Kamada Ltd (KMDA) 2022 Q4 法說會逐字稿

Greetings. Welcome to Kamada Limited Fourth Quarter and Full Year 2022 Earnings Conference Call. (Operator Instructions) Please note this is being recorded. At this time, I'll turn the conference over to Troy Williams with LifeSci Advisors. Troy, you may now begin.

Thank you, Rob. This is Troy Williams with LifeSci Advisors, and 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 today, Kamada announced its financial results for the 3 and 12 months ended December 31, 2022. 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 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 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, Wednesday, March 15, 2023. 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, Troy. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. The recently completed 2022 year was a transformational period for Kamada as we embarked on a new and exciting chapter in the company's evolution. Most importantly, we have now completed our rapid transition from our historical dependence on GLASSIA cells to Takeda to a diversified fully integrated specialty plasma company with 6 FDA-approved proprietary products and strong commercial capabilities in the U.S. market as well as global sales footprint in over 30 countries.

The success of this strategic shift is supported by our impressive full year 2022 financial results, which met our annual guidance. Specifically, we achieved total revenue of $129 million and EBITDA of approximately $18 million, representing margins of 14%. Our strong performance in 2022 represented revenue growth of over 25% as compared to 2021 and a 3x increase in EBITDA.

Moreover, we generated record operating cash flow of $28.6 million during 2022, supporting the increase in our cash position to $34 million as of December 31, 2022, which is nearly double what it was at year-end 2021.

Looking ahead, we expect the momentum for 2022 to extend throughout 2023 with profitability to further meaningfully enhance as compared to last year. As such, we are introducing full year 2023 revenue guidance of $138 million to $146 million and EBITDA of $22 million to $26 million. The midpoint of that range would represent profitability growth of approximately 35% over 2022.

Our impressive results in 2022 and positive outlook for this year is a consequence of our ability to leverage multiple growth drivers, including the portfolio of 4 FDA-approved IgG that we acquired in late 2021; catch-up sales in the U.S.; last year royalties received from Takeda; other proprietary product sales in international markets; and our thriving Israel distribution business.

This significant catalyst, which I will discuss further momentarily, are driving our annual double-digit revenue growth with significant upside potential and limited downside risk. Most importantly, the acquisition completed in November '21 of the 4 FDA-approved IgG consisting of CYTOGAM, HEPAGAM, VARIZIG and WINRHO, following a store serves for the ideal assets for Kamada was a critical strategic and synergistic advancement for the company. I'm thrilled to report that the full year 2022 revenue of the acquired products increased by 24% as compared to full year 2021 and are generating gross margins of over 50%.

During 2022, as a part of the establishment of our direct presence in the U.S. market, we deployed a team of U.S.-based experienced sales and medical affairs professionals who have rapidly established operation in these key markets. The U.S. sales team is making good progress in promoting our portfolio of specialty plasma products to physicians and other health care partitioners through direct engagement and opportunities at medical conventions.

The medical affairs team is working to educate physicians while addressing the scientific and clinical inquiries, including participating in major medical conferences in the U.S.

As a reminder, our activities promoting these important therapies will present the first time in over a decade that these specialty products have been supported by field-based activity in the U.S. market. We are encouraged that the continued positive feedback we've seen from key U.S. physicians who are seeking to publish new clinical data related to our portfolio while conducting educational symposiums that we believe will have a positive impact on the understanding of this product, contributing to continued growth in demand. We expect to begin seeing the impact of our activity later this year.

We are also leveraging our existing strong international distribution network to grow product revenues in new territories primarily in Latin America and the Middle East. Our achievements with its key products in 2022, including winning a new $11.4 million procurement agreement for VARIZIG from an international organization operating principally in Latin America, and securing a $22 million extension of a Canadian supply tender, both of these agreements will contribute to our results this year.

Of course, we are continuing to pursue additional commercial contracts in key strategic territories and are highly encouraged with the significant opportunities ahead of us in 2023 and beyond. These supply agreements and our proactive selling effort to our long-standing distribution relationships underscore Kamada's commitment to leveraging these new strategic assets.

Of the 4 acquired products, the largest is CYTOGAM indicated for the prophylaxis of CMV disease associated with solid organ transplantation. This proprietary and unique therapy is the only FDA-approved IgG product for its indication. We recently submitted a notification to the FDA to manufacture CYTOGAM at our plant in Israel and expect to receive regulatory approval by midyear.

The anticipated FDA approval will mark the successful conclusion of the technology transfer process for CYTOGAM from the previous manufacturer, CSL Behring. The ability to manufacture this product at our facility will positively impact our plant utilization and efficiency.

