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Kamada Ltd (NASDAQ:KMDA)
Q3 2019 Earnings Call
Nov 13, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Kamada Ltd. Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I will now turn the conference over to your host, Bob Yedid of LifeSci Advisors. You may begin.

Bob Yedid -- Managing Director

Thank you, and thank you very much for joining us today.

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 third quarter ended September 30th, 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 me at LifeSci at bobyedid@lifesciadvisors.com -- excuse me, I'm sorry, bob@lifesciadvisors.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[Phonetic], 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 this live broadcast, November 13, 2019. Kamada undertakes no obligation to revise or update any statements reflected -- to reflect events or circumstances after the date of this conference call.

With that said, I would like now turn the call over to Amir London, Chief Executive Officer. Amir?

Amir London -- Chief Executive Officer

Thank you, Bob, and thanks also to all investors and analysts for your interest in Kamada and for participating in today's call. Let me begin by stating that we continued to be pleased with our strong performance in 2019. We are excited about the positive financial and operational metrics generated throughout our business in the first nine months of the year. Of course, in reviewing third quarter year-over-year comparisons specifically, it's important to remember that our third quarter 2018 financial results were significantly impacted by the then labor strike in our manufacturing facility in Israel.

With that said, I will now provide a brief overview of our encouraging results. In the third quarter, total revenues were $33.1 million, and for the first nine months of 2019, total revenues were $95.1 million compared with $66.3 million in the first nine months of 2018. From a profitability standpoint, our total gross profit for the nine months ended September 30th, 2019 was $37.6 million and gross margins were 40% compared with $20.2 million and 31% margin in the first nine months of 2018.

In addition, our net income, during the nine months ended September 30th 2019 was $16.9 million, compared to $4.6 million in the prior-year period. We continued to maintain a solid cash position, which increased to $66.8 million of cash, cash equivalents and short-term investments at September 30th 2019, which provide us with the financial resources needed to continue executing our corporate strategy to build shareholders' value.

Based on our continued strong performance in the third quarter and our positive outlook for the first quarter of the year, we are reiterating our full-year 2019 total revenue guidance of $125 million to $130 million. Looking ahead, we intend to provide our full-year 2020 total revenue guidance prior to the end of 2019.

From operational perspective during the third quarter, we extended our strategic supply agreement with Takeda for GLASSIA. We will now continue to produce GLASSIA to the Takeda through 2021. Based on the extended agreement Kamada projects the total revenue from sales of GLASSIA to Takeda during the years 2019 through 2021 will be in the range of $155 million to $180 million. On an annual basis, Kamada anticipates revenues of approximately $65 million in 2020 and between $25 million to $50 million during 2021 based on Takeda[Phonetic].

Takeda intends to complete the technology transfer of GLASSIA and pending FDA approval will initiate its own production of GLASSIA for the US market in 2021. Accordingly, based on the agreement between the companies, upon initiation of sales of GLASSIA manufactured by Takeda, we will receive loyalty payment from Takeda at the rate of 12% on net sales through August 2025, and it's a rate of 6% thereafter until 2040, with a minimum of $5 million annually, so each of the years from 2022 to 2040. Although the transition of the agreement to its royalties phase will result in a significant reduction of Kamada's revenue from Takeda, based on current GLASSIA sales in the US and forecasted future growth, Kamada projects receiving royalties from Takeda in the range of $10 million to $20 million per each year for 2022 to 2040.

Upon successful completion of the technology transfer to Takeda, we intend to utilize our FDA approved manufacturing plant to continue supporting the growth of KEDRAB, our anti-rabies IgG product in the US, our immunoglobulins products, and GLASSIA in existing and new markets in Asia, Latin America and other territories, as well as the manufacturing of our Inhaled AAT for its current clinical development and pending regulatory approval, it's future commercial launch. We are also proactively exploring opportunities to leverage our experience and manufacturing capacity to initiate the production of new plasma-derived products. We expect that these activities will enable us to utilize most of our plant's available capacity.

