Earnings Call Transcript - KMDA Q1 2022

Operator, Operator

Greetings and welcome to the Kamada Ltd. First Quarter 2022 Earnings Conference Call. Please note that this conference is being recorded. I will now hand it over to your host, Bob Yedid of LifeSci Advisors. You may begin.

Bob Yedid, LifeSci Advisors

Thank you, Shamali. This is Bob Yedid of 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 3 months ended March 31, 2022. 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'd 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 identifies specific risk factors which 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 live broadcast, Tuesday, May 17, 2022. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. if you would like to ask questions, please feel free to register for the Q&A session live at the end of the call or feel free to email me Bob Yedid, bob@lifesciadvisors.com. With that said, it's my pleasure to turn the call over to Amir London, CEO. Amir?

Amir London, CEO

Thank you, Bob, and thanks to all our investors and analysts who have interest in Kamada and for participating in today's call. Our business is off to a very strong start in 2022. During the first quarter of the year, we have effectively executed on our corporate strategy and continued advancing towards becoming a fully integrated global leader in the plasma derived specialty markets. Our performance during recent months is a strong testimony to Kamada's ability to concurrently execute on multiple fronts, developing and advancing our key growth catalysts. Those catalysts include commercialization of our IgG portfolio in the U.S. market as well as in new territories, KEDRAB growth in the U.S., the Israeli distribution activity, our U.S plasma collection business, GLASSIA royalty income which started in March, and the Inhaled AAT clinical program, which is expanding. Moreover, during the first quarter, we generated $5.5 million of operating cash flow that supported the increase of our cash position to a total of $22 million. Importantly, the first quarter represented the first full calendar quarter commercializing the portfolio of the four FDA-approved immunoglobulins required late last year. I'm pleased to report that these four products delivered solid initial sales and profitability for Kamada meeting our plans and expectations. As a reminder, the acquired product generated collective revenues exceeding $40 million in 2021 with over 50% gross margins, and we anticipate a strong growth in the new portfolio revenue year-over-year due to proactive promotional activities in the U.S. with our newly established subsidiary Kamada Inc. is responsible for the commercialization and direct sales of the product. Our recently appointed Vice President of U.S. Commercial Operations, Jon Knight, has begun building out our team with multiple senior staff members, all of them experienced sales and marketing professionals with established relationships with relevant U.S. healthcare providers. We intend to actively promote this compelling product to hospitals and physicians throughout the U.S., mainly focusing on transplantation centers. We also intend to leverage our existing strong international distribution network to grow product revenue in new territories. I'm very happy to report today that sales of the products have already been initiated during the first quarter in a few additional new countries, mainly in the Middle East. I should also add that we continue to expect receipt of FDA approval for the production of CYTOGAM, the largest of the four acquired products at our Israeli facility during the first half of 2023 after completion of the tech transfer activities, which are currently at an advanced stage. Now let's turn to the performance of our overall business in the first quarter of 2022. We generated total revenues of $28.1 million, representing a strong 13% growth over the first quarter of 2021. We also achieved gross profit of $11.3 million and gross margins of 40% in the first quarter, as compared to 36% in the prior year periods. This increase in our profitability was mainly driven by the four new IgG portfolio products, which generated gross margins of over 50%. Based on a strong start to the year, we are reiterating our full year 2022 revenue guidance of between $125 million to $135 million with expected EBITDA margins of 12% to 15%. This guidance represents a 20% to 30% increase over 2021 revenue and more than 2.5 times over 2021 EBITDA. Moreover, we continue to project revenue growth at a double-digit rate in the foreseeable years ahead. I would now like to discuss the recently established Kamada plasma, our U.S.