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Kamada Ltd (KMDA -0.96%)
Q3Â 2020 Earnings Call
Nov 11, 2020, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to Kamada Limited Third Quarter 2020 Earnings Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions]
I would now like to turn the conference over to your host Mrs. Bob Yedid, LifeSci Advisors. Thank you. You may begin.
Bob Yedid -- Investor Relations
Thank you. Good morning. This is Bob Yedid 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 three and nine months ended September 30, 2020. If you've not received this news release, please go to the Investors page of the company's website.
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 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 11, 2020. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. Sorry for the delay here in getting started.
With that said, it's my pleasure to turn the call over to Amir London, CEO. Amir?
Amir London -- Chief Executive Officer
Thank you, Bob. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. I hope you all are keeping safe and healthy in these challenging times. Let me begin by highlighting our solid overall financial result in the third quarter of 2020. Although, the global coronavirus crisis continues to affect everyone's life. I'm pleased to report that during the third quarter, we were able to successfully maintain our business continuity and we delivered robust financial and operational results, as will be detailed by Chaime later in this call.
I'd like to discuss important progress we continue to achieve around development of our plasma-derived immune globulins IgG product as a potential therapy for COVID-19 disease. Most recently, we were pleased to execute an agreement with Israeli Ministry of Health to supply our plasma-derived IgG product for the treatment of COVID-19 patients in Israel. To our knowledge, this agreement is the first of its kind globally. The initial order planned to be supplied during the beginning of 2021 is sufficient to treat approximately 500 hospitalized patients. This initial supply is expected to generate approximately $3.4 million in revenue for Kamada, during the first quarter of 2021.
Based on our recent discussion with the Israeli Ministry of Health, the treatment utilizing our products will be provided as part of a multi-center clinical study led by the Ministry of Health and we plan to use the study results to support further development of the product. We continue to ramp up our COVID-19 IgG manufacturing capacity and expect to be in a position to increase our supply capabilities during 2021 to meet potential additional demand from the Ministry of Health, as well as from other potential international markets.
As a reminder, during the third quarter, we completed enrollment and announced positive initial interim results from our ongoing Phase 1/2 open-label single-arm multi-center clinical trial in Israel of our product. The trial is designed to assess the safety pharmacokinetics and pharmacodynamics of our plasma-derived IgG product in hospitalized non-ventilated COVID-19 patients with pneumonia. A total of 12 eligible patients were enrolled in the trial and received the product at a single dose of 4 gram IgG within 5 days to 10 days of initial symptoms.
Symptoms improvement was observed in 11 of the 12 patients within 24 hours to 48 hours of treatment. Moreover, 11 patients were subsequently discharged from the hospital within a median of 4.5 days from treatment. Top line results from the study are expected by January 2021. Our COVID-19 IgG development program is conducted in collaboration with Kedrion Biopharma. Pursuant to this agreement Kedrion's responsibility, among other things is for the collection of COVID-19 convalescent plasma from US-recovered patients.
Kedrion is collecting the plasma through its plasma business unit, KEDPLASMA, at 23 FDA-approved centers across the United States. We recently received the FDA response to our previously submitted pre-IND information package. Together with Kedrion, we are currently evaluating the suitable targeted patient population for US clinical program and we'll submit an IND application upon conclusion of such evaluation and successful completion of additional required activities. We may commence US clinical development of our product after acceptance by the FDA of our IND application.
We are also following the progress made in the recently initiated in-patients treatment with anti-coronavirus immunoglobulin Phase 3 clinical trial sponsored by the National Institute of Allergy and Infectious Disease, NIAID, which will evaluate the plasma-derived immune globulin IgG medicine for treating hospital results at risk for serious complication of COVID-19 disease. We believe this progress made by NIAID may also contribute to our development efforts.
