UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
OR
For the fiscal year ended
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| Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | ||
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
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Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒
TABLE OF CONTENTS
i
In this Annual Report on Form 20-F (this “Annual Report”), unless the context indicates otherwise, references to “NIS” are to the legal currency of Israel, “U.S. dollars,” “$” or “dollars” are to United States dollars, and the terms “we”, “us”, the “Company”, “our company”, “our”, and “Kamada” refer to Kamada Ltd., along with its consolidated subsidiaries.
This Annual Report contains forward-looking statements that relate to future events or our future financial performance, which express the current beliefs and expectations of our management in light of the information currently available to it. Such statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual future results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include all statements that are not historical facts and can be identified by words such as, but without limitation, “believe”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “target”, “likely”, “may”, “will”, “would”, or “could”, or other words, expressions or phrases of similar substance or the negative thereof. We have based these forward-looking statements largely on our management’s current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
| ● | our strategy to focus on driving profitable growth from our current commercial activities as well as our distribution, manufacturing, and development expertise in the plasma-derived and biopharmaceutical markets; |
| ● | our current exception to generate fiscal year 2022 total revenues at a range of $125 million to $135 million which would represent a 20% to 30% growth compared to fiscal year 2021; |
| ● | our current anticipation of generating EBITDA, during 2022, at a rate of 12% to 15% of total revenues, representing more than 2.5x of the EBITDA for the year ended December 31, 2021; |
| ● | our commitment to growing our hyperimmune immunoglobulins (IgG) portfolio and our plasma collection capabilities, and believe these acquisitions are a significant strategic step in that direction; |
| ● | our expectation that based on current GLASSIA sales in the U.S. and forecasted future growth, we will receive royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040; |
| ● | our expectation that, subject to EMA and subsequently IMOH approvals, we will launch in Israel eleven biosimilar products between the years 2022 and 2028, and our estimate that the potential aggregate maximum revenues, achievable within several years of launch, generated by the distribution of all eleven biosimilar products will be more than $40 million annually; |
| ● | our continued focus on driving profitable growth through expanding our growth catalysts which include: investment in the commercialization and life cycle management of the newly acquired products portfolio– CYTOGAM®, HEPGAM B®, VARIZIG® and WINRHO® SDF, including growing the acquired portfolio’s revenues in new geographic markets; continued market share growth for our anti-rabies immunoglobulin products, KEDRAB® in the U.S. market; expanding sales of GLASSIA and other Proprietary products in ex-U.S. markets, including registration and launch of the products in new territories; generating royalties from GLASSIA sales by Takeda; expanding our plasma collection capabilities in support of our growing demand for hyper-immune specialty plasma as well as sales of normal source plasma to the market; continued increase of our Distribution segment revenues specifically through launching the eleven biosimilar products in Israel; and leveraging our FDA-approved IgG platform technology, manufacturing, research and development expertise to advance development and commercialization of additional product candidates including our Inhaled AAT product (“AATD”) candidate and identify potential partners for this product; |
| ● | in connection with the acquisition of a portfolio of four FDA approved plasma-derived hyperimmune commercial products – CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF – from Saol Therapeutics (“Saol”), a commercial specialty pharmaceutical company focused on addressing the medical needs of underserved or unserved patient populations, our expectation to recruit staff as needed, and will gradually assume all operation responsibility related to the acquired products from Saol, including distribution and sales, quality procedures, supply chain activities, regulatory and finance related issues; |
| ● | our intention to market and distribute CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF directly based on our existing sales and marketing personnel as well as new, to be hired, sales and marketing employees, mainly in the U.S, and our intention to leverage our existing strong international distribution network to grow the acquired portfolio’s revenue in geographic markets in which these products are not currently sold; |
| ● | our expectation to receive FDA approval for manufacturing of CYTOGAM and initiate commercial manufacturing of the product in our manufacturing facility in Beit Kama, Israel by early 2023; |
ii
| ● | our expectation to continue manufacturing HEPAGAM B, VARIZIG and WINRHO SDF at Emergent BioSolutions Inc. (“Emergent”) in the foreseeable future, while initiating in parallel a technology transfer project for transitioning the manufacturing of these products to our manufacturing facility in Beit Kama, Israel, subject to executing an amendment to the manufacturing services agreement with Emergent covering the technology transfer related services and scope, and our anticipation that once initiated, such project may be completed within three to five years; |
| ● | our plans to significantly expand our hyperimmune plasma collection capacity by investing in this plasma collection center in Beaumont, Texas, and leveraging our FDA license to establish a network of new plasma collection centers in the United States, with the intention to collect normal source as well as hyperimmune specialty plasma required for manufacturing of our other Proprietary products including KAMRAB/KEDRAB as well as for some of the products included in our recently acquired products portfolio; |
| ● | our intention to expand our Proprietary plasma-derived products business, including that of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, by maximizing the market potential of our existing Proprietary products portfolio; |
| ● | our intention to broaden our Distribution products portfolio, with a focus on biosimilar products; |
| ● | our intention to enhance our current manufacturing capabilities; |
| ● | our plan to continue to develop our pipeline, primarily focusing on the pivotal Phase 3 InnovAATe clinical trial of Inhaled AAT for the treatment ofAATD and to explore new strategic business development opportunities; |
| ● | our intention, in a post-COVID-19 era, to leverage our expertise in plasma-derived protein therapeutics in order to address unmet medical needs in potential future emerging healthcare pandemic or epidemic crises, and to establish a holistic IgG readiness offering and identify additional opportunities in complementary pandemic-related treatment solutions; |
| ● | our expectation that the financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operation, and that the full extent to which the pandemic impacts our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and duration of the pandemic and actions to contain its spread or treat its impact, among others; |
| ● | our projection that the number of Solid Organ Transplants (“SOT”) procedures performed will continue to grow at a rate of 6.5% over the next five years; |
iii
| ● | our belief, based on CMV hyperimmune clinical evidence, that to improve transplant outcomes in combination with antiviral therapy, the administration of CYTOGAM together with the available antivirals can serve as a preferred option for preventing CMV disease; |
| ● | our belief that there is an under-usage of CYTOGAM to prevent CMV disease in SOT due to low awareness of its benefits when used with antiviral therapy for high-risk patients, our intention to engage in increased activities in order to promote the awareness for such benefits, and our belief that increased awareness can support higher usage rates; |
| ● | our intention to seek registration of CYTOGAM in various other territories as well as explore label expansion of CYTOGAM to be used in other indication; | |
| ● | our belief that as the only Rho (D) product positioned in the U.S. for ITP and given its advantage over IVIG in treatment of acute ITP, increasing awareness amongst treating physicians can support higher usage rates; |
| ● | our belief that given the continued increase in liver transplants in the U.S. as well as several ex-U.S. countries, and with direct marketing efforts HEPAGAM usage may grow; |
| ● | our belief that our current cash and cash equivalents and short-term investments will be sufficient to satisfy our liquidity requirements for the next 12 months; |
| ● | our belief that our relationships with our strategic partners, including with Takeda and Kedrion, will continue without disruption; |
| ● | our belief that we will be able to register our proprietary products, including CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, in additional countries where they are not currently registered, and our belief that this would lead to additional sales worldwide; |
| ● | our belief that we will be able to continue to meet our customers demand for GLASSIA, KEDRAB, and other proprietary products; |
| ● | our expectation that our market share for KEDRAB sales in the U.S. market will continue to grow in the coming years; |
| ● | our belief that U.S.-based and other healthcare providers would seek to continue to diversify their source of anti-rabies immunoglobulin using our product; |
| ● | our belief that anti-rabies products based on equine serum are inferior to products made from human plasma; |
| ● | our expectations regarding the potential market opportunities for our products and product candidates; |
| ● | our expectations regarding the potential actions or inactions of existing and potential competitors of our products, including our belief that there will be no new supplier of AAT by infusion in the U.S. market in the near future; |
| ● | the legislation or regulation in countries where we sell our products that affect product pricing, reimbursement, market access or distribution channels may affect our sales and profitability; |
| ● | our projection that changes in the product sales mix and geographic sales mix may have an effect on our sales and profitability; |
| ● | our ability to procure adequate quantities of plasma and fraction IV from our suppliers, which are acceptable for use in our manufacturing processes; |
| ● | our ability to maintain compliance with government regulations and licenses; |
| ● | our expectation of launching Bonsity in Israel during 2022 upon receipt of regulatory approval from the IMOH; |
| ● | our ability to identify growth opportunities for existing products and our ability to identify and develop new product candidates; |
iv
| ● | our belief that the market opportunity for AAT products will continue to grow; |
| ● | our ability to attract partners for development programs for Inhaled AAT for AATD in the United States and the European Union, and to maintain such partnerships, if we decide to pursue such direction, as well as the impact on our business resulting from such partnerships, or from a failure to form such partnerships or fully realize the benefits of such partnerships; |
| ● | our belief that Inhaled AAT for AATD will increase patient convenience and reduce the need for patients to use intravenous infusions of AAT products, thereby decreasing the need for clinic visits or nurse home visits and reducing medical costs; |
| ● | our belief that Inhaled AAT for AATD will enable us to treat significantly more patients from the same amount of fraction IV and production capacity and therefore increase our profitability; |
| ● | our expectation to expand enrolment in the pivotal Phase 3 InnovAATe clinical trial through the planned opening, during the first half of 2022, of up to six additional sites in Europe; |
| ● | our ability to, obtain and/or maintain regulatory approvals for our products and new product candidates, the rate and degree of market acceptance, and the clinical utility of our products; |
| ● | our development plan of a recombinant AAT product and its future potential utilization; |
| ● | our ability to obtain and maintain protection for the intellectual property, trade secrets and know-how relating to or incorporated into our technology and products; |
| ● | our expectations regarding our ability to utilize Israeli tax incentives against future income; and |
| ● | our expectations regarding taxation, including that we will not be classified as a passive foreign investment company for the taxable year ending December 31, 2022. |
All forward-looking statements involve risks, assumptions and uncertainties. You should not rely upon forward-looking statements as predictors of future events. The occurrence of the events described, and the achievement of the expected results, depend on many events and factors, some or all of which may not be predictable or within our control. Actual results may differ materially from expected results. See the sections “Item 3. Key Information — D. Risk Factors” and “Item 5. Operating and Financial Review and Prospectus,” as well as elsewhere in this Annual Report, for a more complete discussion of these risks, assumptions and uncertainties and for other risks, assumptions and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.
All of the forward-looking statements we have included in this Annual Report are based on information available to us as of the date of this Annual Report and speak only as of the date hereof. We undertake no obligation, and specifically decline any obligation, to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report might not occur.
The audited consolidated financial statements for the years ended December 31, 2021, 2020 and 2019 included in this Annual Report have been prepared in accordance with the international financial reporting standards (“IFRS”) as issued by the international accounting standards board (“IASB”). None of the financial information in this Annual Report has been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Unless otherwise noted, NIS amounts presented in this Annual Report are translated at the rate of $1.00 = NIS 3.11, the exchange rate published by the Bank of Israel as of December 31, 2021.
v
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business, liquidity, financial condition, and results of operations could be adversely affected, and even materially so, if any of the risks described below occur. As a result, the trading price of our securities could decline, and investors could lose all or part of their investment. This Annual Report including the consolidated financial statements contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially and adversely from those anticipated, as a result of certain factors, including the risks facing the Company as described below and elsewhere in the Annual Report. You should carefully consider the risks and uncertainties included herewith. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:
| ● | Our ability to realize the anticipated benefits from the acquisition of four FDA approved plasma-derived hyperimmune commercial products CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF - is critical to our future growth, profitability and financial stability. |
| ● | Revenues and profitability expected to be generated from CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF as well as expected GLASSIA royalties for Takeda may not be enough to fully offset the decrease in revenues and profitability resulting from the cessation of GLASSIA sales to Takeda. |
| ● | A significant portion of our net revenue has been and will continue to be driven from sales of our proprietary products, and in our largest geographic region, the United States. Any adverse market event with respect to some of our proprietary products or the United States would have a material adverse effect on our business. |
| ● | We may have excess manufacturing plant capacity in our manufacturing facility, which may result in significant reduction in operating profits. |
| ● | We recently established our U.S. plasma collection operations and we intend to invest in expanding this activity in order to become independent in terms of plasma supply needs as well as to generate sales from commercialization of collected normal source plasma, and our ability to successfully expand this operation is critical to our support our future growth and profitability. |
| ● | We have several product development candidates, including our Inhaled AAT for AATD, as well as several other development projects. There can be no assurance that the development activities associated with these products will materialize and result in the FDA, EMA or any other relevant agencies granting us marketing authorization for any of these products. |
| ● | We rely in large part on third parties for the sale, distribution and delivery of our products, and any disruption to our relationships with these third-party distributors would have an adverse effect on our future results of operations and profitability. |
| ● | In our Proprietary Product segment, we rely on Contract Manufacturing Organizations to manufacture some of our products and any disruption to our relationship with such manufacturers would have an adverse effect on the availability of products, our future results of operations and profitability. |
1
| ● | We could become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly. |
| ● | Our Distribution segment is dependent on a small number of customers and suppliers, and any disruption to our relationship with them, or their inability to acquire or supply the products we sell, respectively would have a material adverse effect on our business, financial condition and results of operations. |
| ● | Laws and regulations governing the conduct of international operations may negatively impact our development, manufacture and sale of products outside of the United States and require us to develop and implement costly compliance programs. |
| ● | If our manufacturing facility in Beit Kama, Israel was to suffer a serious accident, contamination, force majeure event (including, but not limited to, a war, terrorist attack, earthquake, major fire or explosion etc.) materially affecting our ability to operate and produce our products, all of our manufacturing capacity could be shut down for an extended period. |
| ● | Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures. |
| ● | Our success depends in part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property relating to or incorporated into our technology and products, including the patents protecting our manufacturing process. |
| ● | We have incurred significant losses since our inception and while we were profitable in the five years ended December 31, 2021, we may incur losses in the future and thus may never achieve sustained profitability. |
| ● | Our business requires substantial capital, including potential investments in large capital projects, to operate and grow and to achieve our strategy of realizing increased operating leverage. Despite our indebtedness, we may still incur significantly more debt. |
| ● | Our share price may be volatile. |
| ● | Conditions in Israel could adversely affect our business. |
Risks Related to Our Business
We recently completed a strategic acquisition of four FDA approved plasma-derived hyperimmune commercial products – CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF; our ability to realize the anticipated benefits from this acquisition is critical to our future growth, profitability and financial stability.
In November 2021, we acquired a portfolio of four FDA approved plasma-derived hyperimmune commercial products, CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, from Saol. The combined annual global revenue of the acquired portfolio in 2021 was approximately $41.9 million, of which our revenue was approximately $5.4 million and represents the sales generated from the date of consummation of the transaction through December 31, 2021. Approximately 75% and 21% of the annual sales of the acquired portfolio generated in the U.S. and Canada, respectively.
In connection with the acquisition, we entered into a transition services agreement with Saol, for the provision of certain required services (including, managing sales and distribution, payment collection, logistics management, price reporting, medical inquiries, QC complaints and pharmacovigilance), to secure the smooth transfer of the acquired assets and related commitments. We plan to gradually assume all operation responsibility related to the acquired products, including distribution and sales, quality procedures, supply chain activities, regulatory and finance related issues.
These products are currently distributed in the U.S. and Canadian markets, in which we intend to market and distribute these products directly based on our existing sales and marketing personnel as well as new, to be hired, sales and marketing employees, mainly in the U.S. In addition, the acquisition added eight new international markets, primarily in the Middle East and North Africa region in which we currently have little to know prior operational experience. We also intended to leverage our existing strong international distribution network to grow the acquired portfolio’s revenue in geographic markets in which these products are not currently sold.
HEPGAM B, VARIZIG and WINRHO SDF are currently manufactured by Emergent pursuant to a contract manufacturing agreement assumed by us as part of the acquisition. We are currently in advanced stages of a technology transfer of CYTOGAM manufacturing to our plant in Beit Kama, Israel, and we plan to initiate a similar process to gradually transition the manufacturing of HEPGAM B, VARIZIG and WINRHO SDF to our plant as well, subject to the execution of an amendment to the contract manufacturing agreement.
Our ability to successfully transition and assume all required responsibilities with respect to these products, establish a U.S. based commercial and distribution infrastructure, maintain and expand ex-U.S. commercialization of these products, complete the technology transfer and obtain required approval for manufacturing of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, is critical for our future growth, profitability and financial stability. Given our limited prior experience in some of the required activities and responsibilities, including operation of direct sales in the U.S. market, knowledge and experience in the eight new international markets, as well as other operational, technical, regulatory and financial challenges, we may not be able to realize the anticipated benefits of the acquisition, which may materially adversely affect the growth and operating results of our business as well as our financial condition.
2
Revenues and profitability expected to be generated from CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF as well as expected GLASSIA royalties for Takeda may not be enough to fully offset the decrease in revenues and profitability resulting from the cessation of GLASSIA sales to Takeda
We market GLASSIA in the United States through a strategic partnership with Takeda. Our 2021 revenues from the sale of GLASSIA to Takeda totaled $26.2 million, as compared to $64.9 million and $68.1 million during 2020 and 2019, respectively. During 2021 Takeda completed the technology transfer of GLASSIA manufacturing and initiated its own production of GLASSIA for the U.S. market, resulting in the cessation of GLASSIA sales to Takeda during 2021 and the significant reduction in sales. Commencing in 2022, Takeda will pay royalties, on sales of GLASSIA manufactured by Takeda, to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. Based on current GLASSIA sales in the U.S. and forecasted future growth, we expect to receive royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040.
In November 2021, we acquired a portfolio of four FDA approved plasma-derived hyperimmune commercial products – CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF – from Saol. The combined annual global revenue of the acquired portfolio in 2021 was approximately $41.9 million, of which our revenue was approximately $5.4 million and represents the sales generated from the date of consummation of the transaction through December 31, 2021.
The cessation of GLASSIA manufacturing by us, the transfer of manufacturing to Takeda and the transition to the royalty phase will result in a significant reduction of our revenue and profitability, and there can be no assurance that the revenues and profitability expected to be generated from the sales of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF will be enough to offset such expected reduction.
A significant portion of our net revenue has been and will continue to be driven from sales of our proprietary products, and in our largest geographic region, the United States. Any adverse market event with respect to some of our proprietary products or the United States would have a material adverse effect on our business
A significant portion of our revenues has been, and will continue to be, derived from sales of our proprietary products, including those of GLASSIA and KEDRAB as well as the recently acquired portfolio of four FDA approved plasma-derived hyperimmune commercial products, CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. Revenue from our Proprietary products comprised approximately 73%, 76% and 77% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively.
If some of our proprietary products were to lose significant sales or were to be substantially or completely displaced in the market, we would lose a significant and material source of our total revenues. Similarly, if these products were to become the subject of litigation and/or an adverse governmental ruling requiring us to cease the manufacturing, export or sales of these products, our business would be adversely affected.
We also rely heavily on sales in the United States and North America, which comprised approximately 48%, 63% and 66% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. In addition, approximately 75% of the recently acquired CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF are expected to be generated in the United States. If our U.S. sales were significantly impacted by material changes to government or private payor reimbursement, other regulatory developments, competition or other factors, then our business would be adversely affected.
We may have excess manufacturing plant capacity in our manufacturing facility, which may result in significant reduction in operating profits.
Our revenues will decrease, and our operating results may be materially and adversely impacted if we are unable to continue operating our manufacturing facility at its current capacity and/or level of profitability, or otherwise to reduce direct and indirect costs relating to our manufacturing facility in line with any reduction in demand or manufacturing level.
Following the transition of GLASSIA manufacturing to Takeda in 2021, we have been and may continue to be affected by reduced efficiency of our manufacturing facility, which resulted and may continue to result in increased manufacturing costs per vial, reduced gross profitability and potential operating losses. We plan to utilize the excess manufacturing capacity in our manufacturing plant to support the growth of our proprietary products, including KEDRAB and GLASSIA, which are currently manufactured in our facility, to facilitate, subject to completion of the technology transfer activities and regulatory approval, CYTOGAM commercial manufacturing, as well as for future manufacturing of HEPGAM B, VARIZIG and WINRHO SDF, subject to a technology transfer and regulatory approvals. While we have the knowhow and expertise to support the technology transfer of products to our facility, we may not be able to complete such transfer of any of the newly acquired portfolio products in the expected timeline, or at all. While we are capable of increasing the manufacturing capacity at our facility, there is no assurance that there will be increased market demand for these products in the currently existing markets in which we distribute our products or other markets. The manufacturing of excess quantities of products, which may not be sold due to lower demands, may result in the need to write-down the value of inventories, which may result in significant operating losses. See also “Manufacturing of new plasma-derived products in our manufacturing facility requires a lengthy and challenging development project and/or technology transfer project as well as regulatory approvals, all of which may not materialize.”
We believe the risk of not adequately adjusting to lower plant utilization could result in inefficiencies, reduced profitability or operating losses. In addition, these changes may require additional significant layoffs, which may be expensive and may lead to labor issues and strikes, which could affect our ability to continue to manufacture products and may lead to increase costs, reduced profitability and operating losses. For labor related risk see “—We have entered into a collective bargaining agreement with the employees’ committee and the Histadrut (General Federation of Labor in Israel), and we have incurred and could in the future incur labor costs or experience work stoppages or labor strikes as a result of any disputes in connection with such agreement.”
3
We recently established our U.S. plasma collection operations and intend to invest in expanding this activity in order to become independent in terms of plasma supply needs as well as to generate sales from commercialization of collected normal source plasma, and our ability to successfully expand this operation is critical to support our future growth and profitability.
In March 2021, we acquired the plasma collection center of B&PR in Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D immunoglobulin products (“Anti-D products”). The acquisition of B&PR’s plasma collection center represented our entry into the U.S. plasma collection market. We are in the process of significantly expanding our hyperimmune plasma collection capacity by investing in the acquired plasma collection center in Beaumont, Texas, and initiated a project to leverage our FDA plasma collection license to establish a network of new plasma collection centers in the United States, commencing in 2022, with the intention to collect normal source plasma for distribution, as well as hyperimmune specialty plasma required for manufacturing of our Proprietary products, including KAMRAB/KEDRAB, as well as for some of the products included in our recently acquired products portfolio. Our ability to support future growth and profitability is related, in part to the successful expansion of this operation.
Given our limited prior experience in managing plasma collection operations, the operational, technical, and regulatory challenges in maintaining plasma collection operations, as well as the financial investment required to expand our collection capabilities and open new collection centers, we may not be able to realize the anticipated benefits of such activities. We may not be able to adequately collect all sufficient quantities of plasma through our plasma collection operations to support our plasma sourcing needs, which will result in continued dependency on third party suppliers; and even if we are successful in collection sufficient quantities, there can be no assurance that we will be able to reduce the cost of plasma through our collection operations, as compared to costs associated with procuring plasma from third parties. In addition, there could be no assurance that we will be able to collect adequate quantities of normal source plasma as well as secure supply agreements with customer at adequate prices.
See also “—We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly”; and “—We may engage in strategic transactions to acquire assets, businesses, or rights to products, product candidates or technologies or form collaborations or make investments in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt, or cause us to incur significant expense.”
We have several product development candidates, including our Inhaled AAT for AATD as well as several other development projects. There can be no assurance that the development activities associated with these products will materialize and result in the FDA, EMA or any other relevant agencies granting us marketing authorization for any of these products.
We are engaged in research and development activities with respect to several pharmaceutical products candidates, including Inhaled AAT for AATD, which is our lead product development candidate.
During December 2019, the first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial evaluating the safety and efficacy of our proprietary Inhaled AAT therapy for the treatment of AATD. The study was initiated following extensive discussions with both the FDA and EMA regarding the trial’s design as well a thorough analysis of a prior pivotal Phase 2/3 clinical trial for Inhaled AAT for AATD conducted in Europe, which did not meet its primary or other pre-defined efficacy endpoints. In addition to the pivotal study and based on feedback received from the FDA regarding anti-drug antibodies (“ADA”) to Inhaled AAT, we intend to concurrently conduct a sub-study in North America in which approximately 30 patients will be evaluated for the effect of ADA on AAT levels in plasma with Inhaled AAT and IV AAT treatments. While a recent Data and Safety Monitoring Board (DSMB) review that concluded that the data generated to date support the continuation of the trial without the need for modifications, there can be no assurance that we will be able to complete this study successfully or that the study results will be sufficient for obtaining FDA and EMA approval. See also “As a result of the COVID-19 pandemic we have encountered delays in patient recruitment into our pivotal Phase 3 InnovAAT clinical study conducted at a first study site in Europe and it has impacted and may continue to impact our ability to open additional study sites in the United States and Europe.”
In response to the recent COVID-19 outbreak, in early 2020 we initiated the development of our Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19. In August 2020, we initiated a Phase 1/2 open-label, single-arm, multi-center clinical trial in Israel of our product; and in September 2020, we announced initial interim results for the Phase 1/2 clinical trial. We subsequently submitted a pre-Investigational New Drug (“IND”) information package to the FDA with our proposed U.S. clinical development plan. Given the increased vaccination rate of the population as well as approvals of monoclonal antibodies for COVID-19, we are currently evaluating the market potential of this product and the continuation of its development program. There can be no assurance that we will be able to successfully complete this development program or that it would serve as a basis for a potential approval of the product.
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In addition, we are currently engaged in the development of other product candidates, including a recombinant AAT product candidate and there can be no assurance that such development activities will progress and obtain the required regulatory approvals.
See also: “Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results” and “—If we are unable to successfully introduce new products and indications or fail to keep pace with advances in technology, our business, financial condition and results of operations may be adversely affected.”
We may engage in strategic transactions to acquire or sell assets, businesses, products or technologies or engage in in-license or out-license transactions of products or technologies or form collaborations that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt, or cause us to incur significant expense.
As part of our business development strategy, we may engage in strategic transactions to acquire or sell assets, businesses, or products; or otherwise engage in in-licensing our out-licensing transactions with respect to products or technologies; or enter into other strategic alliances or collaborations. We may not identify suitable transactions, or complete such transactions in a timely manner, on a cost-effective basis, or at all. Moreover, we may devote resources to potential opportunities that are never completed, or we may incorrectly judge the value or worth of such opportunities. Even if we successfully execute a strategic transaction, we may not be able to realize the anticipated benefits of such transaction, may incur additional debt or assume unknown or contingent liabilities in connection therewith, and may experience losses related to our investments or dispositions. Integration of an acquired company or assets into our existing business or a transition of an asset to an acquirer or partner may not be successful and may disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, and require management resources that would otherwise focus on developing our existing business. Even if we are able to achieve the long-term benefits of a strategic transaction, our expenses and short-term costs may increase materially and adversely affect our liquidity. Any of the foregoing could have a material effect on our business, results of operations and financial condition.
The COVID-19 pandemic may adversely impact our business, operating results and financial condition.
The novel coronavirus identified in late 2019, SARS-CoV-2, which causes the disease known as COVID-19, is an ongoing global pandemic that has resulted in public and governmental efforts to contain or slow the spread of the disease, including widespread shelter-in-place orders, social distancing interventions, quarantines, travel restrictions and various forms of operational shutdowns. The COVID-19 pandemic and the resulting measures implemented in response to the pandemic are adversely affecting, and may continue to adversely affect, a number of our business activities (including our research and development, clinical trials, operations, supply chains, distribution systems, product development and sales activities) as well as those of our suppliers, customers, third-party payers and patients. Due to the impact of the pandemic and these measures, we have experienced, and expect to continue to experience reductions in inbound and outbound international delivery routes, which caused, and may continue to cause, delays in receipt of raw material and shipment of finished products, as well as unpredictable reductions in demand for certain of our products, and in some cases, have experienced, and could continue to experience, unpredictable increases in demand for certain of our products. The outbreak and preventative or protective actions that governments, corporations, individuals or we have taken or may take in the future to contain the spread of COVID-19 may result in a period of reduced operations, reduced product demand or limit the ability of customers to perform their obligations to us, delays in clinical trials or other research and development efforts, business disruption for us and our suppliers, customers and other third parties with which we do business and potential delays or disruptions related to regulatory approvals.
While COVID-19 related disruption had various effects on our business activities, commercial operation, revenues and operational expenses, as a result of the actions we have taken to date, our overall results of operations for the year ended December 31, 2021 were not materially affected. However, a number of factors, including but not limited to, continued effect of the factors mentioned above as well as, continued demand for our products, in the U.S. and Rest of World ("ROW") markets and our distributed products in Israel, financial conditions of our customers, distributors, suppliers and services providers, our ability to manage operating expenses, additional competition in the markets that we compete, delays in clinical trials or other research and development efforts, regulatory delays, professional and operational costs increase (including insurance costs), prevailing market conditions and the impact of general economic, industry or political conditions in the U.S., Israel or otherwise, may have an effect on our future financial position and results of operations.
The financial impact of these factors cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operations, and the trading prices of our ordinary shares were impacted by volatility in the financial markets resulting from the pandemic. The full extent to which the pandemic impacts our business, results or the trading price of our ordinary shares will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and duration of the pandemic and actions to contain its spread or treat its impact, among others.
The COVID-19 pandemic and the volatile global economic conditions stemming from it may precipitate or amplify the other risks described in this “Risk Factors” section of this Annual Report, which could materially adversely affect our business, operations and financial conditions and results from operations.
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Risks Related to Our Proprietary Products Segment
In our Proprietary Products segment, we rely on Kedrion for the sales of our KEDRAB product in the United States, and any disruption to our relationships with Kedrion would have an adverse effect on our future results of operations and profitability.
Pursuant to the strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KEDRAB, Kedrion is the sole distributor of KEDRAB in the United States. Sales to Kedrion accounted for approximately 12%, 14% and 13% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively. We are dependent on Kedrion for its marketing and sales of KEDRAB in the United States.
We also primarily depend upon KedPlasma LLC (“Kedplasma”), a subsidiary of Kedrion, for the supply of the hyper-immune plasma which is used for the production of KEDRAB to be sold in the United States and of KAMRAB to be sold in other markets. See “—We would become supply-constrained, and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”
If we fail to maintain our relationship with Kedrion, we could face significant costs in finding a replacement distributor for the sales of KEDRAB in the United States and a replacement supplier of the hyper-immune plasma which is used for the production of KEDRAB. Delays in establishing a relationship with a new distributor and supplier could lead to a decrease in our KEDRAB sales and a deterioration in our market share when compared with one or more of our competitors. Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.
Our ability to assume full responsibility for the commercialization and sales of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF in the U.S. market is critical in order to support future growth, future results of operations and profitability.
Pursuant to a transition services agreement we entered into with Saol, we currently rely on Saol’s commercial infrastructure and prior experience to sell and distribute CYTOGAM, HEPGAM B, VARIZIG and WINRHO SD world-wide. Sales of these products in the U.S. market represent approximately 75% of their world-wide sales. We initiated activities to establish a U.S. based commercial and sales team to gradually take over the U.S. commercial responsibility for these products. Such activities include hiring employees with relevant U.S. commercial experience, engaging wholesalers, customers and a U.S. third-party logistics (3PL) provider, and understanding market landscape and trends for these products through market research and discussions with physicians and key opinion leaders. These activities are crucial for our ability to assume all commercial operations from Saol and are necessary in order to successfully maintain sales levels and identify growth opportunities.
Given our limited prior experience in directly managing U.S. commercial operations and the operational, technical and regulatory challenges in maintaining such activity, we may not be able to realize the anticipated benefits of such activities. We may not be able to adequately and timely assume all responsibility or secure the required engagements or maintain or expand market demand and continued product sales, which may result in significant reduction in sales, increased operating costs and reduced profitability.
In our Proprietary Products segment, we currently rely on Takeda for sales of GLASSIA in the U.S. market, and any reduction in sales of GLASSIA by Takeda would have an adverse effect on our future expected royalty income, results of operations and profitability.
Commencing in 2022, we are entitled to royalty payments form Takeda on GLASSIA sales at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually, for each of the years from 2022 to 2040. Based on current GLASSIA sales in the United States and forecasted future growth, we project receiving royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040. However, any reduction in sales of GLASSIA by Takeda or should Takeda reduce its manufacturing and marketing of GLASSIA for any reason (including but not limited to inability to adequately or sufficiently manufacture GLASSIA, regulatory limitations, difficulties in marketing, reduction in market size, or changes in corporate focus), our future expected royalty income from Takeda’s sales of GLASSIA would be adversely impacted, which would have an adverse effect on our results of operations and profitability.
Certain of our sales in our Proprietary Products segment rely on our ability to win tender bids based on the price and availability of our products in public tender processes.
Certain of our sales in our Proprietary Products segment rely on our ability to win tender bids in certain markets, including those of the World Health Organization (WHO) and other similar health organizations. Our ability to win bids may be materially adversely affected by competitive conditions in such bid process. Our existing and new competitors may also have significantly greater financial resources than us, which they could use to promote their products and business. Greater financial resources would also enable our competitors to substantially reduce the price of their products or services. If our competitors are able to offer prices lower than us, our ability to win tender bids during the tender process will be materially affected and could reduce our total revenues or decrease our profit margins.
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We rely in large part on third parties for the sale, distribution and delivery of our products, and any disruption to our relationships with these third party distributors would have an adverse effect on our future results of operations and profitability.
We engage third party distributors to distribute and sell our Proprietary Products, including those of the recently acquired products CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. Sales through distributors in ex-U.S. markets (other than the Israeli market) accounted for approximately 17%, 10% and 8% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively and we expect such sales to increase in 2022 and beyond. We are dependent on these third parties for successful marketing, distribution and sales of our products in these markets. If such third parties were to breach, terminate or otherwise fail to perform under our agreements with them, our ability to effectively distribute our products would be impaired and our business could be adversely affected. Moreover, circumstances outside of our control such as a general economic decline, market saturation or increased competition may influence the successful renegotiation of our contracts or the securing of to us favorable terms.
In addition to distribution and sales, these third party distributors are, in most cases, responsible for the regulatory registration of our products in the local markets in which they operate, as well as responsible for participation in tenders for sale of our products. Failure of the third party distributors to obtain and maintain such regulatory approvals and/or win tenders or provide competitive prices to our products may adversely affect our ability to sell our Proprietary Products in these markets, which in turn will negatively affect our revenues and profitability. In addition, our inability to sell our Proprietary Products in these markets may reduce our manufacturing plant utilization and effectiveness, and may lead to additional reduction of profitability.
Our Proprietary Products segment operates in a highly competitive market.
We compete with well-established biopharmaceutical companies, including several large competitors in the plasma industry for each of our products in the Proprietary Products segment. These large competitors include CSL Behring Ltd. (“CSL”), Takeda, and Grifols S.A. (“Grifols”), which acquired a competitor, Talecris Biotherapeutics, Inc. (“Talecris”) in 2011, and Kedrion. We compete against these companies for, among other things, licenses, expertise, clinical trial patients and investigators, consultants and third-party strategic partners. We also compete with these companies for market share for certain products in the Proprietary Products segment. Our large competitors have advantages in the market because of their size, financial resources, markets and the duration of their activities and experience in the relevant market, especially in the United States and countries of the European Union. As a result, they may be able to devote more funds to research and development and new production technologies, as well as to the promotion of their products and business. These competitors may also be able to sustain for longer periods a substantial reduction in the price of their products or services. These competitors also have an additional advantage regarding the availability of raw materials, as they own companies that collect plasma and/or plants which fractionate plasma.
In addition, our plasma-derived protein therapeutics face, or may face in the future, competition from existing or newly developed non-plasma products and other courses of treatments. New treatments, such as antivirals, gene therapies, small molecules, correctors, monoclonal or recombinant products, may also be developed for indications for which our products are now used.
Our products generally do not benefit from patent protection and compete against similar products produced by other providers. Additionally, the development by a competitor of a similar or superior product or increased pricing competition may result in a reduction in our net sales or a decrease in our profit margins.
KAMRAB/KEDRAB, our anti-rabies IgG products and KAMRHO (D) face competition in the U.S. and ex-U.S. markets.
We believe that there are two main competitors for KAMRAB/KEDRAB, our anti-rabies products, worldwide: Grifols, whose product we estimate comprises approximately 70%-80% of the anti-rabies market in the United States, and CSL, which sells its anti-rabies product in Europe and elsewhere. In addition, Sanofi Pasteur, the vaccines division of Sanofi S.A., has a product registered for the United States market, but the product is primarily sold in Europe and not currently sold in significant quantities in the United States. There are a number of local producers in other countries that make similar anti-rabies products, most of which are based on equine serum. Over the past several years, several companies have made attempts, and some are still in the process of developing monoclonal antibodies for an anti-rabies treatment. These products, if approved, may be as effective as the currently available plasma derived anti-rabies vaccine and may potentially be significantly cheaper, and as such may result in loss of market share of KamRAB/KEDRAB.
While Kedrion is our strategic partner for KEDRAB, it is also one of our competitors for KamRho(D). In addition to its sales in the United States, Kedrion also markets a competing product in several EU countries as well as other countries world-wide. We believe there are currently two additional main suppliers of competitive products in this market: Grifols and CSL There are also local producers in other countries that make similar products mostly intended for local markets.
The newly acquired CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF face competition from several competing plasma derived products and non-plasma derived pharmaceuticals, mainly anti-viral.
CYTOGAM. To our knowledge, CYTOGAM is the sole FDA-approved CMV IgG product. Based on available public information, the FDA approved antiviral drugs for the prevention of CMV infection and disease, Letermovir (Prevymis), developed by Merck & Co., and for treatment of refractory infection or disease Maribavir (Livtencity), developed by Takeda, which may result in the loss of market share for CYTOGAM. Currently, treatment guidelines state that combination therapy with standard antiviral can be considered for certain solid organ transplant recipients. The most commonly used antivirals are Ganciclovir (Cytovene-IV Roche), Valgnciclovir (Valcyte Roche) and Valacyclovir (Valtrex GSK). Patients treated with such antivirals for a long time can develop resistance and will require a second line treatment such as Foscarnet (Foscavir Pfizer). In ROW markets, several plasma derived competing products are available, such as MEGALOTECT CP (Biotest).
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WINRHO SDF. In the United States, WINRHO SDF competes with corticosteroids (oral prednisone or high-dose dexamethasone) or IVIG (Grifols, CSL and Takeda are the main manufacturers in the U.S.) as first line treatment of acute ITP. IVIG has similar efficacy to WINRHO SDF, and ITP is a labeled indication. Rhophylac (CSL Behring) is also approved for ITP treatment, but we believe it is mostly used for Hemolytic Disease of the Newborn (HDN), due to its comparatively small vial size. For HDN indication, the market is usually led by tenders, where key indicators are registration status and price, and the main multiple competitors in Canada and ROW countries are RhoGAM (Kedrion), Hyper RHO (Grifols) and Rhophylac (CSL Behring) and our KAMRHO (D).
HEPAGAM B. HEPAGAM B is the only approved HBIG with an on-label indication for Liver Transplants in the United States. To our understanding, HEPAGAM B holds the majority market share for the indication, while another HBIG (Nabi-B developed by ADMA) is being used off-label by some medical centers for the indication. In recent years, duration of treatment has been reduced by physicians. New generation antivirals are considered effective for preventing HBV reactivation post-transplant, hence limiting HBIG use. Post-exposure prophylaxis (PEP) indication in the United States is covered almost totally by Nabi-B (ADMA) and HyperHEP (Grifols). In Canada, main competition in national tenders is HypeHEP. In ROW countries such as Turkey, Saudi-Arabia and Israel, HEPATECT CP (Biotest AG) represents the primary competition.
