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Kamada Ltd. (NASDAQ:KMDA)
Q1 2019 Earnings Call
May 14, 2019, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to Kamada's First Quarter 2019 Earnings Conference Call. At this time, all participants are in 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. Please note this conference is being recorded.

I will now turn the conference over to your host today, Mr. Bob Yedid, with LifeSci Advisors. Please proceed, sir.

Bob Yedid -- LifeSci Advisors

Thank you and 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 first quarter ended March 31, 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 bob@lifesciadvisors.com or see the company's website under the Investor section.

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 future operations and 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, May 14, 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, it's my pleasure now to turn the call over to Amir London, Chief Executive Officer. Amir?

Amir London -- Chief Executive Officer

Thank you, Bob. And thanks all to our listeners for your interest in Kamada and for participating in today's call. Let me begin by saying that we are extremely pleased with our solid start to 2019. We began the year with very strong operating performance. Total revenues in the first quarter were $26.8 million, which represented a 54% increase compared to the third quarter of 2018. This impressive result was primarily driven by increased sales of GLASSIA and KedRAB, our anti-rabies IgG product.

From a profitability standpoint, our gross operating and net income improved substantially year-over-year in the first quarter of 2019. In addition, we continued to maintain a substantial cash position, which increased to $55.8 million of cash in short-term investments at the end of the first quarter, which provides us the financial resources needed to continue executing on our business plan.

Based on our strong performance in the first quarter and our positive outlook for the remainder of the year, we are reiterating our previously provided previous 2019 total revenue guidance of $125 million to $130 million, which represents another strong year of double-digit percentage growth over full-year 2018 total revenue. This guidance reflects continued growth in our proprietary product business, principally the growth of GLASSIA and continued growth of KedRAB in 2019. As a reminder, our GLASSIA supply agreement with Takeda, which extends through the end of 2020, will be followed by an expected flow of future royalty payments for 20 years, until 2040.

Before we start our clinical pipeline, I would like to highlight KedRAB, which is an important driver of new time revenue growth of Kamada. You will recall that this product was launched with Kedrion, our commercial partner in the U.S. in 2018. This launch continues to meet our expectations. As we approach the height of the 2019 extreme summer and rabies season, we continue to believe that KedRAB will deliver include sales in 2019, and over time with Kamada and Kedrion, we are well positioned to increase our share of market, that exceeds $150 million based on recent published market data.

Moving on to status of our clinical pipeline. I will begin with the clinical program of our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency, AATB. We were very excited to recently announce receipt of a letter from the USFDA stating that the company has successfully addressed the FDA's trial concerns and questions regarding Kamada's inhaled AAT program. The FDA's response followed the positive scientific advice that we received in July 2018 from the Committee for Medicinal Products for Human Use of the European Medicines Agency, HUEMA, in Europe.

Kamada now intends to conduct a unified global pivotal Phase 3 clinical trial in the U.S. under an Investigational New Drug application and in Europe under a Clinical Trial Authorization in order to submit marketing applications for regulatory approval in both regions. We expect to initiate the Phase 3 study during the second half of 2019, subject to the successful completion of the Human Factor Study, HFS, which has recently been initiated.

This HFS is required to support a combination product consisting of Kamada's AAT formulation and their investigational eFlow nebulizer system of PARI Pharma. The Phase 3 study protocol is designed to test the safety and efficacy of our inhaled AAT products in patients with alpha deficiency and meets the requirements provided by the FDA and HUEMA. The protocol includes enrollment of up to 250 subjects, who will be randomized one to one, who received either inhaled AAT at a dose of 80 milligram once daily or placebo during two years of treatment. The primary endpoint will be lung function measured by FEV1, and the secondary endpoint will include lung density changes measured with CT scan, as well as other parameters of the risk severity. We continue to consider all strategic options with specialist programs, included potentially seeking a partner in Europe and/or the US. We look forward to providing you with an update as the program advances.

Moving on, let me provide you with updates on some of our ongoing IV-AAT pipeline program. First, with regard to IV-AAT for the treatment of Graft-versus-host disease, GvHD enrollment in the proof-of-concept clinical trial continues to progress well. We now have five sites up and running. We continue to anticipate the completion of enrollment by the end of 2019.

