Kamada Ltd (KMDA) 2021 Q1 法說會逐字稿

Greetings. Welcome to the Kamada Ltd. First Quarter 2021 Earnings Conference Call. (Operator Instructions)

Please note this conference is being recorded. I will now turn the conference over to your host, Bob Yedid. You may begin.

Thank you, operator, and thank you, everyone, for joining today's call. This is Bob Yedid with LifeSci Advisors. Joining me today from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer.

Earlier this morning, Kamada announced financial results for the 3 months ended March 31, 2021. If you had 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 identify the 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 date of this live broadcast, Wednesday, May 12, 2021. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

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

Thank you, Bob. I thank also to our investors and analysts for your interest in Kamada and for participating in today's call. While the global pandemic continues to create commercial challenges, our sales and financial results for the first quarter of 2021 were in line with our expectations. Chaime will provide all the key details around the first quarter financial results shortly, but I'd like to begin by highlighting the recently announced amendment to the GLASSIA license agreement with Takeda whereby upon completion of the transition of GLASSIA manufacturing to Takeda, which is expected by the end of 2021, we will transfer to Takeda the GLASSIA U.S. BLA. In exchange for the BLA transfer, we will receive a $2 million payment from Takeda expected by the end of the year.

In addition, the term of the final sales-based milestone of $5 million due to Kamada under the license agreement was amended and resulted in recognition of the income in the first quarter. Based on the pending transition of GLASSIA manufacturing to Takeda later this year, and its continued distribution of the product in the U.S., the transfer of the BLA to Takeda was a sound strategic next step for both sides.

Also, in connection with the transition of GLASSIA manufacturing to Takeda later this year, we are planning to implement a workforce downsizing during the early part of the third quarter, which is expected to result in an annualized reduction in labor costs of approximately 10%. These cost savings are in line with the plan to align our workforce to the lower plant utilization, maintaining a profitable and effective operation meeting market demands.

With that, I would like now to turn to our product pipeline and discuss our InnovAATe Phase III clinical program for propriety 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 performed under an FDA IND and a European CTA, designed to assess the efficacy and safety of Inhaled AAT in patients with Alpha-1 deficiency and moderate lung disease. This program continues to be a high priority for Kamada, and we continue to evaluate strategic opportunities for engaging a commercialization partner for this important product candidate in a market, which is currently estimated at over $1 billion and growing 6% to 8% annually.

Moving on, I'd like to discuss the important progress we continue to achieve around the development of our plasma-derived immunoglobulin product as a potential therapy for COVID-19 disease. We were pleased to announce top end results from our Phase I/II open-label single-arm multi-center clinical trial of our IgG product in Israel.

To briefly reiterate the results, 11 of the 12 patients recovered following the receipt of the treatment. 7 patients were discharged from the hospital at or before day 5 of treatment and the remaining 4 patients were discharged by day 9. Following the infusion of the product, IgG level in the plasma of all patients increased, and preliminary results demonstrated that the IgG level increase was associated with enhanced utilization activity. In addition, we are encouraged to observe that our IgG product demonstrated a favorable safety profile, and there were no infusion-related reactions or adverse events considered related to the study drug.

Under our existing agreement, we continue to supply the product to the Israeli Ministry of Health, MoH, for the treatment of COVID-19 patients in Israel. As a reminder, the initial order from the MoH for the product is sufficient to treat approximately 500 hospitalized patients and is expected to generate approximately $3.4 million in revenue for Kamada. The therapy is available nationwide in Israel, and patients are being treated as part of the MoH clinical study or on a named patient basis.

During the first quarter, we also finalized the ramp-up in manufacturing of the product by utilizing plasma collected in the U.S. by Kedrion. This scaled-up manufacturing on our commercial scale production line can accommodate possible demand from additional international markets. We are currently in discussion with several countries regarding the potential supply of our IgG product. In general, we believe that even after global deployment of COVID-19 vaccination, there would still be specific population that will continue to need an IgG product, mainly immunocompromised patients, which are expected to continue to be at risk due to their condition. Lastly, we believe that our activity during the COVID-19 pandemic clearly demonstrated our ability to quickly and professionally respond to such emerging situation.