VARIZIG. In the United States, incidence of Varicella Zoster Virus (“VZV”) infection has decreased dramatically since the introduction of the varicella vaccine in 1995. Two vaccines containing varicella virus are licensed for use in the United States. Varivax is the single-antigen varicella vaccine. ProQuad is a combination measles, mumps, rubella, and varicella (MMRV) vaccine. Although the use of the vaccine has reduced the frequency of chickenpox, the virus has not been eradicated. Moreover, incidence of Herpes Zoster, also caused by VZV, is increasing among adults in the United States. Suboptimal vaccination rates contribute to outbreaks and increased risk of VZV exposure. Immunocompromised population and other patient groups are at high risk for severe varicella and complications, after being exposed to VZV. To our knowledge, to date, in the United States market VariZIG is a single FDA-approved product and recommended by the Centers for Disease Control (CDC) for post-exposure prophylaxis of varicella for persons at high risk for severe disease who lack evidence of immunity to varicella. In ROW markets, several plasma derived competitor products are available, such as VARITECT (Biotest) and others.
Our market share of the AAT product could be negatively impacted by new competitors or adoption of new methods of administration.
We believe that our two main competitors in the AAT market are Grifols and CSL. We estimate that Grifols’ AAT by infusion product for the treatment of AATD, Prolastin A1PI, accounts for at least 50% market share in the United States and more than 70% of sales in the worldwide market for the treatment of AATD, which also includes sales of Prolastin in different European countries. In the U.S. Grifols sell Prolastin Liquid since 2018, which is a ready-to-infuse solution of AAT. Apart from its sales through Talecris’ historical business, Grifols is also a local producer of the product in the Spanish market and operates in Brazil. CSL’s intravenous AAT product, Zemaira, is mainly sold in the United States. In 2015, CSL’s intravenous AAT product, Respreeza, was granted centralized marketing authorization in Europe and CSL has launched the product in a few European countries since 2016. There is another, smaller local producer in the French market, LFB S.A. In addition, we estimate that each of Grifols and CSL owns approximately 200-250 operating plasma collection centers located across the United States.
Several of our competitors are conducting preclinical and clinical trials for the development of gene therapy or correctors for AATD. While these products are in the early stages of development, they may eventually be successfully developed and launched, and could adversely impact our revenue and growth of sales of GLASSIA or GLASSIA-related royalties as well as affect our ability to launch our Inhaled AAT product, if approved.
Similarly, if a new AAT formulation or a new route of administration with significantly improved characteristics is adopted (including, for example, aerosol inhalation), the market share of our current AAT product, GLASSIA, could be negatively impacted. While we are in the process of developing Inhaled AAT for AATD, our competitors may also be attempting to develop similar products. For example, several of our competitors may have completed early stage clinical trials for the development of an inhaled formulation of AAT for different indications. While these products are in the early stages of development, they may eventually be successfully developed and launched. Furthermore, even if we are able to commercialize Inhaled AAT for AATD prior to the development of comparable products by our competitors, sales of Inhaled AAT for AATD, subject to approval of such product by the applicable regulatory authorities, could adversely impact our revenue and growth of sales of GLASSIA or GLASSIA -related royalties.
Our Anti-SARS-CoV-2 IgG product faces, or may face, significant competition from competitors developing COVID-19 related therapies.
In the wake of the COVID-19 pandemic we, together with our partner Kedrion, initiated the development of our investigational Anti-SARS-CoV-2 IgG product as a potential therapy for COVID-19. In parallel, the CoVIg-19 Plasma Alliance partnership was formed of the world’s leading plasma companies, spanning plasma collection, development, production, and distribution with the goal to accelerate the development of a potential treatment and increase supply of the potential treatment. The Alliance produced a plasma derived hyperimmune therapy similar to our investigational product. The Alliance product was tested in Phase 3 clinical trial sponsored by the National Institute of Allergy and Infectious Diseases (“NIAID”), part of the National Institutes of Health (the “NIH”), and on April 2, 2021, Takeda and CSL Behring announced that the Phase III clinical trial did not meet its endpoints. With that, the collaboration of the companies in the Alliance has ended.
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In addition, a number of companies are in the process of advanced development of monoclonal antibodies for an Anti-SARS-CoV-2 treatment, such as Regeneron’s casirivimab and imdevimab which form a novel monoclonal antibody cocktail being studied for its potential both to treat appropriate patients with COVID-19 and to prevent SARS-CoV-2 infection, and Eli Lilly’s investigational neutralizing antibody bamlanivimab (LY-CoV555) 700 mg. Bamlanivimab which received emergency use authorization from the FDA for the treatment of mild to moderate COVID-19 in adults and pediatric patients 12 years and older with a positive COVID-19 test, who are at high risk for progressing to severe COVID-19 and/or hospitalization. Moreover, the FDA issued an Emergency Use Authorization for convalescent plasma as a potential treatment for COVID–19. Convalescent plasma has played an important role in the immediate and intermediate response to the disease. These products, and similar others may be as effective as our plasma derived IgG product, may obtain approval from the FDA, EMA or other regulatory agencies sooner than our product and may potentially be significantly cheaper, and as such may affect our ability to launch and/or gain sufficient market share with our Anti-SARS-CoV-2 investigational IgG product, if approved.
Our products involve biological intermediates that are susceptible to contamination and the handling of such intermediates and our final products throughout the supply chain and manufacturing process requires cold-chain handling, all of which could adversely affect our operating results.
Plasma and its derivatives are raw materials that are susceptible to damage and contamination and may contain microorganisms that cause diseases in humans, commonly known as human pathogens, any of which would render such materials unsuitable as raw material for further manufacturing. Almost immediately after collection from a donor, plasma and plasma derivatives must be stored and transported at temperatures that are at least -20 degrees Celsius (-4 degrees Fahrenheit). Improper storage or transportation of plasma or plasma derivatives by us or third-party suppliers may require us to destroy some of our raw material. In addition, plasma and plasma derivatives are also suitable for use only for certain periods of time once removed from storage. If unsuitable plasma or plasma derivatives are not identified and discarded prior to release to our manufacturing processes, it may be necessary to discard intermediate or finished products made from such plasma or plasma derivatives, or to recall any finished product released to the market, resulting in a charge to cost of goods sold and harm to our brand and reputation. Furthermore, if we distribute plasma-derived protein therapeutics that are produced from unsuitable plasma because we have not detected contaminants or impurities, we could be subject to product liability claims and our reputation would be adversely affected.
Despite overlapping safeguards, including the screening of donors and other steps to remove or inactivate viruses and other infectious disease-causing agents, the risk of transmissible disease through plasma-derived protein therapeutics cannot be entirely eliminated. If a new infectious disease was to emerge in the human population, the regulatory and public health authorities could impose precautions to limit the transmission of the disease that would impair our ability to manufacture our products. Such precautionary measures could be taken before there is conclusive medical or scientific evidence that a disease poses a risk for plasma-derived protein therapeutics. In recent years, new testing and viral inactivation methods have been developed that more effectively detect and inactivate infectious viruses in collected plasma. There can be no assurance, however, that such new testing and inactivation methods will adequately screen for, and inactivate, infectious agents in the plasma or plasma derivatives used in the production of our plasma-derived protein therapeutics. Additionally, this could trigger the need for changes in our existing inactivation and production methods, including the administration of new detection tests, which could result in delays in production until the new methods are in place, as well as increased costs that may not be readily passed on to our customers.
Plasma and plasma derivatives can also become contaminated through the manufacturing process itself, such as through our failure to identify and purify contaminants through our manufacturing process or failure to maintain a high level of sterility within our manufacturing facilities.
Once we have manufactured our plasma-derived protein therapeutics, they must be handled carefully and kept at appropriate temperatures. Our failure, or the failure of third parties that supply, ship, store or distribute our products, to properly care for our plasma-derived products, may result in the requirement that such products be destroyed.
While we expect small amounts of work-in-process inventories scraps in the ordinary course of business because of the complex nature of plasma and plasma derivatives, our processes and our plasma-derived protein therapeutics, unanticipated events may lead to write-offs and other costs materially in excess of our expectations. We have, in the past, experienced situations that have caused us to write-off the value of our products. Such write-offs and other costs could materially adversely affect our operating results. Furthermore, contamination of our plasma-derived protein therapeutics could cause consumers or other third parties with whom we conduct business to lose confidence in the reliability of our manufacturing procedures, which could materially adversely affect our sales and operating results.
Our ability to continue manufacturing and distributing our plasma-derived protein therapeutics depends on continued adherence by us and contract manufacturers to current Good Manufacturing Practice regulations.
The manufacturing processes for our products are governed by detailed written procedures and regulations that are set forth in current Good Manufacturing Practice standards (“cGMP”) requirements for blood products, including plasma and plasma derivative products. Failure to adhere to established procedures or regulations, or to meet a specification set forth in cGMP requirements, could require that a product or material be rejected and destroyed. There are relatively few opportunities for us or contract manufacturers to rework, reprocess or salvage nonconforming materials or products. Any failure in cGMP inspection will affect marketing in other territories, including the U.S. and Israel.
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The adherence by us and our contract manufacturers to cGMP regulations and the effectiveness of applicable quality control systems are periodically assessed through inspections of the manufacturing facility, including our manufacturing facility in Beit Kama, Israel, by the FDA, the IMOH and regulatory authorities of other countries. Such inspections could result in deficiency citations, which would require us or our contract manufacturers to take action to correct those deficiencies to the satisfaction of the applicable regulatory authorities. If serious deficiencies are noted or if we or our contract manufacturers are unable to prevent recurrences, we may have to recall products or suspend operations until appropriate measures can be implemented. The FDA could also stop the import of products into the United States if there are potential deficiencies. Such deficiencies may also affect our ability to obtain government contracts in the future. We are required to report certain deviations from procedures to the FDA. Even if we determine that the deviations were not material, the FDA could require us or our contract manufacturers to take certain measures to address the deviations. Since cGMP reflects ever-evolving standards, we regularly need to update our manufacturing processes and procedures to comply with cGMP. These changes may cause us to incur additional costs and may adversely impact our profitability. For example, more sensitive testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation, all of which may be costly and time-consuming and could delay or prevent the manufacturing of a product or launch of a new product.
We may face manufacturing stoppages and other challenges associated with audits or inspections by regulatory bodies.
The regulatory authorities may, at any time and from time to time, audit the facilities in which the product is manufactured. If any such inspection or audit of our facilities identifies a failure to comply with applicable regulations, or if a violation of our product specifications or applicable regulations occurs independently of such an inspection or audit, the relevant regulatory authority may require remedial measures that may be costly or time consuming for us to implement and that may include the temporary or permanent suspension of commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us with whom we contract could materially harm our business.
Continued availability of CYTOGAM is dependent on our ability to complete the technology transfer of its manufacturing to our manufacturing facility in Beit Kama, Israel as well as our ability to maintain continues plasma supply.
As part of the acquisition of the four FDA approved plasma-derived hyperimmune commercial products from Saol, we acquired certain excess inventories of CYTOGAM which is sufficient to meet market demand through mid-2023. During 2019, pursuant to an engagement with Saol, we initiated technology transfer activities for transitioning CYTOGAM manufacturing to our manufacturing facility in Beit Kama, Israel. The process is already well underway, and we expect to receive FDA approval for manufacturing of CYTOGAM and initiate commercial manufacturing of the product by early 2023. Failure to timely complete the technology transfer and obtain the required regulatory approvals may affect product availability, result in a decrease in sales and a deterioration in our market share, and could have an adverse effect upon our sales, margins and profitability.
As part of the technology transfer process initiated, we engaged a third-party contract manufacturer that performs certain manufacturing activities required for the manufacturing of CYTOGAM. In addition, we assumed a plasma supply agreement with CSL for continued supply of required plasma for the manufacturing of the product. If we fail to maintain our relationship with these entities, we could face increased costs in finding replacement vendors Delays in establishing a relationship with new vendors could lead to a decrease in the product’s sales and a deterioration in our market share when compared with one or more of our competitors. Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.
In our Proprietary Product segment, we rely on Contract Manufacturing Organizations to manufacture some of our products and any disruption to our relationship with such manufacturers would have an adverse effect on the availability of products, our future results of operations and profitability.
HEPAGAM B, VARIZIG and WINRHO SDF are manufactured by Emergent under a contract manufacturing agreement which was assigned to us from Saol following the consummation of the acquisition. We are dependent on Emergent to secure supply of adequate quantities of plasma needed to timely manufacture these products and we rely on their manufacturing, quality and regulatory systems to ensure the manufacturing process comply with cGMP and any other regulatory requirement and that each product manufactured meets its specification and is appropriately released for human consumption.
If we fail to maintain our relationship with Emergent, we could face increased costs in finding a replacement manufacturer for these products and we might be required to identify replacement supplier of the plasma which is used for the production of these products. Delays in establishing a relationship with a new manufacturer could lead to a decrease in these products sales and a deterioration in our market share when compared with one or more of our competitors. Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.
Manufacturing of new plasma-derived products in our manufacturing facility requires a lengthy and challenging development project and/or technology transfer project as well as regulatory approvals, all of which may not materialize.
The manufacturing of newly marketed or investigational plasma-derived products in our plant, including the four hyper-immune globulin products recently acquired from Saol, requires a lengthy and challenging development project and/or technology transfer project through which we transfer the know-how and capabilities to manufacture the new product. Such projects are usually complex and involve investment of significant time (approximately two to four years) and resources. There is no assurance that such development and/or technology transfer projects will be successful and will allow us to manufacture the new product according to its required specifications.
Such development and/or technology transfer projects require regulatory approval by the FDA and/or EMA or other relevant regulatory agencies. Obtaining such regulatory approval may require activities such as the manufacturing of comparable batches and/or performing comparability non-clinical and/or clinical studies between the product manufactured by its existing manufacturer and the product manufactured at our manufacturing facility. There is no assurance that we will be able to provide supporting comparability results that meet all regulatory requirements needed to obtain the regulatory approval required to be able to commence commercial manufacturing of new plasma-derived products in our manufacturing plant.
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If we are unable to adequately complete the required development and/or technology transfer projects or subsequently obtain the required regulatory approvals, we will not be able to meet commercial demand, utilize the excess capacity of our manufacturing plant, incur additional costs and may suffer reduced profitability or operating losses.
Disruption of the operations of our current or any future plasma collection center due to regulatory impediments or otherwise would cause us to become supply constrained and our financial performance would suffer.
In March 2021, we completed the acquisition of the FDA licensed plasma collection center and certain related assets from the privately-held B&PR based in Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D products. We plan to significantly expand our hyperimmune plasma collection capacity by investing in this plasma collection center in Beaumont, Texas, and leveraging our FDA license to open additional centers in the United States.
In order for plasma to be used in the manufacturing of our products, the individual centers at which the plasma is collected must be licensed and approved by the regulatory authorities, such as the FDA and the EMA, of those countries in which we sell our products. When a new plasma collection center is opened, it must be inspected on an ongoing basis after its approval by the FDA and the EMA for compliance with cGMP and other regulatory requirements, and these regulatory requirements are subject to change. An unsatisfactory inspection could prevent a new center from being approved for operation or risk the suspension or revocation of an existing approval. In order for a plasma collection center to maintain its governmental approval to operate, its operations must continue to conform to cGMP and other regulatory requirements or recommendations which may be applicable from time to time (e.g., in January 2022, the FDA issued guidance providing recommendations to blood establishments on collection of convalescent plasma during the public health emergency).
In the event that we determine that our plasma collection center did not comply with cGMP in collecting plasma, we may be unable to use and may ultimately destroy plasma collected from that center, which would be recorded as a charge to cost of goods. Additionally, if noncompliance in the plasma collection process is identified after the impacted plasma has been pooled with compliant plasma from other sources, entire plasma pools, in-process intermediate materials and final products could be impacted. Consequently, we could experience significant inventory impairment provisions and write-offs.
We plan to continue to obtain our supplies of plasma for use in our manufacturing processes through collections at our plasma collection centers and through the establishment of new plasma collection centers. We also plan to expand collection programs to include hyperimmune specialty plasma required for manufacturing of our Proprietary products including KAMRAB/KEDRAB as well as for some of the products included in our recently acquired products portfolio. This strategy is dependent upon our ability to successfully establish new centers, to obtain FDA and other necessary approvals for any centers not yet approved by the FDA, to maintain a cGMP compliant environment in all centers and to attract donors to our centers.
Our ability to increase and improve the efficiency of production at our current or any future plasma collection center may be affected by: (i) changes in the economic environment and population in selected regions where we operate plasma collection centers; (ii) the entry of competitive centers into regions where we operate; (iii) our misjudging the demographic potential of individual regions where we expect to increase production and attract new donors; (iv) unexpected facility related challenges; or (v) unexpected management challenges at select plasma collection centers.
The biologic properties of plasma and plasma derivatives are variable, which may impact our ability to consistently manufacture our products in accordance with the approved specifications.
While our manufacturing processes were developed to meet certain product specifications, variations in the biologic properties of the plasma or plasma derivatives as well as the manufacturing processes themselves may result in out of specification results during the manufacturing of our products. While we expect certain work-in-process inventories scraps in the ordinary course of business because of the complex nature of plasma and plasma derivatives, our processes and our plasma-derived protein therapeutics, unanticipated events may lead to write-offs and other costs materially in excess of our expectations. We have, in the past, experienced situations that have caused us to write-off the value of our products. Such write-offs and other costs could materially adversely affect our operating results.
The biologic properties of plasma and plasma derivatives are variable, which may adversely impact our levels of product yield from our plasma or plasma derivative supply.
Due to the nature of plasma, there will be variations in the biologic properties of the plasma or plasma derivatives we purchase that may result in fluctuations in the obtainable yield of desired fractions, even if cGMP is followed. Lower yields may limit production of our plasma-derived protein therapeutics because of capacity constraints. If these batches of plasma with lower yields impact production for extended periods, we may not be able to fulfill orders on a timely basis and the total capacity of product that we are able to market could decline and our cost of goods sold could increase, thus reducing our profitability.
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Usage of our products may lead to serious and unexpected side effects, which could materially adversely affect our business and may, among other factors, lead to our products being recalled and our reputation being harmed, resulting in an adverse effect on our operating results.
The use of our plasma-derived protein therapeutics may produce undesirable side effects or adverse reactions or events. For the most part, these side effects are known, are expected to occur at some frequency and are described in the products’ labeling. Known side effects of a number of our plasma-derived protein therapeutics include headache, nausea and additional common protein infusion related events, such as flu-like symptoms, dizziness and hypertension. The occurrence of known side effects on a large scale could adversely affect our reputation and public image, and hence also our operating results.
In addition, the use of our plasma-derived protein therapeutics may be associated with serious and unexpected side effects, or with less serious reactions at a greater than expected frequency. This may be especially true when our products are used in critically ill patient populations. When these unexpected events are reported to us, we typically make a thorough investigation to determine causality and implications for product safety. These events must also be specifically reported to the applicable regulatory authorities, and in some cases, also to the public by media channels. If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable risk associated with one of our products, we would be obligated to withdraw the impacted lot or lots of that product or, in certain cases, to withdraw the product entirely. Furthermore, it is possible that an unexpected side effect caused by a product could be recognized only after extensive use of the product, which could expose us to product liability risks, enforcement action by regulatory authorities and damage to our reputation.
We are subject to a number of existing laws and regulations in multiple jurisdictions, non-compliance with which could adversely affect our business, financial condition and results of operations, and we are susceptible to a changing regulatory environment, which could increase our compliance costs or reduce profit margins.
Any new product must undergo lengthy and rigorous testing and other extensive, costly and time-consuming procedures mandated by the FDA and similar authorities in other jurisdictions, including the EMA and the regulatory authorities in Israel. Our facilities and those of our contract manufacturers must be approved and licensed prior to production and remain subject to inspection from time to time thereafter. Failure to comply with the requirements of the FDA or similar authorities in other jurisdictions, including a failed inspection or a failure in our reporting system for adverse effects of our products experienced by the users of our products, or any other non-compliance, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, import or export restrictions, refusal or delay of a regulatory authority to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses. Furthermore, we may experience delays or additional costs in obtaining new approvals or licenses, or extensions of existing approvals and licenses, from a regulatory authority due to reasons that are beyond our control such as changes in regulations or a shutdown of the U.S. federal government, including the FDA, or similar governing bodies or authorities in other jurisdictions. In addition, while we recently entered the U.S. plasma collection market with our recent acquisition of a plasma collection center in the United States, we continue to rely on, Kedrion, CSL, Emergent, Takeda and additional plasma suppliers, for plasma collection required for the manufacturing of KEDRAB, CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, GLASSIA and other Proprietary products, and in the case of Takeda and Kedrion for the distribution of these products in the United States (and in the case of Takeda, also potentially in Canada, Australia and New Zealand). In performing such services for us, these plasma suppliers are required to comply with certain regulatory requirements. Any failure by these plasma suppliers to properly advise us regarding, or properly perform tasks related to, regulatory compliance requirements, could adversely affect us. Any of these actions could cause direct liabilities, a loss in our ability to market each of KEDRAB, CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF GLASSIA and/or other Proprietary products, or a loss of customer confidence in us or in GLASSIA and/or KEDRAB and/or other Proprietary products, which could materially adversely affect our sales, future revenues, reputation, and results of operations. Similarly, we rely on other third-party vendors, for example, in the testing, handling, and distributions of our products. If any of these companies incur enforcement action from regulatory authorities due to noncompliance, this could negatively affect product sales, our reputation and results of operations. In addition, we rely on other distributors of our other proprietary products, for purposes of our distribution related regulatory compliance for the products they distribute in the territories in which they operate. Any failure by such distributors to properly advise us regarding, or properly perform tasks related to, regulatory compliance requirements, could adversely affect our sales, future revenues, reputation and results of operations.
Changes in our production processes for our products may require supplemental submissions or prior approval by FDA and/or similar authorities in other jurisdictions. Failure to comply with any requirements as to production process changes dictated by the FDA or similar authorities in other jurisdictions could also result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal or delay of a regulatory authority to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses.
Pursuant to the amendment to the GLASSIA license agreement with Takeda, entered into in March 2021, we agreed to transfer the U.S. Biologics License Application (“BLA”) to Takeda. Following the effectiveness of such transfer, we will rely on Takeda to share with us any relevant information with respect to changes in the manufacturing of the product or its usage which may be applicable in order to update the products registration file in certain ROW markets in which it is currently registered and/or distributed, or may be registered and/or distributed in the future.
In addition, changes in the regulation of our activities, such as increased regulation affecting safety requirements or new regulations such as limitations on the prices charged to customers in the United States, Israel or other jurisdictions in which we operate, could materially adversely affect our business. In addition, the requirements of different jurisdictions in which we operate may become less uniform, creating a greater administrative burden and generating additional compliance costs, which would have a material adverse effect on our profit margins.
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We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.
Our proprietary products depend on our access to U.S., European or other territories’ hyper-immune plasma or plasma derivatives, such as fraction IV. We purchase these plasma products from third-party licensed suppliers, some of which are also responsible for the plasma fractionation process, pursuant to multiple purchase agreements. We have entered into (and with respect to the recently acquired four FDA approved products, we assumed) a number of plasma supply agreements with various third parties in the United States and Europe. These agreements contain various termination provisions, including upon a material breach of either party, force majeure and, with respect to supply agreements with strategic partners, the failure or delay on the part of either party to obtain the applicable regulatory approvals or the termination of the principal strategic relationship. If we are unable to obtain adequate quantities of source plasma or fraction IV plasma approved by the FDA, the EMA or the regulatory authorities in Israel from these providers, we may be unable to find an alternative cost-effective source.
In order for plasma and fraction IV plasma to be used in the manufacturing of our plasma-derived protein therapeutics, the individual centers at which the plasma is collected must be licensed and approved by the relevant regulatory authorities, such as the FDA, the EMA. When a new plasma collection center is opened, and on an ongoing basis after its licensure, it must be inspected by the FDA, the EMA or the regulatory authorities in Israel for compliance with cGMP and other regulatory requirements. An unsatisfactory inspection could prevent a new center from being licensed or lead to the suspension or revocation of an existing license. If relevant regulatory authorities determine that a plasma collection center did not comply with cGMP in collecting plasma, we may be unable to use and may ultimately destroy plasma collected from that center, which may impact on our ability to timely meet our manufacturing and supply obligations. Additionally, if noncompliance in the plasma collection process is identified after the impacted plasma has been pooled with compliant plasma from other sources, entire plasma pools, in-process intermediate materials and final products could be impacted, such as through product destruction or rework. Consequently, we could experience significant inventory impairment provisions and write-offs, which could adversely affect our business and financial results.
In addition, the plasma supplier’s fractionation process must also meet standards of the FDA, the EMA or the regulatory authorities in Israel. If a plasma supplier is unable to meet such standards, we will not be able to use the plasma derivatives provided by such supplier, which may impact on our ability to timely meet our manufacturing and supply obligations.
If we were unable to obtain adequate quantities of source plasma or plasma derivatives approved by the FDA, the EMA or the regulatory authorities in Israel, we would be limited in our ability to maintain or increase current manufacturing levels of our plasma derivative products, as well as in our ability to conduct the research required to maintain our product pipeline. As a result, we could experience a substantial decrease in total revenues or profit margins, a potential breach of distribution agreements, a loss of customers, a negative effect on our reputation as a reliable supplier of plasma derivative products or a substantial delay in our production and strategic growth plans.
The ability to increase plasma collections may be limited, our supply of plasma and plasma derivatives could be disrupted or the cost of plasma and plasma derivatives could increase substantially, as a result of numerous factors, including a reduction in the donor pool, increased regulatory requirements, decreased number of plasma supply sources due to consolidation and new indications for plasma-derived protein therapeutics, which could increase demand for plasma and plasma derivatives and lead to shortages.
The plasma collection process is dependent on donors arriving in plasma collection centers and agreeing to donate plasma. During major healthcare events, such as the recent COVID-19 pandemic, the number of donors attending plasma collection centers decreases, which may adversely affect the availability of plasma and its derivatives. A significant shortage in plasma supply may adversely affect our ability to continue manufacturing our products, may result in shortages in our products in the market, and may result in reduced sales and profitability.
We are also dependent on a number of suppliers who supply specialty ancillary products used in the production process, such as specific gels and filters. Each of these specialty ancillary products is provided by a single, exclusive supplier. If these suppliers were unable to provide us with these specialty ancillary products, if our relationships with these suppliers deteriorate, if these suppliers fail to meet our vendors qualification processes, or these suppliers’ operations are negatively affected by regulatory enforcement due to noncompliance, the manufacture and distribution of our products would be materially adversely affected, which would adversely affect our sales and results of operations. See “—If we experience equipment difficulties or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.”
Some of our required specialty ancillary products and other materials used in the manufacturing process are commonly used in the healthcare industry world-wide. If the global demand for these products increases due to healthcare issues, epidemics or pandemics, such as the coronavirus (COVID-19) pandemic, our ability to secure adequate supply at reasonable cost of such products may be negatively affected, which would materially adversely affect our ability to manufacture and distribute our products, which would adversely affect our sales and results of operations.
In addition, regulatory requirements, including cGMP regulations, continually evolve. Failure of our plasma suppliers to adjust their operations to conform to new standards as established and interpreted by applicable regulatory authorities would create a compliance risk that could impair our ability to sustain normal operations.
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In addition, if the purchase prices of the source plasma or plasma derivatives that we use to manufacture our proprietary products were to rise significantly, we may not be able to pass along these increased plasma and plasma-derivative prices to our customers. Prices in many of our principal markets are subject to local regulation and certain pharmaceutical products, such as plasma-derived protein therapeutics, are subject to price controls. Any inability to pass costs on to our customers due to these factors or others would reduce our profit margins. In addition, most of our competitors have the ability to collect their own source plasma or produce their own plasma derivatives, and therefore their products’ prices would not be impacted by such a price rise, and as a result any pricing changes by us in order to pass higher costs on to our customers could render our products noncompetitive in certain territories.
We have been required to conduct post-approval clinical trials of GLASSIA and KEDRAB as a commitment to continuing marketing such products in the United States, and we may be required to conduct post-approval clinical trials as a condition to licensing or distributing other products.
When a new product is approved, the FDA or other regulatory authorities may require post-approval clinical trials, sometimes called Phase 4 clinical trials. For example, the FDA has required that we conduct Phase 4 clinical trials of GLASSIA and for KEDRAB. Such Phase 4 clinical trials are aimed at collecting additional safety data, such as the immune response in the body of a human or animal, commonly referred to as immunogenicity, viral transmission, levels of the protein in the lung, or epithelial lining fluid, and certain efficacy endpoints requested by the FDA. If the results of such trials are unfavorable and demonstrate a previously undetected risk or provide new information that puts patients at risk, or if we fail to complete such trials as instructed by the FDA, this could result in receiving a warning letter from the FDA and the loss of the approval to market the product in the United States and other countries, or the imposition of restrictions, such as additional labeling, with a resulting loss of sales. Furthermore, there can be no assurance that the FDA will accept the results of any post-marketing commitment study, such as the results of the KEDRAB study, and under certain circumstances the FDA may require a subsequent study. Other products we develop may face similar requirements, which would require additional resources and which may not be successful. We may also receive approval that is conditioned on successful additional data or clinical development, and failure in such further development may require similar changes to our product label or result in revocation of our marketing authorization.
The nature of producing and developing plasma-derived protein therapeutics may prevent us from responding in a timely manner to market forces and effectively managing our production capacity.
The production of plasma-derived protein therapeutics is a lengthy and complex process. Our ability to match our production of plasma-derived protein therapeutics to market demand is imprecise and may result in a failure to meet the market demand for our plasma-derived protein therapeutics or potentially in an oversupply of inventory. Failure to meet market demand for our plasma-derived protein therapeutics may result in customers transitioning to available competitive products, resulting in a loss of segment share or distributor or customer confidence. In the event of an oversupply in the market, we may be forced to lower the prices we charge for some of our plasma-derived protein therapeutics, record asset impairment charges or take other action which may adversely affect our business, financial condition and results of operations.
Risks Related to Our Distribution Segment
Our Distribution segment is dependent on a few suppliers, and any disruption to our relationship with these suppliers, or their inability to supply us with the products we sell, in a timely manner, in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial condition and results of operations.
Sales of products supplied by Biotest A.G., Chiesi Farmaceutici S.p.A and Bio Products Laboratories Ltd. (“BPL”), which are sold in our Distribution segment, together represented approximately 25%, 22% and 19% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. While we have distribution agreements with each of our suppliers, these agreements do not obligate these suppliers to provide us with minimum amounts of our Distribution segment products. Purchases of our Distribution segment products from our suppliers are typically on a purchase order basis. We work closely with our suppliers to develop annual forecasts, but these forecasts are not obligations or commitments. However, if we fail to submit purchase orders that meet our annual forecasts or if we fail to meet our minimum purchase obligations, we could lose exclusivity or, in certain cases, the distribution agreement could be terminated.
These suppliers may experience capacity constraints that result in their being unable to supply us with products in a timely manner, in adequate quantities and/or at a reasonable cost. Contributing factors to supplier capacity constraints may include, among other things, industry or customer demands in excess of machine capacity, labor shortages, changes in raw material flows or shortages in raw materials which may result from different market conditions including, but not limited to, shortages resulting from increased global demand for these raw materials due to global healthcare issues, epidemics and pandemics, such as the coronavirus (COVID-19) pandemic. These suppliers may also choose not to supply us with products at their discretion or raise prices to a level that would render our products noncompetitive. Any significant interruption in the supply of these products could result in us being unable to meet the demands of our customers, which would have a material adverse effect on our business, financial condition and results of operations as a result of being required to pay of fines or penalties, be subject to claims of reach of contract, loss of reputation or even termination of agreement.
If our relationship with either distributor deteriorated, our distribution sales could be adversely affected. If we fail to maintain our existing relationships with these suppliers, we could face significant costs in finding a replacement supplier, and delays in establishing a relationship with a new supplier could lead to a decrease in our sales and a deterioration in our market share when compared with one or more of our competitors.
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Additionally, our future growth in the Distribution segment is dependent on our ability to successfully engage other manufacturers for distribution in Israel of other products. Failure to engage new suppliers may have an adverse effect on our revenue growth and profitability.
Certain of our sales in our Distribution segment rely on our ability to win tender bids based on the price and availability of our products in annual public tender processes.
Certain of our sales in our Distribution segment rely on our ability to win tender bids during the annual tender process in Israel, as well as on sales made to Health Maintenance Organizations (HMOs), hospitals and to the IMOH. Our ability to win bids may be materially adversely affected by competitive conditions in such bid process. Our existing and new competitors may also have significantly greater financial resources than us, which they could use to promote their products and business. Greater financial resources would also enable our competitors to substantially reduce the price of their products or services. If our competitors are able to offer prices lower than us, our ability to win tender bids during the annual tender process will be materially affected, and could reduce our total revenues or decrease our profit margins.
Certain of our products in both segments have historically been subject to price fluctuations as a result of changes in the production capacity available in the industry, the availability and pricing of plasma, development of competing products and the availability of alternative therapies. Higher prices for plasma-derived protein therapeutics have traditionally spurred increases in plasma production and collection capacity, resulting over time in increased product supply and lower prices. As demand continues to grow, if plasma supply and manufacturing capacity do not commensurately expand, prices tend to increase. Additionally, consolidation in plasma companies has led to a decrease in the number of plasma suppliers in the world, as either manufacturers of plasma-based pharmaceuticals purchase plasma suppliers or plasma suppliers are shut down in response to the number of manufacturers of plasma-based pharmaceuticals decreasing, which may lead to increased prices. We may not be able to pass along these increased plasma and plasma-derivative prices to our customers, which would reduce our profit margins.
Sales of our Distribution segment products are made through public tenders of Israeli hospitals and HMOs on an annual basis or in the private market based on detailing activity made by our medical representatives. The prices we can offer, as well as the availability of products, are key factors in the tender process. If our suppliers in the Distribution segment cannot sell us products at a competitive price or cannot guarantee sufficient quantities of products, we may lose the tenders.
Our Distribution segment is dependent on a few customers, and any disruption to our relationship with these customers, or our inability to supply, in a timely manner, in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial condition and results of operations.
The Israeli market for drug products includes a relatively small number of HMOs and several hospitals. Sales to Clalit Health Services, an Israeli HMO, accounted for approximately 42%, 41% and 47% of our Distribution Segment revenues in the years ended December 31, 2021, 2020 and 2019, respectively.
If our relationship with any of our Israeli customers deteriorated, our distribution sales could be adversely affected. Failure to maintain our existing relationships with these customers could lead to a decrease in our revenues and profitability.
Before we may sell products in the Distribution segment, we must register the products with the IMOH and there can be no assurance that such registration will be obtained.
Before we may sell products in the Distribution segment in Israel, we must register the products, at our own expense, with the IMOH. We cannot predict how long the registration process of the IMOH may take or whether any such registration ultimately will be obtained. The IMOH has substantial discretion in the registration process and we can provide no assurance of success of registration. Our business, financial condition or results of operations could be materially adversely affected if we fail to receive IMOH registration for the products in the Distribution segment.
Our Distribution segment is a low-margin business and our profit margins may be sensitive to various factors, some of which are outside of our control.
Our Distribution segment is characterized by high volume sales with relatively low profit margins. Volatility in our pricing may have a direct impact on our profitability. Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers. In addition, if our product mix changes, we may face increased risks of compression of our margins, as we may be unable to achieve the same level of profit margins as we are able to capture on our existing products. Our inability to effectively price our products or to reduce our expenses due to volatility in pricing could have a material adverse impact on our business, financial condition or results of operations.
We may be subject to milestone payments in connection with our Distribution segment products irrespective of whether the commercialization is successful.
Certain of our agreements in the Distribution segment, including agreements for distribution of biosimilar product candidates, require us to make milestone payments in advance of product launch. In some cases, we may not be able to obtain reimbursement for such payments. To the extent that we are not ultimately able to recoup these payments, our business, financial position and results of operations may be adversely affected.
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We face significant competition in our Distribution segment from companies with greater financial resources.
In the Distribution segment, we face competition for our distribution products that are marketed in Israel and compete for market share. We believe that there are a number of companies active in the Israeli market distributing the products of several manufacturers whose comparable products compete with our products in the Distribution segment. In the plasma area, these manufacturers include Grifols, Takeda, CSL, Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company), while in other specialties we may be competing against products produced by some of the largest pharmaceutical manufacturers in the world, such as, Novartis AG, AstraZeneca AB, Sanofi UK and GlaxoSmithKline. Each of these competitors sells its products through a local subsidiary or a local representative in Israel. Our existing and new competitors may have significantly greater financial resources than us, which they could use to promote their products and business or reduce the price of their products or services. If we are unable to maintain or increase our market share, we may need to reduce prices and may suffer reduced profitability or operating losses, which could have a material adverse impact on our business, financial condition or results of operations.
We recently entered into agreements for future distribution in Israel of several biosimilar product candidates, and the successful future distribution of these products is dependent upon several factors some of which are beyond our control.
In 2020 and 2021, we entered into agreements with respect to planned distribution in Israel of certain biosimilar product candidates. Biosimilar products are highly similar to biological products already licensed for distribution by the FDA, EMA or any other relevant regulatory agency, notwithstanding minor differences in clinically inactive components, and that they have no clinically meaningful differences, as compared to the marketed biological products in terms of the safety, purity and potency of the products. The similar nature of a biosimilar and a reference product is demonstrated by comprehensive comparability studies covering quality, biological activity, safety and efficacy.
In order to launch biosimilar products in Israel we would need to obtain IMOH marketing authorization, which will be subject to prior authorization to be obtained by the manufacturer of the biosimilar product from the FDA or the EMA. Even if an FDA or EMA authorization is provided, there can be no assurance that the IMOH will accept such authorization as a reference and will grant us the authorization to distribute such biosimilar products in the Israeli market. In the event we will not be able to obtain the necessary marking authorization to launch the products, we may not generate the expected sale and profitability from these products, which could have a material adverse impact on our business, financial condition or results of operations.
Innovative pharmaceutical products are generally protected for a defined period by various patents (including those covering drug substance, drug product, approved indications, methods of administration, methods of manufacturing, formulations and dosages) and/or regulatory exclusivity, which are intended to provide their holders with exclusive rights to market the products for the life of the patent or duration of the regulatory data protection period. Biosimilar products are intended to replace such innovative pharmaceutical upon the expiration or termination of their exclusivity period or in such markets whereby such exclusivity does not exist. The launch of a biosimilar product may potentially result in the infringement of certain IP rights and exclusivity and be subject to potential legal proceedings and restraining orders effecting its potential launch. Such intellectual property threats may preclude commercialization of such biosimilar product candidates, may result in incurring significant legal expenses and liabilities and we may not generate the expected sale and profitability from these products, which could have a material adverse impact on our business, financial condition or results of operations.
