Kamada Ltd. (NASDAQ:KMDA) Q1 2019 Earnings Conference Call May 14, 2019 8:30 AM ET
Bob Yedid - LifeSci Advisors, LLC
Amir London - Chief Executive Officer
Chaime Orlev - Chief Financial Officer
Conference Call Participants
Raj Denhoy - Jefferies
Greetings and welcome to the Kamada's First Quarter 2019 Earnings Call. [Operator Instructions] Please note this conference is being recorded.
I'd now turn the conference over to your host today Mr. Bob Yedid with LifeSci Advisors. Please proceed, sir.
Thank you and 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 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 @lifesci@email@example.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 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, 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?
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 of 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 the substantial cash position which increased to $55.8 million of cash in short-term investment at the end of the first quarter which provide 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 [Indiscernible] 2019 total revenue guidance of $125 million to $130 million which represent 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 extend 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 US in 2018. This launch continues to meet our expectation. As we approach the height of 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 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 a clinical program of our proprietary inhaled ATT for the treatment of alpha-1 antitrypsin deficiency, AATB. We were very excited to recently announced receipt of a letter from the US FDA stating that the company has successfully addressed FDA's trial concerns and questions regarding Kamada's inhaled ATT 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 intend 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 was recently been initiated.
With HFS require to support a combination product consisting of Kamada's ATT formulation and their investigation eFlow nebulizer system of PARI Pharma. The phase 3 study protocol is designed to test the safety and efficacy of our inhaled ATT products in patients with alpha deficiency and meets the requirements provided by the FDA and HUEMA. The protocol include enrollment of up to 250 subjects who will be randomized one to one, who received either inhaled ATT at the dose of 80 milligram once daily placebo during two years of treatment.
The primary end point 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 option with specialist program 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 update on some of our ongoing IV-ATT pipeline program. First, with regard to IV-ATT 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 end of 2019.
As a reminder, we try to assessing with phase 3 and preliminary efficacy of IV-ATT is 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 Mount Sinai acute GvHD International Consortium or MAGIC. And it is an investigator initiative study co-founded by Mount Sinai and Kamada.
We have exclusive rights to develop and commercialize our IV-ATT product for the prevention of GvHD leaving 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 the Takeda. We expect this study to 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 with study in the first quarter of this year. We are pleased to report that Kamara, IV-ATT 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 transplant 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 indication in the US, Canada, Australia and New Zealand. While Kamada maintains right in all other territories and all other ATT rounds of administration including being held ATT. It's important to know the Kamada continues to evaluate additional potential business development opportunities that could generate significant value for our company.
With prospective transaction include core development opportunities and investment in other plasma derived fortune related assets or other assets specialty fields such as AT deficiency of GvHD. The business development opportunities we leverage Kamada success in the CMC clinical and regulatory areas and our ability to sell product through well positioned partners or on own.
Among the business development initiative, we are exploring the opportunity to utilize the potential extra manifesting capacity that our FDA approved plans to revamp the Takeda decide 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 Israeli Ministry of Economy and Industry. We seek their work for the continued growth demonstrated in our export revenues.
With that, I'll now ask Chaime to review our financial results. Chaime, please.
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 31st, 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 distributive 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 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 begin 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 31st, 2019, the company had cash, cash equivalents and short-term investments totaling $55.8 million compared to $50.6 six million at December 31st, 2019.
With that I'll open up the call for questions. Operator?
Our first question comes from Raj Denhoy with Jefferies. Please proceed with your question.
Hi, good morning. Wonder if maybe I could start with the results in the quarters. So the proprietary products know about, it's little about $20 million in the quarter. Very strong growth as you noted relative to last year, but if you 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.
Okay, hi, Raj. Good morning. Last year we finished with $115 million in sales. And we gave the guidance of this year it will be between $125 million, $130 million. The growth comes from both KedRAB being the first year, the first full year of sales and their continuous increase in the number of patient treated on GLASSIA which adapt 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 that guidance. And we are encouraged and optimistic for the rest of the year.
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?
Yes. So we did disclose in 2018 with strong or modest fortune, we sold $12 million of KedRAB to Kedrion. We would not disclose what then 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 of KedRAB 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 20 maybe after 50% market share basically competing with one strong player and that 30%, 40%, 50% of $150 million will be shared between Kamada and Kedrion.
That's helpful. Maybe just I could segue way 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. 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 ATT 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 ATT at all.
Okay. So as I just said, for the Human Factor Study which has estimated requirement already started and we expect to be able to initiate the phase 3 study with third patient being 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 to the study that the overall equipment of the 250 patients will take up to 24 months meaning up to two years. And is going to be - the site are going to be open in the US and selected European countries.
Placebo could be a challenge but with 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 to include the patients. There is a lot of excitement amongst physicians and patients on the fact that being held to - is going to be back in clinic first week, we recently came from the Alpha One Foundation Global meeting which is biannual conference of all key stakeholders in the Alpha One deficiency field. And there was a lot of excitement around we have. Recently there was a survey among Alpha One patients and the vast majorities 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 way we study.
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.
Thank you. In summary, we are pleased with how 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. Kamada will find path so we have I think very promising and have the potential for the importance source of value creation for our shareholders, along with other 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 update on our progress throughout the rest of the year. Thank you.
This does conclude teleconference. You may disconnect your line at this. And thank you thank you for your participation.