Kamada Ltd. (NASDAQ:KMDA) Q4 2018 Earnings Conference Call February 12, 2019 8:30 AM ET
Amir London - CEO
Chaime Orlev - CFO
Bob Yedid - LifeSci Advisors, LLC
Conference Call Participants
Raj Denhoy - Jefferies
Keay Nakae - Chardan Capital Markets
Patrick Dolezal - LifeSci Capital
Good day, and welcome to the Kamada's Fourth Quarter and Full-Year 2018 Earnings Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Bob Yedid with LifeSci Advisors. Please go ahead, sir.
Thank you, Amanda. Good morning. This is Bob Yedid from 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 fourth quarter and full-year 2018 ended December 31, 2018. If you have not received this news release or you would like to be added to the Company's distribution list, please call me at (646) 597-6989.
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, future results for 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, February 12, 2019. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With those prepared remarks, it's my pleasure now to turn the call over to Amir London, CEO. Amir?
Thank you, Bob. And thanks also to our listeners for your interest in Kamada and for participating in today's call. Let me begin by saying that we’re extremely pleased with the trends demonstrated in our business during 2018. We ended the year with very strong operating performance, specifically total revenues in the fourth quarter were $48.2 million, which represented a 35% increase compared to the fourth quarter of 2017.
The strong results in the fourth quarter of 2018 was primarily driven by successful effort to expedite release and shipment over the last year to the U.S. some of which were delayed loss of the third quarter due to the labor strike as well as increased manufacturing efficiency.
Our [indiscernible] enrollment in the fourth quarter helps to drive clearly a 2018 total revenue of $114.5 million, an increase of 11% compared to full-year 2017. In general, the overall growth in 2018 was primarily driven by the successful launch of strong sales in the U.S of KedRAB, our anti-rabies IgG product. Our high revenues resulted in greater efficiencies and our profitability metrics include significantly of 2017, that will be further detailed by Chaime.
Our 2018 performance is indicative of our successful strategic collaborations, robust operating systems and the proficiency demonstrated by our industry leading team. We are also positioned well to drive further meaningful growth in 2019.
In regards to the top line, we are reiterating our previously provided full-year 2018 total revenue guidance of $125 million to $130 million which represent another strong year of a double-digit percentage growth of full-year 2018 total revenue. This reflects continues growth in our Proprietary Products business, principally the growth of GLASSIA and continued growth of our KedRAB product in 2018, which we referred full-year of this product commercialization in the U.S.
Looking ahead, I would like to remind you that our supply agreement with Shire which is now part of Takeda, currently extends and through the end of 2020, followed by 20 years of expected steady flow of future royalties in a growing alpha-1 antitrypsin deficiency market. This specific agreement is a significant source of revenues, future royalties, and long-term profit to our company.
Let me now discuss an important driver of near-term revenue growth for Kamada. Our anti-rabies IgG product, which was launched by Kedrion, our commercial partner in the U.S. under the brand name KedRAB. We are very pleased with the launch of this product in 2018. Looking ahead, we expect KedRAB to deliver strong sales growth in 2018.
As I said before, based on recent published market data, the U.S. market for rabies immune globulin is over $150 million, and key customers are looking for a stable source of supply. We continue to believe that Kamada and Kedrion are well positioned to increase our market share over time. I should add that our anti-rabies product is now also approved in Canada, which could provide incremental revenue opportunities starting in 2020. Importantly, receiving FDA approval for our rabies vaccine could result in [indiscernible] approval by regulatory authorities in other countries, which will be key driving increased profit opportunities of this product.
With that, let me now discuss the 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 or AATD. As a reminder, the CHMP, Committee for Medicinal Products for Human Use now concurs with Kamada's on the overall design of the proposed pivotal study, including its objectives, patient population, proposed endpoints and their clinical importance, and the safety monitoring plan. Therefore, we have a clearly defined regulatory path for inhaled AAT in Europe.
We continue to work with our internal and external experts to finalize a detailed plan for the clinical program, including the submission of a Clinical Trial Application to the EMA. In parallel, we continue to advance on discussions with the FDA in order to reach agreement on the regulatory path forward for inhaled AAT in the U.S.
As previously communicated, we’ve already submitted to the FDA additional requested information and data. We continue to await the response. Though, the recently concluded U.S government [indiscernible] halted any communication for this time. In the interim, we remained [indiscernible] on advancing steady preparation activities both internally and with our PRO. By the threat now that U.S government shutdown could further extend our timeline [indiscernible], we continue to anticipate that we will initiate the Phase 3 clinical study of inhaled AAT upon the FDA’s satisfaction with our response and their approval of our IND.
