Amir London - CEO Chaime Orlev - CFO Bob Yedid - LifeSci Advisors, LLC.

Anthony Petrone - Jefferies Keay Nakae - Chardan Capital Markets.

Good day, and welcome to the Kamada Ltd. Third Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Bob Yedid, LifeSci Advisors. Please go ahead, sir..

Thank you. Good morning. This is Bob Yedid from 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 this morning, Kamada announced results for the third quarter of 2018.

If you have not received this news release or you would like to be added to the company's distribution list, please contact me LifeSci at (646) 597-6989 or Bob@LifeSciAdvisors.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.

Further, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 12, 2018. 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, I’d like to turn the call over to Amir London, CEO.

Amir?.

Thank you, Bob. And thanks also to our listeners for your interest in Kamada and for participating in today's call. Let me begin by addressing our third quarter revenues as well as our revenues for the first nine months of 2018.

As expected, the labor strike which we seen in the quarter had a significant impact on our financial results in the third quarter.

Specifically, total revenues in the third quarter were $15 million comprised of $9.5 million from our Proprietary Products segment and $5.5 million from our Distribution segment, which represented a 35% decrease compared to the third quarter of 2017.

For the first nine months of 2018, total revenues were $66.3 million, a decrease of 1% compared with the first nine months of 2017. Based on our outlook for a strong fourth quarter, we are reiterating our revised full-year 2018 revenue guidance of $102 million to $108 million.

In addition, I am pleased to provide you today with a full year 2019 total revenue guidance. Based on our projected production capacity and product availability, we expect total revenues in the range of $125 million to $130 million, which would represent an increase of more than 20% over expected full-year 2018 total revenue.

This reflects continued growth in our Proprietary Products business, principally the growth of GLASSIA and continued growth of our KedRAB product in 2019 which would be the first full year of this product rollout in the U.S.

With respect to our future top line growth prospects, I’d like to remind you that the minimum revenue guaranteed by Shire to Kamada related to GLASSIA for years 2018 through 2020 is $177 million or approximately $60 million annually with potential upside related to improved demand in a growing U.S. market.

So while we faced the one-time headwind with the labor strike and the timing of shipments, it’s important to remember that we have a long-term supply contract with Shire in a market that has grown steadily in the past several years.

Kamada’s agreement with Shire which last until 2040 is a significant source of revenues, future royalties and gross profit to our company for the long term. Let me now discuss an important driver of near-term revenue growth for Kamada.

Our anti-rabies IgG product which was launched in the first quarter of this year by Kedrion, our commercial partner in the U.S. under the brand name KedRAB. As previously stated, the launch was timed to meet the demand for this product due to the height of the 2018 spring and summer rabies season.

With that said, we continue to be encouraged with the progress of this launch and are experiencing strong customer interest and growing market share. Based on recent published market data, the U.S. market for rabies immune globulin is over $150 million which is higher than our prior estimate, and key customers are looking for stable source of supply.

We believe Kamada and Kedrion are well positioned to increase our market share over time. Kedrion is an excellent partner for Kamada’s rabies vaccine that they produce and distribute plasma-derived proteins [ph] used in treating and preventing serious diseases and disorders with over $700 million of worldwide sales in 2017.

In summary, we are pleased with the commercial performance and future growth prospects for both GLASSIA and KedRAB and continue to expect that this product will be the primary driver of our revenue and profitability over the next few years. With that, let me now discuss the status of our clinical pipeline.

I will begin with the clinical program for our proprietary inhaled AAT for the treatment of alpha-1 antitrypsin deficiency or AATD.

As you know, early in the third quarter, we received positive scientific advice from the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency related to the development plan for a proposed pivotal Phase 3 study.

As a reminder, the CHMP now concurs with Kamada on the overall design of the proposed study, including its objectives, patient population, proposed endpoints and their clinical importance, and the safety monitoring plan. Therefore, we have clearly defined regulatory path for inhaled AAT in Europe.

