Kamada Ltd (KMDA) 2020 Q3 法說會逐字稿

Greetings, and welcome to the Kamada Ltd. Third Quarter 2020 Earnings Call. (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 of LifeSci Advisors. Thank you. You may begin.

Thank you. Good morning. This is Bob Yedid with LifeSci Advisors. Thank you, all, for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer.

Earlier this morning, Kamada announced financial results for the 3 and 9 months ended September 30, 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 this live broadcast, November 11, 2020.

(technical difficulty)

Ladies and gentlemen, please stand by. We're experiencing some technical difficulties.

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 SEC, 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 this live broadcast, November 11, 2020. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Sorry for the delay here in getting started. With that said, 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 interest in Kamada and for participating in today's call. I hope you all are keeping safe and healthy in these challenging times.

Let me begin by highlighting our solid overall financial results in the third quarter of 2020. Although the global coronavirus crisis continues to affect everyone's life, I'm pleased to report that during the third quarter, we were able to successfully maintain our business continuity, and we delivered robust financial and operational results, as will be detailed by Chaime later in this call.

I'd like to discuss the important progress we continue to achieve around the development of our plasma-derived immunoglobulin, IgG, product as a potential therapy for COVID-19 disease. Most recently, we were pleased to execute an agreement with the Israeli Ministry of Health to supply our plasma-derived IgG product for the treatment of COVID-19 patients in Israel.

To our knowledge, this agreement is the first of its kind globally. The initial order planned to be supplied during the beginning of 2021 is sufficient to treat approximately 500 hospitalized patients. This initial supply is expected to generate approximately $3.4 million in revenue for Kamada during the first quarter of 2021. Based on our recent discussion with the Israeli Ministry of Health, the treatment utilizing our product will be provided as part of a multicenter clinical study led by the Ministry of Health. And we plan to use the study results to support further development of the product.

We continue to ramp up our COVID-19 IgG manufacturing capacity and expect to be in a position to increase our supply capabilities during 2021 to meet potential additional demand from the Ministry of Health as well as from other potential international markets. As a reminder, during the third quarter, we completed enrollment and announced positive initial interim results from our ongoing Phase I/II open label, single-arm, multicenter clinical trial in Israel of our product.

The trial is designed to assess the safety, pharmacokinetics and pharmacodynamics of our plasma-derived IgG product in hospitalized, non-ventilated COVID-19 patients with pneumonia. A total of 12 eligible patients were enrolled in the trial and received the product at a single dose of 4-gram IgG within 5 to 10 days of initial symptoms.

Symptoms improvement was observed in 11 of the 12 patients within 24 to 48 hours of treatment. Moreover, 11 patients were subsequently discharged from the hospital within a median of 4.5 days from treatment. Top line results from the study are expected by January 2021.

Our COVID-19 IgG development program is conducted in collaboration with Kedrion Biopharma. Pursuant to this agreement, Kedrion's responsibility, among other things, is for the collection of COVID-19 convalescent plasma from U.S. recovered patients. Kedrion is collecting the plasma through its plasma business unit, KEDPlasma, at 23 FDA-approved centers across the United States.

We recently received the FDA response to our previously submitted pre-IND information package. Together with Kedrion, we are currently evaluating the suitable targeted patient population for U.S. clinical program and will submit an IND application upon conclusion of such evaluation and successful completion of additional required activities. We may commence U.S. clinical development of our product after acceptance by the FDA of our IND application.

We are also following the progress made in the recently initiated in-patient treatment with anti-coronavirus immunoglobulin Phase III clinical trials sponsored by the National Institute of Allergy and Infectious Disease, NIAID, which will evaluate the plasma-derived immunoglobulin IgG medicine for treating hospital results at risk for serious complication of COVID-19 disease. We believe that progress made by NIAID may also contribute to our development efforts.

In regard to the recent good news related to the progress made by multiple companies with the development of a vaccine for coronavirus, although we, as everyone else, are hopeful that such a vaccine will be available in the near future for global use, we strongly believe that there's a place in the market for a plasma-derived COVID-19 IgG, even when the vaccine will be available.

The long-term need for the IgG is for cases of hospitalized patients who will not be vaccinated or cases when the vaccine will not provide the needed protection, as well as specific populations such as immunosuppressant and immune-deficient patients. We at Kamada see our COVID-19 IgG program as a clear demonstration of our capacity to quickly respond to emerging pandemic situation.

Since the beginning of this pandemic, in February of this year, we leveraged our FDA-approved IgG platform technology as well as our expertise and resources. And to the best of our knowledge, we were the first company globally to complete the manufacturing of an investigational plasma-derived COVID-19 IgG, the first company to initiate a clinical study and publish favorable results, and the first company to sign a supply agreement with health authorities.

We plan to leverage our unique capabilities and experience as a strategic business line for the company, quickly responding to other potential similar future pandemic situations.

