Kamada Ltd. (KMDA) Q4 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Kamada Ltd. Fourth Quarter and Fiscal Year 2020 Earnings Call. At this time all lines are in a listen-only mode. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host Mr. Bob Yedid with LifeSci Advisors. Thank you. You may begin.

Thank you, Melissa, and welcome to everyone joining in the call. This is Bob Yedid from LifeSci Advisors. Thank for participating in today’s call. And 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 12 months ended December 31, 2020. If you have not received this press release, please go to the Investors page of the company’s website. 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 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 10, 2021. 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?

Thank you, Bob. Well, thanks also to our investors and analysts for your interest in Kamada and for participating in today’s call. Let me begin by highlighting our strong overall financial results for full year 2020. Despite the significant headwinds caused by the global coronavirus crisis, we overcame meaningful operational challenges and met our key financial targets. For full year 2020, we recorded total revenues of $133.2 million, which is in line with our guidance of $132 million to $137 million, and a 5% increase over the $127.2 million in total revenues generated in 2019. In a year which was greatly impacted by COVID-19, we are pleased with this result and believe they indicate the fundamental strength of our business, which as I will discuss shortly, we drive Kamada growth prospects. Kamada’s core focus is on driving profitable growth from our current commercial activities and manufacturing expertise. We intend to expand our proprietary plasma-derived product business by maximizing the market potential of our existing proprietary product portfolio, broadening our distributed product portfolio, enhancing our current manufacturing capabilities and evolving into a vertically integrated plasma-derived company. In addition, we continue to develop our pipeline, primarily focusing on the pivotal Phase III InnovAATe clinical trial of inhaled AAT for the treatment of alpha-1 antitrypsin deficiency and on exploring new strategic business development opportunities funded by our strong cash position of nearly $110 million as of December 31, 2020. Moreover, we plan to leverage our FDA-approved IgG platform technology as a strategic business line with the ability to respond to future potential pandemic situations. Let me now elaborate on three of our recent important achievements executing on these key initiatives. I will start with our recently announced acquisition of the privately-held blood and plasma research of B&PR in Beaumont, Texas and establishment of our own subsidiary, Kamada Plasma, which represents our entry into the U.S. plasma collection market and drives us toward our strategic goal of becoming a fully-integrated specialty plasma company. This facility specializes in collection of hyperimmune plasma used by Kamada to manufacture our anti-D products which are distributed in international markets. By investing in the B&PR facility and leveraging its FDA license to open additional centers in the U.S., we plan to significantly expand our hyperimmune plasma collection capacity. This plant expansion is expected to improve our IgG competitive position in various markets. We are extremely excited about the future opportunities this acquisition will provide for our business. Secondly, in regards to our COVID-19 IgG product, we believe this program clearly demonstrates our ability to quickly respond to emerging pandemic situations. We recently initiated a supply of this investigational product to the Israeli MOH for the treatment of COVID-19 patients in Israel. As a reminder, the initial order is sufficient to treat approximately 500 hospitalized patients and is expected to generate approximately $3.5 million in revenue for Kamada. Importantly, the Israeli MOH has initiated a multicenter clinical study in which our product is being administrated. In parallel, we are ramping up our COVID-19 IgG manufacturing production utilizing plasma collected in the U.S. by our partner, Kedrion Biopharma. This manufacturing increase will support potential additional demand from the Israeli MOH and possibly other international markets. We previously reported the completion of enrollment and positive interim results from our Phase I/II open label, single-arm, multicenter clinical trial. We are currently assembling the final study report, and we plan to publish it before the end of the coming quarter. Together with Kedrion, our partner for the development program, we continue to evaluate the best suitable plan for the U.S. and/or the EU COVID-19 IgG clinical program and will advance our development upon the conclusion of this review. While we are, of course, pleased that the rollout of COVID-19 vaccine has commenced in some countries, we remain confident that there will be a continued market demand for plasma-derived IgG as a treatment for COVID-19 infected patients. Thirdly, we continue to expand our Israel-based Distribution segment by augmenting our existing distributed product portfolio, specifically in the emerging area of biosimilars. As recently reported, we entered into agreements with two international pharmaceutical companies to commercialize three biosimilar product candidates in Israel. Subject to approval by EMA and also with Israel MOH, the three products are expected to be launched in Israel between 2022 and 2024. These three products are added to the six other biosimilar products previously licensed from Alvotech and further position Kamada as the leader in the emerging biosimilar market in Israel. We estimate the potential collective maximum sales generated by the distribution of these nine biosimilar products achievable following regulatory approval and within several years to be in the range of $25 million to $35 million annually. Before I summarize, let me now turn to the current status of our InnovAATe Phase III clinical program for our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency. As a reminder, InnovAATe is a randomized, double-blind, placebo-controlled pivotal Phase III trial designed to assess efficacy and safety of inhaled AAT in patients with alpha-1 deficiency and moderate lung disease. While we continue to recruit patients into the study, the COVID-19 pandemic has limited our ability to open new study sites, and it continues to slow down the rate of recruitment, which has been true for many other clinical trials. From a strategic standpoint, we continue to evaluate passing opportunities for the development and commercialization of this important strategic pipeline products. In addition to the three significant strategic initiatives described above: our new plasma collection capabilities, the rapid development and supply agreement of the COVID-19 IgG and the expansion of our biosimilar portfolio; we are intensely focused on driving higher organic growth by: one, continuing to increase KEDRAB market share in the U.S., where we believe we have significant room to grow; two, expanding the sales of GLASSIA in our IgG portfolio in ex-U.S. markets, including the registration and launch of the product in new territories; three, generating royalties from GLASSIA projected to be in the range of $10 million to $20 million per year commencing in 2022; and four, leveraging our plasma-derived and affecting capabilities for the provision of contract manufacturing services, such as those of the FDA-approved and commercialized specialty IgG product, which is expected to add between $8 million to $10 million in annual revenues starting in 2023. We continue to firmly believe in the strength of our business, which consists of multiple lines of activity, which can drive significant long-term growth opportunities for Kamada. With that, I’ll now ask Chaime to review our financial results for the fourth quarter and the full year 2020. Chaime, please?