We continue to work with our internal and external experts to finalize a detailed plan for the clinical program, including the submission of a Clinical Trial Application to the EMA. In parallel, we continue to advance on discussions with the FDA in order to reach agreement with the regulatory path forward for inhaled AAT in the U.S.

In the third quarter, we submitted to the FDA additional requested information and data as well as an amended study protocol. We anticipate initiating the Phase 3 clinical study of inhaled AAT upon the FDA’s satisfaction [indiscernible] and their approval of our IND.

Let me add that we continue to consider all strategic options with respect to this program, including potentially seeking a partner in Europe and over the U.S. even when we receive FDA approval to conduct the Phase 3 trial. Moving on, let me now provide you with updates on some of our ongoing IV AAT pipeline program.

First, with regard to IV AAT for the treatment of acute GvHD and enrollment in the proof of concept clinical trial is progressing. As a reminder, this trial is assessing the safety and preliminary efficacy of IV AAT as preemptive therapy for patients at high-risk for development of steroidrefractory acute GvHD.

This study is being conducted through an innovative collaboration with the Mount Sinai Acute GvHD International Consortium, or MAGIC, and is an investigator-initiated study, co-funded by Mount Sinai and Kamada.

Interim results on this study are expected to be available during the second half of 2019 and Kamada has an exclusive right to develop and commercialize its IV ATT product for the preemption of GvHD using the biomarkers utilized in this study.

Second, let’s turn to our Phase 2 trial of IV AAT for the prevention of lung transplant rejection which is being conducted in collaboration with Shire. All patients in the study have completed the one year AAT treatment and we’re currently in the one year follow-up period.

Data from the one year treatment period are currently being analyzed and will be published in due course.

Finally, we were pleased to announce in the third quarter the extension of an ongoing investigator initiated, proof-of-concept study in conjunction with Massachusetts General Hospital evaluating the potential benefit of the liquid AAT on liver preservation and transplant rejection prevention.

In the first cohort of the study, organ viability parameters, including liver function tests and hemodynamics, which represent risks for failure or dysfunction after transplantation, inflammatory pathway analysis and histology, were all measured and yielded positive trends.

The second cohort of the study will be initiated and will assess the effect of AAT with different doses. Results on the first cohort will be submitted for publication in the near future.

This study is part of our initiative to use AAT as a key component in the organ preservation field, an area which is experiencing significant innovation and important development in recent years.

Before I turn the call over to Chaime for his review of the financial results, I’d like to welcome Eitan Kyiet who recently joined Kamada as Vice President of Business Development.

Kyiet has over 20 years of experience in business development, strategic operations and corporate law, with a significant portion of his career spent in the life sciences industry. Prior to joining Kamada, he served as a Chief Operating Officer of PolyPid, a clinical-stage biopharmaceutical company.

We look forward to leveraging Eitan’s expertise in building successful strategic collaboration, establishing key alliances and advancing commercial operations as we continue to grow our commercial business and develop the company’s clinical pipeline.

Business development is an important strategic priority for Kamada and we welcome Eitan’s expertise and focus in this area. With that, I will now ask Chaime to review our financial results.

Chaime?.

Thank you, Amir, and good day, everyone. As indicated by Amir, our financial results were significantly impacted in the third quarter by the now resolved labor strike. Total revenues were $15 million in the third quarter of 2018, a 35% decrease from the $22.9 million recorded in the third quarter of 2017.

Revenues from the Proprietary Products segment were 9.5 million, a 45% decrease from the 17 million reported in the third quarter of 2017. Revenues from the Distributed Products segment were 5.5 million, a 6% decrease from the 5.9 million recorded in the third quarter of 2017.

Gross profit was $2.5 million in the third quarter of 2018, down $3.9 million from the $6.4 million reported in the third quarter of 2017. Gross margin decreased to 17% from 33% in the third quarter of 2017.

