Kamada Ltd.
Q2 2017 Earnings Call Transcript

Published: 1 Aug 2017

[Operator:]

Good day, and welcome to the Kamada’s Second Quarter 2017 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Paul Arndt with LifeSci Investors [ph]. Please go ahead.

[Paul Arndt:]

Thank you and good morning. This is Paul Arndt with LifeSci Advisors. Thank you all for participating in today’s call. Joining me today 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 2017 second quarter. If you have not received this news release or if you would like to be added into the Company’s distribution list, please call Bob Yedid from LifeSci Advisors at 646-597-6989. 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, Form 20-F and Form 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 the conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, Tuesday August 1, 2017. 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’d like to now turn over the call to Amir London. Amir?

[Amir London:]

Thank you, Bob, my thanks also to our listeners for your interest in Kamada and for participating in today’s call. I’m pleased to report Kamada’s second quarter financial performance was very good and the first six months of the year were the strongest in our history. While our quarterly financial results were certainly positively impacted, by recording approximately $11.5 million in proprietary product revenues, which were delayed for the first quarter, the momentum in our business is currently quite strong. Gil will provide the details on our second quarter financial performance shortly. But I’d like to highlight a few key metrics. First, total revenues were $33 million, comprised of $27 million from our Proprietary Products segment and $6 million from our distribution segment, represented an increase of 71% over the second quarter of 2016. In addition, our gross margins in the second quarter increased to 36% from 30% in the second quarter of 2016. Following this strong performance we remain confident in our ability to attain our previously stated objective of reaching $100 million in total revenue in 2017, of which $76 million to $78 million will come from our Proprietary Products segment, representing at least 36% growth, compared to 2016. This significant growth in proprietary product sales is mainly the result of our increasing market share for GLASSIA in the U.S. for the treatment of Alpha-1 Antitrypsin Deficiency, followed by Shire as part of the strategic agreement between our companies. Importantly, we also expect to be profitable and to generate positive cash flow this year. We ended the quarter with $26.9 million of cash and cash equivalents. And we priced a $15 million equity offerings last Friday. Together with the positive cash flow expected this year, it’s put us in a good position to execute our strength, which I will discuss. Gill will elaborate on the financing as well. With that let me now review our clinical operational highlights since our last call in May. Let’s begin with an update on our proprietary inhaled alpha-1 antitrypsin therapy for the treatment of Alpha-1 Deficiency. Most recently, we submitted to the FDA for review a proposed pivotal Phase 3 protocol. We expect a response from the FDA shortly in regard to the proposed protocol. If approved by the FDA, we intend to proceed with a U.S. Phase 3 pivotal clinical trial in the first half of 2018. The proposed Phase 3 pivotal study is intended to treat Alpha-1 Deficiency subjects with inhaled AAT with a dose of 80 milligram once daily for a period of two years, with a placebo arm at a 2

[Gil Efron:]

Thank you Amir and good day everyone. To reiterate what Amir said, as we expected Kamada captured all of the delayed revenues from the first quarter, in the second quarter of 2017. We continue to expect that we will generate revenues of $100 million in 2017 comprised of 76% of the $8 million of revenues from our Proprietary Products segment and $22 million to $24 million of revenue from our distribution segment. With that, let me begin my review of the second quarter financial. Total revenues was $32.5 million, a 71% increase from the $19.1 million a profit in the second quarter of 2016. Revenues from the Proprietary Products segment was $26.9 million, a 122% increase from the $12.1 million reported in the second quarter of 2016. Revenues from the distribution product segment were $5.7 million an 18% decrease from the $6.9 million of profit in the second quarter of 2016. Year-over-year revenues were higher in the second quarter of 2017, primarily as a result of an increase in the volume of sales in the Proprietary Products segment and the recognition of $11.5 million of revenues delayed from the first quarter of 2017 to the second quarter of 2017. Excluding this amount, revenues in the Proprietary Products segment increased 27% in Q2 of 2017 compared to Q2 of last year. Gross profit was $11.7 million, up more than 100% from the $5.6 million in the second quarter of 2016. Looking now at the rest of the P&L, R&D expenses in the second quarter of 2017 were $3.5 million, essentially flat as compared to the second quarter of 2016. Selling general and administrative expenses were $3.2 million, up 18% from the $2.7 million in the same period in 2016. For the second quarter of 2017, we recorded operating income for $5 million, compared to the $0.6 million operating loss recorded in the same period of 2016. Net income was $4.9 million or $0.13 per diluted share, compared to a net loss of $1.6 million or a loss of $0.04 per diluted share in the second quarter of 2016. Adjusted net income was $5.1 million, compared to adjusted net loss of $1.3 million in the second quarter of 2016. Adjusted EBTIDA for the second quarter of 2017 was $6.1 million, compared to adjusted EBTIDA for the second quarter of 2016 of $0.6 million. Now I will discuss the results for the six months ended June 30, 2017, which gives a good year-over-year comparison because it is not affected by the delay of revenues from Q1 to Q2 in 2017. Total revenues were $44.2 million, a 31% increase on the $33.9 million reported in the six-month period of 2016. Revenues from the Proprietary Products segment was $33.5 million, a 44% increase on the $23.2 million reported in the six-month period of 2016. Revenues from the distribution product segment were $10.7 million, essentially flat with a $10.6 million profit in the six months period of 2016. Gross profit was $14 million, a 35% increase from the $10.4 million in the six months period of 2016. Gross margin increased to 32% from 31% in the six months period of 2016, primarily as a result of a higher mix of Proprietary Products revenue. Looking now to the rest of the P&L, R&D expenses were $6.6 million, a decrease of 13% as compared to $7.6 million in the same period of 2016. Selling, general and administrative expenses were $6.1 million, an increase of 13%, compared to $5.4 million in the same period of 2016. For the six months ended June 30, 2017 we reported operating income of $1.3 million, compared with an operating loss of $2.6 million in the same period of 2016. Net income was $0.9 million or $0.02 per share, compared to a net loss of $3.9 million or a loss of $0.11 per share in the six months period of 2016. Adjusted net income was $1.3 million, compared to adjusted net loss of $3.2 million in the six months period of 2016. Adjusted EBITDA was $3.5 million, compared with negative adjusted EBITDA of $0.2 million for the same period of 2016, a change of $3.7 million. On the balance sheet, as of June 30, 2017 the company has cash, cash equivalents and short term investments of $26.9 million, compared with $28.6 million as of December 31, 2016. During the first six months of 2017 we generated $1.4 million in cash from operation and used $2.6 million for capital expenditure and $200,000 for financing activities. As mentioned by Amir, we priced on Friday a $15 million equity offering, which is $13.5 million net of underwriting discount and offering expenses before exercising the overall allotment. The use of proceeds is planned for the two clinical studies we are planning to initiate in 2018, the Phase 3 for inhaled AAT to treat Alpha-1Deficiency and Phase 2/3 for AAT for GvHD, subject to receiving regulatory approval and for in-licensing of marketed product or technologies. Given the current balance, and additional funds just raised and the positive cash flow expected this year, we believe it will well-position us financially to execute on our plan. I’ll now open of the call for questions. Operator please.