As a reminder, we continue to consider all strategic options with respect to this program, including potentially picking a partner in Europe and over the U.S. even when we receive FDA approval to conduct the Phase 3 trial.
Moving on, let me now provide you with updates on some of our ongoing intravenous AAT pipeline program. First, with regard to IV-AAT for the treatment of acute Graft versus Host Disease or GvHD enrollment in the proof-of-concept clinical trial is progressing well. We now have five sites up and running. We anticipate the completion of enrollment followed by the availability of initial data of this study by the end of 2019.
As a reminder, this trial is assessing the safety and preliminary efficacy of IV-AAT as preemptive therapy for patients at high-risk for development of steroidrefractory acute GvHD. This study is being conducted through an innovative collaboration with the Mount Sinai Acute GvHD International Consortium, or MAGIC, and is an investigator-initiated study, co-funded by Mount Sinai and Kamada. We have exclusive rights to develop and commercialize our IV-AAT product for the preemption of GvHD using the biomarkers utilized in the study.
Second, let’s turn to our Phase 2 trial of IV-AAT for the prevention of lung transplant rejection, which is being conducted in collaboration with Shire now part of Takeda. We recently announced interim results following one year of treatment to all patients in the study.
We are pleased to report that Kamada's IV-AAT demonstrated a trend towards improvement in multiple key clinical outcomes including days on mechanical ventilation post-transplant, pulmonary function at week 4 and week 48 post-transplant and the six-minute walk test. We are encouraged by this interim results and look forward to top-line data from this study, which are expected by the end of 2019.
The previous result of six months interim data has been accepted for presentation at the International Society for Heart and Lung Transplantation 2019 Annual Meeting and Scientific Sessions, which will take place in early April, in Orlando, Florida. As a reminder, Shire now part of Takeda, has distribution rights and an exclusive license to Kamada’s IV-AAT product 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 routes of administration.
Finally, the recently expanded investigator initiated, proof-of-concept in conjunction with Massachusetts General Hospital evaluating the potential benefit of the liquid AAT on liver preservation pre-transplantation remained ongoing. As a reminder, the first cohort of the study, organ viability parameters were measured, including liver function tests and hemodynamics, which represent risks for failure or dysfunction after transplantation, inflammatory pathway analysis and histology, all of this result indicated positive trends.
The second cohort of the study is assessing the effect of AAT with different doses. Results on the study will be submitted for publication in the near future. This study is part of our initiative to use AAT as a key component in the organ preservation field, an area which is experiencing significant innovation and important development in recent years.
Before I turn the call over to Chaime for his review of the financial results, I’d like to welcome Dr. Michal Ayalon, who recently joined Kamada as Vice President of Research and Development. Dr. Ayalon has nearly 20 years of experience in drug discovery and drug development. Prior to joining Kamada, she served as head of R&D at R&D at 89bio Ltd., where she led the overall development strategy of the company and managed all R&D functions.
Dr. Ayalon's comprehensive knowledge and understanding of drug development will be of significant value to Kamada, as we continue developing our robust pipeline. Dr. Ayalon will succeed Dr. Liliana Bar, who has served as Kamada's Vice President of Research & Development since 2012 and is retiring this month. We wish Dr. Bar well and thank you for her significant contribution to Kamada during her seven years with the company.
With that, I will now ask Chaime to review our financial results. Chaime?
Thank you, Amir, and good day, everyone. We are pleased with our robust fourth quarter and full-year 2018 financial performance. We again delivered double-digit percentage revenue growth and our profitability metrics include -- including adjusted EBITDA operating income and net income grew all strong.
With that, let me begin by discussing the financial results for the fourth quarter ended December 31, 2018. Total revenues were $48.2 million in the fourth quarter, a 35% increase from the $35.7 million recorded in Q4 2017.
Revenues from the Proprietary Products segment were $43.1 million, a robust increase from the $29 million reported in Q4 2017, primarily driven by our ability to expedite release and shipment of GLASSIA to the U.S on account of delayed third quarter product shipment due to delayed [indiscernible]. Revenues from the Distributed Products segment were $5.1 million as compared to $6.7 million recorded in Q4 of 2017. Such decrease was mainly related to timing of sales and product availability.
Gross profit was $21.2 million in Q4 2018, a substantial increase from the $11.6 million reported in Q4 2017. Gross margin improved significantly from 33% in the prior year period with 44% due primarily to a significant increase in sales of GLASSIA which contributed to manufacturing efficiency and sales of KedRAB in the U.S.
