Kamada Ltd. (KMDA) Q2 2019 Earnings Call Transcript

Image source: The Motley Fool.

Kamada Ltd. (KMDA -0.20%)
Q2 2019 Earnings Call
Aug. 6, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Kamada Ltd. Second Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Paul Arndt, Managing Director, LifeSci Advisors. Please go ahead, sir.

Paul Arndt -- Managing Director, LifeSci Advisors

Thank you, Operator, and thank you, everyone. Good morning. This is Paul Arndt 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 this morning, Kamada announced financial results for the second quarter ended June 30, 2019. If you have not received this news release or if you would like to be added to the company's distribution list, please email Bob Yedid from LifeSci at [email protected].

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 this live broadcast, Tuesday, August 6, 2019. 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 now like to turn the call over to Amir London, Chief Executive Officer. Amir?

Amir London -- Chief Executive Officer

Thank you, Paul. And thanks also to our listeners for your interest in Kamada and for participating in today's call. Let me begin by saying that we are quite pleased with our continued strong performance in 2019. We generated significant momentum in all aspects of our business through the first two quarters of the year. In the second quarter, total revenue was $35.3 million, which represented a 4% increase compared to the second quarter of 2018. For the first six months of 2019, total revenue was $62.1 million, which represented a 21% increase over the first six months of 2018. This result was primarily driven by sales of GLASSIA and KedRAB, our anti-rabies IgG products.

From a profitability standpoint, our total gross profits for the first six months ended on June 30, 2019 was $24.8 million, and gross margins were at 40%. In addition, our net income during the six months ended during June 30, 2019 was $6.1 million. We continue to maintain a solid cash position, which includes the $63 million of cash [inaudible] and short-term investments at the end of the second quarter, which provide us with the financial resources needed to continue executing on our business plan.

Based on our continued strong performance in the second quarter and our positive outlook for the remainder of the year, we are reiterating our previously provided full-year 2019 total revenue guidance for $125 million to $130 million, which indicates to represent another strong year of double-digit percentage growth over the full-year 2018 total revenue.

As a reminder, our GLASSIA supply agreement commonly with Takeda commonly extends through the end of 2020, with the possible completion of GLASSIA in association with Takeda will result in a significant reduction of Kamada revenue. We are expecting a flow of future royalty payments for 20 years, until 2040.

Moving on to the status of our clinical pipeline, I will begin with a clinical program for our proprietary inhaled ATT for the treatment of alpha-1 antitrypsin deficiency, AATB. We intend to conduct a unified global pivotal Phase 3 clinical trial in the U.S. under an Investigational New Drug application, IND, and in Europe under a Clinical Trial Authorization, CTA, in order to submit marketing applications for regulatory approval in both regions. I'm pleased to inform you today that we have progressed with our Human Factor Study, HFS, which is required to support a combination product consisting of Kamada's ATT formulation and their investigational eFlow nebulizer system by PARI Pharma. We will submit the data for the HFS to the FDA as part of our upcoming R&D findings.

We're set to begin dosing the first patients in the Phase 3 trial in Europe before the end of this year, and pending IND approval, we'll begin recruiting patients to this study also in the U.S. As a reminder, the Phase 3 study protocol is designed to test the safety and efficacy of our inhaled ATT products in patients with alpha-1 deficiency, and it meets the requirements provided by the FDA and HUEMA. The protocol includes the enrollment of up to 250 subjects, who will be randomized one-to-one to receive either inhaled ATT at a dose of 80 milligrams once daily or a placebo for two years of treatment.

 The primary end point will be lung function measured by FEV1, and the secondary endpoint will include lung density changes measured by CT technology, as well as other parameters of the risk severity. We are very excited about the prospects of this program. To the market, we've currently already found $1 billion of IV-ATT, growing 68% annually. Kamada continues to consider all strategic options in order to maximize its value, including potentially seeking a partner in Europe and/or the U.S. We look forward to providing you with further updates as our inhaled ATT program continues to advance.

