KMDA Stock | Kamada Q2 2020 Earnings Call

Thank you, Troy. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. I hope you all are keeping safe and healthy in these challenging times. Let me begin by discussing the significant progress we have achieved in the development of our plasma-derived immunoglobulin product as a potential therapy for COVID-19 disease. Following our announcement in June of being the first company globally with availability of a COVID-19 IgG product for compassionate use treatment in Israel, earlier this week we announced initiation of a Phase 1/2 clinical study in Israel. This is an open-label, single-arm, multi-center study to assess the safety, pharmacokinetics, and pharmacodynamics of our IgG product in 12 hospitalized, non-ventilated COVID-19 patients with pneumonia. Our product has also been evaluated for SARS-CoV-2 neutralization activity, and the preliminary results are highly encouraging and suggest potential high neutralization titer. Lastly, we intend to further explore the potential of our IgG product to prevent COVID-19 disease in healthy subjects at risk in a separate study. We are very excited for this meaningful progress, and we believe our product has the potential to be an effective treatment for hospitalized, non-ventilated COVID-19 patients with pneumonia. We look forward to the results of this trial later this year. As a reminder, this milestone is part of our global collaboration agreement established in April 2020 with Kedrion Biopharma for the development, manufacturing, and distribution of IgG product as a potential treatment for COVID-19 patients. Pursuant to the collaboration between the two companies, Kedrion is responsible for the collection of COVID-19 convalescent plasma from U.S. recovered patients. Kedrion is already collecting the plasma through its plasma business unit, KED Plasma, at 23 FDA-approved centers across the United States. We intend to expand our COVID-19 clinical development program to the U.S. and plan to conduct a pre-IND meeting with the U.S. FDA during the current quarter in order to obtain FDA acceptance for a proposed clinical development program. If FDA clearance of the IND is received, Kamada and Kedrion intend to initiate the clinical program in the U.S. in early 2021. Moving on, I'd like to report that we are accelerating our commercial and business development efforts, and we are working to mitigate the effect of the planned transition of Glassia manufacturing to Takeda during 2021. I am optimistic that our organic commercial growth, as well as additional business development opportunities funded by our strong cash position, will result in resumed revenue and profitability growth beginning in 2023. As a reminder, we anticipate revenues of approximately $65 million from sales of Glassia to Takeda in 2020, and in the range of $25 million to $50 million in 2021 based on Takeda's supply needs. In addition, based on the agreement between the companies, upon the initiation of sales of Glassia manufactured by Takeda, we will receive royalty payments from Takeda at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. In addition to Glassia contribution, we expect Kedrion's revenue and U.S. market share to continue to grow. As a reminder, Kedrion's U.S. market share increased from approximately 10% in 2018 to approximately 20% in 2019, and it continues to grow. In addition, we anticipate continued strong contribution from our distributed products in Israel, both existing products as well as new products which we will be launching in Israel during the next few years. Going forward, we also expect meaningful growth from our existing proprietary IgG product portfolio as well as Glassia in the international markets outside of the U.S. Moreover, the contract manufacturing agreement we signed in late 2018 for an FDA-approved, commercial-stage specialty hyperimmunoglobulin product, which is currently in its technology transfer phase, is expected to have significant contribution to our plant utilization and growth starting in the beginning of 2023. In addition to all of that, we believe that our leading development programs, the IgG products for COVID-19 and the inhaled AAT, if approved, have substantial market opportunities beyond the significant existing internal potential growth catalyst. We intend to utilize our strong balance sheet to identify additional business development opportunities that leverage our expertise and manufacturing capabilities. We are optimistic about the future of our business, and we are confident that our actions will generate significant shareholder value. Let's now turn to the current status of our INNOVATE Phase 3 clinical program for our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency. As you will recall, we've been recruiting patients into the Phase 3 trial in Europe through February 2020. However, as we said in our last call in March, due to the effect of the COVID-19 pandemic on healthcare systems, recruitment into the study was temporarily halted. I am pleased to report today that recruitment into the study restarted in June. As a reminder, INNOVATE is a randomized, double-blind, placebo-controlled pivotal Phase 3 trial designed to assess efficacy and safety of inhaled AAT in patients with alpha-1 antitrypsin deficiency and moderate lung disease. Up to 250 patients will be randomized one-to-one to receive either inhaled AAT at the dose of 80 milligrams once daily or placebo over two years of treatment. The primary endpoint of the INNOVATE trial is lung function measured by FEV1. Secondary endpoints include changes in lung density as measured by CT scan, as well as other parameters of disease severity such as additional pulmonary function, exacerbation rate, and six-minute walk tests. Before I turn the call over to Yaakov for his review of the second quarter and the first half of 2020 financial review, I'd like to take this opportunity and mention the recent changes in our Board of Directors, which were also announced this morning. First, I would like to thank Mr. Leon Recanati for his contribution to Kamada as an investor, director, and Chairman, an office he held for the last seven years. His continued support and contribution to Kamada and to myself personally was invaluable. I believe that Ms. Lilach Hashter Pilsky's nomination as Kamada's Chairperson is indicative of FIMI's confidence in the company's long-term growth prospects, market position, corporate strategy, and our solid management team. Over the past several months since Lilach's appointment to Kamada's board, she's made significant contribution, and I congratulate her on her appointment. I look forward to our continued successful cooperation. As a background, the FIMI Opportunity Fund is the leading private equity investor in Israel and is Kamada's lead shareholder. Lastly, I'm happy to welcome Professor Harry Shamir to Kamada's Board of Directors. Harry's extensive experience as a senior executive at leading hospitals in Israel will be important in strengthening our business, including our commercial products as well as our clinical pipeline. Professor Shamir is a highly respected healthcare authority in Israel, and we look forward to his significant contribution to Kamada. With that, I'll now ask Yaakov to review our financial results.