Net income for the fourth quarter of 2018 was $17.7 million or a profit of $0.44 per diluted share compared to net income of $6.3 million or a profit of $0.16 per diluted share in Q4 of 2017.
I will now discuss the financial results for the year ended December 31, 2018. Total revenues for the year were $114.5 million, an 11% increase from the $102.8 million recorded in full-year 2017. This total annual revenue are in line with the recently provided 2018 expected revenue guidance of $113 million to $115 million and nearly met our initial pre-labor strike annual guidance of $116 million to $120 million.
Revenues from the Proprietary Products segment were $90.8 million, an $11.2 million increase from the $79.6 million reported in full-year 2017, mainly driven by the launch of KedRAB in the U.S this year. Revenues from the Distributed Products segment were $23.7 million compared to $23.3 million recorded in the same period of 2017.
Gross profit was $41.5 million, a robust 29% increase from the $32.1 million recorded in full-year 2017. Gross margin increased to 36% from 31% in 2017, primarily due to the U.S KedRAB launch and manufacturing efficiency.
I’m pleased to report that all of our profitability metrics improved significantly year-over-year in 2018, specifically we generated operating income of $19.3 million compared to $7.4 million reported in 2017. Similarly, our reported adjusted EBITDA increased from $11.5 million in 2017 to $23.9 million in 2018. Such increased profitability is partially due to reduced R&D investments in 2018 as a result of the delay in the initiation of being held AAT Phase 3 clinical study.
Looking ahead, given our anticipation to obtain FDA acceptance, we are initiating the held Phase 3 study during 2019, we expect an increase in our R&D investments in the year ahead compared to 2018. Finally, net income for 2018 was $22.3 million or a profit of $0.55 per diluted share, a substantial increase compared to the net income of $6.9 million for a profit of $0.18 per diluted share in 2017.
Turning to the balance sheet, we are very pleased by the trend of our balance sheet. As of December 31, 2018, the Company had cash, cash equivalents and short-term investments totaling $50.6 million compared to $43 million at December 31, 2017. We generated positive cash flow from operations of $10.5 million in full-year 2018 and our net working capital increased $19.8 million to $87.3 million. These factors are indicative of our continued growth and enhanced stability which position us well in our effort to meet our R&D and business development targets in the years to come.
I will now open the call for questions. Operator?
Thank you. [Operator Instructions] We will take our first question from Raj Denhoy with Jefferies.
Hi. Good morning. Maybe I could start with the rabies, the KedRAB product. You noted in your remarks, I think in the release as well that the primary driver of the success in the growth this year was the launch of that product and the strong sales you’re seeing. Is there anything you could offer in terms of what percentage of the market maybe you’re taking now in the United States, the prospects for continued growth for that product? Anything, any more detail around it would be helpful. Thank you.
Yes. Good morning, Raj. Thank you for joining us today. Thank you for the question. As mentioned in the call, we are very pleased with the launch of the product. The overall market anti-rabies IgG market in the U.S is around $150 million. We have taken a significant portion over the first year and we expect that we can reach anything between 30% to 50% of the market in a matter of two year. So this is our goal. Our target is to consider that Kedrion, our commercial partner is selling in the market, so this is a revenue that they see, while we share the revenues with them.
So if you think about the growth you’ve described for next year, right? Is another -- you think about adding another $14 million, $15 million of revenue in 2019, given the guidance you’ve give us is the majority of that going to be again rabies, the contribution from the product continuing to grow?
Not only the growth between 2018 and 2019 will be on combination of continued growth of last year as well as growing the rabies product in the U.S. From 2017 to 2018, majority of the growth came from the rabies product.
Okay. Maybe I can just ask a couple on the pipeline. So you gave us some updates on GvHD and lung transplants, what is the expectation as when we can start to see revenue contribution? I realized that you’re very early in the clinical work behind these products, but given the unsatisfied need right now the marketplace for products like these, is there a chance that maybe you could expedite the approvals and we could see something sooner rather than later in terms of revenue contribution?
We expect to have results from and to finalize the existing studies with the Phase 2 studies for both indications between 2019 and 2020. And based on the results on those studies, we move forward into Phase 3 pivotal study. Having said that, we are already selling the products for GvHD in an Early Access Program in Europe. So as we mentioned, as being an unmet medical need in the life threatening situation, this is a size of treatment which are considered so early access. We have taken the step with partner company in Europe that it specializes in Early Access Programs and they’re offering solution in the European [ph] market. In the U.S., the situation is different as we know, as we mentioned, all IV indications are partnered with Shire, now part of Takeda. We talk to Takeda to decide if they want to move forward with a pivotal study once we have result from the existing program, and if they would like with our partnership to promote an Early Access opportunity.
