Kamada Ltd (KMDA) 2015 Q2 法說會逐字稿

Welcome to the Kamada second-quarter financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded July 30, 2015. I would now like to turn the conference over to Anne Marie Fields.

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 Amir London, Chief Executive Officer, and Gil Efron, Chief Financial Officer and Deputy CEO.

Earlier this morning, Kamada announced financial results for the second quarter of 2015. If you've 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 Caroline 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 contents of this conference call contain time sensitive information that is accurate only as of the date of the live broadcast, July 30, 2015. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I would like to turn the call over to Amir London.

Thank you, Anne Marie. Many thanks to our listeners for your interest in Kamada and for participating in today's call. I am very pleased to be addressing you today for the first time as Kamada's CEO. There are a number of reasons I am excited to be taking over the helm at Kamada.

Primarily I am thankful to have inherited the rich legacy of innovation in the development of plasma-derived protein therapeutics led by David Tsur, the Co-Founder and previous CEO of the Company. Over the years, a growing body of scientific and clinical knowledge about the underlying mechanism of actions of our proprietary alpha-1 antitrypsin therapeutics, or AAT, continues to confirm its anti-inflammatory and immunomodulatory processes.

As such, we are interested in a rich clinical pipeline for AAT as a potentially safe and efficacious therapy for a number of immune-related rare diseases. We also benefit from having a core co-competency in advanced manufacturing technology. Our state-of-the-art production facility provides us with the ability to truly be a truly integrated biopharmaceutical company.

Finally, we are in a very solid position financially. We have approximately $44 million in cash and a growing base of business that provides significant cash flow to support our expanding late stage clinical development program.

Now let me turn the call over to Gil Efron, our CFO and Deputy CEO, for a detailed review of our quarterly financials. After his financial overview, I will discuss our commercial and clinical programs before opening the call to your questions. Gil, please.

Thank you, Amir, and good day, everyone. We had a very solid financial performance this second quarter. In April we completed the validation of the filling process that delayed certain proprietary product revenues during the first quarter of 2015 and realized that revenue during the second quarter. As a result we are in a good position to achieve our revenue targets for 2015. With that, let me overview our second-quarter results.

Total revenue for the second quarter of 2015 was $19.2 million compared with $15.8 million in second quarter of 2014. Revenue from the proprietary products segment was $12.7 million compared with $8.7 million in the 2014 second quarter and $3.2 million in the first quarter of 2015 for the reasons I just reviewed. As a result, we remain confident in our 2015 revenue guidance.

Importantly, this delay did not cause any obstructions for Baxalta in supplying patients in the US as they were able to rely on their inventories. As a recap of our agreements with Baxalta, in September 2014 we executed an extension to our agreement with Baxalta that provides for a minimum revenue from 2010 through 2017 of $191 million, up from $165 million in the 2013 extension and up from $110 million in the original 2010 agreement.

At the end of 2014, combinative revenues from Baxalta have amounted to $121 million and we expect actual orders from Baxalta through 2018 to be above their minimum purchase obligations.

Turning now to our distributed products. Revenue from this segment was $6.5 million compared with $7.1 million in the second quarter of 2014 and $5.8 million in the first quarter of 2015 and in line with our plans. Total revenues for the first six months of 2015 were $28.2 million, compared with $29 million in the 2014 period.

Revenue in the proprietary products segment was $15.9 million compared with $16.1 million from the year ago first half and revenue from the distribution segment was $12.3 million compared with $12.8 million in the first half of 2014.

Turning to the rest of the P&L, R&D expenses for the second quarter decreased to $3.4 million from $5.1 million in the second quarter last year. R&D expenses for the first six months of 2015 of $7.1 million decreased from $8.4 million in 2014 as we continue to support various clinical studies while in 2014 costs also included manufacturing costs assigned to R&D.

SG&A expenses in the second quarter of 2015 decreased slightly to $2.7 million from $2.8 million in the prior year. SG&A expenses for the first half of 2015 decreased slightly to $5.2 million or $5.4 million in the first half of 2014.

Second-quarter gross profit was $3.6 million compared with the gross loss of $0.1 million in the second quarter of 2014, which was impacted then by a one-time $3 million inventory write-off. Gross profit in the distributed segment was lower than last year due to a different product mix sold during 2015 that had lower profitability compared to the year ago mix. Consequently, gross margin grew to 19% from 0% in the second quarter of 2014.

Eliminating the one-time write-off last year, our gross margin is below our historical levels for various operational reasons which we believe will improve in the future. Gross profit for the first half of 2015 increased to $4 million from $3.2 million in the first half of 2014, while gross margin grew to 14% from 11%.

