Kamada Ltd (KMDA) 2021 Q3 法說會逐字稿

Hello, and welcome to the Kamada Ltd. Third Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bob Yedid with LifeSci Advisors. Please go ahead, Bob.

Thank you, and thank you, all, for joining us. This is Bob Yedid from LifeSci Advisors. Joining me from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer.

Earlier this morning, Kamada announced a strategic transformational transaction, positioning the company as a global leader in plasma-derived hyperimmune market through the acquisition of a portfolio of 4 FDA-approved plasma-derived commercial products from Saol Therapeutics, a privately held pharmaceutical company, as well as its financial results for the 3 and 9 months ended September 30, 2021. If you have not received these news releases, 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 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, Monday, November 22, 2021. Kamada undertakes no obligation to revise or update any statements to reflect these events or circumstances after the date of this conference call.

With those prepared remarks, it's my pleasure to turn the call over to Amir London, CEO. Amir?

Thank you, Bob. My thanks also to our investors and analysts for your interests in Kamada and for participating in today's call. I and all of us at Kamada are thrilled to announce this morning the strategic transformational transaction, positioning Kamada as a global leader in the plasma-derived hyperimmune market through the acquisition of a portfolio of 4 FDA-approved plasma-derived hyperimmune commercial product from Saol Therapeutics.

Before I continue to provide you with an overview of this strategic transaction, which is a significant growth catalyst for Kamada, I will ask Chaime to provide the key details around our financial results for the third quarter and the 9 months ended September 30. Chaime, please?

Thank you, Amir, and good day, everyone. Our business continues to perform as anticipated through the first 9 months of 2021. In the third quarter of 2021, total revenues were $23 million compared to $35.3 million for the third quarter of 2020. For the first 9 months of 2021, total revenues were $72.2 million, down from the $101.7 million in the similar period of 2020. This decrease is primarily related to the expected reduction of GLASSIA sales resulting from the completion of the product manufacturing transition to Takeda.

During the first 9 months of 2021, we completed our committed supply of GLASSIA to Takeda and recognized revenues of approximately $26.9 million. As a reminder, we will begin receiving royalty payments in 2022 at a rate of 12% on Takeda's net in-market sales of GLASSIA, through August 2025 and at a rate of 6% thereafter until 2040. We project receiving royalties in the range of $10 million to $20 million per year from 2022 to 2040.

From a profitability standpoint, gross profit for the third quarter of 2021 was $5.7 million as compared to $14.8 million in the third quarter of 2020. For the first 9 months of the year, our total gross profit was $23.7 million as compared to the $37.4 million of total gross profit in the first 9 months of 2020. Gross margins for the third quarter and first 9 months of the year were 22% and 32%, respectively, as compared to 42% and 36%, respectively, in the equivalent period in 2020.

As a reminder, we said on our last call that we expected a shift in product sales mix during the second half of the year, resulting in lower gross margins. Net loss for the quarter was approximately $800,000 or $0.02 per share as compared to net income of $6.8 million or $0.15 per share in the third quarter of 2020. For the first 9 months of 2021, net income was $2.8 million or $0.06 per share as compared to net income of $15.5 million or $0.35 per share in the first 9 months of 2020. For the first 9 months of 2021, our adjusted EBITDA, excluding the onetime severance costs related to the workforce reduction, was $6.7 million compared to $21.1 million in the first 9 months of 2020.

With that, let me return the call over to Amir for his overview of the strategic acquisition. Amir?

Thank you, Chaime. As mentioned earlier, we are thrilled with this strategic transformational transaction positioning Kamada as a global leader in the plasma-derived hyperimmune market through the acquisition of a portfolio of 4 FDA-approved plasma-derived commercial products. Collectively, these 4 products acquired from Saol Therapeutics are expected to generate global revenue for the full year of 2021 of between $40 million to $45 million. Approximately 75% and 20% of these sales will be generated in the U.S. and Canada, respectively. The acquired products expected full year 2021 gross margins are between 50% to 55%.

Importantly, after a temporary decline in our revenues and profitability in 2021 compared to previous years due to GLASSIA's manufacturing transfer to Takeda, the integration of the newly acquired portfolio with Kamada's existing business is expected to result in a significant growth in our revenues and profitability already next year in 2022. The 4 acquired products include: the first product is CYTOGAM, which currently accounts for approximately 50% of the portfolio revenue and is indicated for the prophylaxis of CMV disease associated with the transplantation of the kidney, lung, liver, pancreas and heart. The product is the sole FDA-approved IgG product for this indication.