Hi Raj, thank you for the question. Thank you for joining the call. There were a few treatments of compassionate use. The procedure in Israel is that this approval for compassionate use treatment goes between the medical center and the treating physician and the Minister of Health. So Kamada is not part of this process. We basically made the product available for the medical centers, and they need to apply and get kind of a named patient approval for the treatments. So this is not data that is available to Kamada. The clinical study, which was started just recently, is sponsored by Kamada, and the data from that study, of course, will be available and will be shared in due time with the public. As we announced earlier this week, we are encouraged by the neutralization data that we have seen in the different assays that we are performing, and we just need to wait now, not too long, before we have the data from the clinical study. Important to mention, the clinical study is for the less severe patient, meaning not the one that got the compassionate use. The compassionate use was given to patients that were severely ill, while the clinical study, as we just described, is for hospitalized but not ventilated patients. We believe that that's the right population for this type of treatment. We believe that you need to catch those patients, if I can use this term, while they're highly viral but before their situation worsens significantly in order for the IgG to be effective.

Yes, this will be a separate trial. We are now in discussions with the regulators and the KOLs in regards to that study. It's going to be the same product, while the dosing might be different. We will be testing different doses in order to get to the optimal dose for preventive or prophylactic treatment compared to sick patients. Now, there are different approaches to that. You may think about the medical staff, you may think about patients or people that are at high risk and have been exposed to a sick COVID patient, like a post-exposure prophylactic. You may think about the elderly population. So there are different opportunities, different populations which potentially meet this criteria, and we are in advanced discussions with different relevant parties on how to design that study and to what population.

So there's good progress in the collection. You know, Kedrion has a large network of plasma collection centers in the U.S. They've put most of those centers, they are included in the collection effort. This U.S. plasma will be supplied to Kamada in order for us to initiate also our U.S. clinical program. So the plasma we are currently using for the Israeli study is plasma that was collected from convalescent patients in Israel. We moved very fast already in March in terms of working here within Israel with the local authorities on defining the path forward, collecting, working with the Israeli National Blood Bank on the collection, and this allowed us, if you may remember, in June to be the first company globally to announce availability of a plasma-derived COVID IgG and also to be the first globally to initiate a clinical study. So we are very happy with the progress we've been making, and we believe that it's a very high potential for a successful treatment for COVID-19 patients.

Yes, so over the last few years, we have been expanding our portfolio of distributed products for Israel, and we've been signing quite a lot of new agreements for the Israeli market with different international partners. So some of this is new products that have been registered over the last two years and have been launched into the Israeli market. Some of it is an increase in the plasma-derived products, our legacy products like IVIGs that we've been selling in Israel for many years. There was additional stocking of IVIG products in Israel by the hospitals because of the pandemic, so this also had some contribution to our second quarter sales. And looking into the future, like you said, we have signed some highly promising, encouraging additional agreements, like the one that was signed late last year with Alvotec, and this will be a significant driver to our growth in terms of the biosimilar portfolio. So we are very happy with the progress we are making with the distributed products in Israel, and we are very encouraged by the rate it's growing, also looking into the future, 2021 and beyond.

