LIPPERT HEILSHORN & ASSOCIATES - KAMADA LTD.
Moderator: Anne Marie Fields
02-05-14/8:30 a.m. ET
Confirmation # 51601103
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LIPPERT HEILSHORN & ASSOCIATES - KAMADA LTD.
Moderator:Anne Marie Fields
February 5, 2014
8:30 a.m. ET
Operator:Welcome to the Kamada Ltd. 2013 Fourth-Quarter and Full-Year Financial Results Conference Call. At this time, all participants are in a listen-only mode.
Following management's prepared remarks, we will hold a question and answer session. To ask a question, please press star followed by one on your touchtone phone. If anyone has difficulty hearing the conference, please press star-zero for operator assistance. As a reminder, this conference is being recorded, February 5, 2014.
I would now like to turn the call over to Anne Marie Fields with LHA. Please go ahead, ma'am.
Anne Marie Fields:Thank you, Toni. Good morning to our investors in the U.S., and good afternoon to our investors in Israel. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from Kamada are David Tsur, Founder and Chief Executive Officer, and Gil Efron, Chief Financial Officer.
Earlier this morning Kamada announced financial results for the fourth quarter and year ended December 31, 2013. If you have not received this news release or if you would like to be added to the Company's distribution list, please call LHA in New York at 212-838-3777 and speak with (Caroline Curran).
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 U.S. 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 contents of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 5, 2014. Kamada undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
So with that said, I would like to turn the call over to David Tsur. David?
David Tsur:Thank you, Anne Marie, and thank you all for joining us. Throughout 2013 we achieved a number of milestones that laid the foundation for our future growth. During this quarter, we are poised to report the topline data from our pivotal study with (inaudible) Alpha-1 Antitrypsin, our lead pipeline product, and to initiate two very important clinical trials in the coming weeks.
We are particularly pleased with the growth in our Proprietary Products, which posted record quarterly revenues in the fourth quarter, mainly due to Glassia sales to Baxter, which, as expected, were weighted towards the second half of 2013. Under this specific agreement with Baxter, we continued to collaborate on the technology track sales and initiatives to increase the market penetration of Glassia in the U.S.. We have been encouraged by the high level of cooperation and the strong relationships developed with our partners. We continue to prepare for submission of the MAA in 2014 for our AAT Alpha-1 for Alpha-1 Deficiency and are working closely with our European marketing partner, Chiesi, on this front.
Our successful U.S. IPO in June 2013 strengthened our balance sheet, and we remained with us to execute our plans to develop and market our innovative therapeutic products.
Now I would like to turn the call over to Gil Efron to provide you with greater financial details on the quarter and year. After his review, I will provide an update on the status of our commercial and clinical programs.
Gil?
Gil Efron:Thank you and good day, everyone. Our financial performance for both the quarter and the year were very strong, led by solid growth in proprietary product sales and adjusted EBITDA for the year of $9.4 million. We continued to resource our clinical development programs, as well as our logistics processes, as we planned to expected growth and expansion in our Proprietary Products segment.
Let me turn now to a detailed review of our financial results. Total revenue for the fourth quarter of 2013 increased 13 percent from the prior year to $24.4 million and increased 40 percent compared with the third quarter of 2013. Record quarterly revenue from the Proprietary Products segment of $18.6 million increased 17 percent compared with the fourth quarter of 2012 and 54 percent compared to the third quarter of 2013. Revenue for distributed products of $5.8 million was up 2 percent from the prior year and increased 7 percent compared with the third quarter of 2013.
Total revenue for 2013 was $70.6 million within the range provided last quarter of $70 million to $72 million. Compared with 2012, total revenue in 2013 decreased by 3 percent due to expected decline in revenue in the Distribution segment. Proprietary Products revenue for the year was up 9 percent to $50.7 million.
It is important to know that Kamada fulfilled the entire Baxter order for 2013 as anticipated by the Company earlier this year, and as expected, those revenues were largely in the second part of 2013.
Turning to the rest of the P&L, R&D expenses in the fourth quarter were $3.6 million, an increase from $2.8 million in the fourth quarter of 2012 and $2.8 million in the third quarter this year. R&D expenses for 2013 of $12.7 million increased from $11.8 million in 2012 as we continue to support various clinical studies and prepare to launch two important clinical trials which would initiate in the coming weeks.
During the fourth quarter of 2013, SG&A expenses increased to $2.9 million from $1.7 million in the prior year and from $2.1 million in the third quarter of 2013. The increase is due mainly to a $0.5 million write-off of receivables in India for doubtful debt, as well as to the cost of being a U.S. publicly traded company. SG&A expenses for 2013 increased to $10 million from $6.6 million in 2012, primarily due to costs associated with the IPO and with being a U.S. public company, including a one-time IPO-related expense of $1.4 million in Q2 of 2013 and the $0.5 million write-off of doubtful debt mentioned before.
