Kamada Ltd. (KMDA) Earnings Call Transcript & Summary

Greetings, and welcome to the Kamada Limited Corporate Update Call. [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.

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 Chaime Orlev, Chief Financial Officer. Earlier today, Kamada announced a binding memorandum of understanding with Kedrion for the amendment and extension of the KEDRAB U.S. distribution agreement between the parties. 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, December 6, 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. Please go ahead, Amir.

Thank you, Brian. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. We are thrilled to announce today our strategic [indiscernible] agreement with Kedrion, which represents the largest commercial agreement in Kamada's corporate history. Let's begin with the details of the agreement, and then I'll discuss the strategic importance of continuing this highly beneficial collaboration. Importantly, within the first 4 years of the 8-year term, which begins next month in January 2024, Kedrion will purchase minimum quantities of KEDRAB that will result in revenues to Kamada of approximately $180 million. The amendment agreement includes improved financial terms for Kamada as compared to the current act which are reflective of KEDRAB significant market share growth achieved to date and our as well as Kedrion's expectation for continued growth of the product in the years to come. I should highlight that this market share growth is being driven by Kedrion's superb marketing and sales activities. And by FAA approval obtained in 2021 for a label expansion for the product that has differentiated it as the first and only human rabies immune globulin available in the U.S. to be clinically studied in children. In addition, the amendment agreement include an extension option for an additional 2 years for a total potential terms of 10 years starting January 2024. The agreement also provides for the possible expansion of KEDRAB distribution by Kedrion to other territories beyond the U.S., which will be detailed by the parties during the coming months. Moreover, we will collaborate to expand distribution of Kedrion's product by Kamada in Israel. From a strategic perspective, based on Kedrion's extensive market coverage and ongoing success in marketing KEDRAB in the U.S. as well as significant market share growth achieved to date. We are confident continuation of this partnership maximizes the future growth and value potential of this important product through the entire term of the agreement. Additionally, this agreement most effectively maximizes our U.S. business by allowing us to focus our own U.S.-based internal sales efforts on the consolidation of our other specialized FDA-approved IgG products primarily CYTOGAM, HEPAGAM and VARIZIG in transplant centers, while Kedrion continues to leverage its significant sales force to promote KEDRAB in numerous hospitals and medical centers across the U.S. From a financial standpoint, during 2022, Kamada generated approximately $16 million in revenues from the sale of KEDRAB through Kedrion for distribution in the U.S. market. And we expect a substantial increase in sales of the product to Kedrion for the full year 2023. As a reminder, our gross profitability for KEDRAB has been over 50% during recent years and we expect to improve even further due to the improved financial terms of the revised agreement. Looking ahead, this agreement supports our forecasted annual double-digit revenue and profitability growth in the foreseeable years ahead with significant upside potential and limited downside risk. In addition to our anticipated organic growth, leveraging multiple drivers, including KEDRAB, the portfolio of the 4 FDA approved IgGs acquired eLex 2021, namely CYTOGAM, HEPAGAM, VARIZIG and WINRHO distribution business. We recently closed private placement, positive cash flows and our debt-free financial profile collectively provide us with the financial flexibility to enable us to pursue compelling business development opportunities. This concludes our prepared remarks. We will now open the call for questions.

[Operator Instructions] Our first question comes from the line of Annabel Samimy with Stifel.

Congratulations on the deal. Just a few for me. I guess the one question I have is on the deal, how does this differ from the original agreement that you signed with Kedrion. And then what happens in the next 4-year term after that original $180 million commitment. So that's the first question. And I guess the second question I have is obviously, the KEDRAB is a big opportunity here in the U.S. What are some of the underlying factors that's driving that growth outside just the pediatric growth? I mean I understand COVID, post-COVID things have opened up and there's more maybe incidences of rabies, but is there something beyond just the pediatric label that's driving this?

And I'll start with the second question. There's been multiple contributors to the significant growth of KEDRAB the U.S. market. So first of all, as you mentioned, we basically came out of the pandemic in 2023 after Kedrion has been doing a significant sales and marketing effort during 2021, 2022 to expand KEDRAB footprint in the market. So when the overall market, but we went back to the volumes that were prior to the pandemic, we were well positioned to take this additional market share. In addition, there was another small player in the market. Sanofi had a product, and they have exited the market in 2022. So this also helped us in growing our market share. In terms of the competitive advantage, having the completion of the pediatric study and the label expansion also helps. So all those formats, when you combine them together, the end of the pandemic, the superb work done by Kedrion, the competitive advantages of having the products within extended label and the exit of the Sanofi product are contributing to the significant growth that we see in the market. This is already happening in 2023 and we'll -- we expect it to continue happening in years to come. And this is basically the fundamental of the extended bigger agreement between us and Kedrion.