Let's move on to KEDRAB, our -- in globulin. In the past year, KEDRAB marketed in the U.S. by Kedrion continued to gain significant market share in the U.S. market, which is estimated to be $150 million annually. KEDRAB's commercial team successfully leveraged the FDA approval obtained in 2021 for a label expansion for the product that helped differentiate it as the first and only human rabies immune globulin available in the U.S. to be clinically studied in children.

We anticipate that sale of the product will continue to grow significantly over the next few years. Also to reiterate what we have said previously, I should highlight this product also generates more than 50% gross margin for Kamada.

Moving on. During 2022, as planned, we began receiving GLASSIA Royalties payment from Takeda. For full year 2022, we generated royalty income of $12.2 million, and we expect to receive payment in the range of $10 million to $20 million annually through 2040, which will help us grow profitability and cash position. In addition, we continue to grow sales of the product in the commercial markets through our local partners.

Now let's look a little further ahead at future catalysts. I will begin with Kamada Plasma, our U.S.-based plasma collection company. Our early 2021 acquisition of a plasma collection in Houston, Texas, represented come at the entry into the U.S. plasma collection market and supported our strategic goal of becoming a fully integrated specialty platform product company. Last year, we expanded the hyperimmune plasma collection capacity at our first center and are currently advancing our plan to open additional centers in the U.S. to further enhance our supply of specialty and regular plasma.

Let's now turn to our ongoing pivotal Phase III InnovAATe clinical trial that is evaluating the safety and efficacy of our InnovAATe Inhaled AAT product for the treatment of AAT deficiency. We remain very excited about the potential of this promising product candidate to be highly effective in delivering AAT directly into the patient's lung. The substantial opportunity exists for in AAT to be a transformational product in a market that is already over $1 billion in annual sales in the U.S. and the EU.

We are currently conducting the InnovAATe clinical trial, a randomized, double-blind, placebo-controlled pivotal Phase III study. During 2022, we began to accelerate trial recruitment with 7 clinical sites now open and enrolling patients. In addition, the independent Data Safety Monitoring Board, the DSMB, recommended in November 2022, the study continue without modification for the full time in the trial was initiated. To date, 50 patients have been enrolled for treatment, including 19 patients who have already completed the 2-year study treatment period at the first trial site in -- the Netherlands.

Importantly, no drug related to adverse events reported to date, and the high-level patient adherent to the treatment is encouraging. Moreover, based on encouraging safety observed to date, the study inclusion criteria was revised to also include patients with severe airflow limitation.

Throughout 2023, we intend to continue expediting trial recruitment and to meet with the FDA and the European Medicine Agency, EMA, to discuss study progress and potential opportunities to shorten the regulatory pathway. In our Israel distribution segment, we are leveraging our expertise and strong trends and in Israel markets to register market and distribute more than 25 products that are developed and manufactured by our international partners. In recent years, we have significantly grown our pipeline of distributed products. In 2023, we anticipate continue to launch new therapies across multiple medical specialties.

An area of strategic focus in this business is the pre distribution of portfolio of 11 biosimilar products expected to be launched upon received Israeli regulatory approval through 2028 and with overall annual anticipated peak sales within several years of launch of more than $40 million. Included in this portfolio of 8 products to a distribution agreement with Alvotech, a global leader in development and manufacturing of biosimilar drugs.

To summarize. 2022 was a year of significant progress for Kamada, during which we achieved rapid financial improvement by leveraging multiple robust value-creating catalysts, and we are well positioned to further substantial revenue and profitability growth in 2023 and the years beyond with limited downside risk and substantial upside potential as a global leader in the specialty plasma industry.

Importantly, looking past 2023, based on our multiple catalysts, we continue to project annual double-digit growth in revenues and profitability in the foreseeable years ahead of us. With that, I'll now turn the call over to Chaime. Chaime, please?

Thank you, Amir. As previously highlighted, our business performed extremely well in 2022. Total revenues for the full year were approximately $129 million, a 25% increase from the $104 million recorded in fiscal year 2021. For the fourth quarter of 2022, total revenues were approximately $45 million, an increase of 44% year-over-year. These results are indicative of the successful strategic transformation we achieved through the key product acquisition secured during 2021 that resulted in a vertically integrated global commercial biopharmaceutical company with multiple growth drivers.