This decrease was mainly due to a one-time loss of $2.6 million we recorded in the third quarter of 2018 related to loss of in-process materials and write-off of overhead cost as a result of lower than standard production levels, both of which are directly related to the labor strike.

Net loss was 2.4 million, or $0.06 per share compared to net loss of 200,000, or $0.01 per share in the third quarter of 2017. I’ll now turn to the financial results for the nine-months ended September 30, 2018.

Despite the substantial impact from the labor strike in the third quarter, our business performed well over the first nine months of the year. Total revenues for the first nine months of 2018 were $66.3 million, a 1% decrease from the $67.1 million recorded in the same period of 2017.

Revenues from the Proprietary Products segment were 47.6 million, a 6% decrease from the 50.6 million reported in the same period of 2017. Revenues from the Distributed Products segment were 18.6 million, a 12% increase from the 16.5 million recorded in the same period of 2017.

Gross profit was 20.2 million, a decrease of 1% from the 20.5 million reported in the first nine months of 2017. Gross margin in the first nine months of 2018 increased to 31% from 30% in the prior year period mainly due to the U.S. KedRAB launch.

While our business was meaningfully impacted in the third quarter by the labor strike, our profitability metrics for the first nine months of 2018 are still significantly improved from the same period last year.

Specifically, in the first nine months of 2018, we generated operating income of $3.9 million as compared to operating income of $1 million for the first nine months of 2017.

Net income was $4.6 million, or a profit of $0.11 per share, in the first nine months of 2018, a substantial increase compared to net income of 600,000, or a profit of $0.02 per share in the same period of 2017. Turning to the balance sheet.

As of September 30, 2019, the company had cash, cash equivalents and short-term investments of 44.9 million compared with 43 million at December 31, 2017. We generated positive cash flow from operations of 4.2 million in the first nine months of 2018.

This strong cash position provides us with the financial resources needed to continue executing on our business. I’ll now open the call to questions.

Operator?.

Thank you. [Operator Instructions]. We’ll go first to Raj Denhoy at Jefferies..

Hi. This is Anthony in for Raj. Good afternoon and good morning. Maybe to begin with maybe the resolution on the labor strike, I’m just wondering how substantive that was and what the risk is going forward that potentially we could see another strike? So how ironclad was the resolution on the labor front? And then I have a few follow-ups..

Okay. Thank you very much. The agreement signed with the union is for four years, reminding you that the plant employees are unionized since end of 2013. The first agreement was to 2014, '15, '16 and '17 and then another four years. So it’s stacked [indiscernible] for the next three and a half years..

Okay. That’s helpful. And maybe to shift gears to the Shire agreement, it’s still trending along nicely. I’m just wondering if the Takeda acquisition were to be finalized and it seems that that could be the case based on the EU approvals a few days ago how that may or may not impact the Shire agreement? And then a couple of follow ups. Thanks..

Thank you. So we have a very strong collaboration with Shire, reminding all the listeners that this agreement was signed in 2010 with Baxter, then to Baxalta, then to Shire, now soon to Takeda.

So we have good experience in transitioning the products and the business between different partners, all of which have continued to develop the market to gain additional market share, to grow our GLASSIA business. So the product is an excellent product. The market is growing. The business is good. New patients are being diagnosed.

So we are very optimistic based on the market dynamics that this will continue. Our agreement is until 2040, like I mentioned on the call, and it comprised of revenues, future royalties, so we are very happy and we are very optimistic with the future outlook of the program..

Okay, that’s helpful. And maybe just two last couple from me, we’ll shift gears to the pipeline and maybe to begin with inhalable. You mentioned that the company has interactive with the EMA on changes for this study.

Can you provide any I guess additional color on what those changes may be, whether they are endpoints or trial design? And what are your plans in terms of the FDA study for inhalable? Will you adopt these changes for the FDA study or will you wait for the guidance from FDA? Hello?.

And it looks like we have lost our main speakers. One moment while we reconnect. And they have reconnected. Please go ahead..

