that we are progressing in the development.

In the clinical trial, are you anticipating testing different dose levels of the product?

Most likely it's different dose levels and it's different patient population. These are the two different things that are in discussion with the different regulators starting with Israeli Ministry of Health.

And then, would that also include your clinical trial, that also include a cohort who might be receiving the product on a prophylactic basis because this passive immunity typically seems to be more effective as a prophylactic, but at the same time you would need to evaluate that? So, is that part of the plan?

Like I mentioned when I referred to different patient population, so prophylactic treatment is one of the options that is being in discussion. So there is an option of treating the moderate patients, severe patients. Prophylactic treatment, all of it is currently being assessed, and once we have a defined protocol, we will be happy to share it with the public. But, definitely there are significant opportunities and, like I mentioned, in my previous question -- in my previous answer, we are very happy on the pace and the speed that we are able to develop the product and have it available for treatment as well as for clinical trials.

Okay. So is it fair to expect that you would have confirmation of what the trial might look like before the end of this quarter then?

Either we trial in the quarter or into Q3. I think that's the time frame, the timeline to have the design of the clinical trial as fully defined.

Okay. And then with respect to the collaboration with Kedrion, is there certain geographies where you feel like you may be able to also initiate a clinical study with the product that would be kind of at the top of the list?

Yes, we did not disclose it yet. So I cannot share this information, but the usual suspects of different territories where we will most likely focus on, and as we've mentioned in -- during the call, our primary focus currently is on Italy, Israel and the US. But the agreement that was signed with Kedrion is a global agreement. Kedrion has the future commercial rights in the US, Europe, Australia and South Korea while Kamada has rights in all other territories. For China, we are going to share the license, the territory in terms of commercialization.

Thank you. At this time, we've reached the end of our question-and-answer session. And I will hand the call back to Amir London for closing remarks.

Thank you. In summary, we are pleased with how our business performed in the first quarter of 2020, especially as the global COVID-19 pandemic was emerging. We have an extremely strong balance sheet and the fundamentals of our business are intact. We've quickly focused on our efforts on developing an IgG product for the treatment of COVID-19, which is expected to be available within the next six weeks for compassionate-use treatment in Israel and have expanded our development efforts through a strategic global collaboration with Kedrion Biopharma, which will allow us to more rapidly develop the product and broaden our international reach. Moreover, we continue to drive strategic growth from our core business, including GLASSIA, KEDRAB, and our Distributed Products in Israel. We are also very excited about the potential of our InnovAATe pivotal Phase 3 trial for our unique Inhaled AAT program, for which we look forward to resume enrollment shortly. We remain highly confident in Kamada's long-term prospects for success. Thank you for joining us on today's call, and we look forward to providing you with further updates on our progress in the coming months. We hope you all stay healthy and safe. Thank you very much.

Thank you. This will conclude today’s conference. You may disconnect your lines at this time. And thank you for your participation.