Thank you, Amir, and good day, everyone. We believe the core drivers of our business helped deliver solid results in 2020 in the face of the global COVID-19 pandemic. In the fourth quarter, total revenues were $31.5 million compared to $32.1 million in the fourth quarter of 2019. For the full year ended December 31, 2020, total revenues were $133.2 million, up 5% from the $127.2 million for the year ended December 31, 2019. As Amir noted, this is in line with our guidance of $132 million to $137 million, which we view as a significant accomplishment during a year with many COVID-19-related operational challenges. From a profitability standpoint, our gross profit for the fourth quarter of 2020 was $10.2 million and gross margins were at 33%, down from $12.1 million of total gross profit or 38% margin in the fourth quarter of 2019. For the full year ended December 31, 2020, our gross profit was $47.6 million and gross margins were 36%, compared to $49.7 million of gross profit and 39% margin in the year ended December 31, 2019. These results were in line with the guidance we provided at the beginning of the year of an annual decrease of three to five percentage points in proprietary product segment gross margin, primarily attributable to change in product sales mix and reduced plant utilization. Our distribution product segment margins were also negatively impacted in 2020 by a shift in product mix from 2019. Operating expenses, including research and development, sales and marketing, G&A as well as other expenses, totaled $7.5 million in the fourth quarter of 2020 as compared to $6.6 million in the fourth quarter of 2019. For the full year, these costs totaled $28.3 million as compared to $27 million for the full year of 2019. As the case in the second and third quarters, enrollment during the fourth quarter in the company’s pivotal Phase III Innovate clinical trial, which resumed in the third quarter, but at a slow pace, was impacted by the ongoing COVID-19 pandemic. This again resulted in a lower-than-expected increase in research and development expenses in the fourth quarter. For full year 2020, research and development expenses increased 4% year-over-year versus our guidance of a 13% to 15% increase. Moving on, net income was $1.6 million or $0.04 per share on a fully diluted basis in the fourth quarter of 2020 as compared to net income of $5.4 million or $0.13 per share in the fourth quarter of 2019. Net income was $17.1 million or $0.38 per share in the year-ended December 31, 2020 as compared to net income of $22.3 million or $0.55 per share in 2019. Kamada continues to operate from a position of financial strength and is generating positive cash flow from operating activities, with a total of $109.3 million of cash balances as of December 31, 2020, as compared to $73.9 million at December 31, 2019. As previously reported, the transition of GLASSIA manufacturing to Takeda and the continued uncertainty in the operating environment created by the ongoing global COVID-19 pandemic are expected to result in reduced revenues and profitability in 2021. That concludes our prepared remarks. We will now open the call for questions. Melissa?

