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Q1 2023 Earnings Conference Call
spk02: Greetings and welcome to the Commodore Limited first quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
spk00: Thank you. This is Brian Ritchie with LifeSci Advisors. Thank you all for participating in today's call. Joining me from Kamata is Amir London, Chief Executive Officer. Earlier today, Kamata announced its financial results for the three months ended March 31st, 2023. If you have not received this news release, please go to the investors page or the company's website at .kamata.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 Kamata. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's forms 20F and 6K, 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 24th, 2023. Kamata 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?
spk01: Thank you, Brian. And thanks also to our investors and analysts for your interest in Kamata 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 Femi Opportunity Fund, the leading private equity firm in Israel, and an existing significant Kamata shareholder. I will discuss its financing in further detail shortly, but will say up front that we are thrilled with this additional substantial investment from Femi and review it as indicative of the confidence with high-quality investors having Kamata's significant growth potential. Let me first begin, though, with our impressive first quarter financial results. The total revenue in the first quarter of $30.7 million, which was presented -over-year growth of 9% and EBITDA of $3.8 million, an increase of 16% as compared to the first quarter of 2022, we achieved the top and bottom-line growth anticipated in our business to begin the year with. Importantly, we continue to effectively leverage multiple growth drivers, including Caddop sales in the US, the portfolio of the four SPF rules in Globally acquired in late 2021, Tito Garhepa, Gampari Zig, and WinRaw, which are marketed internationally, and our Israeli distribution business. Looking ahead, we expect the momentum from the first quarter to extend throughout 2023, with the possibility 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 to the foreseeable years 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 security purchase agreement with FEMI to purchase $60 million of our ordinary shares in a private placement. Under the terms of the purchase agreement, Commodore will issue an aggregate of approximately $12.6 million ordinary shares to FEMI at a price of $4.75 per share, which will prevent 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, FEMI is expected to beneficially own approximately 38% of Commodore outstanding ordinary shares, and will become a controlling shareholder of the company within the meaning of the Israeli company's law. This strategic investment provides 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 FEMI, 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 23 financial results. With respect to existing business, we were pleased earlier this month to receive the FD approval to manufacture a cytogram at our facility in Beit Kamah, Israel. This FD approval, which was granted within the expected timeline, represented a successful conclusion of the technology transfer process for cytogram from the previous manufacturer, CSL Behring. We have since initiated commercial manufacturing, which will positively impact our facility utilization and efficiency. Cytogram is the highest selling of the four inter-global products acquired by Kamada in November 2021, generating approximately $23 million in sales in 2022, and it maintains growth margins of over 50%. I'd like to highlight that Cytogram is the third product in addition to Glacia and Cadra to be approved by the FDA for manufacturing at our Israeli facility. Also of note, SWITS MEDIC recently granted marketing authorization for Glacia in Switzerland for chronic augmentation and maintenance therapy in adults with clinically evident antizema due to severe alpha-on deficiency. Switzerland is the first European country to approve Glacia for alpha-on deficiency, representing a significant milestone for Kamada 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 required 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 US, sales of Glacia 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 Cadra, our rabbit in the past several months and especially since the beginning of the year, Cadra, marketed in the US by Cadrion, has continued to grow substantially and to gain share in the US market which is estimated to be over $150 million annually. Cadra's commercial team is successfully leveraging the advantages of the product as the only human rabbit in the globulin available in the US 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% growth margins for Commodore. Additionally, our US team established during 2022 is making excellent progress in promoting our specialty IGG portfolio to physicians and other healthcare practitioners through our direct engagement and opportunities at medical meetings. As a reminder, our activities promoting this important therapy primarily cytosome and varizig, but presented first time in over a decade that this hypoimmune specialty product has been supported by field-based activity in the US. We are encouraged by the positive feedback we received from key opinion leaders who are seeking to publish new clinical data related to our products while conducting educational symposiums that we believe will have a positive impact on the understanding of this medicine, contributing to continued growth in demand. We have started seeing the impact of activity and expect to see increased demand for moving on. Looking further ahead at future catalysts, we are pleased by the progress made at Commodore Plasma, our US-based plasma collection company. Our 2021 acquisition of the plasma collection center near Houston, Texas, represented Commodore's entry into the US plasma collection market and supported our strategic goal of becoming a fully integrated specialty plasma product company. We are successfully expanding the hydrogenian plasma collection capacity at our center and are actively advancing our plan to open additional centers in the US 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 three innovative clinical trial for the NL-Alpha 1 antitrustin therapy for the treatment of alpha 1 deficiency. The study has enrolled 60 patients to date and the independent data safety monitoring board recently recommended study continuation without modification for the fifth time since the study was initiated. In the next few weeks, we will continue to expedite trial recruitment. We intend to meet with the 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 NL-Alpha 1 to be a transformational product in a market that is already over $1 billion in annual sales in the US and Europe. Before I read you our first quarter financial results, I'd like to share some additional exciting news. Following the $60 million investment from FEMI, Comedat CFO Jaime Orlev, who had previously planned to transition out of his position to pursue other opportunities, has withdrawn his resignation and will remain in his position. Jaime has served over at CFOs since December 2017 and he will be instrumental in supporting Comedat's continued growth and maximizing the strategic opportunities provided by the private placement. In addition, Neil Livnet, who previously served as our general counsel and corporate secretary from 2010 until 2018, has rejoined Comedat as vice president, general