Kamada Ltd (NASDAQ:KMDA) Q1 2017 Earnings Conference Call May 16, 2017 8:30 AM ET
Bob Yedid - IR, LifeSci Advisors
Amir London - CEO
Gil Efron - Deputy CEO and CFO
Anthony Petrone - Jefferies
Elemer Piros - Cantor
Good day, and welcome to the Kamada First Quarter 2017 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Bob Yedid with LifeSci Advisors. Please go ahead, sir.
Thank you and good morning. This is Bob Yedid with LifeSci Advisors. Thank you for participating in today’s call. Joining me today from Kamada are Amir London, Chief Executive Officer; and Gil Efron, Deputy Chief Executive Officer and Chief Financial Officer. Earlier this morning, Kamada announced financial results for the first quarter of 2017. If you have not received this news release or if you would like to be added into the Company’s distribution list, please call me at LifeSci at 646-597-6989 or email me at email@example.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 Form 20-F and Form 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 the conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 16, 2017. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With those remarks completed, I'd like to now turn over the call to Amir London, CEO. Amir?
Thank you, Bob, my thanks also to our listeners for your interest in Kamada and for participating in today’s call.
Let me begin by addressing our first quarter revenues which were below our expectations. Total revenues were $11.6 million, and revenues from the proprietary products were only $6.6 million. Our revenues were impacted by a delay in completing a periodic validation of our filling line which resulted in delay of shipping proprietary products batch. Subsequent to the end of the third quarter, the validation was successfully completed and the delayed shipment will be made.
As a result, all delayed revenues from our proprietary products segment was approximately $11.5 in revenue will be shifted from the first quarter and recorded in the second quarter of this year. Consequently, we remain highly confident in our ability to attain our previously stated objective or reaching $100 million in total revenues in 2017 out of which $76 million to $78 million will come from our proprietary products segment, representing at least 36% growth year-over-year compared to 2016.
We also expect to generate positive cash flow this year. This significant growth in proprietary product sales is mainly the result of our increasing market shift to GLASSIA in the U.S. for the treatment Alpha-1 Antitrypsin Deficiency sold by Shire as a part of a strategic agreement between our companies.
Although the first quarter results are below our expectations, it is important to note that our total revenue for the quarter including the delayed shipment represent a revenue rate supporting our total annual guidance of $100 million. Gil will provide detailed revenue of our first quarter financial results shortly.
So let me now read to you our clinical and operational highlights since our last call in early February. We were pleased to host an R&D Day in March in New York City for investors and analysts, which was focused on Graft versus Host Disease or GvHD. [Indiscernible] featured presentation by key opinion leader, Dr. Joachim Deeg of the Fred Hutchinson Cancer Research Center and Dr. David Gelmont, formerly of Shire/Baxalta, who discussed the current treatment landscape of GvHD in bone marrow transplant patients and the unmet medical need for patients who develop acute GvHD.
In addition, Kamada's management team provided an overview of the company's ongoing clinical development role with the liquid form of Alpha-1 Antitrypsin to treat acute GvHD included published data and Kamada's clinical strategy.
On the R&D front, we announced a new collaboration with Massachusetts General Hospital to conduct a proof of concept study evaluating the potential benefit of our liquid AAT on liver preservation. The study is being led by Dr. James Markmann, Chief, Division of Transplant Surgery at Massachusetts General Hospital who is also Professor of Surgery at Harvard Medical School.
As described in the test, AAT has been found to have anti-inflammatory, tissue protective, and immune-modulatory properties in direct consequence of its underlying anti-protease capabilities. The purpose of this study is to evaluate the effect of Kamada's liquid AAT and Graft quality and variability. There are over 100,000 solid organ transplants conducted each year globally of which over 20,000 are legal transplants.
If AAT is demonstrated to improve graft quality in this study, Kamada intends to conduct a pivotal study in order to seek approval in liver preservation which could also lead in the future to improved preservation of additional solid organ transplant representing a potential market opportunity of over $500 million. We look forward to providing you with update as this collaboration moves forward.
