Kamada Ltd Q3 FY2023 Earnings Call

Good day, ladies and gentlemen, and welcome to Kamada Ltd.'s Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I will now turn the conference over to Mr. Brian Ritchie. Please go ahead, sir.

Thank you. This is Brian Ritchie with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer. Earlier today, Kamada announced its financial results for the three and nine months ended September 30, 2023. If you have not received this news release, please go to the Investors page of the company's website at www.kamada.com. 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, Monday, November 13, 2023. 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, it's my pleasure to turn the call over to Amir London, CEO. Amir?

Thank you, Brian, and thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. To begin, I'd like to indicate that the company continues to conduct its business operations in Israel with no effect on business continuity and its global supply of products is not expected to be interrupted as a result of the recent events in Israel. With that, I'll now give an overview of the strong financial and operational momentum throughout our business that has us well positioned to achieve our 2023 full year guidance, which I will discuss momentarily. I'll begin with a high-level review of our robust financial results for the first nine months of 2023. The total revenues were $106.1 million, which represented year-over-year growth of 26% and adjusted EBITDA of $17.7 million, an increase of 67% compared to the first nine months of 2022. We achieved top and bottom line growth, anticipating this for our business in the first nine months of the year. We continue to effectively leverage the multiple growth drivers in our business, including a significant increase in KEDRAB sales to Kedrion for distribution in the U.S. market, the portfolio of four FDA-approved immunoglobulins acquired in late 2021—CYTOGAM, HEPAGAMB, VARIZIG, and WINRHO—and our Israeli distribution business. Looking ahead, we expect the momentum from the first nine months of the year to extend to the fourth quarter of 2023 with annual profitability to increase in comparison to last year. As such, we are reiterating our full year 2023 revenue guidance of $138 million to $146 million and adjusted EBITDA of $22 million to $26 million. The midpoint of that range would represent profitability growth of approximately 35% over 2022. To reiterate what we have said previously, beyond 2023 we continue to anticipate annual double-digit revenue and profitability growth in the foreseeable years ahead with significant upside potential and limited downside risk. While I noted our multiple growth drivers earlier, KEDRAB, our anti-rabies immunoglobulin, has been especially impactful during the first nine months of 2023, a trend we expect to continue into the fourth quarter and beyond. Throughout the first nine months of 2023, we experienced a significant increase in demand for the products in the U.S., and we anticipate this momentum will continue moving forward. The significant market share growth demonstrated by KEDRAB is being driven by Kedrion’s excellent commercial activity and thanks to the FDA approval obtained in 2021 for the label expansion for the product, which has differentiated it as the first and only human rabies immunoglobulin available in the U.S. market that has been clinically studied in children. While Chaime will discuss the next process for the private placement in more detail shortly, I would like to highlight that as a result of this transaction, we're also able to pay down the entire remaining outstanding balance of our existing bank loan, and we are now debt free. Moving on, our U.S. team, established during 2022, continues to achieve steady progress in promoting our specialty IDG portfolio to physicians and other healthcare practitioners through direct engagement and opportunities at medical meetings. As we've said previously, our activities promoting these important therapies, primarily CYTOGAM and VARIZIG, represent the first time in over a decade that these hyper immunoglobulin specialty products have been supported by field-based activity in the U.S. We have also recently established our first Scientific Advisory Board consisting of eight U.S.-based world-renowned thought leaders in the solid organ transplantation field. The Advisory Board focuses on our newly implemented U.S. clinical program for CYTOGAM, including new opportunities and future research and development possibilities. As we said would be the case, key U.S. physicians are beginning to proactively support the use of this product, starting with CYTOGAM, which was the subject of a poster presentation at the recently held IDWeek 2023 in Boston. At this important medical meeting, results were presented of an investigator-initiated five-year retrospective study consisting of 325 lung transplant patients evaluating the real world use of CYTOGAM in combination with antiviral agents for the prevention of CMV disease in high-risk CMV mismatched lung transplant recipients.