Moving on to the formation of Kamada Plasma, our new subsidiary in the U.S. We are extremely excited about the future opportunities provided by our recent acquisition of the Plasma Collection Center in Beaumont, Texas and the establishment of our own collection capabilities. The acquisition represents our entry into the U.S. plasma collection market and drives us towards our strategic goal of becoming a fully integrated specialty plasma company. I'm pleased to report today that integration and expansion activities are proceeding as planned at this facility.

By leveraging our FDA license, we plan to open additional centers in the U.S. through which we intend to significantly expand our hyper-immune plasma collection capacity. This plan of expansion is expected to improve our IgG competitive position in various markets. We look forward to sharing additional details with you regarding this potential growth opportunity in the coming quarters.

Lastly, we continue to proactively explore new strategic business development opportunities that will utilize and expand our core plasma-derived development, manufacturing and commercialization expertise. As a reminder, we are focused on identifying plasma-derived products that we can acquire or provide manufacturing services for. Our team is fully engaged, and we are currently in active discussions that we hope will lead to realizing these opportunities, which will be funded by our strong cash position of nearly $110 million as of March 31, 2021.

Our strategy is focused on driving profitable growth from our current commercial activities as well as our plasma-derived product development and manufacturing expertise. As such, we intend to continue evolving into a vertically integrated specialty plasma-derived company through development and/or the acquisition of plasma collection and product distribution capabilities.

In summary, we continue to fairly believe in the strength of our overall business, which consists of multiple lines of activity that can each drive significant long-term growth opportunities for Kamada.

With that, I now ask Chaime to give you our financial results for the first quarter of 2021. Chaime, please?

Thank you, Amir, and good day, everyone. As Amir noted, our business performed as anticipated in the first quarter. As we said would be the case on prior calls, the transition of GLASSIA manufacturing to Takeda and the continued uncertainty in the operating environment created by the ongoing global COVID-19 pandemic resulted in reduced revenues and profitability in the first quarter of 2021, and we expect this will continue throughout the year.

In this quarter, total revenues were $24.9 million compared to $33.3 million for the first quarter of 2020, representing a 25% decrease. Total revenues in the first quarter included the recognition of the accelerated $5 million final sales-based milestone payment from Takeda under the amendment GLASSIA license agreement between the companies.

During the quarter, we sold approximately $7 million of GLASSIA to Takeda, which are part of our overall expected $25 million in product revenues from the supply to Takeda in 2021. Importantly, upon the initiation of sales of GLASSIA manufactured by Takeda, we will receive royalty payments from Takeda at a rate of 12% on net sales through August 2025 and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years 2022 to 2040.

Although the transition of the agreement to its royalty phase will result in a significant reduction of Kamada's revenue from Takeda, based on the current GLASSIA sales in the U.S. and the forecasted future growth, Kamada projects receiving royalties from Takeda in the range of $10 million to $20 million per year through 2040.

From a profitability standpoint, gross profit for the first quarter of 2021 was $8.9 million, down from $11.5 million in the first quarter of 2020. Gross margins were 36% from the first quarter of 2021, an increase from 34% gross margin in the first quarter of 2020. The reduction in gross profitability is associated with a decrease in the overall revenues as well as a onetime inventory write-off of approximately $1.5 million.

Moving on, net income was $2.7 million or $0.06 per share on a fully diluted basis in the first quarter of 2021 as compared to net income of $5.2 million or $0.12 per share in the first quarter of 2020.

Kamada continues to operate from a position of financial strength. As of March 31, 2021, the company had cash, cash equivalents and short-term investments of $109.5 million. As Amir indicated previously, we intend to utilize these cash resources for the expansion of our plan for collection activity and strategic business development opportunities.

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

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

I guess, Amir, maybe first just a question on geopolitical front, just given the events over the past 48 hours, maybe just to address just manufacturing supply chains. How you're thinking about potential impacts from the events over the last 48 hours or lack thereof and then we could go into other questions. And of course, hope everyone's family is doing well.

