Kamada .(KMDA) - 2021 Q4 - Annual Report

PART I Key Information This section outlines principal risks from the Saol acquisition, GLASSIA sales cessation, and U.S. market reliance Risk Factors The company faces risks from the Saol acquisition, GLASSIA revenue loss, and U.S. market concentration - The ability to realize anticipated benefits from the acquisition of four FDA-approved plasma-derived products from Saol is critical for future growth and profitability[30][32] - Revenues from the newly acquired products and GLASSIA royalties may not fully offset the significant decrease in revenue from ceasing GLASSIA manufacturing for Takeda[30][39][41] - The company is heavily reliant on its Proprietary Products segment (73% of 2021 revenue) and the U.S. market (48% of 2021 revenue)[42][44] - Following the transition of GLASSIA manufacturing to Takeda, the company may have excess manufacturing capacity, potentially reducing efficiency and profitability[45][46] - The success of expanding U.S. plasma collection operations is critical for future growth and plasma self-sufficiency[30][48] - The company relies on third-party distributors for ex-U.S. markets, which accounted for approximately 17% of total revenues in 2021[67] - The company depends on Contract Manufacturing Organizations (CMOs), such as Emergent BioSolutions, for the manufacturing of HEPGAM B, VARIZIG, and WINRHO SDF[31][96] - The COVID-19 pandemic has caused and may continue to cause operational disruptions, including delays in raw material receipt, product shipments, and clinical trials[55][56][147] Information on the Company The company operates as a biopharmaceutical firm with a focus on plasma-derived products and strategic acquisitions Business Overview The company operates through Proprietary Products and Distribution segments, projecting significant 2022 revenue growth - Kamada operates through two segments: Proprietary Products (plasma-derived therapeutics) and Distribution (third-party pharmaceuticals in Israel)[307] - The company's strategy focuses on driving profitable growth through its commercial portfolio, manufacturing expertise, and development pipeline[306] Fiscal Year 2022 Financial Guidance | Metric | Guidance Range/Value | | :--- | :--- | | Total Revenues | $125 million to $135 million | | Revenue Growth vs. FY2021 | 20% to 30% | | EBITDA as % of Total Revenues | 12% to 15% | Recent Acquisitions The company executed two strategic acquisitions in 2021, buying a product portfolio from Saol and a plasma center - In November 2021, Kamada acquired a portfolio of four FDA-approved plasma-derived hyperimmune commercial products from Saol[316] Saol IgG Portfolio Acquisition Details | Financial Term | Amount | | :--- | :--- | | Upfront Payment | $95 million | | Contingent Consideration | Up to $50 million | | Acquired Inventory Value | $14.4 million | | 2021 Global Revenue of Portfolio | ~$41.9 million | | Kamada's Revenue from Portfolio (post-acquisition in 2021) | ~$5.4 million | - In March 2021, Kamada acquired an FDA-licensed plasma collection center from B&PR in Beaumont, Texas for approximately $1.61 million, marking its entry into the U.S. plasma collection market[323] Our Commercial Product Portfolio The commercial portfolio is split between the Proprietary Products segment and the Distribution segment in Israel Revenue Contribution by Segment (as % of Total Revenues) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Proprietary Products | 73% | 76% | 77% | | Distribution | 27% | 24% | 23% | - Key proprietary products include GLASSIA (AATD treatment), KEDRAB (rabies prophylaxis), and the newly acquired portfolio for indications such as CMV prophylaxis and ITP[309][339][344] - The Distribution segment is expanding its portfolio with eleven biosimilar products, expected to launch between 2022 and 2028 with a peak annual revenue potential of over $40 million[313][373][375] Our Development Product Pipeline The development pipeline is led by an inhaled AAT for AATD, currently in a pivotal Phase 3 clinical trial - The lead pipeline product is an Inhaled AAT for AATD, currently in the pivotal Phase 3 InnovAATe clinical trial[314][383] - The InnovAATe trial is a randomized, double-blind, placebo-controlled study designed to assess the efficacy and safety of Inhaled AAT in up to 250 patients with AATD over two years[398] - The company developed an Anti-SARS-CoV-2 IgG product, generating $3.9 million in revenue in 2021, with the program's continuation under evaluation[406][407] - Kamada is also advancing the development of a recombinant human Alpha 1 Antitrypsin (rhAAT) product with a CDMO[408] Strategic Partnerships The company maintains key partnerships with Takeda for GLASSIA royalties and Kedrion for KEDRAB distribution - The partnership with Takeda for GLASSIA has shifted to a royalty agreement, with Kamada receiving 12% of net sales through August 2025 and 6% thereafter until 2040[413][418] - Kamada has an exclusive distribution and supply agreement with Kedrion for the marketing of KEDRAB in the United States, with the term running until March 2024[422][423][425] - The company has a license agreement with PARI