Kamada Ltd (KMDA) 2014 Q2 法說會逐字稿

Welcome to the Kamada second-quarter 2014 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded today, August 14, 2014. I would now like to turn the conference over to Ms. Anne Marie Fields with LHA. Please go ahead, ma'am.

Thank you. Good morning to those of you joining us from the US and good afternoon to those in Israel. This is Anne Marie Fields of LHA. Thank you all for participating in today's call. Joining me from Kamada are David Tsur, Founder and Chief Executive Officer, and Gil Efron, Chief Financial Officer of Kamada.

Earlier this morning Kamada an ounce financial results for the three and six months ended June 30, 2014. If you have not received this news release or if you would like to be added to the Company's distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.

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 US Securities and Exchange Commission including, without limitation, the Company's forms 20F and 6K which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the contents of this conference call contain time sensitive information that is accurate only as of the date of the live broadcast, August 14, 2014. Kamada undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. So with that said I would like to turn the call over to David Tsur. David?

Thank you, Anne Marie, and thank you all for joining us. Throughout the second quarter and first half of 2014 we made significant progress advancing our commercial and clinical programs.

On the commercial front we continued to grow revenue of our proprietary and distributed products both sequentially and year-over-year when excluding a one-time payment from our prior year agreement. In addition, we received US FDA approval for enhancements to our manufacturing processes and for significant improved infusion rates for Glassia.

Over the past six months we also made substantial progress advancing our clinical development pipeline in both early and late stage programs including the launch of three important clinical trials. I will discuss each of these in greater detail in a moment. But first I would like to turn the call over to Gil Efron to discuss our financial results. Gil?

Thank you, David, and good day for everyone. Our financial performance for both the quarter and the first half of the year were solid led by growth in both proprietary and distributed product sales when excluding a one-time milestone payment from Baxter last year.

In addition, with FDA approval of enhancements to our manufacturing processes we wrote off $3 million of previously produced product held in inventory. This combined with our ongoing investment in our clinical program affected our operating results in the short-term. That said we are confident that the enhanced manufacturing process, our expectation for revenue growth in the third and fourth quarter and a solid balance sheet leaves us in a strong financial position.

Now let me turn to a detailed review of our financial results. Total revenue for the second quarter of 2014 was $15.8 million compared with $16.1 million in the prior year quarter and $13.2 million in the first quarter of 2014.

Revenue from proprietary product segment was $8.7 million compared with $11.9 million in the 2013 second-quarter which, as said, included a one-time payment of $4.5 million received from Baxter related to a technology transfer milestone. Excluding this one-time payment our proprietary product revenues this quarter increased 18% compared with a year ago and also increased 18% compared with the first quarter of 2014.

Revenue from the distribution segment was $7.1 million, which is up from $4.2 million in the prior year quarter and up from $5.8 million in the first quarter of 2014 largely due to higher IVIG sales in the Israeli market.

Total revenue for the first six months of 2014 was $29 million compared with $28.7 million in the same period of 2013. Proprietary product revenue for the first half of the year was $16.1 million compared with $20 million for the first half of 2013, which including that $4.5 million milestone payment.

Excluding this payment revenue in the first half of 2014 increased by 4%. Revenue in the distributed segment increased 45% to $12.8 million from $8.8 million in the year ago period.

We remain on track to fulfill Baxter's order in the second half of 2014 which is part of our revenue focus for the year. As a recap, the 2013 extension to our agreement with Baxter provides for a minimum revenue from 2010 through 2016 of $165 million, up from $110 million previously reported. The 2014 orders from Baxter are part of this signed commitment.

Turning to the rest of the P&L. R&D expenses for the second quarter increased to $5.1 million from $2.6 million in the second quarter last year and from $3.4 million in the first quarter of 2014.

This increase was largely due to activities to support our expanding clinical program including: our Phase 2 trial in the US for our inhaled Alpha-1 deficiency product; our Phase 2/3 study to treat type I diabetes patients; the initiation of the Glassia study in GVHD; the closing and analysis of our European Phase 2/3 study of inhaled AAT; and as well as to facilitate (technical difficulty).

You may resume the conference.

I apologize for this and I will resume. R&D expenses for the first six months of 2014 of $8.4 million increased from $6.3 million in 2013 as we continued to support various clinical studies and launched three important clinical trials during the period as mentioned above.

