Kamada Ltd.

Greetings. Welcome to Commodore Limited's second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. Any question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Brian Ritchie, the LifeSci Advisors. Brian, you may now begin.

Thank you, and thank you all for participating in today's call. Joining me from Kamada are Amir London, Chief Executive Officer, and Jaime Orlov, Chief Financial Officer. Earlier today, Kamada announced his financial results for the three- and six-month-ended June 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 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, August 16, 2023. AMADA 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's my pleasure to turn the call over to Amir London, CEO. Amir?

Thank you, Brian. My thanks also to our investors and analysts for your interest in Kamada and for participating in today's call. I'm pleased to report a strong start to 2023 continued in the second quarter, both financially and operationally, and we are well positioned to achieve our 2023 full year guidance, which I will discuss momentarily. I will begin with a high-level review of our strong financial results for the first six months of 2023. With total revenues of $68.2 million, which represented year-over-year growth of 32%, an adjusted EBITDA of $9.9 million, an increase of 24% as compared to the first half of 2022, we achieved the top and bottom-line growth anticipated in our business in the first six months of the year. Importantly, we continue to effectively leverage our multiple growth drivers, including a significant increase in Caterpillars for further distribution in the U.S., the portfolio of four FDA-approved hemoglobulins acquired in late 2021, Phytogram, Hepagram, Varizig, and Winro, and our Israeli distribution business. Looking ahead, we expect the momentum for the first half of the year to extend to the remainder of 2023. with annual profitability 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 adjusted EBITDA of $22 million to $26 million. The midpoint of the range represents 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 of us, with significant upside potential and limited downside risk. As previously reported, in May, we entered into a securities purchase agreement with CIMI, the leading private equity firm in Israel, and a large existing shareholder of Kamada, under which Fini will purchase an additional $60 million of our ordinary shares in a private placement. An extraordinary general meeting of the shareholders of the company to approve the private placement will be held later this month on August 29, 2023. As a reminder, under the terms of the purchase agreement, Kamada will issue an aggregate of approximately $10 12.6 million ordinary shares to Finney at a price of $4.75 per share, which represents 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, Finney is expected to beneficially own approximately 38% of Kamada's outstanding ordinary shares and will become the controlling shareholder of the company within the meaning of the Israeli company's law. This strategic investment, if approved, will provide us with financial flexibility, allowing us to accelerate the growth of our existing business and pursue compelling business development opportunities. The process that we have initiated is expected to be further ramped up upon receipt of the shareholder approval and closing of the private placement. With respect to our existing business, let's begin with Kedrop, our anti-rabbit in the global. We were pleased to announce last month that Kedrion has exercised its option to extend our distribution agreement for Kedrop in the U.S. through March 2026. Moreover, we remain in active discussion with Kedrion to potentially further expand the scope of our collaboration. During 2022, we generated approximately 16,000 million in revenue from CEDR to CADREON for further distribution in the U.S. market, which is estimated to be a total of $150 million annually. During the first six months of this year, we experienced a significant increase in demand for the product in the U.S., and we anticipate even further momentum in the second half of the year that includes the summer months. Also, as a reminder, this product continues to generate more than 50% growth margins for Kamada. Additionally, our U.S. team established during 2022 continues to achieve good progress in promoting our specialty in the global portfolio to physicians and other healthcare practitioners through direct engagement and opportunities at medical meetings. As we have said previously, our activities promoting these important therapies, primarily cytosine and viruses, We present the first time in over a decade that these hyperimmune specialty products have been supported by field-based activity in the U.S. market. We remain encouraged by the positive feedback received from key U.S. physicians 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 understanding of these medicines, contributing to continued growth in demand. Importantly, in May of this year, we announced FDA approval of our application to manufacture CytoGum at our Israeli facility after completing the technology transfer of the product manufacturing from its prior manufacturer, CSL Bearing. I'm happy to report today that we recently obtained a similar approval from Health Canada, thereby successfully completing the tech transfer of this product. This approval ensures continuous supply of CytoGum to the U.S. and the Canadian markets, with no interruption, and we expect to initiate sale of the product manufactured in our Israel facility early in the first quarter of this year. 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 the Plasma Collection Center in New Houston, Texas, represented Canada's entry into the U.S. plasma collection market, and supported our strategic goal of becoming a fully integrated specialty plasma product company. We are successfully expanding the hyperunion plasma collection capacity at our first center, and we plan on opening our second collection center in Houston, Texas, in early 2024. On the development side, enrollment is ramping in our ongoing pivotal phase three in-office clinical trial for the inhaled alpha-1 antitreatment therapy for the treatment of alpha-1 deficiency. And the study has enrolled 62 patients through the end of July, which is approximately 30% of the overall required enrollment to the study. I'm happy to update today that we've recently received positive scientific advice from the European Medicine Agency, the EMA, that we consume the overall design of the ongoing study and acknowledge the statistically and clinically meaningful improvement in lung function measured by SED1 demonstrated in our previous Phase II-III European study. As a reminder, the results of the previous study served as the basis for the design and the selection of the primary endpoint of our current pivotal Phase III study. We are planning to complete our discussion with the FDA regarding the study progress by end of this year. As a reminder, Kamadad's investigation in health AAP treatment is a non-invasive, at-home treatment with an expected better ease of use and quality of life for Alpha-1 patients as compared to the current IEV standard of care. The inhaled product is the leading new innovative Alpha-1 treatment in advanced clinical stage and it will present 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 Europe. With that, I now turn the call over to Jaime for a detailed discussion of our second quarter and first half 2023 financial results. Jaime, please go ahead.

