Kamada Ltd (KMDA) 2015 Q1 法說會逐字稿

Welcome to the Kamada Limited first quarter financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded, May 12, 2015.

I would now like to turn the conference over to Anne Marie Fields. Please go ahead, ma'am.

Thank you. Good morning. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from Kamada are David Tsur, Co-Founder and Chief Executive Officer, Amir London, currently Senior VP of Business Development, and Gil Efron, Chief Financial Officer.

Earlier this morning, Kamada announced financial results for the first quarter of 2015. 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 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, May 12, 2014 (sic). Kamada undertakes no obligation to revise or update any statements 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 my thanks to our listeners for their interest in Kamada and for participating in today's call. 2015 has gotten off to a strong start, with important progress on a number of our clinical programs, especially with regard to our Phase 3 clinical trial of inhaled Alpha-1 Antitrypsin to treat Alpha-1 deficiency.

Our commercial progress was somewhat masked by our inability to release product batches as we awaited validation of our filling process. The majority of those delayed revenues are already delivered, and we expect all delayed revenues to be recorded in the second quarter of 2015. We remain confident in the value of our growing core commercial business, in our ability to achieve both 2015 revenue guidance and our longer-term guidance as we grow the proprietary product segment.

Kamada's core business offers significant value, not only because it has substantial growth potential but because it provides us with significant cash flow, which supports our expanding clinical development program. But before I go into the specifics of our commercial and clinical accomplishments, I will now turn the call over to Gil Efron, our CFO, for a detailed review of our first-quarter results. Gil, please.

Thank you, David, and good day, everyone. With that brief overview, let me begin with a review of our first-quarter results. Total revenue for the first quarter of 2015 was $9m, compared with $13.2m in the first quarter of 2015 (sic). Revenue from the proprietary product segment was $3.2m, compared with $7.4m in the 2014 first quarter.

This was due to a delay in our ability to release product batches as we awaited validation of our filling process. We received that validation in April and expect to replace any delayed revenue from the first quarter in the second quarter. As a result, we are still confident in our 2015 revenue guidance. Importantly, this delay did not cause any obstruction for Baxter in supplying patients in the US, as they were able to rely on their inventory.

As a recap of our agreement with Baxter, in September 2014, we executed an extension to our agreement with Baxter that provides for minimum revenues from 2010 to 2017 of $191m, up from $165m in the 2013 extension and up from $110m in the original 2010 agreement. At the end of 2014, cumulative orders from Baxter have amounted to $121m, and we expect actual orders from Baxter to 2017 to be above the minimum purchase obligations.

Turning now to our distributed products, revenues from this segment was $5.8m in both the first quarter of 2015 and 2014. Now, to the rest of the P&L.

R&D expenses for the first quarter increased modestly to $3.6m from $3.4m in the first quarter last year, as we continued to support three key clinical trials and the closing and analysis of the European Phase 2/3 study of inhaled AAT. SG&A expenses in the first quarter 2015 decreased slightly to $2.5m from $2.6m in the prior year.

First-quarter gross profit was $0.4m, compared with $3.2m in the first quarter of 2014. The decline was a result of lower proprietary product revenues for reasons I just discussed. Gross profit in the distributed segment was lower than last year due to changes during the quarter in the euro-US dollar exchange rate. Consequently, gross margin declined to 4% from 25% in the first quarter of 2014.

We reported an operating loss of $5.8m in the first quarter, compared with an operating loss of $2.7m for the year-ago first quarter. The Company recorded a net loss for the first quarter of 2015 of $5.3m or $0.15 per share, compared with a net loss of $3.1m or $0.09 per share for the same period in 2014. The adjusted net loss for the first quarter of 2015 was $4.8m, compared with an adjusted net loss of $2m for the same period in 2014.

Adjusted EBITDA for the first quarter of 2014 was a loss of $4.5m, compared with a loss of $1m for the first quarter of 2014.