In regard to the recent good news related to the progress made by multiple companies with the development of a vaccine for coronavirus, although, we as everyone else are hopeful that such a vaccine will be available in the near future for global use. We strongly believe that there is a place in the market for a plasma-derived COVID-19 IgG even when the vaccine will be available. The long-term need for the IgG is for cases of hospitalized patients who will not be vaccinated or cases when the vaccine will not provide the needed protection as well as specific populations such as immunosuppressant and immunodeficient patients.
We at Kamada see our COVID-19 IgG program is a clear demonstration of our capacity to quickly respond to emerging pandemic situations. Since the beginning of this pandemic in February of this year, we leveraged our FDA approved IgG platform technology, as well as our expertise and resources. And to the best of our knowledge, we were the first company globally to complete the manufacturing of an investigational plasma-derived COVID-19 IgG. The first company to initiate the clinical study and publish favorable results and the first company to sign, supply agreement with health authorities. We plan to leverage our unique capabilities and experience as a strategic business line for the company quickly responding to other potential similar future pandemic situations.
Moving on, I'd like to reiterate the previous announcements related to our expectations for GLASSIA next year. As the planned transition of manufacturing to Takeda plant is advancing as anticipated, we expect to receive approximately $25 million in revenues from the supply of GLASSIA to Takeda in 2021. We will make the necessary adjustments to our planned costs during 2021 to align with our manufacturing plan and future needs.
As a reminder, based on the agreement with Takeda upon the initiation of sales of GLASSIA manufactured by Takeda, Kamada will receive royalty payments at a rate of 12% on net sales through August 2025 and its rate of 6% thereafter until 2040 with a minimum of $5 million annually for each of the years from 2022 to 2040. Although, the transition to its royalties phase will result in a reduction of Kamada's revenue from Takeda, based on current GLASSIA sales in the US and focused its future growth Kamada projects receiving royalties from Takeda, in the range of $10 million to $20 million every year for 2022 to 2040.
As we move into 2021 and in anticipation of the reduction in revenues due to the planned transition of GLASSIA manufacturing to Takeda, we are exploring strategic business development opportunities that will utilize and expand Kamada's core plasma-derived therapeutics, development, manufacturing and commercialization expertise. We plan to fund these opportunities by our strong cash position. These strategic opportunities are anticipated to add to our expected organic commercial growth of our existing product portfolio, including KEDRAB in the US. Our existing proprietary IgG portfolio as well as GLASSIA in the international markets out of the US, our distributed products in Israel, the anticipated future royalty payment from Takeda and the contract manufacturing of an FDA approved and commercialized specialty IgG product.
As a reminder, the contract for this product is for 12 years and we anticipate as an effect on this product will add approximately $8 million to $10 million in annual revenues starting in 2023. In addition, in our Israeli distribution segment, we plan to launch six biosimilar products licensed from Alvotech, the first of which expected to be launched in 2022 and the remaining products expected to be launched in Israel during the years 2023 until 2025. The total expected peak revenue from the distribution of all six products are estimated at $25 million to $35 million annually.
Turning onto KEDRAB, our Human Rabies Immune Globulin or HRIG. During the third quarter, we announced the positive results of the US post-marketing pediatric trial of this product. The study, which was conducted in 30 pediatric patients aged 0 to 17 years old, represent the first and only clinical trial of the currently available HRIG conducted in children in the US to date. No serious adverse events were observed during the study and no incidence of rabies disease of death were recorded. The result were submit to the FDA for review and inclusion as a pediatric data in the KEDRAB full prescribing information. As demonstrated since, we launched the product in the US in early 2018, we continue to believe that KEDRAB has the potential to capture a significant share of an estimated annual $150 million US HRIG markets.
Let's now turn to the current status of our InnovAATe Phase III clinical program of our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency, AATD. As a reminder, InnovAATe is a randomized double-blind placebo controlled pivotal Phase III study designed to assess the efficacy and safety of inhaled AAT in patients with AATD and moderate lung disease. Although, we recently resumed recruitment to the study, the COVID-19 pandemic has slowed down the rate of recruitment and the current pandemic situation, mainly across Europe, affects of ability to currently open new study sites. We are exploring several accounting approaches to address the expected continuation of the pandemic and its effect on the study.