Correct. I think you need to stick to what you just said, that we're reiterating our full-year projection, and we are on track to meet it. We've been telling investors and analysts over the years, don't judge us quarter by quarter, but look at our annual projection and annual performance. We've been very good in the last few years giving an annual projection, meeting it, and the same applies for this year, 2020.

So currently, hi Kai, how are you? So currently, you know, it's a Phase 1/2 study. Of course, we are measuring safety, and we are looking also at PK and PD, pharmacokinetics and pharmacodynamics data. But also, being an open-label study, basically we will have data on each and every patient, and we'll be also looking at, you know, number of hospital days and when the patient has been hopefully recovered and released from the hospital. But the official endpoints, of course, are safety and PK and PD.

Not yet. I can't, like the previous question, prophylactic or post-exposure prophylactic is definitely an area or a direction that we are interested in. This is part of the discussion that we are having internally and with the KOLs and with the treating physicians, and we initiated also with authorities in order to have a clear path forward. What will be required in terms of the path forward, the clinical, the medical, the regulatory path forward for potentially future approval of prophylactic treatment, if this PK data, things like that, you know, all of it is in discussions.

We believe, and this is very preliminary, what I'm just saying, this is not, I'm putting a disclaimer now, this has not been fully discussed and definitely approved or agreed with the regulators, but potentially having the ability to compare the PK data, the antibodies level of a prophylactic IgG to an active vaccine that will be approved, this could be a potential one way to look for the product. So definitely, you know, when you're looking at healthy individuals, it has to do, sometimes it has to do, it has to be, sorry, some type of PK data because you're not treating sick patients. So this is one of the ways to look at it. Alternatively, that could be a very large study that you are treating patients and then you see who gets sick and who doesn't get sick compared to some type of control group. And this is another option, but again, it will depend on how the regulators would like to see such a path and a potential future approval.

We gave a projection of, Yaakov, you want to help me here? We gave a projection of a three to five percentage point drop in gross margins in the proprietary sector as compared to last year, and we still stand behind that guidance.

Yeah, it's a little bit too early now to give an answer to that. You know, we are expecting feedback from Takeda later this year in preparation for 2021 for what's going to be their demand. We mentioned it's going to be between $25 to $50 million in sales, and it depends on when the tech transfer of Glassia to Takeda will be completed and when they expect to have the FDA approval. This, of course, will have an impact on our 2021 projection. Also, a potential impact of the COVID-19 IgG. So there are a few items, a few things that need to be cleared between now and end of this year before we can give an educated projection for next year.

So our sales this year are to Kedrion, and they sell it in the U.S. market. So in terms of their in-market sales, we believe that during the COVID outbreak, there've been maybe two or three months of potential slowdown of sales due to, like you said, less outdoor activities. But things are ramping up again now when life in most of the U.S. is returning to normal.

Thank you. First, answer the later part of your question in regard to the U.S. path forward. So as we said, we are going to hold a pre-IND meeting with the FDA this quarter. So all those issues will be raised and will be discussed as part of that process, and then we'll have better clarity, and we will announce what the plan forward is in terms of the needed studies. In terms of your question regarding a paid compassionate treatment, so it's a little bit too early right now to give you an answer for that. It's an option, but we will need to wait for the data and to have the discussions with the relevant authorities before we can provide any feedback about it.

Thank you very much. In summary, we are pleased with how our business performed in the first half of 2020, especially as the global COVID-19 pandemic persisted. We have an extremely strong balance sheet, and the fundamentals of our business are solid. Our IgG product development program for the treatment of COVID-19 continues to advance very fast. In addition, we continue to drive strategic growth from our core business, including Glassia, Kedrion, and our distributed products in Israel. We anticipate our business development activities will have a meaningful role in our future growth, and are also very excited about the potential of our INNOVATE pivotal Phase 3 trial for our unique inhaled AAT program, and are encouraged that enrollment has now been resumed. We remain highly confident in Kamada's long-term outlook for success. Thank you for joining us on today's call, and we look forward to providing you with further updates on our progress in the coming months. We hope all of you stay healthy and safe. Thank you very much.