Kamada Ltd. (KMDA) Earnings Call Transcript & Summary

Greetings, and welcome to the Kamada Limited First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Brian Ritchie with LifeSci Advisors. Thank you. You may begin.

Thank you. This is Brian Ritchie with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamada is Amir London, Chief Executive Officer. Earlier today, Kamada announced its financial results for the 3 months ended March 31, 2023. If you have not received this news release, please go to the Investors page of the company's website at www.kamada.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 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, Wednesday, May 24, 2023. 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 is my pleasure to turn the call over to Amir London, CEO. Amir?

Thank you, Brian. And thanks also to our investors and analysts for interest in Kamada and for participating in today's call. We are off to an excellent start in 2023, both financially and operationally. Earlier today, we announced a $60 million strategic private placement with FIMI Opportunity Fund, the leading private equity firm in Israel and an existing significant Kamada shareholders. I will discuss this financing in further detail shortly, but we'll stay upfront that we are thrilled with this additional substantial investment from FIMI, and we view it as indicative of the confidence this high-quality investor has income as a significant growth for pension. Let us begin though with our impressive first quarter financial results. The total revenues in the first quarter of $30.7 million, which represented year-over-year growth of 9% and EBITDA of $3.8 million, an increase of 16% as compared to the first quarter 2022. We achieved the top and bottom-line growth anticipated in our business to begin the EUV. Importantly, we continue to effectively leverage multiple growth drivers, including KEDRAB sales in the U.S., the portfolio of the 4 FDA-approved Immune Globulin acquired in late '21, CYTOGAM, HEPAGAM, VARIZIG and WINRHO, which are marketed internationally and our Israeli distribution business. Looking ahead, we expect the momentum from the first quarter to extend throughout 2023, with profitability to be further meaningfully enhanced as compared to last year. As such, we are reiterating our full year 2023 revenue guidance of $138 million to $146 million and EBITDA of $22 million to $26 million. The midpoint of that range will represent profitability growth of approximately 35% over 2022. Beyond 2023, we continue to anticipate annual double-digit revenue and profitability growth in the foreseeable use ahead of us with significant upside potential and limited downside risk. Our prospects were recently further significantly enhanced by the successful completion of multiple key achievements. Most importantly, we entered into a securities purchase agreement with FIMI to purchase $60 million of our ordinary shares in a private placement. Out of the terms of the purchase agreement, Kamada will issue an aggregate of approximately 12.6 million ordinary shares to FIMI at a price of $4.75 per share, which represents the average closing price of the company's shares on NASDAQ during the 20 trading days prior to the date of the purchase agreement. Upon the closing of the transaction, FIMI is expected to beneficially own approximately 38% of Canada outstanding ordinary shares and will become a controlling shareholder of the company within the meaning of the Israeli company's law. This strategic investment provide us with financial flexibility allowing us to accelerate the growth of our existing business and pursue compelling business development opportunities. We are grateful for the continued support shown by FIMI and we look forward to leveraging our significantly strengthened cash position going forward. An extraordinary general meeting of the shareholders of the company to approve the private placement will be held in August 2023 following the issuance of our second quarter of '23 financial results. With respect to our existing business, we were pleased earlier this month to receive the FDA approval to manufacture CYTOGAM at our facility in Beit Kama, Israel. This have the approval, which was granted within the expected timeline represented a successful conclusion of the technology transfer process for CYTOGAM from the previous manufacturer, CSL Behring. We have since initiated commercial manufacturing, which will positively impact our facility utilization and efficiency. CYTOGAM is the highest selling of the 4 Immune Globulin products acquired by Canada in November 21, generating approximately $23 million in sales in 2022, and it maintained gross margins of over 50%. I'd like to highlight that CYTOGAM is the third product in addition to GLASSIA and KEDRAB to be approved by the SBA for manufacturing at our Israeli facility. Also of note, SwissMedic recently granted marketing authorization for GLASSIA in Switzerland for chronic augmentation and maintenance therapy in adults with clinically evident [ and Tizen ] due to severe Alpha-1 deficiency. Switzerland is the first European country to approve GLASSIA for Alpha-1 deficiency, representing a significant milestone for Canada in a market which is currently estimated to be over $15 million annually. The commercial launch of the product in Switzerland is expected to occur during the second half of this year upon obtaining the acquired reimbursement coverage. To ensure wide access to eligible patients, we have partnered with the [ Hydrogen] Group, a company focused on the commercialization of specialty medicines for rare diseases across Europe. Outside of the U.S., sales of GLASSIA were approximately $6 million in 2022, and we are focused on further expanding the commercialization of the product and its annual revenue in the international markets. Let's move on to KEDRAB, our Rabies Immune Globulin. In the past several months and especially since the beginning of the year, KEDRAB marketed in the U.S. and Kedrion have continued to grow substantially and to gain share in the U.S. market, which is estimated to be over $150 million annually. KEDRAB commercial team is successfully leveraging the advantages of the product as the only human Rabies Immune Globulin developed in the U.S. to be clinically studied in children. We anticipate that some of the products will continue to grow significantly over the next few years. Also to reiterate what we have said previously, I should highlight that this product generates more than 50% gross margin for Canada. Additionally, our U.S. team established during 2022 is making excellent progress in promoting our specialty IgG portfolio to physicians and other health care partitioners through our direct engagement and opportunities at medical meetings. As a reminder, our activities promoting with important therapies primarily CYTOGAM and VARIZIG represent the first time in over a decade that this high-time immune specialty products have been supported by field-based activity in the U.S. We are encouraged by the consistently positive feedback received from key opinion leaders who are seeking to publish new clinical data related to our products while conducting educational symposium that we believe will have a positive impact on the understanding of these medicines, contributing to continued growth in demand. We have started seeing the impact of activity and expect to see increased demand for this portfolio of products in the quarters ahead. Moving on, looking further ahead of future catalysts. We are pleased by the progress made at Kamada Plasma, our U.S.