In addition, the commercialization of biosimilars includes the potential for steeper than anticipated price erosion due to increased competitive intensity, and lower uptake for biosimilars due to various factors that may vary for different biosimilars (e.g., anti-competitive practices, physician reluctance to prescribe biosimilars for existing patients taking the originator product, or misaligned financial incentives), all of which may affect our potential sales and profitability from these products which could have a material adverse impact on our business, financial condition or results of operations.
Risk Related to Development, Regulatory Approval and Commercialization of Product Candidates
Drug product development including preclinical and clinical trials is a lengthy and expensive process and may not result in receipt of regulatory approval.
Before obtaining regulatory approval for the sale of our product candidates, including Inhaled AAT for AATD, or for the marketing of existing products for new indications, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. We cannot predict how long the approval processes of the FDA, the EMA, the regulatory authorities in Israel or any other applicable regulatory authority or agency for any of our product candidates will take or whether any such approvals ultimately will be granted. The FDA, the EMA, the regulatory authorities in Israel and other regulatory agencies have substantial discretion in the relevant drug approval process over which they have authority, and positive results in preclinical testing or early phases of clinical studies offer no assurance of success in later phases of the approval process. The approval process varies from country to country and the requirements governing the conduct of clinical trials, product manufacturing, product licensing, pricing and reimbursement vary greatly from country to country.
Preclinical and clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. For example, the Phase 2/3 clinical trial in Europe for Inhaled AAT for AATD did not meet its primary or secondary endpoints and we subsequently withdrew the MAA in Europe for our Inhaled AAT for AATD.
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While we initiated the development of our investigational Anti-SARS-CoV-2 IgG product in the wake of the COVID-19 pandemic, due to the lengthy and costly development and required regulatory process as well as the dependency on continued collection and supply of plasma from COVID-19 convalescent patients and competitive landscape, we may not be able to supply our product prior to the potential wind-down of the pandemic.
As a result of the COVID-19 pandemic we have encountered delays in patient recruitment into our pivotal Phase 3 InnovAAT clinical study conducted at a first study site in Europe and it has impacted and may continue to impact our ability to open additional study sites in the United States and Europe.
During December 2019, we announced that the first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial, a randomized, double-blind, placebo-controlled, pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled AAT in patients with AATD and moderate lung disease. Under the study design, up to 250 patients will be randomized 1:1 to receive either Inhaled AAT at a dose of 80mg once daily, or placebo, over two years of treatment. Enrolment into the trial continued through February 2020, however, thereafter was temporarily halted due to the impact of COVID-19 pandemic on healthcare systems. Although we resumed recruitment to the study, the COVID-19 pandemic has slowed down the rate of recruitment and the current pandemic situation mainly across Europe affects our ability to meet recruitment targets in time. While we plan to open a few new study sites despite the continuation of the pandemic, there can be no assurance that we will be able to open any additional sites or significantly increase the rate of patient recruitment. This situation may cause a material delay in completing this study, or otherwise may require us to halt the study completely or reduce the overall size of the study, which might not be acceptable by the FDA and/or EMA. These circumstances may affect our ability to complete the study successfully or may prevent us from having sufficient information to file for and obtain regulatory approval for this product by the FDA, EMA or any other relevant regulatory agency.
We may encounter unforeseen events that delay or prevent us from receiving regulatory approval for our product candidates.
We have experienced unforeseen events that have delayed our ability to receive regulatory approval for certain of our product candidates, and may in the future experience similar or other unforeseen events during, or as a result of, preclinical testing or the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including the following:
| ● | delays may occur in obtaining our clinical materials; |
| ● | our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or to abandon strategic projects; |
| ● | the number of patients required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower or more difficult than we anticipate (due to various reasons including challenges that may be imposed as a result of events outside our control, such as the COVID-19 pandemic which resulted in a significant slow-down in patient recruitment to our on-going Inhaled AAT Phase 3 study), or participants may withdraw from our clinical trials at higher rates than we anticipate; |
| ● | delays may occur in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review board approval; |
| ● | our strategic partners may not achieve their clinical development goals and/or comply with their relevant regulatory requirements, which could affect our ability to conduct our clinical trials or obtain marketing authorization; |
| ● | we may be forced to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks or if any participant experiences an unexpected serious adverse event; |
| ● | regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; |
| ● | regulators may not authorize us to commence or conduct a clinical trial within a country or at a prospective trial site, or according to the clinical trial outline we propose; |
| ● | undetected or concealed fraudulent activity by a clinical researcher, if discovered, could preclude the submission of clinical data prepared by that researcher, lead to the suspension or substantive scientific review of one or more of our marketing applications by regulatory agencies, and result in the recall of any approved product distributed pursuant to data determined to be fraudulent; |
| ● | the cost of our clinical and preclinical trials may be greater than we anticipate; |
| ● | an audit of preclinical tests or clinical studies by the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities may reveal noncompliance with applicable regulations, which could lead to disqualification of the results of such studies and the need to perform additional tests and studies; and |
| ● | our product candidates may not achieve the desired clinical benefits, or may cause undesirable side effects, or the product candidates may have other unexpected characteristics. |
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if safety concerns arise, we may:
| ● | be delayed in obtaining regulatory or marketing approval for our product candidates; |
| ● | be unable to obtain regulatory and marketing approval; |
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| ● | decide to halt the clinical trial or other testing; |
| ● | be required to conduct additional trials under a conditional approval; |
| ● | be unable to obtain reimbursement for our products in all or some countries; |
| ● | only obtain approval for indications that are not as broad as we initially intend; |
| ● | have the product removed from the market after obtaining marketing approval from the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities; and |
| ● | be delayed in, or prevented from, the receipt of clinical milestone payments from our strategic partners. |
Our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis is subject to several factors, including the size of the patient population, the time of year during which the clinical trial is commenced, the hesitance of certain patients to leave their current standard of care for a new treatment, and the number of other ongoing clinical trials competing for patients in the same indication and eligibility criteria for the clinical trial. During 2020 and 2021, we encountered challenges to recruit patients to our ongoing pivotal Phase 3 InnovAAT clinical study as a result of the COVID-19 pandemic, resulting in significant delays in recruitment. In addition, patients may drop out of our clinical trials at any point, which could impair the validity or statistical significance of the trials. Delays in patient enrollment or unexpected drop-out rates may result in longer development times.
Our product development costs will also increase if we experience delays in testing or approvals. There can be no assurance that any preclinical test or clinical trial will begin as planned, not need to be restructured or be completed on schedule, if at all. Because we generally apply for patent protection for our product candidates during the development stage, significant preclinical or clinical trial delays also could lead to a shorter patent protection period during which we may have the exclusive right to commercialize our product candidates, if approved, or could allow our competitors to bring products to market before we do, impairing our ability to commercialize our products or product candidates. For example, in the past, we have experienced delays in the commencement of clinical trials, such as a delay in patient enrollment (including as a result of the COVID-19 pandemic) for our clinical trials in Europe and the United States for Inhaled AAT for AATD.
Pre-clinical studies, including studies of our product candidates in animal models of disease, may not accurately predict the result of human clinical trials of those product candidates. In addition, product candidates studied in Phase 1 and 2 clinical trials may be found not to be safe and/or efficacious when studied further in Phase 3 trials. To satisfy FDA or other applicable regulatory approval standards for the commercial sale of our product candidates, we must demonstrate in adequate and controlled clinical trials that our product candidates are safe and effective. Success in early clinical trials, including Phase 1 and 2 trials, does not ensure that later clinical trials will be successful. Initial results from Phase 1 and 2 clinical trials also may not be confirmed by later analysis or subsequent larger clinical trials. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
We may not be able to commercialize our product candidates in development for numerous reasons.
Even if preclinical and clinical trials are successful, we still may be unable to commercialize a product because of difficulties in obtaining regulatory approval for its production process or problems in scaling that process to commercial production. In addition, the regulatory requirements for product approval may not be explicit, may evolve over time and may diverge among jurisdictions and our third-party contractors, such as contract research organizations, may fail to comply with regulatory requirements or meet their contractual obligations to us.
Even if we are successful in our development and regulatory strategies, we cannot provide assurance that any product candidates we may seek to develop or are currently developing, such as Inhaled AAT for AATD, will ever be successfully commercialized. We may not be able to successfully address patient needs, persuade physicians and payors of the benefit of our product, and lead to usage and reimbursement. If such products are not eventually commercialized, the significant expense and lack of associated revenue could materially adversely affect our business.
We may not be able to successfully build and implement a commercial organization or commercialization program, with or without collaborating partners. The scale-up from research and development to commercialization requires significant time, resources, and expertise, which will rely, to a large extent, on third parties for assistance to help us in our efforts. Such assistance includes, but is not limited to, persuading physicians and payors of the benefit of our product to lead to utilization and reimbursement, developing a healthcare compliance program, and complying with post-marketing regulatory requirements.
We have initiated the development of a recombinant AAT product candidate, however, we may not be able to successfully complete its development or commercialize such product candidates for numerous reasons.
We have begun developing recombinant version of AAT, through external services of a Contract Development and Manufacturing Organization (“CDMO”), but we cannot be certain that such product will ever be approved or commercialized. See “Item 4. Information on the Company — Our Product Pipeline and Development Program — Recombinant AAT.” The main advantage of recombinant AAT is its potentially wider availability, and ease of large-scale manufacturing. As a result, our product offerings may remain plasma-derived, even if our competitors offer competing recombinant or other non-plasma products or treatments.
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Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results.
We must invest increasingly significant resources to develop specialty products through our own efforts and through collaborations with third parties in the form of partnerships or otherwise. The development of specialty pharmaceutical products involves high-level processes and expertise and carries a significant risk of failure. For example, the average time from the pre-clinical phase to the commercial launch of a specialty pharmaceutical product can be 15 years or longer, and involves multiple stages: not only intensive preclinical, clinical and post clinical testing, but also highly complex, lengthy and expensive regulatory approval processes as well as reimbursement proceedings, which can vary from country to country. The longer it takes to develop a pharmaceutical product, the longer it may take for us to recover our development costs and generate profits, and, depending on various factors, we may not be able to ever recover such costs or generate profits.
During each stage of development, we may encounter obstacles that delay the development process and increase expenses, leading to significant risks that we will not achieve our goals and may be forced to abandon a potential product in which we have invested substantial amounts of time and money. These obstacles may include the following: preclinical-study failures; difficulty in enrolling patients in clinical trials; delays in completing formulation and other work needed to support an application for approval; adverse reactions or other safety concerns arising during clinical testing; insufficient clinical trial data to support the safety or efficacy of a product candidate; other failures to obtain, or delays in obtaining, the required regulatory approvals for a product candidate or the facilities in which a product candidate is manufactured; regulatory restrictions which may delay or block market penetration and the failure to obtain sufficient intellectual property rights for our products.
Accordingly, there can be no assurance that the continued development of our Inhaled AAT and any other product candidate will be successful and will result in an FDA and/or EMA approvable indication.
Because of the amount of time and expense required to be invested in augmenting our pipeline of specialty and other products, including the unique know-how which may be required for such purpose, we may seek partnerships or joint ventures with third parties from time to time, and consequently face the risk that some or all of these third parties may fail to perform their obligations, or that the resulting arrangement may fail to produce the levels of success that we are relying on to meet our revenue and profit goals.
We rely on third parties to conduct our preclinical and clinical trials. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines could substantially harm our business because we may not obtain regulatory approval for, or commercialize, our product candidates in a timely manner or at all.
We rely upon third-party contractors, such as university researchers, study sites, physicians and contract research organizations (“CROs”), to conduct, monitor and manage data for our current and future preclinical and clinical programs. We expect to continue to rely on these parties for execution of our preclinical and clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on such third-party contractors does not relieve us of our regulatory responsibilities. With respect to clinical trials, we and our CROs are required to comply with current Good Clinical Practices (“GCP”), which are regulations and guidelines enforced by the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements.
These third-party contractors are not our employees, we cannot effectively control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs, and except for remedies available to us under our agreements with such third-party contractors, we may be unable to recover losses that result from any inadequate work on such programs. If such third-party contractors do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our development efforts and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of such third-party contractors in the future, our business may be adversely affected.
We may not obtain orphan drug status for our products, or we may lose orphan drug designations, which would have a material adverse effect on our business.
One of the incentives provided by an orphan drug designation is market exclusivity for seven years in the United States and ten years in the European Union for the first product in a class approved for the treatment of a rare disease. Although several of our products and product candidates, including Inhaled AAT for AATD, have been granted the designation of an orphan drug, we may not be the first product licensed for the treatment of particular rare diseases in the future or our approved indication may vary from that subject to the orphan designation. In such cases we would not be able to take advantage of market exclusivity and instead another sponsor would receive such exclusivity.
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Additionally, although the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication, such exclusivity would not apply in the case that a subsequent sponsor could demonstrate clinical superiority or a market shortage occurs and would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug. In the event we are unable to fill demand for any orphan drug, it is possible that the FDA or the EMA may view such unmet demand as a market shortage, which could impact our market exclusivity.
The FDA and the EMA may also, in the future, revisit any orphan drug designation that they have respectively conferred upon a drug and retain the ability to withdraw the relevant designation at any time. Additionally, the U.S. Congress has considered, and may consider in the future, legislation that would restrict the duration or scope of the market exclusivity of an orphan drug, and, thus, we cannot be sure that the benefits to us of the existing statute in the United States will remain in effect. Furthermore, some court decisions have raised questions about FDA’s interpretation of the orphan drug exclusivity provisions, which could potentially affect our ability to secure orphan drug exclusivity.
If we lose our orphan drug designations or fail to obtain such designations for our new products and product candidates, our ability to successfully market our products could be significantly affected, resulting in a material adverse effect on our business and results of operations.
The commercial success of the products that we may develop, if any, will depend upon the degree of market acceptance by physicians, patients, healthcare payors, opinion leaders, patients’ organizations and others in the medical community that any such product obtains.
Any products that we bring to the market may not gain market acceptance by physicians, patients, healthcare payors, opinion leaders, patients’ organizations and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate material product revenue and we may not sustain profitability. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, some of which are beyond our control, including:
| ● | the prevalence and severity of any side effects; |
| ● | the efficacy, potential advantages and timing of introduction to the market of alternative treatments; |
| ● | our ability to offer our product candidates for sale at competitive prices; |
| ● | relative convenience and ease of administration of our products; |
| ● | the willingness of physicians to prescribe our products; |
| ● | the willingness of patients to use our products; |
| ● | the strength of marketing and distribution support; and |
| ● | third-party coverage or reimbursement. |
If we are not successful in achieving market acceptance for any new products that we have developed and that have been approved for commercial sale, we may be unable to recover the large investment we will have made and have committed ourselves to making in research and development efforts and our growth strategy will be adversely affected.
Each inhaled formulation of AAT, including Inhaled AAT for AATD, is being developed with a specific nebulizer produced by PARI, and the occurrence of an adverse market event or PARI’s non-compliance with its obligations would have a material adverse effect on the commercialization of any inhaled formulation of AAT.
We are dependent upon PARI GmbH (“PARI”) for the development and commercialization of any inhaled formulation of AAT, including our Inhaled AAT for AATD. We have an agreement with PARI, pursuant to which it is required to obtain the appropriate clearance to market PARI’s proprietary eFlow® device, which is a device required for the administration of inhaled formulation of AAT, from the EMA and FDA for use with Inhaled AAT for AATD. See “Item 4. Information on the Company — Strategic Partnerships — PARI.” Failure of PARI to achieve these authorizations will have a material adverse effect on the commercialization of any inhaled formulation of AAT, including Inhaled AAT for AATD, which would harm our growth strategy.
Additionally, pursuant to the agreement, PARI is obligated to manufacture and supply all of the market demand for the eFlow device for use in conjunction with any inhaled formulation of AAT and we are required to purchase all of our volume requirements from PARI. Any event that permanently, or for an extended period, prevents PARI from supplying the required quantity of devices would have an adverse effect on the commercialization of any inhaled formulation of AAT, including Inhaled AAT for AATD.
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Lastly, we rely on PARI to ensure that the eFlow device is not violating or infringing on any third party intellectual property or patents. PARI’s inability to ensure its freedom to operate may have a significant effect on our ability to continue the development of our Inhaled AAT product candidate as well as potentially commercializing it.
Risks Related to Our Operations and Industry
Regulatory approval for our products is limited by the FDA, EMA the IMOH and similar authorities in other jurisdictions to those specific indications and conditions for which clinical safety and efficacy have been demonstrated, and the prescription or promotion of off-label uses could adversely affect our business.
Any regulatory approval of our Proprietary and Distribution products is limited to those specific diseases and indications for which our products have been deemed safe and effective by the FDA, EMA, the IMOH or similar authorities in other jurisdictions. In addition to the regulatory approval required for new formulations, any new indication for an approved product also requires regulatory approval. Once we produce a plasma-derived protein therapeutic, we rely on physicians to prescribe and administer it as the product label directs and for the indications described on the labeling. To the extent any off-label (i.e., unapproved) uses and departures from the approved administration directions become pervasive and produce results such as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer. In addition, off-label uses may cause a decline in our revenues or potential revenues, to the extent that there is a difference between the prices of our product for different indications.
Furthermore, while physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those approved by regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA, EMA, the IMOH or other regulators. Although regulatory authorities generally do not regulate the behavior of physicians, they do restrict communications by manufacturers on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow FDA, EMA, the IMOH or similar authorities in other jurisdictions rules and guidelines relating to promotion and advertising can lead to other negative consequences that could hurt us, such as the suspension or withdrawal of an approved product from the market, enforcement letters, and corrective actions. Other regulatory authorities may separately impose penalties including, but not limited to, fines, disgorgement of money, operating restrictions, or criminal prosecution.
Regulatory inspections or audits conducted by regulatory bodies and our partners may lead to monetary losses and inability to adequately manufacture or sell our products.
The regulatory authorities, including the FDA, EMA, the IMOH, as well as our partners may, at any time and from time to time, audit or inspect our facilities. Such audits or inspections may lead to disruption of work, and if we fail to pass such audits or inspections, the relevant regulatory authority or partner may require remedial measures that may be costly or time consuming for us to implement and may result in the temporary or permanent suspension of the manufacture, sale and distribution of our products.
The loss of one or more of our key employees could harm our business.
We depend on the continued service and performance of our key employees, including Amir London, our Chief Executive Officer and our other senior management staff. We have entered into employment agreements with all of our senior management, including Mr. London, and other key employees. Either party, however, can terminate these agreements for any reason. The loss of key members of our executive management team could disrupt our operations, commercial and business development activities, or product development and have an adverse effect on our ability to meet our targets and grow our business.
Laws and regulations governing the conduct of international operations may negatively impact our development, manufacture and sale of products outside of the United States and require us to develop and implement costly compliance programs.
We must comply with numerous laws and regulations in Israel and in each of the other jurisdictions in which we operate or plan to operate. The creation and implementation of any required compliance programs is costly, and the programs are often difficult to enforce, particularly where we must rely on third parties.
For example, the FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also requires companies whose securities are listed in the United States to comply with certain accounting provisions. For example, such companies must maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the U.S. Department of Justice, and the U.S. Securities and Exchange Commission (the “SEC”) is involved with enforcement of the books and records provisions of the FCPA.
Compliance with the FCPA and similar laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered as foreign officials. Additionally, pharmaceutical products are usually marketed by the local distributors through government tenders, and the majority of pharmaceutical companies’ clients are HMOs which are foreign government officials under the FCPA. Certain payments to hospitals in connection with clinical trials and other work, and certain payments to HMOs have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
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The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. Additionally, the SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
If our manufacturing facility in Beit Kama, Israel were to suffer a serious accident, contamination, force majeure event (including, but not limited to, a war, terrorist attack, earthquake, major fire or explosion etc.) materially affecting our ability to operate and produce saleable plasma-derived protein therapeutics, all of our manufacturing capacity could be shut down for an extended period.
We rely on a single manufacturing facility in Beit Kama, which is located in southern Israel, approximately 20 miles east of the Gaza Strip. A significant part of our revenues in our Proprietary Products segment were derived, and are expected to continue to be derived from products manufactured at this facility and some of the products that are imported by us under our Distribution segment, are packed and stored in this manufacturing facility. If this facility were to suffer an accident or a force majeure event such as war, terrorist attack, earthquake, major fire or explosion, major equipment failure or power failure lasting beyond the capabilities of our backup generators or similar event, or contamination, our revenues would be materially adversely affected. In this situation, our manufacturing capacity could be shut down for an extended period, we could experience a loss of raw materials, work in process or finished goods and imported products inventory and our ability to operate our business would be harmed. In addition, in any such event, the reconstruction of our manufacturing facility and storage facilities, and the regulatory approval of the new facilities could be time-consuming. During this period, we would be unable to manufacture our plasma-derived protein therapeutics.
Our insurance against property damage and business interruption insurance may be insufficient to mitigate the losses from any such accident or force majeure event. We may also be unable to recover the value of the lost plasma or work-in-process inventories, as well as the sales opportunities from the products we would be unable to produce or distribute, or the loss of customers during such period.
If our shipping or distribution channels were to become inaccessible due to an accident, act of terrorism, strike, epidemic or pandemic (such as the COVID-19 pandemic) or any other force majeure event, our supply, production and distribution processes could be disrupted.
Most of our Proprietary and Distribution products as well as most of the raw materials we utilize, including plasma and plasma derivatives, must be transported under controlled temperature conditions, including temperature of -20 degrees Celsius (-4 degrees Fahrenheit), to ensure the preservation of their proteins. Not all shipping or distribution channels are equipped to transport products or materials at these temperatures. If any of our shipping or distribution channels become inaccessible because of a serious accident, act of terrorism, strike, epidemic or pandemic (such as the COVID-19 pandemic) or any other force majeure event, we may experience disruptions in continued availability of plasma and other raw materials, delays in our production process or a reduction in our ability to distribute our Proprietary and Distribution products to our customers in the markets in which we operate.
Failure to maintain the security of protected health information or compliance with security requirements could damage our reputation with customers, cause us to incur substantial additional costs and become subject to litigation.
Pursuant to applicable privacy laws, we must comply with comprehensive privacy and security standards with respect to the use and disclosure of protected health information and other personal information. If we do not comply with existing or new laws and regulations related to protecting privacy and security of personal or health information, we could be subject to litigation costs and damages, monetary fines, civil penalties, or criminal sanctions. We may be required to comply with the data privacy and security laws of other countries in which we operate or from which we receive data transfers.
For example, the General Data Protection Regulation (“GDPR”) which took effect May 25, 2018, has broad application and enhanced penalties for noncompliance. The GDPR, which is wide-ranging in scope, governs the collection and use of personal data in the European Union and imposes operational requirements for companies that receive or process personal data of residents of the European Union. The GDPR may apply to our clinical development operations. In addition, the Israeli Privacy Protection Regulations (Information Security), 2017, which apply to our operations in Israel, require us to take certain security measures to secure the processing of personal data. Furthermore, U.S. federal and state regulators continue to adopt new, or modify existing laws and regulations addressing data privacy and the collection, processing, storage, transfer and use of data, including the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and implementing regulations (“HIPAA”). These privacy, security and data protection laws and regulations could impose increased business operational costs, require changes to our business, require notification to customers or workers of a security breach, or restrict our use or storage of personal information. Our efforts to implement programs and controls that comply with applicable data protection requirements are likely to impose additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in our practices in response to new requirements or interpretations of the requirements, could have a material adverse effect on our business.
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We rely upon our CROs, third party contractors and distributors to process personal information on our behalf, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that their activities are conducted in accordance with privacy regulations and our reliance on such CROs, third-party contractors and distributors does not relieve us of our regulatory responsibilities. While we take reasonable and prudent steps to protect personal and health information and use such information in accordance with applicable privacy laws, a compromise in our security systems that results in personal information being obtained by unauthorized persons or our failure to comply with security requirements for financial transactions could adversely affect our reputation with our clients and result in litigation against us or the imposition of penalties, all of which may adversely impact our results of operations, financial condition and liquidity. In addition, given that the privacy laws and regulations in the jurisdictions in which we operate are new and subject to further judicial review and interpretation, it may be determined at a future time that although we take prudent measures to comply with such laws and regulations, such measures will not be sufficient to meet future elaborations or interpretations of such laws and regulations.
Uncertainty surrounding and future changes to healthcare law in the United States and other United States Government related mandates may adversely affect our business.
The healthcare regulatory environment in the U.S. is currently subject to significant uncertainty and the industry may in the future continue to experience fundamental change as a result of regulatory reform. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “healthcare reform law”), a sweeping measure intended to expand healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. The healthcare reform law, among other things: (i) addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) established annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. On April 1, 2016, final regulations issued by the Centers for Medicare and Medicaid Services to implement the changes to the Medicaid Drug Rebate Program under the healthcare reform law became effective. In addition, the new law established an abbreviated licensure pathway for products that are drugs made by a living organism or derived from a living organism, commonly referred to as biosimilars, to become FDA-approved biological products, with provisions covering exclusivity periods and a specific reimbursement methodology for biosimilars.
However, some provisions of the healthcare reform law have yet to be fully implemented, and former President Donald Trump vowed to repeal the healthcare reform law. On January 20, 2017, President Trump signed an executive order stating that the administration intended to seek prompt repeal of the healthcare reform law, and, pending repeal, directed the U.S. Department of Health and Human Services and other executive departments and agencies to take all steps necessary to limit any fiscal or regulatory burdens of the healthcare reform law. On October 12, 2017, President Trump signed another executive order directing certain federal agencies to propose regulations or guidelines to permit small businesses to form association health plans, expand the availability of short-term, limited duration insurance, and expand the use of health reimbursement arrangements, which may circumvent some of the requirements for health insurance mandated by the healthcare reform law. The U.S. Congress has also made several attempts to repeal or modify the healthcare reform law. In addition, there is ongoing litigation regarding the implementation and constitutionality of the healthcare reform law. While the law is still in effect pending the ultimate resolution of the litigation, the outcome of the litigation is unknown, and cannot be predicted. There is no guarantee whether the healthcare reform law will remain in effect or be repealed or replaced. In the coming years, additional changes could be made to U.S. governmental healthcare programs and U.S. healthcare laws that could significantly impact the success of our products. We cannot predict what other legislation relating to our business or to the health care industry may be enacted, or what effect such legislation may have on our business, prospects, operating results and financial condition.
In addition, federal, state and foreign governmental authorities are likely to continue efforts to control the price of drugs and reduce overall healthcare costs. For example, CMS issued an interim final rule on November 27, 2020 designed to test whether a Most-Favored-Nation model will help control growth in spending for Medicare Part B drugs without adversely affecting quality of care. This followed an Executive Order issued in September 2020 that directed the Secretary of DHHS to implement new payment models under the Medicare Part B and Part D programs to curb “unfair” and high drug prices in the United States. Ultimately, CMS published a final rule on December 27, 2021 rescinding the Most-Favored-Nation model interim final rule and removing the associated regulatory text effective as of February 28, 2022. Similar federal, state and foreign government efforts in the future could have an adverse impact on our ability to market products and generate revenues in the United States and foreign countries.
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On August 6, 2020, the former President of the United States Donald Trump issued the Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States (Executive Order 13944), which required the U.S. government to purchase “essential” medicines and medical supplies produced domestically, rather than abroad. Subsequently, on October 30, 2020 the FDA published a list of essential medicines, medical countermeasures, and critical inputs as required by Executive Order. The FDA has identified around 227 drugs and 96 devices, along with their respective critical inputs or active ingredients, that the FDA believes “are medically necessary to have available at all times” for the public health. Agencies across the federal government are expected to implement the “Buy American” priorities of the Executive Order through initiation of procurement strategies to help strengthen U.S. manufacturing capabilities and focus their efforts and attention on mobilizing domestic production of these specific items. This includes the FDA accelerating approval and clearance of domestically produced medicines and countermeasures, and it may also include contract awards to specific vendors to speed up domestic production. Rabies immune globulin, such as KEDRAB, is included in the list, and given that KEDRAB is manufactured outside the United States, implementation of the “Buy American” priorities of the Executive Order may affect our ability to continue selling the product to governmental agencies in the U.S. market or otherwise require us to invest in acquiring manufacturing capabilities for the product in the U.S., either directly or through contract manufacturing arrangements. On November 27, 2020, the U.S. Trade Representative submitted a proposal to withdraw these drugs and medical devices identified by the FDA from U.S. commitments under the World Trade Organization Government Procurement Agreement (WTO GPA). On April 20, 2021, President Joe Biden ultimately withdrew this proposal. The withdrawal of this proposal allows the U.S. government to continue purchasing foreign-made drugs and medical devices as permitted under the Trade Agreements Act, and effectively counter’s President Trump’s August 2020 Executive Order directing the government to purchase domestically-produced essential drugs and medical devices. However, on January 25, 2021, President Joe Biden issued the Executive Order on Ensuring the Future Is made in All of America by All of America’s Workers (Executive Order 14005) to maximize the use of goods, products, materials produced in, and services offered in the United States, which may affect FDA-related products. The full effect of the Executive Order and the withdrawal of the WTO proposal on our commercial operations and results of operations cannot currently be estimated.
We expect that there will continue to be a number of U.S. federal and state proposals to implement governmental pricing controls and limit the growth of healthcare costs, including the cost of prescription drugs.
Certain of our business practices could become subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens under federal and state laws. Failure to comply with applicable law or an adverse decision in lawsuits may result in adverse consequences to us.
The laws governing our conduct in the United States are enforceable by criminal, civil and administrative penalties. Violations of laws such as the Federal Food, Drug and Cosmetic Act (the “FDCA”), the Federal False Claims Act (the “FCA”), the Public Health Service Act (the “PHS Act”), the Physician Payments Sunshine Act or a provision of the U.S. Social Security Act known as the “Anti-Kickback Law,” or any regulations promulgated under their authority may result in jail sentences, fines or exclusion from federal and state health care programs, as may be determined by the Department of Health and Human Services, the Department of Defense, other federal and state regulatory authorities and the federal and state courts. There can be no assurance that our activities will not come under the scrutiny of regulators and other government authorities or that our practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal or state false claims laws.
For example, under the Anti-Kickback Law, and similar state laws and regulations, even common business arrangements, such as discounted terms and volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals, can result in substantial legal penalties, including, among others, exclusion from Medicare and Medicaid programs, if those business arrangements are not appropriately structured; therefore, our arrangements with referral sources must be structured with care to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers that prescribe products for uses not approved by the FDA and financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled limits and reported in accordance with the Physician Payments Sunshine Act to avoid any possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products or as a reward for past prescribing. Significant enforcement activity has been the result of actions brought by relators, who file complaints in the name of the United States (and if applicable, particular states) under federal and state False Claims Act statutes and can be entitled to receive a significant portion (often as great as 30%) of total recoveries. Also, violations of the False Claims Act can result in treble damages, and each false claim submitted can be subject to a penalty of up to $$23,331 per claim. Through the Physician Payments Sunshine Act, the healthcare reform law imposes reporting and disclosure requirements for pharmaceutical and medical device manufacturers with regard to a broad range of payments, ownership interests, and other transfers of value made to certain physicians, physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, certified nurse-midwives and certain teaching hospitals. A number of states have similar laws in place and often require reporting for other categories of healthcare professionals, such as nurses. Additional and stricter prohibitions could be implemented by federal and state authorities. Where practices have been found to involve improper incentives to use products, government investigations and assessments of penalties against manufacturers have resulted in substantial damages and fines. Many manufacturers have been required to enter into consent decrees, corporate integrity agreements, or orders that prescribe allowable corporate conduct. Failure to satisfy requirements under the FDCA can also result in penalties, as well as requirements to enter into consent decrees or orders that prescribe allowable corporate conduct. On November 16, 2020, the U.S. Health and Human Services (HHS) Office of Inspector General (OIG) issued a Special Fraud Alert discussing the fraud and abuse risks associated with payments to physicians related to speaker programs sponsored by pharmaceutical and medical device companies. OIG expressed skepticism regarding the educational value of these industry-sponsored speaker programs and warned of the inherent fraud and abuse risks of these programs.
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To market and sell our products outside the United States, we must obtain and maintain regulatory approvals and comply with regulatory requirements in such jurisdictions. The approval procedures vary among countries in complexity and timing. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all, and in such case, we would be precluded from commercializing products in those markets. In addition, some countries, particularly the countries of the European Union, regulate the pricing of prescription pharmaceuticals. In these countries, pricing discussions with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. Such trials may be time-consuming and expensive and may not show an advantage in cost-efficacy for our products. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, in either the United States or the European Union, we could be adversely affected. Also, under the FCPA, the United States has regulated conduct by U.S. businesses occurring outside of the United States, generally prohibiting remuneration to foreign officials for the purpose of obtaining or retaining business.
To enhance compliance with applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such as the HHS OIG, have recommended the adoption and implementation of a comprehensive health care compliance program that generally contains the elements of an effective compliance and ethics program described in Section 8B2.1 of the U.S. Sentencing Commission Guidelines Manual. Increasing numbers of U.S.-based pharmaceutical companies have such programs. We are in the process of adopting U.S. healthcare compliance and ethics programs that generally incorporate the HHS OIG’s recommendations; however, there can be no assurance that following the adoption of such programs we will avoid any compliance issues.
We could be adversely affected if other government or private third-party payors decrease or otherwise limit the amount, price, scope or other eligibility requirements for reimbursement for the purchasers of our products.
Prices in many of our principal markets are subject to local regulation and certain pharmaceutical products, such as our Proprietary and Distribution products, are subject to price controls. In the United States, where pricing levels for our products are substantially established by third-party payors, a reduction in the payors’ amount of reimbursement for a product may cause groups or individuals dispensing the product to discontinue administration of the product, to administer lower doses, to substitute lower cost products or to seek additional price-related concessions. These actions could have a negative effect on our financial results, particularly in cases where our products command a premium price in the marketplace or where changes in reimbursement rates induce a shift in the site of treatment. The existence of direct and indirect price controls and pressures over our products has affected, and may continue to materially adversely affect, our ability to maintain or increase gross margins.
Also, the intended use of a drug product by a physician can affect pricing. Physicians frequently prescribe legally available therapies for uses that are not described in the product’s labeling and that differ from those tested in clinical studies and approved by the FDA or similar regulatory authorities in other countries. These off-label uses are common across medical specialties, and physicians may believe such off-label uses constitute the preferred treatment or treatment of last resort for many patients in varied circumstances. Reimbursement for such off-label uses is often not allowed by government payors. If reimbursement for off-label uses of products is not allowed by Medicare or other third-party payors, including those in the United States or the European Union, we could be adversely affected. For example, CMS could initiate an administrative procedure known as a National Coverage Determination (“NCD”), by which the agency determines which uses of a therapeutic product would be reimbursable under Medicare and which uses would not. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may be uncertain.
If we fail to comply with our obligations under U.S. governmental pricing programs, we could be required to reimburse government programs for underpayments and could pay penalties, sanctions and fines.
The issuance of regulations and coverage expansion by various governmental agencies relating to the Medicaid rebate program will increase our costs and the complexity of compliance and will be time-consuming. Changes to the definition of “average manufacturer price” (AMP), and the Medicaid rebate amount under the ACA and CMS and the issuance of final regulations implementing those changes has affected and could further affect our 340B “ceiling price” calculations. When we participate in the Medicaid rebate program, we are required to report “average sales price” (ASP), information to CMS for certain categories of drugs that are paid for under Part B of the Medicare program. Future statutory or regulatory changes or CMS binding guidance could affect the ASP calculations for our products and the resulting Medicare payment rate and could negatively impact our results of operations.
Pricing and rebate calculations vary among products and programs, involve complex calculations and are often subject to interpretation by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and “best price” for the quarter. If we become aware that our reporting for a prior quarter was incorrect or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. Such restatements and recalculations would increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Price recalculations also may affect the “ceiling price” at which we are required to offer our products to certain covered entities, such as safety-net providers, under the 340B/Public Health Service (PHS) drug pricing program.
In addition, if we are found to have made a misrepresentation in the reporting of ASP, we are subject to civil monetary penalties for each such price misrepresentation and for each day in which such price misrepresentation was applied. If we are found to have knowingly submitted false AMP or “best price” information to the government, we may be liable for civil monetary penalties per item of false information. Any refusal of a request for information or knowing provision of false information in connection with an AMP survey verification would also subject us to civil monetary penalties. In addition, our failure to submit monthly/quarterly AMP or “best price” information on a timely basis could result in a civil monetary penalty per day for each day the information is late beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, under which we participate in the Medicaid program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure that our submissions will not be found by CMS to be incomplete or incorrect.
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In order for our products to be reimbursed by the primary federal governmental programs, we must report certain pricing data to the USG. Compliance with reporting and other requirements of these federal programs is a pre-condition to: (i) the availability of federal funds to pay for our products under Medicaid and Medicare Part B; and (ii) procurement of our products by the Department of Veterans Affairs (DVA), and by covered entities under the 340B/PHS program. The pricing data reported are used as the basis for establishing Federal Supply Schedule (FSS), and 340B/PHS program contract pricing and payment and rebate rates under the Medicare Part B and Medicaid programs, respectively. Pharmaceutical companies have been prosecuted under federal and state false claims laws for submitting inaccurate and/or incomplete pricing information to the government that resulted in increased payments made by these programs. Although we maintain and follow strict procedures to ensure the maximum possible integrity for our federal pricing calculations, the process for making the required calculations is complex, involves some subjective judgments and the risk of errors always exists, which creates the potential for exposure under the false claims laws. If we become subject to investigations or other inquiries concerning our compliance with price reporting laws and regulations, and our methodologies for calculating federal prices are found to include flaws or to have been incorrectly applied, we could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on our business, financial condition and results of operations.
To be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we also must participate in the DVA FSS pricing program. To participate, we are required to enter into an FSS contract with the DVA, under which we must make our innovator “covered drugs” available to the “Big Four” federal agencies-the DVA, the DoD, the Public Health Service (including the Indian Health Service), and the Coast Guard-at pricing that is capped under a statutory federal ceiling price (FCP) formula set forth in Section 603 of the Veterans Health Care Act of 1992 (VHCA). The FCP is based on a weighted average wholesale price known as the Non-Federal Average Manufacturer Price (Non-FAMP), which manufacturers are required to report on a quarterly and annual basis to the DVA. Under the VHCA, knowingly providing false information in connection with a Non-FAMP filing can subject us to significant penalties for each item of false information. If we overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to disclose the error and refund the difference to the government. The failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, can be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Current and future accounting pronouncements and other financial reporting standards, especially but not only concerning revenue recognition, might negatively impact our financial results.
We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards, including but not limited to IFRS 15 on revenue from contracts with customers that we adopted in 2018 and IFRS 16 on leases that we adopted in 2019 and changes in their interpretation, we might be required to change our accounting policies, particularly concerning revenue recognition, to alter our operational policies so that they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes might have an adverse effect on our reputation, business, financial position, and profit, or cause an adverse deviation from our revenue and operating profit target.
We are subject to extensive environmental, health and safety, and other laws and regulations.