Thank you, Amir, and good day, everyone. Total revenues for the second quarter were approximately $37.4 million, and for the six months of 2023, total revenues were $68.2 million, an increase of 59% and 32% respectively. The year-over-year growth during the first quarter and half was primarily driven by increased sales of Kedrev to Kedrion due to increased demand for the product in the U.S. market. As a reminder, second quarter of 2022, a portion of the sales were delayed due to a labor strike at the company's manufacturing facility in Israel. Total gross profit for the second quarter of 2023 was $14.4 million, representing 39% margins compared to $7.2 million or 31% margin in the second quarter of 2022. Total gross profits for the six months of 2023 were $26.3 million, representing 39% margin, compared to $18.5 million, or 36% margin, in the first half of 2022. As a reminder, gross profit and gross margins for the second quarter of 2022 were affected by a $3.3 million loss as a result of the labor strike. As previously discussed, the company is accounting for depreciation expenses associated with intangible assets, which were generated through the late 2022 acquisition of our IGG products. The company's COGS and sales and marketing 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, total $11.8 million in the second quarter of 2023, compared to $9.5 million in the second quarter of 2022. Operating expenses for the first half of the year total $23.4 million, an increase of approximately 14% over the first half of 2022. As we previously mentioned, we expect our overall operating expenditure to increase between 15 to 20% during 2023, as compared to 2022. This is as we continue to invest our commercial activities, as well as our phase three innovate 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 second quarter of 2023 was approximately $1.8 million, or $0.04 per share on a fully diluted basis, as compared to a net loss of $3.9 million, or a loss of $0.09 per share in the prior year period. Adjusted EBITDA was $6 million for the second quarter of 2023, as compared to $1.3 million in the second quarter of 2022. For the first half of the year, adjusted EBITDA was $9.9 million, as compared to $4.6 million in the first six months of 2022. As a reminder, adjusted EBITDA for the six months of 2022 were affected by $3.3 million loss as a result of the labor strike. The adjusted EBITDA for the first six months of 2023 represents a 24% increase compared to the adjusted EBITDA excluding labor strike-related loss for the first six months of 2022. As Amir highlighted earlier, we're reiterating our full year 2023 revenue guidance of $138 million to $146 million. and adjusted EBITDA guidance of $22 to $26 million. The midpoint of such range represents approximately 35% growth as compared to fiscal year 2022. In the second half of the year, we anticipate continued growth of sales of Kedria up to Kedrion in support of the product in-market sales growth. Continued growth of the new IGG product sales in the U.S. fueled by the ongoing marketing efforts, as well as the expansion of ex-US sales of these products. In addition, we expect enhanced profitability in the second half of the year as compared to the first half. Finally, cash provided by operating activities was $1.8 million in the second quarter of 2023 as compared to cash provided by operating activities of $10.9 million in the second quarter of 2022. Our total cash position as of June 30th, 2023 was $28.1 billion. This figure does not include the expected net proceeds from the recently announced $60 million financing, which is expected to close later this quarter. That concludes our prepared remarks. We will now open the calls for questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for questions. Thank you. Thank you. And our first question comes from the line of Annabelle Samimi with CIFL.

