Kamada Ltd. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone quarterly filing. Financial statements are audited and prepared under IFRS as issued by the IASB; amounts below are U.S. dollars unless stated otherwise. The filing also presents unaudited quarterly results.
Business context
Kamada develops and manufactures plasma-derived therapeutics, principally AAT products, and distributes third-party medicines in Israel. Its flagship product is intravenous AAT therapy Glassia, sold in the U.S. through Takeda. KEDRAB, the U.S. anti-rabies immunoglobulin marketed with Kedrion, launched in April 2018.
Key financial metrics
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Total revenue | $114.5 million | $102.8 million | +11% |
| Gross profit / margin | $41.5 million / 36.2% | $32.1 million / 31.2% | +29% gross profit |
| Operating income | $19.3 million | $7.4 million | Improved |
| Net income | $22.3 million | $6.9 million | Improved |
| Operating cash flow | $10.5 million | $3.6 million | Improved |
| Cash, cash equivalents and short-term investments | $50.6 million | $43.0 million | +$7.6 million |
| Working capital | $87.3 million | $67.5 million | +$19.8 million |
| Total liabilities / loans and capital leases | $25.7 million / $1.3 million | $32.6 million / $2.0 million | Lower |
Revenue comprised $90.8 million from Proprietary Products (+14%) and $23.7 million from Distribution (+2%). Proprietary Products gross margin was 41.8%, versus 35.5% in 2017; Distribution margin declined to 14.7% from 16.6%. FY2018 net income included a $1.944 million deferred tax benefit, primarily from recognizing deferred tax assets on carryforward losses. The company reported an accumulated deficit of $83.0 million.
Q4 2018: Unaudited revenue was $48.2 million, gross profit $21.3 million, operating income $15.4 million and net income $17.7 million. Q4 revenue was substantially higher than the other 2018 quarters; investors should review the revenue-recognition notes and quarterly details.
Material changes and notable items
- Revenue growth and margin expansion were led by Glassia sales, KEDRAB’s U.S. launch, improved manufacturing efficiencies and higher selling prices in some rest-of-world markets.
- Operating cash flow rose to $10.5 million, but inventory increased $8.2 million, partly reflecting products expected to be sold in 2019. Capital expenditures were $2.9 million.
- Research and development expense fell 19% to $9.7 million, partly because Inhaled AAT trial activity was deferred while the company addressed FDA questions.
- A July 2018 employee strike lasted about a month. Kamada recorded $1.8 million of indirect manufacturing-cost write-offs and $0.8 million of process-material scraps.
- IFRS 15 adoption reduced opening 2018 equity by $0.8 million; the company reported that adoption increased FY2018 revenue by $0.8 million and net income by $0.8 million relative to its prior accounting policy.
- Auditors issued unqualified opinions on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective at year-end.
Outlook, commentary and principal risks
- Management forecast 2019 revenue of $125–130 million, approximately 9%–14% growth, and expected continued gross, operating and net profits and positive cash flows. It stated available cash and short-term investments should cover liquidity needs for the next 12 months.
- Takeda’s minimum Glassia purchases extend through 2020. The filing cites expected minimum aggregate Glassia revenue of approximately $120 million for 2019–2020, potentially expandable to $150 million. After 2020, Takeda has no minimum purchase obligation and could begin its own production as early as 2021; Kamada expects royalties, while warning that revenue could fall substantially.
- Customer and product concentration is material: Takeda accounted for about 56% of FY2018 revenue, Glassia about 60%, and U.S. sales about 66%. Kedrion accounted for about 10% of revenue.
- Inhaled AAT remains uncertain. The European Phase II/III trial missed its primary and other predefined endpoints and the MAA was withdrawn. The FDA continued to raise safety and efficacy questions; a pivotal U.S. Phase III trial remained subject to IND authorization. EMA scientific advice was positive on the proposed study design, but is not marketing approval.
- Other risks include reliance on third-party plasma and specialty-material suppliers, a single Israeli manufacturing site, regulatory and cGMP compliance, competitive and reimbursement pressure, foreign-exchange exposure, and future adjustment of manufacturing costs as Takeda transitions production.
- The filing reports $42.3 million in purchase commitments, as well as operating lease obligations; contractual obligations should be reviewed alongside the stated liquidity position.
Most important facts for investors to verify
- Whether 2019 revenue guidance was achieved and how much growth came from Glassia versus KEDRAB and other products.
- The terms, actual purchase volumes and revenue contribution under Takeda’s Glassia agreement, including the transition timeline, royalty rate and minimum royalty provisions.
- The unusually large Q4 revenue and profit contribution, including timing of customer deliveries, recognition of partner payments and any related working-capital effects.
- Cash conversion and inventory quality, given the $8.2 million inventory increase and the strike-related manufacturing write-offs.
- Progress and regulatory outcomes for Inhaled AAT, and whether development spending or timelines changed after the FDA discussions.
- Customer concentration, plasma availability, manufacturing capacity and the company’s ability to reduce fixed costs if Glassia production declines.