Okay. That’s helpful. And my last question is really just, you highlighted the strength of the balance sheet. Maybe you could talk a bit about your plans. Is M&A increasingly important to you? What types of assets will you be looking at? How much urgency should we see from the company in terms of potentially expanding the portfolio here?
So all options are being considered. We will continue to talk within our areas of expertise. We are well funded to move forward within held program independently if that will be the decision. And to use the fund, our resources for business development initiative and also inhaled program. And as we continue progressing our commercial business and we’re generating cash, of course, it will allow us to develop [indiscernible] well positioned and we don’t see [indiscernible] to the market through a [indiscernible] anytime sooner.
And part of the question was really just in terms of the urgency, right? Is there something that the company feel they need to do expeditiously here in terms of building out the portfolio in a sense we are all aware of the 2021 transfer of manufacturing to Takeda, is there activities that are planned in preparation for that in order to sort of use the capacity you have in your own internal facilities or find other sources of revenue for the company?
We are active in the business development field. We are proactively looking for different opportunities. And when we have something to report, we will be happily [indiscernible].
I appreciate it. Thank you.
Thank you, Raj.
We will take our next question from Keay Nakae with Chardan.
Yes, thanks. I wonder if I could just ask again about the 2019 revenue growth drivers. Is that -- should we think about that as being more evenly split between last year in the rabies product in 2019?
Thank you for the question. So like I mentioned, answering the previous question, both products will contribute to the growth between 2018 and 2019 based on the current orders in our production combined scheduling, we expect last year will have a slightly larger contribution to the growth compared to the anti-rabies product.
Okay. That’s helpful. Then with respect to your discussions with the FDA, the trial for inhaled AAT, have you had discussions with them since the government reopened?
Can you repeat the last part of the question? I’m not sure, I understood.
Okay. Have you had just any communications with the FDA since the FDA agency was reopened with the budget negotiations about between [indiscernible] weeks ago?'
Yes, we had. So we had communication and we are actively moving forward in terms of receiving the feedback and we’re optimistic that we will resolve the issue [indiscernible] over the last few weeks, harmonizing the protocol between the two territories, Europe and U.S.
Okay. Very good. That’s all I have. Thanks.
We will take our next question from Patrick Dolezal with LifeSci Capital.
Hi. Thanks for taking the question. The first one here, given the recent acquisition of Shire by Takeda, can you just speak about your relationship with Takeda thus far? And specifically maybe provide a little context regarding the likelihood of expanding the existing supply agreement for GLASSIA?
Thank you. So as we all know, the official closing of Takeda's Shire deal was just a few weeks ago. So only after that discussion with Takeda people have started, we have our contact and we are talking through to the right people on the different topic. And when we have more updates we will definitely do that.
Great. Thanks. And then on inhaled AAT, do you have any additional detail on the anticipated timing of the next FDA response and also how much additional R&D spend might we expect as a result of the launch of that study?
So the timelines have not changed, we have announced that we expect upon FDA positive response through our recent submission, we expect to be able to initiate the study in midyear. Our overall expected investments for the inhaled pivotal study from [indiscernible] is between $30 million to $35 million. Expanded over a few years of five to six years in total [indiscernible] until product launch. So if you divide the amount by the number we use, you can calculate the average annual investments, which Kamada take overall investments independently. And that will be in addition to our R&D investments in 2018.
Great. Thank you.
At this time, there is no more questions. I would like to turn the call back over to Amir London for any additional or closing remarks.
Thank you. In summary, we are pleased with how our business [indiscernible] following the labor strike earlier this year. Our ability to generate total revenue for the full-year, near our initial estimate is indicative of our strength in our business. As we look ahead, Kamada has three important growth driver over the next several years, [indiscernible] KedRAB as well as the pipeline has provided multiple long-term catalyst. Based on expectations, we are excited about our first full-year of commercial sales of KedRAB in 2018, as customers look for stable source of supply in a $150 million market as well as additional regulatory approval of our rabies vaccine, such as the one recently received in Canada. Moreover, our business continues to be supported by a very strong balance sheet as we stand toward a number of key milestones, we are excited about opportunities ahead of us in 2019 and beyond. Thank you for joining us on today’s call and we look forward to providing you with further updates of the progress on our first quarter call. Thank you very much.
This concludes today’s call. Thank you for your participation. You may now disconnect.