Kamada Ltd (KMDA) 2015 Q3 法說會逐字稿

Welcome to the Kamada Ltd third-quarter financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded today November 10, 2015. I would now like to turn the conference over to Anne Marie Fields with LHA. 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 Amir London, Chief Executive Officer, and Gil Efron, Deputy CEO and Chief Financial Officer.

Earlier this morning, Kamada announced financial results for the third quarter of 2015. If you have not received this news release, or if you'd 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 at the Securities and Exchange Commission, including, without limitation, the Company's forms 20-F and 6K, which identifies 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, November 10, 2015. 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 Amir London. Amir?

Thank you, Anne Marie. And my thanks to all listeners for your interest in Kamada and for participating in today's call.

I am very pleased to report the significant progress we made during the last quarter and recent weeks. We were particularly pleased to report the third extension to our strategic agreement with Baxalta for the manufacturing and supply of Glassia in the US.

In addition, we continue to advance the clinical development of our plasma therapeutics in a number of orphan indications with very considerable unmet medical needs, and where it is believed that the immunomodulatory, anti-inflammatory and tissue protective properties of our highly purified Alpha-1 antitrypsin, or AAT, can positively affect these diseases.

We enter the final months of 2015 in a solid position, with a growing patient base, a strong balance sheet with more than $42m in cash, and a very promising pipeline for further candidates in varying stages of clinical development across a broad selection of world diseases.

But before getting into discussion of our commercial and clinical program, let me turn the call over to Gil Efron for a detailed financial review of our third-quarter results. Gil, please.

Thank you, Amir, and good day to everyone. We had a very solid financial performance this quarter, meeting our revenue expectation. Historically the fourth quarter is our strongest revenue quarter, and this year should be the same. As a result, we are confident we will achieve our revenue targets for 2015.

Now let's review our third-quarter results. Total revenue for the third quarter of 2015 was $16.2m (sic - see Press Release "$16.1m") compared with $17.1m (sic - see Press Release "$17.2m") in the third quarter of 2014. Revenue from the proprietary products segment was $9.6m compared with $9.1m in the 2014 third quarter and $12.6m in the second quarter of 2015, when we realized delayed revenue from the first quarter of 2015.

As Amir mentioned, in October we executed the third extension to our strategic manufacture and exclusive distribution agreement with Baxalta. As a result, we added approximately $50m of Glassia product sales to Baxalta's minimum commitment, bringing the minimum revenue to $240m, compared with our minimum of $110m in the original agreement executed in 2010 and a minimum of $191m in the September 2014 extension of that agreement.

At the end of 2014, cumulative orders from Baxalta were $121m, and we expect actual orders from Baxalta to 2018 to be above the minimum purchase obligation. In addition to the increased new revenue, the new agreement extends our manufacturing supply to 2018, which offers significant benefit as our recently approved and enhanced manufacturing processes provide improved efficiencies in capacity that increases our gross margins for Glassia.

Turning now to our distributed product, revenue from this segment was $6.5m compared with $8m in the third quarter of 2014 and $6.5m in the second quarter of 2015, which is in line with our expectations for this segment.

Total revenue for the first nine months of 2015 was $44.2m compared with $46.1m in the 2014 period. Revenue in the proprietary products segment was $25.4m compared with $25.3m for the year ago first nine months. And revenue from the distribution segment was $18.8m compared with $20.8m in the first nine months of 2014.

Turning to the rest of the P&L, R&D expenses for the third quarter increased to $5m from $4.2m in the third quarter last year as we continued to support three key clinical trials in our preparation of the site in Europe for its Marketing Authorization Application, the MAA. R&D expenses for the first nine months of 2015 of $12.1m, decreased from $12.6m in 2014.

SG&A expenses in the third quarter of 2015 were unchanged at $2.7m for both third quarter periods. SG&A expenses year-to-date decreased slightly to $7.9m from $8.1m in the same period of 2014.