for the exclusive worldwide use of its eFlow® nebulizer for the inhaled AAT product candidate[427] Manufacturing and Supply The company operates an FDA-approved plant in Israel and relies on CMOs and third-party plasma suppliers - The company operates a single, FDA-approved manufacturing facility in Beit Kama, Israel, for its proprietary plasma-derived products[186][434] - Technology transfer for CYTOGAM manufacturing to the Beit Kama facility is underway, with commercial production expected in early 2023[434] - HEPAGAM B, VARIZIG, and WINRHO SDF are manufactured by Emergent under a contract, with plans to eventually transfer manufacturing to Kamada's facility[438] - The main raw materials are hyper-immune plasma and fraction IV, sourced from multiple third-party suppliers including Takeda and Kedrion[439][441][444] Competition The company faces competition from large multinational firms in both its Proprietary and Distribution segments - Major competitors in the plasma-derived therapeutics market include CSL Behring, Grifols, Takeda, and Kedrion[69][459] - For KEDRAB, Grifols holds an estimated 70%-80% market share in the United States[72][463] - For GLASSIA, competitors include Grifols and CSL, with potential disruption from new therapies like gene therapy and oral inhibitors[79][468][469] - In the Israeli Distribution segment, Kamada competes with local distributors for large pharmaceutical manufacturers such as Novartis, AstraZeneca, and Sanofi[139][471] Government Regulation The company's products are subject to extensive regulation by global authorities, including the FDA and EMA - Products are regulated as biologics in the U.S. and require an approved Biologics License Application (BLA) from the FDA before marketing[473] - The manufacturing facility in Israel is subject to periodic inspections to ensure compliance with current Good Manufacturing Practice (cGMP) standards[435][492] - Kamada has received Orphan Drug Designation for Inhaled AAT, providing market exclusivity upon approval (7 years in U.S., 10 years in E.U.)[484][485][486] - The company is subject to complex U.S. healthcare laws, including the Patient Protection and Affordable Care Act (ACA), which impacts pricing and rebates[510][517] Operating and Financial Review and Prospects This section analyzes financial performance, highlighting a revenue decrease due to the GLASSIA transition Results of Operations Total revenues decreased 22.2% in 2021, driven by the planned cessation of GLASSIA manufacturing for Takeda Consolidated Statement of Operations Data (in thousands USD) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Revenues | $103,642 | $133,246 | $127,187 | | Gross Profit | $30,328 | $47,552 | $49,737 | | Operating Income (Loss) | ($696) | $19,237 | $22,784 | | Net Income (Loss) | ($2,230) | $17,140 | $22,251 | Segment Results Comparison: 2021 vs. 2020 (in thousands USD) | | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | | | | | Proprietary Products | $75,521 | $100,916 | (25.2)% | | Distribution | $28,121 | $32,330 | (13.0)% | | Total Revenues | $103,642 | $133,246 | (22.2)% | | Gross Profit | | | | | Proprietary Products | $27,327 | $43,166 | (36.7)% | | Distribution | $3,001 | $4,386 | (31.6)% | | Total Gross Profit | $30,328 | $47,552 | (36.2)% | - The decrease in 2021 revenue was primarily due to the transition of GLASSIA manufacturing to Takeda, resulting in a $38.7 million year-over-year decrease in GLASSIA sales[585] - Gross margin for the Proprietary Products segment decreased from 42.8% in 2020 to 36.2% in 2021, attributed to changes in product mix and reduced plant utilization[587][588][589] - Research and Development expenses decreased by 16.2% to $11.4 million in 2021, mainly due to reduced clinical trial costs[592] - Selling and Marketing expenses increased by 39% to $6.3 million in 2021, primarily due to costs associated with the newly acquired Saol portfolio[595] - General and Administrative expenses increased by 24.6% to $12.6 million in 2021, largely due to $1.2 million in transaction costs for the Saol acquisition[597] Liquidity and Capital Resources Cash position decreased significantly due to the $95 million Saol acquisition, partially funded by new debt Cash and Short-Term Investments (in millions USD) | Date | Amount | | :--- | :--- | | Dec 31, 2021 | $18.6 | | Dec 31, 2020 | $109.3 | | Dec 31, 2019 | $73.9 | - In November 2021, the company secured a $40 million debt facility from Bank Hapoalim B.M. to partially fund the Saol acquisition[628] Cash Flow Summary (in millions USD) | Cash Flow From | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating Activities | ($8.8) | $19.1 | $27.6 | | Investing Activities | ($61.1) | ($13.1) | ($0.6) | | Financing Activities | $18.6 | $23.3 | ($1.5) | - Net cash used in investing activities in 2021 was $61.1 million, primarily comprising the $96.4 million for acquisitions, offset by dispositions of investments[635] - The company believes its current cash and cash equivalents are sufficient to satisfy liquidity requirements for the next 12 months[627] Critical Accounting Policies and Estimates This section details key accounting policies