During the second quarter of 2014, SG&A expenses decreased to $2.8 million from $3.2 million in the prior year due to increase in costs associated with being a public company in the US and share-based compensation charges, offset by a decrease of a one-time IPO cost of $1.4 million in the prior year. SG&A expenses for the first half of 2014 increased to $5.4 million from $4.9 million in the first half of 2013.

Gross loss for the second quarter was $0.1 million and included a one-time write-off of inventory of $3 million. Excluding the write-off, our Q2 gross profit was $3 million. Gross profit in the year ago quarter of $7.4 million was favorably impacted by the $4.5 million milestone payment.

Excluding these one-time events, gross profit increased from $2.9 million in the second quarter of 2013 to $3 million in the second quarter of 2014, reflecting the level of revenue and product mix within the proprietary segment as well as the increase in revenue in the distributed product segment.

Q2 gross margin of 0% compared with 46% a year ago and 35% in the first quarter of 2014. Our gross profit was affected by the level of revenue and product mix within the proprietary segment.

In addition, in connection with the FDA approval of our enhanced manufacturing process, we took a charge of $3 million to write off inventory that was produced under the improved manufacturing process due to short shelf life of the inventory at the time of approval. Also gross margin in the second quarter of 2013 was favorably impacted by the milestone payment in 2013.

Gross profit for the first half of 2014 decreased to $3.2 million from $11.6 million in the first half of 2013 while gross margin decreased to 11% from 40%. With our revenue expectation for the second half of the year we expect this gross margin to increase in the second half of the year.

We reported an operating loss of $7.9 million in the second quarter of 2014 compared with operating income of $1.7 million for the year ago second quarter. The operating loss for the first six months of 2014 was $10.6 million compared with operating income of $0.35 million in the first six months of 2013.

Net loss for the second quarter of 2014 of $8.4 million or $0.23 per share compared with net income in the prior year's second quarter of $0.89 million or $0.03 per diluted share. Net loss for the first half of 2014 was $11.5 million or $0.30 per share compared with a net loss of $1.1 million or $0.04 per share in the same period a year ago.

Adjusted EBITDA for the second quarter of 2014 was a negative $6.2 million compared with $4.2 million for the same quarter last year while adjusted EBITDA for the first half of 2014 was a negative $7.2 million compared with $3.9 million in the first six months of 2013.

Looking into the balance sheet, we closed the quarter with cash, cash equivalents and short-term investments of $67.7 million and this compares with $74.2 million as of December 31, 2013. During the first half of 2014 we used $5.3 million in cash to fund operations and $1.5 million for capital expenditures.

Moving to our financial guidance. As reported in our press release, for the year ending December 31, 2014 we expect total revenue to be between $70 million and $72 million with revenue from distribution segment projected to be between $24 million and $25 million and revenue from the proprietary product segment to be between $45 million to $47 million.

As mentioned in the past, and as implied from our guidance, revenues in the second half of the year are expected to be higher than in the first half of 2014. With that overview of our financial performance let me now turn the call back to David.

Gil, thank you for that review. As you can see, we are in a strong financial position to execute all of our plans to develop and market our innovative therapeutics. In particular we are pleased with the continued growth in our proprietary product segment which is a more profitable segment for Kamada.

Glassia is our lead product and is indicated for the treatment of Alpha-1 Antitrypsin deficiency, AATD. Sales of Glassia continue to grow, especially through Baxter in the US. Consequently we were particularly pleased to report that FDA approved our significantly improved infusion rate.

The improved infusion rate is very important because it reduces the overall time from preparation to finish which is key for F1 deficient patients while using the therapy chronically and for life. For the average patient weighting 70 kilo the new infusion rate reduces the weekly infusion time from approximately 70 minutes down to 15 minutes.

This reduction along with its ready to use feature are making Glassia highly user-friendly and convenient product to support patient's quality of life. As the only commercially available liquid ready to use Alpha-1 augmentation product, the improved infusion rate further expands Glassia's competitive edge and we expect this improvement to significantly increase the number of patients treated by Glassia in the US.

We are already beginning to see the [bone out] in the market with exceptionally positive feedback from physicians and patients. We believe these product advantages will allow Glassia to gain 20% to 25% market share of global AAT augmentation market within a few years.

This is currently approximately $750 million global market and with increasing awareness and advances in diagnostics the market size and opportunity are growing at an estimated 10% per year. While I cannot provide you with specific patient number due to competitive reasons, I can tell you that Glassia patient number are growing in a greater rate than the global market grows.

