Kamada Ltd (NASDAQ:KMDA)
Q2 2016 Earnings Conference Call
August 2, 2016 08:30 ET
Brian Ritchie – LifeSci Advisors
Amir London – Chief Executive Officer
Gil Efron – Deputy Chief Executive Officer & Chief Financial Officer
Raj Denhoy – Jefferies
Good day and welcome to the Kamada Limited Second Quarter 2016 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to your host, Brian Ritchie, of LifeSci Advisors. Please go ahead sir.
Thank you, and good morning. This is Brian Ritchie with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer and Gil Efron, Deputy CEO and Chief Financial Officer.
Earlier this morning, Kamada announced financial results for the 2016 second quarter and the six months ended June 30, 2016. If you have not received this news release or if you would like to be added to the Company's distribution list, please call [indiscernible] from LifeSci at 646-597-6992.
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 the live broadcast, August 2, 2016. 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. Amir?
Thank you. And my thanks for your interest in Kamada, and for participating in today's call.
We are very pleased with our financial performance in the second quarter and in the first half of 2016. We also continue to advance our key strategic initiatives aimed at expanding revenue growth and progressing our clinical program across a number of orphan indications.
Importantly, the number of patients treated with Glassia in the U.S. continue to increase in the second quarter. Based on patients trend and our financial results in the second quarter and first half of 2016, we remain confident in our ability to achieve our revenue guidance $75 million to $80 million in 2016 and our goal of $100 million in 2017.
While Gil will provide the detailed review of our financial results shortly, I would like to share with you a few of the highlights of our performance in the first half of 2016, and these results continue to drive our confidence in Kamada's 2016 and 2017 revenue projection.
Our total revenue for the first half of 2016 increased 20% to $33.9 million over the first half of 2015 serving our proprietary product area, revenues grew approximately 46% to $23.2 million in the first six months of 2016 and compared to the first six months of 2015. What is most exciting about these results is that our revenue typically stronger in the second half of the year. For example, in 2015 and 2014 sales in the second half were approximately 49% and 45% greater than the first half of those years, respectively. In addition to the revenue growth, we see significant improvement in our profit and margin as Gil will detail later on.
With that, let me now provide you with the strategic operational update. I will begin with the review of our strategic partnership with Baxalta. As you know, the condition of Baxalta on June 3. Our initial interaction with SIA had been quite fast and we look forward to forging a strong working relationship with the company. Importantly, SIA has an often stock-hood and that is consistent with our focus in deficiency and other indication we are pursuing for spending [ph].
Shortly after the close of SIA and Baxalta transaction, we are pleased to announce, along with SIA that we have approved an extended labor for Glassia marking the first treatment for the patients with MCG due to severe AAT deficiency that can be self-infused at home following a proper training. This will present significant marks for Glassia in the U.S. With this year's approval, patients have the convenience of self-infusion at home. In addition to potentially reducing cost previously associated with infusion services of administrating augmentation therapy in the hospital or by a homecare nurse. We've been quite pleased with the continued increase in the number of new stations with -- and believe that self-infusion will contribute significantly to farther future growth.
As we have stated before, our confidence in Glassia's ability to continue to grow and take market share due to the unique, competitive advantages with product offers, stations and physicians. Glassia is the only liquid ready to infuse AAT products and have a shorter treatment time compared to other products which is a meaningful distance for both patients and physician. Beyond the U.S. we are continuing our effort to expand our global AAT presence through the station of products in different countries where the deficiency is prevalent. In the second half of 2016, we intend to file Glassia registration to other various additional countries in Eastern Europe and Latin America.
Let us turn now to our clinical development program beginning with our later-stage program. As you know, at the end of first quarter, the European Medicine Agency, EMA, validated our Marketing Authorization Application, MEA, for our inhaled AAT to treat AAT deficiency. The EMA previously agreed to evaluate the totality of the data from our innovative Phase 2/3 study. In line with EMA's guideline, we very recently received the 120 day questioning on our MEA submission. We are currently in the process of compiling our responses to EMA's questions. Because we'd like to include the data space from our U.S. Phase 2 trial of inhaled AAT to our response with expect to submit our full response to the EMA in early 2017.