-based plasma collection company. Our 2021 acquisition of the plasma collection center and in Houston, Texas represented Kamada's entry into the U.S. plasma collection market and supported our strategic goal of becoming a fully integrated specialty plasma product company. We are successfully expanding the hyper immune plasma collection capacity at our first center and are actively advancing our plan to open additional centers in the U.S. to further enhance our supply of specialty and regular normal plasma. On the development side, we are encouraged by the most recent progress achieved in our ongoing pivotal Phase III InnovAATe clinical trial for the [ EML ] Alpha-1 antitrypsin therapy for the treatment of Alpha-1 deficiency. The study has enrolled 60 patients to date, an independent data safety monitoring board recently recommended study continuation without modification for the fifth time since the study was initiated. During the next few weeks, we're continuing to expedite trial recruitment, we intend to meet with FDA and the European Medicine Agency to discuss study progress and potential opportunities to shorten the regulatory pathway. As we have said previously, a substantial opportunity exists for Alpha-1 to be a transformational product in a market that is already over $1 billion in annual sales in the U.S. and Europe. Before I review our first quarter financial results, I'd like to share some additional exciting news. Following the $60 million investment from FIMI, Kamada's CFO, Chaime Orlev, who had previously planned to transition out of its position to pursue other opportunities has withdrawn his resignation and will remain in its position. Chaime has served our CFO since December 2017, and he will be inclement in supporting Kamada's continued growth and maximizing the strategic opportunities provided by the private placement. In addition, Nir Livneh, who previously served as our General Counsel and Corporate Secretary for 2010 until 2018, has rejoined Kamada as Vice President, General Counsel and Corporate Secretary. Both Chaime and Nir significantly strengthened our executive management team, and they will play pivotal roles in our further advancements as a global leader in the specialty plasma industry. With that, I'll now discuss our first quarter financial results. Total revenues for the first quarter were approximately $30.7 million, a 9% increase from the 21 -- 20 -- sorry, from the $28.1 million, I repeat, $28.1 million recorded in the first quarter of 2022. The year-over-year growth during the first quarter was primarily driven by strong sales of KEDRAB, the contribution of our previously acquired Immune Globulin products and the Israeli distribution sales. Total gross profit for the first quarter of 2023 was $11.8 million, representing 39% margin compared to $11.3 million or 40% margin in the first quarter of 2022. Let's now turn to the explanation of our depreciation expenses. As previously discussed, the company's accounting for depreciation expenses associated with intangible assets, which were generated through the late 2020 acquisition of our IgG products. Gross profit and gross margin, excluding such intangible asset depreciation would have been $13.2 million and 43%, respectively, in the first quarter of this year compared to $12.6 million and 45%, respectively, in the first quarter of 2022. Operating expenses, including R&D, sales and marketing, G&A and other expenses totaled $11.6 million in the first quarter of this year compared to $11.1 million in the first quarter of 2022. Sales and marketing costs for the first quarter included $0.4 million of depreciation expenses of intangible assets generated through the IgG product acquisition. During the first quarter of 2023, we conducted a planned workforce downsizing at the Israeli plant, optimizing staff level to capacity needs. As a result of this downsizing, we incurred an expense of $0.6 million for access severance compensation provided to employees who were laid off. The downsizing is expected to result in a planned annualized reduction of approximately 6% in the overall Israeli labor costs. We continue to expect our overall operational expenses, excluding R&D, sales and marketing and G&A to increase between 15% to 20% during 2023 as compared to last year as we continue to advance our commercial activities as well as our Phase III InnovAATe trial. As we did throughout 2022, we continue to account for financing expenses with respect to the revaluation of contingent consideration and the long-term assumed liability, all of which are related to the acquisition completed in 2021. For the first quarter of 2023, these finance charges totaled $1.8 million. Net loss for the first quarter of 2023 was approximately $1.8 million or $0.04 per share on a fully diluted basis, consistent with the prior year period. Excluding the depreciation expenses of intangible assets and the finance expenses of the contingent consideration and other assumed long-term liabilities associated with the acquired products, the company would have recorded net income of $1.7 million or $0.04 per share in the first quarter of 2023. EBITDA was $3.8 million for the first quarter of 2023 as compared to $3.3 million in the first quarter of 2022, representing a significant 16% increase year-over-year. Excluding the $0.6 million expense of the access severance compensation paid to the employees who were laid off, EBITDA would have been $4.4 million in the first quarter of 2023, representing a significant 33% increase year-over-year. As I highlighted earlier, we are reiterating our full year 2023 revenue guidance of $138 million to $146 million and EBITDA guidance of $22 million to $26 million. The midpoint of such range represents approximately 35% growth as compared to the fiscal year 2022. Finally, cash used in operating activities was $2.9 million in the first quarter of 2023 as compared to cash provided by open activities of $5.5 million in the first quarter of 2022. Our total cash position as of March 31, 2023, was $27.1 million compared to $34.3 million as of end of 2022. This figure does not include expected net proceeds from the recently announced $60 million financing, which is expected to close in the second half of this year. That concludes our prepared remarks. We will now open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of David Bautz with Zacks Small-Cap Research.