Okay, great. I’ll repeat --.

We got disconnected. I apologize. Please repeat the question..

Sure. No problem. So the final question for me is on inhalable. You mentioned in the prepared remarks in here about the interactions with EMA agency on trial design for the inhalable.

Is there anything you can share around those discussions? Did agency and company agree on different endpoints, different trial design and will those changes be adopted for the FDA study or conversely will you wait on more feedback from FDA on the path forward in the U.S.? Thanks..

Thank you. Very good question. So yes, we agreed with the Europeans on the trial design. They would like to harmonize the U.S. and the European study – the U.S. and the European requirements under one protocol, so we can do one study. So we will be waiting for the final feedback from the FDA in order to move forward with the trial.

As we’ve mentioned in the past, we are proposing and this has been accepted both by the FDA and the Europeans to grow with lung function AAT as our primary endpoint and to grow with two years study instead of the one year as we had before.

So these are two major changes compared with the previous study and this is based on the results and the good data, including significant lung function as we had in the previous Phase 2/3 study which we’ve done in Europe.

But – and we will be waiting for the final feedback from the FDA before moving forward in Europe in order to harmonize the two territories under one study..

If I can sneak one quick follow up just timing from when you’ll hear back from FDA and number of patients for the size of the study changes? Thanks again..

Yes. So in terms of the timelines, as I mentioned in the call, we have submitted additional feedback response and an amended protocol to the FDA during the third quarter and we expect feedback during this quarter or early 2019 before we can move forward. So this is kind of the general timelines pending FDA approval.

And in terms of number of patients, we’re looking around 250 patients in this study. But again this needs to be fully verified and agreed with the regulators..

Thank you..

We’ll go next to Keay Nakae at Chardan..

Yes. Thanks.

I wondering if you can provide any more color on the Graft versus Host Disease study, how that’s progressing?.

Yes. All sites in the study have been initiated, so the study is enrolling. We already have few patients in the study being treated. In general, if you move to site study, five sites led by Mount Sinai. Those sites are part of the MAGIC consortium and we expect interim data late next year..

Okay.

And for the rabies product KedRAB, can you give us a sense of what type of growth we might see from full year product availability versus the Q2 launch in 2018?.

Yes. So I think we did not give specifics on projected number already in our overall projection for next year.

But if you compare our 2019 projection of $125 million to $130 million of which 80% comes from our Proprietary Products to the $102 million to $108 million for which again around 80% is from Proprietary, I think you can assess the growth of the rabies between 2018 and 2019. And the launch has been very successful.

We are active in already most of the 50 states in the U.S., in many, many, many hospitals. The need for stable supply of the product is evidenced and we are very happy with Kedrion’s performance..

And in terms of being able to leverage the FDA approval to promoting or at least perhaps generating increased sales of the product in geographies outside the U.S., how is that going and how has that been helpful so far?.

It’s helpful. We are in the process. We have not officially yet announced it, but we are in the process of registration in additional countries. The U.S. FDA approval is a reference approval that we can use for submission approval. And these are countries where the products of stability is going to be significant..

Okay. Thanks. That’s all I have..

And that does conclude the question-and-answer session. At this time, I would like to turn the conference back over to Mr. Amir London for closing remarks..

Thank you. In summary, while the labor strike negatively impacted our third quarter revenues and financial results, Kamada remains in strong operating position with two important growth drivers over the next several years, GLASSIA and KedRAB as well as a robust pipeline that provides multiple long-term catalysts.

In addition, our business continues to be supported by strong balance sheet as we advance toward a number of key milestones. We look forward to the balance of 2018 and the beginning of 2019 with optimism and confidence, and remain focused on growing our business and enhancing long-term shareholder value. Thank you for joining us on today’s call.

I look forward to providing you with further updates and our progress on our year-end earnings call. Thank you very much..

And that does conclude today’s conference. Again, thank you for your participation..