Our U.S. Phase 2 trial is a randomized, double-blind, placebo-controlled trial of two different dose of inhaled AAT, 80 mg and 150 mg daily with 12 weeks of treatment, followed by 12 weeks of open labor treatment, and expect to release top line data from this trial this quarter. We continue to expect that we will have received in our MEA in mid-2017. To reiterate what is said previously, we believe our inhaled AAT will present an attractive treatment alternative compared with the current AAT treatment that requires weekly intravenous infusion. It offers a significant opportunity to bring an inhaled therapy to patients suffering from a genetic lung disease. Not merely as a more user-friendly treatment, but also due to the delivery directly to the lungs which is expected to enhance efficacy.
In support of those assertions, our Phase 2/3 study demonstrated enhanced lung function measurement and symptom improvement, which are the gold standard in pulmonary disease. This, along with the strong safety profile, provides us confidence this data meets the risk benefit profile required by EMA. As mentioned before, data from our U.S. Phase 2 study of inhaled AAT in the second of the year with fault line basis will be released this quarter. We've recently the FDA to discuss the regulatory set forward in the U.S. This will start from the still ongoing and we will report the results once we conclude them.
Moving on to our rabies program with Kedrion; we remain excited about the commercial potential for KedRAB in the U.S. where there are approximately 40,000 post-exposure prophylaxis treatments administrated each year, representing an annual market opportunity of more than $100 million.
We expect to file a BLA with the FDA very shortly and upon a favorable regulatory outcome next year to successful launch of this product with Kedrion, going there after. Cases with introduction like Kamada several years ago, we sold more than one million vial of the product outside of the U.S. in countries such as India, Thailand, Australia, Israel, Mexico, Russia and more. Selling now to a clinical program to our intravenous IV AAT.
In addition to Glassia use as an AAT augmentation therapy, we also continue to the clinical development of our IV AAT in a number of orphan indication. Indications where there is a considerable unmet medical need and where the immunomodulatory, anti-inflammatory and tissue protecting properties of our highly purified AAT may positively treat these diseases. Third, in lung transplant projection, our Phase 2 proof-of-concept study with IV AAT as a protective therapy in lung transplantation remains ongoing. As a reminder this Phase 2 trial is a randomized open-label, single-site study of 30 lung transplant recipients to evaluate the safety and efficacy of IV AAT on top of standard-of-care versus standard-of-care alone.
As I said previously, current treatment option such as steroid and chemotherapy further compromise the body immune system and cause host of benefits. Therefore, this is significant unmet need with an estimated much approximately $400 million per year. In addition, lung consultation will present an entry point for potentially all the expectations which could provide even larger market opportunities for Kamada.
Let's move on to our program in Graft versus Host Disease, GvHD. As you will recall, early in 2016 we reported additional positive interim results from the ongoing Phase 1/2 clinical trial in our IV AAT to treat steroid-refractory GvHD. The initial results show that plasma AAT level increased in both cohorts of the study and remained stable for the duration of the treatment. 8 of the 12 subject showed an over response to treatment, 4 of which nearly completely responses and 4 with positive responses.
As you know, we've been granted orphan drug designation for IV AAT therapy to treat GvHD in both Europe and the U.S. which propose our global regulatory and development strategy, and this indication is a market opportunity and access of $500 million. We look forward to the completion of Phase 1/2 study historically, and with continued encouraging results we remain focused on initiating a pivotal clinical trial in GvHD by the end of this year.
Lastly, let's discuss our development program for IV AAT to treat newly diagnosed Type 1 diabetes. We continue to expect to have the data from our Phase 2 clinical trial of our IV AAT to treat pediatric and young adult patients newly diagnosed with type 1 diabetes by mid-2017. Enrolment of the 70 patients to the study has been completed on January 2016. The opportunities for this indication are encouraging, and we look forward to updating you of our development with this program.
Before I turn the call over to Gil, I'd like to congratulate Naveh Tov, M.D., Ph.D. on his appointment with the position of Vice-President Clinical Development and Medical Director for Pulmonary Diseases. In addition to his current responsibility as Medical Director of the company's pulmonary area in position, Dr. Tov will now also lead Kamada's Clinical Development activity.
With that, I will now turn the call over to Gil for his review of the financials. Gil?
Thank you, Amir, and good day everyone. We are very pleased with our financial performance during the second quarter and first six months of 2016.
First, let's take a look at our second quarter results, followed by our results for the six months that ended June 1, 2016. Total revenue for the second quarter of 2016 were $19.1 million, down slightly from the $19.2 for the second quarter of 2015. Revenue from the proprietary product segment was $12.1 million in the second quarter of 2016, as compared to $12.7 million in the 2015 second quarter.