We expect to see these increases effective in our revenues in the second half of 2014 and beyond. The improved infusion rate will be used in additional territories that recognize the FDA approval. Importantly, the improved infusion rate can be used for future indications of Glassia currently in clinical trials as a treatment for type I diabetes, graft versus host disease and others. I will speak more about this in a few minutes.

In addition to the grow opportunity from Baxter for Glassia in the US we continue to increase Glassia sales in additional territories. Glassia is currently sold in eight countries where there are increasing number of treated patients. We look forward to geographic expansion into other countries and new regions and will report our progress in these areas.

Another important commercial advancement this quarter was the FDA approval of enhancement to our manufacturing processes. These enhancements support efficiencies and provide for a nearly 50% increase in our manufacturing capacity. Over the time this should allow us to improve profitability and provide ample supply for the growing sales of our proprietary protein plasma therapeutics.

Now let me turn to some of the highlights of our robust clinical development program. During the second quarter we reported preliminary top-line results from our (inaudible) European multicenter Phase 2/3 clinical trial with our inhaled alpha-1 for the treatment of Alpha-1 deficiency.

As a review this multi-center randomized double-blind placebo-controlled study evaluated the safety and efficacy of our inhaled formulation of human alpha-1 to treat Alpha-1 deficiency in 168 patients. The study involved the inhalation of 160 milligrams of human Alpha-1 or placebo twice daily, via [eflow] device for 50 weeks with (inaudible) patients given the option to participate in the 50-week open label extension study.

The endpoints selected for this trial were based on scientific advice on EMEA and included (inaudible) event deemed to be clinically meaningfully such as frequency, time to first, duration, severity among others. We are in the final stages of analyzing the data in accordance with a statistical plan and expect to report a more detailed set of results during September.

Subject to final results we are preparing to submit for review with the EMEA during the second half of this year. With positive study results and favorable reimbursement we believe our inhaled Alpha-1 product faces a significant market opportunity in the hundreds of millions of dollars in Europe alone.

In parallel our plans for the US market continue on plan. We initiated our US Phase 2 clinical study of inhaled Alpha-1 product for the treatment of Alpha-1 deficiency. This is an important study that the FDA requires for approval. We intend to discuss the data from our European Phase 2/3 study with the FDA to determine the (inaudible) in the US.

We look forward to completing enrollment for this US study by the end of this year and to having the data in the first half, probably mid of 2015.

Turning now to another late stage program in our pipeline. We are about to complete the US Phase 3 study of KamRAB, which is the human rabies immune globulin for the post-exposure prophylactic treatment of rabies. We have strategic partnerships for the clinical development, sales and marketing of KamRAB in the US with Kedrion Biopharma.

We expect to report top-line data by the end of the year and file the BLA with the FDA in the first half of 2015. With federal data we look forward to Kedrion commercializing KamRAB in approximately $100 million market opportunity.

Moving on to our development program for Glassia in type I diabetes and GVHD. We have underway an exciting development program for our IV Alpha-1 product for treatment of type I diabetes. We initiated a Phase 2/3 trial with Glassia in pediatric patients newly diagnosed with type I diabetes. The goal of this double-blind placebo-controlled multi-centered study is to establish efficacy in halting the disease progression and maintaining ability of the pancreas to produce insulin.

This two-year study involving 190 patients will be conducted in accordance with FDA and EMEA guidance for clinical trial evaluating better cell preservation and will measure (inaudible) parameters, HbA1c a public (technical difficulty) event and (inaudible) daily dose.

The study is underway at four centers in Israel and we have plans to expand the scope to include other countries and additional centers in England. We are in discussions with investigators about the potential to add sites in the US.

Earlier this spring we started collaboration with Baxter in a proof of concept study in the US with Glassia in subjects with GVHD. This is a Phase 1/2 study of 24 patients with steroid resistant GVHD following androgenic bone marrow extensive transplant will receive six to 10 doses of intravenously delivered Glassia to determine safety, optimal dose and clinical response.

The Phase 1/2 clinical study is being conducted at the Fred Hutchinson Cancer Center in Seattle. Results from this study may support global clinical development activities and may serve as a platform to apply for an expansion of AAT indications to include general organ transplantation based on a similar mechanism of action. We look forward to advancing the study and will keep you apprised of our progress.

So in closing, I speak to you today with great optimism about where we are and where we are going. Our lead product, Glassia, is growing an increasing market share in an expanding market of Alpha-1 deficiency. We have two important top-line data readouts in late stage program by year-end. And we have a robust clinical development program underway in other areas of unmet medical needs.