Pleased to see you with your questions.

Hi, everyone. Thanks for taking my call. I have a couple questions here. So Innovate program, clearly it's initiated in the EU and it's progressing. I guess good enrollment traction now. I want to ask, I guess, We want to understand what the biggest sticking points are with the FDA that you still need to discuss with them to sort of move this program forward in the U.S. Have you arrived at an end point? Is there anything you can tell us about which areas you're trying to navigate around? Thanks.

Annabel, I'm not sure that I heard you well enough. Operator, can you repeat the question maybe?

Miss Mimi, could you repeat your questions, please?

Sure. Can you hear me? Hello?

Breaking up. Let's try again.

Okay. So I was asking about the Innovate program that's initiated in EU. Obviously, they have sort of given you news that they continue to... support the endpoint that they've chosen, that you've chosen, and the EMA is good with this and they've accepted this as an endpoint. Can you just help us understand the sticking points that you still have with the FDA and what you're still trying to navigate around in terms of the design of the study?

Great. Thank you for the question. We don't have any challenges with the FDA regarding the design of the study. The study was designed in a harmonized fashion between the EMA and the FDA. It's under an FDA IND. That's based on the sequence of the meetings that we plan to do today and generating ongoing data. We started with a meeting with the EMA and we had a scientific advice discussion with them. and we plan on submitting the data to the FDA and kind of reporting the progress to date by end of this year, including getting the feedback. Both agencies, FEMA and FDA, are supportive of the FEV1 endpoint as our primary endpoint of the study. And what we reiterated in today's presentation release is that we were very highly encouraged by the positive feedback received from the EMA that included reconfirmation of the overall design of the study and acknowledging the statistically and clinically meaningful improvement in the FEV1 data demonstrated in the previous European study. So we expect to receive similar feedback from the FDA upon providing the data and the progress update later this year.

Okay, great. And is there any learnings around the enrollment? This is obviously a rare disease and difficult to enroll. Is there anything that you're learning from your experience in Europe that could facilitate enrollment in the U.S.?

So the study is under an and IMD, so basically everything we do currently is the same study, harmonized study, that will meet requirements for both submission of a DLA and MAA, of course, upon successful completion of the study. Enrollment is primarily done in countries where there are naive alpha-1 patients. which are not currently treated with the standard of care, with the IV standard of care, because it's a placebo-controlled study. So it's easier to recruit patients, especially for an orphan disease with limited number of patients generally, in places where the IV is not available or not reimbursed, and this is primarily in European countries, and that's why we are focused currently on recruitment in Europe. But again, I want to reemphasize, this is under a U.S. FDA IND, fully acceptable by the FDA. It's not a European study. It's a European and an FDA unified study that, if successful, will be submitted for both agencies for marketing authorization.

Okay, great. And if I can just ask one last question. So congratulations on the $60 million that you're going to be closing soon. Maybe you can talk about, I guess, your allocated potential to business development, but can you talk about any of the potential preclinical programs that you might be moving forward or priorities that you're focused on?