With regards to KEDRAB, we recently announced together with Kedrion the publication of the results from the registration study of the product in the peer-reviewed medical journal, Human Vaccines & Immunotherapeutics. We've also announced the completion of the enrollment of 30 pediatric subjects in an FDA required post-marketing trial in the US with the primary objective of confirming the safety of KEDRAB in children aged below 17 years. The result of the study are expected in the second half of 2020. Moreover, we can report that in launching these[Phonetic] KEDRAB US 2018 sales by Kedrion was approximately $15.5 million, representing approximately a 10% market share. We are very pleased with the successful launch and we expect continued growth of the product in the US market going forward.

Moving on to the status of our clinical pipeline. I will begin with the development program for our proprietary Inhaled AAT for the treatment of Alpha-1 Antitrypsin Deficiency AATD. As a reminder, we intend to conduct a unified global pivotal Phase 3 clinical trial in the US 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 report today that during the third quarter, we submitted our amended IND to the FDA and expect an update from the agency on the status of this filing in the near future. We continue to expect that we will begin dosing the first patient in the Phase 3 trial in Europe before the end of the year and pending IND approval will begin recruiting patients to the study also in the US.

To reiterate what I said previously, the Phase 3 protocol is designed to evaluate 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 EMA. The protocol includes the enrollment of up to 250 subjects, who will be randomized 1:1 to receive either Inhaled ATT at a dose of 80 milligrams once daily, or placebo, for two years of treatment. The primary endpoint will be a lung function measured by FEV1, and secondary endpoints will include lung density changes measured by CT scan, as well as other parameters of disease severity.

We are very excited about the prospects of this program in a market which currently sells approximately $1 billion of IV AAT and is growing 6% to 8% annually. Kamada will continue to consider all strategic options for this program in order to maximize its value, including potentially seeking a commercialization partner in Europe and/or the US.

I would also like to highlight a recent scientific meeting, which we hosted around the European Respiratory Congress in Madrid, in September. The meeting entitled New Insights Into Alpha-1 Deficiency focused on up to date information regarding the suggested benefits of augmentation therapy in Alpha-1 deficiency. Prof. Jan Stolk, a leading Alpha-1 physician from the Netherlands, discussed Kamada's investigational Inhaled AAT treatment and its potential therapeutic effect on lung function in Alpha-1 deficient patients.

Moving on, let me now provide you with updates on some of our ongoing IV AAT pipeline programs. First, with regard to our IV AAT for the treatment of acute Graft versus Host Disease, GvHD. We concluded enrollment in the proof-of-concept study. As a reminder, the trial is assessing the safety and preliminary efficiency of IV AAT as pre-emptive therapy for patients at high-risk for the development of steroid-refractory acute GvHD. This study is being conducted through an innovative collaboration with Mount Sinai acute GvHD International Consortium called MAGIC. And it is an investigator-initiated study, co-funded by Mount Sinai and Kamada. We have exclusive right to develop and commercialize our IV AAT product for the pre-emption of GvHD using the biomarkers utilized in the study. Top line data from this study are expected in 2020.

Second, our Phase 2 trial of IV-AAT for the prevention of lung transplant rejection, which is being conducted in collaboration with Takeda. We've completed this study, and data analysis remains ongoing. We expect the top line result in the study will be announced in early 2020. As a reminder Takeda has distribution rights and exclusive license to Kamada's plasma-derived IV-AAT product for all IV indications in the US, Canada, Australia, and New Zealand, while Kamada maintains rights in all other territories with[Phonetic] all other AAT routes of administration, including Inhaled AAT.

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 nine months of 2019. Our profitability metrics, including adjusted EBITDA, operating income and net income each increased significantly. With that, let me discuss our specific financial results, I will begin with the three months ended September 30th, 2019.

Total revenue was $33.1 million in third quarter of 2019, an increase from the $15 million recorded in third quarter of 2018. As Amir indicated when comparing our third quarter financial results with prior-year period, it is important to consider the significant impact of the labor strike at our manufacturing facility in Israel had on our financial results in the third quarter of 2018.