Thank you. [Operator Instructions] Our first question comes from the line of Raj Denhoy with Jefferies. Please proceed with your question.

Hi, this is Anthony for Raj. I have a couple of questions on biosimilars, and then I’ll move over to plasma and COVID. On the biosimilar products, Amir, can you maybe describe to us a little bit of detail around the approval pathway? These are biosimilars. Biosimilars have several hurdles to clear PK studies, PD studies. In some cases, there are comparative studies to prove similarity. And so I’m just wondering what the specific approval pathway for these products look like, and if any of them have an abbreviated pathway that we should expect. And then when we think about the 2022 to 2024 window, as it relates to timing, how should we expect the three products to sort of evolve in terms of catalysts and approval over those three years – two years, rather?

Hi, Anthony, good morning, thank you for the questions. So basically, I would like to refer to that on all nine products, the six that were signed with Alvotech and then the three additional products from the other two agreements signed a few weeks ago. So in total, we are moving forward basically with this portfolio. We are relying on approvals from primarily EMA, the European authorities. So the company that owned the products will get them approved by EMA, and then the file basically goes to the Israeli Ministry of Health which needs to approve it. Israel Ministry of Health typically usually approves based on EMA or U.S. approval. So we do not foresee significant hurdles in those approvals once it’s approved by the European authorities. The first product has already been submitted to the MOH here in Israel, and we expect approval and launch next year. Now the three new products expected to be approved between 2022 and 2024, I believe it’s going to be around one product per year. And then we expect to be the first or the second biosimilar product in the Israeli market, taking a significant market share. When you add up all nine products, we expect the sales from this portfolio to be between $25 million to $35 million. I want to remind everyone that this is in addition to our existing distribution business in Israel, which is currently around $30 million per year. So that’s a significant growth engine for Kamada. Profitability of those products is going to be higher than the current profitability, which is currently still primarily tenders product, which are plasma-derived. So we expect that the overall segment, our distribution segment, is going to grow significantly in terms of revenue but also in terms of profitability over the next few years.

That’s helpful. And again the $25 million to $30 million base – I think you caught off a bit – is the underlying and distributed?

$25 million to $30 million? Yes. So currently, if you follow our report, for example, for this, for 2020, you see approximately $30 million in the distribution segment, and this is before without the new biosimilar portfolio.

Thank you. And then the follow-ups, I'll pivot over to plasma collection. And just wondering, there seems to be indications that following the Beaumont center, there'll be an effort to add plasma collection. And so maybe just a little bit more details there, maybe on will it exclusively continue to be high titer collection? Will the focus be exclusively on high titer IgG collection for specialty products or will the company eventually look to expand into broader general plasma collection? And when we think about the pathway to adding collection capacity, will it be exclusively through acquisition or will the company, at some point, begin to build its own plasma centers?