[Operator:]

Thank you. [Operator Instructions] And we’ll take our first question from Raj Denhoy with Jefferies.

[Raj Denhoy:]

Hi good morning.

[Gil Efron:]

Good morning.

[Amir London:]

Hi Raj.

[Raj Denhoy:]

So maybe I can start a little bit with the proposed trial now in the United States for GLASSIA. And I'm curious about the selection of the endpoint on this trial being lung function and the secondary endpoint being deep depression by lung density. As you know and most people know most of the trials that have happened thus far have focused on lung density as the primary endpoint. So I guess I'm curious about why you've chosen to use function this time as opposed to density?

[Amir London:]

Okay, hi Raj. Thank you, it’s Amir. So we have based our study design, as well as our endpoints based on the data and results that we have had in the previous studies. So if you remember and if you look back to the Phase 2/3 study that was done in Europe, we had statistical significance and clinically meaningful of course data on lung function. The results were successful, we show that we have a slowdown the disease progression almost to a level of healthy individuals, but this data was post-hoc data and was not sufficient for the approval in Europe. So we are basing the new study design based on what was already successful this time as a primary endpoint in the study is powered to show it based on the variability and the results of the previous study. Also to mention, the previous studies that you're referring to were IUV studies and you were talking about the inhaled study. So we feel that the right thing to do is to speak the work has been already successful in our study, but this time to put it as a primary endpoint and to power the study accordingly.

[Raj Denhoy:]

Okay, that's helpful. And you mentioned you're still waiting to hear back from the FDA on approval of the trial design and when do you expect that to happen? And do you expect to get in my sense it’s probably not, but the FDA to express comfort with selection of endpoint this time, I mean, typically they don't usually do that but you’re expecting some feedback on the selection of the endpoint.

[Amir London:]

Correct. So we have submitted the synopsis to the study, few weeks ago we received feedback to the synopsis, but the FDA also requested us to submit the full complete protocol. So we have designed this full protocol based on the feedback and we feel that we have addressed the FDA questions and requests and that's the way the protocol has been designed. In regards to the timing we expect to get the feedback no later than end of August this month. And then we will proceed with submitting an amendment to the IND, so we have an approved IND before the end of the year.

[Raj Denhoy:]

Okay, that's helpful. And then maybe just on GLASSIA, a strong result in the quarter, I guess, a recovery of sales from the first quarter, but again there's a pretty significant ramp into the back half of the year and the question was arise just in terms of the visibility the order flow from Shire at this point. And you mention now that you continue to gain share, is there anything you can offer in terms of what share you now have? And then also some visibility that you might have in terms of the orders from Shire in the back half of the year.

[Amir London:]

Yes, so we are basing our projections for the year based on actual older and commitment from Shire, so we are highly confident in the $100 million projection. If you go back to previous years, you'll see that the second half of the year, the third and the fourth quarter will always be stronger than the first half of the year and we expect this to be also this year. But $100 million is based on actual commitment in order that we have from Shire.

[Raj Denhoy:]

And then just there’s a question on the market share and you mentioned your gaining share. Where do you think your share now sit both within Shire’s sales of Alpha-1 Antitrypsin, but then also in the market as a whole.

[Amir London:]

So based on our knowledge the market is growing in general, the 10% annual growth is what we're hearing also for this year. In terms of our GLASSIA specific share, so we have not disclosed information in the past. But I can say that Shire overall also on a market share is approximately 25% and this is combined of GLASSIA and allograft [ph] all their legacy products and we know that GLASSIA is growing significantly.

[Raj Denhoy:]

Okay I’ll leave it there. Thank you.

[Amir London:]

Thank you.

[Operator:]

And it appears there are no further questions at this time. I’d like to turn it back to Kamada management for closing remarks.

[Amir London:]

Thank you. In summary, Kamada remains in a strong operating position with multiple potentially value-enhancing milestones upcoming. Based on our financially outlook, we continue to expect 2017 will represent strong growth versus 2016. We are excited about the positive momentum in our business and look forward to the remainder of the year. Kamada remains committed to growing our business and enhancing long-term shareholder value. Thank you for joining us today on the call. We look forward to providing you this product update on our progress throughout the reminder of year. Enjoyed the rest of your day. Thank you.

[Operator:]

And that concludes today’s call. Thank you for your participation. You may now disconnect.