Moving on, revenues from the Proprietary Products segment in the third quarter of 2019 were $24.9 million, an increase from the $9.5 million reported in the third quarter of 2018, primarily driven by increased sales of both our core products GLASSIA and KEDRAB. Revenues from the Distribution segment were $8.2 million in the third quarter of 2019, a 49% increase compared to the third quarter of 2018.

Gross profit was $12.9 million in the third quarter of 2019, significantly greater than the $2.5 million reported in the third quarter of 2018. Gross margin increased to 39% from 17% in the third quarter of 2018, again you should consider the effects of the Q3 2018 labor strike on our results of the prior-year quarter.

Net income was $5.8 million or a profit of $0.14 per diluted share in the third quarter of 2019 compared to a net loss of $2.4 million or a loss of $0.06 per diluted share in the third quarter of 2018. During the third quarter of 2019, we generated positive cash from operations of $6.1 million.

With that I will now review the nine-month period ended September 30th, 2019. Total revenue for that period were $95.1 million, a 44% increase from the $66.3 million reported in the same period of 2018. Revenues from the Proprietary Product segment was $72.5 million, an increase from the $47.6 million reported in the same period of 2018. Revenues from the Distribution segment were $22.6 million, up 21% from the same period of 2018. Gross profit for the nine months ended September 30th, 2019 was $37.6 million, an increase from the $20.2 million reported in the first nine months of 2018.

Gross margin in the first nine months of 2018 increased to 40% from 31% in the same nine-months of 2018. I should add that we expect our fourth quarter overall gross margin to be consistent with the recently completed third-quarter. Net income was $16.9 million or a profit of $0.42 per diluted share in the first nine months of 2019, compared to net income of $4.6 million or $0.11 per diluted share. Generated in the same period of 2018.

Looking ahead, from a P&L perspective, as we begin our planned Phase 3 study for our Inhaled ATT program, which Amir mentioned earlier, we expect that our R&D spend will continue to increase in the fourth quarter of 2019 and for calendar year 2020. During the first nine months of 2019, we generated cash from operations of $18.9 million, which contributed to our strong financial position. As of September 30th, 2019, the Company had cash, cash equivalents and short-term investments totaling $66.8 million, a $16.2 million increase as compared to $50.6 million reported at December 31st, 2018. Importantly, Kamada remains well positioned to continue our efforts to add new sources of growth and execute on our corporate strategy.

With that, I'll open the call for question.

Questions and Answers:

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Raj Denhoy of Jefferies. Please proceed with your question.

Analyst

Hi guys, this is Bryana[Phonetics] on for Raj. I have a few questions. So I'll just start with your strong proprietary product segment. You guys did about $25 million this quarter, I was just wondering how much was attributed to GLASSIA and how much was attributed to rabies?

Amir London -- Chief Executive Officer

We do not provide that detailed information on a quarterly basis. We do that on an annual basis when we file our annual results.

Bryana -- Jefferies -- Analyst

Okay. And then was there any (Multiple speakers) in the queue from Takeda?

Amir London -- Chief Executive Officer

Excuse me. Can you repeat that?

Bryana -- Jefferies -- Analyst

Sure. Was there any pull forward or stocking in the quarter from Takeda?

Amir London -- Chief Executive Officer

As we announced in September, our agreement with Takeda has been extended to include also 2021 and we gave a pretty precise forecasts of our revenues for 2019-2020 and 2021; $65 million of revenues to Kamada in both years, 2019-2020 and between $25 to $50 million in 2021. In general, we should assess Kamada on an annual basis and less on a quarterly basis because our orders and demand and agreements are done on an annual basis. So the -- talking like every year that Takeda is all-in inventory, but nothing unusual or nothing different this year than in previous years.

Bryana -- Jefferies -- Analyst

Okay. Thank you. And then has Takeda started to prepare for the transition? And is there any chance that this gets extended again?

Amir London -- Chief Executive Officer

The Takeda has been working on the plans we believe for quite some time. We are planning to complete the plant and have it FDA approved. During 2021 exact timing I assume based on their progress and the FDA approval, I think that one need to assume that this will happen and that with the definition[Phonetic] in the previous question regarding timing and revenues to Kamada are the focus. If there any delays or change in plans we will of course update the market.