I am also pleased to report that we recently completed two successful GMP audits of our manufacturing plant; one with FDA and the second with EMA. The FDA audit was a periodical GMP review of our plant as well as a pre-approval inspection related to our human rabies IgG BLA which was submitted to the FDA. As a reminder, Kamada and our partner, Kedrion Biopharma announced last year that the FDA had accepted for review of our BLA and the PDUFA date is set for end of August of this year.
The EMA audit was related to our inhaled AAT marketing authorization application which was submitted to EMA in March of last year for the treatment of Alpha-1 Antitrypsin deficiency or AAT which is an orphan disease currently treated by IV AAT augmentation therapy.
The remainder of 2017 includes a number of expected key milestones for Kamada that has the potential to significantly enhance shareholder value. First, on the product development side, we look forward to EMA's decision on our inhaled AAT in the second half of 2017. You will recall that we provided our responses to EMA's Day 120 questions earlier this year and we are currently in the process of finalizing our responses to Day 180 questions. An important aspect of our response is the positive topline results of our U.S. Phase 2 clinical trial of inhaled AAT, which we announced in August of last year. As you may remember, this study met its primary endpoint and the data was quite compelling compared to the current standard of care which is IV treatment.
We also look forward during the next few months to finalize our discussion with FDA in regard to the regulatory pathway in the U.S. for inhaled AAT. We expect to complete the discussions and have an approved IND on the pivotal Phase 3 study before the end of the year allowing us to initiate the study in the U.S. in 2018. Importantly, we believe our inhaled AAT represents an attractive treatment alternative compared with the current AAT treatment that requires weekly IV infusions. It offers a significant opportunity to bring an inhaled therapy to patients suffering from genetic lung disease, not merely as a more user-friendly treatment, but also due to the targeted delivery directly to the lung, which is expected to enhance efficacy.
Second or AAT IV in acute GvHD we look forward to submitting a clinical trial authorization or CTA application in Europe this year in order to conduct a Phase 2/3 study in parallel with the U.S. study conducted in collaboration with Shire.
Earlier this year we announced a Positive Scientific Advice Response from the Committee for Medicinal Products or CHMP for Human Use of the EMA focused on our development program in Europe for AAT IV in acute GvHD. The response from the CHMP included important guidance related to the design of our planned Phase 2/3 European study with the regulatory pathway for approval based on conducting such a study. We continue to review the guidance received and we are in discussions with our European Scientific Advisory Board regarding the expected PTA [ph] submission.
As mentioned, this product is being developed in the U.S. as part of our collaboration with Shire. In the U.S. the product of an ongoing Phase 2/3 clinical trial to evaluate safety and efficacy of AAT IV as an add-on therapy to conventional steroid treatment in up to 168 patients with acute GvHD with lower GI involvement. This is a two-part, multicenter, prospective study with the primary endpoint of overall response rate at day 28.
Third, in our Type 1 diabetes trial we had the last patient out in February and we are looking forward to reporting topline results of the Phase 2 trial in the second half of 2017. Next, in the area of the use of IV AAT for lung transplant we are on track in the recruitment of patients to this study and expect to have an interim report for Phase 2 trial also in the second half of 2017.
Finally in regards to Kamada's IgG therapy, we are excited about our PDUFA date of August 29, 2017 for the completion of the review of the expected anti-rabies BLA. As we've said previously, we believed this will present in any other market opportunity of more than $100 million. Moreover this has the potential to be an extremely profitable product for Kamada. As a reminder, upon a favorable regulatory outcome we intend to launch the product in the U.S. soon thereafter with our partner Kedrion, a company dedicated to human derived protein therapeutics.
As described, it's important to note that all these products are already in an advanced regulatory review or in late stage clinical development and they represent a market potential of over $2 billion. From a financial perspective to reiterated what I stated earlier, we continue to expect that we will reach $100 million in total revenues and generate positive cash flow in 2017.
