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Kamada Ltd. (KMDA)

Q2 2020 Earnings Call· Wed, Aug 12, 2020

$8.16

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Transcript

Operator

Operator

Welcome to the Kamada Limited Second Quarter 2020 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will an opportunity to ask questions. [Operator Instructions] I'd now like to turn the conference over to Troy Williams of LifeSci Advisors. Please go ahead.

Troy Williams

Analyst

Thank you, and good morning, everyone. This is Troy Williams of 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 three and six months ended June 30, 2020. If you have not received this news release, please go to the Investors page of the company's website at www.kamada.com. Before we begin, I'd 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, August 12, 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 is my pleasure to turn the call over to Amir London, CEO. Amir?

Amir London

Analyst

Thank you, Troy. My 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. Let me begin by discussing the significant progress we have achieved in the development of our plasma-derived immunoglobulin product as a potential therapy for COVID-19 disease. Following our announcement in June of being the first company globally with an availability of a COVID-19 IgG product for compassionate-use treatment in Israel, earlier this week we announced initiation of a Phase 1/2 clinical study in Israel. This is an open-label, single-arm multicenter study to assess the safety, pharmacokinetics and pharmacodynamics of our IgG product in 12 hospitalized non-ventilated COVID-19 patients with pneumonia. Our product has also been evaluated for SARS-CoV-2 neutralization activity, and the preliminary results are highly encouraging and suggest potential high neutralization titer. Lastly, we intend to further explore the potential of our IgG product to prevent COVID-19 disease in healthy subjects at risk in a separate study. We are very excited with this meaningful progress, and we believe our product has the potential to be an effective treatment for hospitalized, non-ventilated COVID-19 patients with pneumonia, and we look forward to the results of this trial later this year. As a reminder, this milestone is part of our global collaboration agreement established in April 2020 with Kedrion Biopharma for the development, manufacturing and distribution of our IgG product as a potential treatment for COVID-19 patients. Pursuant to the collaboration between the two companies, Kedrion is responsible for the collection of COVID-19 convalescent plasma from U.S. recovered patients. Kedrion is already collecting the plasma through its plasma business unit, KEDPlasma, at 23 FDA approved centers across the United States. We intend to expand our COVID-19 clinical…

Chaime Orlev

Analyst

Thank you, Amir and good day everyone. We continue to be pleased with the momentum in our business, especially in-light of the ongoing operating challenges posted by the COVID-19 pandemic. We demonstrated solid year-over-year top line growth during the first six months of 2020. In the second quarter, total revenues were $33.1 million compared to $35.3 million for the second quarter of 2019. While this represents a decrease of 6% for the first six months of 2020, our total revenues of $66.4 million represented an increase of 7% as compared to the $62.1 billion of total revenues generated in the six months of 2019. It should be noted that in response to challenges in market conditions due to the COVID-19 pandemic, we expedited certain sales at the end of the first quarter of this year, thus shifting them away from the second quarter. Our revenue increase in the first half of 2020 was also driven by 28% year-over-year increase in sale of our distributed products. We expect our distributed products in Israel to continue to be an important driver of our growth prospects. More over longer-term we anticipate that this segment will improve our overall gross margins. The company's business activity and commercial operation were affected by certain COVID-19 pandemic related factors. And the company has taken several actions to ensure its manufacturing plant remains operational with limited disruption to its business continuity, even with the emergency regulation recently reinforced in Israel due to the pandemic. Moreover, to-date we have not seen any meaningful supply shortages in the U.S. market for GLASSIA or KEDRAB and we do not anticipate shortages in the foreseeable future. We also have not seen – more than we expect any significant supply shortages for our distributed product in Israel in the foreseeable future. While the…

Operator

Operator

Thank you. [Operator Instructions] The first question is from Raj Denhoy of Jefferies. Please go ahead.

Raj Denhoy

Analyst

Hi, good morning. I wonder if maybe I could start with some of the reports during the quarter of the compassionate use of a plasma product from you guys in Israel to treat COVID patients. Anything you can offer anecdotally about the use so far in what you're seeing with the product.

Amir London

Analyst

Hi Raj, thank you for the question. Thank you for joining the call. There were few treatments of compassionate use, the procedure in Israel is that the approval for compassionate use treatment goes between the medical center and the treating physician and the Minister of Health, for Kamada it is not part of this process. We basically made the product available for the medical centers and they need to apply and get kind of a name patient approval for the treatment. So this is not data that is available to Kamada. The clinical study which was started just recently is sponsored by Kamada. And the data from that study of course will be available and will be shared in due time with the public. As we announced earlier this week, we are encouraged by the neutralization data that we have seen in the different assays that we are performing, and we just need to wait now, not too long before we have the data from the clinical study. Important to mention, the clinical study is for the less severe patients, meaning not the one that got the compassionate use, the compassionate use of given to patients that were severely ill, while the clinical study as we just described is for hospitalized, but not ventilated patients. We believe that that the right population for this type of treatment, we believe that you need to catch those patients. If I can use this term, while they are highly viral, but before their situation worsens significantly in order for the IgG to be effective.