Moving on, let me provide you now with an update on some of our ongoing IV-ATT pipeline programs. First, with regard to IV-ATT for the treatment of acute Graft versus host disease, GvHD, we concluded enrollment in the proof-of-concept clinical trial. As a reminder, the primary assessment of the Phase 3 and preliminary efficacy of IV-ATT is through [inaudible] therapy for patients with high risk through the development of stereo refractory acute GvHD. This study is being conducted through an innovative collaboration with the Mount Sinai Acute GvHD International Consortium, MAGIC. And it is an investigator-initiated study co-founded by Mount Sinai and Kamada. We have exclusive rights to develop and commercialize our IV-ATT product for the prevention of GvHD using the biomarkers utilized in the study.

Second, our Phase 2 trial of IV-ATT for the prevention of lung transplant rejection, which is being conducted in collaboration with Takeda. We have now completed the study, and data analysis is ongoing. We continue to expect the total results of this study to be announced by the end of this year.

You will recall that we announced interim results following one year of treatment for all patients we studied in the first quarter of 2019. We are pleased to report that Kamada's IV-ATT demonstrated a trend toward improvement in multiple key clinical outcomes, including days on mechanical ventilation for transplants, pulmonary function at week four and week 48 for transplant, and the six-minute walk test.

As a reminder, Takeda has distribution rights and exclusive license to Kamada's plasma-derived IV-ATT products for all IV indications in the U.S., Canada, Australia and New Zealand, while Kamada maintains rights in all other territories and on other ATT rounds of administration, including inhaled ATT.

Now, let me turn to business development, which remains a significant area of profit for Kamada. We are currently evaluating potential transactions, including core development opportunities and investments in other plasma-derived protein-related assets or other assets in our specialty fields, such as ATT deficiency, pulmonary deficits, GvHD, and transplants. Importantly, our strong balance sheet and positive cash flow allow us to fund both our current clinical pipeline and potential value-enhancing partnerships, licenses, and all acquisitions.

With that, I'll now ask Chaime to review our financial results. Chaime?

Chaime Orlev -- Chief Financial Officer

Thank you, Amir, and good day, everyone. We're very pleased with our strong financial performance across the first six months of 2019. During the first half of 2019, we delivered double-digit percentage revenue growth in our profitability matrix, including adjusted EBITDA, operating income, and net income, were all solid. With that, let me discuss our specific financial results.

I will begin with the three months ended June 30, 2019. Total revenue was $35.3 million in the second quarter of 2019, a 4% increase from the $33.8 million recorded in the second quarter of 2019. Revenue from the proprietary product segment in the second quarter of 2019 was $27.3 million, a 5% increase from the $26 million reported in the second quarter of 2018, primarily driven by increased sales of both our core products, GLASSIA and KedRAB.

Revenue from the distributed product segment was $8 million in the second quarter of 2019, a 1% increase compared to the second quarter of 2018. Gross profit was $13.6 million in the second quarter of 2019, a 27% increase form the $10.7 million recorded in the second quarter of 2018. Gross margin increased to 39% from 32% in the second quarter of 2018. That increase is primarily driven by improvement in factory efficiencies and favorable product sales mix.

Net income was $6.1 million, or a profit of $0.15 per diluted share, in the second quarter of 2019, compared to net income of $5.7 million, or a profit of $0.14 per diluted share, in the second quarter of 2018. During the second quarter of 2019, we generated positive cash flow from operations of $6.8 million.

With that, I will now review the six-month period ended June 30, 2019. Total revenue for that period of $62.1 million, a 21% increase from the $51.3 million reported in the same period of 2018. Revenue from the proprietary product segment was $47.7 million, a 25% increase from the $38.2 million reported in the same period of 2018. Revenue from the distributed product segment was $14.4 million, a 10% increase from the same period of 2018. Gross profit was $24.8 million, a 40% increase from the $17.7 million reported in the first six months of 2019. Gross margin in the first six months of 2019 increased to 40% from 35% in the same six months of 2018.

I should point out that while we expect our overall annual results to improve over 2018 results, our overall growth margin in the second half of 2019 will be slightly reduced due to an expected different product sales mix. Net income was $11.1 million, or a profit of $0.27 per diluted share, in the first six months of 2019, a substantial increase compared to the net income of $6.9 million, or a profit of $0.17 per diluted share, in the same period of 2018.