Yes. So first I would like to answer a kind of question related to the potential usage of the proceeds. we are very satisfied with the results of the strategic acquisition that we've done in 2021 of the four FDA-approved new global links and the establishment of our U.S. commercial infrastructure as a result of this. And we believe that this could be leveraged as a basis for significant additional growth. And that's our business development focus. So we are proactively looking for additional BD opportunities within our areas of expertise, specifically plasma-derived products or transplant-focused therapeutics. So this is in regards to the BD efforts and being very proactive in searching and looking for the right asset to be added to our portfolio, especially in the U.S. market. In regard to the preclinical activities, of course, our main efforts are around DNAV-alpha-1 being in a pivotal phase. We study with a significant market opportunity, but in addition to that, we, I think, announced in previous discussions that we have three early-stage kind of preclinical programs which are ongoing. One is around plasma eye drops. development around immunoglobulin for TB. And the third one is a very unique, innovative approach for fast production of hyperimmune globulins in time of need, especially during pandemic. We're leveraging the experience that we've gained during COVID, being the first company globally to develop plasma-derived anti-COVID immunoglobulin. and we would like to be prepared for potential future similar requirements, as well as kind of underserved areas that currently do not have sufficient involvement for rare diseases. So that's the main focus. Three preclinical programs, all of them are progressing nicely by our R&D department.

Okay, great. Thank you so much.

Thank you, Anna. Thank you. At this time, I'll turn the floor back to management, so I'm going to take additional questions from the web.

Thank you. We've got a couple of additional questions from the web here, Amir. First, based on your discussions with the EMA, is there an opportunity to shorten the regulatory pathway in Europe for unheld AAT?

Good question. So it's part of a scientifically-advised discussion with EMA. we did inquire regarding potential acceleration of the study timeline through a potential reduction in sample size. The inner feedback was that they confirmed and they support the current plan, while they do not encourage or do not support such acceleration through a reduction of the sample size. And the feedback we received is that the current sample size meets the study power requirements. So we are staying with 220 patients that we plan to enroll. When earlier I mentioned that we have over 60 patients already in study, and this accounts for 30% of enrollment, that's the feedback, and that acceleration will not come from smaller sample sizes.

Thank you, Amir. The final question from the web. Can you describe the market dynamics that are driving increased demand in the U.S. for KEDRAB?

Yes, excellent question. So, first of all, as we mentioned in the call, we do experience a significant increase in demand, a significant increase in our supply to KEDRAB for further sales in the U.S. markets. We expect those dynamics and that trend to continue moving forward for the rest of this year and into 2024, 2025. So we are taking significant market share in this $150 million market. When we analyze the dynamics and what's leading to this significant expansion, significant increase, so first I'd like to emphasize that we're very happy with the strong collaboration with the Cadeon team. in the sales and marketing of the product in the U.S. market. We believe and we actually see that the teams are doing very well. Our marketing efforts are very effective in reaching clinicians and healthcare providers, increasing awareness in regards to the need of using antirebidinoglobulin in case of suspected exposure to a rabid animal. And secondly, our product has some clear advantages, including its own label pediatric indication, which represents a clear differentiation compared to the competing products. So with a very effective marketing effort, very strong collaboration between the Kamada and the Cajun team, and a very good differentiated product, which leads to the significant market expansion and the growth that we're experiencing, the positive growth we're experiencing in the U.S. market.

Terrific. Thanks, Amir. No further questions from the web. So with that, I'll turn the call back over to you for any closing remarks.

So in closing, and thank you for the good questions that were posted on the web and by the listeners, We are pleased with our solid performance in the first half of the year. We're excited about the potential opportunities that Lye had following the potential approval of the $60 million financing. We look forward to continuing to support clinicians and patients with the important life-saving products that we develop, manufacture, and commercialize. We thank you all for your interest and your support, and we remain committed to creating long-term shareholder value. So thank you again, and we hope all of you stay healthy and safe.

This will conclude today's conference. You may now disconnect your lines at this time. Thank you for your participation.