Gross profit for the quarter rose to $8.9 million from $8.3 million a year ago and $5.9 million in the third quarter, while gross margin was 36 percent this quarter compared with 38 percent a year ago and 35 percent in the third quarter of 2013. Gross profit for 2013 rose to $26.4 million from $22.7 million in 2012, while gross margin expanded to 37 percent from 31 percent. Gross margin expansion is due to a $4.5 million milestone received under the technology transfer agreement with Baxter, which we booked in the second quarter of 2013.
We reported operating income in the fourth quarter of $2.4 million versus $3.8 million for the fourth quarter of 2012, mainly due to the increase in R&D expenses as we are preparing to initiate additional clinical trials and our completing our Phase 2/3 trial in Europe and to the increase in G&A expense associated with being a public company. Operating income for 2013 was $3.7 million compared with $4.2 million in 2012.
Net income for the fourth quarter of 2013 was $1.6 million or $0.04 per diluted share, and this compares with net income in the prior year quarter of $3.1 million or $0.10 per diluted share. Net income for 2013 increased to $400,000 or $0.01 per diluted share from net income in 2012 of $260,000 or $0.01 per diluted share. Adjusted net income for 2013 increased by 50 percent to $3.2 million compared with $2.1 million in 2012. Adjusted EBITDA for the fourth quarter of 2013 was $3.6 million compared with $4.6 million for the same quarter last year, while adjusted EBITDA for 2013 increased to $9.4 million from $8.5 million in 2012.
Looking now into the balance sheet, we ended the year with cash, cash equivalents and short-term investment of $74.2 million, an increase from our cash balances of $33.8 million at the end of 2012. During the fourth quarter, we generated $4 million in cash from operations and used $3.9 million in cash to fund operations for the entire year of 2013. We invested $5.6 million in CapEx in 2013, mainly related to the new logistic infrastructure we expect to launch later this month.
In addition, during the fourth quarter, we reduced our convertible debt from $26 million to $16 million as a result of a $4.3 million repayment to the bondholders and the conversion of $6.5 million of debt to common stock.
As reported in our press release, we plan to provide financial guidance for 2014 when we report our first-quarter financial results.
With that overview of our financial performance, let me now turn the call back to David.
David Tsur:Gil, thank you for the review. It illustrates the progress we have made and underscores the strength of our financials, which will enable us to execute all of our plans to develop and market our innovative therapeutics.
In particular, we are pleased with the continued growth in our Proprietary Products segment, which is the more profitable segment of Kamada. We are very encouraged by the growing opportunity in the U.S. where there has been an increase in the number of patients treated with Glassia. While these increases were not directly reflected in our revenues last year, due to the way Baxter managed inventory, we believe this will drive additional demand in the coming years.
In addition to the growth opportunity from Baxter for Glassia, the elite formulation of our Alpha-1 Antitrypsin product to treat Alpha-1 Deficiency, there is a considerable market opportunity for Proprietary Products segment from the growing patient population, geographic expansion and our clinical development pipeline. Indeed, we continue to increase Glassia sales in additional territories. Glassia is currently sold in seven countries where there are an increasing number of treated patients. We look forward to geographic expansion into other countries and new regions. First quarter should be an exciting period for Kamada as we expect a key readout from our European Phase 2/3 clinical trials, and we are about to launch two other important programs, among other things.
Now let me turn to some of the highlights of our AAT clinical development program. By the end of the quarter, we will be reporting topline results from our pivotal European multicenter Phase 2/3 clinical trials with our inhaled Alpha-1 for treatment of deficiency. After review, this multicenter, randomized, double-blind, placebo-controlled study is evaluating the safety and efficacy of our inhaled formulation of human Alpha-1 to treat Alpha-1 Deficiency in 168 patients. This study involved the inhalation of total 160 milligrams of human Alpha-1 or placebo twice daily via the eFlow device for 50 weeks with eligible patients given the option to participate in a 50-week open label extension study.
The endpoints were chosen with input from the E.U. regulatory authorities, as well as the U.S. FDA and with careful consideration for clinicians, patients, regulators and payers. By using an endpoint with both clinical and economic benefit, we are hoping the positive results may open up the endorsement in countries who currently do not cover AP bills.
We look forward to reporting the topline data and are encouraged by our area of the physician studies and other development roles, which show that delivering the treatment directly to the site of the risk results in higher level of therapeutic getting into the lung with potential for improved outcomes. We enrolled about 70 patients from this Phase 2/3 study into open-label extension study and look forward to reporting the data from this segment of the study. We expect the data from the open-label extension study will augment the long-term safety record we have achieved thus far, and we further support that we believe the physician-patient preference for inhaled therapy.