Moving on, looking further ahead as a future catalyst, we continue to be pleased with the progress made at Kamada Plasma, our U.S.-based plasma collection company. Our 2021 acquisition of a plasma collection center in Houston, Texas, represented Kamada's entry into the U.S. plasma collection market and supported our strategic goal of becoming a fully integrated specialty plasma product company. We continue to successfully expand the hyper immune plasma collection capacity at our first center and are looking at opening our second collection center in Houston, Texas early next year. On the development side, enrollment has continued to ramp up in our ongoing pivotal Phase 3 InnovAATe clinical trial for inhaled Alpha-1 Antitrypsin therapy for the treatment of Alpha-1 deficient patients. To date, we've enrolled over 30% of the overall required enrollment for the study. We have recently also received positive feedback from the independent Data and Safety Monitoring Board (DSMB), which recommended study continuation without modification for the sixth time since the study was initiated based on encouraging safety data observed in the study to date. In addition, as we reported on our last call, the European Medicine Agency (EMA) has recently reconsidered our study design and acknowledged the statistically and clinically meaningful improvement in lung function measured by SED1 demonstrated in our previous Phase 2/3 European study. We continue to anticipate advancing our discussions with the FDA regarding study progress by the end of this year. As a reminder, Kamada's investigational inhaled AAT treatment is a non-invasive at-home treatment, with expected better ease-of-use and quality of life for Alpha-1 deficient patients as compared to the current IV standard of care. This product is the leading new innovative Alpha-1 deficiency treatment in the advanced clinical stage, and it represents a substantial opportunity to be a transformational product in a market that is already over $1 billion in annual sales in the U.S. and the EU. Finally, I'd like to formally welcome Prof. Benjamin Dekel and Assaf Itshayek, who were recently appointed as independent directors on our Board. Prof. Dekel is known internationally as one of the most innovative and highly recognized researchers in the field of human renal stem cell biology and regenerative medicine. Assaf Itshayek has over 15 years of high-tech industry experience in senior management and finance executive positions. We look forward to leveraging the scientific and financial expertise of these highly accomplished individuals as we continue advancing our existing business and pipeline and evaluating potential new opportunities. With that, I'll now turn the call over to Chaime for a detailed discussion of our financial results in the third quarter and the first nine months of 2023. Chaime, please go ahead.

Thank you, Amir, and good day, everyone. We're happy to report a significant year-over-year increase in revenues and profitability for the third quarter and the first nine months of 2023. Total revenues for the third quarter were approximately $37.9 million. For the nine months of 2023, total revenues were $106.1 million, an increase of 18% and 26%, respectively. The year-over-year growth was primarily driven by increased sales of KEDRAB to Kedrion due to increased demand for the product in the U.S. market. Total gross profit for the third quarter of 2023 was $14.8 million, representing a 39% margin compared to $12.9 million or a 40% margin in the third quarter of 2022. Total gross profit for the first nine months of 2023 was $41.1 million, representing a 39% margin compared to $31.4 million or a 37% margin in the first nine months of 2022. As previously discussed, the company is accounting for depreciation expenses associated with intangible assets, which were generated through the late 2021 acquisition of our IgG products. The company's cost of goods sold and sales and marketing expenses includes approximately $1.3 million and $400,000, respectively, of such depreciation expenses per quarter. Operating expenses, including R&D, sales and marketing, G&A and other expenses, totaled $10.4 million in the third quarter of 2023, compared to $10.3 million in the third quarter of 2022. Operating expenses for the first nine months of 2023 totaled $33.8 million, an increase of approximately 9% over the prior year period. The increase, as compared to 2022, is related to the advancement of our commercial activity as well as our Phase 3 InnovAATe trial. As we did throughout 2022, we continue to account for financing expenses with respect to the revaluation of contingent consideration and the long-term assumed liability, all of which are related to the acquisition completed in 2021. Net income for the third quarter of 2023 was approximately $3.2 million or $0.06 per share on a fully diluted basis compared to a net income of $500,000 or $0.01 per share in the prior year period. Adjusted EBITDA was $7.9 million for the third quarter of 2023, up 31% as compared to $6 million in the third quarter of 2022. For the first nine months of 2023, adjusted EBITDA was $17.7 million, up 67%, compared to the $10.6 million in the first nine months of 2022. As Amir highlighted earlier, we are reiterating our full year 2023 revenue guidance of $138 million to $146 million and adjusted EBITDA guidance of $22 million to $26 million. The midpoint of such range represents approximately 35% growth compared to fiscal year 2022. Finally, cash provided by operating activities was $900,000 in the third quarter of 2023 compared to cash provided by operating activities of $5.5 million in the third quarter of 2022. Our total cash position as of September 30, 2023, was $52.6 million compared to $34.3 million on December 31, 2022. This includes $58.2 million of net proceeds from the previously announced $60 million financing, which closed in September of 2023. In addition, during the quarter, we paid a total of $17.4 million to close the outstanding balance of the bank loan, and $11.5 million was used for old milestone payments. These actions are reflected in our cash balance as of September 30, 2023. Importantly, as Amir noted, we are now debt-free. Before proceeding to take your questions, I would like to also note that we filed today the notice of the company's Annual General Meeting to be held on Thursday, December 28. We will now open the call for questions.

