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, primarily the flagship product Glassia) and Distribution (distribution of third-party drugs in Israel). This Form 20-F covers the fiscal year ended December 31, 2015. Financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics (Year Ended Dec 31, 2015)
| Metric | 2015 (in thousands) | 2014 (in thousands) |
|---|---|---|
| Total Revenues | $69,906 | $71,065 |
| Gross Profit | $15,798 | $15,042 |
| Operating Loss | $(11,424) | $(11,479) |
| Net Loss | $(11,270) | $(13,213) |
| Adjusted Net Loss | $(9,363) | $(9,462) |
| Adjusted EBITDA | $(6,290) | $(4,940) |
| Cash & Equivalents | $28,306 | $51,896 |
| Operating Cash Flow | $(13,979) | $(9,918) |
| Weighted Avg Shares (Basic) | 36,245,813 | 35,971,335 |
Segment Performance: Proprietary Products revenue was $42.9 million (61% of total), while Distribution revenue was $27.0 million (39% of total). Gross margins were 29.1% for Proprietary Products and 12.3% for Distribution.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by 1.6% ($1.2 million) compared to 2014. This was driven by a 3.2% decrease in Proprietary Products revenue (due to lower sales volume) partially offset by a 1.0% increase in Distribution revenue.
- Cost of Revenues: Total cost of revenues decreased by 3.4% ($1.9 million). The Proprietary Products segment saw a $2.1 million decrease, primarily due to the absence of a one-time $3.0 million inventory write-off that occurred in Q2 2014.
- Net Loss Improvement: Net loss narrowed by approximately 15% year-over-year, despite continued operating losses, largely due to reduced financial expenses following the full repayment of convertible debentures in December 2015.
- Research & Development: R&D expenses increased slightly by 3% to $16.5 million, driven by higher facility costs allocated to R&D, offset by lower clinical trial expenses for Inhaled AAT as the pivotal European trial concluded.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Revenue Goal: Management expects Proprietary Products segment revenues to grow by approximately 75% by 2017, aiming for a midterm revenue goal of $100 million.
- Pipeline Milestones:
- Inhaled AAT for AATD: Plans to file a Marketing Authorization Application (MAA) with the European Medicines Agency (EMA) in Q1 2016, with a potential launch in Europe by 2018.
- KamRAB (Anti-rabies): Plans to file a Biologics License Application (BLA) with the FDA by mid-2016, targeting a U.S. launch in 2017.
- Type-1 Diabetes: Unblinding of the Phase II/III clinical trial for newly diagnosed Type-1 Diabetes is expected in 2016.
- Baxalta Partnership: Baxalta remains the sole distributor of Glassia in the U.S., Canada, Australia, and New Zealand. Baxalta is expected to begin producing Glassia itself no earlier than 2019, at which point Kamada will transition to a royalty-based revenue model for that product.
Risks and Contingencies
- Concentration Risk: The business is highly concentrated on Glassia (approx. 43% of total revenue) and the U.S. market (approx. 38% of total revenue). Sales to Baxalta alone accounted for 37% of total revenue in 2015.
- Regulatory Uncertainty: The Inhaled AAT for AATD pivotal trial in Europe did not meet its primary endpoint (time to first exacerbation), though post-hoc analyses showed statistically significant improvements in lung function. Approval is not guaranteed.
- Supply Chain: Dependence on Baxalta for the supply of fraction IV plasma for Glassia production. Disruption in this supply or the partnership could materially harm operations.
- Manufacturing: All proprietary products are manufactured in a single facility in Beit Kama, Israel, creating risk from force majeure events (e.g., regional conflict, equipment failure).
- Intellectual Property: Ongoing patent disputes, including an inter partes review challenging a competitor's patent (Grifols), which was ruled invalid by the Patent Trial and Appeal Board in December 2015, though the competitor has appealed.
Investor Verification Checklist
- EMA MAA Filing: Verify the submission of the Marketing Authorization Application for Inhaled AAT for AATD in Q1 2016 and the EMA's response regarding the primary endpoint failure.
- Baxalta Acquisition Impact: Monitor the impact of Shire plc's acquisition of Baxalta (announced Jan 2016) on the strategic partnership and Glassia distribution.
- Cash Burn Rate: Assess the sustainability of the $28.3 million cash balance given the negative operating cash flow of $14.0 million and ongoing R&D expenditures.
- Inventory Valuation: Review inventory levels and potential write-offs, given the history of write-offs related to shelf-life and manufacturing process changes.
- Convertible Debt Repayment: Confirm the full repayment of the NIS 100 million convertible debentures in December 2015 and the absence of new debt obligations.