Our business involves the controlled use of hazardous materials, various biological compounds and chemicals. The risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. In addition, some of the license and permits granted to us may be suspended or revoked, resulting in our inability to conduct our regular business activity, manufacture and/or distribute our products for an extended period of time or until we take remedial actions. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities. In addition, fines and penalties may be imposed for noncompliance with environmental, health and safety and other laws and regulations or for the failure to have, or comply with the terms and conditions of, required environmental or other permits or consents. We are subject to future audits by the Environmental Health Department of the Regional Health Bureau of the IMOH and the Ministry of Environmental Protection of Israel and may be required to perform certain actions from time to time in order to comply with these guidelines and their requirements. We do not expect the costs of complying with these guidelines to be material to our business. See “Item 4. Information on the Company — Environmental.”
Under the Israeli Economic Competition Law, 5758-1988, as amended (the “Competition Law”), a company that supplies or acquires more than 50% of any product or service in Israel in a relevant market may be deemed to be a monopoly. In addition, any company that has “significant market power” (within the meaning of the Competition Law), even if it does not hold market share that is greater than 50%, shall be deemed to be a monopolist under the Competition Law. A monopolist is prohibited from participating in certain business practices, including unreasonably refusing to sell products or provide services over which a monopoly exists, charging unfair prices for such products or services, and abusing its position in the market in a manner that might reduce business competition or harm the public. In addition, the General Director of the Israeli Competition Authority may determine that a company is a monopoly and has the right to order such company to change its conduct in matters that may adversely affect business competition or the public, including by imposing restrictions on its conduct. Depending on the analysis and the definition of the different products we distribute in the markets in which we operate, we may be deemed to be a “monopoly” under the Competition Law with respect to certain of our products. Furthermore, following an amendment to the Competition Law that became effective in August 2015, which repealed the statutory exemption that existed under the Competition Law for restrictive arrangements that were mutually exclusive arrangements, we may face difficulties in certain cases negotiating distribution agreements with foreign pharmaceutical manufacturers.
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We have entered into a collective bargaining agreement with the employees’ committee and the Histadrut (General Federation of Labor in Israel), and we have incurred and could in the future incur labor costs or experience work stoppages or labor strikes as a result of any disputes in connection with such agreement.
In December 2013, we signed a collective bargaining agreement with the employees’ committee established by our employees at our Beit Kama production facility in Israel and the Histadrut (General Federation of Labor in Israel) (“Histadrut”), which expired in December 2017. In November 2018, we signed a further collective bargaining agreement with the employees’ committee and the Histadrut, which expired in December 2021, and we are currently in negotiations with the employees’ committee on a new collective bargaining agreement. On March 3, 2022, during the course our negotiations with the Histadrut and the employees’ committee on the extension of the collective bargaining agreement, the employee’s committee elected to declare a labor dispute. We have experienced labor disputes and work stoppages in the past and in July 2018, during the course of our negotiations with the Histadrut and the employees’ committee on the extension of the initial collective bargaining agreement beyond the December 2017 expiration, the employee’s committee commenced a labor strike, which continued for approximately one month. As a result of the labor strike, in the year ended December 31, 2018, we had a $1.8 million write-off of indirect manufacturing costs and $0.8 million of process materials scraps. In December 2020, during the course of our negotiations with the Histadrut and the employees’ committee on severance remuneration for employees who may be laid-off as part of the workforce down-sizing as a result of the transfer of GLASSIA manufacturing to Takeda that we implemented during 2021, the employee’s committee declared a labor dispute, which was subsequently concluded during February 2021 following the execution of a special collective bargaining agreement governing such severance terms. Any future disputes with the employees’ committee and the Histadrut over the implementation or the interpretation or the renewal of the collective bargaining agreement may lead to additional labor costs and/or work stoppages, which could adversely affect our business operations, including through a loss of revenue and strained relationships with customers.
Following the establishment of our U.S. commercial operations through our subsidiaries Kamada Inc. and Kamada Plasma LLC, we have entered into intercompany agreements for the transfer of products, which require us to meet transfer pricing requirements under both Israeli and U.S. tax legislation.
Following the establishment of our U.S. commercial operations through our subsidiaries Kamada Inc. and Kamada Plasma LLC, we have entered into intercompany agreements for the transfer of products. Our intercompany agreements for the sale of products or provision of services are required to be made on an arms-length basis and must comply with transfer pricing provisions of tax laws in Israel and the U.S. In order to determine the adequate transfer pricing arrangement, we are required to perform a transfer pricing study to compare the contemplated intercompany transaction with similar transactions entered into amongst non-related parties. There can be no assurance that the Israeli and/or tax authorities would accept such transfer pricing study when determining our, or any of our subsidiary’s income, profitability and tax assessment. Failure to comply with transfer pricing rules may result in increased tax expenses, penalties and legal actions against us, our subsidiaries or our executive officer.
We may be exposed to tax reporting requirements and tax expense in multiple jurisdictions in which our products are being distributed.
We are incorporated under the laws of the State of Israel and some of our subsidiaries are organized under the laws of Delaware and Ireland and as a result, we are subject to local tax requirements and potential tax expenses in these territories. We store, distribute and sell our Proprietary products in multiple other countries in which we do not have any subsidiaries or physical presence; nevertheless, in some of these countries, pursuant to local legislation, we may be considered as “conducting business activities” which may expose us to certain reporting requirements and potential direct or indirect tax payments. Failure to comply with such local legislation may result in increased tax expenses, penalties and legal actions against us, our subsidiaries or our executive officers.
Risks Related to Intellectual Property
Our success depends in part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property relating to or incorporated into our technology and products, including the patents protecting our manufacturing process.
Our success depends in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology and products, especially intellectual property related to our manufacturing processes. At present, we consider our patents relating to our manufacturing process to be material to the operation of our business as a whole.
However, the patent landscape in the biotechnology and pharmaceutical fields is highly complicated and uncertain and involves complex legal, factual and scientific questions. Changes in either patent laws or in the interpretation of patent laws in the United States and other countries may diminish the value and strength of our intellectual property or narrow the scope of our patent protection. In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology or products or enforce our patents due to lack of information about the exact use of our processes by third parties. Even if patents are issued to us or to our licensors, they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to prevent competitors from using similar technology or marketing similar products, or limit the length of time our technologies and products have patent protection. Additionally, many of our patents relate to the processes we use to produce our products, not to the products themselves. In many cases, the plasma-derived products we produce or intend to develop in the future will not, in and of themselves, be patentable. Since many of our patents relate to processes or uses of the products obtained therefrom, if a competitor is able to utilize a process that does not rely on our protected intellectual property, that competitor could sell a plasma-derived product similar to one we have developed or sell it without infringing these patents.
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Patent rights are territorial; thus, any patent protections we have will only be enforceable in those countries in which we have issued patents. In addition, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or that do not recognize or provide enforcement mechanisms for our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in pending applications or which claims of granted patents, if any, will be deemed enforceable in a court of law.
Due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may sell or market, any patents that protect our therapeutic candidates or any product we may sell or market may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of recombinant or generic products into the market and a subsequent decline in market share and profits.
In some cases we may rely on our licensors or partners to conduct patent prosecution, patent maintenance or patent defense on our behalf. Therefore, our ability to ensure that these patents are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in our therapeutic candidates and potential approved for marketing products. Any failure by our licensors or development or commercialization partners to properly conduct patent prosecution, maintenance, enforcement, or defense could materially harm our ability to obtain suitable patent protection covering our therapeutic candidates or products or ensure freedom to commercialize the products in view of third-party patent rights, thereby materially reducing our potential profits.
Our patents also may not afford us protection against competitors or other third parties with similar technology. Because patent applications worldwide are typically not published until 18 months after their filing, and because publications of discoveries in scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to file for protection of the inventions set forth in such patent applications. As a result, the patents we own and license may be invalidated in the future, and the patent applications we own and license may not be granted. Moreover, in the US, during 2012, the Leahy-Smith America Invents Act (“AIA”) created a new legal proceeding, the inter partes review petition, that allows third parties to challenge the validity of patents before the Patent Trials and Appeals Board.
The costs of these proceedings could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated patent position. In addition, if a third party prevails in such a proceeding and obtains an issued patent, we may be prevented from practicing technology or marketing products covered by that patent. Additionally, patents and patent applications owned by third parties may prevent us from pursuing certain opportunities such as entering into specific markets or developing or commercializing certain products or reducing the cost effectiveness of the relevant business as a result of needing to make royalty payments or other business conciliations. Finally, we may choose to enter into markets where certain competitors have patents or patent protection over technology that may impede our ability to compete effectively.
Our patents are due to expire at various dates between 2024 and 2041. However, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby limiting advantages of the patent. Our pending and future patent applications may not lead to the issuance of patents or, if issued, the patents may not be issued in a form that will provide us with any competitive advantage. We also cannot guarantee that: any of our present or future patents or patent claims or other intellectual property rights will not lapse or be invalidated, circumvented, challenged or abandoned; our intellectual property rights will provide competitive advantages or prevent competitors from making or selling competing products; our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; any of our pending or future patent applications will be issued or have the coverage originally sought; our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; or we will not lose the ability to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments. In addition, our competitors or others may design around our patents or protected technologies. Effective protection of our intellectual property rights may also be unavailable, limited or not applied in some countries, and even if available, we may fail to pursue or obtain necessary intellectual property protection in such countries. In addition, the legal systems of certain countries do not favor the aggressive enforcement of patents and other intellectual property rights, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. In order to preserve and enforce our patent and other intellectual property rights, we may need to make claims, apply certain patent or other regulatory procedures or file lawsuits against third parties. Such proceedings could entail significant costs to us and divert our management’s attention from developing and commercializing our products. Lawsuits may ultimately be unsuccessful, and may also subject us to counterclaims and cause our intellectual property rights to be challenged, narrowed, invalidated or held to be unenforceable.
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Additionally, unauthorized use of our intellectual property may have occurred or may occur in the future, including, for example, in the production of counterfeit versions of our products. Counterfeit products may use different and possibly contaminated sources of plasma and other raw materials, and the purification process involved in the manufacture of counterfeit products may raise additional safety concerns, over which we have no control. Although we have taken steps to minimize the risk of unauthorized uses of our intellectual property, including for the production of counterfeit products, any failure to identify unauthorized use of, and otherwise adequately protect, our intellectual property could adversely affect our business, including reducing the demand for our products. Additionally, any reported adverse events involving counterfeit products that purported to be our products could harm our reputation and the sale of our products in particular and consumer willingness to use plasma-derived therapeutics in general. Moreover, if we are required to commence litigation related to unauthorized use, whether as a plaintiff or defendant, such litigation would be time-consuming, force us to incur significant costs and divert our attention and the efforts of our management and other employees, which could, in turn, result in lower revenue and higher expenses.
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.
We rely on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services, material transfer agreements or employment agreements that contain non-disclosure and non-use provisions, as well as ownership provisions, with our employees, consultants, service providers, contractors, scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our third-party manufacturers, suppliers, other third parties which are granted with license to use our know-how and former employees and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, service providers, contractors, scientific advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to our trade secrets.
We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce our intellectual property rights. See “—Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures.”
Changes in either U.S. or foreign patent law or in the interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products.
Our success, like the success of many other biotechnology companies, is heavily dependent on intellectual property and on patents in particular. The procurement and enforcement of patents in the biotechnology industry is complex from a technological and legal standpoint, and the process is therefore costly, time-consuming and inherently uncertain. In addition, on September 16, 2011, the AIA was signed into law. The AIA included a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application with the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. As a result of this change of law, if we do not promptly file a patent application at the time of a new product’s invention, and if a third party subsequently invented and patented such product, we would lose our right to patent such invention.
The AIA also introduced new limitations on where a patentee may file a patent infringement suit and new opportunities for third parties to challenge any issued patent in the USPTO. Such changes apply to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in U.S. federal court, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions by the U.S. Congress, federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents and enforce our existing and future patents.
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We may be subject to claims that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties.
The conduct of our business, our Proprietary and/or Distribution products or product candidates may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights. For example, certain of our competitors and other third parties own patents and patent applications in the realm of our biosimilars distribution products, or in areas relating to critical aspects of our business and technology, including the separation and purification of plasma proteins, the composition of AAT, the use of AAT for different indications, and the distribution or use of recombinant or biosimilar pharmaceutical products, and these competitors may in the future allege that we are infringing on their patent rights. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other intellectual property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against us or our strategic partners that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if such a claim were brought against us, our strategic partners or our manufacturer suppliers for Distribution products, we or they could be forced to permanently or temporarily stop or delay manufacturing, exportation or sales of such product or product candidate that is the subject of the dispute or suit.
In addition, we are a party to certain license agreements that may impose various obligations upon us as a licensee, including the obligation to bear the cost of maintaining the patents subject to the license and to make milestone and royalty payments. If we fail to comply with these obligations, the licensor may terminate the license, in which event we might not be able to market any product that is covered by the licensed intellectual property.
If we are found to be infringing, misappropriating or otherwise violating the patent or other intellectual property rights of a third party, or in order to avoid or settle claims, we or our strategic partners may choose or be required to seek a license, execute cross-licenses or enter into a covenant not to sue agreement from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we or our strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened claims, we or our strategic partners are unable to enter into licenses on acceptable terms.
There have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition, to the extent that we gain greater visibility and market exposure as a public company in the United States, we face a greater risk of being involved in such litigation. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, opposition, cancellation, re-examination and similar proceedings before the USPTO and its foreign counterparts and other regulatory authorities, regarding intellectual property rights with respect to our products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace or to conduct our business in accordance with our plans and budget, and patent litigation and other proceedings may also absorb significant management time.
Some of our employees, consultants and service providers, were previously employed or hired at universities, medical institutes, or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. While we take steps to prevent them from using the proprietary information or know-how of others in their work for us, we may be subject to claims that we or they have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer or former ordering service or that they have breached certain non-compete obligations to their former employers. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims successfully, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Risks Related to Our Financial Position and Capital Resources
We have incurred significant losses since our inception and while we were profitable in the five years ended December 31, 2021, we may incur losses in the future and thus may never achieve sustained profitability.
As of December 31, 2021, our cash and cash equivalents and short-term investments were $18.6 million. Since inception, we have incurred significant operating losses including a loss of $2.2 million for the year ended December 31, 2021. While our net profit was $17.1 million and $22.3 million for the years ended December 31 2020 and 2019, respectively, as of December 31, 2021, we had an accumulated deficit of $46.2 million. While we believe that the recent acquisition of a portfolio of four FDA-approved plasma-derived hyperimmune commercial products from Saol represents an important growth driver and revenue source, there can be no assurance that such acquisition will be successful and we may not be able to continue to generate profitability in future years.
Our financial position and operations may be affected as a result of the indebtedness we incurred to partially fund the Saol acquisition.
On November 15, 2021, to partially fund the Saol acquisition, we obtained a $40 million debt facility from Bank Hapoalim B.M., comprised of a $20 million short-term revolving credit facility and a $20 million five-year loan. The indebtedness incurred may have significant adverse consequences on our business, including:
| ● | limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, or other general business purposes; |
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| ● | require the use of a substantial portion of our cash to service our indebtedness rather than investing our cash to fund our strategic growth opportunities and plans, working capital and capital expenditures; |
| ● | expose us to the risk of increased interest rates as these borrowings are subject to the Secured Overnight Financing Rate (SOFR), (i) in the case of the long-term loan, SOFR + 2.18%; and (ii) in the case of the credit facility, SOFR + 1.75; |
| ● | limit our flexibility to plan for, or react to, changes in our business and industry; |
| ● | increase our vulnerability to the impact of adverse economic, competitive and industry conditions; |
| ● | prevent us from pledging our assets as collateral, which could limit our ability to obtain additional debt financing; |
| ● | place us at a competitive disadvantage compared to our competitors that have less debt, better debt servicing options or stronger debt servicing capacity; and |
| ● | increase our cost of borrowing. |
In addition, the terms of the loan and credit facility contain restrictive covenants that may limit our ability to engage in activities that may be in our long-term best interest. These restrictive covenants include, among others, limitations on restructuring, the sale of purchase of assets, material licenses, certain changes of control and the creation of floating charges over our property and assets. Under the terms of these facilities, we are also required to maintain certain financial covenants, including minimum equity capital, maximum working capital to debt ratio and minimum debt coverage ratio. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all of our debt.
Our business requires substantial capital, including potential investments in large capital projects, to operate and grow and to achieve our strategy of realizing increased operating leverage. Despite our indebtedness, we may still incur significantly more debt.
In order to obtain and maintain FDA, EMA and other regulatory approvals for product candidates and new indications for existing products, we may be required to enhance the facilities and processes by which we manufacture existing products, to develop new product delivery mechanisms for existing products, to develop innovative product additions and to conduct clinical trials. We face a number of obstacles that we will need to overcome in order to achieve our operating goals, including but not limited to the successful development of experimental products for use in clinical trials, the design of clinical study protocols acceptable to the FDA, the EMA and other regulatory authorities, the successful outcome of clinical trials, scaling our manufacturing processes to produce commercial quantities or successfully transition technology, obtaining FDA, EMA and other regulatory approvals of the resulting products or processes and successfully marketing an approved or new product with applicable new processes. To finance these various activities, we may need to incur future debt or issue additional equity. We may not be able to structure our debt obligations on favorable economic terms and any offering of additional equity would result in a dilution of the equity interests of our current shareholders. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.
In addition, our manufacturing facility requires continued investment and upgrades. Moreover, any enhancements to our manufacturing facilities necessary to obtain FDA or EMA approval for product candidates or new indications for existing products could require large capital projects. We may also undertake such capital projects in order to maintain compliance with cGMP or expand capacity. Capital projects of this magnitude involve technology and project management risks. Technologies that have worked well in a laboratory or in a pilot plant may cost more or not perform as well, or at all, in full scale operations. Projects may run over budget or be delayed. We cannot be certain that any such project will be completed in a timely manner or that we will maintain our compliance with cGMP, and we may need to spend additional amounts to achieve compliance. Additionally, by the time multi-year projects are completed, market conditions may differ significantly from our initial assumptions regarding competitors, customer demand, alternative therapies, reimbursement and public policy, and as a result capital returns may not be realized. In addition, to fund large capital projects, we may similarly need to incur future debt or issue additional dilutive equity. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.
Our current working capital may not be sufficient to complete our research and development with respect to any or all of our pipeline products or to commercialize our products.
As of December 31, 2021, we had cash and short-term investments of $18.6 million. We plan to fund our future operations through continued sale and distribution of our proprietary and distribution products, commercialization and or out-licensing of our pipeline product candidates, and as requires raising additional capital through the sale of equity or debt. These amounts may not be sufficient to complete the research and development of all of our candidates, and there can be no assurances of the financial success of our commercialization activities or our ability to access the equity and debt capital markets on terms acceptable to us, if at all. To the extent we are unable to fund our research and development, our future product development activities could be materially adversely affected.
To service our indebtedness and other obligations, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
The capability to pay and refinance our indebtedness and to fund working capital requirements and planned capital expenditures will depend on our ability to generate cash in the future. A significant reduction in our operating cash flows resulting from changes in economic conditions, increased competition or other events beyond our control could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations, prospects and our ability to service our debt and other obligations. If we are unable to service our indebtedness through sufficient cash flows from operations, we will be forced to shift to alternative strategies, which may include the reducing of capital expenditures, the sale of assets, the restructuring or refinancing of our debt or the seeking of additional equity. We cannot assure that these alternative strategies, if any, could be implemented on satisfactory and commercially reasonable terms, that they would provide sufficient funds to make the required payments on our debt or to fund our other liquidity needs.
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Risks Related to Our Ordinary Shares
The requirements of being a public company in the United States, as well as in Israel, may strain our resources and distract our management, which could make it difficult to manage our business and could have a negative effect on our results of operations and financial condition.
As a public company whose shares are being traded on Nasdaq and the Tel Aviv Stock Exchange (the “TASE”), we are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and regulatory requirements is time consuming, and may result in increased costs to us and could have a negative effect on our business, results of operations and financial condition. As a public company in the United States, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the requirements of the Sarbanes-Oxley Act of 2002 (“SOX”). These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual and current reports, and file or make public certain additional information, with respect to our business and financial condition. SOX requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we may need to commit significant resources, hire additional staff and provide additional management oversight. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, as our business changes and if we expand either through acquisitions or by means of organic growth, our internal controls may become more complex and we will require significantly more resources to ensure our internal controls remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could impact our financial information and adversely affect our operating results or cause us to fail to meet our reporting obligations. If we identify material weaknesses, the disclosure of that fact, even if quickly remediated, could require significant resources to remediate, expose us to legal or regulatory proceedings, and reduce the market’s confidence in our financial statements and negatively affect our share price.
Additionally, as of December 31, 2018, we were no longer an “emerging growth company,” as defined in the JOBS Act, and are required to comply with additional disclosure and reporting requirements, including, but not limited to, being required to comply with the auditor attestation requirements of Section 404 of SOX (and the rules and regulations of the SEC thereunder). These additional reporting requirements increased our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to these public company requirements.
Our share price may be volatile.
The market price of our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various factors, some of which are beyond our control. These factors include:
| ● | actual or anticipated fluctuations in our financial condition and operating results; |
| ● | overall conditions in the specialty pharmaceuticals market; |
| ● | loss of significant customers or changes to agreements with our strategic partners; |
| ● | changes in laws or regulations applicable to our products; |
| ● | actual or anticipated changes in our growth rate relative to our competitors’; |
| ● | announcements of clinical trial results, technological innovations, significant acquisitions, strategic alliances, joint ventures or capital commitments by us or our competitors; |
| ● | changes in key personnel; |
| ● | fluctuations in the valuation of companies perceived by investors to be comparable to us; |
| ● | the issuance of new or updated research reports by securities analysts; |
| ● | disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property protection for our technologies; |
| ● | announcement of, or expectation of, additional financing efforts; |
| ● | sales of our ordinary shares by us or our shareholders; |
| ● | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; |
| ● | recalls and/or adverse events associated with our products; |
| ● | the expiration of contractual lock-up agreements with our executive officers and directors; and |
| ● | general political, economic and market conditions. |
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Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market price of equity securities of many companies. Broad market and industry fluctuations, as well as general economic, political and market conditions, may negatively impact the market price of our ordinary shares. For example, during the year ended December 31, 2020, in the wake of the COVID-19 pandemic, the stock market in general, including in the biotechnology/pharmaceutical sector, experienced extreme price and volume fluctuations. Specifically, our share’s trading volume and price were extremely volatile, fluctuating more than twice their levels prior to the COVID-19 pandemic. Such volatility can be attributed to many factors, including our announcements of the development and progress of our Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19, our financial results and conditions and general market trends affected by the pandemic. Increases in price and volume may not be sustainable for a long period of time.
In the past, companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation or derivative actions. We, as well as our directors and officers, may also be the target of these types of litigation and actions in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could be negatively impacted.
The trading market for our ordinary shares may be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or, if they do, provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact our share price or trading volume.
Our shareholders may experience significant dilution as a result of any additional financing using our equity securities or may experience a decrease in the share price due to sales of our equity securities.
To the extent that we raise additional funds to fund our activities through the sale of equity or securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or substantially similar securities, your ownership interest will be diluted. Any additional capital raised through the sale of equity securities will likely dilute the ownership percentage of our shareholders.
Future sales of ordinary shares by affiliates could cause our share price to fall.
The FIMI Opportunity Funds own 9,452,708 of our outstanding ordinary shares (representing an ownership percentage of 21.1% of the outstanding shares and 20.45% on a fully diluted basis). Pursuant to a registration rights agreement we entered into with FIMI Opportunity Funds on January 20, 2020, they have “demand” and “piggyback” registration rights covering the ordinary shares of our company held by them. All shares of FIMI Opportunity Funds sold pursuant to an offering covered by a registration statement would be freely transferable. Sales of a substantial number of shares of our ordinary shares, or the perception that the FIMI Opportunity Funds may exercise their registration rights, could put downward pressure on the market price of our ordinary shares and could impair our future ability to raise capital through an offering of our equity securities.
The significant share ownership positions and board representation of the FIMI Opportunity Funds, Leon Recanati and Jonathan Hahn may limit our shareholders’ ability to influence corporate matters.
The FIMI Opportunity Funds (three of whose partners are members of our board of directors, one of which serves as our Chairman), Leon Recanati and Jonathan Hahn, members of our board of directors, beneficially owned, directly and indirectly, approximately 21.1%, 8.0% and 4.3% of our outstanding ordinary shares, respectively, as of March 15, 2022. For additional information, see “Item 6. Directors, Senior Management and Employees — Share Ownership” and “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders.” Accordingly, the FIMI Opportunity Funds, Leon Recanati, and the Hahn family through their equity ownership and board representation, individually and collectively, have significant influence over the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed acquisition, merger or consolidation of our company. Their interests may not be consistent with those of our other shareholders. In addition, these parties’ significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our shares. On March 6, 2013, a shareholders agreement was entered into, effective March 4, 2013, pursuant to which Mr. Recanati and any company controlled by him (collectively, the “Recanati Group”), on the one hand, and Damar Chemicals Inc. (“Damar”), TUTEUR S.A.C.I.F.I.A (“Tuteur”) (companies controlled by the Hahn family) and their affiliates (collectively, the “Damar Group”), on the other hand, have each agreed to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated by the other group as follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our outstanding share capital, (ii) two director nominees, so long as the other group beneficially owns at least 5.0% (but less than 7.5%) of our outstanding share capital, and (iii) one director nominee, so long as the other group beneficially owns at least 2.5% (but less than 5.0%) of our outstanding share capital. In addition, to the extent that after the designation of the foregoing director nominees there are additional director vacancies, each of the Recanati Group and Damar Group have agreed to vote the ordinary shares beneficially owned by them in favor of such additional director nominees designated by the party who beneficially owns the larger voting rights in our company. We are not party to such agreement or bound by its terms. As a result of such voting agreement, the Recanati Group and the Damar Group and their affiliates together have significant influence over the election of directors of the company.
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Our ordinary shares are traded on more than one market and this may result in price variations.
Our ordinary shares have been traded on the TASE since August 2005, and on Nasdaq since May 2013. Trading in our ordinary shares on these markets takes place in different currencies (U.S. dollars on Nasdaq and NIS on the TASE), and at different times (as a result of different time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a decrease in the trading price of our ordinary shares on Nasdaq, and a decrease in the price of our ordinary shares on Nasdaq could likewise cause a decrease in the trading price of our ordinary shares on the TASE.
Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares, and having interest charges apply to distributions by us and the proceeds of share sales. See “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation.”
We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.
We are a foreign private issuer and, as a result, are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and/or less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.
As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we are still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.
As we are a “foreign private issuer” and follow certain home country corporate governance practices instead of otherwise applicable Nasdaq corporate governance requirements, our shareholders may not have the same protections afforded to shareholders of domestic U.S. issuers that are subject to all Nasdaq corporate governance requirements.
As a foreign private issuer, we have the option to, and we do, follow Israeli corporate governance practices rather than certain corporate governance requirements of Nasdaq, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the home country practices we follow instead. We have relied on this “foreign private issuer exemption” with respect to all the items listed under the heading “Item 16G. Corporate Governance,” including with respect to shareholder approval requirements in respect of equity issuances and equity-based compensation plans, the requirement to have independent oversight on our director nominations process and to adopt a formal written charter or board resolution addressing the nominations process, the quorum requirement for meetings of our shareholders and the Nasdaq requirement to have a formal charter for the compensation committee. We may in the future elect to follow home country practices in Israel with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements. See “Item 16G. Corporate Governance.”
We have never paid cash dividends on our ordinary shares and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our ordinary shares will likely depend on whether the price of our ordinary shares increases, which may not occur.
We have never declared or paid any cash dividends on our ordinary shares and do not intend to pay any cash dividends. Any agreements that we may enter into in the future may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
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Risks Relating to Our Incorporation and Location in Israel
Conditions in Israel could adversely affect our business.
We are incorporated under Israeli law and our principal offices and manufacturing facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there has been terrorist activity with varying levels of severity over the years. In the event that our facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and export our supplies and products, our ability to manufacture and deliver products to customers could be materially adversely affected. Additionally, the operations of our Israeli suppliers and contractors may be disrupted as a result of hostile action or hostilities, in which event our ability to deliver products to customers may be materially adversely affected.
Our commercial insurance does not cover losses that may occur as a result of events associated with war. Losses resulting from acts of terrorism may be partially covered under certain circumstance. Although the Israeli government currently covers certain value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictions may limit materially our ability to obtain raw materials from these countries or sell our products to companies in these countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our sales to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us.
Our operations may be disrupted by the obligations of personnel to perform military service.
As of December 31, 2021, we had 357 employees based in Israel. Certain of our Israeli employees may be called upon to perform up to 36 days (and in some cases more) of annual military reserve duty until they reach the age of 40 (and in some cases, up to 45 or older) and, in emergency circumstances, could be called to active duty. In response to increased tension and hostilities, there have been occasional call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees related to their, or their spouse’s, military service or the absence for extended periods of one or more of our key employees for military service. Such disruption could materially adversely affect our business and results of operations. Additionally, the absence of a significant number of the employees of our Israeli suppliers and contractors related to military service or the absence for extended periods of one or more of their key employees for military service may disrupt their operations, in which event our ability to deliver products to customers may be materially adversely affected.
The tax benefits under Israel tax legislation that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.
One of our Israeli facilities was granted “Approved Enterprise” status by the Investment Center of the Ministry of Economy and Industry (formerly named the Ministry of Industry, Trade and Labor) of the State of Israel (the “Investment Center”), under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”), which made us eligible for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with a grant in the amount of 24% of our approved investments, in addition to certain tax benefits, which applied to the turnover resulting from the operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated taxable income. The tax benefits under the Approved Enterprise status expired at the end of 2017.
Additionally, we have obtained a tax ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity,” as defined in the Investment Law, and is also eligible for tax benefits as a “Privileged Enterprise,” which apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated taxable income. The tax benefits under the Privileged Enterprise status are scheduled to expire at the end of 2023.
In order to remain eligible for the tax benefits of a Privileged Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended, and must also comply with the conditions set forth in the tax ruling. These conditions include, among other things, that the production, directly or through subcontractors, of all our products should be performed within certain regions of Israel. If we do not meet these requirements, the tax benefits would be reduced or canceled and we could be required to refund any tax benefits that we received in the past, in whole or in part, linked to the Israeli consumer price index, together with interest. Further, these tax benefits may be reduced or discontinued in the future. For example, while we do not expect that the transfer of manufacturing of GLASSIA to Takeda would result in the reduction or loss of these tax benefits, according to the tax ruling that we obtained, we may lose those benefits if it is determined that we do not comply with the conditions set forth in the tax ruling. If these tax benefits are canceled, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies was 25% in 2016, it decreased to 24% in 2017 and further decreased to 23% in 2018 and thereafter. For more information about applicable Israeli tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax Considerations and Government Programs.”
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In the future, we may not be eligible to receive additional tax benefits under the Investment Law if we increase certain of our activities outside of Israel. Additionally, in the event of a distribution of a dividend from the abovementioned tax exempt income, in addition to withholding tax at a rate of 20% (or a reduced rate under an applicable double tax treaty), we will be subject to tax on the otherwise exempt income (grossed-up to reflect the pre-tax income that we would have had to earn in order to distribute the dividend) at the corporate tax rate applicable to our Approved/Privileged Enterprise’s income, which would have been applied had we not enjoyed the exemption. Similarly, in the event of our liquidation or a share buyback, we will be subject to tax on the grossed up amount distributed or paid at the corporate tax rate which would have been applied to our Privileged Enterprise’s income had we not enjoyed the exemption. Under Israel’s 2021-2022 Budget Law, published on November 15, 2021, in the event of a dividend distribution, earnings that were tax exempt under the historical Approved or Beneficial Enterprise regimes, referred to as “trapped earnings,” must be distributed on a pro-rata basis from any dividend distribution, commencing August 15, 2021. In addition, under a temporary order in force for a one year period from its enactment on November 15, 2021, Israeli companies that have trapped earnings under the historical Approved and Beneficial Enterprise regimes, that are generally subject to a claw-back of the corporate tax rate that was not paid on such earnings upon their distribution, will be able to distribute such earnings with up to a 60% “discount” of the applicable corporate tax rate, but not less than a 6% corporate tax rate. The applicable corporate tax rate is determined based on a formula that considers the ratio of the “released” earnings out of the trapped earnings and the historical corporate tax rate the company was exempt from, and allows the maximum benefit if the entire amount of trapped earnings is to be released. For more information about applicable Israeli tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax Considerations and Government Programs.”
Tax matters, including changes in tax laws, adverse determinations by taxing authorities and imposition of new taxes could adversely affect our results of operations and financial condition. Furthermore, we may not be able to fully utilize our net operating loss carryforwards.
We are subject to the tax laws and regulations of the State of Israel and numerous other jurisdictions in which we do business. Many judgments are required in determining our provision for income taxes and other tax liabilities, and the applicable tax authorities may not agree with our tax positions. In addition, our tax liabilities are subject to other significant risks and uncertainties, including those arising from potential changes in laws and/or regulations in the State of Israel and the other countries in which we do business, the possibility of adverse determinations with respect to the application of existing laws, changes in our business or structure and changes in the valuation of our deferred tax assets and liabilities. As of December 31, 2021, we had net operating loss carryforwards (“NOLs”) for tax purposes of approximately $33 million. If we are unable to fully utilize our NOLs to offset taxable income generated in the future, our future cash taxes could be materially and negatively impacted. For further detail regarding our NOLs, see Note 23 in our consolidated financial statements included in this Annual Report.
It may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.
We are incorporated in Israel. All of our directors and executive officers and the Israeli experts named in this Annual Report reside outside the United States. The majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.
Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.
Your rights and responsibilities as our shareholder are governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders vote, or who has the power to appoint or prevent the appointment of an office holder in the company or has other powers towards the company, has a duty to act in fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See “Item 6. Directors, Senior Management and Employees — Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law — Duties of Shareholders.” There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
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Provisions of Israeli law and our articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.
Certain provisions of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares. For example, Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a public company are purchased. Under our articles of association, a merger shall require the approval of two-thirds of the voting rights represented at a meeting of our shareholders and voting on the matter, in person or by proxy, and any amendment to such provision shall require the approval of 60% of the voting rights represented at a meeting of our shareholders and voting on the matter, in person or by proxy. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to certain mergers, while Israeli tax law permits tax deferral, the deferral is contingent on certain restrictions on future transactions, including with respect to dispositions of shares received as consideration, for a period of two years from the date of the merger. See Exhibit 2.1, “Description of Securities —Acquisitions Under Israeli Law,” incorporated herein by reference.
General Risks
If we are unable to successfully introduce new products and indications or fail to keep pace with advances in technology, our business, financial condition, and results of operations may be adversely affected.
Our continued growth depends, to a certain extent, on our ability to develop and obtain regulatory approvals of new products, new enhancements and/or new indications for our products and product candidates. Obtaining regulatory approval in any jurisdiction, including from the FDA, EMA or any other relevant regulatory agencies involves significant uncertainty and may be time consuming and require significant expenditures. See “—Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results.”
The development of innovative products and technologies that improve efficacy, safety, patients’ and clinicians’ ease of use and cost-effectiveness, involve significant technical and business risks. The success of new product offerings will depend on many factors, including our ability to properly anticipate and satisfy customer needs, adapt to new technologies, obtain regulatory approvals on a timely basis, demonstrate satisfactory clinical results, manufacture products in an economic and timely manner, engage qualified distributors for different territories and establish our sales force to sell our products, and differentiate our products from those of our competitors. If we cannot successfully introduce new products, adapt to changing technologies or anticipate changes in our current and potential customers’ requirements, our products may become obsolete and our business could suffer.
Product liability claims or product recalls involving our products, or products we distribute, could have a material adverse effect on our business.
Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, distribution and sale of our Proprietary and Distribution products and other drug products. We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and an even greater risk when we commercially sell any products, including those manufactured by others that we distribute in Israel. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, or if the indemnities we have negotiated do not adequately cover losses, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for our Proprietary and Distribution products and any product candidates that we may develop; |
| ● | injury to our reputation; |
| ● | difficulties in recruitment of new participants to our future clinical trials and withdrawal of current clinical trial participants; |
| ● | costs to defend the related litigation; |
| ● | substantial monetary awards to trial participants or patients; |
| ● | difficulties in finding distributors for our products; |
| ● | difficulties in entering into strategic partnerships with third parties; |
| ● | diversion of management’s attention; |
| ● | loss of revenue; |
| ● | the inability to commercialize any products that we may develop; and |
| ● | higher insurance premiums. |
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Plasma is biological matter that is capable of transmitting viruses, infections and pathogens, whether known or unknown. Therefore, plasma derivative products, if not properly tested, inactivated, processed, manufactured, stored and transported, could cause serious disease and possibly death to the patient. Further, even when such steps are properly affected, viral and other infections may escape detection using current testing methods and may not be susceptible to inactivation methods. Any transmission of disease through the use of one of our products or third-party products sold by us could result in claims against us by or on behalf of persons allegedly infected by such products.
In addition, we sell and distribute third-party products in Israel, and the laws of Israel could also expose us to product liability claims for those products. Furthermore, the presence of a defect (or a suspicion of a defect) in a product could require us to carry out a recall of such product. A product liability claim or a product recall could result in substantial financial losses, negative reputational repercussions, loss of business and an inability to retain customers. Although we maintain insurance for certain types of losses, claims made against our insurance policies could exceed our limits of coverage or be outside our scope of coverage. Additionally, as product liability insurance is expensive and can be difficult to obtain, a product liability claim could increase our required premiums or otherwise decrease our access to product liability insurance on acceptable terms. In turn, we may not be able to maintain insurance coverage at a reasonable cost and may not be able to obtain insurance coverage that will be adequate to satisfy liabilities that may arise.
Our ability to attract, recruit, retain and develop qualified employees is critical to our success and growth.
We compete in a market that involves rapidly changing technological and regulatory developments that require a wide-ranging set of expertise and intellectual capital. In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. While we have a number of our key personnel who have substantial experience with our operations, we must also develop and exercise our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive, and we may not succeed in recruiting additional experienced or professional personnel, retaining current personnel or effectively replacing current personnel who depart with qualified or effective successors. Many of the companies with which we compete for experienced personnel have greater resources than us.
Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. There can be no assurance that qualified employees will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
We are subject to risks associated with doing business globally.
Our operations are subject to risks inherent to conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. These risks include fluctuations in currency exchange rates, changes in exchange controls, loss of business in government and public tenders that are held annually in many cases, nationalization, expropriation and other governmental actions, availability of raw materials, changes in taxation, importation limitations, export control restrictions, changes in or violations of applicable laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010, pricing restrictions, economic and political instability, disputes between countries, diminished or insufficient protection of intellectual property, and disruption or destruction of operations in a significant geographic region regardless of cause, including war, terrorism, riot, civil insurrection or social unrest. Failure to comply with, or material changes to, the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.
We are subject to foreign currency exchange risk.
We receive payment for our sales and make payments for resources in a number of different currencies. While our sales and expenses are primarily denominated in U.S. dollars, our financial results may be adversely affected by fluctuations in currency exchange rates as a portion of our sales and expenses are denominated in other currencies, including the NIS and the Euro. Market volatility and currency fluctuations may limit our ability to cost-effectively hedge against our foreign currency exposure and, in addition, our ability to hedge our exposure to currency fluctuations in certain emerging markets may be limited. Hedging strategies may not eliminate our exposure to foreign exchange rate fluctuations and may involve costs and risks of their own, such as devotion of management time, external costs to implement the strategies and potential accounting implications. Foreign currency fluctuations, independent of the performance of our underlying business, could lead to materially adverse results or could lead to positive results that are not repeated in future periods.