Looking to the balance sheet, as of March 31, 2015, we had cash, cash equivalents and short-term investments of $49.7m, which compares with $51.9m as of December 31, 2014. During the first quarter 2015, we used $2m in cash to fund operations and $0.5m for capital expenditures.

Turning now to our revenue guidance for 2015, we expect total revenue to be between $70m and $73m, with revenue from distributed products to be between $26m and $28m and revenue from proprietary products to be between $45m and $47m. These revenue projections take into account an expected negative foreign exchange impact of approximately $2m in relation to product sales in Europe and Russia and presume that US revenues from the agreement with Baxter remain on track.

In addition, we remain confident in our ability to achieve our 2017 revenue growth of $100m, which includes approximately 75% growth in the proprietary product segment of our business.

With that overview of our financial performance, let me now turn the call back to David.

Thank you, Gil, for the financial overview. So let me begin with a brief discussion of our intravenous Alpha-1 Antitrypsin to treat Alpha-1 deficiency business and our specific immunoglobulin business. We discussed in the prior quarter our plan to reach $100m of revenue in 2017, with growth driven from our proprietary segment -- more specifically, from our Glassia product to treat Alpha-1 Antitrypsin deficiency.

We continue to see growth in the number of additional patients treated with Glassia and are on track to achieve this goal. This business is driven by our relationship with Baxter, our US strategic partner. Glassia is the only ready-to-infuse product in the market. This along with its reduced infusion time gives Glassia a significant competitive advantage and strengthens the strategic partnership between Kamada and Baxter.

Our relationship with Baxter remains strong as we collaborate to grow sales and extend use to other indications of unmet medical need. We are pleased with the consistently increasing number of patients treated by Glassia, which increased 25% during 2014. We expect this growth to remain a strong contributor to our revenue goals.

We are expanding our collaboration into the development of additional indications, such as intravenous Alpha-1 Antitrypsin products to treat GvHD and potentially additional transplantation indications under review with Baxter.

Turning now to our clinical development programs, let me start with our most advanced program, our European Phase 3 clinical study for our inhaled Alpha-1 Antitrypsin to treat a deficiency.

During the quarter, we completed and reported final results from the study, which showed clinically and statistically significant improvements in spirometric measures of lung function, particularly in bronchial airflow measurements FEV1, FEV1% predicted and FEV1/SVC. These favorable results were even more evident when analyzing the overall treatment effect throughout the full year.

These data are particularly exciting, as this is the first time a randomized, controlled trial in Alpha-1 deficiency has demonstrated efficacy using widely accepted clinical endpoints such as lung function. We believe the combination of lung function, which are the gold-standard measurement of pulmonary diseases and symptom improvements, along with the safety profile of the product, give us confidence that these data support our decision to submit marketing authorization applications with European Medicines Agency of our inhaled Alpha-1 Antitrypsin therapy to treat Alpha-1 deficiency patients.

We are in process of compiling all necessary toxicology, CMC and clinical data required for our submission and expect to file the MAA by end of this year.

Next week, we look forward to hosting a panel discussion titled New Treatment Prospects for Alpha-1 Deficiency Patients, Results from a Phase 2/3 Inhaled Alpha-1 Trial, during the American Thoracic Society in Denver International Conference. The panel will be led by five key opinion leaders who specialize in treating patients with Alpha-1 Antitrypsin deficiency and will be chaired by Dr. Sandhaus, the Founder and Director of the Alpha-1 Antitrypsin Deficiency Program at National Jewish Health Hospital in Denver, Colorado, and the Clinical Director of US Alpha-1 Foundation.

We look forward to a dynamic discussion and the potential of our inhaled Alpha-1 Antitrypsin to treat the deficiency, especially as these are the first efficacy data using clinically effective and meaningful lung-function and quality-of-life measures. For those of you who are interested, we will have a video recording of the event posted to our website a few days after the session.