The year-over-year growth during the fourth quarter and throughout the duration of 2022 was primarily driven by continued strong sales of our previously acquired IgG products, which was fueled by strong sales in the U.S., resulting from our ongoing marketing efforts as well as the expansion of ex U.S. sales of these products. Additional catalysts in 2022 included the continued growth of KEDRAB and 10 months of royalty income from GLASSIA. During this 10-month period, we recognized $12.2 million of royalty income from Takeda based on their sales, which was in line with our anticipated projections.

Total gross profit for the fourth quarter of 2022 was $15.3 million, representing 34% margin compared to $6.6 million or 21% margin in the fourth quarter of 2021. Gross profit for the full year 2022 was $46.7 million representing 36% margins, up from 30% in the prior year.

Let's now turn to explanation of our depreciation expenses. As previously discussed, the company is accounting for depreciation expenses associated with intangible assets, which were generated through the late 2021 acquisition of the 4 IgG products. In the fourth quarter and 12 months ended December 31, 2022, cost of goods sold in our proprietary segment included $1.3 million and $5.4 million, respectively, of depreciation expenses associated with these intangible assets.

Research and development investments during fiscal year 2022 increased to $13.2 million as compared to $11.4 million in the prior year period primarily due to the expansion of our ongoing pivotal Phase III InnovAATe trial for Inhaled AAT.

Selling and marketing expenses for the first quarter and full year 2022 increased to $4.8 million and $15.3 million, respectively. These increases were attributable to the establishment of our U.S. commercial operation to support the distribution and sale of the acquired portfolio of our 4 FDA-approved commercial products. In addition, these costs included pre-commercial activities associated with new product launches in Israel -- in Israeli distribution segment. We expect our overall operation expenses, including R&D, sales and marketing and G&A, to increase between 15% to 20% during 2023 compared to 2022 as we continue to advance our commercial activities as well as our Phase III InnovAATe trial.

As we have since the first quarter of 2022, we continue to account for financing expenses with respect to revaluation of contingent consideration and long-term assumed liability, all of which are related to the acquisition completed in 2021. For full year 2022, these finance charges totaled $6.3 million.

As we did in the third quarter, we again achieved profitability in the fourth quarter, recording net income of approximately $2.9 million or $0.07 per share on a fully diluted basis. For fiscal year 2022, we recorded a net loss of $2.3 million or a loss of $0.05 per share on a fully diluted basis. Adjusted EBITDA was $7.2 million for the fourth quarter of 2022. Adjusted EBITDA for its fiscal year 2022 was $17.8 million, representing 14% margin, which was in line with our annual financial guidance and represents a substantial increase over the $5.4 million of adjusted EBITDA or 5% margins recorded in 2021.

To reiterate the guidance provided by Amir earlier, based on our expectations of significant revenue growth and enhanced profitability in fiscal year 2023, we expect revenues to be in the range of $138 million to $146 million and anticipate generating adjusted EBITDA of $22 million to $26 million. The midpoint of such range represents support approximately 35% growth as compared to fiscal year 2022.

Finally, for the fourth consecutive quarter or all fiscal year 2022, we generated positive operating cash flow demonstrating the consistent ability of the company's commercial operations to generate cash. During the fourth quarter, we generated $6.7 million of operating cash flow and a record $28.6 million in total during fiscal year 2022. Our total cash position as of December 31, 2022 was $34.3 million, a robust increase from the $18.6 million at December 31, 2021.

That concludes our prepared remarks. We will now open the call for questions. Operator?

(Operator Instructions) And our first question comes from the line of David Bautz with Zacks Small Cap Research.

Thanks for the update this morning. So I've got a few questions this morning. I want to start with maybe talking about the cash flow that you guys are generating. One, do you foresee the company remaining cash flow positive for the foreseeable future? And if so, what are the company's plans to do with the cash? And would there be the potential to pay out a dividend at some point?

Hi, David. Thank you for the question and for participating in the call. The answer is absolutely yes. The company will continue to be cash positive, to be profitable, and we expect continued significant growth, top line and bottom line. And as you can see from our 2022 results, not only the EBITDA was strong, but also we could translate that strong EBITDA into very strong cash flow operation and capitalization. So our EBITDA is well correlated with generation of cash.

In regards to our plan, how to -- the cash flow, so we will be looking to move forward with some additional BD opportunities, looking for the right in-licensing or acquisition.

We are very happy and I'm sure that also shareholders is very happy with the success of the acquisition we've done in 2021. I think it's well represented in our 2022 results and 2023 forecast. So with that successful acquisition integration, I think that, over time, we'll be ready for the next BD move. This, coupled with some additional investments that we would like to make in our pipeline will further enhance our outlook in terms of growth in the mid and long term.