Events in global credit markets may impact our ability to obtain financing or increase the cost of future financing, including interest rate fluctuations based on macroeconomic conditions that are beyond our control.
During periods of volatility and disruption in the U.S., European, Israeli or global credit markets, obtaining additional or replacement financing may be more difficult and the cost of issuing new debt could be higher than the costs we incur under our current debt. The higher cost of new debt may limit our ability to have cash on hand for working capital, capital expenditures and acquisitions on terms that are acceptable to us.
Developments in the economy may adversely impact our business.
Our operating and financial performance may be adversely affected by a variety of factors that influence the general economy in the United States, Europe, Israel, Russia, Latin America, Asia and other territories worldwide, including global and local economic slowdowns, challenges faced banks and the health of markets for the sovereign debt. Many of our largest markets, including the United States, Latin America and states that are members of the Commonwealth of Independent States previously experienced dramatic declines in the housing market, high levels of unemployment and underemployment, and reduced earnings, or, in some cases, losses, for businesses across many industries, with reduced investments in growth.
A recessionary economic environment may adversely affect demand for our plasma-derived protein therapeutics. As a result of job losses, patients in the U.S. and other markets may lose medical insurance and be unable to purchase needed medical products or may be unable to pay their share of deductibles or co-payments. Hospitals may steer patients adversely affected by the economy to less costly therapies, resulting in a reduction in demand, or demand may shift to public health hospitals, which purchase our products at a lower government price. A recessionary economic environment may also lead to price pressure for reimbursement of new drugs, which may adversely affect the demand for our future plasma-derived protein therapeutics.
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Failure to adequately or timely adapt our manufacturing capacity to match changes in demand for our manufactured products and/or continued manufacturing at or close to our plant’s maximum capacity may have a material adverse effect on our business.
Failure to adequately or timely adapt our manufacturing volume as needed or continued manufacturing at or close to our plant’s maximum capacity levels may lead to an inability to supply products, may have an adverse effect on our business and could cause substantial harm to our business reputation and result in breach of our sales agreements and the loss of future customers and orders.
If we experience equipment difficulties or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.
For certain equipment and supplies, we depend on a limited number of companies that supply and maintain our equipment and provide supplies such as chromatography resins, filter media, glass bottles and stoppers used in the manufacture of our plasma-derived protein therapeutics. If our equipment were to malfunction, or if our suppliers stop manufacturing or supplying such machinery, equipment or any key component parts, the repair or replacement of the machinery may require substantial time and cost, and could disrupt our production and other operations. Alternative sources for key component parts or disposable goods may not be immediately available. In addition, any new equipment or change in supplied materials may require revalidation by us or review and approval by the FDA, the EMA, the IMOH or other regulatory authorities, which may be time-consuming and require additional capital and other resources. We may not be able to find an adequate alternative supplier in a reasonable time period, or on commercially acceptable terms, if at all. As a result, shipments of affected products may be limited or delayed. Our inability to obtain our key source supplies for the manufacture of products may require us to delay shipments of products, harm customer relationships and force us to curtail operations.
A breakdown in our information technology (IT) systems could result in a significant disruption to our business.
Our operations are highly dependent on our information technology (IT) systems. If we were to suffer a breakdown in our systems, storage, distribution or tracing, we could experience significant disruptions affecting all our areas of activity, including our manufacturing, research, accounting and billing processes and potentially cause disruptions to our manufacturing process for products currently in production. We may also suffer from partial loss of information and data due to such disruption.
Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information and personal information, we could incur liability due to lost revenues resulting from the unauthorized use or theft of sensitive business information, remediation costs, and litigation risks including potential regulatory action by governmental authorities. In addition, any such disruption, security breach or other incident could delay the further development of our future product candidates due to theft or corruption of our proprietary data or other loss of information. Our business and operations could also be harmed by any reputational damage with customers, investors or third parties with whom we work, and our competitive position could be adversely impacted.
Tax legislation in the United States may impact our business.
Changes to the Internal Revenue Code, the issuance of administrative rulings or court decisions could impact our business. On December 22, 2017, federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA provides for significant and wide-ranging changes to the U.S. Internal Revenue Code. Although significant guidance has been issued under the TCJA, many aspects of such legislation that could affect our business remain subject to considerable uncertainty. Further, it is impossible to predict the occurrence or timing of any additional tax legislation or other changes in tax law that materially affect our business or investors. For example, the U.S. House of Representatives has passed a bill that, if passed by the Senate, could have a significant impact on the U.S. tax system. While, at this point, we cannot predict the likelihood of U.S. tax reform in 2022 or beyond, or the specific changes that may be enacted, if U.S. tax reform legislation moves forward, there may be an adverse impact to our business and investors.
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If we are unable to protect our trademarks from infringement, our business prospects may be harmed.
We own trademarks that identify certain of our products, our business name and our logo, and have registered these trademarks in certain key markets. Although we take steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our trademark rights. Any unauthorized use of our trademarks could harm our reputation or commercial interests. In addition, our enforcement against third-party infringers or violators may be unduly expensive and time-consuming, and the outcome may be an inadequate remedy. Even if trademarks are issued to us or to our licensors, they may be challenged, narrowed, cancelled, or held to be unenforceable or circumvented.
Raising additional debt or funds through collaborations or strategic alliances and licensing arrangements may restrict our operations or require us to relinquish rights.
To the extent that we raise additional funds to fund our activities through debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us.
The Russian invasion of Ukraine may have a material adverse impact on us.
Commencing in 2021, Russian President Vladimir Putin ordered the Russian military to begin massing thousands of military personnel and equipment near its border with Ukraine and in Crimea, representing the largest mobilization since the illegal annexation of Crimea in 2014. President Putin has initiated troop movements into the eastern portion of Ukraine and continues to threaten an all-out invasion of Ukraine. On February 22, 2022, the United States and several European nations announced sanctions against Russia in response to Russia’s actions. On February 24, 2022, President Putin commenced a full-scale invasion of Russia’s pre-positioned forces into Ukraine, which could have a negative impact on supply chains and the economy and business activity globally. Furthermore, the conflict between the two nations and the varying involvement of the United States and other NATO countries could preclude prediction as to their ultimate adverse impact on global economic and market conditions, and, as a result, presents material uncertainty and risk with respect to our operations and the price of our shares.
Additionally, given the recent sanctions imposed on Russia we may not be able to continue and supply our products to our Russian distributor, and even if we will be able to continue the supply of product, there can be no assurance that our distributor may be able to pay us for such products given the recent actions taken by the Russian government to seize all international foreign currency payments. Our revenues, profitability and financial condition may be effected if we are unable to continue to sell our products to the Russian market and/or are not able to collect due proceeds from previous and/or future product sales.
Item 4. Information on the Company
Corporate Information
We were incorporated under the laws of the State of Israel on December 13, 1990 under the name Kamada Ltd. In August 2005, we successfully completed an initial public offering on the TASE. In June 2013, we successfully completed an initial public offering in the United States on Nasdaq. The address of our principal executive office is 2 Holzman St., Science Park, P.O. Box 4081, Rehovot 7670402, Israel, and our telephone number is +972 8 9406472. Our website address is www.kamada.com. The reference to our website is intended to be an inactive textual reference and the information on, or accessible through, our website is not intended to be part of this Annual Report. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file electronically with the SEC. You can also inspect the Annual Report on that website.
We have irrevocably appointed Puglisi & Associates as our agent to receive service of process in any action against us in any United States federal or state court. The address of Puglisi & Associates is 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.
Capital Expenditures
For a discussion of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
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Business Overview
We are a vertically integrated global biopharmaceutical company, focused on specialty plasma-derived therapeutics, with a diverse portfolio of marketed products, a robust development pipeline and industry-leading manufacturing capabilities. Our strategy is focused on driving profitable growth from our current commercial activities as well as our manufacturing and development expertise in the plasma-derived and biopharmaceutical markets.
We operate in two segments: the Proprietary Products segment, which includes six FDA approved plasma-derived biopharmaceutical products (including the recently acquired portfolio of four FDA approved products) as well as additional plasma-derived products that we market internationally in more than 30 countries. We manufacture our proprietary products at our cGMP compliant FDA-approved production facility located in Beit Kama, Israel, using our proprietary platform technology and know-how for the extraction and purification of proteins and IgGs from human plasma, as well as at third party contract manufacturing facilities, and the Distribution segment, in which we leverage our expertise and presence in the Israeli market by distributing more than 20 pharmaceutical products manufactured by third parties for use in Israel.
As part of our strategy, we recently completed two acquisitions. In November 2021, we acquired a portfolio of four FDA approved plasma-derived hyperimmune commercial products – CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF – from Saol, a specialty pharmaceutical company focused on addressing the medical needs of underserved or unserved patient populations. The combined annual global revenue of the acquired portfolio in 2021 was approximately $41.9 million, of which our revenue was approximately $5.4 million and represents the sales generated from the date of consummation of the transaction through December 31, 2021. Approximately 75% and 21% of the 2021 annual sales of the acquired portfolio were generated in the U.S. and Canada, respectively. In March 2021, we completed the acquisition of the FDA licensed plasma collection center and certain related assets from the privately held B&PR based in Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D products. See below “— Recent Acquisitions.” We are committed to growing our hyperimmune immunoglobulins (IgG) portfolio and our plasma collection capabilities, and believe these acquisitions are a significant strategic step in that direction.
In addition to the recently acquired products portfolio, our Proprietary products includes GLASSIA, an intravenous AAT product that is indicated for chronic augmentation and maintenance therapy in adults with emphysema due to AATD, KAMRAB/KEDRAB, a plasma-derived hyper-immunoglobulin for prophylactic treatment against rabies infection administered to patients after exposure to a suspected rabid animal, KAMRHO (D) intramuscular (“IM”) for prophylaxis of hemolytic disease of newborns, and KAMRHO (D) IV for treatment of immune thermobocytopunic purpura (“ITP”), as well as two types of anti-snake venom derived from equine plasma.
We market GLASSIA in the United States through a strategic partnership with Takeda. Our 2021 revenues from the sale of GLASSIA to Takeda totaled $26.2 million, as compared to $64.9 million and $68.1 million during 2020 and 2019, respectively. In addition, during 2021 we recognized revenues of $5.0 million on account of a sales milestone due from Takeda. During 2021, Takeda completed the technology transfer of GLASSIA manufacturing to its facility in Belgium and received the required FDA approval, and initiated its own production of GLASSIA for the U.S. market. In addition, during 2021, Takeda obtained a marketing authorization approval for GLASSIA from Health Canada. Commencing 2022, Takeda will pay us royalties, on sales, in the U.S. and Canadian markets of GLASSIA manufactured by Takeda, at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. Based on current GLASSIA sales and forecasted future growth, we expect to receive royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040. We also market GLASSIA in other counties through local distributors. Total revenues derived from sales of GLASSIA in all other countries during 2021 was $7.6 million, as compared to $5.5 million and $5.5 million during 2020 and 2021, respectively.
We market KAMRAB in the United States under the trademark “KEDRAB” through a strategic distribution and supply agreement with Kedrion. Our 2021 revenues from sales of KEDRAB to Kedrion totaled $11.9 million as compared to $18.3 million and $16.4 million during 2020 and 2019, respectively. Sales of KEDRAB by Kedrion in the United States during the year 2021, 2020 and 2019 totaled $24.7 million, $23.7 million and $31.4 million, respectively. Based on information provided by Kedrion, these sales represent approximately 27%, 23% and 20% share of the relevant U.S. market in each of these years, respectively. The reduction of sales of KEDRAB to Kedrion during 2021 was a result of relatively higher level of inventory of product at Kedrion as of December 31, 2020, which was due to reduced KEDRAB sales by Kedrion during 2020 (as noted above) as a result of the effect of the COVID-19 pandemic.
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Our 2021 revenues from the sales of the remaining Proprietary products, including KAMRAB (outside the U.S. market), KAMRHO (D) IM and IV, the anti-snake venom, as well as our development stage Anti-SARS-CoV-2 IgG product totaled $18.4 million, as compared to $11.2 million and $7.1 million during 2020 and 2019, respectively.
Our Distribution segment is comprised of sales in Israel of pharmaceutical products manufactured by third parties. Most of the revenues generated in our Distribution segment are from plasma-derived products manufactured by European companies, and its sales represented approximately 84%, 89% and 81% of our Distribution segment revenues for the years ended December 31, 2021, 2020 and 2019, respectively. Over the past several years we continued to extend our Distribution segment products portfolio to non-plasma derived products, including recently entering into an agreement with Alvotech and two additional companies for the distribution in Israel of eleven different biosimilar products which, subject to EMA and subsequently IMOH approvals, are expected to be launched in Israel between the years 2022 and 2028. We estimate the potential aggregate peak revenues, achievable within several years of launch, generated by the distribution of all eleven biosimilar products to be more than $40 million annually.
In addition to our commercial operation, we invest in research and development of new product candidates. Our leading investigational product is Inhaled AAT for AATD, for which we are continuing to progress the InnovAATe clinical trial, a randomized, double-blind, placebo-controlled, pivotal Phase 3 trial. We have additional product candidates in early development stage. For additional information regarding our research and development activities, see “— Our Development Product Pipeline.”
We continue to focus on driving profitable growth through expanding our growth catalysts which include: investment in the commercialization and life cycle management of the newly acquired products portfolio, including growing the acquired portfolio’s revenues in new geographic markets; continued market share growth for KEDRAB in the U.S. market; expanding sales of GLASSIA and our other Proprietary products in ex-U.S. markets, including registration and launch of the products in new territories; generating royalties from GLASSIA sales by Takeda; expanding our plasma collection capabilities in support of our growing demand for hyper-immune plasma as well as sales of normal source plasma to other plasma-derived manufacturers, ; continued increase of our Distribution segment revenues specifically through launching the eleven biosimilar products in Israel; and leveraging our FDA-approved IgG platform technology, manufacturing, research and development expertise to advance development and commercialization of additional product candidates, including our investigational Inhaled AAT product, and identify potential partners for this product.
We currently expect to generate fiscal year 2022 total revenues in the range of $125 million to $135 million which would represent a 20% to 30% growth compared to fiscal year 2021. We also anticipate generating EBITDA, during 2022, at a rate of 12% to 15% of total revenues, representing more than 2.5x of the EBITDA for the year ended December 31, 2021.
Recent Acquisitions
Acquisition of IgG portfolio
In November 2021, we acquired a portfolio of four FDA approved plasma-derived hyperimmune commercial products from Saol. For a description of the four products acquired from Saol, CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF, see below “— Our Commercial Product Portfolio — Proprietary Products Segment.” The acquisition of this portfolio furthers our core objective to become a fully integrated specialty plasma company with strong commercial capabilities in the U.S. market, as well as to expand to new markets, mainly in the Middle East/North Africa region, and to broaden our portfolio offering in existing markets. Our wholly owned U.S. subsidiary, Kamada Inc., will be responsible for the commercialization of the four products in the U.S. market, including direct sales to wholesalers and local distributers.
Under the terms of the agreement, we paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration subject to the achievement of sales thresholds for the period commencing on the acquisition date and ending on December 31, 2034. We may be entitled for up to $3.0 million credit deductible from the contingent consideration payments due for the years 2023 through 2027, subject to certain conditions as defined in the agreement between the parties. In addition, we acquired inventory valued at $14.4 million and agreed to pay the consideration to Saol in ten quarterly installments of $1.5 million each or the remaining balance at the final installment.
To partially fund the acquisition costs, we obtained a $40 million financing facility from the Israeli Bank Hapoalim B.M., comprised of a $20 million five-year loan and a $20 million short-term revolving credit facility. For information regarding the financing, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facility and Loan Agreement with Bank Hapoalim B.M.”.
In connection with the acquisition, we entered into a transition services agreement with Saol, which defines the services and support to be provided by Saol to us for a defined period (including, managing sales and distribution, payment collection, logistics management, price reporting, regulatory affairs, medical inquiries, quality control complaints and pharmacovigilance), in order to secure the smooth transfer of the acquired assets and related commitments. The term of the transition services agreement for most services is estimated between three to six months following the closing of the acquisition. During the transition period, we will recruit staff as needed, and will gradually assume all operation responsibility related to the acquired products, including distribution and sales, quality procedures, supply chain activities, regulatory and finance related issues. The cost for services provided under the transition services agreement is based on the actual work to be performed by Saol, with monthly workload adjustments, and pass-through costs.
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Pursuant to an earlier engagement with Saol, during 2019, we initiated technology transfer activities for transitioning CYTOGAM manufacturing to our manufacturing facility in Beit Kama, Israel. The process is already well underway, and we expect to receive FDA approval for manufacturing of CYTOGAM and initiate commercial manufacturing of the product in early 2023. As a result of the consummation of the IgG portfolio acquisition, which included the acquisition of all rights relating to CYTOGAM, the previous engagement with Saol with respect to this product expired.
In connection with the acquisition, we assumed a contract manufacturing agreement with Emergent for the manufacturing of HEPAGAM B, VARIZIG and WINRHO SDF. We expect to continue manufacturing these products with Emergent in the foreseeable future, while initiating in parallel a technology transfer project for transitioning the manufacturing of these products to our manufacturing facility in Beit Kama, Israel. The initiation of such technology transfer project is subject to executing an amendment to the manufacturing services agreement with Emergent covering the technology transfer related services and scope. We anticipate that once initiated, such project may be completed within three to five years.
BP&R Acquisition
In March 2021, we completed the acquisition of the FDA licensed plasma collection center and certain related assets from the privately held B&PR based in Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacturing of KAMRHO (D) IV and IM products. Plasma-derived Anti-D products are being used for prophylaxis of hemolytic disease of newborns, and for the treatment of ITP. B&PR’s plasma collection center is one of the few FDA-licensed centers in the U.S. producing the raw materials required for these products. The acquisition, for a total consideration of approximately $1.61 million, was consummated through Kamada Plasma LLC, a newly formed wholly owned subsidiary of the Company, which operates our plasma collection activity in the United States. The acquisition of B&PR’s plasma collection center represented our entry into the U.S. plasma collection market. We are in the process of significantly expanding our hyperimmune plasma collection capacity by investing in this plasma collection center in Beaumont, Texas, while initiating a project to leverage our FDA license to establish a network of new plasma collection centers in the United States, with the intention to collect normal source as well as hyperimmune specialty plasma required for manufacturing of our other Proprietary IgG products including KAMRAB/KEDRAB as well as for some of the products included in our recently acquired products portfolio.
COVID-19
The global COVID-19 pandemic affected economic activity worldwide and led, among other things, to a disruption in the global supply chain, a decrease in global transportation, restrictions on travel and work that were announced by the State of Israel and other countries worldwide as well as a decrease in the value of financial assets and commodities across all markets in Israel and the world. As a result of the COVID-19 pandemic, we have experienced a reduction in inbound and outbound international delivery routes, which have caused, delays in receipt of raw material and shipment of finished product. Our business activity and commercial operations were affected by these factors, and we have taken several actions to ensure our manufacturing plant remains operational with limited disruption to our business continuity. We increased our inventory levels of raw materials through our suppliers and service providers to appropriately manage any potential supply disruptions and secure continued manufacturing. In addition, we are actively engaging freight carriers to ensure inbound and outbound international delivery routes remain operational and identify alternative routes, if needed. We comply with the State of Israel mandates and recommendations with respect to work-force management and have taken several precautionary health and safety measures to safeguard our employees and continue to monitor and assess orders issued by the State of Israel and other applicable governments to ensure compliance with evolving COVID-19 guidelines.
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COVID-19 related disruption had various effect on our business activities, commercial operation, revenues and operational expenses. However, as a result of the actions taken, our overall results of operations for the year ended December 31, 2021 were not materially affected. While there is an evident trend of recovery from the pandemic due to the increased vaccination rate of the population, a number of factors including, but not limited to, continued demand for our commercial products, availability of raw materials, financial conditions of our customer, suppliers and services providers, our ability to manage operating expenses, additional competition in the markets that we compete in, regulatory delays, prevailing market conditions and the impact of general economic, industry or political conditions in the U.S., Israel or otherwise, may have an effect on our future financial position and results of operations. The financial impact of these factors cannot be reasonably estimated at this time due to substantial uncertainty but may materially affect our business, financial condition, and results of operations. We assess the impact of COVID-19 in several possible scenarios and concluded that there are no uncertainties that may cast significant doubt on our ability to continue as a going concern or affect significantly on our liquidity.
Our Commercial Product Portfolio
Our commercial products portfolio includes our proprietary plasma-derived biopharmaceutical products in our Proprietary Products segment, which are marked and sold directly or through local distributers in the U.S., Canada, and additional approximately 30 markets worldwide, as well as licensed products, some of which are plasma-derived, which are marketed and sold by us in our Distribution segment in Israel.
Proprietary Products Segment
Our products in the Proprietary Products segment consist of plasma-derived protein and IgGs therapeutics derived from human plasma that are administered by injection or infusion. Such products include the recently acquired portfolio of four FDA approved products. We also manufacture anti-snake venom products from equine based serum.
Our Proprietary Products sales accounted for approximately 73%, 76% and 77% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. Historically, our leading product in the Proprietary Products segment was GLASSIA; however, as a result of the transition of GLASSIA manufacturing to Takeda which was completed during 2021, revenues from the sale of GLASSIA to Takeda decreased in 2021. Sales of GLASSIA (worldwide, including to Takeda), for the years ended December 31, 2021, 2020 and 2019, accounted for approximately 34%, 53% and 58% of our total revenues, respectively. Sales of GLASSIA to Takeda for further distribution in the U.S. market comprised approximately 25%, 49% and 54% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. In addition, during 2021 we recognized revenues of $5.0 million on account of a sales milestone due from Takeda. Revenues from sales of KEDRAB to Kedrion for further distribution in the U.S. market for the years ended December 31, 2021, 2020 and 2019, accounted for approximately 12%, 14% and 13% of our total revenues, respectively. For the year ended December 31, 2021, revenues from sales of the recently acquired portfolio of four FDA approved products (effective from November 22, 2021), accounted for approximately 5% of our total revenues. Sales of KAMRAB, KAMRHO (D) (IM and IV), the anti-snake venom, as well as our development stage Anti-SARS-CoV-2 IgG product accounted for the substantial balance of total revenues in the Proprietary Products segment for the years ended December 31, 2021, 2020 and 2019.
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The following tables lists our Proprietary Products:
| Product | Indication | Active Ingredient | Geography | |||
|
KAMRAB/ KEDRAB |
Prophylaxis of rabies disease | Anti-rabies immunoglobulin (Human) |
USA, Israel, India, Thailand, El Salvador*, Bosnia***, Russia, Mexico*, Georgia*, Sri Lanka*, Ukraine, Turkey***, Poland***, South Korea***, Canada, Australia, Argentina***, Brazil***, and Chile***. | |||
|
CYTOGAM
|
Prophylaxis of Cytomegalovirus (CMV) disease in kidney, lung, liver, pancreas, heart and heart/lung transplants
|
Cytomegalovirus Immune Globulin Intravenous (Human) | USA, Canada, and Qatar*** | |||
|
WINRHO SDF
|
Immune thrombocytopenic purpura (ITP) and suppression of rhesus isoimmunization (RH) | Rho(D) immunoglobulin (Human) |
USA, Canada, Egypt, Hong Kong, Kuwait, Saudi Arabia, South Korea, Turkey, UAE, Uruguay, and Chile**
| |||
| HEPAGAM B | Prevention of Hepatitis B recurrence liver transplants and post-exposure prophylaxis | Hepatitis B immunoglobulin (Human) | USA, Canada, Turkey, Israel, Saudi Arabia***, UAE, Bahrain***, and Kuwait* | |||
|
VARIZIG
|
Post exposure prophylaxis of Varicella in high risk individuals | Varicella Zoster Immunoglobulin (Human) |
USA, Canada, Belgium***, Kuwait***, Netherlands***, Sweden***, UAE***, Norway***, Denmark***, and Estonia***
| |||
| GLASSIA (or Ventia/Respikam in certain countries) | Intravenous AATD | Alpha-1 Antitrypsin (Human) |
USA, Canada**, Israel, Russia, Brazil*, Argentina, Uruguay**, South Africa***, Colombia**, Albania**, Kazakhstan**, and Costa Rica**
| |||
| KamRho (D) IM | Prophylaxis of hemolytic disease of newborns | Rho(D) immunoglobulin (Human) | Israel, Brazil, India*, Argentina, Paraguay, Chile, Russia, Nigeria*, Sri Lanka*, Thailand*, Costa Rica** and the Palestinian Authority | |||
| KamRho (D) IV | Treatment of immune thermobocytopunic purpura |
Rho(D) immunoglobulin (Human)
|
Israel, India* and Argentina* | |||
| Snake bite antiserum | Treatment of snake bites by the Vipera palaestinae and the Echis coloratus | Anti-snake venom | Israel |
| * | We have regulatory approval but did not market the product in this country in 2021. | |
| ** | Product was registered, but we have not yet started sales. | |
| *** | Product was marketed without registration. |
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Propriety Products
KamRAB/KEDRAB
KAMRAB is a hyper-immune plasma-derived therapeutic for prophylactic treatment against rabies infection that is administered to patients after exposure to an animal suspected of being infected with rabies. KAMRAB is manufactured at our manufacturing facility in Beit Kama, Israel from plasma that contains high levels of antibodies from donors that have been previously vaccinated by an active rabies vaccine. KAMRAB is administered by a one-time injection, and the precise dosage is a function of the patient’s weight.
According to the World Health Organization, each year more than 29 million people worldwide receive a post-bite rabies vaccination. The U.S. Centers for Disease Control and Prevention (CDC) recommends that post-exposure prophylaxis (PEP) treatment for people who have never been vaccinated against rabies previously should always include administration of both Human Rabies Immuno Globulin (HRIG) and rabies vaccine. According to the CDC, the combination of HRIG and vaccine is recommended for both bite and non-bite exposures, regardless of the interval between exposure and initiation of treatment.
KamRAB has been sold by us in various markets outside the United States through local distributors since 2003 and is currently sold in 15 countries, including Canada where it received marketing approval in November 2018, in various South American markets through the Pan American Health Organization (“PAHO”), the specialized international health agency for the Americas, and in Australia in which it received marketing approval in August 2021.
In July 2011, we signed a strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KAMRAB, pursuant to which Kedrion agreed to bear all the costs required for the Phase 2/3 clinical trials. See “— Strategic Partnerships — Kedrion (KAMRAB/KEDRAB and Anti-SARS-CoV-2).” The results of a phase 2/3 study demonstrated that KAMRAB was non-inferior to the comparator HRIG product in achieving Rabies Virus Neutralizing Antibody (RVNA) levels of ≥0.5 IU/mL on day 14, when each was co-administered with a rabies vaccine. In addition, KAMRAB was found to be well-tolerated with a safety profile similar to that of the comparator HRIG product. Based on these results, in August 2017, we received FDA approval for the marketing of KamRAB in the United States for PEP against rabies infection, and in April 2018 KAMRAB was launched in the United States (under the trademark “KEDRAB”).
In June 2021, the FDA approved a label update for KEDRAB, establishing the product’s safety and effectiveness in children aged 0 to 17 years. The new updates to the KEDRAB label are based on data from the KEDRAB U.S. post marketing pediatric study, the first and only clinical trial to establish pediatric safety and effectiveness of any HRIG in the United States. The KEDRAB U.S. pediatric trial was conducted at two sites, one in Arkansas and another in Rhode Island. The study included 30 pediatric patients (ages 0-17 years old), each of whom received KEDRAB as part of PEP treatment following exposure or suspected exposure to an animal suspected or confirmed to be rabid, and safety follow-up was conducted for up to 84 days. The primary objective of the study was to confirm the safety of KEDRAB in the pediatric population. Secondary objectives included the evaluation of antibody levels and the effectiveness of KEDRAB in the prevention of rabies disease when administered with a rabies vaccine according to the PEP recommended guidelines. No serious adverse events were observed during the study. No incidence of rabies disease or deaths were recorded throughout the 84-day study period. According to the Centers for Disease Control and Prevention data, no children in the United States treated with post-exposure prophylaxis have been reported to have had rabies between 2018 and April 2021, which supports the use of KEDRAB in children.
Our overall revenues from sales of KEDRAB to Kedrion during 2021, 2020 and 2019 were $11.9 million, $18.3 million and $16.4 million, respectively. The reduction of sales of KEDRAB to Kedrion during 2021 was a result of relatively higher level of inventory of product at Kedrion as of December 31, 2020, which was due to reduced KEDRAB sales by Kedrion during 2020 as a result of the effect of the COVID-19 pandemic. Sales of KEDRAB by Kedrion in the United States during 2021, 2020 and 2019 totaled $24.7 million, $23.7 million and $31.4 million, respectively. Based on information provided by Kedrion, these sales represent approximately 27%, 23% and 20% share of the relevant U.S. market in each of these years, respectively. The sales of KEDRAB by Kedrion during 2021 continued to be affected by the COVID-19 pandemic.
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CYTOGAM
CYTOGAM (Cytomegalovirus Immune Globulin Intravenous (Human)) (CMV-IGIV) is indicated for prophylaxis of cytomegalovirus (“CMV”) disease associated with the transplantation of the kidney, lung, liver, pancreas and heart. CYTOGAM, approved by the FDA in 1998, is the sole FDA-approved immunoglobulin (IgG) product for this indication, and was acquired by us from Saol in November 2021.
CYTOGAM is administered within 72 hours after transplantation and then at week 2,4,6,8,12 and 16 weeks after transplantation. The precise dosage is adjusted according to patient’s weight. CMV seroprevalence in the US is estimated as 50-80% among adults. CMV is typically passed through direct personal contact. A seropositive status indicates exposure to the virus and development of antibodies against CMV. After initial infection, CMV establishes lifelong latency in the host. Immunocompetent individuals possess few defenses, which protect mostly from infection and clinical symptoms (cell-mediated immunity). Immunocompromised patients, such as transplant patients, are vulnerable to both de novo and reactivation of CMV. In solid organ transplants, seronegative recipients (R-) receiving seropositive organs (D+) have the highest risk of CMV infection and disease. CMV disease incidence in kidney recipients are 2%-19%, but over 25% in high-risk thoracic organ recipients. Lung transplant patients have the highest risk of CMV infection and disease. CYTOGAM can help to re-establish the natural immune function of transplant patients: it modulates and interacts with immune cells exerting a positive immunological balance. Investigational studies have shown that administration of CMV-IGIV is associated with neutralization of free CMV particles, opsonization, specific activation of the immune system, and immunomodulation.
In the U.S., there were more than 40,000 Solid Organ Transplants (“SOT”) procedures performed during 2021. It is projected that number of transplant procedures will continue to grow at a rate of 6.5% over the next five years. Several available antivirals (acyclovir, valacyclovir, ganciclovir and valganciclovir) are being used and are considered efficient in the prevention and treatment of CMV infection. Those are considered standard of care for high-risk patients. As CMV infection in high-risk post-transplant patients can be severe and even life-threatening, we believe that administration of CYTOGAM together with the available antivirals can serve as a preferred option for preventing CMV disease, based on CMV hyperimmune clinical evidence to improve transplant outcomes in combination with antiviral therapy. We believe there is an under-usage of CYTOGAM to prevent CMV disease in SOT due to low awareness of its benefits when used with antiviral therapy for high-risk patients. We intend to promote the awareness for such benefits as we believe that increased awareness can support higher usage rates.
CYTOGAM is registered and sold in the United States and Canada. In addition, CYTOGAM is supplied on a named patient basis without registration in Qatar. We plan to leverage our existing international distribution network to explore the opportunities to register and commercialize the product in other territories. In addition, we may explore label expansion opportunities for the use of CYTOGAM in other indications.
We expect to receive FDA approval for the transfer of the ownership of the U.S. BLA for CYTOGAM during 2022. In addition, the technology transfer process for CYTOGAM manufacturing to our manufacturing facility in Beit Kama, Israel is well underway, and we expect to receive FDA approval for the manufacturing of CYTOGAM and initiate commercial manufacturing of the product in early 2023. Request for approval to transfer the Drug Identification Number (“DIN”) was submitted in March 2022, and once approved, we expect to submit a request to transfer the registration of the product in other international countries as applicable. An approval for the marketing of CYTOGAM, manufactured at our manufacturing facility, in Canada is planned to be submitted during the second half of 2022.
WINRHO SDF
WINRHO SDF is a Rho(D) Immune Globulin Intravenous (Human) product indicated for use in clinical situations requiring an increase in platelet count to prevent excessive hemorrhage in the treatment of non-splenectomies, for Rho(D)-positive children with chronic or acute immune thrombocytopenia (ITP), adults with chronic ITP, and children and adults with ITP secondary to HIV infection. WINRHO SDF is also used for suppression of Rhesus (Rh) Isoimmunization during pregnancy and other obstetric conditions in non-sensitized, Rho(D)-negative women. WINRHO SDF, approved by the FDA in 1995, was acquired by us from Saol in November 2021.
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Immune thrombocytopenic purpura (ITP) is a blood disorder characterized by a decrease in the number of platelets - the cells that help blood clot. Recent findings suggest that nearly 20,000 children and adults are newly diagnosed with ITP each year in the United States. Rho(D) immunoglobulin can be an effective option for rapidly increasing platelet counts in patients with symptomatic ITP.
Hemolytic disease of the newborn (HDN) is a blood disorder in a fetus or newborn infant. In some infants, it can be fatal. During pregnancy, Red Blood Cells (RBCs) from the unborn baby can cross into the mother’s blood through the placenta. HDN occurs when the immune system of the mother sees a baby’s RBCs as foreign. Antibodies then develop against the baby’s RBCs. These antibodies attack the RBCs in the baby’s blood and cause them to break down too early. Rho(D) immunoglobulin is administered to pregnant women with Rh-negative women, as prophylactic therapy, to prevent the disease. Rh- negative blood type proportion differentiate from country to country and in the United States 15% of people are Rh-negative.
In the U.S. market WINRHO SDF is used almost solely as treatment of ITP, however due to an FDA black-box warning for Intravascular Hemolysis (IVH) issued in 2011, as well as the introduction of new ITP therapies, its sales in the U.S. market dropped significantly between 2011 to 2017 and have remained relatively flat since. The current use of WINRHO SDF in the U.S. market is for treatment of acute ITP in which it competes mainly with high-dose IVIG. We believe that as the only Rho (D) product positioned in the U.S. for ITP and given its advantage over IVIG in treatment of acute ITP, increasing awareness amongst treating physicians may support higher usage rates.
WINRHO SDF is currently registered and sold in 10 territories including the United States and Canada, as well as Egypt, Hong Kong, Kuwait, Saudi Arabia, South Korea, Turkey, the United Arab Emirates and Uruguay. . In ex-U.S. territories, the product is mainly used to treat HDN, and we plan to leverage our existing international distribution network to register and commercialize the product in other territories.
Request for the transfer of the ownership of the BLA for WINRHO SDF was submitted to the FDA in December 2021 and approval is expected in mid-2022. Request for approval to transfer the ownership of the DIN and approval for us to manufacture or have manufactured the product for marketing was submitted in March 2022, and once approved, we expect to submit a request to transfer the registration of the product in other international countries as applicable.
WINRHO SDF is manufactured by Emergent under a contract manufacturing agreement, which was assigned to us by Saol following the consummation of the acquisition. We expect to continue manufacturing the product with Emergent in the foreseeable future, while initiating in parallel a technology transfer project for transitioning the manufacturing of WINRHO SDF to our manufacturing facility in Beit Kama, Israel. The initiation of such technology transfer project is subject to executing an amendment to the manufacturing services agreement with Emergent covering the technology transfer related services and scope. We anticipate that once initiated, such project may be completed within three to five years.
Our KAMRHO (D) is a comparable product to WINRHO SDF and approved for similar indication. The two products are registered and distributed in different markets.
HEPAGAM B
HEPAGAM B is a hepatitis B Immune Globulin (Human) (HBIg) product indicated to both prevent hepatitis B virus (HBV) recurrence following liver transplantation in hepatitis B surface antigen positive (HBsAg- positive) patients and to provide post-exposure prophylaxis treatment. HEPAGAM B, which was approved by the FDA in 2006 for post-exposure prophylaxis and in 2007 as a prevention therapy, was acquired by us from Saol in November 2021.
Liver transplantation is the treatment of choice for patients with liver failure secondary to chronic hepatitis B. However, liver transplantation is complicated by the risk of recurrent hepatitis B virus infection, which significantly impairs graft and patient survival. Prevention of hepatitis B virus (HBV) reinfection includes use of antiviral therapy, with the addition of hepatitis B immune globulin. HBIG treatment is based upon the rationale that administered antibody will bind to and neutralize circulating virions, thereby preventing graft infection.
In the U.S. market HEPAGAM B is mostly used for post-transplant prophylaxis in which it competes with ADMA Biologics Inc.’s (“ADMA”) Nabi-B product. Given the continued increase in liver transplants in the U.S. as well as several ex-U.S. countries, and with our planned direct marketing efforts we believe product usage may grow.
HEPAGAM B is registered and sold in five territories including the United States, Canada, Turkey, Israel, and the United Arab Emirates. In addition, HEPAGAM B is supplied on a named patient basis without registration in Saudi Arabia and Bahrain. Registration of HEPAGAM B in Saudi Arabia is currently on going.
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Request for transfer of the ownership for the BLA of HEPAGAM B was submitted to the FDA in December 2021 and approval is expected in mid-2022. Request for approval to transfer the ownership of the DIN and approval for us to manufacture or have manufactured the product for marketing in Canada was submitted in March 2022, and once approved, we expect to submit a request to transfer the registration of the product in other international countries as applicable.
HEPAGAM B is manufactured by Emergent under a contract manufacturing agreement which was assigned from Saol following the consummation of the acquisition. We expect to continue manufacturing the product with Emergent in the foreseeable future, while initiating in parallel a technology transfer project for transitioning the manufacturing of HEPAGAM B to our manufacturing facility in Beit Kama, Israel. The initiation of such technology transfer project is subject to executing an amendment to the manufacturing services agreement with Emergent covering the technology transfer related services and scope. We anticipate that once initiated, such project may be completed within three to five years.
VARIZIG
VARIZIG [Varicella Zoster Immune Globulin (Human)] is a product that contains antibodies specific for the Varicella zoster virus, and it is indicated for post-exposure prophylaxis of varicella (chickenpox) in high-risk patient groups, including immunocompromised children, newborns, and pregnant women. VARIZIG is intended to reduce the severity of chickenpox infections in these patients. The U.S. Centers for Disease Control (CDC) recommends VARIZIG for post-exposure prophylaxis of varicella for persons at high-risk for severe disease who lack evidence of immunity to varicella. VARIZIG, approved by the FDA in 2013, is the sole FDA-approved IgG product for this indication, and was acquired by us from Saol in November 2021.