Moving on, I'd like to reiterate the previous announcements related to our expectations for GLASSIA next year. As the planned transition of GLASSIA manufacturing to Takeda plant is advancing as anticipated, we expect to receive approximately $25 million in revenues from the supply of GLASSIA to Takeda in 2021. We will make the necessary adjustments to our planned costs during 2021 to align with our manufacturing plan and future needs.

As a reminder, based on agreement with Takeda, upon the initiation of sales of GLASSIA manufactured by Takeda, Kamada will receive royalty payments 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 from 2022 to 2040. Although the transition to its royalty phase will result in reduction of Kamada's revenue from Takeda, based on current GLASSIA sales in the U.S. and focused future growth, Kamada projects receiving royalties from Takeda in the range of $10 million to $20 million every year for 2022 to 2040.

As we move into 2021 and in anticipation of the reduction revenues due to the planned transition of GLASSIA manufacturing to Takeda, we are exploring strategic business development opportunities that will utilize and expand Kamada's core plasma-derived therapeutics development, manufacturing and commercialization expertise. We plan to fund these opportunities by our strong cash position. These strategic opportunities are anticipated to add to our expected organic commercial growth of our existing product portfolio, including KEDRAB in the U.S., our existing proprietary IgG product portfolio as well as GLASSIA in the international markets outside of the U.S., our distributed products in Israel, the anticipated future royalty payments from Takeda and the contract manufacturing of an FDA-approved and commercialized specialty IgG product.

As a reminder, the contract for this product is for 12 years and we anticipated that manufacturing this product will add approximately $8 million to $10 million in annual revenues starting in 2023.

In addition, in our Israeli distribution segment, we plan to launch 6 biosimilar products licensed from Alvotech, the first of which is expected to be launched in 2022 and the remaining products are expected to be launched in Israel during the years 2023 until 2025. The total expected peak revenue from the distribution of all 6 products are estimated at $25 million to $35 million annually.

Turning on to KEDRAB, our human rabies immunoglobulin or HRIG, during the third quarter we announced the positive results of the U.S. post-marketing pediatric trial of this product. The study, which was conducted in 30 pediatric patients aged 0 to 17 years old, represent the first and only clinical trial of the currently available HRIG conducted in children in the U.S. to date. No serious adverse events were observed during the study and no incidents of rabies disease or death were recorded. The results were submitted to the FDA for review and inclusion as a pediatric data in the KEDRAB full prescribing information.

As demonstrated since we launched the product in the U.S. in early 2018, we continue to believe that KEDRAB has the potential to capture a significant share of an estimated annual $150 million U.S. HRIG market.

Let's now turn to the current status of our InnovAATe Phase III clinical program of our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency, AATD. As a reminder, InnovAATe is a randomized, double-blind, placebo-controlled pivotal Phase III study designed to assess the efficacy and safety of inhaled AAT in patients with AATD and moderate lung disease. Although we recently resumed recruitment to the study, the COVID-19 pandemic has slowed down the rate of recruitment, and the current pandemic situation, mainly across Europe, affects our ability to currently open new study sites. We are exploring several alternative approaches to address the expected continuation of the pandemic and its effect on the study.

Lastly, I would like to provide a brief update on the status of our 2 IV-AAT pipeline development programs for which we have concluded a Phase II proof-of-concept study. As a reminder, our IV-AAT for the treatment of acute graft versus host disease or GVHD, was conducted through a collaboration with Mount Sinai Acute GVHD International Consortium. This trial was assessing the safety and preliminary efficacy of IV-AAT as preemptive therapy for patients at high risk of development of steroid-refractory acute GVHD. The study included 30 patients, and the primary endpoint for the incidence of steroid-refractory GVHD by day 100 after transplantation.

The result of the study showed the treatment with IV-AAT was well tolerated by the patients and 6 cases of steroid-refractory GVHD were observed. This rate of disease incidence was within the predetermined range defined by investigators that, if achieved, would warrant further clinical evaluation of the AAT treatment.

The study of the IV-AAT for the prevention of lung transplant rejection conducted in Israel evaluated the safety and efficacy of IV-AAT to prevent lung transplant rejections and assess impact on pulmonary function measured by FEV1 compared with standard of care treatment, and included 30 patients. Results from the study were previously published and demonstrated a trend towards improvement in multiple clinical outcomes.

While we are encouraged with the result of IV-AAT in both the GVHD and the lung transplantation studies, we do not intend to further advance this program at this time, mainly as a result of the limited overall potential benefit to Kamada, specifically due to our commercial arrangements with Takeda and the plan to take over GLASSIA manufacturing in 2021.

As indicated earlier, we are currently focused on more near-term priorities, including strategic business development opportunities and our COVID-19 IgG development program.

With that, I'll now ask Chaime to review our financial results for the third quarter, and for the first 9 months of 2020. Chaime, please.

Thank you, Amir, and good day, everyone. We're pleased with our ability to address COVID-19 pandemic-related challenges and meet our expected results during the third quarter and first 9 months of 2020.