You will recall that Kamada announced in late 2019 a contract manufacturing agreement. Such agreement was related to CYTOGAM. The tech transfer process for CYTOGAM is already well underway, and Kamada expect to receive FDA approval to manufacture the product and initiate commercial manufacturing at its facility in Israel by the end of 2022.

The second product is VARIZIG, indicated and recommended by the U.S. Centers for Disease Control, or CDC, for post-exposure prophylaxis of riserva in high-risk individuals including immunocompromised children, newborns and pregnant women. The product is the sole FDA-approved IgG product for this indication.

The third product is WINRHO, indicated for use in ITP and suppression of resis isolization during pregnancy and other strategic conditions in non-sensitized (inaudible) negative women.

And the fourth product is HEPAGAM B, indicated for use in the prevention of hepatitis B reoccurrence following liver transplants as well as post-exposure prophylaxis. The acquisition of this FDA-approved commercial portfolio represents a critical strategic and synergistic transactions and it's an important growth driver for Kamada.

Our U.S. subsidiary, Kamada Inc., will be responsible for the commercialization of the products in the U.S., including direct sales to wholesalers and local distributors. Together with KEDRAB and (inaudible), our other commercial IgG product, our portfolio of commercial specialty plasma-derived hyperimmune therapies now includes 6 products. And this is indicative of our global leadership position in the plasma-derived specialty hyperimmune market.

With establishment earlier this year of Kamada Plasma, our U.S.-based plasma collection company, acquisition of this new portfolio and the establishment of our U.S.-based commercial operation, Kamada continues to advance its core objectives of entering 2022 as a fully integrated specialty plasma company with strong commercial capabilities in the U.S. market.

Importantly, in addition to the establishment of a commercial presence in the U.S., this transaction adds 8 new international markets to our current distribution network. These new markets are primarily in the Middle East, as shown on this map. Kamada now has a commercial footprint in over 30 countries.

Each of these products offers significant growth potential for Kamada, and we intend to invest in the commercialization and life cycle management of the newly acquired products and to leverage our existing strong international distribution network to grow the acquired portfolio revenue in new geographic markets.

Moreover, with the planned transfer of CYTOGAM manufacturing to our facility in Israel, the expected continued growth of KEDRAB, our anti-rabies hyperimmune product, and the potential to transfer the production of the other 3 products in the acquired portfolio to our Israeli facility, we anticipate utilizing and optimizing the capacity of our plant following the transition of GLASSIA manufacturing to Takeda.

In terms of the acquisition financial terms under the agreement, Kamada's bank sells $95 million upfront and up to an additional $50 million in sales milestones during 2022 until 2034. In addition, Kamada is acquiring from (inaudible) existing inventory at an estimated value of approximately $15 million, which will be paid on 10 equal quarterly installments. All other inventory transferred at no cost.

In addition to leveraging our current strong balance sheet, to partly fund acquisition costs, Kamada has secured a $40 million credit facility for Banca Polin, Israel's leading commercial bank. The credit facility is comprised of a $20 million 4-year term loan -- sorry, 5-year term loan and a $20 million short-term revolving credit facility.

To summarize, this acquisition is an important step towards establishing Kamada as a global leader in the development, manufacturing and commercialization of plasma-derived specialty IgGs. As a reminder, our strategy is focused on driving profitable growth from our current commercial activities as well as our plasma-derived product development and manufacturing expertise.

Together with the existing growth catalysts, comprising of KEDRAB serves in the U.S. market, GLASSIA royalties, our rapidly expanding Israel distribution segment based on the anticipated launch of 9 new biosimilar projects, the sales of GLASSIA and existing hyperimmune sales in international markets, the establishment and expansion of our U.S.-based plasma collection capabilities and the potential of our inhaled AAT investigational product.

Today's the announced acquisition of the 4 plasma-derived hyperimmune commercial product is transforming Kamada into a vertically integrated specialty plasma-derived company and a global leader in the plasma-derived hyperimmune market.

In summary, we are highly confident in the strength of our overall business, which consists of multiple profitable lines of business that can each drive significant long-term growth opportunities for Kamada, and we look forward to leveraging the banding benefits of the transformational transaction announced today.

With that, we'll now open the call for questions. Operator?

(Operator Instructions) Our first question today is coming from Anthony Petrone from Jefferies.

Congratulations on the transaction announced today. I'll have a few focused here and then a few more broader, higher-level questions and -- so first, Amir, on the transaction announced today with Saol, maybe just a little bit more on the revenue breakdown across the 4 products in the $40 million to $45 million range, just how that breaks out across the 4 products? And maybe just the growth profile on the portfolio? And then I'll have a couple of follow-ups.