We reported an operating loss of $2.5 million in the second quarter compared with an operating loss of $7.9 million for the year ago second quarter. The operating loss for the first six months of 2015 was $8.2 million compared with operating loss of $10.6 million in the first six months of 2014.

The Company recorded a net loss for the second quarter of 2015 of $2.3 million or $0.06 per share compared with a net loss of $8.4 million or $0.23 per share for the same period in 2014. The adjusted net loss for the second quarter of 2015 was $1.8 million compared with an adjusted net loss of $7.4 million for the same period in 2014. Net loss for first half of 2015 was $7.6 million or $0.21 per share compared with a net loss of $11.5 million or $0.32 per share in the same period a year ago.

Adjusted EBITDA for the second quarter of 2015 was a loss of $1.1 million compared with a loss of $6.2 million for the second quarter of 2014 while adjusted EBITDA for the first half of 2015 was negative $5.6 million compared with negative $7.2 million in the first six months of 2014.

Looking now to the balance sheet, as of June 30, 2015 we have cash, cash equivalents, and short-term investments of $44.3 million, which compares with $49.7 million as of March 31, 2015. During the second quarter of 2015 we used $5.7 million in cash to fund operations and $0.8 million for capital expenditures. During the first six months of 2015 we used $7.7 million in cash to fund operations and $1.3 million for capital expenditures.

Turning now to our revenue guidance for 2015, we are affirming our previous guidance and continue to expect total revenue to be between $70 million and $73 million with revenue from distributed products to be between $26 million and $28 million and revenue from proprietary products to be between $45 million and $47 million.

These revenue projections take into account an expected negative foreign-exchange impact of approximately $2 million in relation to product sales denominated in euro and presume that US revenue from the agreement with Baxalta remains on track.

In addition, we remain confident in our ability to achieve our 2017 revenue goal of $100 million, 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 Amir.

Thank you, Gil, for that financial overview. So let me begin with a brief discussion of our proprietary highly purified liquid form of human AAT. Kamada has been and continues to be an innovative leader in the commercialization and development of AAT.

In addition to developing the first and only ready to infuse IV AAT, Glassia, an inhaled AAT for the treatment of AAT deficiency, we are leveraging the immunomodulatory mechanism of action of AAT to address unmet medical needs in a number of rare diseases and severe conditions.

There is a growing body of clinical and scientific data explaining the mechanism of action of AAT to demonstrate how it influences the immune system in order to modulate and/or prevent immune reactions which could translate to broad therapeutic potential.

In recent years, AAT has been investigated extensively and was found to have immunomodulatory anti-inflammatory tissue-protective and anti-apoptotic properties in direct or indirect consequence of its underlying anti-protease capabilities.

Data published in peer-reviewed journals such as Blood and Journal of Diabetes Science and Technology highlight how these properties may improve the disease state by lowering levels of core inflammatory mediators.

Applications such as these are very promising and encouraging, supporting our decision to continue to pursue our global clinical development plans for AAT in treating and preventing GvHD, type I diabetes, and organ transplant rejection, each of which I will speak about in greater detail.

First, let me address our commercial operations in partnership with Baxalta. Our relationship with Baxalta remains strong as we collaborate to grow sales and expand use to other indications of unmet medical needs. We are pleased with the consistently increasing number of patients treated by Glassia globally and specifically in the US.

We believe that Baxalta can continue to increase the number of patients on Glassia and gain market share in over $0.5 billion market in the US -- AAT (inaudible) market. It is growing at approximately 10% a year due to better diagnostics and increased disease awareness.

In addition to being the only ready to infuse AAT therapy, last year we received FDA approval for an enhanced infusion rate for Glassia. This, along with its ready-to-use features makes Glassia a highly user-friendly and convenient product that supports patient quality of life. We believe these competitive advantages will allow Glassia to continue to increase its market share.

Importantly, we continue to expand our partnership with Baxalta to collaborate on the development of additional indications such as our intravenous AAT products to treat GvHD and as a preventive treatment for lung transplant rejection.

Turning now to our robust clinical development program, let me begin with our European Phase 2/3 study of inhaled AAT to treat alpha-1 deficiency.

In May of this year we offered a final discussion titled New Treatment Prospects for AAT Patients, Results from a Phase 2/3 Inhaled AAT Trial, led by key opinion leaders who specialize in treating patients with alpha-1 deficiency at the ATS international conference in Denver, Colorado.

The panel of experts highlighted additional analysis which demonstrated that inhaled AAT is able to change the nature of (inaudible) to events with fewer symptoms, a clinically significant change that correlates with a clinically and statistically significant benefit seen in lung function as previously reported by Kamada.