And then comments on the deal and what happens after the first 4 years?

I can tell you very well. Can you repeat the first question? sorry.

Sorry, I was curious to know what happens after the first 4-year terms. Is there a potential for expansion? Or is it just an extension? Is it -- is there any color you can give us a 4-year term and then another reset?

So the agreement is signed for 8 years with potential expansion for additional 2 years. So it started in January 2024. It definitely goes for 8 years. It can go up to 10 years. The few commitment for volume and revenues for the first 4 years of the agreement because that's kind of the horizon, the planning horizon that we agreed with Kedrion. And beyond that, for the following 4 years, we have a mechanism for additional committed volumes that will be agreed by the parties. But in general, and I think that's an important statement, both parties, Kedrion and Kamada expects the volumes to keep increasing. And the overall product market share is going to grow and expand throughout the 8 years of the agreement.

And if I can squeeze in one more. There's a potential to expand into other territories. Is there a specific area that -- or a market that you see as particularly interesting just outside of the Israeli mentioned that they were going to potentially expand into other areas. Can you just provide us with some color there?

Yes, correct. So we did not disclose specific territories yet, but we are in discussions with on potential expansion to territories where Kamada does not sell a [indiscernible] yet. So places where we don't have yet our own activity or a local distributor and those territories will be in discussion over the next few months to detail potential expansion. There are a few specific territories in mind. And in terms of the Israeli business, so we're looking at how to expand the collaboration and so Kamada can distribute additional Kedrion products in Israel.

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

Congrats on the deal. So just a couple for me. I just want to clarify. So the $180 million over the first 4 years, is that a base minimum and then that can grow higher? Or is it just $180 million over the 4 years and then you see what happens after that 4 years?

For the first 4 years, it's $180 million. It can grow. But basically, for now, I think that needs to be the expectations. For the second 4 years, the following 4 years, we expect this to grow based on market growth, expansion, additional marketing and sales activities and taking a bigger market share.

The $180 million, is that over the first 4 years, is that the minimum year 1 and then it kind of grows from year 2, 3, 4? Is it evenly broken up? How does that work? .

We haven't slowed this. It's $180 million in total. We do have an agreed split between the 4 years, but this is not a public information yet.

Lastly, is there any possibility for supply constraints of KEDRAB, given the increased demand that you guys are expecting? .

No, we don't expect to have any supply issues. As a reminder, in 2021, we have transitioned GLASSIA production from our plant to Takeda, and we are enjoying benefiting the royalties paid by Takeda. This transition, freed up capacity to our plan. So there's no need for us to make any significant capital investment and being able to support capital growth. By the way, this is part of our overall kind of a long-term plan that we will be able to grow KEDRAB significantly as well as the fact that we've moved CYTOGAM to our plant in Israel and that we are making GLASSIA for non-U.S. territories. So the combination of maximizing or optimizing the capacity that we have in Israel with the fact that we're getting the royalties from Takeda and the additional 3 products, which we have in 2021, which are being manufactured by a contract manufacturer gives us a very strong balance, a portfolio of products, which are manufactured in multiple places with very strong multiple revenue streams for the company.

At this time, I'll turn the floor back to Mr. Ritchie to present some questions that were submitted over the web.

Just a couple of me, and I'll ask them both at the same time. The impact specifically from this transaction on '24 guidance, as well as the current market share for KEDRAB. If you could comment on both of those?.

So we will complete of course our budget plan for 2024 and provide guidance early 2024. This new agreement or this extended agreement supports our projected growth that we've already reiterated multiple times in the past, we expect to be growing double digits bottom line and top line for the foreseeable future on an annual basis. And in terms of KEDRAB market share, so in the past, we said that we estimate the product could reach between 40% to 50% market share in the U.S. And we are seeing that trend and that in process to make this forecast reality. And the agreement we announced today definitely supports that market share expectation.

Thanks, Amir. I'll turn the floor back over to you for closing remarks.

Thank you, Brian. So in closing, we are excited about the potential opportunities that I had following the amendment and extended category agreement, including the guarantee, the $180 million revenues to Kamada during the first 4 years until including 2027 and the closing of the $60 million financing that we've announced a few months ago. We look forward to continuing to support clinicians and patients with important life-saving products that we develop and factoring commercialize. We thank you all for your interest in Kamada, and we are remaining committed to creating long-term shareholder value. Thank you very much. We hope you all stay healthy and safe. Goodbye.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.