Kamada Ltd

NASDAQ:KMDA

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to Kamada Ltd.'s Third Quarter of 2023 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference call is being recorded.

I would now turn the conference over to Mr. Brian Ritchie. Please go ahead, sir.

[Brian Ritchie, analyst]

Thank you. 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 its financial results for the 3 and 9 months ended September 30, 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 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 the live broadcast, Monday, November 13, 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?

[Amir London, executive]

Thank you, Brian. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call.

To begin, I'd like to indicate that the company continue to conduct its business operation in Israel, with no effects on business continuity, and its global supply of products is not expected to be interrupted as a result of the recent events in Israel.

With that, I now pivot to the strong financial and operational momentum throughout our business that has us well positioned to achieve our 2023 full year guidance, which I will discuss momentarily.

I'll begin with a high-level review of our robust financial results for the first 9 months of 2023, with total revenues of $106.1 million, which represented year-over-year growth of 26% and adjusted EBITDA of $17.7 million, an increase of 67% as compared to the first 9 months of 2022. We achieved top and bottom line growth anticipated in our business in the first 9 months of the year.

We continue to effectively leverage the multiple growth drivers in our business, including a significant increase in KEDRAB sales to Kedrion for distribution in the U.S. market. The portfolio of four FDA-approved immunoglobulins acquired in late 2021, CYTOGAM, HEPAGAMB, VARIZIG and WINRHO, and our Israeli distribution business.

Looking ahead, we expect the momentum from the first 9 months of the year to extend through the fourth quarter of 2023 with annual profitability to be increased as compared to last year. As such, we are reiterating our full year 2023 revenue guidance of $138 million to $146 million and adjusted EBITDA of $22 million to $26 million. The midpoint of that range would represent profitability growth of approximately 35% over 2022.

To reiterate what we have said previously, beyond 2023, we continue to anticipate annual double-digit revenue and profitability growth in the foreseeable years ahead, with significant upside potential and limited downside risk.

While I noted our multiple growth drivers earlier, KEDRAB, our anti-rabies immunoglobulin, has been especially impactful during the first 9 months of 2023, a trend we expect to continue in the fourth quarter and beyond. Throughout the first 9 months of 2023, we experienced a significant increase in demand for the product in the U.S., and we anticipate the continuation of this momentum moving forward.

The significant market share growth demonstrated by KEDRAB is being driven by Kedrion's excellent commercial activity and thanks to the FDA approval obtained in 2021 for a label expansion for the product that has differentiated it as the first and only human rabies immunoglobulin available in the U.S. market to be clinically studied in children.

Our future prospects were further enhanced in late August when we received shareholder approval and then closed the previously announced $60 million private placement with the FIMI Opportunity Funds, the leading private equity firm in Israel and a large existing Kamada shareholder. This strategic investment provide us with the financial flexibility, allowing us to accelerate the growth of our existing business and pursue compelling business development opportunities.

While Chaime will discuss the net profit from the private placement in more detail shortly, I'd like to highlight that as a result of this transaction, we are also able to take down the entire remaining outstanding balance of our existing bank loan, and we are now debt-free.

Moving on. Our U.S. team established in 2022 continues to achieve steady progress in promoting our specialty IgG portfolio to physicians and other health care practitioners through our direct engagement and opportunities at medical meetings. As we have said previously, our activities promoting this important therapies, primarily CYTOGAM and VARIZIG represents first time in over a decade that these hyperimmune globulins specialty products have been supported by field-based activity in the U.S. We are excited about the future growth potential of CYTOGAM, and are pleased to report that CYTOGAM manufactured at our Israeli facility is now available for commercial sale in the U.S. This follows the previously received FDA approval of the technology transfer process of CYTOGAM from its previous manufacturer, CSL Behring. The availability of Kamada-manufactured CYTOGAM in Canada is expected before the year-end.

We have also recently established our first scientific advisory board, consisting of eight U.S.-based world-renowned thought leaders in the solid organ transplantation field. The advisory board focused on our newly implemented U.S. clinical program for CYTOGAM, including new opportunities and future research and development possibilities.

As we said, will be the case, key U.S. physicians are beginning to proactively support the use of this product, starting with CYTOGAM, which were the subject of a poster presentation at the recently held IDWeek 2023 in Boston. At this important medical meeting, results were presented of an investigator-initiated 5-year retrospective study consisting of 325 lung-transplant patients, evaluating the real-world use of CYTOGAM, in combination with anti-viral agents for the prevention of CMV disease in high-risk CMV mismatch lung transplant recipients.

The presenting KOL, Dr. Fernando Torres, Clinical Chief, Division of Pulmonary Critical Care at University of Texas Southwestern Medical Center, concluded that the use of proactive multimodality CMV prophylaxis, consisting of antivirals and immune augmentation with CMV immunoglobulin, may improve outcomes among high-risk CMV mismatch lung transplant recipients.