Thank you. Good questions. So the Beaumont facility, basically, our plan is to invest in maximizing the capacity collection capacity in the Beaumont facility and to leverage its license to open additional centers. So Kamada plans to open additional centers. I'm referring to the last part of your question, in terms of opening centers or through acquisitions. So basically, this acquisition gives us the license and opportunity now to initiate the expansion by opening additional centers. The immediate focus is on hyperimmune plasma. This will give us the ability to strategically build the company as vertically integrated company, basically source our own plasma for our hyperimmune products. It improved our competitive profile by owning the plasma and not purchasing all of it from external suppliers. We are not ruling out the option that this will eventually evolve into also opening a regular source plasma collection, but the immediate current focus is on the hyperimmune for our specific specialty plasma needs.

That’s helpful. A couple of follow-ups there, I'll press a bit. What is the annual collection capacity at Beaumont today? And where do you expect that to trend to in terms of liters per year? When you think about building out new facilities, how many – how large do you envision the footprint can become over time?

So, we do not disclose the specific volumes of the Beaumont facility. But as I said, we plan to maximize its capacity, unlike regular plasma collection centers that there are plenty of those in the U.S. and there is a lot of kind of benchmark and standards around it and everyone in this industry knows exactly how much such a plasma collection center can collect, et cetera, et cetera. In the specialty plasma business, it's different. We would like to collect at least over the next few years. So, we will become primarily almost self-sufficient in terms of growing that business and being able to supply. And as I mentioned before, having a better competitive profile with our hyperimmune product in the international markets, and be able to grow that collection business per our specific needs as we grow our hyperimmune portfolio in the different markets.

And maybe one for Chaime on collection. Maybe just can you review what the eventual gross margin or overall margin benefit the company could expect in hyperimmune specifically by bringing collections in-house? And I'll hop back in queue. Thanks, again.

So, it’s a good question. But it really depends on the different markets, of course, in the U.S. and the western markets where prices – and for where the price is higher. Then it has one aspect in the developing countries, where we participate in large tenders, highly competitive tenders. It has its effect. We did not disclose yet what the impact is going to be on our gross margins. But as you can assume, owning the plasma versus buying the plasma has a significant impact in an industry where the cost of plasma is the number one component to the cost of goods.

Thank you.

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

Thanks. Good morning. For the Phase III inhaled study, can you give us a sense of when you now think you'll be able to complete enrollment?

Thank you, Keay. So originally, when we put the plan together and what we have shared with the public was that we expect that enrollment will take around two years. Because of the COVID situation, we had to delay the opening of additional sites. So the actual time lines for recruitment, of course, will take longer in terms of duration. Once the COVID situation improves and the new sites, primarily in Europe, will be opened, we will be able to give a more accurate focus in terms of the time lines. In net, without the COVID situation, this should have taken us two years to complete recruitment.

Okay. So, with respect to the European sites in terms of the overall percentage of recruiting sites, the sites that are still closed would represent about what percentage?

Of what, of the overall recruitment?

Yes.

So as described in the past, we were planning to open sites in Europe and the U.S., primarily in the U.S. because of the landscape of countries where there is no current IV treatment available for patients. We've done a lot of the leg work in terms of being ready to open the sites. But in countries where the country is almost under a lockdown and there is no ability to effectively recruit patients, we decided not to open the sites yet. Once the situation improves and the COVID pandemia is in a different state and we decide to open those sites, we will be able to give a better forecast in terms of the time line to complete recruitment.

Okay. So obviously, that trial impacts R&D. So, having just finished the full year R&D relatively flat to 2019, so compared to the $13.6 million you spent in R&D in 2020, what should we anticipate R&D spend to look like in 2021?

We expect it to be at a similar range because we expect that the current program that we are running will continue at the same rate. I think that's a good estimation for 2021. And once the COVID situation improves, we will be able to go back to the rate that we were anticipating for 2020, and that's the guidance that we have given in terms of planned R&D expense that eventually was not executed because of the delay with the recruitment of the inhaled study.

