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, 2013. The company completed its U.S. initial public offering (IPO) on Nasdaq in June 2013.
Key Financial Metrics (Year Ended Dec 31, 2013)
| Metric | 2013 (in thousands) | 2012 (in thousands) |
|---|---|---|
| Total Revenues | $70,623 | $72,675 |
| Gross Profit | $26,407 | $22,693 |
| Operating Income | $3,700 | $4,238 |
| Net Income | $443 | $260 |
| Adjusted Net Income | $3,156 | $2,103 |
| Adjusted EBITDA | $9,414 | $8,549 |
| Cash from Operating Activities | $(3,854) | $(8,262) |
| Cash & Equivalents (Ending) | $74,177 | $33,795 |
| Total Debt (Convertible Debentures) | ~$16.2 million | Not explicitly stated as total, but principal was NIS 100M prior to conversions/repayments |
Note: Financial statements are prepared in accordance with IFRS. Adjusted Net Income and Adjusted EBITDA are non-IFRS measures used by management.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 2.8% to $70.6 million. This was driven by a 23.9% decline in the Distribution segment (due to increased competition from returning IVIG competitors in Israel), partially offset by a 9.1% increase in the Proprietary Products segment.
- Profitability Improvement: Despite lower revenue, Gross Profit increased 16.4% to $26.4 million. This was primarily due to a $4.5 million milestone payment received from strategic partner Baxter International Inc. for technology transfer.
- Expense Increases: General and Administrative (G&A) expenses rose 64.4% to $7.9 million, largely due to a one-time $1.4 million management compensation payment related to the U.S. IPO and increased costs associated with being a U.S. public company.
- Liquidity Boost: Cash and cash equivalents more than doubled to $74.2 million, fueled by $52.9 million in proceeds from the U.S. IPO.
Guidance, Outlook, and Risks
Outlook and Catalysts
- Inhaled AAT for AATD: The company expects top-line results from its pivotal Phase II/III clinical trial in Europe by late April or early May 2014. If approved, the company aims to launch in Europe in 2015 and the U.S. in 2016.
- Type-1 Diabetes: Phase II/III trials for Glassia in newly diagnosed Type-1 diabetes began in Israel in March 2014.
- Baxter Partnership: Baxter is expected to begin producing Glassia itself in 2017, at which point Kamada will transition from product sales to royalty-based revenue for the U.S. market.
Key Risks and Contingencies
- Concentration Risk: The company is highly dependent on its flagship product, Glassia (approx. 49% of total revenue), and its largest customer, Baxter (approx. 40% of total revenue).
- Regulatory Approval: Future growth depends on FDA and EMA approvals for Inhaled AAT and new indications. Delays or rejections would materially impact prospects.
- Manufacturing & Supply: The company relies on a single manufacturing facility in Beit Kama, Israel, and is dependent on third-party suppliers for plasma and fraction IV. Disruptions could halt production.
- Debt Refinancing: Approximately 50% of the company's convertible debt is due in 2014. Refinancing may be difficult or costly depending on credit market conditions.
- Inventory Risk: $11.1 million of inventory was produced using new manufacturing processes pending FDA approval. Failure to obtain approval could result in a write-off.
Investor Verification Checklist
- Clinical Trial Results: Verify the top-line results of the Inhaled AAT for AATD Phase II/III trial expected in mid-2014.
- Debt Maturity: Confirm the refinancing status of the convertible debentures due in 2014 and the interest rate environment.
- Inventory Write-off Risk: Monitor the FDA's decision on the new Glassia production process to assess the risk of writing off the $11.1 million inventory.
- Baxter Relationship: Track sales volumes to Baxter and any changes in the strategic partnership terms.
- Competition in Israel: Assess the impact of returning competitors on the Distribution segment's revenue recovery.