We are all well and safe. And we have no concerns regarding supply and the continuation of our operations at the plant. Israel has been under this type of situation for the past 20 years, and we didn't need to stop our production even for 1 day as a result of this. We have very strong security, very strong technology around the Iron Dome system, and we are all safe and secure. Thank you very much.

Well, best wishes to everyone and hopefully, its speedy resolution. So in terms of a few comments referencing the prepared remarks, and some of the items in the press release, Amir, maybe a little bit on the outlook for establishing a partnership for the Inhaled alpha-1 antitrypsin product. Where are the discussions at the moment? And if you look ahead, what sort of partnership should we be thinking about? Will it be regional -- a regional commercialization effort? Or will it be a single partner that has access to multiple geographies across the world? And then maybe to follow up on AATD. It would be just timings on the next clinical updates that we should be thinking about? And I have a couple more.

Okay. So as we mentioned on the call, we are in active discussions with potential partners, and we are evaluating the different opportunities ahead of us. We are looking at a commercialization partner that will be investing in the clinical development and in return, will have commercial rights for future commercialization, let's say, license for future commercialization of the product in different territories. In terms of will it be one partner for territories, will it be multiple partners, all alternatives are open, and we are evaluating the different options with different partners that are showing interest in such collaboration. And in the time, we will update on the progress that we will potentially be making.

And a few follow-ups would be when we look toward the transition, the manufacturing, the BLA transition to Takeda on GLASSIA IV, is there a way to sort of estimate how much capacity is actually freed up at the plants and subsequently would be available for future CDMO agreements?

And then you mentioned also, Amir, leveraging the balance sheet. How should we be thinking about investments allocated toward hyper-immune supply as opposed to potentially in-licensing agreements or even potential acquisitions of hyper-immune globulin products?

Okay. So in terms of capacity, we did not disclose the exact number. But basically, you can look at the revenue that is basically being transferred into royalties. And from that, you can kind of calculate the capacity. In general, we are going to have sufficient capacity to take additional CDMO contracts, like the one that we've signed end of the 2019, and we're currently in the tech transfer phase of this product.

As you may remember, we've announced that we signed an agreement for 12 years with expectations that it will contribute between $8 million to $10 million a year to Kamada, overall, close to $120 million in revenue over the 12 years contract starting 2023. So we have the capacity to take additional similar contracts. But also remember that we are growing our KEDRAB manufacturing, and we've won additional KEDRAB or KamRAB contracts like the WHO -- or Canada, where we are supplying the product. The product is also under registration in other territories.

GLASSIA is growing ex-U. S. and GLASSIA is also under registration in some territories, primarily in Latin America. So we are growing organically our current products. And this, of course, will fill some of the capacity that is going to be available after completion of the transition into Takeda, adding to that CMO services and adding to that additional potential products.

All of this does not fully recover -- Anthony, all of this does not fully recover all of the available capacity, and this is why we are downsizing the plant in terms of number of employees. And as we said, the result of the downsizing, which is going to happen at the beginning of the third quarter of this year, will result in 10% cost reduction in terms of our labor costs.

And 2 quick follow-ups there. One, on the 10% overall cost reduction, is that just total costs throughout the P&L or is it mostly COGS or operating expenses? Or how is it mixed between COGS and operating expenses?

And then the last one would be just on plasma supply Beaumont, Texas. You mentioned additional plasma collection centers. Should we be expecting this year that you will continue to bolster plasma collection efforts throughout the remainder of the year and into next year?

Yes. So I'm not sure I fully heard the question, but if I don't answer it completely, please ask another question. In terms of the plasma collection capabilities, so for this year, we have 2 objectives. One is to expand the capacity of the current center and try to maximize its potential and this is already in the work. And in parallel to that, we have initiated the planning of expanding into opening additional centers, so we expect to complete the planning of the additional centers later this year. And once basically the plan is finalized, we will move into the execution phase of opening additional centers. So the actual opening business centers is something planned most likely for next year.

In terms of the labor cost, so we have been basically downsized or planning to downsize across the entire company, if I may say. But primarily, of course, on the labor, which is working directly on the production, this is where, due to the transition, of GLASSIA to Takeda, we have a lower utilization at a plant, and we are aligning the capacity to the needed demand. So majority of that 10% is related directly to the COGS.