We believe the combination of lung function improvements, which are the gold standard measurements for pulmonary diseases, symptoms improvements, effective (inaudible) of the product, along with the support from the key opinion leaders and the patient organizations give us confidence that these data support our marketing authorization applications with the European Medicine Agency.

Currently we are in the process of compiling all the necessary data required for submission of the MEA by the end of this year.

In the US we are conducting a double-blind placebo-controlled Phase 2 study evaluating the safety and efficacy of inhaled AAT in measuring AAT levels in the lung and [serum] as well as additional inflammatory biomarkers in 36 alpha-1 deficient patients.

The study involves inhalation of 80 milligrams or 160 milligrams of human AAT or placebo twice daily for 12 weeks. All patients are able to enter an additional 12-week open label expansion study with the active drug to further assess safety and tolerability. This study should complete enrollment by year-end and we should have top-line data by first half of 2016.

Our intention is use the results of this study and (technical difficulty) the data set from our European study to discuss the regulatory path forward in the US with the FDA. As previously reported, we are working closely with US experts in open drug development in order to successfully navigate the US open regulatory landscape.

We are hopeful that the clinically meaningful and statistically significant lung functions and symptom improvement data seen in our European trial will provide a clear direction for the regulatory path forward for our inhaled AAT also in the US.

Turning now to our clinical programs to other indications for our IV AAT. In addition to our inhaled AAT, we also continue to advance a clinical trial underway with our IV AAT to treat newly diagnosed type I diabetes and to treat GvHD and are in the initiation stage of a Phase 2 proof of concept study with our collaborative partner, Baxalta, to evaluate our IV AAT for the preventive treatment for lung function rejection.

GvHD is an immunological-based disease that may result in significant damage to multiple organs and tissues such as the liver, gut, and skin. It is one of the key life-threatening complications of stem cell transplantation. GvHD is a disease of significant unmet medical need and both the disease and current therapy carry considerable devastating side effects.

Preliminary human and animal studies indicate that AAT may be able to treat and reduce the severity of GvHD, which tissue destruction also leads to increased inflammatory signals affecting and augmenting the disease process contributing to the cytokine [stone] that fuels GvHD even farther and thereby the 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 rate and possibly reduce or eliminate the need for steroid therapy. We are supporting a Phase 1/2 study of our IV AAT to treat and prevent GvHD that is being conducted by the Fred Hutchinson Cancer Research Center in Seattle, Washington in cooperation with Baxalta.

The study is an open label dose escalation safety and efficacy study. The study is evaluating 24 GvHD patients who suffer from inadequate response to steroid treatment following stem cell transplantation. The patients are enrolled into four dose cohorts. The primary outcome of the study is to evaluate the efficacy of AAT in improving the severe intestinal inflammation associated with GvHD.

Preliminary results from this study were reported at the American Society of Hematology annual meeting at the end of 2014. The data indicated the continued administration of AAT as therapy for steroid-resistant gut GvHD is (inaudible) in the patient population, an indication of healing of the bowel mucosa was seen to decrease in diarrhea, intestinal protein loss, including the AAT protein, and in endoscopic evaluation.

Additionally, the preliminary results showed that following examination of pro-inflammatory cytokines, AAT administration (inaudible) levels of pro-inflammatory cytokines and interfered with GvHD biomarkers. We expect additional interim data will be presented at this year's ASH 2015 meeting in early December.

In March of this year we were granted orphan drug designation for our intravenous AAT therapy to treat GvHD in Europe that follows a previously granted ODD for GvHD in the US, which is a key milestone that supports our global regulatory and development strategy for these indications with a market opportunity in excess of $500 million up to $1 billion.

We believe that the GvHD indication is also an entry into the organ transplant market due to the similar mechanism of action. Towards that end, we recently announced our collaboration with Baxalta for the development of IV AAT to treat patients undergoing lung transplantation and we plan to initiate a Phase 2 proof of concept study.

The lungs have the highest rate of rejection among transplanted solid organs. Approximately one-third of lung transplant recipients experience an episode of acute rejection within the first year and 50% of lung transplant recipients will develop chronic rejection within the first five years.

Our aim is to develop AAT as a protective immunomodulation therapy that would enhance patient acceptance of their new lungs in this life-saving transplant. We look forward to advancing this plan with Baxalta and Professor Mordechai Kramer, Director of the Institute of Pulmonary Medicine in the Rabin Medical Center, Beilinson Hospital in Israel.

Professor Kramer is a renowned expert in pulmonary care and a top specialist in his field. He completed several fellowships in the US in pulmonary care and lung concentrations and has published many articles in leading scientific publications. We expect to initiate this study by early 2016 and will advise regarding our progress.