We are also evaluating our inhaled Alpha-1 Antitrypsin in the US Phase 2 study, which is expected to complete by the end of this year. We expect to use the results from this double-blind, placebo-controlled study evaluating the safety and efficacy of the inhaled Alpha-1 Antitrypsin and measuring Alpha-1 levels in the lungs and serum as well as additional inflammatory biomarkers in 33 Alpha-1 deficient patients. This study involved the inhalation of 80 milligrams and 160 milligrams of human Alpha-1 Antitrypsin or placebo twice daily for 12 weeks.

All patients are able to enter an additional 12-week open-label extension study with the active drug to further assess safety and tolerability.

We plan to use the results from this US study along with the complete data set from the European Phase 3 study to discuss the regulatory path forward in the US with the FDA. Toward that end, we have engaged US experts in orphan drug development, such as Dr. Timothy Cote to provide us with expert advice to successfully navigating the US orphan regulatory landscape. Prior to establishing his consultancy, Dr. Cote served as Chief Medical Officer of the National Organization of Rare Disorders and is the Director of the FDA Office of Orphan Product Development.

We are encouraged by the clinically meaningful and statistically significant lung function data seen in our European Phase 3 trial, and we look forward to gaining a clear direction for the regulatory path of our inhaled Alpha-1 in the US by end of this year.

In addition to our inhaled Alpha-1 Antitrypsin, we also continue to advance our clinical development programs for our IV Alpha-1 Antitrypsin to treat newly diagnosed type 1 diabetes and treat graft versus host disease, both orphan indications with significant unmet medical need. In March, we were granted orphan drug designation for our IV Alpha-1 Antitrypsin therapy to treat GvHD in Europe, which is a key milestone that support our global regulatory and development strategy in this indication.

GvHD is a disease of significant unmet medical need, and both the disease and current therapy options carry considerable debilitating side effects. Preliminary human and animal studies indicate that AAT may be able to treat and reduce the severity of GvHD, which is one of the key life-threatening complications of allogenic stem cell transplantation.

GvHD is an immunologically based disease that may result in significant damage to multiple organs and tissues such as liver, gastrointestinal tract, skin and mucous membranes. Tissue destruction also leads to increased inflammatory signals, perpetuating and augmenting the disease process by contributing to the cytokine storm and fuel GvHD even farther, and thereby damage continues and its intensity is increased.

Glassia is expected to decrease GvHD-related symptoms, including progressive tissue damage, and as a result could potentially increase survival rates and possibly reduce or eliminate the need for steroid therapy. Preliminary results from an open-label dose-escalation safety and efficacy study evaluating 24 GvHD patients who suffer from inadequate response to steroid treatment following HCT indicated that continuous administration of AAT as therapy for steroid-resistant gut GvHD is feasible in the subject population.

Indication of healing of the bowel mucosa was seen in decrease in diarrhea, in intestinal protein loss, including AAT and in endoscopic evaluation. Additionally, the preliminary results show that following domination of pro-inflammatory cytokines, AAT administration suppressed serum levels of pro-inflammatory cytokines and interfered with GvHD

biomarkers. We expect to report additional interim data through 2015.

These positive interim results are very encouraging and support continuation of our global clinical development plans for AAT in treating and preventing GvHD, a potentially life-threatening disease, with market opportunity to exceed $500m.

Importantly, recent published pre-clinical data in Blood support these positive interim results, which are aimed at treating the gut involved in steroid-resistant GvHD. With continuous encouraging results, we intend to commence a Phase 3 trial in 2016.

This proof-of-concept study in GvHD was also designed to serve as a platform to extend the AAT indications to include general organ transplantation based on a similar mechanism of action. Toward that end, we plan to initiate a Phase 2 proof-of-concept study with the IV Alpha-1 Antitrypsin to treat patients undergoing lung transplantation. We look forward to advancing these plans with Baxter and the Fred Hutchinson Center research and we'll keep you apprised on our progress.

