Business Context and Reporting Period
Kamada Ltd. is an orphan drug-focused, plasma-derived protein therapeutics company incorporated in Israel. The company operates in two segments: Proprietary Products (development and manufacturing of plasma-derived therapeutics) and Distribution (distribution of third-party drugs in Israel). This Form 20-F covers the fiscal year ended December 31, 2016. Financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics (Year Ended Dec 31, 2016)
| Metric | 2016 (in thousands) | 2015 (in thousands) |
|---|---|---|
| Total Revenues | $77,494 | $69,906 |
| Gross Profit | $21,650 | $15,798 |
| Gross Margin | 27.9% | 22.6% |
| Operating Loss | $(5,481) | $(11,424) |
| Net Loss | $(6,733) | $(11,270) |
| Adjusted Net Loss | $(5,663) | $(9,363) |
| Adjusted EBITDA | $(909) | $(6,290) |
| Cash from Operating Activities | $1,897 | $(13,979) |
| Cash & Equivalents (Ending) | $28,632 | $28,306 |
| Total Assets | $99,696 | $101,992 |
| Total Liabilities | $32,953 | $29,485 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 10.9% to $77.5 million, driven by a 30.2% increase in Proprietary Products revenue (primarily Glassia sales to Shire). This was partially offset by a 20.1% decline in Distribution segment revenue due to increased competition for IVIG products in Israel.
- Profitability Improvement: The operating loss narrowed significantly from $11.4 million in 2015 to $5.5 million in 2016. Gross margin improved to 27.9% from 22.6%, largely due to higher sales volume of Glassia and a better product mix in the Proprietary segment.
- Cost of Revenues: Increased 3.2% to $55.8 million. The Proprietary segment saw a $7.0 million increase due to higher sales volume and a $2.6 million impact from an unexpected temporary manufacturing shutdown and inventory write-off in Q4 2016.
- Research & Development: R&D expenses decreased slightly by 2% to $16.2 million, primarily due to reduced facility costs allocated to R&D, offset by increased clinical trial costs for regulatory submissions (MAA to EMA, BLA to FDA).
- Tax Expense: A one-time tax expense of $1.7 million was recorded in 2016, primarily due to a $1.3 million settlement with the Israeli Tax Authority regarding tax years 2004-2006.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Revenue Targets: Management expects revenues to grow by approximately 30% in 2017, aiming to reach a revenue goal of $100 million.
- Strategic Partnerships:
- Shire: Minimum aggregate revenue for Glassia for 2017-2020 is expected to reach approximately $237 million (expandable to $288 million). Shire is the sole distributor in the U.S., Canada, Australia, and New Zealand.
- Chiesi: Exclusive distributor for Inhaled AAT for AATD in Europe. Minimum purchase obligations of approx. $120 million over the first four years post-approval.
- Kedrion: Partner for KamRAB (anti-rabies) in the U.S.; BLA submitted to FDA in late 2016 with launch expected in 2017.
- Product Pipeline:
- Inhaled AAT for AATD: Marketing Authorization Application (MAA) filed with EMA in Q1 2016; approval expected Q4 2017 with launch in 2018.
- KamRAB: Phase II/III trial completed; BLA submitted to FDA.
- GvHD & Type-1 Diabetes: Phase II/III trials ongoing or planned for AAT in these indications.
Risks and Contingencies
- Concentration Risk: Highly dependent on Glassia (56% of total revenue) and the U.S. market (52% of total revenue). Sales to Shire alone accounted for 52% of total revenue.
- Supply Chain: Reliance on Shire for fraction IV plasma supply for U.S. production. Disruption could halt manufacturing.
- Regulatory Approval: Future growth hinges on EMA approval of Inhaled AAT and FDA approval of KamRAB. Delays or rejections would materially impact prospects.
- Manufacturing: Single manufacturing facility in Beit Kama, Israel, poses risks related to force majeure, contamination, or regulatory non-compliance.
- Competition: Intense competition in the AAT market from Grifols and CSL, and in the Distribution segment from returning competitors in Israel.
Investor Verification Checklist
- Shire Partnership Status: Verify the stability of the relationship with Shire, which accounts for over half of revenue and supplies critical raw materials.
- Inhaled AAT Regulatory Timeline: Monitor the EMA review process for Inhaled AAT for AATD, as approval is critical for the 2017-2018 growth strategy.
- Manufacturing Capacity: Assess the impact of the Q4 2016 plant shutdown and inventory write-off on future production capabilities and margins.
- Israeli Tax Settlement: Confirm that the $1.3 million tax settlement resolves all historical liabilities with the Israeli Tax Authority.
- Plasma Supply Agreements: Review the terms and security of raw material supply agreements, particularly for fraction IV, to ensure no supply constraints.
- Non-IFRS Reconciliations: Scrutinize the adjustments made to calculate Adjusted Net Income and Adjusted EBITDA to understand the core operating performance versus reported GAAP/IFRS results.