Okay. Thank you, Anthony. So CYTOGAM is the largest product of the 4, and it's currently selling approximately 50% of the portfolio. The second and third products WINRHO and HEPAGAM, we sell between $10 million to $8 million approximately or 8 to 12 depending on the year. And VARIZIG is selling less and the other 3 products. I believe it's around $3 million to $6 million. This is our expectation for this year.

Okay. And then when you look at that combined $40 million to $45 million, is there a growth rate -- a historical growth rate that you can share as well?

So we are looking into the future, and we believe that we can grow this portfolio significantly by mainly 2 aspects. One aspect in the U.S. market. We plan on establishing a commercial team that will be promoting the product. The products are primarily focused on transplantation. So we are going to cover the main transportation centers in the U.S., and we are going to be very active in promoting this treatment for the needed population.

In addition, the fact that Kamada already has currently a distribution network in over 20 countries, 25 to be precised, we believe that we can grow this business significantly outside of the U.S. Until today, the main focus was U.S. and Canada. As we've said, 95% of the current sales are within those 2 territories. And wiith Kamada's existing infrastructure, we believe that we can drive significant growth outside the U.S. and Canada through our existing distribution channels.

That's helpful. And then maybe on the production side, Amir, is the current Kamada collection footprint enough to support the 4 products from a hyperimmune plasma standpoint on the collection side? Or will the company have to go out there and acquire hyper IgG plasma to support the portfolio?

So the products are being transferred to Kamada with an established supply chain, including plasma supply capabilities or contracts for the years to come. In addition to that, we are planning to grow our own existing hyperimmune collection based on Kamada plasma that was established beginning of the year, and we plan on being able to support a majority of the plasma (inaudible) products through our own capabilities in the years to come. It will take time to build this capacity, but that's our plan. This is going to improve our cost of goods, allow us to be even more competitive and to grow our profitability in the U.S. and ex-U. S. on those 4 products.

A follow-up for Chaime, just on the margin profile here. 50% to 55% gross margin, it does sound like there will be investments to support the portfolio in other markets, both direct and indirect sales channels. And so maybe just how this flows through the P&L when you consider the operating expenses that are going to be layered on the operation? So a little bit on the margin profile down to the, let's say, the EBITDA line?

So outside of the U.S., we are going to use our existing distribution channels. So we are not going to operate our own sales team. So we're not going to add to the pressure cost in that regard. We are going to support the products, of course, from a marketing perspective and product management, and this is going to be part of the support we will need to give anyway to our U.S. affiliate, which is going to sell the products.

In the U.S., the team is going to be focused and highly effective. We believe that we need up to 15, 1-5 people, that will be working on that portfolio in the U.S. market. And the reason I'm saying that we can be highly focused is because it is for the transportation centers. We are going to focus on the few dozen main transportation centers in the U.S. market, and that's going to be our core business.

Great. And then maybe just transition away from the transaction today on the base business, 2 quick follow-ups. I'll get in queue here. One, just on the Takeda royalties. As we look into the first year in 2022, the range, $10 million to $20 million is wide. Just wondering, is that to consider market fluctuations just in terms of GLASSIA being sold? Or is it something specific in the agreement when you consider the range? And then maybe if you can just provide, as we look into '22 and '23, the next steps that we should be looking for on the InnovAATe and Inhalable trial? Congratulations again.

Thank you. So on the GLASSIA Takeda royalties, it's not about fluctuation. As you may remember, we are starting with the 12% royalty, and then it goes down in August 2025 to 6%. So basically, into 2022 when royalty started, it will be the higher range of the $10 million to $20 million because it will be the 12%. And then starting in September 2025, it will drop by half. That's why we gave the range. So you can start with a higher number for the next few years until end of 2025.

And then just on the InnovAATe trial?

Yes. Yes. So the Inhaled study, as you know, we are in the Phase III pivotal study under the U.S. IND and European CTA. We announced today as part of our quarterly earnings that we had a successful DSMB meeting, the drug safety monitoring board review. So we are highly encouraged by the good feedback we received from that committee on the safety of the treatment. We are planning to continue, of course, and open additional sites of the study early 2022.

(Operator Instructions) We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you, operator. In closing, we are thrilled with today's transformational strategic acquisition of the 4 FDA-approved commercial products. And we remain confident in the prospects for our business, which consists of multiple profitable lines of business that can each drive significant long-term growth opportunities for Kamada.

As already explained, importantly, after the temporary decline in our revenues and profitability this year compared to previous years as a result of GLASSIA manufacturing transfer to Takeda, the integration of the newly acquired portfolio with Kamada's existing business will result in significant growth in our revenues and profitability already next year in 2022.

Thank you for joining us today, and we look forward to providing you with further updates in the coming weeks and months. We hope you all stay healthy and safe. Thank you very much.

That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.