Third-quarter gross profit was $3.7m compared with gross profit of $4.4m in the third quarter of 2014, due to a decrease in gross profits in proprietary products segment as a result of product sales mix. Consequently, gross margin decreased to 23% from 26% in the third quarter of 2014. Gross profit year-to-date increased to $7.7m from $7.6m in the first nine months of 2014 with gross margin moving to 17% from 16% respectively.

We reported an operating loss of $4m in the third quarter compared with an operating loss of $2.5m for the year ago third quarter. The operating loss for the first nine months of 2015 was $14.2m (sic - see Press Release "$12.2m") compared with operating loss of $13.1m in the first nine months of 2014.

The Company recorded a net loss for the third quarter of 2015 of $4.6m or $0.13 per share compared with a net loss of $2.9m or $0.09 per share for the same period in 2014.

The adjusted net loss for the third quarter of 2015 was a $4.1m compared with an adjusted net loss of $1.9m for the same period in 2014. Net loss for the first nine months of 2015 was $12.3m, or $0.34 per share compared with the net loss of $14.4m or $0.41 per share in the same period a year ago.

Adjusted EBITDA for the third quarter of 2015 was a loss of $2.7m compared with a loss of $0.8m for the third quarter of 2014, while adjusted EBITDA for the first nine months of 2015 was a loss of $8.3m compared with a loss of $8m in the first nine months of 2014.

Looking now to the balance sheet, as of September 30, 2015, we had cash, cash equivalents and short-term investments of $42.3m, which compares with $44.3m as of June 30, 2015. During the third quarter of 2015, we used $0.9m in cash to fund operations and $0.6m for capital expenditures. And during the first nine months of 2015, we used $80.6m in cash to fund operations and $1.9m for capital expenditure.

I would like to note that by the end of this month, we will be paying the remaining convertible debt balance of approximately $7.7m.

Moving now to our 2015 revenue guidance, as I mentioned earlier, historically the fourth quarter is our strongest quarter for the year, which gives us confidence to affirm our previous guidance. And we continue to 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.

In addition, we remain confident in our ability to achieve our 2017 revenue growth of $100m, which includes approximately 75% growth in the proprietary products 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. First, let's review our commercial operations and strategic partnership with Baxalta. Clearly, we are very pleased to have extended our strategic agreement with Baxalta, not only because of the $50m increase in the minimum revenue commitments of Glassia, but for a number of reasons, extending this agreement is of significance for Kamada.

It validates the growing number of AAT deficiency or AATD patients being treated with Glassia in the US, it extends the term of our manufacturing of the product through 2018, and it strengthens our relationship with Baxalta. The latter of which is a key for Kamada, as we are already collaborating with Baxalta on a number of clinical trials in development for important orphan indications, such as GVHD and lung transplant rejection.

Importantly, there is a growing body of clinical and strategic data explaining the mechanism of action of AAT to demonstrate how it influences the immune system in order to model it and how to prevent immune reaction, which could translate to broad therapeutic potential. Our collaboration with Baxalta is important today, and we believe it will continue to flourish as we advance our current clinical studies and potentially expand into different indications.

The AAT augmentation market for AATD is over $0.5m -- $0.5b in the US and the market is growing approximately 10% a year, as a result of better diagnostics and disease-state awareness programs underway by all three major players in the States, to better identify patients with this genetic disorder. We are confident that Glassia can continue to increase its market share due to a couple of key competitive advantages.

First, Glassia is only ready-to-infuse AAT treatment on the market, and it has an enhanced infusion rate that significantly reduces treatment time. In addition to Baxalta in the US, we are enhancing our global AAT presence towards creation of the product and expansion of our sales and marketing efforts in additional countries where AATD is prevalent.