In the third quarter, total revenues were $35.3 million compared to $33.1 million for the third quarter of 2019, representing a 7% increase. These results were driven by a 19% year-over-year increase in sales of our proprietary products, which is attributable to increase in sales of GLASSIA and KEDRAB to our partners, Takeda and Kedrion.

For the first 9 months of 2020, total revenues were $101.7 million, up 7% from the $95.1 million in the similar period of 2019. Based on meeting our expected performance during the first 3 quarters of the year and our positive outlook for the fourth quarter, we are reiterating our full year 2020 total revenue guidance of $132 million to $137 million.

From a profitability standpoint, our total gross profit for the third quarter of 2020 was $14.8 million and gross margins were at 42%, up from $12.9 million of total gross profit and 39% margins in the third quarter of 2019. Proprietary gross margins in the third quarter of 2020 were 46%, down 1 percentage point from the third quarter of 2019. Distribution gross margins in the third quarter of 2020 were positively impacted by favorable exchange rates, mainly between the U.S. dollars and the euro.

For the first 9 months of the year, our total gross profit was $37.4 million and gross margins were 37%. This compared to $37.6 million of total gross profit and 40% margins in the first 9 months of 2019. As you recall, we guided the market regarding an expected annual decrease of 3 to 5 percentage points in Proprietary Product segment's gross margins, primarily attributable to a change in product sales mix and reduced plant utilization. We are reiterating this guidance.

Operating expenses, including research and development, sales and marketing, G&A as well as other expenses totaled $7.1 million in the third quarter of 2020 as compared to $7.2 million in the third quarter of 2019. For the 9-month period, these costs totaled $20.8 million as compared to $20.3 million in the same period of 2019.

As we reported last quarter, the delay in enrollment in the company's pivotal Phase III InnovAATe clinical study, which has subsequently resumed, has resulted in lower-than-expected increase in research and development expenses. Given this continued delay, we are updating our annual research and development expense guidance. We currently expect a 13% to 15% increase in research and development expenses for full year 2020 as compared to 2019.

Moving on, net income was $6.8 million or $0.15 per share in the third quarter of 2020 as compared to net income of $5.8 million or $0.14 per share in the third quarter of 2019. For the first 9 months of 2020, net income was $15.5 million or $0.35 per share as compared to net income of $16.9 million or 42% (sic) [$0.42] per share for the first 9 months of 2019.

We continue to maintain a strong balance sheet with a total of $99.7 million of cash balances as of September 30, 2020. The decrease in cash balances as compared to June 30, 2020, is attributable to timing difference in collections from customers and payment to suppliers and service providers. Overall working capital, including cash, accounts receivable, inventories and net of accounts payable balances continue to increase during the 3 months ending September 30, 2020.

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

(Operator Instructions) Our first question comes from the line of Raj Denhoy with Jefferies.

Wonder if maybe I could ask a little bit about the Hyper product, the IgG product. You mentioned the initial sale to the Israeli government, the $3.4 million sale for 500 doses. And I guess I'm curious the potential for ongoing sales. Has there been any discussions about additional orders from Israel? And how do we really think about that on an ongoing basis?

Raj, good question. So as we have announced, this is an initial order that was agreed with the Israeli Ministry. We are ramping up our capacity. We have a convalescent plasma supply from Israel and from the U.S. So we are equipped to continue supplying the product throughout the year based on demand and an increase in the agreement.

Okay. That's helpful. And then, I just wanted to confirm some of the thoughts around 2021. You've given us some kind of guideposts, right? So you've talked about $25 million of sales to Takeda. And I imagine the rabies product will still be running kind of in that $30 million, $31 million range. And you have your other products, your distributed products and then this payment from Israel. So is something around $90 million kind of the way to think about where you'll settle out for next year?

So in addition to what you mentioned, there are additional revenue streams. We sell GLASSIA outside of the U.S. in multiple markets, and that business is growing by us either identifying additional patients, applying for reimbursement and submission and registration in additional countries. So this is also a future growth engine for Kamada.

We are leveraging the anti-rabies success and we are registering the product in additional markets. We are selling in Canada. We are selling to the WHO. So this is additional market, which we expect to continue growing. And we have additional IgG products which are sold outside of the U.S. market. So this is just to complete the full picture of the different commercial avenues that we have.

In regards to specific projections, a little bit too early right now to give a number. We will give it as we complete our budget planning for 2021. So bear with us, a little bit more time. And like we've done in previous years, we will give the projection. And if you trace back through the last few years, we've always been very accurate in our projection and our commitment.

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

Thank you. Thank you very much. In summary, we are pleased with how our business performed in the first 9 months of 2020. 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 situation, and we have a strong balance sheet, which can be capitalized to fund our business development opportunities.

As such, we remain highly confident in Kamada's future prospects. Thank you, all, for joining us on today's call, and we look forward to providing you with further updates on our progress in the coming months. We hope you all stay healthy and safe. Thank you.

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