Looking now to our development program for IV AAT to treat newly diagnosed type I diabetes. The scientific rationale for administrating AAT to treat type I diabetes is also based on the immunomodulatory activities of AAT, which was published in the Journal of Diabetes Science and Technology. This mechanism of action supports better cell recovery process from offering new mediated tissue injury.

Treatment of type I diabetic patients with Kamada's AAT may have several medical benefits including slowing the progression of the disease, improved metabolic control, and most importantly reduction of diabetes complications.

We reported additional data from the ongoing expansion study of our open label Phase 1/2 clinical trial in this indication, which shows that the majority of patients who continued treatment with AAT maintained capability of insulin secretion and attained (inaudible) target with HbA1c levels below 7.5% for more than two years after their diagnosis of type I diabetes.

These positive data support the earlier results from the study and demonstrate the durability of the effect of our AAT treatments in this orphan indication.

Earlier this month we were delighted to have positive data published in the peer-reviewed journal Pediatric Diabetes as they support results from previous studies which showed AAT therapy to reduce core inflammatory markers and protect pancreatic islets from autoimmune responses in newly diagnosed diabetic patients.

The article features data from our Phase 1/2 study of IV AAT to treat type I diabetes and demonstrated profound safety of multiple intravenous doses of IV AAT therapy while maintaining the cam control and less of a decrease in C-peptide [lesions]. Moreover, the (inaudible) control [parameters] improved in the study in all groups independent of dosage.

We continue to enroll patients in our current Phase 2/3 study of AAT to treat newly diagnosed type I diabetic patients and look forward to advancing this trial which we believe may change the treatment paradigm for this disease.

Finally, for an update on our rabies products. The results on the Phase 2/3 clinical trials for rabies IgG conducted by our partner Kedrion Biopharma will be released in the fourth quarter of this year due to a delay in finalizing the closing activities of the study. As a result, the BLA is now planned to be submitted to the FDA in the first half of 2016.

In closing, as you can see, this is a very active and exciting time to be taking over as CEO of Kamada. Our strong and growing base business, along with our robust clinical pipeline of innovative treatments for orphan indications, strengthen our leadership position in the plasma-derived protein therapeutics markets.

I am privileged to be working with a dynamic (technical difficulty) team of skilled and talented professionals who share our founders' passion for bringing new medicine to patients in need. Together we look forward to achieving a number of important value-creating milestones in the near future as we advance our innovative AAT franchise in a number of important commercial and clinical areas.

I look forward to getting to know you all better in the coming months. Towards that end, Gil and I will be in the United States on business and meeting with investors the week of August 10. For those who would like to meet up with us, please contact Anne Marie Fields of LHA at 212-838-3777 as she is keeping our schedule. And now please open the call for questions.

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

Good morning, everyone, and Amir, congrats on your new responsibilities. A couple of questions from me. First, you mentioned that patient supply was not disrupted because Baxalta used inventory. So is the inventory build back part of the guidance for 2015? And secondly, on the inhaled AAT program, has Kamada held meetings with the [repertoire] and co-repertoire yet and what has their feedback been so far? Thanks.

Thank you and good morning. With regard to the Baxalta orders, these are based on the Baxalta demand. And I cannot speak about their inventory, but it's based on what we know from orders we received.

In regard to the inhaled program, yes, we are in continuous dialogue with the [reporters] and, based on that dialogue, we are continuing with our plans for submission of the MAA by end of the year.

Okay, I will get in line. Thanks.

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

Thanks for the follow-up. I am just curious, it might be too early. Would you be able to describe what the different doses would be amongst all the clinical programs that Kamada and Baxalta are embarking on, that inhaled AAT, GvHD transplant, etc.?

The inhaled of course is a different dose and we talked about it since the IV indication. I believe you are referring to the GvHD and the lung transplant. In terms of the lung transplant, we are finalizing this data protocol and once it's finalized we will be able to share the details of it with the public. In regards to the GvHD, I believe this information is public. You can go and check and, in any case, we will get back to you on that.

Okay, thanks.

At this time there are no further questions. Please proceed with your presentation or any closing remarks.

I would like also to note that we will be participating in the upcoming Rodman & Renshaw annual investment conference taking place on September 8 through 10 in New York and at the Morgan Stanley global healthcare conference taking place on September 16 through 18 also in New York. For those attending the conferences and would like to meet with us, please reach out to your Rodman & Renshaw or Morgan Stanley representatives or contact Anne Marie Fields at LHA at 212-838-3777.

Thank you for your questions and for your continued interest in Kamada. We look forward to updating you again when we report our third-quarter 2015 financial results. Have a good 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.