When private equity firm FIMI Opportunity Funds first invested in Kamada (Nasdaq: KMDA; TASE: KMDA) in 2019, the Israeli pharmaceuticals company was at a critical juncture. Until then, most of its revenue and profit came from its leading product, Glassia, a drug for the treatment of hereditary emphysema. Kamada produced the drug it had developed at its plant at Kibbutz Beit Kama in southern Israel, and sold it to international pharmaceuticals company Takeda.
2021, however, was marked as a year of change at the company, with production of the drug due to be transferred to Takeda while Kamada would receive royalties, but less profitably than before. Kamada thus faced a fall in revenue, and having an inefficient plant on its hands.
In 2019, with this deadline looming, Kamada was attacked by activist hedge fund Brosh Capital, which bought a minority stake in the company, sharply criticized its management, and in the end received the right to appoint directors to its board and to influence its direction.
FIMI’s investment in effect saved Kamada from being taken over by Brosh Capital. "When we first invested in the company, we discovered that it had good management," says Lilach Asher-Topilsky, a senior partner at FIMI who serves as chairperson of Kamada. "We always carry out analysis from the outside, but we don’t really know until we’re inside. But we did know that Kamada was at a critical inflection point."
Asher-Topilsky was CEO of Israel Discount Bank before she joined FIMI in late 2019, at the same time as the firm first invested in Kamada, when it bought shares for $30 million from Brosh Capital, Leon Recanati, and Jonathan Hahn, and became the largest shareholder in the company.
Shortly afterwards, the firm, which is headed by Ishay Davidi, invested a further $25 million in Kamada in a placement of shares, and last month it announced that it would invest $60 million more, again in a private placement, to bring it to a controlling stake of 38% (versus 21% currently).
Labor dispute and strike
Kamada develops drugs produced from blood plasma. It was founded in 1990 by Ralf Hahn and David Tsur, and at first sold generic products produced from plasma. It built the plant at Beit Kama, and in the 2000s it started to market products with high added value, and was floated on the Tel Aviv Stock Exchange, and later on Nasdaq. Since 2015, it has been headed by Amir London.
Against proposals raised in the board of directors to shut down the plant or scale it down substantially, after FIMI became a shareholder it was decided to make products for other companies, and gradually to fill the plant with new products of the company’s own. In 2001, Kamada bought four human plasma-derived pharmaceutical products (like its own) from US company Saol Therapeutics. The most important of them, CMV, a treatment for infections resulting from organ transplants, will shortly start to be produced at Kamada’s plant, and the others will gradually be transferred there.
Asher-Topilsky says that the company did not make the decision about acquiring the portfolio from Saol easily. "After all, this is a deal that could cost up to $150 million, of which $100 million was paid when it was signed. Today, eighteen months on, we can say that this was the best strategic decision that Kamada could have made. In its first active year as owner of the products it expanded sales by over 20%, and the contribution to gross profit is over 50%," she says.
"The purchase also exemplifies Kamada’s ability to buy products, absorb them, and market them, all in the best possible way. When we made our current investment in Kamada, it was with a very high level of confidence," she adds.
Kamada is FIMI’s first investment so far in a drug development company, but in the broad healthcare sector it has several investments. It appears that the firm prefers companies past the risk stage, and there are not many of those in Israel.
Even under FIMI’s stewardship, Kamada has undergone turbulence. A stormy work dispute that broke out there last year included a strike at the plant that hit the company’s revenue. Kamada laid off about a third of the employees at the plant following the transfer of manufacture of its leading product to Takeda, and a new labor agreement was signed that is meant to prevent further strikes in the coming years. With the new products and reduced workforce, the plant now stands on its feet.
Record revenue forecast
After just one year of falling revenue, Kamada has restored to itself all the revenue it lost from Glassia. This is thanks to the new products it bought, and also to another independent product of the company, a rabies antibody, that received marketing approval in the US in 2017, and that has since grown gradually and had its indications widened, so that it now represents a third of this market in the US.
In 2022, Kamada had revenue of $129 million, 25% more than in 2021, and just 3% less than in 2020, before the big change. For the first quarter of 2023, the company reported revenue of $30 million, representing 9% growth, and it confirmed annual revenue guidance of $138-146 million, which will be a record if it materializes.
Nevertheless, Kamada has made losses in the past two years, and in the first quarter of this year, partly because of severance pay to the employees who left the plant, although cash flow last year was a positive $28.6 million.
Asher-Topilsky: "There are many interesting opportunities in today’s drugs market. Many companies have been left without cash and without sources from which to raise it, and if a company has cash and the ability to bring products to market, such as Kamada has demonstrated in the past, there are possibilities for interesting moves in acquisitions, collaborations, and business development, and thus to bring more activity to the plant."
What opportunities might suit Kamada? FIMI generally prefers companies with revenue or that are close to it. Most likely are companies that deal in blood plasma products. Kamada has become vertically integrated in this area, after buying a center for producing plasma (from blood donations) and setting up a second center itself. It has also built an independent marketing network. It currently markets a product called IVIG, a generic plasma product but one in short supply. Independent production of this product could suit its new strategy.
The company is not necessarily looking for opportunities only in plasma, however. Its marketing network reaches transplant centers and pulmonary physicians, and so it could benefit from synergies in products in these areas. Incidentally, there are two Israeli companies active in the transplant field: Gamida Cell, which recently received marketing approval for its product; and BioLineRX, which could receive approval by the end of the year.
The failed trial, and the future
Kamada has a fine record of meeting targets and fulfilling its vision. That is, except for one instance: the company developed a version of its flagship emphysema treatment administered by inhalation instead of by infusion, but it failed in prolonged and expensive clinical trials. Kamada is currently carrying out a trial with a different protocol, and it seems that it is now devoting its resources less to innovative products of this type, and more to the purchase of products that are already at the commercial stage.
Despite all the apparently good news, Kamada’s share price is at $4.78, 20% below the level at which FIMI invested in the company in the first two stages ($6), and 50% below the peak it reached in 2021, during the Covid pandemic. FIMI’s current investment in Kamada is at a valuation of $214 million.
Published by Globes, Israel business news - en.globes.co.il - on June 6, 2023.
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