We have been working closely with our European marketing partner, Chiesi, in preparation of an expected commercial launch. Under this agreement, Chiesi is responsible for the sales and marketing, patient identification and reimbursement initiatives. Kamada will receive milestones based on regulatory and sales achievements and just looking at the price for manufacturing the products.
Based on our market estimates, we have a significant 1 percent of the market with an inhaled Alpha-1 product. While patient registries are making it easier to find and track patients and their families, we have estimated that only 2 percent to 6 percent of patients are treated now in Europe.
These low treatment rates are largely due to significant underdiagnosed or mis-diagnosed. (Inaudible) for endorsement in many European countries. Chiesi has exciting plans for being and expand the market for patients suffering with this genetic disease. With positive study results in several of the regulatory reimbursement determinations, we believe our inhaled product has a significant market opportunity in hundreds of millions of dollars in Europe alone.
Turning now to our plan for the U.S. market, we will soon initiate our U.S. Phase 2 clinical data for inhaled Alpha-1 product for treatment of the deficiency. This one will be a double-blind placebo-controlled study of 36 patients versus 80 milligrams with 160 milligrams daily for 12 weeks with opportunity to enter a 12-week open-label extension study. The study will be testing from inhaled Alpha-1 Antitrypsin biomatters in epithelial lining fluid, ELF, and serum, as well as additional inflammatory variables in safety and tolerability.
We intend to use this data, along with those from our European Phase 2/3 study to support U.S. FDA licensing. Positive data from our European Phase 2/3 will also accelerate the variety of marketing opportunities we are considering in the U.S., including licensing and all proprietary sales by Kamada. We look forward to updating you on our plans as they advance.
We also plan to develop our inhaled Alpha-1 product for the treatment of cystic fibrosis. We have positive data from a Phase 2 study that are very encouraging and are preparing to initiate the next stage advanced Phase 2 study later this year in the U.S.. We will look forward to providing you with greater detail on this study as we make progress.
Moving on to our programs in type-1 diabetes, we are in an exciting development program for our IV Alpha-1 product for the treatment of type-1 diabetes. According to the U.S. Center of Disease Control and Prevention, there are more than 30,000 newly diagnosed type-1 diabetes patients each year in the U.S. alone. Type-1 diabetes is a debilitating disease leading to severe complications such as cardiovascular disease, kidney failure, eye disease, (inaudible) and more. These complications remain an unmet need that is still inadequately answered with existing therapies, which include insulin, diet and behavioral treatments. Moreover, these complications have direct correlation with the extent of glycemic control in patient's resistance during early disease phase.
During the fourth quarter, we were very pleased to report positive interim results from the extension study to our Phase 1/2 clinical study of Glassia in pre-type-1 diabetes. This new interim data showed that is about 20 months from diagnosis and about 10 months following the last Glassia execution. 50 percent of study subjects who participated in the extension portion of the Phase 1/2 trial had big C-peptide levels greater than (0.2 per milliliter), which indicates functioning beta cell capacity and is a higher percentage than expected result intervention.
In addition, patients continued to attain the National Society of Pediatric and Adolescent Diabetes targeted with an average HbA1c of 7.5 percent, and 75 percent of the patients represent HbA1c levels even lower than 70.5 percent, which is the clinically desired level for glycemic control in pediatric diabetic patients, who usually demonstrate the most severe or volatile form of disease compared with adults.
In the coming weeks, we plan to issue the Phase 2/3 trial with Glassia in patients newly diagnosed with type-1 diabetes. With all of these double lines, placebo-control multicenter study is to establish efficacy in halting the disease progression and maintaining the ability of the pancreas to produce insulin.
This two-year study, involving more than 190 patients, will be done in accordance with FDA and EMEA guidance for clinical trials evaluating beta cell preservation, and we measure C-peptide parameters, HbA1c, (inaudible) event and insulin daily dose. The trial will start in Israel. We plan to expand the scope to include other countries. This is a very exciting opportunity for us to bring potentially groundbreaking therapy to newly diagnosed type-1 patients.
The disease brings numerous complications that compromise the patient's normal life routines, require considerable health resources and economic impact on general wall capacity and reduced life expectancy.
Turning now to the topic of manufacturing. As we have discussed in the past and has been referenced in these remarks, we invested in enhancing our manufacturing processes, and we now have logistic abilities in order to ensure ample supply for what we expect will be increasing proprietary product sales, both from existing products and from the commercialization of newer products under development. In the coming weeks, we plan to announce the completion of our new logistics facility in Beit Kama. The facility will enhance our current processes and is under capacity to fulfill the increase in (inaudible) we expect.