-based plasma collection company. You will recall our early 2021 acquisition of the plasma collection center in Texas that specializes in the collection of hyperimmune plasma used for the manufacturing of one of our specialty products. This acquisition represented Kamada's entry into the U.S. plasma collection market and supported our strategic goal of becoming a fully integrated specialty plasma company. We remain focused on expanding the hyperimmune plasma collection capacity at this center and continue to advance our plans to open additional centers in the U.S. to further enhance our supply of specialty and regular plasma. In fact, we are already in the process of selecting the site location for a second collection center to be followed by construction and startup activities later this year. We are also planning to initiate the required activities for a third center by year-end. As a reminder, the planned expansion of our plasma collection capabilities is expected to enhance our IgG competitive position in various markets, support continued revenue growth, and strengthen our supply chain. Moving on to KEDRAB, our anti-rabies IgG. Based on the recent moderation of the COVID pandemic in the U.S., we are encouraged by the product in-market sales by Kedrion during the first quarter, which have grown significantly in comparison to the pre-COVID pandemic sales level. And we believe this trend will continue. We expect KEDRAB to be an increasingly important growth driver for us over the next few years, as it continues to gain market share in the $150 million U.S. market. You will recall that the FDA approved a label expansion for the product late last year, which differentiated KEDRAB as the first and only human rabies immunoglobulin available in the U.S to be clinically studied in children and confirm the safety and effectiveness of its use in the pediatric population. Moreover, we're also expanding sales of the product in additional important international markets, such as Canada, Australia, and Latin America. As for GLASSIA, in March Takeda initiated sales of the product from its own production, generating royalty income to Kamada. Royalties for March were $1.4 million, meeting our expected monthly rate. Turning to our Inhaled AAT clinical program. The duration of the COVID pandemic allows us to expand our ongoing pivotal Phase 3 InnovAATe clinical trial that evaluates the safety and efficacy of our innovative Inhaled AAT product for the treatment of AAT deficiency to new European sites. Most recently, patient screening and recruitment began at three new sites in three European countries. In the coming week, three additional sites are expected to be initiated in three other European countries. Moreover, the Independent Data Safety Monitoring Board, the DSMB, recently recommended that the trial continue without modification. To date, no patients have discontinued treatment prematurely and no drug-related serious adverse events have been reported. Additionally, to date, nine patients have already completed the full two-year treatment period. Importantly, this is a unified study as the trial’s data are expected to qualify for regulatory submissions with both the FDA and the EMA. A substantial opportunity exists for Inhaled AAT to be a transformational product in a market that is already over $1 billion in annual sales in the U.S. and Europe and growing steadily. And we're excited to further advance this stride. Moving to other commercial activities, in our Israel Distribution segment, we plan to launch a portfolio of 11 biosimilar products between this year 2022 and 2028. The products are expected to be launched upon the State of the Israeli regulatory approval. Collectively, this product has an annual anticipated peak sales achievable within several years of launch of more than $40 million. This anticipated revenue is in addition to our distribution segment sales. We look forward to the launch of the first of these biosimilar products later this year. In closing, we continue to execute on our corporate strategy on all fronts. And we believe that we’ve identified the appropriate catalysts to drive double-digit growth in the years ahead. We are excited about our future prospects. Kamada is uniquely positioned for growth as a global leader in the specialty pharma industry, with multiple value-creating upcoming catalysts. With that, I'll now turn the call over to Chaime for his review of the first quarter of 2022 financial results. Chaime, please.

