Introduction
Kamada (NASDAQ:KMDA) is a biopharmaceutical firm, based in Israel, specializing in plasma-derived products for rare and severe conditions. With six FDA-approved products like Cytogam and WinRho SDF, it operates in over 30 countries. Besides marketing international pharmaceuticals in Israel, Kamada also focuses on biosimilar launches and runs an FDA-licensed plasma center in Texas. Its main R&D venture is an inhaled treatment for AAT deficiency. Israel’s top private equity firm, FIMI Opportunity Funds, holds around 38% of its shares.
The following article discusses Kamada’s Q2 2023 financial performance, liquidity status, and growth prospects. It highlights strong YoY revenue increase and collaborations but raises concerns about its AAT deficiency venture. Recommends a “Hold” stance.
Q2 Earnings Report
Kamada’s Q2 2023 earnings showed a 59% YoY revenue jump to $37.4M, primarily fueled by Kedrab sales. Gross profit was $14.4M at a 39% margin, impacted by a $1.3M depreciation expense from the IgG acquisition. Operating expenses climbed to $11.8M, up from last year’s $9.5M, due to increases in S&M and R&D. The firm posted a net income of $1.8M, reversing last year’s $3.9M loss. Cash reserves stood at $21.8M as of June 30, down from $34.3M in 2022, but were bolstered by a subsequent $60M financing closed in August.
Cash Runway & Liquidity
Turning to Kamada balance sheet, as of June 30, 2023, the company’s combined assets under ‘Cash and cash equivalents’ amount to $21.8M. For the six-month period ending on the same date, the company has reported a “Net cash used in operating activities” of -$1.016M, indicating a monthly cash burn of approximately -$0.169M. By using the earlier calculated asset value, Kamada has an estimated cash runway of about 129 months. However, it’s imperative to note that these values and estimates are based on historical data and may not accurately predict future performance. Furthermore, any alterations in expenses and/or revenues could significantly impact their cash runway. Lastly, this estimate does not include financing after June 30, 2023.
Kamada showcases a strong liquidity status, holding more in assets than its current liabilities of $65.8M. The company’s debt is characterized by current maturities of bank loans amounting to $4.4M, with non-current bank loans amounting to $10.7M. Given their liquidity, positive net cash from operating activities in previous periods, and manageable debt, Kamada seems well-positioned to secure additional financing if needed. These are my personal observations, and other analysts might interpret the data differently.
Capital Structure, Growth, & Momentum
According to Seeking Alpha data, Kamada has a moderate capital structure with an enterprise value of $306.74M; cash and debt are nearly offsetting, posing minimal risk. The company is beyond the pre-revenue phase with positive sales growth YoY; 2025 projections indicate a substantial increase to $196.78M, pointing to promising future earnings. Despite some negative EPS growth in the past, recent developments and strategic collaborations indicate an optimistic trajectory. Stock momentum is relatively strong, outperforming the SP500 in most time frames.
Immunoglobulins and Margins: Kamada’s Balancing Act
During their most recent earnings call, Kamada reported a robust financial performance in the first half of 2023, noting a 32% year-over-year revenue growth. This growth was significantly driven by the sales of Kedrab and the incorporation of FDA-approved immunoglobulins from 2021. The company is optimistic about maintaining this momentum, projecting a profitability growth of about 35% over 2022.
Kamada’s strategic collaboration with Kedrion, particularly with their extended Kedrab distribution agreement, highlights their expanding footprint in the U.S. market. Their focus on Cytogam and VariZIG showcases their commitment to penetrating deeper into specialty immunoglobulin segments. The FDA’s green light to manufacture Cytogam in their Israeli facility promises a consistent product supply, potentially strengthening their position in North American markets.
One of the standout insights into Kamada’s market opportunity lies in their foray into the U.S. plasma collection market. With an already operational plasma collection center in Beaumont, Texas, and another slated for Houston in 2024, Kamada seems to be positioning itself strategically to tap into the burgeoning plasma-derived product sector.
The ongoing Phase III InnovAATe trial for Kamada’s Inhaled Alpha-1 Antitrypsin therapy highlights their innovative stance on treating Alpha-1 Deficiency. With potential benefits over current intravenous methods, Kamada has the opportunity to transform a market already experiencing significant sales in the U.S. and Europe. More on this below.
My Analysis & Recommendation
Kamada’s Q2 2023 earnings paint a picture of a company on the ascent, particularly with revenues rising 59% year-over-year and a net income turnaround from last year’s loss. The robust liquidity and modest debt also put the company in a favorable position for any future capital allocations or R&D efforts.
The AAT deficiency project introduces uncertainty into Kamada’s promising outlook. Weak Phase 2 results, particularly the negligible effect on “time to first exacerbation” for AATD patients with severe COPD, question the treatment’s market viability. Even if approved, the data suggest Kamada might only carve out a niche, diminishing blockbuster potential. This ongoing effort also poses a financial burden on the company.
On the flip side, the company’s strong performance in other areas, such as Kedrab sales and its U.S. plasma collection initiatives, cannot be ignored. These serve as hedges against the AAT deficiency gamble, and investors might find comfort in the company’s diversified portfolio and strategic collaborations.
In light of these dynamics, a “Hold” recommendation seems the most rational approach at this stage. The positive earnings and other growth drivers could offer some downside protection, while the question marks surrounding the AAT deficiency treatment cap the upside. In the coming weeks and months, investors should keep a close eye on any updates related to the AAT deficiency program, as well as any shifts in capital allocation that could either mitigate or exacerbate current concerns.
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