Moving on. Looking further ahead, as future catalysts, we continue to be pleased with the progress made at Kamada Plasma, our U.S.-based plasma collection company. Our 2021 acquisition of a plasma collection center 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 continue to successfully expand the hyper immune plasma collection capacity at our first center and return opening our second collection center in Houston, Texas early next year.

On the development side, enrollment continues to ramp up in our ongoing pivotal Phase III InnovAATe clinical trial for Inhaled Alpha-1 Antitrypsin therapy for the treatment of Alpha-1 deficient patients. To date, we have enrolled over 30% of the overall required enrollment of the study.

We have recently also received positive feedback from the independent Data and Safety Monitoring Board, the DSMB, which recommended study continuation without modification for the sixth time since the study was initiated based on encouraging safety data observed in the study to date.

In addition, as we reported on our last call, the European Medicine Agency, the EMA, has recently reconfirmed the overall design of the ongoing study and acknowledged the statistically and clinically meaningful improvement in lung function measured by FEV1 demonstrated in our previous Phase II/III European study. We continue to anticipate advancing discussions with the FDA regarding study progress by end of this year.

As a reminder, Kamada's investigational Inhaled AAT treatment is a noninvasive at-home treatment, with an expected better ease-of-use and quality of life for Alpha-1 deficient patients as compared to the current IV standard of care. The Inhaled product is the leading new innovative Alpha deficiency treatment in advanced clinical stage, and it represents a substantial opportunity to be a transformational product in a market that is already over $1 billion in annual sales in the U.S. and the EU.

Finally, I'd like to formally welcome Prof. Benjamin Dekel and Assaf Itshayek, who were recently appointed as independent directors on our Board. Prof. Dekel is a known internationally, one of the most innovative and highly recognized researchers in the field of human renal stem cell biology and regenerative medicine. And Mr. Itshayek has over 15 years of high-tech industry experience in senior management and finance executive positions. We look forward to leveraging the scientific and financial expertise of these highly accomplished individuals as we continue advancing our existing business and pipeline and evaluate potential new opportunities.

With that, I'll now turn the call over to Chaime for a detailed discussion of our financial results in the third quarter and the first 9 months of 2023.

Chaime, please go ahead.

[Chaime Orlev, executive]

Thank you, Amir, and good day, everyone.

We're happy to report a significant year-over-year increase in revenues and profitability for the third quarter and first 9 months of 2023. Total revenues for the third quarter were approximately $37.9 million. And for the 9 months of 2023, total revenues were $106.1 million, an increase of 18% and 26%, respectively. The year-over-year growth was primarily driven by increased sales of KEDRAB to Kedrion, due to increased demand for the product in the U.S. market.

Total gross profit for the third quarter of 2023 was $14.8 million, representing 39% margins compared to $12.9 million or a 40% margin in the third quarter of 2022. Total gross profit for the first 9 months of 2023 was $41.1 million, representing a 39% margin compared to $31.4 million or a 37% margin in the first 9 months of 2022.

As previously discussed, the company is accounting for depreciation expenses associated with intangible assets, which were generated through the late 2021 acquisition of our IgG products. The company's cost of goods sold and sales and marketing expenses includes approximately $1.3 million and $400,000, respectively, of such depreciation expenses per quarter.

Operating expenses, including R&D, sales and marketing, G&A and other expenses, totaled $10.4 million in the third quarter of 2023 compared to $10.3 million in the third quarter of 2022. Operating expenses for the first 9 months of 2023 totaled $33.8 million, an increase of approximately 9% over the prior year period. The increase, as compared to 2022, is related to the advancement of our commercial activity 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.

Net income for the third quarter of 2023 was approximately $3.2 million or $0.06 per share on a fully diluted basis as compared to a net income of $500,000 or $0.01 per share in the prior year period. Adjusted EBITDA was $7.9 million for the third quarter of 2023, up 31% as compared to the $6 million in the third quarter of 2022. For the first 9 months of 2023, adjusted EBITDA was $17.7 million, up 67%, as compared to the $10.6 million in the first 9 months of 2022. As Amir highlighted earlier, we are reiterating our full year 2023 revenue guidance of $138 million to $146 million and adjusted EBITDA guidance of $22 million to $26 million. The midpoint of such range represents approximately 35% growth as compared to fiscal year 2022.

Finally, cash provided by operating activities was $900,000 in the third quarter of 2023 as compared to cash provided by operating activities of $5.5 million in the third quarter of 2022. Our total cash position as of September 30, 2023, was $52.6 million as compared to $34.3 million on December 31, 2022. This includes $58.2 million of net proceeds from the previously announced $60 million financing, which closed in September of 2023.

In addition, during the quarter, we paid a total of $17.4 million to close the outstanding balance of the bank loan, and $11.5 million was used for old milestone payments. These actions are reflected in our cash balance as of September 30, 2023. Importantly, as Amir noted, we are now debt-free.

Before proceeding to take your questions, I would like to also note that we filed today the notice of the company's Annual General Meeting to be held on Thursday, December 28.