requiring management judgment, such as revenue recognition and M&A - Revenue Recognition: Revenue is recognized when control transfers; variable consideration is included only when a significant reversal is highly improbable[643][645] - Business Combinations: Acquisitions are accounted for using the acquisition method, requiring significant estimates for intangible assets and contingent consideration[647][651] - Inventory Valuation: Inventory is measured at the lower of cost or net realizable value, with cost allocation based on a standard manufacturing capacity[659][660] - Impairment of Non-financial Assets and Goodwill: The company reviews assets for impairment when indicators are present and tests goodwill annually[664][667] Directors, Senior Management and Employees This section details the company's leadership, board structure, compensation, and employee information - The Board of Directors consists of nine members, with seven of the nine directors considered independent under Nasdaq listing requirements[698][721] Aggregate Compensation of Directors and Officers (2021) | Category | Amount (USD) | | :--- | :--- | | Total Compensation | ~$3.05 million | | Pension/Severance Accrual | ~$0.27 million | Compensation of Top 5 Executives (2021, in thousands USD) | Name | Position | Salary | Bonus | Value of Options | Other | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Amir London | CEO | $412 | $89 | $141 | $21 | $663 | | Chaime Orlev | CFO | $264 | $48 | $11 | $19 | $342 | | Eran Nir | COO | $256 | $35 | $10 | $31 | $332 | | Orit Pinchuk | VP, Regulatory | $227 | $24 | $10 | $23 | $284 | | Yifat Philip | VP, General Counsel | $201 | $24 | $33 | $22 | $280 | - As of December 31, 2021, the company employed 355 people in Israel and 9 in the U.S., a reduction from 408 in 2020 due to the GLASSIA manufacturing transition[789] - The company has a collective bargaining agreement with employees at its Beit Kama facility, and negotiations for a new agreement were ongoing as of March 2022[790] Major Shareholders and Related Party Transactions This section details major shareholders, including FIMI Funds, and transactions with affiliated parties Major Shareholders (as of March 15, 2022) | Shareholder | Beneficial Ownership (%) | | :--- | :--- | | FIMI Funds | 21.10% | | The Phoenix Holdings Ltd. | 8.11% | | Leon Recanati | 8.06% | - The company has a distribution agreement with Tuteur S.A.C.I.F.I.A., a company where director Jonathan Hahn is President, for distribution in Latin America[817][820] - In January 2020, the company completed a $25 million private placement with the FIMI Funds, increasing FIMI's ownership to approximately 21%[824] - A shareholders' agreement exists between the Recanati Group and the Damar Group regarding voting for the election of each other's director nominees[822] Financial Information This section refers to the consolidated financial statements provided in full under Item 18 of this report - The consolidated financial statements are set forth under Item 18 of this annual report[826] Additional Information This section covers corporate governance, material contracts, exchange controls, and tax considerations - The company is incorporated under the laws of Israel and its purpose is to engage in any lawful business[829] - There are currently no Israeli currency control restrictions on remittances of dividends or proceeds from the sale of shares to non-residents of Israel[837] - The company has benefited from Israel's Law for the Encouragement of Capital Investments, providing for reduced corporate tax rates, with some benefits expiring at the end of 2023[847][849][851] - For U.S. Holders, there is a risk the company could be classified as a Passive Foreign Investment Company (PFIC), which would result in adverse U.S. tax consequences[893][900] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate risk and foreign currency fluctuations - The company is exposed to interest rate risk from its financial assets and debt[910] - The company faces significant foreign currency risk, particularly from fluctuations of the NIS and Euro against the U.S. dollar[912][913] - To mitigate currency risk, the company uses hedging strategies, including forward currency contracts, with open transactions of approximately $19.7 million as of year-end 2021[914] - A 10% increase in the value of the NIS against the U.S. dollar would have decreased the company's financial assets by $0.06 million as of December 31, 2021[916] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[925] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[926] - The independent registered public accounting firm issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[927] Financial Statements This section contains the audited consolidated financial statements prepared in accordance with IFRS - The report includes the audited consolidated financial statements for the fiscal years ended December 31, 2021, 2020, and 2019[944] - The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB[956] - The independent auditor's report identifies inventory valuation and Saol acquisition accounting as Critical Audit Matters[960]