Varicella-zoster virus (VZV) causes varicella (chicken pox) and herpes zoster (shingles). Varicella is a common childhood illness. Herpes zoster is caused by VZV reactivation. The incidence of herpes zoster increases with age or immunosuppression. Individuals at highest risk of developing severe or complicated varicella include immunocompromised people, preterm infants, and pregnant women. Varicella zoster immune globulin (human) (VARIZIG) is recommended by the CDC for post-exposure prophylaxis to prevent or attenuate varicella-zoster virus infection in high-risk individuals. VARIZIG may help these vulnerable patients to be defended against serious disease from varicella exposure. It has been demonstrated that post-exposure administration of VARIZIG was associated with low rates of varicella in high-risk patients.
VARIZIG is registered and sold in the United States and Canada. In addition, VARIZIG is supplied on a named patient basis or through a tender in Belgium, Kuwait, Netherlands, Sweden, the United Arab Emirates, Norway, Denmark and Estonia. In Latin America countries, we are participating in a tender for the potential distribution of VARIZIG by the Pan American Health Organization (“PAHO”), which also serves as Regional Office for the Americas of the World Health Organization (“WHO”).
Request for transfer of the ownership for the BLA for VARIZIG was submitted to the FDA in December 2021 and approval is expected in mid-2022. Request for approval to transfer the ownership of the DIN and approval to manufacture or have manufactured the product for marketing in Canada was submitted in March 2022.
VARIZIG is manufactured by Emergent under a contract manufacturing agreement which was assigned from Saol following the consummation of the acquisition. We expect to continue manufacturing the product with Emergent in the foreseeable future, while initiating in parallel a technology transfer project for transitioning the manufacturing of VARIZIG to our manufacturing facility in Beit Kama, Israel. The initiation of such technology transfer project is subject to executing an amendment to the manufacturing services agreement with Emergent covering the technology transfer related services and scope. We anticipate that once initiated, such project may be completed within three to five years.
GLASSIA
GLASSIA is an intravenous AAT product produced from fraction IV plasma that is indicated by the FDA for chronic augmentation and maintenance therapy in adults with emphysema due to congenital AATD. AAT is a naturally occurring protein found in a derivative of plasma known as fraction IV. AAT regulates the activity of certain white blood cells known as neutrophils and reduces cell inflammation. Patients with genetic AATD suffer from a chronic inflammatory state, lung tissue damage and a decrease in lung function. While GLASSIA does not cure AATD, it supplements the patient’s insufficient physiological levels of AAT and is administered as a chronic treatment. As such, the patient must take GLASSIA indefinitely over the course of his or her life in order to maintain the benefits provided by it. GLASSIA is administered through a single weekly intravenous infusion.
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In the United States and Europe, we believe that AATD is currently significantly under-diagnosed and under-treated. Based on information published by the Alpha-1 Foundation, there are approximately 100,000 people with AATD in the United States and about the same number in Europe, and we estimate, based on medical literature, that only approximately 10% of all potential cases of AATD are treated. We believe that the primary reasons for this significant gap are the non-availability of AAT products in many countries, under diagnosis of patients suffering from AATD, expensive and protracted registration processes required to commence sales of AAT products in new markets and the absence of insurance reimbursement in various countries. We expect diagnosis of AATD to continue to increase going forward as awareness of AATD increases. Based on a market analysis report from 2020, the estimated annual growth rate of currently approved AATD therapies in the U.S. and the five largest European countries is approximately 6-8%
According to the Centers for Medicare and Medicaid Services, published payment allowance limits for Medicare part B, the average sale price, as of January 2022, of 10 mg of GLASSIA is $4.982, resulting in an annual cost of between $80,000 and $120,000 per each AATD patient. In the United States, in some of the European countries and in Israel, we believe that the majority of the cost of treatment is covered by medical insurance programs.
GLASSIA was the first FDA-approved liquid AAT, which is ready for infusion and does not require reconstitution and mixing before infusion, as is required from most other competing products. Additionally, in June 2016, the FDA approved an expanded label of GLASSIA for self-infusion at home after appropriate training. GLASSIA has a number of advantages over other intravenous AAT products, including the reduction of the risk of contamination during the preparation and infection during the infusion, reduced potential for allergic reactions due to the absence of stabilizing agents, simple and easy use by the patient or nurse, and the possible reduction of the nurse’s time during home visits, in the clinic or in the hospital and the ability to self- infuse at home.
Currently, GLASSIA is registered in eleven countries, and is sold in four of those countries and also is sold in one additional country on a non-registered named-patient basis. The majority of sales of GLASSIA are in the United States, where GLASSIA was approved by the FDA in July 2010 and sales began in September 2010. As part of the approval, the FDA requested that we conduct post-approval Phase 4 clinical trials, as is common in the pharmaceutical industry, aimed at collecting additional safety and efficacy data for GLASSIA. According to our agreement with Takeda (See “— Strategic Partnerships — Takeda (Glassia).”), the Phase 4 clinical trials are financed and managed by Takeda, provided that if the cost of such Phase 4 clinical trials exceeds a pre-defined amount, we will participate in financing such trial up to a certain amount by offsetting such amounts from future milestones, sales of GLASSIA or royalties from Takeda. The first Phase 4 safety study completed enrollment of a total of 30 subject in the U.S. and Canada during 2020 and its clinical study report is being completed and is anticipated to be submitted to the FDA in the first half of 2022. The second Phase 4 efficacy study was initiated during 2016 and was terminated two years after initiation based on the Data and Safety Monitoring Board’s recommendation due to very low recruitment rates. During 2019, Takeda submitted a revised Phase 4 protocol to the FDA. Following several interactions with the FDA with respect to the Phase 4 efficacy study requirements, Takeda decided not to continue to pursue the study.
Through 2021, we marketed GLASSIA in the United States through our partnership with Takeda. Sales to Takeda accounted for approximately 25%, 49% and 54% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively. Takeda completed the technology transfer of GLASSIA manufacturing during 2021, received FDA approval for its own manufacturing and initiated its own production of GLASSIA for the U.S. market, Accordingly, based on the agreement between the companies, upon initiation of sales of GLASSIA manufactured by Takeda, it will, commencing 2022, pay royalties to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. While the transition to royalties’ phase will result in a reduction of our revenue from Takeda, we project, based on current GLASSIA sales in the U.S. and forecasted future growth, to receive royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040.
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KAMRHO (D)
KAMRHO (D), similar to WINRHO SDF, is indicated for (i) the prevention of hemolytic disease of the newborn (“HDN”), which is a blood disease that occurs where the blood type of the mother is incompatible with the blood type of the fetus; and (ii) a second line treatment of ITP, which is thought to be an autoimmune blood disease in which the immune system destroys the blood’s platelets, which are necessary for normal blood clotting. KAMRHO (D) is produced from hyper-immune plasma and is administered through intra-muscular injection (KAMRHO (D) IM) or through intravenous infusion (KAMRHO (D) IV).
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We have completed the registration process for Kam Rho (D) in several countries and we currently sell it in eight countries, including Israel, as well as countries in Latin America, Asia, Africa and Eastern Europe.
Snake Bite Antiserum
Our snake bite antiserum product is used for the treatment of people who have been bitten by the most common Israeli viper (Vipera palaestinae) and by the Israeli Echis (Echis coloratus). The venom of these snakes is poisonous and causes, among other symptoms, severe immediate pain with rapid swelling. These snake bites can lead to death if left untreated. Our snake bite antiserum is produced from hyper-immune serum that has been derived from horses that were immunized against Israeli viper and Israeli Echis venom. This product is the only treatment in the Israeli market for Vipera palaestinae and Echis coloratus snake bites.
We manufacture the snake bite antiserum pursuant to an agreement with the IMOH entered into in March 2009. We completed construction of the production facilities and laboratories for the product, and successfully passed the IMOH inspections. We began production of our snake bite antiserum in August 2011 and commenced sales to the IMOH in 2012. The sale of our snake bite antiserum to the IMOH is conducted on the basis of a tender, unless the IMOH grant an exemption from the tender. Our tender exemption from the IMOH was recently extended until 2025 and we have signed a new agreement with the IMOH.
Distribution Segment
Our Distribution segment is comprised of marketing and sales in Israel of pharmaceutical products manufactured by third parties. We engage third party manufacturers, register their products with the IMOH, import the products to Israel, market, sell and distribute them to local HMOs, hospitals and pharmacists. Our Distribution segment sales accounted for approximately 27%, 24% and 23% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. Our primary products in the Distribution segment include pharmaceuticals for critical care delivered by injection, infusion or inhalation. Currently, most of the revenues generated in our Distribution segment are from products produced from plasma or plasma-derivatives and are manufactured by European companies. IVIG is our primary product in the Distribution segment, comprising approximately 73%, 76% and 62% of total revenues in the Distribution segment for the years ended December 31, 2021, 2020 and 2019, respectively. Sales of IVIG accounted for approximately 20%, 19% and 14% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively.
Over the past several years we continued to extend our Distribution segment products portfolio to non-plasma derived products and in December 2019, we entered into an agreement with Alvotech, a global biopharmaceutical company, to commercialize Alvotech’s portfolio of six biosimilar product candidates in Israel, upon receipt of regulatory approval from the IMOH. We have recently added two additional products to the agreement, bringing the total number of products in the portfolio to eight. Alvotech’s pipeline includes biosimilar product candidates aimed at treating autoimmunity, oncology and inflammatory conditions. Subject to approval by the IMOH, we expect to launch the first of these products, Bonsity, in Israel during 2022. Bonsity is a biosimilar candidate to teriparatide, an FDA approved product marketed by Eli Lilly and Company under the brand name Forteo®/Forsteo® for the treatment of osteoporosis in patients with a high risk of fracture. Bonsity received FDA approval. Following receipt of the European Medicines Agency (“EMA”) marketing approval by Alvotech, the remaining seven products included in the agreement are, subject to approval by the IMOH, expected to be launched in Israel during the years 2023-2028. In addition, in January 2021, we announced our entering into agreements with two undisclosed international pharmaceutical companies to commercialize three additional biosimilar product candidates in Israel. Subject to approval by the EMA and subsequently by the IMOH, the three products are expected to be launched in Israel between 2022 and 2026. The two pharmaceutical companies will maintain development, manufacturing and supply responsibilities for these three products.
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Based on the projected list price reduction due to increased competition as a result of the launch of the biosimilar products, and anticipated market penetration potential, we estimate the potential aggregate peak revenues from the sale of all eleven products, achievable within several years of launch, to be more than $40 million annually.
The following table sets forth our primary products in the Distribution segment.
| Product | Indication | Active Ingredient | ||
| Respiratory | ||||
| BRAMITOB | Management of chronic pulmonary infection due to pseudomonas aeruginosa in patients six years and older with cystic fibrosis | Tobramycin | ||
| FOSTER | Regular treatment of asthma where use of a combination product (inhaled corticosteroid and long-acting beta2-agonist) is appropriate | Beclomethasone dipropionate, Formoterol fumarate | ||
| PROVOCHOLINE | Diagnosis of bronchial airway hyperactivity in subjects who do not have clinically apparent asthma | Methacholine Chloride | ||
| AEROBIKA | OPEP device | None | ||
| RUPAFIN | Symptomatic treatment of Allergic rhinitis and Urticaria | Rupatadine | ||
| Immunoglobulins | ||||
| IVIG | Treatment of various immunodeficiency-related conditions | Gamma globulins (IgG) (human) | ||
| VARITECT | Preventive treatment after exposure to the virus that causes chicken pox and zoster herpes | Varicella zoster immunoglobulin (human) | ||
| ZUTECTRA | Prevention of hepatitis B virus (HBV) re-infection in HBV-DNA negative patients 6 months after liver transplantation for hepatitis B induced liver failure | Human hepatitis B immunoglobulin | ||
| HEPATECT CP | Prevent contraction of Hepatitis B by adults and children older than two years | Hepatitis B immunoglobulin (human) | ||
| MEGALOTECT CP | Contains antibodies that neutralize cytomegalovirus viruses and prevent their spread in immunologically impaired patients | CMV immunoglobulin (human) | ||
| RUCONEST | Treatment of acute angioedema attacks in adults with hereditary angioedema (HAE) due to C1 esterase inhibitor deficiency | Conestat Alfa | ||
| Critical Care | ||||
| HEPARIN SODIUM INJECTION |
Treatment of thrombo-embolic disorders such as deep vein thrombosis, acute arterial embolism or thrombosis, thrombophlebitis, pulmonary embolism, fat embolism. Prophylaxis of deep vein thrombosis and thromboembolic events | Heparin sodium | ||
| ALBUMIN and ALBUMIN | Maintains a proper level in the patient’s blood plasma | Human serum Albumin | ||
| Coagulation Factors | ||||
| Factor VIII | Treatment of Hemophilia Type A diseases | Coagulation Factor VIII (human) | ||
| Factor IX | Treatment of Hemophilia Type B disease | Coagulation Factor IX (human) | ||
| Vaccinations | ||||
| IXIARO | Active immunization against Japanese encephalitis in adults, adolescents, children and infants aged 2 months and older |
Japanese encephalitis purified inactivated vaccine | ||
| VIVOTIF | Immunization against disease caused by Salmonella Typhi |
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Typhoid vaccine live oral
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Metabolic Disease
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| PROCYSBI | nephropathic cystinosis in adults and children 1 year of age and older | Cysteamine Biartrate | ||
| LAMZEDE | Treatment of alpha-mannosidosis | Velmanase alfa | ||
| Oncology | ||||
| ELIGARD | Management of advanced prostate cancer | Leuprolide acetate | ||
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Plasma Collection
As part of our strategy of evolving into a fully integrated specialty plasma company, we established Kamada Plasma LLC, a newly formed wholly owned subsidiary, which operates our plasma collection activity in the United States. In March 2021, we completed the acquisition of the FDA licensed plasma collection center and certain related assets from the privately held B&PR based in Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D products.
The acquisition of B&PR’s plasma collection center represented our entry into the U.S. plasma collection market. We intend to leverage this acquisition to enhance our self-sufficiency in terms of plasma supply needs as well as generate sales from commercialization of collected normal source plasma. We are in the process of significantly expanding our hyperimmune plasma collection capacity by investing in the acquired plasma collection center in Beaumont, Texas, while initiating a project to leverage our FDA plasma collection license to establish a network of new plasma collection centers in the United States, commencing in 2022, with the intention to collect normal source plasma for sale to other plasma-derived manufacturers, as well as hyperimmune specialty plasma required for manufacturing of our Proprietary products including KAMRAB/KEDRAB as well as for some of the products included in our recently acquired products portfolio.
Our Development Product Pipeline
Our research and development activities include conducting pre-clinical and clinical trials and other development activities for our Propriety pipeline products, improving existing products and processes, conducting development work at the request of regulatory authorities and strategic partners, as well as communicating with regulatory authorities in regard to our commercial products as well as our clinical programs. We incurred approximately $11.4 million, $13.6 million and $13.1 million in research and development expenses in the years ended December 31, 2021, 2020 and 2019, respectively.
We are in various stages of pre-clinical and clinical development of new product candidates for our Proprietary Products segment.
Inhaled Formulations of AAT for AATD
We are in the process of clinical development of an inhaled formulation of AAT administered through the use of a nebulizer. The nebulizer was developed by PARI. Inhaled AAT for AATD has been designated as an orphan drug for the treatment of AATD in the United States and Europe.
We have been able to leverage our expertise gained from the production of GLASSIA to develop a stable, high-purity Inhaled AAT product candidate for the treatment of AATD. Existing treatment for AATD require weekly intravenous infusions of AAT therapeutics. We believe that Inhaled AAT for AATD, if approved, will increase patient convenience and reduce or replace the need for patients to use intravenous infusions of AAT products, decreasing the need for clinic visits or nurse home visits, improving the patient’s quality of life and reducing medical costs.
If approved, Inhaled AAT for AATD is estimated to be the first AAT product that is not required to be delivered intravenously and instead is administered by a user-friendly, in once daily session.
The current standard care for AATD in the United States and in certain European countries is a weekly intravenous infusion of an AAT therapeutic. We estimate that only 2% of the AAT dose reaches the lung when administered intravenously. We have conducted a U.S. Phase 2 clinical study demonstrating that administration of an inhaled formulation of AAT through inhalation results in greater dispersion of AAT to the target lung tissue, including the lower lobes and lung periphery. Accordingly, the inhaled formulation of AAT requires a significantly lower therapeutic dose, and we believe it would be more effective in reducing inflammation of the lung tissue and inhibiting the uncontrolled neutrophil elastase that causes the breakdown of the lung tissue and the emphysema.
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Because of the smaller amount of AAT dose used in Inhaled AAT for AATD (since it is applied directly to the site of action rather than administered systematically), we believe that this product, if approved, will enable us to treat significantly more patients from the same amount of plasma and production capacity and may be more cost effective for patients and payors and may increase our profitability.
We conducted a double-blind randomized placebo controlled Phase 2/3 pivotal trial, under EMA guidance, which was completed at the end of 2013. A total of 168 patients participated in the trial in seven countries in Europe and Canada. Subjects in this trial were administered with a twice daily treatment of Inhaled AAT or equivalent dose of placebo for 50 consecutive weeks. The primary endpoint of the trial was the time from randomization to the first event-based exacerbation with a severity of moderate or severe. Other endpoints, which were secondary and tertiary, included additional exacerbation measures, lung function, lung density measured by CT scan and quality of life. The trial was 80% powered based on the number of exacerbation events collected in the study, in order to detect a difference between the two groups after 50 weeks. A 20% difference between the two groups was required to prove efficacy and was considered clinically meaningful, allowing the decision to prescribe the treatment. An open label extension of an additional 50 weeks on active drug was offered to study participants in most sites once they completed the initial 50-week period. Treatment in the open label extension of the trial was completed in November 2014.
This study did not meet its primary and secondary endpoints. However, lung function parameters, including Forced Expiratory Volume in One Second (“FEV1”) % of Slow Vital Capacity (“SVC”) and FEV1 % predicted, FEV1 (liters) which was collected to support safety endpoints, showed concordance of a potential treatment effect in the reduction of the inflammatory injury to the lung that is known to be associated with a reduced loss of respiratory function.
In accordance with guidance received following the meetings conducted with the European rapporteur and co-rapporteur, we performed several post hoc analyses. Results of the post hoc analyses indicated that after one year of daily inhalation of our Inhaled AAT, clinically and statistically significant improvements were seen in spirometric measures of lung function, particularly in bronchial airflow measurements FEV1 (L), FEV1% predicted and FEV1/SVC. These favorable results were even more evident when analyzing the overall treatment effect throughout the full year.
For lung function, overall effect for one year:
| ● | FEV1 (L) rose significantly in AAT treated patients and decreased in placebo treated patients (+15ml for AAT vs. -27ml for placebo, a 42 ml difference, p=0.0268) |
| ● | There was a trend towards better FEV1% predicted (0.54% for AAT vs. -0.62% for placebo, a 1.16% difference, p=0.065) |
| ● | FEV1/SVC% rose significantly in AAT treated patients and decreased in placebo treated patients (0.62% for AAT vs. -0.87% for placebo, a 1.49% difference, p=0.0074) |
For lung function change at week 50 vs. baseline:
| ● | There was a trend towards reduced FEV1 (L)decline (-12ml for AAT vs. -62ml for placebo, a 50 ml difference, p=0.0956) |
| ● | There was a trend towards a reduced decline in FEV1% predicted (-0.1323% for AAT vs. -1.6205% for placebo, a 1.4882% difference, p=0.1032) |
| ● | FEV1/SVC% rose significantly in AAT treated patients and decreased in placebo treated patients (0.61% for AAT vs. -1.07% for placebo, a 1.68% difference, p=0.013) |
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During March 2014, we initiated a Phase 2 trial in the United States. The trial was completed in May 2016. This trial was intended to serve as a supplementary trial to the European Phase 2/3 trial and was designed to incorporate parameters required by the FDA. This Phase 2, double-blind, placebo-controlled study explored the ELF and plasma concentration as well as safety of Inhaled AAT in AATD subjects. The subjects received one of two doses of Inhaled AAT or placebo. The study involved the daily inhalation of 80 mg or 160 mg of human AAT or placebo via the eFlow device for 12 weeks. Following the 12-week double blind period, the subjects were offered to participate in an additional 12 weeks open label period during which they receive only Inhaled AAT therapy. In December 2015, we completed the enrollment of patients in the study and in August 2016 we reported positive top-line results, according to which we met the primary endpoint.
AATD patients treated with our Inhaled AAT product in such U.S. Phase 2 clinical trial, demonstrated a significant increase in endothelial lining fluid (“ELF”) AAT antigenic level compared to the placebo group [median increase 4551 nM, p-value<0.0005 (80 mg/day, n=12), and 13454 nM, p-value<0.002 (160mg/day, n=12)]. These results are more than twice the increase of ELF antigenic AAT level (+2600 nM) observed in our previously completed intravenous AAT pivotal study (60mg/kg/week). Antigenic AAT represents the total amount of AAT in the lung, both active and inactive. The study results also showed that our Inhaled AAT is more efficient than IV to restore ELF AAT level within the lung. In addition, ELF Anti-Neutrophil Elastase inhibitory (“ANEC”) level also increased significantly [median increase 2766 nM, p-value<0.0005 (80mg/day) and 3557 nM, p-value<0.004 (160 mg/day)]. The increase in ELF ANEC level was also more than twice that demonstrated in our previously completed IV AAT pivotal study. The ANEC level represents the active AAT that can counterbalance further damage by neutrophil elastase.
The updated data included in our poster presentation of May 2017 demonstrated that ELF-AAT, neutrophil elastase (NE)-AAT and ANEC complexes concentration significantly increased in subjects receiving the 80 mg and 160 mg doses, (median increase of 38.7 neutrophil migration (nM), p-value<0.0005 (80 mg/day, n=12), and median increase of 46.2 nM, p-value<0.002 (160 mg/day, n=10)). This is a specific measure of the anti-proteolytic effect in the ELF and represents the amount of NE that was broken down by AAT. The increase in levels of functional AAT was six times higher (160 mg per day) than is achievable with intravenous (IV) AAT. In addition, ELF NE decreased significantly. Also, the 80 mg data demonstrated a significant reduction in the percentage of neutrophils. Finally, aerosolized M-specific AAT was detected in the plasma of all subjects receiving Inhaled AAT, consistent with what was seen in the Phase 2/3 clinical trial of our Inhaled AAT conducted in the EU.
We filed the MAA for our Inhaled AAT for AATD during the first quarter of 2016 and in June 2017 we withdrew the MAA, as following extensive discussions with the EMA we concluded that the EMA did not view the data submitted as sufficient, in terms of safety and efficacy, for approval of the MAA, and that the supplementary data needed for approval required an additional clinical trial. While the post-hoc data provided by us from the European clinical trial showed a statistically significant and clinically meaningful improvement in lung function, the EMA was of the opinion that an overall positive conclusion on the effect of Inhaled AAT for AATD could not be reached based on that post-hoc analysis, and that the treatment of AATD patients with our Inhaled AAT product should be further evaluated in the clinic in order to obtain comprehensive long-term efficacy and safety data. The EMA was of the opinion that the study failed to show sufficient beneficial effects in the population studied. In addition, there were concerns about the tolerability and safety profile of the AAT, mainly in patients with severe lung disease. In addition, the EMA raised concerns about the high rate of patients with antibodies (ADA) responding to AAT, which might reduce its effects or make patients more prone to allergic reactions, despite evidence that none of the patients with such ADA response had allergic reaction nor a lower level of AAT in the serum.
When we presented the data from the European Phase 2/3 study to the FDA, the agency expressed concerns and questions about that data, related to the safety and efficacy of Inhaled AAT for the treatment of AATD and the risk/benefit balance to patients based on that data and product characteristics. Following several discussions with the FDA and EMA, through which we provided both agencies additional data and information in response to their concerns and questions and addressed both agencies’ guidance with respect to our proposed subsequent phase 3 pivotal study protocol, we received positive scientific advice from the CHMP of the EMA related to the development plan for our proposed pivotal Phase 3 pivotal study for Inhaled AAT for AATD, and in April 2019, we received a letter from the FDA stating that we had satisfactorily addressed the concerns and questions with respect to the proposed Phase 3 clinical trial.
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Following that feedback from the FDA and the EMA we have initiated our Phase 3 InnovAATe study and during December 2019, we announced that the first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial evaluating the safety and efficacy of our proprietary inhaled AAT therapy for the treatment of AATD. The study is being led by Jan Stolk, M.D., Department of Pulmonology, Member of European Reference Network LUNG, Leiden University Medical Center, the Netherlands. InnovAATe is a randomized, double-blind, placebo-controlled, pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled AAT in patients with AATD and moderate lung disease. Up to 250 patients will be randomized 1:1 to receive either Inhaled AAT at a dose of 80mg once daily, or placebo, over two years of treatment. The primary endpoint of the InnovAATe trial is lung function measured by FEV1. Secondary endpoints include lung density changes as measured by CT densitometry, as well as other parameters of disease severity, such as additional pulmonary functions, exacerbation rate and six-minute walk test. The safety profile will be monitored continuously by a Data Monitoring Committee with predefined rules to be applied after the first 60 subjects have completed six months of treatment.
Enrolment in the pivotal Phase 3 InnovAATe clinical trial continued slowly in 2021 due to the impact of COVID-19 pandemic on healthcare systems. During the first half of 2022 we plan to open up to six additional sites in Europe in order to expand the recruitment efforts for this study. The first of the additional sites was opened during the second part of February 2022.
Prior to the initiation of the pivotal Phase 3 InnovAATe clinical trial we completed a Human Factor Study (HFS) to support the combination product, consisting of our Inhaled AAT and the investigational eFlow nebulizer system of PARI Pharma GmbH. Based on feedback received from the FDA, we conducted a subsequent HFS to support improved use regimen of the product and the improved use regimen was implemented in the InnovATTe study.
In addition to the pivotal study and based on feedback received from the FDA regarding anti-drug antibodies (ADA) to Inhaled AAT, we intend to concurrently conduct a sub-study in North America in which approximately 30 patients will be evaluated for the effect of ADA on AAT levels in plasma with Inhaled AAT and IV AAT treatments. We already obtained FDA acceptance of the protocol design for the study; however, initiation of this sub-study has been delayed due to the effect of the COVID-19 pandemic.
From a strategic standpoint, we continue to evaluate partnering opportunities for the development and commercialization of this important pipeline product.
Anti-SARS-CoV-2 IgG Product as a Potential Treatment for COVID-19
In response to the COVID-19 outbreak, in early 2020 we initiated the development of a human plasma-derived Anti-SARS-CoV-2 polyclonal immunoglobulin (IgG) product using our proprietary plasma derived IgG platform technology as a potential treatment for COVID-19. The development of our investigational Anti-SARS-CoV-2 IgG product is done with full cooperation with IMOH. The product is developed in line with the requirement of Ph Eur for IVIG product and based on our established technology platform for IgG, as approved in the United States, Israel and other international markets.
During April 2020, we announced a global collaboration with Kedrion for the development, manufacturing and distribution of our Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19 patients.
In June 2020, our Anti-SARS-CoV-2 IgG product became available for compassionate use treatment in Israel, and In August 2020, we initiated a Phase 1/2 open-label, single-arm, multi-center clinical trial in Israel of the product. A total of 12 eligible patients (age 34-69) were enrolled in the trial and received our product at a single dose of 4 grams IgG within five to 10 days of initial symptoms. Patient follow-up occurred for 84 days. In March 2021, we announced top-line results for the Phase 1/2 clinical trial, according to which symptoms improvement was observed in 11 of the 12 patients within 24 to 48 hours from treatment. Seven patients were discharged from the hospital at or before day 5 post-treatment and the remaining four patients were discharged by day 9. Following the infusion of the product anti-SARS CoV-2 IgG levels in the plasma of all patients increased. Our Anti-SARS-CoV-2IgG product demonstrated a favorable safety profile, and there were no infusion-related reactions or adverse events considered related to study drug. There were two serious adverse events in the study, both were considered not related to the study drug. One patient died on day 37 post treatment due to complications from COVID-19. Another patient was diagnosed post-discharge with pulmonary embolism on day 7 of the study. The patient was re-hospitalized, treated with anticoagulation therapy, recovered within two days, and was subsequently discharged from the hospital.
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In October 2020, we signed an agreement with the IMOH to supply our investigational Anti-SARS-CoV-2 IgG product for the treatment of COVID-19 patients in Israel. We manufactured the product, which was supplied to the IMOH, from convalescent plasma collected and supplied by the Israeli National Blood Services, a division of Magen David Adom (MADA), as well as plasma collected by Kedrion in the U.S. The order, supplied during 2021, was sufficient to treat approximately 500 hospitalized patients and generated approximately $3.9 million in revenue in 2021. The IMOH has initiated a multi-center clinical study through which our product is being administered. Based on information provided by the IMOH, the recruitment to this study was completed and the IMOH is in the process of analyzing its results. The supply of the product to the IMOH was not extended beyond the initial order.
Given the increased vaccination rate of the population as well as approvals of monoclonal antibodies for COVID-19, we are currently evaluating the market potential of this product, and the continuation of its development program.
Recombinant AAT
We are advancing the development of recombinant human Alpha 1 Antitrypsin (“rhAAT”) product. To ensure the success of this project, we have developed analytical tools (physicochemical, biochemical, and biological assays) that support the selection and characterization of the product. We are working with Cellca a CDMO located in Germany, part of Sartorius Stedim BioTech Group, to pursue the cell line development of the rhAAT in Chinese Hamsters Ovaries with the goal of developing high productivity and superior quality product. During 2021 we completed the final stages of clones selection and initiated in vitro and in vivo studies testing the biological activity of the product in various models. The pre-clinical work is performed in collaboration with relevant institutions in Europe and the US.
Liquid AAT for Organ Preservation Prior to Transplantation
AAT has been found to have anti-inflammatory, tissue-protective, immune-modulatory and anti-apoptotic properties. These characteristics may decrease tissue injury by lowering levels of pro-inflammatory cytokines and proteases associated with organ injury during harvest and transplantation, the prevalent causes of organ transplant rejection. Organ preservation methods pre-transplantation are continuously improving due to advanced technologies, such as ex-vivo perfusion systems.
We collaborated with Massachusetts General Hospital (“MGH”) in an investigator initiated, proof-of-concept study evaluating the potential benefit of AAT on liver preservation and transplant rejection prevention led by James F. Markmann, M.D., Ph.D., Chief, Division of Transplant Surgery, MGH, who is the Claude E. Welch Professor of Surgery at Harvard Medical School. The purpose of the study was to assess the effect of AAT on liver graft quality and viability and to evaluate the liver graft for markers of Ischemia-Reperfusion Injury (IRI) and tissue damage. In the first cohort of the study, organ viability parameters (e.g., liver function tests and hemodynamics, which represent risks for failure or dysfunction after transplantation), inflammatory pathway analysis and histology, were all measured and yielded positive trends. The second cohort of the study aimed to assess the effect of AAT with a different dosing. The study evaluated the effect of AAT on a liver graft once administered into an ex-vivo perfusion system.
With respect to the development of our rhAAT and organ preservation, our continued investment would be subject, among other things, to attracting strategic partner(s) to collaborate in the further development of those programs.
Strategic Partnerships
We currently have strategic partnerships with a number of different companies regarding the distribution and/or development of our products portfolio. Certain of the strategic partnerships relating to our Proprietary Products segment are discussed below.
Takeda (GLASSIA)
We have a partnership arrangement with Takeda that includes three main agreements: (1) an exclusive manufacturing, supply and distribution agreement, pursuant to which until November 2021 we manufactured GLASSIA for sale to Takeda for further distribution in the United States, Canada, Australia and New Zealand; (2) a technology license agreement, which grants Takeda licenses to use our knowledge and patents to produce, develop and sell GLASSIA; and (3) a fraction IV-I paste supply agreement, pursuant to which Takeda supplies us with fraction IV plasma, a plasma derivative, produced by Takeda, as discussed under “— Manufacturing and Supply — Raw Materials — Plasma derived Fraction IV paste for GLASSIA manufacturing Other than with respect to plasma-derived AAT administration by IV, we retain all rights, including distribution rights, to any other form of AAT administration, including Inhaled AAT for AATD.
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The agreements were originally executed with Baxter in August 2010. During 2015, Baxter assigned all its rights under the agreements to Baxalta, an independent public company which spun-off from Baxter. In 2016, Shire completed the acquisition of Baxalta, and as a result, all of Baxalta’s rights under the agreements were assigned to Shire. In January 2019, Takeda completed its acquisition of Shire, and all rights under the agreement transferred to Takeda.
Exclusive Manufacturing, Supply and Distribution Agreement
Pursuant to the exclusive manufacturing, supply and distribution agreement, as amended from time to time, Takeda was obligated to purchase a minimum amount of GLASSIA per year until the end of 2021. Under the agreement, Takeda is also obligated to fund required Phase 4 clinical trials related to GLASSIA up to a specified amount, and if the costs of such clinical trials are in excess of this amount, we agreed to fund a portion of the additional costs. We also undertook to reimburse Takeda for its GLASSIA marketing efforts up to a limited amount during the years 2017-2020.
In November 2021, pursuant to the technology license agreement described below, Takeda completed the technology transfer of GLASSIA manufacturing, and initiated its own production of GLASSIA for the U.S. market. Accordingly, we completed the supply of GLASSIA to Takeda and, while for a certain period of time we are still an approved supplier of the product, we do not anticipate continuing to manufacture and supply GLASSIA to Takeda under the exclusive manufacturing, supply and distribution agreement.
Technology License Agreement
The technology license agreement provides an exclusive license to Takeda, with the right to sub-license to certain manufacturing parties, of our intellectual property and know-how regarding the manufacture and additional development of GLASSIA for use in Takeda’s production and sale of GLASSIA in the United States, Canada, Australia and New Zealand. Pursuant to the technology license agreement, we are entitled to receive payments for the achievement of certain milestones for an aggregate of up to $20.0 million, of which $15.0 million are development-based milestones related to the transfer of technology to Takeda and $5.0 million are sales-based milestones. To date, we have received the total aggregate milestone payments under the agreement ($20 million). The terms of the final sales-based milestone of $5 million due under the license agreement were amended under an amendment to the license agreement entered into in March 2021, and we recognized this milestone during the first quarter of 2021.
During the fourth quarter of 2021 Takeda received an approval from Health Canada for the marketing and distribution of Glassia in Canada.
Pursuant to the technology license agreement, following the initiation of GLASSIA manufacturing by Takeda, and commencing during 2022, it will pay royalties to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually, for each of the years from 2022 to 2040.
Pursuant to the amendment to the license agreement entered into in March 2021, upon completion of the transition of GLASSIA manufacturing to Takeda, we will transfer to Takeda the GLASSIA U.S. BLA, in consideration of an additional $2 million payment from Takeda, payable upon acknowledgment by the FDA of effecting such transfer. The notice of transfer of the BLA to Takeda was submitted to the FDA during the fourth quarter of 2021 and FDA’s acknowledgment is expected to be received during the first half of 2022.
The intellectual property rights for any improvements on the manufacturing process or formulations that we disclose to Takeda belong to the party that develops the improvements, with each party agreeing to cross-license the developed improvements to the other party. We retain an option to license any intellectual property developed by Takeda under the agreement that is not considered an improvement on the licensed technology. Additionally, Takeda owns any intellectual property it develops using the licensed technology for new indications for the intravenous AAT product, for which we retain an option to license at rates to be negotiated. Any technology related to new indications for the intravenous AAT product developed by us during the royalty payments period will be part of the licensed technology covered by the technology license agreement.
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The technology license agreement expires in 2040. Either party may terminate the agreement, in whole or solely with respect to one or more countries covered by the distribution agreement, pursuant to customary termination provisions. Takeda also has the right to terminate the agreement, upon prior written notice, in the event that: (i) our manufacturing process technology for GLASSIA is determined to materially infringe upon a third party’s intellectual property rights, and we have not obtained a license to such third party’s intellectual property or provided an alternative non-infringing manufacturing process; (ii) there are certain decreases in GLASSIA sales in the United States unless such decreases are due to transfers to Inhaled AAT for AATD; or (iii) the regulatory approval process in the United States has been withdrawn or rejected as a result of our inaction or lack of diligent effort, provided such withdrawal or rejection was not primarily caused by the breach by Takeda of its obligations. We have the right to terminate the agreement, upon prior written notice: (i) if Takeda contests or infringes upon our intellectual property; (ii) if regulatory approval in one or more countries covered by the technology license agreement is withdrawn or rejected and not reversed, provided it was not primarily caused by the breach by us of our obligations; or (iii) in the event that GLASSIA produced by Takeda, other than as a result of our manufacturing process technology, is determined to materially infringe upon a third party’s intellectual property rights, provided that the termination right is limited only to the country in which such judgment is binding. Following any termination, other than expiration of the agreement, all licensed rights will revert to us. Upon expiration of the agreement, we are obligated to grant to Takeda a non-exclusive, perpetual, royalty free license.
Kedrion (KAMRAB/KEDRAB and Anti-SARS-CoV-2)
KAMRAB/KEDRAB
On July 18, 2011, we signed an agreement with Kedrion, an international pharmaceutical company engaged in the manufacture of life-saving drugs based on human plasma which complement our products, and which are marketed in Europe, the United States and approximately 40 other countries worldwide. The agreement provided for exclusive cooperation on completing the clinical development, and marketing and distribution of our anti-rabies immunoglobulin, KamRAB, in the United States under the name KEDRAB, if the product is approved. Pursuant to the agreement, Kedrion bore all the costs of the Phase 2/3 clinical trials in the United States of our product. Pursuant to the agreement, costs related to any Phase 4 clinical trials, if required, and the FDA Prescription Drug User fee that is required for all FDA new drug approvals, will be divided equally between us and Kedrion. An addendum to the agreement was executed dated as of October 15, 2016, with respect to the performance of a safety clinical trial for the treatment of pediatric patients in the United States. According to such addendum, we and Kedrion agreed to equally share the cost of such trial. A second addendum to the agreement was executed dated as of October 11, 2018, with respect to the purchase prices of KEDRAB under the agreement.
The agreement provides exclusive rights to Kedrion to market and sell KEDRAB in the United States. We retain intellectual property rights to KEDRAB. Kedrion is obligated to purchase a minimum amount of KEDRAB per year during the term of the agreement.
In April 2018, following the receipt of an FDA marketing authorization, we launched KEDRAB in the United States. For more information about the product see above “Item 4. Information on the Company — Proprietary Products Segment — Our Commercial Product Portfolio — Propriety Products — KAMRAB/KEDRAB”.
The term of the agreement is for six years commencing on the date by which KEDRAB U.S. launch was feasible (i.e., until March 2024). Kedrion has an option to extend the term by two additional years (i.e., until March 2026). In addition to customary termination provisions, Kedrion has the right to terminate the agreement, upon prior written notice, (i) for any reason after receipt of FDA approval, (ii) in the event that the FDA BLA is suspended or revoked and cannot be reinstated within a certain period of time, or (iii) a major regulatory change occurs that materially and adversely increases the clinical trial costs. We have the right to terminate the agreement in the event that (i) a major regulatory change occurs that materially and adversely increases the manufacturing costs of KEDRAB, (ii) a major regulatory change occurs that poses considerable difficulties on submission of an application for FDA approval or (iii) clinical trials are not initiated within a certain time after either receipt by Kedrion of enough product or FDA approval to begin clinical trials.