We continue to advance our IV Alpha-1 Antitrypsin therapy as a treatment for newly diagnosed type 1 diabetes in pediatric patients. The scientific rationale for administrating Alpha-1 to treat type 1 diabetes is based on anti-inflammatory and immune-modulatory activity of AAT, which was published in the Journal of Diabetes Science and Technology. This mechanism of action support beta-cell recovery processes from autoimmune mediated tissue injury.

Treatment of type 1 diabetes patients with Kamada's AAT may have several medical benefits, including slowing the progression of the disease, improved metabolic control, reduce of daily insulin dose requirements, and most important, reduction of diabetes complications.

We reported additional data from ongoing extension study for our open-label Phase 1/2 clinical trials in this indication, which shows that the majority of the patients who continued treatment with Alpha-1 Antitrypsin maintained capability of insulin secretion and attained glycemic target with HbA1C level below 7.5% for more than two years after their diagnosis of type 1 diabetes.

These positive data support the earlier result from this study and demonstrate the durability of the effect of Alpha-1 Antitrypsin treatment in this orphan indication.

We continue to believe that our Alpha-1 IV can be a groundbreaking treatment for newly diagnosed type 1 diabetes patients as it may demonstrate the ability to halt disease progression and allow the pancreas to maintain secretion of self-insulin. Moreover, these several data validate our enthusiasm as we continue to enroll patients to our Phase 2/3 clinical study underway in Israel.

We have also initiated discussions with the EMA and FDA for further development of this indication for the US and [other] market.

Lastly, we continue to await the final result from the US Phase 3 rabies trial from our US partner, Kedrion. Once we receive those, we will report publicly and finalize our preparations for the BLA submission, which is underway.

Finally, we announced our important senior management changes. As recently announced and after more than 30 years in the industry, I'm pleased to be transitioning to an active advisory role in the Company, where I will become Deputy Chairman of the Board.

Ralf Hann and I founded Kamada over 25 years ago with the vision and passion to develop novel therapeutics for patients in need. It is my great pride and I reflect upon the significant progress Kamada has made in recent years to be a strong-based business with 10 products selling in over 15 countries, with strong alliances with major pharmaceutical partners worldwide.

Importantly, we have a very promising pipeline of therapeutics that address significant unmet medical needs, in addition to developing treatment and benefiting patients worldwide. We have developed a talented and dedicated senior leadership team to share Ralf's and my passion and innovation.

I'll now leave the daily management of Kamada in strong hands as I transition to a strategic advisory role in the Board. For those of you who do not know Amir, he's a proven business leader with over 20 years of industry experience. Amir joined Kamada one and a half years ago with a goal to transitioning to a CEO role.

Since that time, he's demonstrated his command of the clinical, commercial and manufacturing and corporate development aspects of Kamada and he's ready to take over the helm. In partnership with Gil Efron, we can assure of a seamless transition of the execution of Kamada's strategic growth strategy.

Amir, please.

Thank you, David, for those kind words. Good morning, everyone. I'm pleased to be taking over the CEO role at Kamada at this exciting time in the Company's growth. I look forward to continuing the good work started by David and Ralf, and I will be addressing you on the next quarterly teleconference. Thank you, everyone.

Thank you, Amir. In addition, I would like also to note that during the first quarter we strengthened the senior leadership team with the appointment of Dr. Eran Schenker as Vice President, Medical Director.

Moving ahead, we look forward to growing our core commercial business and advancing our clinical progress. As such, we expect to achieve a number of important milestones throughout the balance of 2015 that should enhance our shareholder value.

Now, Operator, please open the call for questions.

(Operator Instructions).

While we are waiting for our first question, I would like to note that we will be participating in the upcoming Jefferies Healthcare conference taking place June -- beginning of June in New York. For those attending the conference who would like to meet with us, please reach out to your prospective Jefferies representative or contact Anne Marie Fields at LHA at 212-838-3777.

Operator, let's take our first question.

Adnan Butt, RBC Capital.

Hey. Good morning, and thanks for taking the question. First, in terms of the proprietary product delay, is that mostly related to Glassia and was any patient supply disrupted? And then are the batches released as of this quarter?