Turning now to our robust clinical development program, let me begin with a couple of late stage programs. We continue our work on finalizing the [data] of the Phase 2/3 study of our inhaled AAT to treat AATD and we plan to submit the Marketing Authorization Application with the European Medicine Agency in March 2016.

We are encouraged by the combination of lung function improvement, [simple] improvement, the safety profile of the product, along with the support we are receiving from the key opinion leaders and the patient population.

In the US we are conducting a double blind, placebo-controlled Phase 2 study evaluating the safety and efficacy of inhaled AAT and measuring AAT levels in the lung and serum as well as additional inflammatory biomarkers in 36 AATD patients. The study involves the inhalation of 80 milligrams or 150 milligrams of human AAT or placebo twice daily for 12 weeks.

All patients are able to enter an additional 12-week open level extension study, with the active drug to further assess safety and reliability. This study should complete enrollment by year end, and we plan to have topline data by the first half of 2016. Our intention is to deliver report of this study along with the complete data set from our EU Phase 2/3 study to discuss a regulatory path forward in the US with the FDA.

As previously reported, we are working closely with AATD, KOL and US experts in orphan drug development in order to successfully navigate the US (technical difficulty)

Ladies and gentlemen, I apologize, but there will be a slight delay in today's conference. Please hold and the call will resume momentarily. (technical difficulty) You may resume the call.

Turning for a moment to our rabies program with Kedrion. The result on the Phase 3 clinical trials of our rabies IgG, performed in collaboration with our US partner, Kedrion Biopharma, are expected to be reported by year end, with plans to submit the biological license applications, BLA, with the FDA in the first half of 2016.

Now let's move on to our clinical program for our intravenous IV AAT. In addition to Glassia used as an a ATD augmentation therapy, we also continue to move forward with the clinical trial underway with our IV AAT to treat immunity diagnosed Type 1 diabetes, graft-versus-host disease and to prevent lung transplant rejection.

Let me begin with GVHD. GVHD is an immunologically based disease that may result in significant damage to multiple organs and tissues, such as the liver, bowel, gut, skin, and mucosal membranes. It is one of the key life-threatening complications of stem cell transportation. With GVHD, the new transplanted cell, regards the receiving body as foreign. When this happens, the newly transplanted cells attack the receiving body.

GVHD is a disease of significant unmet medical need. And both the disease and current therapy options carry considerable devastating side-effects. Preliminary human and animal studies indicate that AAT may be able to treat and reduce the severity of GVHD, including progressive tissue damage and as a result, could potentially increase survival rate, and possibly reduce or eliminate the need for steroid therapy.

We've been granted orphan drug designation for IV AAT therapy to treat GVHD in both Europe and the US, which is a key milestone in support of a global regulatory and development strategy in this indication with a market opportunity in excess of $500m and up to $1 billion.

In collaboration with Baxalta, we are supporting a US Phase 1/2 study of our IV AAT to treat acute GVHD. The upper level dose escalation safety and efficacy study is being conducted by the Fred Hutchinson Cancer Research Center in Seattle, Washington, and is evaluating GVHD patients who suffer from inadequate response to steroid treatment following transplantation, the primary outcome of this study being improvement in the severe intestinal inflammation associated with GVHD.

Preliminary results from this study reported at last year's American Society of Hematology annual meeting indicated the continuous administration of AAT as therapy for steroid-resistant gut GVHD is feasible. Indication of healing of the bowel mucosa was seen to decrease in diarrhea, in intestinal protein loss, including the AAT protein, and in endoscopic evaluation.

Additionally, the preliminary results show that following examination of pro-inflammatory cytokines, AAT administration suppressed serum levels of pro-inflammatory cytokines and interfered with the GVHD biomarkers. Data on the mechanism of action of AAT to treat GVHD are encouraging.

For example, investigators at the Fred Hutchinson published observational data in the peer-reviewed journal Blood, which showed an inverse correlation between plasma AAT levels in human donors and the development of acute GVHD in the recipients. The higher the level of AAT in the donor blood, the less likely the recipient develops GVHD.