With that, I will now turn the call over to Gil for his review of the financials. Gil, please?
Thank you, Amir, and good day, everyone. Amir previously discussed the shipping delay we experienced in the first quarter, but let me reiterate our confidence in our ability to capture all of the delayed revenue from the first quarter in the second quarter of 2017. We expect to generate $76 million to $78 million of revenues from our proprietary product segment and $22 million to $24 million of revenue from our distribution segments with the total of $100 million from both segments in 2017.
With that let me begin my review of the first quarter financials. Total revenues for the first quarter of 2017 were $11.6 million a decrease of 21% from the $14.8 million for the first quarter of 2016. Revenues from the proprietary products segments were $6.6 million in the first quarter of 2017 a 40% decrease compared to the 2016 first quarter. For the first quarter of 2017 distributed product revenue was $5 million compared with $3.7 million in the second quarter of 2016 an increase of 36%.
The increase was due to higher demand for different products. Gross profit for the first quarter of 2017 was $2.3 million a decrease of 52% compared with $4.8 million for the first quarter of 2016. Gross margin decreased to 20% from 32% in the first quarter of 2016. The decreasing profitability was due to the decrease in revenues in the proprietary products segment and the mix of sales of proprietary versus distributed products. Gross margin from our proprietary products segment was 22% compared to 38% in the last year quarter due to the delay in the $11.5 million of revenue mentioned by Amir and we expect it to return to the same levels as last year once shipments are made.
Looking now to the rest of the P&L, R&D. expenses in the first quarter of 2017 were $3.2 million below the $4.1 million in the first quarter of 2016 principally due to the timing of different R&D projects during this quarter. Selling, general and administrative expenses in the first quarter of 2017 were $2.9 million an increase of 8% from the same period last year.
For the first quarter of 2017 we reported an operating loss of $3.7 million compared with an operating loss of $2 million for the first quarter of 2016. The net loss for the first quarter of 2017 was $4 million or $0.11 per diluted share compared with the net loss for the first quarter of 2016 of $2.3 million or $0.06 per diluted share. The adjusted net loss for the first quarter of 2017 was $3.7 million, this compares with an adjusted net loss of $1.9 million for the same period in 2016.
Negative adjusted EBITDA for the first quarter of 2017 was $2.6 million compared with negative adjusted EBITDA of $0.8 million for the first quarter of 2016.
Turning now to the balance sheet, as of March 31, 2017 Kamada has cash, cash equivalents and short term investments of $28.6 million same as the $28.6 million we had as of December 31, 2016. In the first quarter of 2017 we generated $1 million in cash from operations and used $700,000 for capital expenditure and $100,000 for financing activities.
With that overview of our financial performance, let me now request that the operator, please open the call for questions. Operator, please?
Thank you. [Operator Instructions] And we'll take our first question from Anthony Petrone with Jefferies.
Thank you and good evening and good morning. Maybe to start out with the GLASSIA shipment delay into the second quarter, I mean how often do the periodic validation processes take place, and can you give us an update on where GLASSIA is in terms of share within Shire? And then I have a few follow-ups, thanks.
Okay, thank you very much for the question. So to answer your first question, the validation is a routine procedure which we do on our different filling lines on a routine basis a few times a month. In this case, one of those routine validation runs took longer. We had to repeat this, it was delayed, and therefore we had to wait with the product shipments until we successfully completed that validation run, and only then the product is being shipped to the U.S. as we mentioned.
Important to note that during the quarter like I mention in my report, we successfully passed FDA and the EMA GMP inspections. We strictly comply with the GMP requirements and we of course continue, plan on continuing to meet all those regulations.
In terms of market shares, we don’t report specific market shares under our agreement with Shire. What I can say is that in 2016 GLASSIA sales continued to grow 25% compared to last year, so is the previous year. If you look at our forecast of this year for comparative product sales, we expect a 36% growth. A majority of this comes from GLASSIA in the U.S. through the collaboration with Shire. This is our main growth engine. You can, based on that, you can definitely estimate, you know, our GLASSIA share in the U.S. AAT markets.