And our next question is from Keay Nakae with Chardan Capital Markets.

I was wondering you can give us an update on the status of enrollment in the Inhaled clinical studies.

Yes. Thanks. So we did not provide exact numbers, but what I can definitely say is that we -- as you know, we initiated the study end of 2019 with first patient in the site that was open, has been kept open through the entire COVID situation in Europe, this site is in the Netherlands. Additional sites are ready to be opened and now as the COVID situation improves across Europe and the U.S., we will be looking into opening additional sites. So that's part of our plan. And in parallel to that, we are working on the business development side of the program concurrently and looking to engage a partner as a commercial partner.

Okay. With respect to the hyper-immune plasma for COVID that you're selling in Israel. Can you tell us how much of that 5 million -- or I'm sorry, 500-patient revenue was recognized in Q1?

So a significant part of the $3.4 million has been sold already in Q1. The remaining is going to be supplied -- is being supplied to the ministry this quarter. So by the end of this quarter, the entire $3.4 million will be recognized. The treatment in Israel, over 100 patients have been enrolled into the Israeli study that's been sponsored and supervised by the Israeli Ministry of Health. In general, the COVID situation in Israel has been improving significantly, as you may know, with global vaccination -- not global, the nationwide, sorry, vaccination program. So current recruitment into the study is slow because there aren't many new patients being diagnosed.

We are in discussion with other governments, other countries in terms of the supply agreement. And as mentioned during the call, we have scaled up the production and we have sufficient plasma and sufficient production capacity at our commercial line to be able to supply greater quantities of the product to other governments and other ministries of health.

Okay. For the rabies hyper-immune, last year, obviously, impacted by lockdown situations. What are you seeing there is the outlook for that product as things begin to open up globally?

Yes. So as we mentioned on previous calls that during 2020, the actual in-market sales of anti-rabies immunoglobulin were, of course, lower than the original expectation because of the lockdown because people did not spend much time out in the parks and in the nature.

And as a result of this, the inventory levels at Kedrion carried, beginning of the year, were high inventories, and this has its effect on our 2021 sales to Kedrion. Plus they needed to consume the high inventory beginning of the year. As the U.S. starts to reopen and people are going to spend more time, especially now toward the summer, we expect this high inventories to be consumed and that the rate of usage and our rate of sales to Kedrion will catch up again as it was prior to the pandemic.

As you may remember, we already had over 20% market share in 2019, which was kind of the first full year of us selling with Kedrion the product in the U.S. market. We expect this market share to continue growing. We believe that it can reach even up to 45% to 50% of the overall market, which is over $150 million. So starting late 2021, into 2022, we expect this market share to continue growing and the overall sales of the product as to Kedrion and Kedrion in-market sales to expand significantly.

Okay. And then just a final question about the plasma centers. I assume that most of the product will be used internally, but how much intermediates do you see being collected that you would sell to other parties?

So for the foreseeable future for the next few years, as you said, it's going to be for internal use. We would like to be independent or close to independent in our hyper-immune plasma collection capabilities. This will lower our cost of goods and will give us a competitive advantage when we compete mainly in countries where this is based on tenders, where price is the main parameter for product selection. So we see that our ability to collect plasma internally or independently has a significant competitive advantage in our -- as part of us becoming a fully vertical specialty plasma company.

(Operator Instructions)

And it looks like we have reached the end of our question-and-answer session. And I'll now turn the call over to Amir London for closing remarks.

Thank you very much. So in closing, we remain confident in the strength of fundamentals of our business and look forward to multiple organic commercial growth catalysts as well further leveraging our FDA approved plasma-derived technology platform to quickly respond to emerging pandemic situations. We will leverage our core expertise in the development, manufacturing and commercialization of plasma-derived therapeutics to become a vertically integrated company, by expanding our plasma collection capabilities, an evolution that has already started with acquisition of the Texas-based Plasma Collection Center.

Moreover, our team remains focused on pursuing compelling business development opportunities by utilizing our solid balance sheet.

Thank you for joining us today for the call, and we look forward to providing you with further updates on our progress throughout the year. We hope you all stay healthy and safe. Thank you very much.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.