We will now open the call for questions. Operator?

[Operator]

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

[Annabel Samimy, analyst]

Good quarter. So I just wanted to understand some of the dynamics for Kedrion. You're obviously seeing some very significant growth there. Could you tell us -- it's been approved for some time. So can you tell us what do you think the key underlying drivers are? Is it primarily the label change? Is there something else that's driving that underlying growth refocus on the sales? And can we depend on that consistent growth in those consistent trends going into the next couple of years?

[Amir London, executive]

Annabel, thank you for the question. We believe there are multiple dynamics in the market, which positively affect the significant growth of the KEDRAB market share. It has to do with the label expansion that we have received and that we have implemented last year, end of 2021 into 2022, and then the impact of this into 2023.

Of course, the end of the pandemic and the fact that the overall market has gone back to where it was prior to the pandemic, this also has a significant effect. The excellent work done by our partner, Kedrion, in the U.S. market with a very wide coverage reaching almost every hospital in America, being able to promote the product and its benefits. And also, there was another product that was in the market until late last year, which exited the market, and we are able to take significant market share from that exit of that product.

[Annabel Samimy, analyst]

Okay. Great. And anything that you can update us on regarding some pipeline efforts that you have going on?

[Amir London, executive]

Pipeline efforts, what's the question?

[Annabel Samimy, analyst]

Anything in the pipeline that you have any updates with regard to the clinical studies that you're enrolling right now, for the AAT indication or any selections from early-stage programs that you are willing to take forward?

[Amir London, executive]

Yes, yes. So main effort is, of course, around inhaled AAT, Chaime spoke about it on the call. So we are advancing the recruitment to the study and discussion with the regulators, and we had a very positive discussion with EMA. We expect to have a similar discussion with the FDA before year-end.

We had six successful DSMB meetings recently, which has kind of validated the excellent safety to our side of the product and the safety data that we are accumulating from the current study.

In addition, we do have three early-stage development programs of other plasma-derived products that we have discussed in previous calls. We have a product, which is a plasma eye drops, that is preclinical stage. We have an anti-tuberculosis immunoglobulin product, which is in preclinical development. And we have a device that we are developing, we call it [indiscernible] immune, which is an automated portable small scale system for extracting and purifying hyper immune immunoglobulins from convalescent plasma.

So these are the three early-stage programs, which are under development. Once we make some material progress, we will update. All of them are in preclinical studies, and we hope to start clinical studies in 2025 for the three products.

[Operator]

Ladies and gentlemen, at this stage, I hand you over to Brian Ritchie for questions from the webcast. Thank you.

[Brian Ritchie, analyst]

A couple of questions that have come in off the web. First, at various points of the year, as you've already talked about, KEDRAB has been the driver. Prior to that, you talked about the four products -- the four IgG products being the primary driver. Seems like there's a lot of diversity in your business, if you will. Maybe Amir talk a little bit about that, if you could.

[Amir London, executive]

Yes. Kamada's business is very healthy, if I may use this term. I think we continue to effectively leverage multiple growth drivers in our business. So as we mentioned, KEDRAB has been growing significantly with an increase in market share. We also see a nice international growth of the four FDA-approved products required late '21.

We are investing in the medical, clinical and commercial activities around CYTOGAM and VARIZIG in the U.S. market, with the commercial and medical team was established in the U.S. And we have our Israel distribution business, which is growing. So all of that, if I may, it's like a nice metrics of products and territories that each one of them is contributing to overall growth.

And looking forward, into 2024 and beyond, we expect this growth to continue with the multiple growth drivers that we own.

[Brian Ritchie, analyst]

Thanks, Amir. Another question that's come in. Now that the private placement has closed, maybe talk a little bit about what you'll be looking for from a business development standpoint and potentially looking to add?

[Amir London, executive]

Yes. So with the additional funds, thanks to the FIMI investment, we are proactively looking to add some business development initiatives. We are looking to leverage the commercial infrastructure that we have established in the U.S. market to bring in, to acquire, or to in-license additional products. This could be either primarily in the transplantation field, where we are currently mainly focused on specialty plasma products.

And we are -- as I mentioned, we are proactively looking to opportunities, and then we are screening the different assets, which are brought to us. And hoping that in the future, we will be able to close such a transaction, which will help us to continue growing the business, in addition to the organic growth I just talked about, so also to grow through an M&A.

[Brian Ritchie, analyst]

Terrific. Thank you, Amir. And with that, I'll pass the call back over to you for any closing remarks.

[Amir London, executive]

Thank you, Brian. So in closing, we are pleased with our solid performance during the first 9 months of the year. We are excited about the potential opportunities that lie ahead following the closing of the $50 million financing.

We look forward to continuing to support clinicians and patients with important lifesaving products that we develop, manufacture and commercialize. And we thank you all, new investors, for their support, and remain committed to creating long-term shareholder value.

Thank you all, and we hope you all stay healthy and safe. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your line.