Okay and then maybe a couple on the catalysts into the second half. I'm just wondering in terms of inhalable GLASSIA in terms of the EMA decision and the finalizing of the regulatory pathway with FDA. I mean, do you expect the EMA decision to come ahead of finalizing that pathway with the FDA? And then in other words will the EMA decision sort of influence how the final structure of the FDA study looks like for inhalable? And then I have one additional follow up. Thank you.
Thank you for the question Anthony. We don't see those decisions as they are dependent on each other, so that should happen in parallel and we expect the end decision, as we have said in the past in the second half of 2017.
Okay and then last for me is on anti-rabies in the U.S. I'm just wondering the launch timing of that product assuming that we get a positive recommendation at the upcoming PDUFA date? Thanks again.
Thank you. So yes, so the PDUFA date is end of August, assuming of course a positive decision and we plan on launching the product right after that, hopefully towards, before the end of the year, but important to note that in the $100 million focus for the year, we did not include the anti-rabies for the U.S. So we kept it kind of as an upside. This might already happen this year and definitely will have a significant impact on our sales starting next year. So we hope to launch it before the end of the year, but it's not part of the focus for the year.
Thank you very much.
Thank you. [Operator Instructions] We’ll take our next question from Elemer Piros with Cantor.
Yes, good evening gentlemen. What I'd like to ask is, Gil, maybe if you could help us quantify the impact of the delay in the cost of revenues? So I presume that in this $5.2 million that you recognized, a good portion of it was related to the delayed shipment, is there any further cost to be recognized once for it when the shipment is made?
Yes, so I remind that as Amir mentioned, the revenues that were delayed were about $11.5 million. The cost associated with that is the cost of goods to be shipped, and then as I mentioned, once we shipped those products we should expect to be in the gross profit margins as we were in the previous year.
Okay thank you.
Yes, I wanted to add one thing just to emphasize that we did recall revenue of $11.6 million for the quarter, if you add the delayed shipment of $11.5 we are at approximately $23 million sales for the quarter, which supports our $100 million for the year.
Understand, thank you very much for that clarification Amir. And maybe a question to you, the GvHD study seems to be one of the largest out there and the endpoints that you're investigating are fairly conventional. Do you believe that there may be a way to convince Europeans to be able to use this study design to satisfy their regulatory requirements?
So we’ve met the Europeans, we had scientific advice meeting. We got the feedback from that Advisory Board and we need to do some modification for the protocol for the decision to go with an independent study in Europe, not only related to the requirements from the regulators, it's also a business decision in the U.S. the right for the product, our positive agreement with Shire, while in Europe we are moving forward independently and we decided to do a separate independent study also because of that strategy.
I see and would you be able to provide an estimate for the cost of the two trials Amir? Thank you.
Being orphan indications and very similar experience with other indications of the same size or similar size and there from the data that we've collected so far we believe that a $20 million to $30 million investment, so between $20 million to $30 million investment to do that Phase 2/3 study.
And that would be partially underwritten by Shire, correct?
In Europe we are working independently. Shire has no right for the European territory. So, the investment is Kamada's investment while in the U.S. or the U.S. program is co-funded and co-developed by Shire and Kamada as part of our agreement.
Thank you very much for clarifying.
Thank you. [Operator Instructions] And that concludes today's question-and-answer session. Mr. Amir London, at this time I will turn the conference back to you for any additional or closing remarks.
Thank you. In closing, Kamada remains in solid operating position. Based on our financial outlook we expect 2017 represents a strong growth versus 2016 and our pipeline continues to advance as expected.
We look forward to the remainder of 2017 and the multiple value creating milestones we are anticipating. Kamada remains committed to growing our business and enhancing long term shareholder value. Thank you very much for joining us on today’s call and we look forward to providing you with further updates on our progress throughout the remainder of the year. Thank you and enjoy the rest of your day.
And that concludes today’s call. Thank you for your participation. You may now disconnect.
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