Raj Denhoy

Analyst

That's helpful. You also mentioned that you're looking at the product as a preventative, a potential preventative to COVID. Is there anything you could offer in terms of what that looks like? Is that a separate trial entirely? Or how do we think about the timing of that?

Amir London

Analyst

Yes. So this will be a separate trial. We are now in discussions with the regulators and the KOLs in regards to that study. It's going to be the same product while the dosing might be different. We will be testing different doses in order to rate – to get to the optimal dose for preventive or prophylactic treatment compared to sick patients. Now, there are different approaches to that. You may think about the medical staff. You may think about patients or people that were – that are at high risk and have been exposed to a sick COVID patient, like post-exposure prophylactic. You may think about the elderly population. So there are different opportunities, different populations, which potentially meet this criteria, and we are in advanced discussions with different relevant policies on how to design that study and to what population.

Raj Denhoy

Analyst

That's helpful. And maybe just a couple more. So, Kedrion is your partner you mentioned obviously in the United States collecting plasma for you here. What has been the status of their collection efforts? How successful they had been in actually collecting convalescent plasma? There's been some reports of it being somewhat more difficult perhaps to get supplies. So how is Kedrion fairing?

Amir London

Analyst

So there's a good progress in the collection. Kedrion has a large network of plasma collection centers in the U.S. They've put most of those centers – they are included in the collection efforts. This plasma, U.S. plasma will be supplied to Kamada in order for us to initiate also our U.S. clinical program. So the platform we are currently using for the Israeli study is plasma that was collected from convalescent patients in Israel. We moved very fast already in March in terms of walking here with in Israel with the local authorities on defining the path forward collecting, working with the Israeli national blood bank on the collection. And this allowed us, if you may remember in June, to be the first company globally to announce availability of a plasma-derived COVID IgG, and also to be the first globally to initiate a clinical study. So we are very happy with the progress we've been making, and we believe that it's very high potential for a successful treatment for COVID-19 patients.

Raj Denhoy

Analyst

That's helpful. Maybe just one last one on the quarter. The last couple of quarters now we've seen your distributed product sales being quite strong; crested $10 million this quarter. I think, Chaime, you mentioned it's going to be a continued contributor at a higher rate here. So maybe just some background in terms of what's driving that higher revenue from distributed products over the short-term. I realized there's other things coming longer-term, but I'm more curious about which what's been pushing it recently.

Amir London

Analyst

Yes. So over the last few years, we have been expanding our portfolio of distributed product for Israel, and we've been signing quite a lot of new agreement for the Israeli market with different international partners. So some of it is new products that have been registered over the last two years and have been launched into the Israeli market, some of it is an increase in the plasma-derived products, our legacy products like IVIG that we've been selling in Israel for many years. There was additional stocking of IVIG products in Israel by the hospitals because of the pandemic. So this also had some contribution to our second quarter sales. And looking into the future, like you said, we have signed some highly promising encouraging additional agreements, like the one that was signed late last year with Alvotech, and this will be a significant driver to our growth in terms of the biosimilar portfolio. So we are very happy with the progress we're making with the distributed product in Israel, and we are very encouraged by the rate it's growing, also looking into the future 2021 and beyond.

Raj Denhoy

Analyst

But for the second half of the year, we shouldn't assume it stays above $10 million. There was a little bit of perhaps a higher selling – higher sales this quarter. So maybe it falls back a little bit in the second half, do you think?

Amir London

Analyst

Correct. I think you need to stick to what we just said, it’s a reiterating of our fully year projection and we are on track to meet it. We've been telling investors and analysts and over the years, don't judge us by quarter-by-quarter, but look at our annual projection and annual performance. We've been very good in the last few years, giving an annual projection and meeting it and the same applies for this year 2020.

Raj Denhoy

Analyst

Great. That's helpful. Thank you.

Operator

Operator

The next question is from Keay Nakae of Chardan. Please go ahead.

Keay Nakae

Analyst

Hi. Yes. Thanks for the IgG hyper-immune. What are you measuring for efficacy endpoints in the Phase 1/2 in Israel?

Amir London

Analyst

So currently – hi, Keay, how are you? So currently, it's a Phase 1/2 study, of course, we are measuring safety and we are looking also at the PK and PD, pharmacokinetics and pharmacodynamics data. But also being an open-label study, basically we will have data on each and every patient, and we'll be also looking at number of hospital days and when the patient has been hopefully recovered and released from the hospital. But the official endpoints of course are safety and pharma – PK and PD.

Keay Nakae

Analyst

So just trying to extend that to the prophylactic use, do you have a sense from the regulatory authorities, what you would need to demonstrate in order for it to be used prophylactically?

Amir London

Analyst

Not yet, I can't. Like I answered the previous question, prophylactic or the post-exposure prophylactic is definitely an area or a direction that we are interested in. This is part of the discussion that we are having internally and with the KOLs and with the treating physicians. And we initiated also with authorities in order to have a clear path forward, what will be required in terms of the path forward, the clinical, the medical, the regulatory path forward for potentially approval – future approval of prophylactic treatment. This PK data, things like that and all of this is in discussions.