As a reminder, we tried assessing with Phase 3 and preliminary efficacy of IV-AAT through antitrypsin 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, or 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-AAT product for the prevention of GvHD, using the biomarkers utilized in the study.

Second, let's turn to our Phase 2 trial of IV-ATT for the prevention of lung transplant rejection, which is being conducted in collaboration with Takeda. We expect this study to be complete before the end of the current month, with certain data announced by the end of 2019. You will recall that we announced interim results following one year of treatment for all patients we studied in the first quarter of this year. We are pleased to report that Kamara's IV-AAT 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 transplants, and the six-minute walk test.

As a reminder, Takeda has distribution rights and exclusive license to Kamada's 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 all other AAT rounds of administration, including being held AAT.

It's important to know that Kamada continues to evaluate additional potential business development opportunities that could generate significant value for our company. With prospective transactions including core development opportunities and investments in other plasma-derived fortune-related assets or other assets in specialty fields, such as AT deficiency or GvHD. In business development opportunities, we leveraged Kamada's success in the CMC clinical and regulatory areas and our ability to sell product through well positioned partners or on our own.

Among the business development initiatives, we are exploring the opportunity to utilize the potential extra manifesting capacity with our FDA approved plans to revamp the Takeda site extra service option to internalize GLASSIA manufacturing for 2020. Our company's strong balance sheet and cash flow allows us to fund our attractive clinical pipeline and potential value-enhancing partnerships, licenses, and all acquisitions.

Before I turn the call over to Chaime for his review of the financial results, I'd like to extend my thanks and congratulations to our highly skilled and dedicated employees, following Kamada's recently being awarded the Israeli Outstanding Exporter Award for 2017 by the Trade Department of the Israeli Ministry of Economy and Industry. We received the reward for the continued growth demonstrated in our export revenues.

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

Chaime Orlev -- Chief Financial Officer

Thank you, Amir, and good day, everyone. We're pleased with our robust first quarter 2019 financial performance. Once again, we delivered double-digit percentage revenue growth, and our profitability metrics, including adjust EBITDA, operating income, and net income, were all strong. With that, let me now discuss the specific financial results for the first quarter ended March 31, 2019.

The revenue was $26.8 million in the first quarter of 2019, a 54% increase from the $17.4 million recorded in the first quarter of 2018. Revenues from the proprietary product segments in the first quarter of 2019 were $20.4 million, a substantial 67% increase from the $12.2 million reported in the first quarter of 2018, primarily driven by increased sales of both of our core products, GLASSIA and KedRAB. Revenues from the distributed product segments was $66.4 million in the first quarter of 2019, a solid 23% increase from the $5.2 million recorded in the first quarter of 2018.

Gross profit was $11.2 million in the first quarter of 2019, a 59% increase from the $7 million reported in the first quarter of 2018. Gross margin increased to 42% from 40% in the first quarter of 2018, due to the increase in revenue and favorable product sales mix. Net income was $4.9 million, or a profit of $0.12 per diluted share in the first quarter of 2019, compared to net income of $1.3 million, or a profit of $0.03 per diluted share.

Looking ahead from a P&L perspective, I should add that when we began the Human Factor Study and Phase 3 study for our inhaled AAT program, which Amir outlined earlier, we expect that the R&D spent will increase beginning in the second quarter and continuing throughout 2019. During the first quarter of 2019, we generated positive cash flow from operation of $6.1 million, which contributed to our strong financial position. As of March 31, 2019, the company had cash, cash equivalents, and short-term investments totaling $55.8 million, compared to $50.6 six million at December 31, 2019.

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

Questions and Answers:


Thank you. At this time, we will conduct 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'd 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 * keys. Once again, that's *1 at this time. One moment while we poll for our first question.

Our first question comes from Raj Denhoy with Jefferies. Please proceed with your question.

Raj Denhoy -- Jefferies -- Analyst

Hi, good morning. I wonder if maybe I could start with the results in the quarter. So, the proprietary products, I know about -- it's a little over $20 million in the quarter. Very strong growth, as you noted, relative to last year, but if we think about the guidance for the year, that line probably has to do something north of a $100 million or right around a $100 million, which does imply the next three quarters need to improve fairly substantially off that number. And so, I'm just trying to get some sense of what will drive that increase. Will it be KedRAB, or will be it expected orders from Takeda for GLASSIA? Anything you can help in terms of the acceleration in the revenue over the balance of the year we should expect?

