Kamada Ltd. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone quarterly report; Q4 figures below are from the unaudited quarterly results included in the filing. Financial amounts are U.S. dollars unless noted. Statements follow IFRS as issued by the IASB, not U.S. GAAP.
Business context and reporting period
Kamada develops and manufactures plasma-derived therapeutics, led by intravenous AAT product GLASSIA, and distributes third-party medicines in Israel. Its two segments are Proprietary Products and Distribution. GLASSIA sales to Takeda remain central to the business; Takeda accounted for approximately 54% of 2019 revenue. The company reported 40,353,101 ordinary shares outstanding at year-end.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Revenue | $127.2 million | $114.5 million | Up 11% |
| Proprietary Products revenue | $97.7 million | $90.8 million | Up 8% |
| Distribution revenue | $29.5 million | $23.7 million | Up 25% |
| Gross profit / gross margin | $49.7 million / 39.1% | $41.5 million / 36.2% | Margin improved 2.9 percentage points |
| Operating income | $22.8 million | $19.3 million | Up approximately 18% |
| Net income / diluted EPS | $22.3 million / $0.55 | $22.3 million / $0.55 | Net income approximately flat |
| Adjusted EBITDA | $28.5 million | $23.9 million | Company-defined non-IFRS measure |
| Operating cash flow | $27.6 million | $10.5 million | Improved; inventories used $13.9 million of cash |
Proprietary Products gross margin was 46.3%, versus 41.8% in 2018; Distribution gross margin was 15.1%, versus 14.7%. Revenue growth and improved product mix, including KEDRAB, supported the higher gross profit. Research and development expense rose 34% to $13.1 million, mainly reflecting the start of the pivotal Phase 3 InnovAATe inhaled-AAT trial.
Q4 2019: Revenue was $32.1 million, gross profit $12.1 million, operating income $5.5 million and net income $5.4 million. In Q4 2018, these were $48.2 million, $21.3 million, $15.4 million and $17.7 million, respectively. The filing presents the quarterly comparison but does not clearly attribute the sharp Q4 year-over-year decline to a specific cause.
At December 31, 2019, cash, cash equivalents and short-term investments totaled $73.9 million, working capital was $110.8 million, total assets were $173.8 million and shareholders’ equity was $135.3 million. Bank loans were $0.7 million and lease liabilities were $5.0 million. Capital expenditures were $2.3 million. Management said available cash and short-term investments should meet liquidity requirements for the next 12 months. The company reported no material off-balance-sheet arrangements.
Material changes versus prior periods
- Revenue increased 11% in 2019. Proprietary Products growth was driven mainly by GLASSIA and KEDRAB in the U.S.; Distribution growth primarily reflected IVIG sales.
- Gross margin improved to 39.1% from 36.2%, while net income stayed near 2018’s level, partly because 2018 included a $2.0 million deferred-tax benefit and 2019 had $0.7 million of income-tax expense.
- Cash and short-term investments increased to $73.9 million from $50.6 million. Operating cash flow rose to $27.6 million from $10.5 million.
- Inventory increased to $43.2 million from $29.3 million. Management said the inventory build was expected to be sold in 2020.
- IFRS 16 lease accounting was adopted in 2019, adding right-of-use assets and lease liabilities; comparative 2018 figures were not restated.
Outlook, commentary and key risks
- Management forecast 2020 revenue of $132 million to $137 million, citing expected growth in proprietary IgG products, international GLASSIA, KEDRAB in the U.S. and Distribution in Israel. It expected 2020 R&D expense to increase 20% to 25% as the InnovAATe trial accelerates.
- Takeda’s minimum aggregate GLASSIA purchases were extended through 2021. Kamada projected approximately $65 million of GLASSIA revenue from Takeda in 2020 and $25 million to $50 million in 2021. Takeda planned to begin its own U.S. production in 2021, subject to FDA approval. Thereafter, royalties are 12% of net sales through August 2025 and 6% through 2040, with a $5 million annual minimum for 2022–2040. Kamada projected $10 million to $20 million of annual royalties, but these are estimates.
- Management expected the 2020 product mix and lower plant utilization to reduce Proprietary Products segment gross margin by approximately 3–5 percentage points versus 2019. It anticipated lower revenue and profitability in 2021–2022 as GLASSIA manufacturing shifts to Takeda, with a return to revenue and profitability growth beginning in 2023 dependent on growth initiatives.
- A December 2019 binding term sheet provides for 12 years of contract manufacturing of a specialty hyper-immune globulin product. Subject to technology transfer and regulatory approvals, production was expected to begin in early 2023 and add an estimated $8 million to $10 million in annual revenue.
- Key risks include dependence on GLASSIA, Takeda and the U.S. market; loss of manufacturing scale and efficiency after the Takeda transition; reliance on plasma suppliers and a single manufacturing facility; regulatory, clinical and product-safety risks; competition and pricing pressure; and foreign-exchange exposure. The filing also identifies potential coronavirus-related supply and operating disruptions but does not quantify an impact.
- The European Phase II/III inhaled-AAT study did not meet its primary endpoint and the European application was withdrawn. A Phase 3 trial began enrolling in Europe in December 2019; U.S. development remained subject to FDA feedback and requirements. The filing anticipated 2020 results from AAT studies in GvHD and lung-transplant rejection.
- In July 2018, a labor strike led to $1.8 million of indirect manufacturing-cost write-offs and $0.8 million of process-material scraps. The filing reports no current legal claims believed likely to materially affect the company.
Most important facts for investors to verify
- Progress and timing of Takeda’s GLASSIA technology transfer, FDA approval, purchase volumes and subsequent royalty payments.
- Whether customer demand and new products can offset the anticipated GLASSIA revenue, margin and plant-utilization decline.
- 2020 revenue and R&D guidance, Proprietary Products margin outlook, and conversion of the elevated inventory balance into sales and cash.
- InnovAATe enrollment, clinical and regulatory milestones, and the expected results of the other AAT studies.
- Liquidity, working-capital needs and the effects of the $25 million FIMI private placement completed after year-end; assess dilution and related-party governance disclosures.
The independent auditor issued an unqualified opinion on the IFRS financial statements and on internal control over financial reporting as of December 31, 2019.