As a reminder, in last year's first quarter there was a delay in release of product ventures as we awaited final validation of proceeding process. That process was validated in April 2015 and the revenues delayed from the first quarter of 2015 were realized in the second quarter of 2015. Therefore we recommended looking in comparison between the first half of 2016 with total revenues of $33.9 million compared to the first half of 2015 with revenues of $28.2 million, representing 20% growth year-over-year. Receiving stronger momentum in our proprietary segment as I will elaborate in a minute we are certainly pleased with our sales performance in this year's second quarter, and the results were in line with our expectation including Glassia sale.
As I said on the first quarter call, at the end of 2015, the cumulative remaining contractual commitment from Baxalta for the year 2016 through 2018 was approximately $97 million, which lets a meaningful minimum purchase obligation in revenue stream for Kamada for the coming year. As previously reported, our 2016 order from Baxalta have already exceeded the minimum commitments of 2016 and increased again during this quarter and we expect that to continue through 2017 and 2018.
As we announced in May, Kamada received two milestone payment as a result of achieving certain regulatory and sales milestone under the strategic agreement with Chiesi and Baxalta respectively. In connection with our MAA submission for our inhaled AAT to treat AAT deficiency, we received a milestone payment from Chiesi, our European marketing partner for our inhaled AAT. In addition, Kamada received a milestone payment from Baxalta as a result of Baxalta achieving an undisclosed sales milestone for Glassia. Please note these were not recorded as a one-time payment during this quarter, but rather will be spread across the life of the agreement.
For the second quarter of 2016, distributed products revenue was $7 million, compared with $6.5 million in the same quarter of 2015. Growth profit for the second quarter of 2015 was $5.6 million, compared with $3.6 million for the second quarter of 2015. Growth margin increased to 31% from 19% a year ago, primarily as a result of improvement in the profitability in our Proprietary Product segment and continuing the high managing we experience in the fourth quarter of 2015 and the first quarter of 2016.
Looking now to the rest of the P&L. R&D expenses in the second quarter of 2016 was $3.5 million, up slightly from $3.4 million in the second quarter of 2015. Selling, general and administrative expenses in the second quarter of 2016 was $2.7 million and were essentially flat from the year ago. For the second quarter of 2016, we reported an operating loss of $0.6 million, compared with an operating loss of $2.5 million for the second quarter of 2015. The net loss for the second quarter in 2016 was $1.3 million or $0.4 per diluted share, compared with a net loss for the second quarter of 2015 of $2.3 million or $0.6 per diluted share.
During this quarter, we have recorded a one-time tax expense of $1.2 million to have settled with the authorities for tax year 2004 to 2006. The adjusted net loss for the second quarter of 2016 was $1.3 million. This compared with an adjusted net loss of $1.8 million for the same period in 2015. Adjusted EBITDA for the second quarter of 2016 was $0.6 million, compared with an adjusted EBITDA loss of $1.1 million for the second quarter of 2015.
I should point out that Kamada was really profitable in the second quarter with top-line revenue of $19.1 million, providing us with confidence in our ability to reach profitability in 2017, based on our guidance of $100 million in revenue in full year 2017. Let's now review our results for the six months that ended June 30, 2016.
Total revenues for the six months that ended June 30, 2016 was $33.9 million, an increase of approximately 20% from the $28.2 million, recorded in the six months ended June 30, 2015. Revenues from the proprietary product segment was $23.2 million in the six months ended June 30, 2016, as compared to $16.9 million in the six months ended June 30, 2015; an increase of 46%. For the six months ended June 30, 2016, distributed products revenue was $10.6 million compared with $12.3 million in the comparative period of 2015. This decrease of approximately 14% was primarily due to timing of deliver of product during this year.
Gross profits for the six months ended June 30, 2016 was $10.4 million, compared with the $4 million for the six months ended June 30, 2015. Gross margin increased to 31% from 14% a year ago, primarily as a result of higher mix of Proprietary Product revenue.
Looking now to the rest of the P&L. R&D expense in the six months that ended June 30, 2016 was $7.6 million, up modestly from $7.1 million in the comparative period of 2015, an increase of 8%. This increase in R&D expenses is within our expectations and depends on timing of activities during the quarter in different projects.
Selling, general and administrative expenses in the six months ended June 30, 2016 was $5.4 million, up slightly from $5.2 million in the year ago period. For the six months that ended June 30, 2016, we reported an operating loss of $2.6 million, compared with an operating loss of $8.2 million for the six months that ended June 30, 2015. The net loss for the six months ended June 30, 2016 was $3.9 million or $0.11 per diluted share compared with a net loss for the comparable period of 2015 of $7.6 million or $0.21 per diluted share.