Bryana -- Jefferies -- Analyst

Okay, thank you. And then since the agreement has been revised, was there a change at all in the transfer pricing or a contribution margin on GLASSIA sales to Takeda now that it's been revised?

Chaime Orlev -- Chief Financial Officer

No. These financial terms will not renegotiated.

Bryana -- Jefferies -- Analyst

Okay. Thank you. And then I have one last question, can you provide an update on plans for business development heading into the Takeda agreement transitioning from sales to the royalty structure come 2021?

Amir London -- Chief Executive Officer

In your previous question, I want -- did you ask about business development aspects of Takeda transition?

Bryana -- Jefferies -- Analyst

Yeah. That's what -- exactly what I asked.

Amir London -- Chief Executive Officer

Okay. So yes, we are proactively working on different initiative and in regard specifically to the post Takeda -- post GLASSIA transition to Takeda, we do have strong confidence in our ability both from business development as well as from manufacturing and technical aspect to be able to add new products and increase our planned utilization of GLASSIA transition to Takeda.

Bryana -- Jefferies -- Analyst

Okay. Great. Thank you.

Operator

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

Keay Nakae -- Chardan Capital Markets -- Analyst

Yes, thanks. A couple of questions. So post the transfer of manufacturing, give us a sense of how easy or difficult it would be to have you guys make other plasma-based products at that facility?

Amir London -- Chief Executive Officer

So we are growing our existing products significantly in other countries. We are growing KEDRAB sales in the US, both in activities and both initiatives are yielding excellent fruits, and we do see it growing. And in addition, like I just answered in the previous question, we do have strong confidence in the ability to bring in additional products. We are proactively working in the direction, and we strongly believe -- very strongly believe that we can improve our plant utilization for GLASSIA transition to Takeda. Like we have [Indecipherable], we will, of course, update the market.

Keay Nakae -- Chardan Capital Markets -- Analyst

And outside the US, what do you think the growth prospects are for GLASSIA if you were to make the product at your facility and sell increasing amounts to other OUS markets.

Amir London -- Chief Executive Officer

No, traditionally, our gross profit for GLASSIA ex-US has been similar to our gross profit in the US while selling through our partner that is selling in the US. So we have a network of distributors ex-US. As you know, we are currently not in Europe, yet. So we sell ex-US to Asia, Latin America, Russia and the profit -- the gross profit is similar to what we have been reporting in the US market.

Keay Nakae -- Chardan Capital Markets -- Analyst

But, if you had additional product capability at your facility to fill in OUS markets, do you -- what do you think your ability to do so would be?

Amir London -- Chief Executive Officer

Considering the gap of the utilization is a combination of GLASSIA ex-US, KEDRAB in the US, our other IgG including KamRAB, our Anti D IgG in international markets, and bringing in additional products to be manufactured by Kamada. Okay.

Bryana -- Jefferies -- Analyst

Let me switch to the Inhaled study, can you give us your latest estimate of the total cost of the study -- the Phase 3?

Amir London -- Chief Executive Officer

Yes, we believe that the study total cost will be between $30 million to $35 million throughout the entire duration of the study.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. That's all I have. Thanks.

Amir London -- Chief Executive Officer

You're welcome.

Operator

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

Amir London -- Chief Executive Officer

Thank you. In summary, we continue to be pleased with how all parts of our business are performing through the first nine months of 2019. We are very excited about advancing our unique Inhaled AAT program, which has a potential to be important source of value creation for our shareholders, along with the other multiple significant pipeline and business opportunities ahead of us. Our top line growth remains strong. Our profitability metrics are solid, and we have a robust balance sheet. We remain highly confident in Kamada's long-term prospects of 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 coming months. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 29 minutes

Call participants:

Bob Yedid -- Managing Director

Amir London -- Chief Executive Officer

Chaime Orlev -- Chief Financial Officer

Analyst

Bryana -- Jefferies -- Analyst

Keay Nakae -- Chardan Capital Markets -- Analyst

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