Okay. And now with regards to the 4 products that you acquired in 2021, the sales you reported today were up 24%, I believe, you said in 2022. What would you say was the biggest driver behind that growth? And then what do you think is going to be the biggest driver or drivers in the years ahead for those products?

So we had significant growth basically in the portfolio, and this I can attribute to all 4 products, both U.S., Canada and North America.

As you know, and we reported it, we won an $11.4 million contract for VARIZIG. We have extended our agreement with Canada for another 3 to 5 years. We are growing CYTOGAM in the U.S. in the Canadian market. We have strong markets for HEPAGAM and WINRHO outside of the U.S., primarily in the MENA region. So it comes from all 4 products. And in total, having 6 FDA approved products, KEDRAB, KAMRAB, GLASSIA, and products from the new portfolio, we have a lot of opportunities.

This significant network of 6 products spread over 30 countries basically created a very strong metrics, if I may, of opportunities to grow the business significantly. And we are very happy with the 2022 results. Our 2023 projection, there is another significant growth of those products. And moving forward, we will continue to really take a full potential of those products and grow them significantly over the next few years.

Okay. And as a follow-up, I guess, you mentioned that the VARIZIG contract. Is the company working on additional supply contracts like that?

Absolutely. We have a very proactive further marketing approach as well as registration of our portfolio in new territories through throughout the entire supply chain, some regulatory submissions through supply chain aspects. And for the marketing, we are growing the business and we are proactively participating in additional international tenders.

Okay. And my last question is about gross margins that reported 36% for 2022. Do you foresee those being similar in future quarters and for this year ahead?

If you look at our projection for 2023 and you compare the growth of the top line versus the better growth or the enhanced growth of the bottom line, you see that our overall mix of products is continuing to transition into the more profitable products in our portfolio. So this will generate, over time, better GP, better gross profitability. We are able to translate a significant portion of the top line increase next year also into a bottom line EBITDA increase. So I think these -- for itself in our ability to become a more profitable company with a strong product mix in multiple territories.

Ross, so while we wait for some additional questions to queue up, been e-mailed a few throughout the call. So could we just address those right now. This first question is for you, Amir. Why do we believe that the inhaled AAT is uniquely positioned in the current AATD development land?

So the current standard of care were the standard of care for the last 30 years almost. So Alpha-1 deficiency has been a weekly infusion, which means that patients need to go to the clinic or have a nurse come to the home.

And this is, of course, an invasive type of treatment. What we are developing, what we are proposing is a noninvasive at-home treatment. So the ease of use and the quality of life for those patients will improve significantly if and when and how AAT will be approved.

So we also get this feedback from any survey that we are doing with the patients. They all prefer to have the option -- or majority of them prefer to have the option of having the treatment by nebulizing Inhaled AAT instead of IV treatment.

Secondly, we have shown people studies that in health AAT is the most effective motor treatment for delivering sufficient levels of AAT into the deep lungs, directly into the lungs. This allows us to dose the patients with 1/8 of the studies for quite some time with multiple patients on 250 patients to date. And we have seen a very strong safety data. This has been demonstrated in the current study that we are doing. I spoke about it throughout the call. So we believe we are developing a game changer in over $1 billion market that hopefully will be proven in the current study to be effective and allow us to register the product, both in the U.S. and the EU.

Great. Appreciate the color, Amir. And then just on to our final submitted question. Can you please bring out the opportunity with the plasma collection centers? And in addition to that, can you provide us with some timing of when they may be going to contribute to the top line?

Yes. So as I described in the call, we have expanded in 2022 our collection in the existing center in Beaumont, Texas. We are moving forward with the opening of additional centers. So we have a team working on identifying locations for additional centers and advancing lease agreements so we can move into the construction of those centers. In general, if fully loaded, if I may, a center, a mature center usually collects between 40,000 to 50,000 liters a year, and this translates into top line contribution of close to $10 million.

So that -- with that regard, starting basically to ramp up in the second part of next year or second part of 2024, first center should be up and running and starting to expand in its collection capacity.

Okay. Great. Thank you, Amir. Thank you to all those who submitted the questions. Operator, I'll turn it back to you.

There are no additional phone questions at this time. I will hand the floor over to Amir London for any closing remarks.

Thank you, operator. So in closing, we look forward to continuing to support clinical -- with important life-saving products that we develop and fracture and commercialize. We thank all of our investors for their support, and we remain committed to creating long-term shareholder value. Thank you, everyone, and we hope you all stay healthy and safe. Goodbye.

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