During April 2020, we announced a term sheet covering a global collaboration with Kedrion for the development, manufacturing and distribution of our Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19 patients. The parties agreed not to formalize this engagement in a definitive agreement until final decision on the progression of this development program.
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PARI
On November 16, 2006, we entered into a license agreement with PARI (the “Original PARI Agreement”) regarding the clinical development of an inhaled formulation of AAT, including Inhaled AAT for AATD, using PARI’s “eFlow” nebulizer. Under the Original PARI Agreement, we received an exclusive worldwide license, subject to certain preexisting rights, including the right to grant sub-licenses, to use the “eFlow” nebulizer, including the associated technology and intellectual property, for the clinical development, registration, and commercialization of inhaled formulations of AAT to treat AATD and respiratory deterioration, and to commercialize the device for use with such inhaled formulations. The agreement also provided for PARI’s cooperation with us during the pre-clinical phase and Phase 1 clinical trials of Inhaled AAT, where each of the parties was responsible for developing and adapting its own product and bore the costs involved.
Pursuant to the Original PARI Agreement, we agreed to pay PARI royalties from sales of Inhaled AAT, after certain deductions, at the rates specified in the agreement. We have agreed to pay PARI tiered royalties ranging from the low single digits up to the high single digits based on the annual net sales of inhaled formulations of AAT for the applicable indications. The royalties will be paid for each country separately, until the later of (1) the expiration of the last of certain specified patents covering the “eFlow” nebulizer, or (2) 15 years following the first commercial sale of an inhaled formulation of AAT in that country (the “PARI Royalty Period”). During the PARI Royalty Period, PARI is obligated to pay us specified percentages of its annual sales of the “eFlow” nebulizer for use with Inhaled AAT above a certain threshold defined in the agreement and after certain deductions.
On February 21, 2008, we entered into an addendum to the Original PARI Agreement (together with the Original PARI Agreement, the “PARI Agreement”), which extended the exclusive global license granted to us to use the “eFlow” nebulizer, including the associated technology and intellectual property, for the clinical development, registration and commercialization of Inhaled AAT for two additional indications of lung disease, namely cystic fibrosis and bronchiectasis. At present, the development of cystic fibrosis and bronchiectasis products is suspended as we prioritize other products Pursuant to the addendum, each party will be responsible for developing and adapting its own product for the additional indications and will bear the costs involved. Additionally, we and PARI will supply, each at its own expense, Inhaled AAT and the “eFlow” nebulizers, respectively, and in the quantities required for all phases of clinical studies worldwide. In addition, PARI will provide to us, at its expense, technical and regulatory support regarding the “eFlow” nebulizer. Sales of the inhaled formulation of AAT for the additional indications will be added to sales of the first two indications covered by the original agreement as the basis for calculating the royalties to be paid by us to PARI.
The PARI Agreement expires when the PARI Royalties Period ends. Either party can terminate the PARI Agreement upon customary termination provisions. Additionally, upon the occurrence of any one of the following events, PARI has the right to negotiate with us in good faith about whether to continue our collaboration: (i) PARI’s costs of the required clinical trials exceed a certain amount, unless we or a third party incurs such expenses on behalf of PARI; (ii) an inhaled formulation of AAT is not successfully registered with any regulatory authorities by 2016; (iii) there are no commercial sales of inhaled formulations of AAT within a certain period after successful registration with any regulatory authority; or (iv) we cease development of inhaled formulations of AAT for a certain period of time. If, within 180 days of PARI’s request to negotiate, we do not agree to continue the collaboration, PARI has the option either to render the license they grant to us non-exclusive or to terminate the agreement. We have the right to terminate the agreement, upon prior written notice, (i) in the event that the “eFlow” nebulizer is determined to infringe upon a third party’s intellectual property rights, (ii) an injunction barring the use of the “eFlow” nebulizer has been in place for a certain period of time, (iii) a clinical trial for inhaled formulations of AAT fails as a result of, after a cure period, the “eFlow” nebulizer not conforming to specifications or PARI’s inability to supply the “eFlow” nebulizer; or (iv) failure by PARI to register the “eFlow” nebulizer within a certain period of time after receiving Phase 3 results for Inhaled AAT for AATD. Following any termination, all licensed rights will revert to PARI, unless we terminate the agreement as a result of PARI’s bankruptcy, payment failure or material breach, in which case we retain the license rights to the “eFlow” nebulizer as long as we continue making royalty payments.
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In addition, in May 2019, we signed a Clinical Study Supply Agreement (“CSSA”) with PARI for the supply of the required quantities of PARI’s “eTrack” controller kits and the “PARItrack” web portal associated with PARI’s “eFlow” nebulizer required for our pivotal Phase 3 InnovAATe clinical trial and for the FDA required HFS. The CSSA is a supplement agreement to the Original PARI Agreement and will expire upon the expiration or termination of the Original PARI Agreement.
On February 21, 2008, we also signed a commercialization and supply agreement with PARI that provides for the commercial supply of the “eFlow” nebulizer and its spare parts to patients who are treated with the inhaled formulation of AAT, following its approval, either through its own distributors, our distributors or independent distributors in countries where PARI does not have a distributor. The commercialization and supply agreement expires upon the earlier of (1) the end of four years from (x) the end of the last PARI Royalties Period, or (y) the termination of the PARI Agreement by one party due to the other party declaring bankruptcy, failing to make a payment after a 30-day cure period or breach of a material provision after a 30-day cure period, or (2) the termination of the PARI Agreement pursuant to its terms, other than for reasons as previously described, in which case the commercialization and supply agreement terminates simultaneously with the PARI Agreement provided that PARI ensures availability of the “eFlow” nebulizer and its associated spare parts and service to anyone being treated with the inhaled formulation of AAT at the time of such termination, for the warranty period of the device or for a longer period, if required by the applicable law or the relevant regulatory authority.
Manufacturing and Supply
We have a production plant located in Beit Kama, Israel. We currently manufacture five of our proprietary plasma-derived commercial products in this facility: GLASSIA, KAMRAB/KEDRAB, KAMRHO(D)IM, KAMRHO(D)IV and two types of the snake bite antiserum product. We expect to complete the technology transfer process for CYTOGAM, which we acquired from Saol in November 2021, and initiate commercial manufacturing of the product at our facility by early 2023. We operate the main production facility on a campaign-basis so that at any time the facility is assigned to produce only one product. The division of facility time among the various products is determined based on orders received, sales forecasts and development needs. During each year we have routine maintenance shutdowns of our plant, which may last up to a few weeks. In addition, we periodically invest in upgrading infrastructures and adjusting capacity needs.
Our production plant passed various health authorities’ inspections. The plant was initially inspected by the U.S. FDA during 2010, and in March 2017 the FDA completed an inspection of our facility in connection with our GLASSIA and KEDRAB products with no critical observations. The Israeli MOH conducted a GMP inspections in each of 2011, July 2013, February 2016, November 2018, and December 2020 with no critical observations. In July 2018, Health Canada (the department of the government of Canada with responsibility for national public health) completed an audit in connection with the KamRAB product, with no critical observations. In February 2019, the Croatian health agency completed a GMP inspection of our facility in connection with GLASSIA and our Inhaled AAT for AATD product, with no critical observations. In March 2019, the Mexican heath agency completed a GMP inspection of our facility in connection with our KamRAB product, which concluded with no critical observations and with a dispute on required corrective actions. The Kazakhstan health agency also completed a GMP inspection in April 2019, with no critical observations.
Any changes in our production processes for our products must be approved by the FDA and/or similar authorities in other jurisdictions. From time to time, we make certain required modifications to our manufacturing process and are required to make certain filings to report such changes to the FDA and/or other similar authorities.
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Three of the products that we acquired from Saol in November 2021, HEPAGAM B, VARIZIG and WINRHO SDF, are manufactured by Emergent under a manufacturing services agreement we assumed as part of the acquisition of the portfolio from Saol. Under the agreement, Emergent serves as the exclusive manufacturer of the products in certain jurisdictions. The manufacturing services are performed at Emergent’s facilities in Winnipeg, Canada. The agreement is in effect until September 27, 2027 and may be terminated without cause by us upon at least two years advance notice or by Emergent upon at least three years advance notice or by us immediately in the event of a manufacturing failure (as defined in the agreement). We expect to continue manufacturing these products with Emergent in the foreseeable future, while initiating in parallel a technology transfer project for transitioning the manufacturing of these products to our manufacturing facility in Beit Kama, Israel. The initiation of such technology transfer project is subject to executing an amendment to the manufacturing services agreement with Emergent covering the technology transfer related services and scope. We anticipate that once initiated, such project may be completed within three to five years.
Raw Materials
The main raw materials in our Proprietary Products segment are hyper-immune plasma and fraction IV. We also use other raw materials, including both natural and synthetic materials. We purchase raw materials from suppliers who are regulated by the FDA, EMA and other regulatory authorities. Our suppliers are approved in their countries of origin and by the IMOH. The raw materials must comply with strict regulatory requirements. We require our raw materials suppliers to comply with the cGMP rules, and we audit our suppliers from time to time. We are dependent on the regular supply and availability of raw materials in our Proprietary Products segment.
We maintain relationships with several suppliers in order to ensure availability and reduce reliance on specific suppliers. We are dependent, however, on a number of suppliers who supply specialty ancillary products prepared for the production process, such as specific gels and filters. See “Item 3. Key Information — D. Risk Factors — We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”
In the years ended December 31, 2021, 2020 and 2019, we incurred $16.7 million, $22.9 million and $31.5 million of expenses for the purchase of raw materials, respectively.
Plasma derived Fraction IV paste for GLASSIA manufacturing
On August 23, 2010, in conjunction with the partnership arrangement with Takeda, we signed a fraction IV paste supply agreement with Takeda for the supply of fraction IV for use in the production of GLASSIA to be sold in the United States. Under this agreement, Takeda also supplies us with fraction IV to continue the development, pre-clinical and clinical studies of GLASSIA and other AAT derived products and for the production, sale and distribution of GLASSIA in jurisdictions other than those which are covered under the exclusive manufacturing, supply and distribution agreement with Takeda as well as for other AAT derived products (e.g., Inhaled AAT). Takeda receives no payment for the supply of fraction IV plasma to be used by us for the manufacture of GLASSIA to be sold to Takeda. If we require fraction IV for other purposes, we are entitled to purchase it from Takeda at a predetermined price.
The supply agreement terminates on August 23, 2040, subject to an option for earlier termination in the event of a material breach.
We have an additional fraction IV plasma supplier, approved for production of GLASSIA marketed in non-U.S. countries. We are in the process of exploring the feasibility and negotiating long-term supply agreements for fraction IV plasma with additional suppliers.
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Hyper-immune Plasma
We have a number of suppliers in the United States for hyper-immune plasma with which we have long-term supply agreements. Hyper-immune plasma is used for the production of KAMRAB/KEDRAB and KAMRHO(D), and for the products recently acquired from Saol, CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF. In addition to long-term supply agreements, we work to secure availability of hyper-immune plasma on an annual basis by providing forecasts to our suppliers based on our customers’ actual and forecasted orders. We continue to seek to enter into long-term supply agreements for hyper-immune plasma with additional plasma-collection companies.
In January 2012, we entered into a plasma purchase agreement with Kedplasma, a subsidiary of Kedrion, for the supply of anti-rabies hyper-immune plasma required for the manufacturing of KAMRAB (including for manufacturing of KEDRAB for sale to Kedrion for further distribution in the U.S. market). The agreement provides for a commitment to supply certain minimum annual quantities at predetermined prices. The agreement is being renewed every three years, and the parties agree on quantity and pricing terms in each renewal period.
CMV hyper-immune plasma for the manufacturing of CYTOGAM is supplied by CSL Behring Ltd. under a Plasma Supply Agreement for CMV Hyperimmune Plasma, dated August 2019, by and between CSL Plasma, Inc. and Saol which was assigned to us pursuant to the product acquisition. Pursuant to the manufacturing services agreement, Emergent (see above— “Manufacturing and Supply”), is currently responsible for securing the hyper-immune plasma from different plasma suppliers for the manufacturing of HEPAGAM B, VARIZIG and WINRHO SDF. As part of our plans to transition the manufacturing of HEPAGAM B, VARIZIG and WINRHO SDF to our manufacturing plant in Beit Kama, Israel, we intend to enter into long term plasma supply agreements with Emergent’ s current plasma suppliers and additional plasma suppliers in order to secure the plasma supply needed for the manufacturing of these products.
For information related to our internal plasma collection capabilities, see above “Plasma Collection”
Marketing and Distribution
We distribute our Proprietary products in more in 30 countries world-wide including the U.S., Canada, Russia, Argentina, Israel, India, Turkey, Australia and several other countries in Latin America, Asia, the Middle East and North Africa. In general, we distribute our products in these markets through strategic partners (e.g.,. Takeda and Kedrion in the U.S. market) and local distributers. We typically receive orders for our products and receive requests for participation in tenders for the supply of our products from our existing distributors as well as from new potential distributors.
Through 2021, we sold GLASSIA to Takeda for further distribution in the U.S. market and we sell the product to other distributors in non-U.S. countries. We sell KEDRAB to Kedrion for distribution in the U.S. market and sell KAMRAB and KAMRHO (D) to other distributers in non-U.S. countries. In the Israeli market, we sell and distribute GLASSIA, KAMRAB/KEDRAB and KAMRHO (D) independently to local HMOs and medical centers, or through a logistic partner company that specializes in the supply of equipment and pharmaceuticals to healthcare providers, and in addition we sell our anti-snake venom to the IMOH.
We distribute CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF in the U.S. market directly to wholesalers and local distributors, through our wholly-owned US subsidiary, Kamada Inc. Through the term of the transition services agreement, we currently rely on Saol to manage and oversee the U.S. distribution of these products. In preparation for assuming all distribution responsibilities, Kamada Inc. is in the process of engaging a local U.S. third-party logistics (3PL) provider, which is expected to provide complete order to cash services. For the distribution of our products in the U.S. market, we are also responsible for marketing activities, price determination, provision of rebates and credits as well as mandatory pricing reporting requirements. We distribute these products in non-U.S. countries, primarily Canada, the Middle East and North Africa (“MENA”), through local distributors.
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We intend to leverage our existing strong international distribution network to expand the sales of CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF to existing markets we currently operate in and furthermore, we intend to explore the expansion of sales of our products, primarily GLASSIA and KAMRAB/KEDRAB to the new international markets we assumed following the acquisition of the new product portfolio, primarily in the MENA region.
Outside the U.S. market, our distributors, sell our products through a tender process and/or the private market. The tender process is conducted on a regular basis by the distributors, sometimes on an annual basis. For existing distributors, our existing relationship does not guarantee additional orders in these tenders. The decisive parameter is generally the price proposed in the tender. The distributor purchases products from us and sells them to its customers (either directly or by means of sub-distributors). In most cases, we do not sign agreements with the end users, and as such, we do not fix the price to the end user or its terms of payment and are not exposed to credit risks of the end users. In the vast majority of cases, our agreements with the local distributors award the various distributors exclusivity in the distribution of our products in the relevant country, if permitted. The distribution agreements are, usually made for a specific initial period and are subsequently renewed for certain agreed periods, where the parties have the right to cancel or renew the agreements with prior notice of several months. In these markets, we do not actively participate in the marketing to the end users, except for supplying marketing assistance where the cost is negligible or in some cases, reimburse the local distributor for an agreed amount of its actual marketing expenses.
Most of our sales outside of Israel are made against open credit and some in documentary credit or advance payment. Most of our sales inside Israel are made against open credit or cash. The credit given to some of our customers abroad (except for sales in documentary credit or advanced payment) is mostly secured by means of a credit insurance policy and in certain cases with bank guarantees.
In the Distribution segment, we market our products in Israel to HMOs and hospitals on our own or through third party logistic associates. We sell certain of our Distribution segment products through offers to participate in public tenders that occur on an annual basis or through direct orders. The public tender process involves HMOs and hospitals soliciting bids from several potential suppliers, including us, and selecting the winning bid based on several attributes, the primary attributes are generally price and availability. The annual public tender process is also used by our existing customers to determine their suppliers. As a result, our existing relationships with customers in our Distribution segment do not guarantee additional orders from such customers year to year.
To secure supply of our products in the Distribution segment, we enter into supply and distribution agreements with the product manufacturers, pursuant to which we undertake to register the products with the IMOH, acquire certain quantity of products and act as the product distributor in the Israeli market. We work closely with those suppliers to develop annual forecasts, but these forecasts usually do not obligate our suppliers to provide us with their products.
Customers
For the year ended December 31, 2021, sales to our three largest customers, Takeda, Kedrion and Clalit Health Services, an Israeli HMO, accounted for 31%, 12% and 12%, respectively, of our total revenues. For the year ended December 31, 2020, sales to our three largest customers, Takeda, Kedrion and Clalit Health Services, accounted for 49%, 14% and 10%, respectively, of our total revenues. For the year ended December 31, 2019, sales to Takeda, Kedrion and Clalit Health Services accounted for 54%, 13% and 11%, respectively, of our total revenues.
Historically, Takeda and Kedrion have been our major customers in the Proprietary Products segment. Our other key customers in the Proprietary Products segment includes PAHO and our distributors in Argentina, Russia, Thailand, India, Brazil, Canada and other territories as well as HMOs and medical centers in Israel. Following the assumption of the sales and distribution responsibilities for CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF. our core customers list will be increased by eight U.S. based wholesalers, two Canadian customers and several distributors in other territories, mainly in the MENA region. These arrangements are further described above under “— Marketing and Distribution.”
Our primary customers in the Distribution segment in Israel are HMOs, including Clalit Health Services and Maccabi Healthcare Services, as well as hospitals in Israel.
Competition
The worldwide market for pharmaceuticals in general, and biopharmaceutical and plasma products in particular, has undergone in recent years a process of mergers and acquisitions among companies active in such markets. This trend has led to a reduction in the number of competitors in the market and the strengthening of the remaining competitors, mainly for specific immunoglobulin products.
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Proprietary Products Segment
We believe that there are several competitors for each of our products in the Proprietary Products segment. These competitors include CSL Behring Ltd., Grifols S.A. (which acquired a previous competitor, Talecris Biotherapeutics, Inc. in 2011), Octapharma and Kedrion (other than for KEDRAB). These competitors are multi-national companies that specialize in plasma derived protein therapeutics and are distributing their plasma derived pharmaceutical products worldwide. We have not seen significant changes in the activities of our competitors in recent years. Additionally, our strategic alliance with Kedrion in the United States has strengthened our KEDRAB competitive positioning in the market. The recent acquisition of Biotest by Grifols and the recently announced potential merger between Kedrion and BPL might have an effect on competition landscape.
In addition, we face potential competition from other pharmaceutical companies who develop and market non-plasma derived products that are approved for similar indications as our Proprietary products.
Our competitors have advantages in the market because of their size, financial resources, markets and the duration of their activities and experience in the relevant market, especially in the United States and countries of the European Union. Most of them have an additional advantage regarding the availability of raw materials, as they fractionate plasma internally and own plasma collection centers and/or companies that collect or produce raw materials such as plasma.
The following describes details known to us about our most significant competitors for each of our main Proprietary Products segment products.
KAMRAB/KEDRAB. We believe that there are two main competitors for this anti-rabies product worldwide: Grifols, whose product we estimate comprises of approximately 70%-80% of the anti-rabies market in the United States, and CSL, which sells its anti-rabies product in Europe and elsewhere. Sanofi Pasteur, the vaccines division of Sanofi S.A., has a product registered in the United States market, but the product is primarily sold in Europe and not currently sold in significant quantities in the United States. BPL is currently in clinical development of an anti-rabies product for the U.S. market. There are a number of local producers in other countries that make similar anti-rabies products. Most of these products are based on equine serum, which we believe results in inferior products, as compared to products made from human plasma. Over the past several years, a number of companies have made attempts, and some are still in the process of developing monoclonal antibodies for an anti-rabies treatment. The first monoclonal antibody product was approved and is available in India. These products may be as effective as the currently available plasma derived anti-rabies immunoglobulin and may potentially be significantly cheaper, and as such may result in the future loss of market share of KAMRAB/KEDRAB.
CYTOGAM. To our knowledge, CYTOGAM is the only plasma derived CMV IgG product approved in the US and Canada. Based on available public information, the FDA approved antiviral drugs for the prevention of CMV infection and disease, Letermovir (Prevymis), developed by Merck & Co., and for treatment of refractory infection or disease Maribavir (Livtencity), developed by Takeda, and may result in the loss of market share for CYTOGAM. Currently, treatment guidelines state that combination therapy with standard antiviral can be considered for certain solid organ transplant recipients. The most commonly used antivirals are: Ganciclovir (Cytovene-IV Roche), Valgnciclovir (Valcyte Roche) and Valacyclovir (Valtrex GSK). Patients treated with such antivirals for a long time can develop resistance and will require a second line treatment such as Foscarnet (Foscavir Pfizer). In Europe and few ROW markets Biotest AG sells a competing CMV IgG product.
WINRHO SDF. In the United States, WINRHO SDF competes with corticosteroids (oral prednisone or high-dose dexamethasone) or IVIG (Grifols, CSL and Takeda are the main manufacturers in the U.S.) as first line treatment of acute ITP.IVIG has similar efficacy to WINRHO SDF, and ITP is a labeled indication. Rhophylac (CSL Behring) is also approved for ITP treatment, but we believe it is mostly used for Hemolytic Disease of the Newborn (HDN), due to its comparatively small vial size. For HDN indication, the market is usually led by tenders, where key indicators are registration status and price, and the main multiple competitors in Canada and ROW countries are RhoGAM (Kedrion), Hyper RHO (Grifols) and Rhophylac (CSL Behring) and our KAMRHO (D).
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HEPAGAM B. HEPAGAM B is the only approved HBIG with an on-label indication for Liver Transplants in the United States. To our understanding, HEPAGAM B holds the majority market share for the indication, while another HBIG (Nabi-B marketed by ADMA) is being used off-label by some medical centers for the indication. In recent years the duration of treatment has been reduced by physicians. New generation antivirals are considered effective for preventing HBV reactivation post-transplant, reducing HBIG use. Post-exposure prophylaxis (PEP) indication in the United States is covered almost totally by Nabi-B (ADMA) and HyperHEP (Grifols). In Canada, the main competition in national tenders is HypeHEP. In ROW countries, such as Turkey, Saudi-Arabia and Israel, HEPATECT CP (Biotest AG) represents the main competition.
VARIZIG. In the United States, incidence of Varicella Zoster Virus (“VZV”) infection has decreased significantly since the introduction of the varicella vaccine in 1995. Two vaccines containing varicella virus are licensed for use in the United States. Varivax is the single-antigen varicella vaccine. ProQuad is a combination measles, mumps, rubella, and varicella (MMRV) vaccine. Although the use of the vaccine has reduced the frequency of chickenpox, the virus has not been eradicated. Moreover, incidence of Herpes Zoster, also caused by VZV, is increasing among adults in the United States. Suboptimal vaccination rates contribute to outbreaks and increased risk of VZV exposure. Immunocompromised population and other patient groups are at high risk for severe varicella and complications, after being exposed to VZV. To our knowledge, VariZIG is the only plasma-derived IgG product approved in the US and Canada for its indication. It is recommended by the Centers for Disease Control (CDC) for post-exposure prophylaxis of varicella for persons at high risk for severe disease who lack evidence of immunity to varicella. In ROW markets, several plasma derived competitor products are available, such as VARITECT (Biotest AG) and others.
GLASSIA. GLASSIA has several competitors, including plasma derived companies such as Grifols, CSL and Takeda, all of which have competing plasma derived AAT products approved for AATD and are marketed in the U.S. as well in some countries in the EU. We estimate that: Grifols’ AAT by infusion product for the treatment of AATD, Prolastin, accounts for at least 50% market share in the United States and more than 70% of sales worldwide. In September 2017, Grifols announced that the FDA approved a liquid formulation of its AAT product. Apart from its sales of the past Talecris product, Grifols is also a local producer of an additional AAT product, Trypsone, which is marketed in Spain and in some Latin American countries, including Brazil. CSL’s AAT by IV product, Zemaira, is mainly sold in the United States, and during 2015 received centralized marketing authorization approval in the European Union. CSL launched the product in few selected EU markets during 2016 under the brand name Respreeza. Takeda is our strategic partner for sales of GLASSIA and it also serves existing patients in the United States with its own proprietary product, Aralast. As far as we know, Takeda is selling both products in the United States, and maintaining existing patients on Aralast. In addition, we are aware of a local producer of AAT in the French market, Laboratoire Français du Fractionnement et des Biotechnologies, S.A. (LFB). We do not believe any new suppliers are expected to enter the United States market for plasma derived AAT by infusion in the near future.
In addition, there are several other competitors in pre-clinical and clinical stage such as Inhibrx, Mereo, PH Pharma, Centessa and Vertex Pharmaceuticals, all of which have clinical stage programs for new medications for treatment of AATD lung disease. Based on available public information, Inhibrx, a California based company, is in early clinical development of INBRX-101 a recombinantly produced AAT replacement protein specifically designed to address some limitations of plasma derived AAT replacement therapy. The modifications introduced into INBRX-101 aim to improve the pharmacokinetic profile (PK) and obliterate inactivation through oxidation. This could offer superior clinical activity to the current commercial plasma derived AAT by providing sustained enhanced serum concentration with a less frequent, monthly dosing regimen. Mereo, a UK based company, is in phase 2 development of MPH-966 as an oral neutrophil elastase inhibitor being explored for the potential treatment of AATD. PH Pharma has a similar oral anti elastase, PH-201 entering phase 2 development. Vertex, a Boston, MA headquartered company, is in pre-clinical development of a small molecule utilizing a correction approach to prevent protein misfolding in the liver of AATD patients, which can otherwise aggregate and ultimately be pro-inflammatory in the liver. Vertex believes small molecule correctors for protein misfolding could address both liver and lung disease manifestations, possibly avoiding the need for conventional augmentation therapy, further differentiating its product candidates as a novel therapeutic approach. Clinical development of the corrector candidate VX-864 has been discontinued. Centessa pharma is in phase I clinical development of another corrector candidate. Apic Bio, a Boston, MA based company is in pre-clinical stage development of APB-101 a “liver-sparing” gene therapy designed for treatment of Alpha-1 patients. In pre-clinical studies, APB-101 demonstrated the ability to reduce levels of the mutant Alpha-1 protein (Z-AAT) and at the same time program liver cells to produce the correct Alpha-1 protein (M-AAT).These product candidates, if approved, may have an adverse effect on the AATD market and reduce or eliminate the need for the currently approved plasma derived AAT augmentation therapy, and thus may affect our ability to continue and generate revenues and earnings from our GLASSIA. In addition, these product candidates, if approved, may have a negative effect on our ability to continue the development of our Inhaled AAT, and if approved, to market Inhaled AAT and obtain a meaningful market share.
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KAMRHO(D). KAMRHO(D) is a similar product to WINRHO SDF. While the two products are not currently registered in similar markets, they face similar competition in the markets in which they are registered. See WINRHO SDF above for information regarding competition.
Distribution Segment
There are a number of companies active in the Israeli market distributing the products of several manufacturers whose comparable products compete with our products in the Distribution segment. In the plasma area, these manufacturers include Grifols, Takeda, CSL, Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company), while in other specialties and biosimilar products we may be competing against products produced by some of largest pharmaceutical manufacturers in the world, such as, Novartis AG, AstraZeneca AB, Sanofi UK and GlaxoSmithKline. These competing manufacturers have advantages of size, financial resources, market share, broad product selection and extensive experience in the market, although we believe that we have established strong expertise in the Israeli market. Each of these competitors sells its products through a local subsidiary or a local representative in Israel.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we sell and are developing. Except for compassionate use or non-registered named-patient cases, any pharmaceutical candidate that we develop must be approved by the FDA before it may be legally marketed in the United States and by the appropriate regulatory agencies of other countries before it may be legally marketed in such other countries. In addition, any changes or modifications to a product that has received regulatory clearance or approval that could significantly affect its safety or effectiveness or would constitute a major change in its intended use, may require the submission of a new application in the United States and/or in other countries for pre-market approval. The process of obtaining such approvals can be expensive, time consuming and uncertain.
U.S. Drug Development Process
In the United States, pharmaceutical products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. All of our products for human use and product candidates in the United States, are regulated by the FDA as biologics. Biologics require the submission of a BLA and approval or license by the FDA prior to being marketed in the United States. Manufacturers of biologics may also be subject to state regulation. Failure to comply with regulatory requirements, both before and after product approval, may subject us and/or our partners, contract manufacturers and suppliers to administrative or judicial sanctions, including FDA delay or refusal to approve applications, warning letters, product recalls, product seizures, import restrictions, total or partial suspension of production or distribution, fines and/or criminal prosecution.
The steps required before a biologic drug may be approved for marketing for an indication in the United States generally include:
| 1. | preclinical laboratory tests and animal tests; |
| 2. | submission to the FDA of an IND application for human clinical testing, including required CMC sections, which must become effective before human clinical trials may commence; |
| 3. | adequate and well-controlled human clinical trials to establish the safety and efficacy of the product; |
| 4. | submission to the FDA of a BLA or supplemental BLA, with all the required information; |
| 5. | FDA pre-approval inspection of product manufacturers; and |
| 6. | FDA review and approval of the BLA or supplemental BLA. |
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Preclinical studies include laboratory evaluation, as well as animal studies to assess the potential safety and efficacy of the product candidate. Preclinical safety tests must be conducted in compliance with FDA regulations regarding good laboratory practices. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND which must become effective before human clinical trials may be commenced. The IND will automatically become effective 30 days after receipt by the FDA, unless the FDA before that time raises concerns about the drug candidate or the conduct of the trials as outlined in the IND. The IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials or that, once commenced, other concerns will not arise that could lead to a delay or a hold on the clinical trials.
Clinical trials involve the administration of the investigational product to healthy volunteers or to patients, under the supervision of qualified principal investigators. Each clinical study at each clinical site must be reviewed and approved by an independent institutional review board, prior to the recruitment of subjects. Numerous requirements apply including, but not limited to, good clinical practice regulations, privacy regulations, and requirements related to the protection of human subjects, such as informed consent.
Clinical trials are typically conducted in three sequential phases, but the phases may overlap and different trials may be initiated with the same drug candidate within the same phase of development in similar or differing patient populations.
| ● | Phase 1 studies may be conducted in a limited number of patients, but are usually conducted in healthy volunteer subjects. The drug is usually tested for safety and, as appropriate, for absorption, metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics. |
| ● | Phase 2 usually involves studies in a larger, but still limited, patient population to evaluate preliminarily the efficacy of the drug candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible short-term adverse effects and safety risks. |
| ● | Phase 3 trials are undertaken to further evaluate clinical efficacy of a specific endpoint and to test further for safety within an expanded patient population at geographically dispersed clinical study sites. |
Phase 1, Phase 2 or Phase 3 testing may not be completed successfully within any specific time period, if at all, with respect to any of our product candidates. Results from one trial are not necessarily predictive of results from later trials, the FDA may require additional testing or a larger pool of subjects beyond what we proposed as the clinical development process proceeds, thereby requiring more time and resources to complete the trials. Furthermore, the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk, or may not allow the importation of the clinical trial materials if there is non-compliance with applicable laws.
The results of the preclinical studies and clinical trials, together with other detailed information, including information on the manufacture and composition of the product, are submitted to the FDA as part of a BLA requesting approval to market the product candidate for a proposed indication. Under the Prescription Drug User Fee Act, as amended, the fees payable to the FDA for reviewing a BLA, as well as annual fees for commercial manufacturing establishments and for approved products, can be substantial. The BLA review fee alone can exceed $2,800,000, subject to certain limited deferrals, waivers and reductions that may be available. Each BLA submitted to the FDA for approval is typically reviewed for administrative completeness and reviewability within 45 to 60 days following submission of the application. If found complete, the FDA will “file” the BLA, thus triggering a full review of the application. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission. The FDA’s established goals are to review and act on 90% of priority BLA applications and priority original efficacy supplements within six months of the 60-day filing date and receipt date, respectively. The FDA’s goals are to review and act on 90% of standard BLA applications and standard original efficacy supplements within 10 months of the 60-day filing date and receipt date, respectively. The FDA, however, may not be able to approve a drug within these established goals, and its review goals are subject to change from time to time. Further, the outcome of the review, even if generally favorable, may not be an actual approval but an “action letter” that describes additional work that must be done before the application can be approved. Before approving a BLA, the FDA may inspect the facilities at which the product is manufactured or facilities that are significantly involved in the product development and distribution process, and will not approve the product unless cGMP compliance is satisfactory. The FDA may deny approval of a BLA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any application may include many delays or never be granted. If a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, will require that warning statements be included in the product labeling, may impose additional warnings to be specifically highlighted in the labeling (e.g., a Black Box Warning), which can significantly affect promotion and sales of the product, may require that additional studies be conducted following approval as a condition of the approval, may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. To market a product for other uses, or to make certain manufacturing or other changes requires prior FDA review and approval of a BLA Supplement or new BLA. Further post-marketing testing and surveillance to monitor the safety or efficacy of a product is required. Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing problems occur following initial marketing. In addition, new government requirements may be established that could delay or prevent regulatory approval of our product candidates under development.
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As part of the Patient Protection and Affordable Care Act (the “healthcare reform law”), Public Law No. 111-148, under the subtitle of Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), a statutory pathway has been created for licensure, or approval, of biological products that are biosimilar to, and possibly interchangeable with, earlier biological products approved by the FDA for sale in the United States. Also under the BPCIA, innovator manufacturers of original reference biological products are granted 12 years of exclusive use before biosimilars can be approved for marketing in the United States. There have been proposals to shorten this period from 12 years to seven years. The objectives of the BPCI are conceptually similar to those of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the “Hatch-Waxman Act,” which established abbreviated pathways for the approval of drug products. A biosimilar is defined in the statute as a biological product that is highly similar to an already approved biological product, notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biosimilar and the approved biological product in terms of the safety, purity, and potency. Under this approval pathway, biological products can be approved based on demonstrating they are biosimilar to, or interchangeable with, a biological product that is already approved by the FDA, which is called a reference product. If we obtain approval of a BLA, the approval of a biologic product biosimilar to one of our products could have a significant impact on our business. The biosimilar product may be significantly less costly to bring to market and may be priced significantly lower than our products.
Both before and after the FDA approves a product, the manufacturer and the holder or holders of the BLA for the product are subject to comprehensive regulatory oversight. For example, quality control and manufacturing procedures must conform, on an ongoing basis, to cGMP requirements, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to spend time, money and effort to maintain cGMP compliance. In addition, a BLA holder must comply with post-marketing requirements, such as reporting of certain adverse events. Such reports can present liability exposure, as well as increase regulatory scrutiny that could lead to additional inspections, labeling restrictions, or other corrective action to minimize further patient risk.
Special Development and Review Programs
Orphan Drug Designation
The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States and there is no reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the United States. In the United States, orphan drug designation must be requested before submitting a BLA or supplemental BLA.
In the European Union, the Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union community. Additionally, this designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product.
We received an orphan drug designation in the United States and Europe for multiple indications. Inhaled AAT for AATD has received an orphan drug designation in the United States and Europe. The inhaled formulation of AAT for the treatment of cystic fibrosis has received an orphan drug designation in the United States and Europe. The inhaled formulation of AAT for the treatment of bronchiectasis has received an orphan drug designation in the United States. The additional indication for GLASSIA for the treatment of newly diagnosed cases of Type-1 Diabetes has received an orphan drug designation in the United States. In addition, the indication for AAT for the treatment of Graft versus Host Disease has received an orphan drug designation in the United States and Europe, and the indication for AAT for the treatment of Prophylactic Graft versus Host Disease has received an orphan drug designation in the United States.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product and its active ingredients receive the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. In addition, the FDA may rescind orphan drug designation and, even with designation, may decide not to grant orphan drug exclusivity even if a marketing application is approved. Furthermore, the FDA may approve a competitor product intended for a non-orphan indication, and physicians may prescribe the drug product for off-label uses, which can undermine exclusivity and hurt orphan drug sales. There has also been litigation that has challenged the FDA’s interpretation of the orphan drug exclusivity regulatory provisions, which could potentially affect our ability to obtain exclusivity in the future.
In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity or a safer, more effective or otherwise clinically superior product is available.
In the European Union, an application for marketing authorization can be submitted after the application for orphan drug designation has been submitted, while the designation is still pending, but should be submitted prior to the designation application in order to obtain a fee reduction. Orphan drug designation does not convey any advantage in except eligibility to conditional approval process, or shorten the duration of, the regulatory review and approval process.
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Post-Approval Requirements
Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA. Certain requirements include, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information on an annual basis or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), and other promotional activities. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse publicity, warning letters from or other enforcement by the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not encourage, market or promote such off-label uses.
The manufacturing of our product candidates is required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. Our product candidates are either manufactured at our production plant in Beit Kama, Israel, or, for products where we have entered into a strategic partnership with a third party to cooperate on the development of a product candidate, at a third-party manufacturing facility. These regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of comprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are also required to register their establishments and list any products they make with the FDA and to comply with related requirements in certain states. These entities are further subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in serious and extensive restrictions on a product, manufacturer or holder of an approved BLA, as well as lead to potential market disruptions. These restrictions may include suspension of a product until the FDA is assured that quality standards can be met, continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval, including possible user fees.
The FDA also may require a Boxed Warning (e.g., a specific warning in the label to address a specific risk, sometimes referred to as a “Black Box Warning”), which has marketing restrictions, and post-marketing testing, or Phase 4 testing, as well as a Risk Evaluation and Minimization Strategy (REMS) plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of the product.
Other U.S. Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Federal Trade Commission, the U.S. Department of Justice and individual United States Attorney’s offices within the Department of Justice, state attorneys general and state and local governments. To the extent applicable, we must comply with the fraud and abuse provisions of the Social Security Act, the federal False Claims Act, the privacy and security provisions of the Health Insurance Portability and Accountability Act, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended, as well as the “Anti-Kickback Law” provisions of the Social Security Act. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Under the Veterans Health Care Act (“VHCA”), drug companies are required to offer certain pharmaceutical products at a reduced price to a number of federal agencies, including the United States Department of Veterans Affairs and United States Department of Defense, the Public Health Service and certain private Public Health Service-designated entities in order to participate in other federal funding programs including Medicare and Medicaid. Legislative changes have purported to require that discounted prices be offered for certain United States Department of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations. Furthermore, the FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. The failure to comply with laws governing international business practices may result in substantial penalties, including civil and criminal penalties.
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In order to distribute products commercially, we must comply with federal and state laws and regulations that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors which ship products into the state even if such manufacturers or distributors have no place of business within the state. Federal and some state laws also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. Additionally, the federal Physician Payments Sunshine Act and implementing regulations promulgated pursuant to Section 6002 of the healthcare reform law requires the tracking and reporting of certain transfers of value made to U.S. physicians and/or certain teaching hospitals as well as ownership by a physician or a physician’s family member in a pharmaceutical manufacturer. The Sunshine Act requirements were expanded in January 2021 to include physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists & anesthesiologist assistants, and certified nurse-midwives as covered recipients. Finally, all of our activities are potentially subject to federal and state consumer protection and unfair competition laws. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state, and federal authorities.