Lastly, I'd like to provide a brief update on the status of our 2 IV-AAT pipeline development programs for which we have concluded a Phase II proof-of-concept studies. As a reminder, our IV-AAT for the treatment of acute graft versus host disease or GVHD was conducted through a collaboration with the Mount Sinai Acute GVHD International Consortium. This trial was assessing the safety and preliminary efficacy of IV-AAT as pre-emptive therapy for patients at high risk of development of steroid-refractory acute GVHD. The study included 30 patients and the primary endpoint for the incidence for steroid-refractory GVHD by day 100 after transplantation.
The result of the study show the treatment with IV-AAT was well tolerated by the patients and six cases of steroid-refractory GVHD were observed. This rate of this incidence was within the predetermined range defined by the investigator that, if achieved, would warrant further clinical evaluation of the AAT treatment. The study of the IV-AAT for the prevention of lung transplant rejection conducted in Israel evaluated the safety and efficacy of IV-AAT to prevent lung transplant rejections and assess impact on pulmonary function measured by FEV1 compared with standard of care treatment and included 30 patients.
Results from the study were previously published and demonstrated a trend toward improvement in multiple clinical outcome. While we are encouraged with the result of IV-AAT in both the GVHD and the lung transplantation studies, we do not intend to further advance this program at this time, mainly as a result of the limited overall potential benefit to Kamada, specifically due to our commercial arrangements with Takeda and the plan to take all the GLASSIA manufacturing in 2021. As I indicated earlier, we are currently focused on more near-term priorities, including strategic business development opportunities in our COVID-19 IgG development program.
With that, I now ask Chaime to review our financial results for the third quarter and for the first nine months of 2020. Chaime, please.
Chaime Orlev -- Chief Financial Officer
Thank you, Amir and good day, everyone. We are pleased with our ability to address COVID-19 pandemic related challenges and meet our expected results during the third quarter and first nine months of 2020. In the third quarter, total revenues were $35.3 million compared to $33.1 million for the third quarter of 2019, representing a 7% increase. These results were driven by 19% year-over-year increase in sales of our proprietary products, which is attributable to increase in sales of GLASSIA and KEDRAB to our partners, Takeda and Kedrion.
For the first nine months of 2020, total revenues were $101.7 million, up 7% from the $95.1 million in the similar period of 2019. Based on meeting our expected performance during the first three quarters of the year and our positive outlook for the fourth quarter, we are reiterating our full year 2020 total revenue guidance of $132 million to $137 million. From a profitability standpoint, our total gross profit for the third quarter of 2020 was $14.8 million and gross margins were at 42%, up from $12.9 million of total gross profit and 39% margins in the third quarter of 2019.
Proprietary gross margins in the third quarter of 2020 were 46%, down 1 percentage point from the third quarter of 2019. Distribution gross margins in the third quarter of 2020 were positively impacted by favorable exchange rates, mainly between the US dollar, and the euro. For the first nine months of the year, our total gross profit was $37.4 million and gross margins were 37%. This compared to $37.6 million of total gross profit and 40% margins in the first nine months of 2019. As you recall, we guided the market regarding an expected annual decrease of 3 percentage points to 5 percentage points in Proprietary Product segment's gross margins, primarily attributable to a change in product sales mix and reduced plant utilization. We are reiterating this guidance.
Operating expenses including research and development, sales and marketing, G&A, as well as other expenses totaled $7.1 million in the third quarter of 2020 as compared to $7.2 million in the third quarter of 2019. For the nine-month period, these costs totaled $20.8 million as compared to $20.3 million in the same period of 2019. As we reported last quarter, the delay in enrollment in the company's pivotal Phase 3 InnovAATe clinical study, which is subsequently resumed, has resulted in lower than expected increase in the research and development expenses. Given this continued delay, we are updating our annual research and development expense guidance. We currently expect a 13% to 15% increase in research and development expenses for full year 2020 as compared to 2019.