The advances we have made in both our commercial and clinical program allow us to continue to execute our strategic plan to balance a growing revenue stream from the sales of proprietary and distributed products with an investment in development stage products.

We expect the second half of the year will be productive as we drive proprietary product revenue, prepare to report further data from our inhaled alpha-1 program and advance our other clinical programs.

And now, operator, please open the call for questions. While we wait for the first question I'd like to note that Kamada will be participating in the upcoming H.C. Wainwright growth conference and the Morgan Stanley healthcare conferences both in New York City the week of September 8.

For those not attending one of these conferences and who are interested in meeting with our team while we are in New York, please feel free to touch out to Anne Marie Fields and LHA to schedule a meeting. Okay, operator, I think we are ready for first question.

(Operator Instructions). Adnan Butt, RBC Capital Markets.

I will ask too, please. First on Glassia, I think I heard stated that Glassia is growing at a faster rate than the market as a whole. Has this growth rate changed in the recent past and what is driving this increased uptake?

And then a second question on the pipeline, please. The MAA filing, is that contingent upon what further analysis from the pivotal studies show or is that contingent upon discussions with the EMEA or both? Thanks.

Yes, with regard to the growth in the number of patients on Glassia, I think one of the important milestones we achieved recently was the improved infusion rates that we reported a few months ago. And this is something definitely affecting the growth of number of patients in addition to the number of patients that were on Glassia and were starting treatment on Glassia before.

And it is also to do with the excellent sales and marketing job and wellness (inaudible) by Baxter and the recognition of the quality of our product.

Now to the second question, the MAA submission is pending our meeting with the (inaudible) at the EMEA under the centralized system. And this meeting is expected sometime during the last quarter before the end of this year. And we expect during or soon after the meeting to have feedback. And the next step following this meeting is very likely the submission of the EMEA.

During this meeting with the [supporter] we will share with them and discuss the data and the research of our clinical trial. And the submission at a later stage is the complete filing of the EMEA.

The details that Kamada will be presenting, is that scheduled for a medical meeting or will that be presented in a press release form to the rest of us as well?

If you refer to the final -- to the final result.

Correct.

Yes, it will be in a press release and of course we will hold a conference call to discuss it.

Okay, thank you.

Raj Denhoy, Jefferies.

Wonder if I could start with the trial as well, the inhalable trial. And I'm just curious, there's obviously a fairly large disconnect between your still confidence that that trial can produce something positive for the Company and perhaps the perception from people outside as reflected in the stock price.

And I don't know if there's anything you can share with us to kind of support that level of confidence you are still feeling that that trial will result in something positive.

Raj, I think because we are going to announce the final results in September we prefer not to refer right now for the clinical result.

Okay. Maybe I can ask just one more on that line as well because from what I assume the trial completed last December, if I am not mistaken. And so it will be nine or 10 months post that completion to get the final results. And it has been unprecedented in terms of how long it has taken to work through that study.

And again, if there is anything you can share with us in terms of why it has taken so long or if there is something in the trial that is different -- just anything would be helpful in terms of trying to gauge the prospects from here.

These are things we said when we released the preliminary results a few months ago. It took us longer than we expected to prepare the data from the clinical study and to do the initial analysis. And we are now continuing with analyzing the full data and the full results which we will present in September.

Okay, fair enough. Then just maybe two on the results and the outlook. So the distributed products in the quarter increased quite a bit. Was there anything behind that in particular, a particular product or geography where you saw a strong performance?

On the distributed product, as we know, these are all products that we are selling into the Israeli market. And as mentioned that the main driver for this growth is IVIG sales, this is all in the Israeli market.

Okay. And then just lastly, the comment that David made about the expectation to get 25% share or so of the AAT market with the new product, new formulation. I am curious, is that an outlook that is supported by Baxter? Have they kind of endorsed that share target?

First off, my comment was worldwide so the product is currently sold in eight countries and definitely the US and Baxter is the most important. So we have a long-term commitment with Baxter and we see the progress, number of patients quarter to quarter, year-to-year. We saw the growing market, we saw the quality of the product and this is why we are optimistic about worldwide market share.

Okay, very good, thank you.

David Lewis, Morgan Stanley.

Gil, just a couple of financial follow-up questions, the first is on gross margins. Even if we adjust for the inventory write-down, which I think was somewhat expected, we're getting gross margins that are the lowest we've seen in several years at the Company. What specifically, other than the inventory write-down, drove margins? I think we are getting 18% gross margins, which is about 10 points below what we have seen historically. So what are specifically the drivers there?