Looking ahead from a P&L perspective, as we begin our Phase 3 study for our inhaled ATT program that Amir outlined earlier, we expect that our R&D spend will continue to increase throughout 2019. During the first six months of 2019, we generated cash from operations of $12.8 million, which contributed to our strong financial position. And as of June 30, 2019, the company had cash/debt equivalence in short term investments totaling $62 million, an $11.4 million increase compared to $50.6 million at December 31, 2018.

Kamada is well-positioned for business development in the future, with a focus on adding new sources of growth and for investment in our R&D pipeline.

With that, I'll open the call for questions. Operator?

Questions and Answers:

Operator

Thank you. At this time, we will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One moment, please, while we poll for questions.

Our first question comes from the line of Keay Nakae with Chardan Capital Markets. Please proceed with your question.

Keay Nakae -- Chardan Capital Markets -- Analyst

Yes, thanks. So, first question has to do with your business development efforts. If you're looking add have existing commercial products into the mix, can you tell us what type of metrics you might be looking at in terms of either the dollar amount of annual sales, and does it have to be currently profitable, or can you give us an idea of somewhat the parameters that such an acquisition would have to meet in order for you to seriously consider it?

Amir London -- Chief Executive Officer

Thank you, Keay. Thank you for the question. We are looking in terms of business development opportunities out in our specialty field, as to the efficiency, [inaudible] transplant of our plasma-derived protein. We have not announced specifically [inaudible] stage product or an advanced clinical stage product. We will announce after due diligence is conducted. Then we will provide all the details about it. But currently, we're not restricting ourselves to either commercial sales or clinical sales. This is open and under [inaudible].

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. In terms of the comment about the product mix in the second half of the year, should we assume that that's due to lower sales of KedRAB in the back half of the year?

Amir London -- Chief Executive Officer

In general, our sales should be primarily assessed on an annual basis. We have always been focused from Takeda for the ATT products like GLASSIA and for KedRAB [inaudible]. And the mix will kind of even out throughout the year. The first six months had a specific mix. And over the course of the year, we expect to have higher LET compared to KedRAB, which is nowhere -- a little bit our average profitability for the entire year. As we have announced in the past, KedRAB is the product with our highest gross profit, but there is a specific quarter or specific six months where we sell the most KedRAB to [inaudible], then it increases our average GP for that quarter or two quarters. But then it will level down or level out throughout the rest of the year.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. And then finally, with respect to inhalants, with respect to the Human Factors study, do you anticipate that that will be relatively straightforward to complete that study, and when do you expect to submit the IND to the FDA?

Amir London -- Chief Executive Officer

Thank you. Yes, that success is progressing according to our plan, both in terms of the schedule as well as what we expect the results to be. We are planning to submit the IND over the next few weeks to the FDA. So, we're close to the conclusion and submission. And then the FDA will have the preview, and hopefully it will be approved, and we can get started also with the U.S. side. As for the European side, we are moving forward. And as we mentioned, we expect to recruit the first patients back into the fold by the end of this year, into the study.

Keay Nakae -- Chardan Capital Markets -- Analyst

Do you have a target number of sites in the U.S. that you're looking at?

Amir London -- Chief Executive Officer

The number of sites and the distribution of sites within the U.S. and Europe is still being determined by our team. We will open sites in both territories. The first two sites are already engaged. And we will conclude a decision in terms of how many sites and which sites, at least the potential sites, over the next few months.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. That's all I have. Thanks.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Amir London for closing remarks.

Amir London -- Chief Executive Officer

Thank you. In summary, we continue to be pleased with how our business is performing across all facades through the first half of 2019. Our revenue growth remains strong, our profitability metrics are improving, and we have a strong balance sheet. We are very excited about our advancing inhaled ATT programs, which have to the potential to be an important source of value creation for our shareholders, along with the other multiple significant pipeline opportunities ahead of us. We remain highly confident in Kamada's long-term prospects for success.

Thank you for joining us on today's call, and we look forward to providing you with further updates on our progress in the second half of the year. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 23 minutes

Call participants:

Paul Arndt -- Managing Director, LifeSci Advisors

Amir London -- Chief Executive Officer

Chaime Orlev -- Chief Financial Officer

Keay Nakae -- Chardan Capital Markets -- Analyst

More KMDA analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.