Okay. In terms of the new plasma collection facility in Beaumont, is there also intermediate products that you can – that are collective, then you can sell to others?

Yes. There is another option also to sell it to third parties. The main focus and the main priority is to collect plasma for our needs, focusing on the high premium plasmas. But the answer to your question is yes. There is also different plasma products that are being sold to third-party clients.

But that's a small amount of the plasma collected? Or how do we characterize that?

Correct, correct. It’s not going to be significant. It doesn't – it's not going to have a significant impact on our overall P&L.

Okay. In terms of the COVID hyperimmune, you talked about plans to publish the results from the first study. But when should we expect some clarity on moving that product forward in clinical trials?

Okay. So, there is a clinical trial, which basically started. This is sponsored by the Israeli Ministry of Health. And that's a study that we provide the product, and the ministry is sponsoring. The study synopsis is for hospitalized patients, similar including criteria, to our Phase I/II study that we reported. The first cohort of this study is approximately 135 patients, which are being randomized 1:1 against standard of care and convalescent plasma. It's a multicenter study in Israel. In addition to the study, other hospitals in Israel can treat patients through a named patient procedure. So basically, the treatment is available for all hospitals in Israel, per the Ministry of Health procedures, and the hospitals decide if they want to treat through a clinical trial all on a named patient basis.

Right. And how about plans for any type of U.S. clinical study?

Okay. So as I mentioned on the call, we're still evaluating together with Kedrion what was the best suitable plan for the U.S. or Europe and/or Europe. And we will advance the development once we reach the conclusion of this review.

And is – do you expect to make that decision in the first half of this year?

Most likely, yes. The data from the Israeli study, the data from other studies that are being done abroad like the one that is being done with the NIH will partially support this decision. I want to – yes, I want to also reemphasize what I mentioned earlier that we are ramping up the production of the products in our FDA-approved facility using plasma collected in the U.S. and this manufacturing increase supports the potential additional demand that we expect from the Israeli Ministry of Health and possibly other international markets.

Okay. And then just in terms of how we think about product revenue in 2021, starting with the distributed products. Again, we just finished the year with – as you referenced, just slightly north of $30 million in revenue from distributed products. How should we think about that in 2021?

So as you noticed, we did not provide yet specific guidance for 2021 due to the uncertainty in the – with the COVID situation. In terms of the Israel Distribution business, you should assume that the current pace will be similar. We are registering and launching new products. But in order to do that, there was some stockpiling of IVIG products by the hospitals in Israel in 2020, and that inventory is available for them also for 2021. In general, our overall portfolio for the Israel Distribution is growing. It's not just the biosimilar product that we have been emphasizing. But we – over the last few years, every year, we signed additional agreements, additional in-licensing deals, and we are registering additional products for the Israeli market. And that business is steadily growing.

Okay. And in terms of the proprietary products, for KEDRAB or KamRAB, how should we think about their growth prospects in 2021?

So this is, I think, part of the uncertainty regarding the COVID situation, and we will not give at this time specific guidance in regards to those products. For GLASSIA, you are familiar with the $25 million supply that we are going to supply to Kedrion this year. As a reminder, we also sell the product in other markets outside of the U.S. and this has been growing over the last few years. In regards to the other specifics, we are not giving currently yet guidance for 2021.

Okay, all right. That’s all I have. Thank you.

Thank you, Keay.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. London for any final comments.

Thank you. In summary, we are proud of the strength of our business in 2020 despite the global COVID-19 pandemic. We believe that the fundamentals of our business are solid. We have multiple organic commercial growth catalysts. Our FDA-approved plasma direct technology platform is a strategic asset in our ability to quickly respond to emerging pandemic situations, and we have a very strong balance sheet, which we can – which can support our business development opportunities. As such, we remain highly confident in Kamada's future prospects. Thank you for joining us on today's call, and we look forward to providing you with further updates on our progress throughout 2021. We hope you all stay healthy and safe. Thank you very much.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.