The adjusted net loss for the six months ended June 30, 2016 was $3.2 million, substantially less than the adjusted net loss of $6.6 million for the same period in 2015. Adjusted EBITDA for the six months ended June 30, 2016 was -$0.2 million, compared with an adjusted EBITDA of -$5.6 million for the six months ended June 30, 2015.
Turning now to our balance sheet. As of June 30, 2016, Kamada had cash, cash equivalent and short-term investment of $29.5 million, compared with $28.3 million as of December 31, 2016. Our cash position during the first half of 2016 benefited from $6 million of revenue that was recognized in the fourth quarter of 2015, but collective in the first quarter of 2016, as well as from $1.6 million of cash from financing activities, mainly loans for capital equipment.
During the first half of 2016, we generated $1 million in cash flow operation and used $1.5 million for capital expenditure. In the second quarter, we used $6 million for operations, mainly due to timing of our spares and collection from customer versus purchases of goods mainly in the distribution segment.
Looking now with our revenue guidance, which we initially provided in May, we continue to expect total revenue for 2016 to be between $75 million and $80 million. In addition as Amir noted, we also remain confident in our ability to achieve our 2017 revenue growth of $100 million, which was primary growth in our Proprietary Product segment.
With that overview of our financial performance, let me now request that the operator please open the floor for questions. Operator, please.
Thank you, sir. [Operator instructions] And we will take our first question from Raj Denhoy from Jefferies.
Hi, good morning.
Good morning, Raj.
I wonder if I could start with -- now that they've completed the Baxalta transaction, are you in discussions with them about their plans for Glassia in terms of insourcing manufacturing come 2018-2019 in that period?
No, not yet. The current agreement as you know is until end of 2018 and agreements has been expanded multiple times since it was initially signed 2010. We are in a close contact with Baxalta side of detail in regards to ongoing operation, ongoing productivity, ongoing supplies and I'm sure that we were talking to them in the near future in regards to their plan beyond 2018.
Okay. And one thing both you and they have highlighted is the recent label extension into allowing patient to self-administer Glassia in the United States. I guess I'm curious how big of an opportunity you think that is and what percentage of patients are currently self-administering or could self-administer the therapy in the United States?
We don't have specific data regarding it and it's not something that we have announced or reported. We are confident that this is another competitive advantage of the product compared to the other products on the market and we see a highly significant growth of patients on Glassia in general and will soon – this is going to support this additional growth, but I don't have specific number to provide in terms of what will be the specific contribution of enhanced infusion to those that we are seeing.
Okay and just my last question is just you mentioned you've gotten your 120-day questions back from the MEA or in the MAA. I'm curious if there's any more you can provide on that? You know that that it can be 2017 till you respond, given that you want to include the Phase 3 data for the United States. Is there something in particular that they're asking about that Phase 2 data will answer, or is it really just that you feel that having a more complete submission will be favorable? If there's anything more you can provide on that, it would be helpful.
Yes. I just said, we did receive the 120 question and it was part of our plan to include the data from Phase 2 study. As we have mentioned, we are planning to have top-line data in viewing this quarter and to have this full data by the end of this year and this is in-line with the timing that we expect the response to be.
But there isn't anything in particular? The study in United States is slightly different in terms of what it's looking at. Is it something that the Europeans are asking for relative to that data? Or is it really just more in the sake of totality to give them everything you have?
I think it's the latter at the end. The totality of the data that we have and of course in this type of indication, when you have only few studies, the more data that you have from different sources, the better the information is for the decision-maker.
Okay. That's all. Thank you.
[Operator instructions] It appears that we have no additional questions at this time. I would like to turn the conference back over to Amir London, CEO of Kamada for additional and closing comments.
Thank you. In closing, we are extremely pleased with our performance and achievements to date in 2016 and we look forward to further meaningfully opportunities throughout the remainder of the year. We continue to focus strong revenue growth in 2016 and 2017 with relevant meaningful clinical and regulatory progress in our various development program. Kamada remains focused on growing our business and enhancing shareholder value. Thank you for joining us today. And we look forward to providing you with further updates on our progress throughout the second half of 2016. Enjoy the rest of the day. Thank you.
And ladies and gentlemen, this does conclude today's conference. And we do thank you for participation. You may now disconnect and have a wonderful rest of your day.
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