In addition, the studies show that mice, given cells from AAT treated donors experience less weight loss and lower GVHD incidence and severity compared with albumin control. The benefit was further enhanced when donor and recipient were treated. The study concluded that AAT applies potent GVHD protection.

We look forward to the completion of the Phase 2 study and with continued encouraging results we intend to move forward with the pivotal Phase 3 trial in 2016.

Also in collaboration with Baxalta, we are moving forward with our plan to initiate a Phase 2 proof-of-concept study of IV AAT as a protective therapy to enhance patients' acceptance of their new lung in lung transplantation. The study will be led by Professor Mordechai Kramer, Director of the Institute of Pulmonary Medicine at the Rabin Medical Center, Beilinson Hospital, in Israel. Professor Kramer is a renowned expert in pulmonary care and a top specialist in his field. We expect to initiate this study in early 2016, and we'll release information regarding the study design and its end point in this time.

As reported by the Registry of International Society of Heart and Lung Transplantation, as many as 55% of lung transplant decisions are treated for acute rejection in their first year after transplantation and only 50% of lung recipients are alive five years after transplant. Increased risk of the lung to injury, obstruction and constant environmental exposure, with local (inaudible) likely contributes to the high rates of rejection. Current treatment options, such as steroids, in-house chemotherapy, further compromise the bad immune systems and cause a host of co-morbidities.

The immunomodulatory and anti-inflammatory mechanism of action of our IV AAT gives us confidence in moving forward to develop these indications with a goal to helping treat survivors and enhance the patients' quality of life. More importantly, it gives hope to patients who suffer with a body rejection of their new lung.

Towards that end, we have recently begun working with Professor Kramer and the US Lung Transplant Foundation to enhance awareness of the potential for IV AAT in this indication and are exploring a number of opportunities to work together to benefit lung transplantation. We will keep you updated on our progress through this initiative.

Looking now to our development program for IV AAT to treat newly diagnosed Type 1 diabetes. Here again, the scientific rationale for IV AAT to treat Type 1 diabetes is also based on its immunomodulatory activity. Data published in the Journal of Diabetes Science and Technology supports better cell recovery process from autoimmune tissue injury. In July, overseas data published in the peer-reviewed journal (inaudible) Diabetes supported results from previous studies which showed AAT therapy to reduce pro-inflammatory markers and protect pancreatic islets from opening in responses in newly diagnosed diabetes patients.

The article featured data from our Phase 1/2 study of IV AAT to treat Type 1 diabetes, and demonstrated profound safety of multiple intravenous doses of IV AAT therapy while maintaining glycemic control and (inaudible) decrease in (inaudible). Moreover, the glycemic controlled parameters improved during 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 1 diabetic patients, and look forward to advancing this trial, which we believe may change the treatment paradigm for Type 1 diabetic patients.

In closing, our robust product pipeline is broadly distributed across several important disease states with significant unmet medical need, which diversifies our risk and offers multiple opportunities for partnerships and additional sources of revenue. We continue to grow our core commercial business as underscored by the recent expansion of our agreement with Baxalta and we are confident we will achieve our $100m revenue target for 2017.

We are in a solid financial position from which to execute our strategic plan, and expect to achieve a number of key commercial and clinical milestones in the coming months which should enhance our shareholder value.

And now, Operator, please open the call for questions.

(Operator Instructions).

While we are waiting for the first question, I would like you to know that we will be participating in the upcoming Jefferies London Healthcare Conference taking place November 18/19, and the Oppenheimer Annual Healthcare Conference in New York City in December. For those attending the conferences who would like to meet with us, please reach out to your Jefferies or Oppenheimer representative or contact Anne Marie Fields at LHA at 212-838-3777.

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

Thank you for attending this call today and for your continued interest in Kamada. We look forward to updating you again when we report our first-quarter and year-end 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.