Chaime Orlev, CFO

Thank you, Amir, and good day, everyone. Our revenues grew by 13% in the first quarter of 2022, totaling $28.1 million. These revenue figures align with our expectations and mark a strong start to the year, driven by initial sales of our newly acquired IgG product. This represents the first full quarter of sales for this portfolio, and the sales and profitability levels generated from these products meet our expectations. As Amir previously mentioned, we recognized $1.4 million in royalty income in March from GLASSIA sales by Takeda. In the first two months of the year, Takeda sold its remaining GLASSIA inventory supplied by Kamada and began sales from its production in March, entitling us to royalty income. The royalty income for March 2022 aligns with our expected monthly rate and annual projections. We anticipate receiving royalty payments from Takeda at a rate of 12% on net sales through August 2025 and at a rate of 6% thereafter until 2040. We expect to receive royalty payments from Takeda in the range of $10 million to $20 million per year, enhancing our profitability and cash position. Total gross profit for the first quarter of 2022 was $11.3 million, a 27% increase from $8.2 million in the first quarter of 2021. Gross margins for the quarter were 40%, up from 36% in the prior year. The increase in profitability was mainly due to four new FDA-approved commercial products, which generated gross margins exceeding 50%. The cost of goods sold in our proprietary segment was $12.5 million in the first quarter of 2022, including $1.3 million in depreciation associated with intangible assets from the recent acquisition. Excluding depreciation, gross margins would have been 45%. Research and development investments for the first quarter of 2022 were $4.4 million. This increase from the first quarter of 2021 is primarily due to expanding our pivotal Phase 3 InnovAATe trial for Inhaled AAT by opening new clinical sites and manufacturing clinical supplies for the study. Our cost projections for the overall trial remain unchanged. Selling and marketing expenses in the first quarter of 2022 were $3.3 million, up from $1.1 million in the previous period, attributed to establishing our U.S. commercial operation for distributing and selling the recently acquired portfolio of four FDA-approved products. These costs also include pre-commercial activities for new product launches in the Israeli Distribution segment, including one of the eleven planned biosimilar products launching this year. Sales and marketing costs included $400,000 in depreciation expenses tied to intangible assets from the recent product acquisition. Our financial expenses included a $2 million charge related to the revaluation of contingent consideration and other long-term liabilities from acquiring the four FDA-approved products. As detailed in our 2021 annual financial statements, these liabilities involve deferred payments to sellers contingent on meeting specific milestones and royalty obligations to third parties regarding the CYTOGAM product. For the first quarter, we reported a net loss of $1.8 million, or $0.04 per share on a fully diluted basis. However, our adjusted EBITDA, excluding financial expenses, depreciation, amortization, and stock-based compensation for the first quarter of 2022, was $3.3 million, compared to $3.7 million in the same period in 2021. We generated $5.5 million in operating cash flow during the first quarter, increasing our cash position to $22 million. Kamada's working capital as of March 31, 2022, remains robust at $52 million. For our full-year guidance, we expect total revenue for fiscal year 2022 to be between $125 million and $135 million and anticipate generating EBITDA at 12% to 15% of total revenue. While the ongoing labor strike affecting our production facility in Israel is likely to impact our second-quarter financial results, we do not expect them to be as strong as the first quarter. However, due to the diversification of our commercial operations, including various revenue sources such as the recently acquired portfolio of four FDA-approved products manufactured externally, the independent Israeli Distribution business, and royalty income from GLASSIA sales, our positive outlook for the fiscal year remains unchanged. Lastly, we will hold a virtual Investors and Analysts Day on Tuesday, June 7, at approximately 12 P.M. Eastern Time to showcase the significant transformation of our business over recent months. Further details will be announced soon. That concludes our prepared remarks, and we will now open the call for questions.

Operator, Operator

Our positive outlook for the fiscal year remains unchanged. Additionally, we plan to hold a virtual Investors and Analysts Day on Tuesday, June 7, at approximately 12 P.M. Eastern Time to highlight the significant transformation of our business in recent months. Details of the Investors Day will be announced shortly. That concludes our prepared remarks. We will now open the call for questions.

Bob Yedid, LifeSci Advisors

Shamali, this is Bob Yedid from LifeSci. I've gotten a few questions already emailed in to me. So I'll start with those.

Operator, Operator

Sure.

Bob Yedid, LifeSci Advisors

The first one is asking about the sales trends of the rabies vaccine. And given the improved rates of travel in the U.S. and other countries, for Amir and Chaime is, are you starting to see a recovery in the sales of KEDRAB and KEMRAB compared to last year?

Amir London, CEO

Thank you, Bob, and thank you to everyone asking questions. Yes, definitely. In the first quarter, we've seen that Kedrion's in-market sales of the product in the U.S. have significantly increased compared to the first quarter of 2021. When I compare it to pre-pandemic levels, there is a notable rise. We believe we still have opportunities to enhance our market penetration and gain market share for these products. Just to remind you, we received FDA approval in late 2017 and launched the product in mid-2018. So 2019 was essentially our first full year of selling in the U.S. market, and then the pandemic affected us right after that. As a result, 2020 and 2021 were impacted by the pandemic. However, starting in 2022, the product is continuing to capture a significant share of the market. We see plenty of potential for further growth in the U.S. market, which exceeds $150 million. We are committed to expanding our business in the U.S. and are also tapping into growth in international markets. We are among the few global suppliers of the anti-rabies immunoglobulin product and are an approved supplier for the WHO. We supply to Latin American tenders and have received approvals in Canada and Australia, supporting local authorities with this vital lifesaving product.