Keay Nakae

Analyst

Are you getting a sense that if you have no safety issues and you can demonstrate some level of antibodies within some I guess relatively short period of time, this protection isn't that long lasting would that be sufficient in your view at least today to have something approved for prophylactic use?

Amir London

Analyst

We believe and this is very preliminary, what I'm just saying, this is not I'm putting a disclaimer, now this has not been fully discussed and definitely approved or agreed with the regulators, but potentially having the ability to compare the PK data, the antibodies level of a prophylactic IgG to an active vaccine that will be approved, this could be a potential one way to look at the product. So definitely, when you're looking at healthy individuals it has to do – sometimes it has to do – it has to be some type of PK data because you're not treating sick patients. So this is one of the ways to look at it. Alternatively, that could be a very long study that you are treating patients and then you see who gets sick and who doesn't get sick compared to some type of control group, this is another option. But again, it will depend on how the regulators would like to see such a path and the potential future of the approval.

Keay Nakae

Analyst

Okay. That's helpful. Maybe switching to the operations side and the gross margin, how much lower should we expect that the gross margins will trend down to?

Amir London

Analyst

So we gave – Chaime do you want to help me here? We gave the projection on…

Chaime Orlev

Analyst

We've given a projection that three to five percentage points drop in gross margins in the proprietary sector as compared to last year and we still stand behind that guidance.

Amir London

Analyst

And last year it was 46%.

Keay Nakae

Analyst

Right. So I guess what I'm asking is that for this year or what happens as we kind of roll into the first half of next year?

Amir London

Analyst

So we think it's a little bit too early now to give an answer to that. We are expecting feedback from the Takeda later this year in preparation for 2021 for what's going to be their demand. We mentioned it’s going to be between $25 million to $50 million in sales and it depends on when the tech-trans of GLASSIA to Takeda will be completed and when they expect to have the FDA approval, of course will have an impact on our 2021 projection, also a potential impact of the COVID-19 IgG, so there are few items, a few things that need to be cleared between now and end of this year before we can give an educated projection for next year.

Keay Nakae

Analyst

Okay. And then just finally for the rabies product, just in terms of the overall market for the rabies product are we seeing any growth there constrained by outdoor activity related to COVID?

Amir London

Analyst

So our sales this year, our sales are to Kedrion and they sell it in the U.S. market. So in terms of the in-market sales, we believe that during the COVID outbreak, there have been maybe two or three months of potential slow down of sales due to them, like you said less outdoor activities, but things are ramping up again, now when life in most of the U.S. is returning to normal.

Keay Nakae

Analyst

Okay. All right. That's all I have. Thank you.

Operator

Operator

The next question is from Gadi Hassan[ph] a Private Investor. Please go ahead.

Unidentified Analyst

Analyst

Hi, Amir. And I have a question about the trial that you've just started and I believe you will have data as you enrolling up people and you will know in a few weeks, what is the result. If the result will be despite – do you expect that we can see that you can start the compassionate treatment to get – to do it with payment like you try to sell this treatment, also you don't have any yet an agreement to sell it as the FDA approval or something like that. If you can sell it as a compassionate treatment by payment, before you haven’t begin the phase, whatever you was intended to do next year to start with FDA And, I don't know if it would be, again you have to repeat the Phase 1/2 or you have – maybe you take this result and continue to Phase 2/3 in United States.

Amir London

Analyst

Thank you. Thank you, Gadi[ph]. I will first answer the later part of question in regards to the U.S. path forward. So as we said, we are going to hold a pre-IND meeting with FDA in this quarter. So all those issues will be raised and we will discuss as part of that process, and then we'll have better clarity and we will announce what the plan forward in terms of the needed studies. In terms of your question regarding paid compassionate treatment, it's a little bit too early right now to give you an answer for that. It's an option, but we will need to wait for the data and to have the discussions with the relevant authorities before we can provide any feedback about it.

Unidentified Analyst

Analyst

Okay. Thank you very much.

Operator

Operator

This concludes the question-and-answer session. I would like to turn the call back over to Amir London for any closing remarks.

Amir London

Analyst

Thank you very much. In summary, we are pleased with how our business performed in the first half of 2020 especially as the global COVID-19 pandemic persisted. We have an extremely strong balance sheet and the fundamentals of our business are solid. Our IgG product development program for the treatment of COVID-19 continues to advance very fast. In addition, we continue to drive strategic growth from our core business, including GLASSIA, KEDRAB and our distributed products in Israel. We anticipate that our business development activities will have a meaningful role in our future growth and are also very excited about the potential of our InnovAATe pivotal Phase 3 trial for our unique Inhaled AAT program and are encouraged that the enrollment has now been resumed. We remain highly confident in Kamada’s long-term outlook for success. Thank you for joining us in today's call. And we look forward to providing you with further updates on our progress in the coming months. We ask all of you stay healthy and safe. Thank you very much.

Operator

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.