counsel, and corporate secretary. Both Jaime and Neil significantly strengthen our executive management team and they will play pivotal roles in our further advancement as a global leader in the specialty plasma industry. With that, I'll now discuss our first quarter financial results. Top total revenues for the first quarter were approximately $30.7 million and 9% increase from the $28.1 million recorded in the first quarter of 2022. The -over-year growth during the first quarter was primarily driven by strong sales of cadrabs, the contribution of our previously acquired immunoglobulin products, and the Israeli distribution sales. Total gross profit for the first quarter was $20.7 million. That's in comparison with the first quarter, which was about $30.7 million in the first quarter. That's in comparison with our previous quarter, which was about $39.7 million in the first quarter, which was about $40.7 million in the first quarter of 2022. That's now turned to the explanation of our depreciation expenses. As previously discussed, the company is accounting for depreciation expenses associated with intangible assets, which were generated through the late 2020 acquisition of our IBG 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 IBG product acquisition. During the first quarter of 2023, we conducted a planned workforce downsizing at the Israeli plant, optimizing stock levels 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 deduction of approximately 6% in the overall Israeli labor cost. We continue to expect our overall operation expenses, including R&D, sales and marketing, and G&A to increase between 15% to 20% during 2023 as compared to last year, and we continue to advance our commercial activities as well as our Phase III innovative tries. As we did throughout 2022, we continue to account for financing expenses with respect to the re-evaluation 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 EU period. Excluding the depreciation expenses of intangible assets and the finance expenses of the contingent consideration and other assumed long-term liabilities associated with 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 third 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 Axis 7 compensation, Paytas and Clarizo 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 use in the first quarter of 2023 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 as compared to $34.3 million as of end of 2022. This figure does not include expected net profit 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?
spk02: Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question comes from the line of David Veltz with Zach Small Cap Research. Please proceed with your question.
spk03: Hey, Amir, how are you doing? Good,
spk01: thank you.
spk03: Thanks for taking the questions. 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?
spk01: The quarter played out according to our plan, according to our budget. We are progressing exactly as we've anticipated, both top line and bottom line, and based on that we reiterated our annual guidance.
spk03: 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?
spk01: So the results of the quarter meet the company expectations, as I said. We started with strong many aspects. We're refueling the focus for the whole year, and as we've seen in previous years, the first half of the year is usually lower than the second part of the year. It does not have to do with inventories as the distributors. So the growth will come from all aspects of the business, from Cadra, from the new IGG portfolio, from distribution business in Israel, from royalties paid by Takeda for glass-yard sales in the US, for glass-yard sales ex-US. 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've seen in the market.
spk03: Okay. Now in regards to the Innovate 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?
spk01: 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 were open in the second part of 2022, and recruitment has been seen then accelerated. In order to speed up recruitment, we need to open additional sites. We are in the process of identifying those additional sites internationally, and that's our plan moving forward. Let's speed up recruitment by opening additional sites in other countries.
spk03: All right. Sounds good. Congrats on the progress this quarter, and thanks for taking the questions.
spk01: Of course. Thank you very much.
spk02: Thank you. As a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. I was going to pull for more questions. I'll turn the floor back to Mr. Ritchie for any additional questions from the web.
spk00: Thank you, Melissa. A couple of questions here from the web, Amir. Can you please provide a bit more color on FEMI?
spk01: Yes, of course. So, FEMI was established in 1996. It's the leading Israeli private equity firm with excellent international reach, international success. It has acquired control in, I believe, around close to 100 companies over the years. It made over 60 exits. The total transaction value is over $7 billion. They are known to be a long-term company. Over those seven years, they've deployed over $1.8 billion in acquiring equity in its portfolio companies. They've been a major ring vector in ComaDoc since end of 2019, early 2020. And as I said, we are very happy with the additional funding and the private investment. We believe that that's basically a big trust in ComaDoc. The company was interested in the investment offered by FEMI, as well as our board and the special committee that was established by the board, to accelerate growth, both organically and by identifying and realizing new business development opportunities. I believe that this shared interest is something that will drive ComaDoc and value to shareholders significantly.
spk00: Great. Thank you. Also, can you expand more on the potential use of proceeds from the financing and are there any near-term business development opportunities on the horizon?
spk01: Thank you for the question. Good question. As I said, the company is interested in funding to accelerate growth, both organically with our existing business, but also by identifying and realizing new business development opportunities. We are constantly examining opportunities for collaboration in licensing, acquisition, M&A in our areas of expertise. If we were to rely only on organic profitability, it would have significantly delayed the ability to execute on such transactions. And of course, it would delay the company's ability to accelerate growth. So the combination of organic growth, which you've seen in our guidance for the year, with this additional funding, gives us the ability to benefit or enjoy both organic growth and external growth, basically by examining opportunities for licensing or acquisition of additional assets.
spk00: Great. Thank you, Amir. At this time, we've got no further questions, so I'll hand the call back over to you for any closing remarks.
spk01: Thank you. Thank you, Brian. So in closing, we are very pleased with our performance to begin the year, and we're excited about the potential opportunities that LIHEAP has following the $60 million financing by CIMI. We look forward to continuing to support the initiative with patients with important life-saving therapeutics that we develop in the structure and commercialize. We thank all of our investors for their support, and we remain committed to create long-term value. Thank you, everyone, and we hope you all stay healthy and safe.
spk02: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.