Bob Yedid, LifeSci Advisors

Great. Very helpful. The other question I've gotten emailed in to me is about your announcement today that you've expanded the number of clinical trial sites for your Inhaled AAT Phase 3 trial. The question is one of why now in terms of making that expansion from basically one site and adding up to six more sites this year?

Amir London, CEO

Yes, we are taking advantage of the current moderation of the COVID pandemic to expand our study. It began just weeks before the pandemic hit, with our first patient enrolled in the Netherlands in late 2019. Although we continued to recruit patients throughout the pandemic, it was challenging and sometimes impossible to open new sites, as the focus was primarily on COVID. In several countries, launching a new study unrelated to COVID was not feasible. It's important to note that we are dealing with patients suffering from severe lung disease, so getting them to the hospital for treatment as part of the study was quite difficult during the pandemic. Now that conditions in Europe have improved, we can capitalize on the groundwork laid previously, allowing us to expand the study. We are very pleased with the initial results—there have been no dropouts among the patients who started the study, and nine have already completed the two-year study. The data presented to the Data Safety Monitoring Board was well received, and no changes to the studies are necessary. We are optimistic about our progress and confident in the significant market opportunity ahead, which exceeds $1 billion for alpha-1 treatment currently administered by infusion. It’s clear that using an inhaled product greatly enhances the quality of life for patients compared to an IV product.

Bob Yedid, LifeSci Advisors

Great. Okay. That's helpful. And then the last question I have is with regards to your sales and marketing of your new portfolio of IgG products. Is that sales and marketing principally focused on transplantation centers here in the U.S.?

Amir London, CEO

For two of the products we are focused on transplantation centers. These are the two lead products, which are CYTOGAM and HEPAGAM. VARIZIG is for immunocompromised patients, not only transplanted patients but also pregnant women and small infants. So it's a little bit more diverse than just transplantation centers. And WINRHO is focused on patients suffering from a rare blood disorder called ITP. So the main focus is transplantation centers, but we are also selling to other medical institutions in the U.S. Outside of the U.S., similar, of course, focus and we believe there is a great opportunity in the U.S. through promotional activities, those products will not be proactively promoted in the last few years. So we have here an opportunity to make a big difference in growing this business and then leveraging our over 30 countries' distribution network to sell the product, which is definitely a very big plus, and we’ve already seen the results of this, as I mentioned during the call, primarily in the Middle East where we have seen new countries that we have initiated sales of the product.

Bob Yedid, LifeSci Advisors

Great. One other follow-up question to that is, you've talked about transferring manufacturing of these products potentially. Definitely the first one, CYTOGAM to your facility. That is dependent, I assume, on the receipt of the regulatory approval in Israel. Is that correct?

Amir London, CEO

The transfer of CYTOGAM from its current manufacturer to our facility in Israel is well underway. We expect to file with our facility as a manufacturer later this year and aim to receive approval in 2023. Regarding the other three products, we plan to address those in the future.

Bob Yedid, LifeSci Advisors

Great. Okay, good. That's the call. Thank you. Thank you, Amir.

Operator, Operator

It looks like we have reached the end of the question-and-answer session. I will now turn the call back over to Amir London for closing remarks.

Amir London, CEO

Thank you. Thank you very much. In closing, on behalf of the entire Kamada team, we look forward to continuing to provide clinicians and patients with an expanding portfolio of important lifesaving products that we develop, manufacture, and commercialize. We thank all of our investors for their support and remain firmly committed to creating long-term sustainable shareholder value, leveraging our multiple catalyst growth. We hope you all stay healthy and safe. Thank you very much.

Operator, Operator

And this concludes today's conference, and you may disconnect lines at this time. Thank you for your participation.