Yes, some of it is similar to what we have seen in the first quarter of this year is when the level of revenue is -- the overall level of revenue is lower, then the fixed cost affects the profitability. In addition to that, sometimes it has to do with timing of holidays in Israel that affects the production plan. And this is something that was more effect in Q2 of this year.

Okay. Do you think it was more the second issue? I just -- once again, in the first quarter of 2013 you had $12.5 million in revenue and 33% gross margins, which is virtually double what you had this particular quarter. So is there anything from a mix perspective that could explain why GMs were so low?

Well, you say we had $12 million, but if you exclude the $4.5 million of milestones, which I assume you also exclude from the gross profit, then you get to very similar, or maybe not similar, but closer to the Q2 2014 gross margin.

Okay.

And then between Q2 of last year and Q2 of this year these are the main differences.

Okay. And then in the back half of the year, in addition to or besides the Baxter agreement, the contractual agreement for revenues in the back half of the year, is there any other product contract tender that we should be aware of that can get us more comfortable with the back half of the year improvement relative to the first half of the year or is it really specifically Baxter?

Baxter is an important portion of -- Baxter revenues are an important portion of this second half of the year guidance. But in addition to that, we work with local distributors in different regions, some of which is based on orders already received from these distributors.

It is supported and backed by firm orders and product awaiting release and deliveries.

Okay. Thank you very much.

Yigal Nochomovitz, Oppenheimer.

On KamRAB I was wondering if you could discuss a bit the marketing plan there in the United States and how your product is differentiated from the Baxter and Sanofi product as well as some of your assumptions around share gains from Baxter and Sanofi who obviously currently control the US market, thanks.

Thank you. You are [right], the market is currently controlled maybe by Kedrion 90% and Sanofi 10%. And I think that we have an excellent product. The product is sold in Rest of World countries since almost 10 years ago. In each of the countries where our product was introduced we have a major market share, 50% or higher.

We believe that we have good product, very competitive and I think that the market is growing and there is a great opportunity for Kamada. We didn't mention what our target in terms of market share I can only tell you that we have large production capacity, good product, good partners, we know the market very well. And based on our capabilities and the Kedrion plan we work very closely together.

We expect to release the top-line data during the fourth quarter to submit the file next year, hopefully to launch the product sometime during 2016, soon as possible. And we have an excellent record with launching rabies into new geographies. And this is why we are very optimistic.

All right, thanks. And just back on the inhaled AAT trial. I know you can't discuss the detailed results, but could you at least give us some information on what specific analyses you are conducting now and whether you know at this point if the key secondary endpoint of severe exacerbation hit the statistical significance?

I have mentioned that we are working on the final report now and we are going to release it in September. And we prefer not to discuss the results on this conference call and we will do so when we release it in September.

Okay, thank you.

(Operator Instructions). Adnan Butt, RBC Capital Markets.

Just two more. So Baxter is planning a spin out. How if at all does it affect Glassia, or their commitment to Glassia? And then secondly, there is a US study ongoing for inhaled AAT. What do you expect ELF measurements to demonstrate? Are there any additional efficacy measures in there? And is the company still committed to the inhaled AAT program in terms of perhaps conducting another study if needed?

As to the spin at Baxter, I think this is a decision by the Board and senior management at Baxter and I think that they are going the right way. What does it mean to Kamada? We have strong partnership. And maybe this will open more opportunity and we feel that they are eager to expand the collaboration with Kamada, maybe also with others, to explore how to create value for the shareholders of Baxter.

And Kamada being an innovative Company with attractive indications in the area of Alpha-1 Antitrypsin for multiple indications. And based on the excellent performance this is a very positive signal for Kamada and we work in very close collaboration with Baxter. We will let you know in due time if there is any progress.

With regard to your other question, Adnan, I believe you asked what we are expecting to have as a level of AAT in ELF, and I believe we did not provide this data (inaudible) today. Adnan, did you have another question on the US trial?

And there are no further questions at this time. I will turn the conference back over to Mr. Tsur for any closing remarks.

Thank you all for your questions, for your time, for your continued interest in Kamada. We look forward to addressing you again in September when we report more complete results from our Phase 2/3 clinical trial of the inhaled in Europe. And maybe during the conferences to be held in New York and maybe at the ELS in Europe. So thank you very much and you have a nice day.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.