Amir London -- Chief Executive Officer

Okay. Hi, Raj. Good morning. Last year, we finished with $115 million in sales. And we gave the guidance of this year, which will be between $125 million, $130 million. The growth comes from both KedRAB being the first year -- the first full year of sales and the continuous increase in the number of patient treated on GLASSIA, which adapted to our continued growth of GLASSIA sales to Takeda. So, it's a combination of those products. And we had a strong first quarter, which positions us very well to be able to meet the guidance. And we are encouraged and optimistic for the rest of the year.

Raj Denhoy -- Jefferies -- Analyst

Okay. Maybe I could follow up on KedRAB, because you mentioned it's $150 million market roughly in the United States. Any sense of where you and Kedrion share stands at this point and your expectations for continuing to increase that share position over the course of the year?

Amir London -- Chief Executive Officer

Yes. So, we did disclose in 2018 with strong or modest fortune, we sold $12 million of KedRAB to Kedrion. We did not disclose what the split between us and Kedrion in terms of market revenue in market sales, but you can assume that Kedrion has their significant share above the $12 million that we have sold them. And that would be the market share. Now, if you're looking at our next two, three years outlook, we expect to and we believe that we can reach 30% to 40%, maybe actually even 50% market share, basically competing with one strong player, and that 30%, 40%, 50% of $150 million will be shared between Kamada and Kedrion.

Raj Denhoy -- Jefferies -- Analyst

That's helpful. Maybe just, I could segue to the trial, the GLASSIA trial. So, good progress on that front, but I guess I'm curious about the timing of the trial at this point. I know you expect to complete the Human Factor Study by the end of the year and then begin the Phase 3 study. I'm curious your thoughts on the timing to enroll the 250 patients. I think in times past, we talked about that trial being AAT naive patients. And so, how long do you think it'll take to identify those 250 patients and enroll them? And how much of a deterrent do you think it'll be that the control arm is a placebo, so those patients aren't receiving any AAT at all?

Amir London -- Chief Executive Officer

Okay. So, as I just said, for the Human Factor Study, which has an FDA requirement, has already started and we expect to be able to initiate the Phase 3 study with the third phase being in the second part of the year, meaning before the end of the year, of course. We estimate, based on past experience and discussion we had in KOL, as well as specific sites that we plan to engage in the study, that the overall recruitment of the 250 patients will take up to 24 months, meaning up to two years. And it is going to be -- the site is going to be open in the U.S. and selected European countries.

Placebo could be a challenge, but with the experience we have and the fact that there are multiple European countries where IV treatment is not available currently, we believe that we will be able to successfully recruit those patients. There is a lot of excitement among physicians and patients on the fact that being health is going to be back in the clinic Phase 3. And we recently came from the Alpha-1 Foundation Global meeting, which is the biannual conference of all key stakeholders in the Alpha-1 deficiency field. And there was a lot of excitement around what we have. Recently, there was a survey among Alpha-1 patients, and the vast majority of them are expecting and are preferring the health treatment over IV. So, we believe the market is there, the product is there, and we need to prove it in successfully in our Phase 3 study.

Raj Denhoy -- Jefferies -- Analyst

That's great. Thank you for the detail. Thanks.


Once again, to ask a question, please *1 on your telephone keypad at this time. There are no further questions in queue at this time. I would like to turn the call back over to Mr. London for closing comment.

Amir London -- Chief Executive Officer

Thank you. In summary, we are pleased with how our business is performing across all segments. Our revenue growth came in strong, our profitability metrics are improving, and we have a very strong balance sheet. Our well-defined path for inhaled AAT is very promising and has the potential to be an important source of value creation for our shareholders, along with our typical significant pipeline of opportunities ahead of us. Therefore, we firmly believe Kamada will be well positioned for continued success.

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


This does conclude today's teleconference. You may disconnect your line at this time, and thank you for your participation.

Duration: 23 minutes

Call participants:

Bob Yedid -- LifeSci Advisors

Amir London -- Chief Executive Officer

Chaime Orlev -- Chief Financial Officer

Raj Denhoy -- Jefferies -- Analyst

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