Moving on, net income was $6.8 million or $0.15 per share in the third quarter of 2020 as compared to net income of $5.8 million or $0.14 per share in the third quarter of 2019. For the first nine months of 2020, net income was $15.5 million or $0.35 per share as compared to net income of $16.9 million or 42% per share for the first nine months of 2019. We continue to maintain a strong balance sheet with a total of $99.7 million of cash balances, as of September 30, 2020. The decrease in cash balances as compared to June 30, 2020 is attributable to timing difference in collections from customers and payment to suppliers and service providers. Overall working capital, including cash, accounts receivable, inventories and net of accounts payable balances continue to increase during the three months ending September 30, 2020.
That concludes our prepared remarks. We will now open the call for questions. Operator?
Questions and Answers:
Operator
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Raj Denhoy with Jefferies. Please proceed with your question.
Raj Denhoy -- Jefferies -- Analyst
Yeah. Hi. Good morning. Wonder if maybe I could ask a little bit about the hyper product, the IgG product. You mentioned the initial sale to the Israeli government the $3.4 million sale for 500 doses and I guess I'm curious the potential for ongoing sales. Has there been any discussions about additional orders from Israel and how do we really think about that on an ongoing basis?
Amir London -- Chief Executive Officer
Hi, Raj. Good morning, good question. So, as we have announced, this is an initial order that was agreed with the Israeli Ministry, we are ramping up our capacity. We have a convalescent plasma supply from Israel and from the US. So, we are equipped to continue supplying the product throughout the year based on demand and an increase in the agreement.
Raj Denhoy -- Jefferies -- Analyst
Okay. That's helpful. And then I just wanted to confirm some of the thoughts around 2021. You've given us some kind of guideposts, right? So you've talked about $25 million in sales to Takeda and I imagine the rabies product will still be running kind of in that $30 million, $31 million range. Now you have your other products, your distributed products and then this payment from Israel. So is something around $90 million kind of the way to think about where you'll settle out for next year?
Amir London -- Chief Executive Officer
So, in addition to what you mentioned, there are additional revenue streams. We sell GLASSIA outside of the US in multiple markets and that business is growing by us either identifying additional patients, applying for reimbursement and submission and registration in addition countries. So this is also a future growth engine for Kamada. We are leveraging the anti-rabies success and we are registering the product in additional markets. We are selling in Canada. We are selling to the WHO. So this is additional market, which we expect to continue growing and we have additional IgG products which are sold outside of the US market. So this is just to complete the full picture of all the different commercial avenues that we have.
In regards to a specific projection, a little bit too early right now to give the number. We will give it as we complete our budget planning for 2021. So bear with us a little bit more time and like we've done in previous years, we will give the projection and if you trace back to the last few years, we've always been very accurate in our projection and our commitment.
Raj Denhoy -- Jefferies -- Analyst
Great. Thank you.
Operator
Thank you. [Operator Instructions] Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. London for any final comments.
Amir London -- Chief Executive Officer
Thank you. Thank you very much. In summary, we are pleased with how our business performed in the first nine months of 2020. We believe that the fundamental of our business is solid. We have multiple organic commercial growth catalysts. Our FDA approved plasma direct technology platform is a strategic asset and our ability to quickly respond to emerging pandemic situation, and we have a strong balance sheet, which can be capitalized to fund our business development opportunities. As such, we remain highly confident in Kamada's future prospects. Thank you all for joining us on today's call and we look forward to providing you with further updates on our progress in the coming months. We hope you all stay healthy and safe. Thank you.
Operator
[Operator Closing Remarks]
Duration: 28 minutes
Call participants:
Bob Yedid -- Investor Relations
Amir London -- Chief Executive Officer
Chaime Orlev -- Chief Financial Officer
Raj Denhoy -- Jefferies -- Analyst