Thank you. Our first question comes from Annabel Samimy of Stifel. Please go ahead.

Hi guys. Thanks for taking my question, and good quarter. So I just wanted to understand some of the dynamics for Kedrion. You're obviously seeing some very significant growth there. Could you tell us? It's been approved for some time. So can you tell us what do you think the key underlying drivers are? Is it primarily the label change? Is there something else that's driving that underlying growth, a refocus on the sales? And can we depend on that consistent growth in those consistent trends going into the next couple of years? Thank you.

Hi, Annabel, thank you for the question. We believe there are multiple dynamics in the market, which positively affect the significant growth of the KEDRAB market share. It has to do with the label expansion that we received and implemented at the end of 2021 into 2022, and then the impact of this into 2023. Of course, the end of the pandemic and the fact that the overall market has gone back to where it was prior to the pandemic also have a significant effect. The excellent work done by our partner, Kedrion, in the U.S. market, with a very wide coverage reaching almost every hospital in America, and being able to promote the product and its benefits. Additionally, there was another product that was in the market until late last year, which exited the market, and we are able to take a significant market share from the exit of that product.

Okay, great. And anything that you can update us on regarding some pipeline efforts that you have going on?

Pipeline efforts, that's the question? Yes, so the main effort is, of course, around inhaled AAT—Chaime has spoken about it on the call. We are advancing the improvement to the study and discussions with regulators, and we had a very positive dialogue with the EMA. We expect to have a similar discussion with the FDA before year-end. We had six successful DSMB meetings recently, which have validated the excellent safety of our product and the safety data that we are accumulating from the current study. In addition, we do have three early-stage development programs for other plasma-derived products that we have discussed in previous calls. We have a product, plasma eye drops, that is in preclinical stage. We also have an anti-tuberculosis immunoglobulin product, which is in preclinical development, and we have a device that we are developing, called jet immune, which is an automated portable small scale system for extracting and refining high premium immunoglobulins from convalescent plasma. These are the three early-stage programs which are under development. Once we make some material progress, we will update you. All of them are in preclinical studies, and we hope to start clinical studies in 2025 for the three products.

Okay, great. Thank you so much.

Thank you. Ladies and gentlemen, at this stage, I hand you over to Brian Ritchie for questions from the webcast. Thank you.

Thank you. A couple of questions that have come in off the web. First, at various points of the year, as you've already talked about, KEDRAB has been the driver. Prior to that, you talked about the four products—the four IgG products being the primary driver. It seems like there’s a lot of diversity in your business. If you could, maybe Amir, talk a little bit about that.

Yes. Kamada's business is very healthy, if I may use this term. I think we continue to effectively leverage multiple growth drivers in our business. As we mentioned, KEDRAB has been growing significantly with an increase in market share. We also see nice international growth of the four FDA-approved products acquired in late 2021. We are investing in the medical, clinical, and commercial activities around CYTOGAM and VARIZIG in the U.S. market, with the commercial and medical teams established in the U.S. and we have our Israeli distribution business, which is growing. All of that, if I may, creates a nice mix of products and territories that each contribute to overall growth. Looking forward into 2024 and beyond, we expect this growth to continue with the multiple growth drivers that we own.

Thanks, Amir. Another question that’s come in. Now that the private placement has closed, maybe talk a little bit about what you'll be looking for from a business development standpoint and potentially looking to add?

Yes. So with the additional funds, thanks to the FIMI investment, we are proactively looking to add some business development initiatives. We are looking to leverage the commercial infrastructure that we have established in the U.S. market to bring in, acquire, or in-license additional products. This could be primarily in the transplantation field, where we are currently mainly focused on specialty plasma products. As I mentioned, we are proactively looking at opportunities, and we are screening the different assets brought to us, hoping that in the future we will be able to close such a transaction that will help us continue growing the business, in addition to the organic growth I just talked about—growing through M&A.

Terrific. Thank you, Amir. And with that, I'll pass the call back over to you for any closing remarks.

Thank you, Brian. So in closing, we are pleased with our solid performance during the first nine months of the year. We are excited about the potential opportunities that lie ahead following the closing of the $60 million financing. We look forward to continuing to support clinicians and patients with the important lifesaving products that we develop and commercialize, and we thank you all, our investors, for the support and remain committed to creating long-term shareholder value. Thank you all, and we hope you all stay healthy and safe. Thank you.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your line.