Yes. Thank you, Adnan. It was related to different products, not necessarily Glassia. And then we are already behind this delay when we already started shipping product, as of May.

Okay. Thanks, Gil. And then I heard David say that the Company is, has or is looking to add to capabilities targeting specifically orphan diseases in the US. Now, is that in relation to the start of a confirmatory Phase 2/3 trial in AAT deficiency? And then what would be the timing of that start? Does it have to coincide with the MAA filing?

Thank you. In order to clarify, we will be looking for guidance from the FDA based on our European Phase 3 trial. And design and data from our US Phase 2 trial, we are going to meet sometime during second half of this year with the FDA to have guidance as to what is the regulatory best way to register our inhaled Alpha-1 in the US market. This is the idea.

So at this time, are there any plans to conduct another study? And you can file in Europe even without another study ongoing? That's the last question.

Yes. We are going to file in Europe. We assume there is no requirements for additional Phase 3 trial in Europe. And we will discuss with the FDA if there are any requirements before filing in the US.

Okay. Thank you. I'll get back in line and best wishes on the management transitions.

Thank you.

James Francescone, Morgan Stanley.

Hi. Good morning. Thanks for taking the question. I wanted to start off with guidance for both 2015 and 2017. You're obviously still confident in getting to the $100m goal by 2017, but at the same time expectations for 2015 appear to suggest that the growth will be limited this year. So can you just comment on why the growth plan is so backend loaded and why you're confident that results will improve so meaningfully in 2016 and 2017?

Yes. As we mentioned before, the growth in revenues that we expected to be through 2017 is driven mainly in the proprietary product segment. A lot of it has to do with the increased number of patients treated with Glassia and the additional products that will be sold in -- related to that. Then as we grow that patient base, then -- and then Baxter managing the inventory, we think that will be more significant toward the next years.

In addition, as I mentioned in the guidance, in 2015 we see an effect of the exchange rate, mainly the euro/US dollar exchange rates of about $2m compared to revenues that we had in 2014. And this is another part, but not a significant part of it. I would say that the revenues from Glassia, a lot of it is a minimum commitment that we have from Baxter, and then we are looking for sales not only in the US for Glassia, but also in additional countries worldwide.

Okay. Thank you. And then just from a more near-term perspective, what can you tell us about how you expect the pacing of the recovery of the revenue gross margin that you missed in the first quarter? Does most of that come back in the second quarter or is it spread more through the balance of the year?

There is always a difference in terms of the revenues between the quarters during the year. And then we expect the first half to be similar to trends we saw in the previous year, but as we said, we are going to catch up the Q1 delay in Q2.

As to the profitability, we did not guide profitability, but then I would say you should expect to see a very similar profit margin as we had in prior quarters. And then there is always a level of a base and fixed cost in our cost of goods that affects the gross profit, but as we are able to increase revenue, this has a lesser effect. We saw the full effect, I would say, in Q1. And then we will see that improving significantly in Q2 compared to Q1.

Okay. Great. Thank you. I'll get back in queue.

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

Hey, thanks for letting me do the follow-up. David, I just wanted to make sure, did I hear the Company say that there could be a Phase 3 starting for GvHD in 2016? Is that correct?

Yes.

Okay. So the Company is -- would you need to see any more data from either the ongoing GvHD study or the planned lung-transplant study before starting the Phase 3, please?

No. We have encouraging and supportive data and we are confident that there is a clinical benefit and justification to move to the next step, which is a Phase 3 in collaboration with Baxter.

Okay. And how do the trial expenses get shared if it's in collaboration with Baxter?

This is something we have not released yet, and maybe we'll be able to release it on due time. Anyway, Baxter has the distribution rights for the product in US, Canada, New Zealand and Australia, and Kamada in all other countries.

Okay. Thank you.

(Operator Instructions). And there are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thank you for your questions and for your continued interest in Kamada. We look forward to updating again when we report our second quarter or to see you next week in Denver. Have a good day. Thank you, everybody.

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