First one, I'll start out with, were there any surprises, either positive or negative, that occurred during the quarter? Or do you think everything kind of played out as you thought it would?

The quarter played out according to our plan, according to our budget. We are progressing exactly as we've anticipated both, say, top line and bottom line. And based on that, we reiterated our annual guidance.

All right. So for your guidance for the year, it looks like revenues are going to kind of ramp up as the year goes along in order to hit that number. So I'm just kind of curious where do you think that growth is going to come from?

So the result of the quarter met the company expectations, as I said, we started the strong many aspects, we're refiling the focus for the whole year. And as you've seen in previous years, the first half of the year is usually lower than the second part of the year. A lot has to do with inventories at the distributors. So the growth will come from all aspects of the business from KEDRAB, from the new IgG portfolio from distribution business in Israel, from royalties paid by Takeda for GLASSIA sales in the U.S. For GLASSIA sales, ex U.S., all our growth catalysts, all our lines of business are operating according to our plan, according to our budget, and we will continue at that pace. And as I said, we're reiterating our guidance based on everything that we see in the market.

Okay. Now in regards to the InnovAATe trial, are you happy with the pace of enrollment that's going on there? Is there anything else that can happen to maybe kind of speed up enrollment in that trial?

So of course, we were not happy with the pace of enrollment during the pandemic, which delayed the ability to open new sites. The sites will open in the second part of 2022. And recruitment has been since then accelerated. In order to speed up recruitment, we need to open additional sites. We are in the process of identifying the additional sites internationally and that's our plan moving forward to expedite recruitment by opening additional sites in other countries.