Kamada Ltd. — FY2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone Q4 filing; it includes unaudited quarterly results. Financial statements are audited and prepared under IFRS as issued by the IASB. Amounts below are U.S. dollars unless stated otherwise.
Business context
Kamada develops and manufactures plasma-derived protein therapeutics, including its flagship AAT product Glassia, and distributes third-party medicines in Israel. Its two segments are Proprietary Products and Distribution. Glassia sales through Shire and the U.S. market are major drivers of the business.
Financial performance and liquidity
| Metric ($ millions, except per-share data) | FY2017 | FY2016 | Change |
|---|---|---|---|
| Total revenue | 102.8 | 77.5 | +32.7% |
| Proprietary Products revenue | 79.6 | 56.0 | +42.2% |
| Distribution revenue | 23.3 | 21.5 | +8.0% |
| Gross profit / gross margin | 32.1 / 31.2% | 21.4 / 27.6% | +50.2% |
| Operating income (loss) | 7.4 | (5.5) | Turned profitable |
| Net income (loss) | 6.9 | (6.7) | Turned profitable |
| Basic and diluted earnings (loss) per share | $0.18 | $(0.18) | Turned positive |
| Adjusted EBITDA (non-IFRS) | 11.5 | (0.9) | Turned positive |
| Operating cash flow | 3.6 | 1.9 | +1.7 |
FY2017 cash flow from investing was $(15.6) million, principally reflecting $11.5 million invested net in short-term investments and $4.2 million in property and equipment. Financing cash flow was $15.3 million, largely from the August share offering. Cash, cash equivalents and short-term investments totaled $43.0 million at year-end, versus $28.6 million in 2016; working capital was $67.5 million. Loans and capital leases were $2.0 million, and total liabilities were $32.6 million. Management said existing cash and short-term investments should cover liquidity needs for the next 12 months.
FY2017 revenue was concentrated: Shire accounted for approximately 59% of total revenue ($60.4 million), and Glassia represented about 64% of total revenue. Proprietary Products provided 77% of revenue. Segment gross margins were 35.5% for Proprietary Products and 16.6% for Distribution.
Q4 comparison: Revenue was $35.7 million versus $24.3 million in Q4 2016; gross profit was $11.6 million versus $4.7 million; operating income was $6.4 million versus an operating loss of $1.9 million; net income was $6.3 million versus a net loss of $1.8 million.
Material changes versus prior periods
- Revenue growth was led by higher U.S. Glassia sales. Proprietary Products revenue rose 42.2% in 2017, while Distribution revenue rose 8.0%; the Distribution business had declined in 2016, primarily from IVIG competition.
- Gross margin increased to 31.2% from 27.6%, mainly reflecting greater Proprietary Products sales and a more favorable business mix.
- R&D expense decreased to $12.0 million from $16.2 million, mainly as clinical-trial spending fell following trial completion, deferral or regulatory developments. Selling and marketing expense rose to $4.4 million; general and administrative expense rose to $8.3 million.
- In August 2017, Kamada issued 3.83 million shares at $4.50 per share, receiving approximately $15.6 million net proceeds. Year-end shares outstanding were 40.26 million.
- 2016 included a temporary plant shutdown and inventory write-off that increased costs by approximately $2.6 million, as well as a $1.3 million tax settlement payment relating to 2004–2006.
Outlook, commentary and notable items
- Management forecast 2018 revenue growth of approximately 13%–17%, targeting $116–120 million, with expected contributions from Glassia and the planned U.S. launch of KEDRAB.
- Shire’s amended agreement provides minimum Glassia revenue for 2018–2020 of approximately $177 million, potentially rising to $228 million. Shire has no minimum purchase obligation after 2020 and could begin producing Glassia itself as early as 2021; Kamada expects royalties thereafter. The filing says royalties include a minimum of $5 million annually from the first year of Shire-produced commercial sales.
- Kamada received FDA approval for anti-rabies immunoglobulin in August 2017 and expected a U.S. launch under the KEDRAB trademark in 2018. A November 2017 international supply agreement was expected to generate about $13 million in revenue through 2020.
- The European MAA for Inhaled AAT was withdrawn after the pivotal Phase II/III trial failed its primary and other predefined endpoints and the EMA sought further clinical evidence. The FDA continued to raise safety and efficacy questions; a U.S. Phase III trial depended on FDA authorization. Management’s stated timing and development plans were forward-looking, not assured outcomes.
- Shire halted its Phase II/III aGvHD collaboration in June 2017. A replacement investigator-led study with Mount Sinai was announced in January 2018. In the T1D Phase II trial, the overall population showed no significant treatment effect; management highlighted favorable trends in a predefined adolescent subgroup. Lung-transplant study interim findings were based on a small early cohort.
- Management said R&D spending was expected to increase in 2018. The company’s strategic review prioritized AATD and contemplated further development of other AAT indications principally to generate data for potential partners.
Risks, contingencies and unusual items
- Revenue and supply concentration: Shire is a major customer, Glassia distributor and source of fraction IV plasma; the company also relies on partners and third parties for distribution and key materials. The expected post-2020 transition in Shire’s Glassia sourcing could materially reduce Kamada’s product revenue and leave manufacturing fixed costs.
- Product and pipeline risks include regulatory uncertainty for Inhaled AAT, required post-approval studies, clinical-trial outcomes, product safety, reimbursement and competitive pressure. Plasma availability, contamination, manufacturing compliance and yield also pose risks.
- Kamada operates a single principal manufacturing facility in Israel, exposing supply to operational disruption, force majeure and regional risks. It also faces foreign-exchange exposure; management reported $16.6 million of open derivative transactions in its market-risk discussion.
- Israeli Approved Enterprise tax benefits expired at the end of 2017; Privileged Enterprise benefits were scheduled to expire at the end of 2020 and 2023, subject to continued eligibility. The company reported $90.1 million of tax loss carryforwards but did not recognize deferred tax assets because utilization was not considered probable.
- The company reported no material off-balance-sheet arrangements and stated that pending legal matters were not expected to have a material adverse effect. Purchase commitments were $37.9 million; total contractual obligations shown were $46.5 million. No cash dividends were anticipated in the foreseeable future.
- IFRS 15 adoption in 2018 was expected to result in a $0.8 million opening adjustment to deferred revenue and accumulated deficit, with the amount recognized as revenue during 2018; management reported no other material financial-statement impact from adoption.
Most important facts for investors to verify
- Whether 2018 revenue guidance was achieved and how much growth came from Glassia versus KEDRAB and other products.
- Shire’s actual Glassia purchases through 2020, its manufacturing transition timetable, and the resulting royalty terms and revenue effect for Kamada.
- FDA decisions and clinical progress for Inhaled AAT, including whether the proposed pivotal trial was authorized and adequately funded.
- Cash conversion and working-capital quality, particularly collection of the elevated year-end receivables, and whether clinical spending and capital expenditure remain within liquidity capacity.
- Ongoing dependence on Shire, plasma suppliers and the Beit Kama facility, as well as the status of tax incentives, regulatory compliance and post-approval trials.