On August 6, 2020, the President of the United States issued the Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States (Executive Order 13944), which required the U.S. government to purchase “essential” medicines and medical supplies produced domestically, rather than abroad. Subsequently, on October 30, 2020 the FDA published a list of essential medicines, medical countermeasures, and critical inputs as required by Executive Order. The FDA has identified around 227 drugs and 96 devices, along with their respective critical inputs or active ingredients, that the FDA believes “are medically necessary to have available at all times” for the public health. Agencies across the federal government are expected to implement the “Buy American” priorities of the Executive Order through initiation of procurement strategies to help strengthen U.S. manufacturing capabilities and focus their efforts and attention on mobilizing domestic production of these specific items. This includes the FDA accelerating approval and clearance of domestically produced medicines and countermeasures, and it may also include contract awards to specific vendors to speed up domestic production. Rabies immune globulin, such as KEDRAB, is included in the list, and given that KEDRAB is manufactured outside the United States, implementation of the “Buy American” priorities of the Executive Order may affect our ability to continue selling the product to governmental agencies in the U.S. market or otherwise require us to invest in acquiring manufacturing capabilities for the product in the U.S., either directly or through contract manufacturing arrangements.
On November 27, 2020, the U.S. Trade Representative submitted a proposal to withdraw these drugs and medical devices identified by the FDA from U.S. commitments under the World Trade Organization Government Procurement Agreement (WTO GPA). On April 20, 2021, President Joe Biden ultimately withdrew this proposal. The withdrawal of this proposal allows the U.S. government to continue purchasing foreign-made drugs and medical devices as permitted under the Trade Agreements Act, and effectively counter’s President Trump’s August 2020 Executive Order directing the government to purchase domestically-produced essential drugs and medical devices. However, on January 25, 2021, President Joe Biden issued the Executive Order on Ensuring the Future Is made in All of America by All of America’s Workers (Executive Order 14005) to maximize the use of goods, products, materials produced in, and services offered in the United States, which may affect FDA-related products. The full effect of the Executive Order and the withdrawal of the WTO proposal on our commercial operations and results of operations cannot currently be estimated.
Europe/Rest of World Government Regulation
In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products.
Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. For example, in the European Union, a clinical trial application (“CTA”) must be submitted to each member state’s national health authority and an independent ethics committee. The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement of a clinical trial in the member state. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications either under a centralized, decentralized or national procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases, and optional for those products that are highly innovative or for which a centralized process is in the interest of patients. For our products and product candidates that have received or will receive orphan designation in the European Union, they will qualify for this centralized procedure, under which each product’s marketing authorization application will be submitted to the EMA. Under the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Scientific Advice Working Party of the Committee of Medicinal Products for Human Use (“CHMP”)). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease, such as heavy disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.
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The decentralized procedure provides possibility for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all member states.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America, Asia and Israel, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of product candidates for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the coverage and reimbursement decisions made by payors. In the United States, third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
Several significant laws have been enacted in the United States which affect the pharmaceutical industry and additional federal and state laws have been proposed in recent years. For example, as a result of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), a Medicare prescription drug benefit (Medicare Part D) became effective at the beginning of 2006. Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease. Medicare coverage and reimbursement for some of the costs of prescription drugs may increase demand for any products for which we receive FDA approval. However, we would be required to sell products to Medicare beneficiaries through entities called “prescription drug plans,” which will likely seek to negotiate discounted prices for our products.
Federal, state and local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation and regulation could further limit payments for pharmaceuticals such as the product candidates that we are developing. In addition, court decisions have the potential to affect coverage and reimbursement for prescription drugs. It is unclear whether future legislation, regulations or court decisions will affect the demand for our product candidates once commercialized.
As another example, in March 2010, Former President Obama signed into law the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 (collectively referred to as the “health care reform law”). The health care reform law made significant changes to the United States healthcare system, such as imposing new requirements on health insurers, expanding the number of individuals covered by health insurance, modifying healthcare reimbursement and delivery systems, and establishing new requirements designed to prevent fraud and abuse. In addition, provisions in the health care reform law promote the development of new payment and healthcare delivery systems, such as the Medicare Shared Savings Program, bundled payment initiatives and the Medicare pay for performance initiatives.
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The health care reform law and the related regulations, guidance and court decisions have had, and will continue to have, a significant impact on the pharmaceutical industry. In addition to the general reforms briefly described above, provisions of the health care reform law directly address drugs. For example, the health care reform law:
| ● | increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%; |
| ● | requires Medicaid rebates for covered outpatient drugs to be extended to Medicaid managed care organizations; |
| ● | requires manufacturers of drugs covered under Medicare Part D to participate in a coverage gap discount program, under which they must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible Medicare beneficiaries during their coverage gap period; and |
| ● | imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs. |
On April 1, 2016, final regulations issued by the Centers for Medicare and Medicaid Services to implement the changes to the Medicaid Drug Rebate Program under the healthcare reform law became effective.
Some provisions of the healthcare reform law have yet to be fully implemented, and the Former President Donald Trump has vowed to repeal the healthcare reform law. On January 20, 2017, the Former President Donald Trump signed an executive order stating that the administration intended to seek prompt repeal of the healthcare reform law, and, pending repeal, directed by the U.S. Department of Health and Human Services and other executive departments and agencies to take all steps necessary to limit any fiscal or regulatory burdens of the healthcare reform law. On October 12, 2017, the Former President Trump signed another Executive Order directing certain federal agencies to propose regulations or guidelines to permit small businesses to form association health plans, expand the availability of short-term, limited duration insurance, and expand the use of health reimbursement arrangements, which may circumvent some of the requirements for health insurance mandated by the healthcare reform law. The U.S. Congress has also made several attempts to repeal or modify the healthcare reform law. In addition, there is ongoing litigation regarding the implementation and constitutionality of the healthcare reform law. While the law is still in effect pending the ultimate resolution of the litigation, the outcome of the litigation is unknown and cannot be predicted. It is uncertain whether new legislation will be enacted to replace the healthcare reform law and whether any such legislation would affect coverage and reimbursement for prescription drugs or otherwise include provisions intended to limit the growth of healthcare costs.
Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure of healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any drug candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Intellectual Property
Our success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws, know-how, intellectual property licenses and other contractual rights (including confidentiality and invention assignment agreements) to protect our intellectual property rights.
Patents
As of December 31, 2021, we owned for use within our field of business twelve families of patents and patent applications, all of which are granted or pending, respectively, in the United States, most were also filed in Europe, Canada and Israel and some were additionally filed in Russia, Turkey, certain Latin American countries, Australia and other countries, three pending PCT applications. At present, one patent family protecting our manufacturing process of GLASSIA is considered to be material to the operation of our business as a whole. Such patent has been issued in a variety of jurisdictions, including Australia, Austria, Belgium, Canada, Denmark, Estonia, Israel, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Slovenia, Poland, Spain, Portugal, Sweden, Switzerland, Turkey, the United Kingdom and the United States, and is due to expire in 2024. Furthermore, we own a patent family filed in 2018, protecting our manufacturing process of immunoglobulins. This patent family includes pending applications in the U.S., Canada, Europe and Israel.
Our patents generally relate to the separation and purification of proteins and their respective pharmaceutical compositions. Our patents and patent applications further relate to the use of our products for a variety of clinical indications, and their delivery methods. Our patents and patent applications are expected to expire at various dates between 2024 and 2040. We also rely on trade secrets to protect certain aspects of our separation and purification technology.
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The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or any patent applications that we license will result in the issuance of any patents and there is no guarantee that patent applications that were filed with the patent offices, which are still pending, will be eventually granted and will be registered. Additionally, our issued patents and those that may be issued in the future may be challenged, opposed, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. We cannot be certain that we were the first to file the inventions claimed in our owned patents or patent applications. In addition, our competitors or other third parties may independently develop similar technologies that do not fall within the scope of the technology protected under our patents, or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors. Furthermore, because of the extensive time required for research and development, testing and regulatory review of a potential product until authorization for marketing, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
Trademarks
We rely on trade names, trademarks and service marks to protect our name brands. Our registered trademarks in several countries, such as United States and the European Union, Israel, and certain Latin American countries, include the trademarks CYTOGAM, GLASSIA, HepaGam, KAMRAB, KEDRAB, KAMADA, KamRHO, KamRHO-D, Rebinolin, RESPIKAM, RESPIRA, VariZIG and WinRho. Regarding the trademarks of CYTOGAM, WinRho, Hepagam and VariZIG we are in a process of transferring such trademarks to be registered in our name.
Trade Secrets and Confidential Information
We rely on, among other things, confidentiality and invention assignment agreements to protect our proprietary know-how and other intellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. For example, we require our employees, consultants and service providers to execute confidentiality agreements in connection with their engagement with us. Under such agreement, they are required, during the term of the commercial relationship with us and thereafter, to disclose and assign to us inventions conceived in connection with their services to us. However, there can be no assurance that these agreements will be fulfilled or shall be enforceable, or that these agreements will provide us with adequate protection. See “Item 3. Key Information — D. Risk Factors — In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.”
We may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more comprehensive summary of the risks related to our intellectual property, see “Item 3. Key Information — D. Risk Factors.”
Property
Our production plant was built on land that Kamada Assets (2001) Ltd. (“Kamada Assets”), our 74%-owned subsidiary, leases from the Israel Land Administration pursuant to a capitalized long-term lease. Kamada Assets subleases the property to us. The property originally covered an area of approximately 16,880 square meters. The initial sublease expires in 2058 and we have an option to extend the sublease for an additional term of 49 years. Pursuant to a new area outline approved by the Israel Lands Administration, the covered area was reduced to 14,880 square meters. The production plant includes our manufacturing facility, manufacturing support systems, packaging, warehousing and logistics areas, laboratory facilities and an area for the manufacture of snake bite anti-serum, as well as office buildings.
In addition, we lease approximately 2,200 square meters of a building located in the Kiryat Weizmann Science Park in Rehovot, Israel. This property houses our head office, research and development laboratory and additional departments such as clinical operations, medical, regulatory compliance, sales and marketing and business development. We sublease approximately 500 square meters of such premises to a third-party lessee.
As part of the acquisition of the FDA licensed and certain related assets from the privately held B&PR, we acquired a 237 square meters facility in Beaumont, TX, which we use as a plasma collection center. In addition, during 2021, and in preparation of the establishment of our U.S. commercial operations, we leased a two room office facility within a shared office facility in Hoboken, NJ.
Environmental
We believe that our operations comply in material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our earnings or competitive position.
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Organizational Structure
Our significant subsidiaries are set forth below. All subsidiaries are either 100 percent owned by us or controlled by us. All companies are incorporated and registered in the country in which they operate as listed below:
| Legal Name | Jurisdiction | |
| KI Biopharma LLC | Delaware, USA | |
| Kamada Inc. | Delaware, USA | |
| Kamada Plasma LLC | Delaware (wholly owned by Kamada Inc.), USA | |
| Kamada Assets (2001) Ltd. | Israel | |
| Kamada Ireland Limited | Ireland |
Legal Proceedings
We are subject to various claims and legal actions during the ordinary course of our business. We believe that there are currently no claims or legal actions that would have a material adverse effect on our financial position, operations or potential performance.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual Report.
The audited consolidated financial statements for the years ended December 31, 2021, 2020 and 2019 in this Annual Report have been prepared in accordance with IFRS as issued by the IASB. None of the financial information in this Annual Report has been prepared in accordance with U.S. GAAP.
Overview
We are a vertically integrated global biopharmaceutical company, focused on specialty plasma-derived therapeutics, with a diverse portfolio of marketed products, a robust development pipeline and industry-leading manufacturing capabilities. Our strategy is focused on driving profitable growth from our current commercial activities as well as our manufacturing and development expertise in the plasma-derived and biopharmaceutical markets.. We operate in two segments: the Proprietary Products segment, which includes our plasma-derived biopharmaceuticals products including the following six FDA-approved products KEDRAB, CYTOGAM, HEPGAM B, VARIZIG, WINRHO SDF and GLASSIA that we market in 30 countries; and the Distribution segment, in which we leverage our expertise and presence in the Israeli market by distributing more than 20 pharmaceutical products manufactured by third parties for use in Israel.
Our Commercial Activities
In November 2021, we acquired a portfolio of four FDA approved plasma-derived hyperimmune commercial products – CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. The combined annual global revenue of the acquired portfolio in 2021 was approximately $41.9 million, of which our revenue was approximately $5.4 million and represents the sales generated from the date of consummation of the transaction through December 31, 2021. Approximately 75% and 21% of the annual sales of the acquired portfolio generated in the U.S. and Canada, respectively.
In addition to the recently acquired products portfolio, our Proprietary products includes GLASSIA, KAMRAB/KEDRAB, KAMRHO (D) IM and IV, as well as two types of anti-snake venom derived from equine plasma.
We market GLASSIA in the United States through a strategic partnership with Takeda. Our 2021 revenues from the sale of GLASSIA to Takeda totaled $26.2 million, as compared to $64.9 million and $68.1 million during 2020 and 2019, respectively. In addition, during 2021 we recognized as revenues $5.0 million on account of a sales milestone due from Takeda. The decrease in GLASSIA sales to Takeda in 2021 is associated with the completion of the transition of the product manufacturing to Takeda. Commencing in 2022, Takeda will pay royalties, on sales of GLASSIA manufactured by Takeda, to us at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. We expect to receive royalties from Takeda in the range of $10 million to $20 million per year for 2022 to 2040. We also market GLASSIA in other counties through local distributors. Total revenues derived from sales of GLASSIA in all other countries during 2021 was $7.6 million, as compared to $5.5 million and $5.5 million during 2020 and 2021, respectively.
We market KAMRAB in the United States under the trademark “KEDRAB” through a strategic distribution and supply agreement with Kedrion. Our 2021 revenues from sales of KEDRAB to Kedrion totaled $11.9 million as compared to $18.3 million and $16.4 million during 2020 and 2019, respectively. The reduction of sales of KEDRAB to Kedrion during 2021 was a result of relatively higher level of inventory of product at Kedrion as of December 31, 2020, which was due to reduced KEDRAB sales by Kedrion during 2020 as a result of the effect of the COVID-19 pandemic.
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Our 2021 revenues from the sales of the remaining Proprietary products, including KAMRAB (outside the U.S. market), KAMRHO (D) IM and IV, the anti-snake venom, as well as our development stage Anti-SARS-CoV-2 IgG product totaled $18.4 million, as compared to $11.2 million and $7.1 million during 2020 and 2019, respectively.
Our Distribution segment is comprised of sales in Israel of pharmaceutical products manufactured by third parties. Most of the revenues generated in our Distribution segment are from plasma-derived products manufactured by European companies, and the plasma-derived products sales represented approximately 84%, 89% and 81% of our Distribution segment revenues for the years ended December 31, 2021, 2020 and 2019, respectively. Over the past several years we continued to extend our Distribution segment products portfolio to non-plasma derived products, including recently entering into an agreement with Alvotech and two additional entities for the distribution in Israel of eleven different biosimilar products which, subject to EMA and subsequently IMOH approvals, are expected to be launched in Israel between the years 2022 and 2028. We estimate the potential aggregate maximum revenues, achievable within several years of launch, generated by the distribution of all eleven biosimilar products to be in more than $40 million annually.
In March 2021, we completed the acquisition of the FDA licensed plasma collection center and certain related assets from the privately held B&PR based in Beaumont, Texas, which specializes in the collection of hyper-immune plasma used in the manufacture of Anti-D products. We are in the process of significantly expanding our hyperimmune plasma collection capacity by investing in this plasma collection center in Beaumont, Texas, and initiated a project to leverage our FDA license to establish a network of new plasma collection centers in the United States, with the intention to collect normal source as well as hyperimmune specialty plasma required for manufacturing of our other Proprietary products including KAMRAB/KEDRAB as well as for some of the products included in our recently acquired products portfolio.
In addition to our commercial operation, we invest in research and development of new product candidates, including our leading investigational product Inhaled AAT for AATD, for which we are continuing to progress the InnovAATe clinical trial, a randomized, double-blind, placebo-controlled, pivotal Phase 3 trial, as well as several other product candidates. For additional information regarding our research and development activities, see “— Our Development Product Pipeline.”
We currently expect to generate fiscal year 2022 total revenues in a range of $125 million to $135 million which would represent a 20% to 30% growth compared to fiscal year 2021. We also anticipate generating EBITDA, during 2022, at a rate of 12% to 15% of total revenues, representing more than 2.5x of the EBITDA for the year ended December 31, 2021.
COVID-19 Pandemic Effects
The global COVID-19 pandemic affected economic activity worldwide and led, among other things, to a disruption in the global supply chain, a decrease in global transportation, restrictions on travel and work that were announced by the State of Israel and other countries worldwide as well as a decrease in the value of financial assets and commodities across all markets in Israel and the world. As a result of the COVID-19 pandemic, we’ve experienced a reduction in inbound and outbound international delivery routes, which have caused, delays in receipt of raw material and shipment of finished product. Our business activity and commercial operations were affected by these factors, and we have taken several actions to ensure our manufacturing plant remains operational with limited disruption to our business continuity. We increased our inventory levels of raw materials through our suppliers and service providers to appropriately manage any potential supply disruptions and secure continued manufacturing. In addition, we are actively engaging freight carriers to ensure inbound and outbound international delivery routes remain operational and identify alternative routes, if needed. We comply with the State of Israel mandates and recommendations with respect to work-force management and we have taken several precautionary health and safety measures to safeguard our employees continue to monitor and assess orders issued by the State of Israel and other applicable governments to ensure compliance with evolving COVID-19 guidelines.
COVID-19 related disruption had various effect on our business activities, commercial operation, revenues and operational expenses. However, as a result of the actions taken, our overall results of operations for the year ended December 31, 2021 were not materially affected. While there is an evident trend of recovery from the pandemic due to the increased vaccination rate of the population, a number of factors including, but not limited to, continued demand for our commercial products, availability of raw materials, financial conditions of our customer, suppliers and services providers, our ability to manage operating expenses, additional competition in the markets that we compete in, regulatory delays, prevailing market conditions and the impact of general economic, industry or political conditions in the U.S., Israel or otherwise, may have an effect on our future financial position and results of operations. The financial impact of these factors cannot be reasonably estimated at this time due to substantial uncertainty but may materially affect our business, financial condition, and results of operations. We assess the impact of COVID-19 in several possible scenarios and concluded that there are no uncertainties that may cast significant doubt on our ability to continue as a going concern or affect significantly on our liquidity.
Key Components of Our Results of Operations
Business Combination
In November 2021, we acquired a portfolio of the following four FDA approved plasma-derived hyperimmune commercial products from Saol: CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF. For the period commencing on November 22, 2021 and ending on December 31, 2021, the acquired portfolio contributed $5.4 million and $3.6 million in revenues and gross profit, respectively. If the acquisition had occurred on January 1, 2021, management estimates that portfolio contribution would have been $41.9 million in revenues and $ 6.8 million to the net income.
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Under the terms of the agreement, we paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration subject the achievement of sales thresholds for the period commencing on the acquisition date and ending on December 31, 2034. We may be entitled for up to $3 million credit deductible from the contingent consideration payments due for the years 2023 through 2027, subject to certain conditions as defined in the agreement between the parties. In addition, we acquired inventory and agreed to pay the consideration to Saol in ten quarterly installments of $1.5 million each or the remaining balance at the final installment. We estimated the fair value of the contingent consideration and the deferred inventory consideration on the acquisition date at $21.7 million and $13.8 million, respectively.
Pursuant to an earlier engagement with Saol, during 2019, we initiated technology transfer activities for transitioning CYTOGAM manufacturing to our manufacturing facility in Beit Kama, Israel. Through November 22, 2021, we received from Saol a total of $3.8 million in consideration with respect to the technology transfer activities performed. As a result of the consummation of the Saol transaction such previous engagement with Saol expired and the received consideration was accounted for as settlement of preexisting relationship.
The following table details the total acquisition consideration:
| USD in thousands | ||||
| Cash paid at closing | $ | 95,000 | ||
| Contingent consideration liability | 21,705 | |||
| Deferred inventory consideration | 13,788 | |||
| Settlement of preexisting relationship | (3,786 | ) | ||
| Total acquisition cost | 126,707 | |||
The acquisition was categorized as business combination and accounted for by applying the acquisition method, pursuant to which we identified and valued the acquired assets and assumed liabilities. The excess amount of the acquisition cost over the net value of the acquired assets and assumed liabilities is recorded as goodwill.
The following acquired assets, and their respective fair value as of the acquisition date were identified Inventory: $22.8 million, Customer Relations $33.5 million, Intellectual Property $79.1 million and Assumed Contract Manufacturing Agreement $8.5 million.
We assumed certain of Saol’s liabilities for the future payment of royalties (some of which are perpetual) and milestone payments to a third parties subject to the achievement of corresponding CYTOGAM related net sales thresholds and milestones. The fair value of such assumed liabilities at the acquisition date was estimated at $47.2 million. Such assumed liabilities include:
| ● | Royalties: 10% of the annual global net sales of CYTOGAM up to $25.0 million and 5% of net sales that are greater than $25.0 million, in perpetuity; 2% of the annual global net sales of CYTOGAM in perpetuity; and 8% of the annual global net sales of CYTOGAM for period of six years following the completion of the technology transfer of the manufacturing of CYTOGAM to us, subject to a maximum aggregate of $5.0 million per year and for total amount of $30.0 million throughout the entire six years period. |
| ● | Sales milestones: $1.5 million in the event that the annual net sales of CYTOGAM in the United States market exceeds $18.8 million during the twelve months period ending June 30, 2022; and, $1.5 million in the event that the annual net sales of CYTOGAM in the United States market exceeds $18.4 million during the twelve months period ending June 30, 2023. |
| ● | Milestone: $8.5 million upon the receipt of FDA approval for the manufacturing of CYTOGAM at Company’s manufacturing facility. |
The following table details the fair value of the identified assets and liabilities as of the acquisition date (for further details refer to Note 5 of the audited consolidated financial statements for the years ended December 31, 2021 included elsewhere in this Annual Report):
Fair value in thousands | ||||
| Inventory | 22,849 | |||
| Customer Relations | 33,514 | |||
| Intellectual Property | 79,141 | |||
| Assumed Contract Manufacturing Agreement | 8,519 | |||
| Assumed liability | (47,213 | ) | ||
| Net identifiable assets | 96,810 | |||
| Goodwill arising on acquisition | 29,897 | |||
| Total acquisition cost | 126,707 | |||
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Intangible assets with a finite useful life are amortized on a straight-line basis over its useful life (estimated 6-20 years). Intangible assets and goodwill are reviewed for impairment whenever there is an indication that the asset may be impaired.
Revenues
In our Proprietary Products segment, we generate revenues from the sale of products to strategic partners (i.e., Takeda and Kedrion), wholesalers in the U.S. market, HMOs and local hospitals and distributors in other ROW markets. Revenues from our Proprietary Products segments also include a recognized portion of prior upfront and milestone and royalty payments from strategic partners. Revenues are presented net of any discounts and/or marketing contribution payments extended to our partners and distributors.
We have historically derived a significant portion of our total revenues from sales of GLASSIA to Takeda. However, as a result of the transition of GLASSIA manufacturing to Takeda in 2021, revenues from the sale of GLASSIA to Takeda decreased in 2021. Sales to Takeda accounted for approximately 25%, 49% and 54% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively. Revenue from all sales of GLASSIA comprised approximately 34%, 53% and 58% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. Sales of KEDRAB to Kedrion during the years ended December 31, 2021, 2020 and 2019 accounted for approximately 12%, 14%, and 13% of our total revenues, respectively. Sales from CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF for the year ended December 31, 2021, accounted 5% of our total revenues, which represent sales we generated between November 22, 2021, and December 31, 2021.
In our Distribution segment, we generate revenues from the sale in Israel of imported products produced by third parties. Sales of IVIG accounted for approximately 20%, 19% and 14% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively.
We derived approximately 48%, 64% and 66% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively, from sales in the United States and North America, approximately 35%, 27% and 25% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively, from sales in Israel (including both sales for our Proprietary Products segment and the Distribution segment), approximately 5%, 3% and 4% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively, from sales in Europe, approximately 3%, 1% and 2% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively, from sales in Asia (excluding Israel), and approximately 9%, 5% and 3% of our total revenues in the years ended December 31, 2021, 2020 and 2019, respectively, from sales in Latin America.
Cost of Revenues
Cost of revenues in our Proprietary Products segment includes expenses related to the manufacturing of products such as raw materials (including plasma), payroll, utilities, laboratory costs and depreciation. In addition, part of the cost of revenues derived from payment on account of manufacturing services provided by third parties. Cost of revenues also includes provisions for the costs associated with manufacturing scraps and inventory write-offs.
Cost of revenues includes depreciation costs recognized pursuant to the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. Intangible assets which depreciation is accounted for in the costs of revenues include the acquired products intellectual property and an assumed contract manufacturing agreement.
A significant portion of our manufacturing costs are for raw materials consisting of plasma or fraction IV of plasma. In order to ensure the availability of plasma and fraction IV, we have secured the supply of plasma and fraction IV from multiple suppliers, including from Takeda for the manufacturing of GLASSIA and from Kedrion for the manufacturing of KEDRAB. We intend to secure long term plasma supply agreements with other suppliers to support manufacturing needs for CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, and we plan to leverage the recent acquisition of the plasma collection center to become independent in terms of plasma supply needs.
Costs of revenues in our Distribution segment consists of costs of products acquired, packaging and labeling for sales by us in Israel.
Gross Profit
Gross profit is the difference between total revenues and the cost of revenues. Gross profit is mainly affected by volume and mix of sales, as well as manufacturing efficiencies, cost of raw materials and plant maintenance and overhead costs.
Our gross margins in our Proprietary Products segment, which were 36%, 43% and 46% for the years ended December 31, 2021, 2020 and 2019, respectively, are generally higher than in our Distribution segment, which were 11%, 14% and 15% for the years ended December 31, 2021, 2020 and 2019, respectively.
The reduction in gross profitability during the year ended December 31, 2021, in the Propriety Products segment was mainly as a result of changes in product sales mix, specifically the reduction of GLASSIA sales to Takeda, as well as reduced plant utilization. The reduction in gross profitability in our Distribution segment during 2020 was a result of a change in product sales mix which was driven by demand changes driven by the effects of the COVID-19 pandemic.
Research and Development Expenses
The development of pharmaceutical products, including plasma-derived protein therapeutics, is characterized by significant up-front product development costs. Research and development expenses are incurred for the development of new products and newly revised processes for existing products and includes expenses for pre-clinical and clinical trials, development activities in the different fields, the advanced understanding of the mechanism of action of our products, improving existing products and processes, development work at the request of regulatory authorities and strategic partners, as well as communication with regulatory authorities related to our commercial products and clinical programs. In addition, such expenses include development materials, payroll for research and development personnel, including scientists and professionals for product registration and approval, external advisors and the allotted cost of our manufacturing facility for research and development purposes. While research and development expenses are unallocated on a segment basis, the activities generally relate to our existing or in development proprietary products.
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Product development costs may fluctuate from period to period, as our product candidates proceed through various stages of development. We expect to continue to incur research and development expenses related to clinical trials, as well as other ongoing, planned or future clinical trials with regard to our product pipeline. See “Item 4. Information on the Company — Our Product Pipeline and Development Program.”
In order to reduce costs related to the development and regulatory approval of new protein therapeutics, in some cases we seek to share development costs with strategic partners, such as Takeda for the required post marketing clinical trials for GLASSIA in the United States, Kedrion for the clinical trials for KEDRAB in the United States required for product approval and post marketing commitments. See “Item 4. Information on the Company — Strategic Partnerships.” In addition, we seek grants from dedicated governmental funds for partial funding for development projects.
Selling and Marketing Expenses
Selling and marketing expenses principally consist of compensation for employees in sales and marketing related positions, expenditures incurred for sales incentive, advertising, marketing or promotional activities, shipping and handling costs, product liability insurance and business development activities, as well as marketing authorization fees to regulatory agencies, including the FDA.
Selling and marketing expenses includes depreciation costs of intangible assets recognized pursuant to the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. Intangible assets which depreciation is accounted for in the selling and marketing expenses include customer relations.
General and Administrative Expenses
General and administrative expenses consist of compensation for employees in executive and administrative functions (including payroll, bonus, equity compensation and other benefits), office expenses, professional consulting services, public company related costs, directors’ and officer’s liability insurance and other insurance costs, legal, audit fees, other professional services as well as employee welfare costs.
Financial Income
Financial income is comprised of interest income on amounts invested in bank deposits and short-term investments.
Income (expense) in respect of securities measured at fair value, net
Income (expense) in respect of securities measured at fair value, net comprised the changes in the fair value of financial assets measured at fair value through other comprehensive income. During 2020, we realized all of our debt securities (corporate and government).
Income (expense) in respect of currency exchange differences and derivatives instruments, net
Income (expense) in respect of currency exchange differences and derivatives instruments, net is comprised of changes on balances in currencies other than our functional currency. Changes in the fair value of derivatives instruments not designated as hedging instruments are reported to profit or loss.
Financial Expenses
Financial expenses are comprised of bank charges, changes in the time value of provisions, the portion of changes in the fair value of financial assets or liabilities at fair value through other comprehensive income and interest and amortization of bank loans and leases.
Taxes on Income
Since our inception we accrued significant net operating loss carryforwards for tax purposes and as result, have not been required to pay income taxes other than tax withheld in a foreign jurisdiction in 2012 and 2016 and a $1.3 million payment to the Israel Tax Authority in 2016 as a settlement agreement for the tax years 2004-2006. During the years ended December 31, 2020 and 2019, we recognized a tax expense for the entire amount of a deferred tax asset that we initially recognized in 2018 for a portion of our carryforward losses on account of earnings that were offset against the carryforward losses. For the year ended December 31, 2021, we did not account for deferred tax assets nor tax expenses related to such.
As of December 31, 2021, we have net operating loss carryforwards for tax purposes of approximately $33 million. The net operating loss carryforwards have no expiration date. Following the full utilization of our net operating loss carryforwards, we expect that our effective income tax rate in Israel will reflect the tax benefits discussed below.
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Our Israeli based manufacturing facility has been granted an Approved Enterprise status pursuant to the Investment Law, which made us eligible for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with a grant in the amount of 24% of our approved investments, in addition to certain tax benefits, which applied to the turnover resulting from the operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated taxable income. The tax benefits under the Approved Enterprise status expired at the end of 2017. Additionally, we have obtained a tax ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity,” as defined in the Investment Law, and is also eligible for tax benefits as a Privileged Enterprise, which apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated taxable income. The tax benefits under the Privileged Enterprise status are scheduled to expire at the end of 2023. As of the date of this Annual Report, we have not utilized any tax benefits under the Investment Law, other than the receipt of grants attributable to our Approved Enterprise status.
We may be subject to withholding taxes for payments we receive from foreign countries. If certain conditions are met, these taxes may be credited against future tax liabilities under tax treaties and Israeli tax laws. However, due to our net operating loss carryforward, it is uncertain whether we will be able to receive such credit and therefore, we may incur tax expenses.
As we further expand our sales into other countries, we could become subject to taxation based on such country’s statutory rates and our effective tax rate could fluctuate accordingly.
During the year ended December 31, 2021, following the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF and the plasma collection center in Beaumont, TX, we have initiated commercial operation in the U.S. through our subsidiaries Kamada Inc. and Kamada Plasma LLC. The two entities are subject to U.S. federal and certain state income taxes and file a combined tax return. Income tax expenses due in connection which such activities are included as part of taxes on income in our consolidated statement of operations.
Results of Operations
The following table sets forth certain statement of operations data:
| Year Ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| (U.S. Dollars in thousands) | ||||||||||||
| Revenues from Proprietary Products segment | $ | 75,521 | $ | 100,916 | $ | 97,696 | ||||||
| Revenues from Distribution segment | 28,121 | 32,330 | 29,491 | |||||||||
| Total revenues | 103,642 | 133,246 | 127,187 | |||||||||
| Cost of revenues from Proprietary Products segment | 48,194 | 57,750 | 52,425 | |||||||||
| Cost of revenues from Distribution segment | 25,120 | 27,944 | 25,025 | |||||||||
| Total cost of revenues | 73,314 | 85,694 | 77,450 | |||||||||
| Gross profit | 30,328 | 47,552 | 49,737 | |||||||||
| Research and development expenses | 11,357 | 13,609 | 13,059 | |||||||||
| Selling and marketing expenses | 6,278 | 4,518 | 4,370 | |||||||||
| General and administrative expenses | 12,636 | 10,139 | 9,194 | |||||||||
| Other expense | 753 | 49 | 330 | |||||||||
| Operating income (loss) | (696 | ) | 19,237 | 22,784 | ||||||||
| Financial income | 295 | 1,027 | 1,146 | |||||||||
| Income (expense) in respect of securities measured at fair value, net | - | 102 | (5 | ) | ||||||||
| Income (expense) in respect of currency exchange differences and derivatives instruments, net | (207 | ) | (1,535 | ) | (651 | ) | ||||||
| Financial expense | (1,277 | ) | (266 | ) | (293 | ) | ||||||
| Income (loss) before taxes on income | (1,885 | ) | 18,565 | 22,981 | ||||||||
| Taxes on income | 345 | 1,425 | 730 | |||||||||
| Net income (loss) | $ | (2,230 | ) | $ | 17,140 | $ | 22,251 | |||||
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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Segment Results
| Change | ||||||||||||||||
| 2021 vs. 2020 | ||||||||||||||||
| 2021 | 2020 | Amount | Percent | |||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Proprietary Products | $ | 75,521 | $ | 100,916 | $ | (25,395 | ) | (25.2 | )% | |||||||
| Distribution | 28,121 | 32,330 | (4,209 | ) | (13.0 | )% | ||||||||||
| Total | 103,642 | 133,246 | (29,604 | ) | (22.2 | )% | ||||||||||
| Cost of Revenues: | ||||||||||||||||
| Proprietary Products | 48,194 | 57,750 | (9,556 | ) | (16.5 | )% | ||||||||||
| Distribution | 25,120 | 27,944 | (2,824 | ) | (10.1 | )% | ||||||||||
| Total | 73,314 | 85,694 | (12,380 | ) | (14.4 | )% | ||||||||||
| Gross Profit: | ||||||||||||||||
| Proprietary Products | $ | 27,327 | $ | 43,166 | $ | (15,839 | ) | (36.7 | )% | |||||||
| Distribution | 3,001 | 4,386 | (1,385 | ) | (31.6 | )% | ||||||||||
| Total | $ | 30,328 | $ | 47,552 | $ | (17,224 | ) | (36.2 | )% | |||||||
Revenues
In the year ended December 31, 2021, we generated $103.6 million of total revenues, as compared to $133.2 million in the year ended December 31, 2020, a decrease of $29.6 million, or approximately 22.2%. This decrease was primarily due to the transition of GLASSIA manufacturing to Takeda which resulted in an overall $38.7 million year over year decrease of GLASSIA sales. In addition, KEDRAB sales to Kedrion for the year ended December 31, 2021, totaled $11.9 million, a $6.4 million decrease compared to the year ended December 31, 2020, which decrease was a result of relatively higher level of inventory of product at Kedrion as of December 31, 2020, which was due to reduced KEDRAB sales by Kedrion during 2020 as a result of the effect of the COVID-19 pandemic. These decreases were partially offset by $5.4 million of revenues generated from sales of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF following their acquisition from November 22, 2021 through December 31, 2021, the recognition of $5.0 million of GLASSIA sales milestone from for Takeda and $3.9 million of revenues generated from sales to the IMOH of our investigational Anti-SARS-CoV-2 IgG product, as well as an increase in revenues of our other Proprietary products.
Cost of Revenues
In the year ended December 31, 2021, we incurred $73.3 million of cost of revenues, as compared to $85.7 million in the year ended December 31, 2020, a decrease of $12.4 million, or approximately 14.4%. The decrease in costs of revenues is mainly attributable to the decrease in sales volume and mix.
Gross profit
Gross profit and gross margins in our Proprietary Products segment for the year ended December 31, 2021 were $27.3 and 36.2%, respectively, as compared to $43.2 and 42.8% for the year ended December 31, 2020, respectively, representing a decrease of $15.9 million and 36.7%, respectively. Such decrease is primarily attributed to the overall decrease in product sales mix, specifically the decrease in sales of GLASSIA to Takeda and KEDRAB to Kedrion (as detailed above), which sales carry relatively higher gross margins, together with an increase in sales of our products in several ex-U.S. markets, which carry relatively lower gross margins.
In the wake of the transition of GLASSIA manufacturing to Takeda, we effected measures to reduce plant overhead costs, including headcount reduction. Nevertheless, the overall reduction in manufacturing plant utilization resulted in relatively higher cost allocation per each manufactured product. As a result, during the year ended December 31, 2021, we incurred higher impairment costs for inventories carried at net realizable value. We account for impairment costs when the net realizable value of the inventory is lower than the cost incurred in bringing the inventory to its present location and condition.
In addition, for the year ended December 31, 2021, we incurred depreciation expenses in the amount of $0.6 million, related to intangible assets recognized pursuant to a business combination, which reduced the gross profits.
Gross profit and gross margins in our Distribution segment for the year ended December 31, 2021 were $3.0 and 10.7%, respectively, as compared to $4.4 and 13.6% for the year ended December 31, 2020, respectively, representing a decrease of $1.4 million and 31.6%, respectively. Such decrease is primarily related to change in product sales mix in this segment, specifically the year over year increased proportion of sales of IVIG of overall sales in this segment. As a tender based product, sales of IVIG carry relatively lower gross margins as compared to other products in this segment.
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Research and Development Expenses
In the year ended December 31, 2021, we incurred $11.4 million of research and development expenses, as compared to $13.6 million in the year ended December 31, 2020, a decrease of $2.2 million, or approximately 16.2%. The decrease was primarily due to reduction in costs associated with our pivotal Phase 3 InnovAATe clinical trial of our Inhaled AAT for treatment of AATD. As a result of the continued effect of the COVID-19 pandemic, we incurred delays and challenges in connection with the opening of additional study sites and recruitment of patient participants, which resulted in the reduction of costs. In addition, during the year ended December 31, 2021, we reduced the development of our investigational Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19. Given the increased vaccination rate of the population as well as approvals of monoclonal antibodies for COVID-19, we are currently evaluating the market potential of this product, and the continuation of its development program.
Research and development expenses accounted for approximately 10.9% and 10.2% of total revenues for the years ended December 31, 2021 and 2020, respectively.
Set forth below are the research and development expenses associated with our major development programs in the years ended December 31, 2021 and 2020:
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Inhaled AAT | $ | 2,562 | $ | 3,266 | ||||
| Anti-SARS-CoV-2 | 180 | 1,110 | ||||||
| Recombinant AAT | 528 | 426 | ||||||
| Unallocated salary | 5,076 | 6,045 | ||||||
| Unallocated facility cost allocated to research and development | 2,138 | 2,064 | ||||||
| Unallocated other expenses | 873 | 698 | ||||||
| Total research and development expenses | $ | 11,357 | $ | 13,609 | ||||
Unallocated expenses are expenses that are not managed by project and are allocated between various tasks that are not always related to a major project. In the years ended December 31, 2021 and 2020, we incurred $5.1 million and $6.0 million, respectively, of unallocated salary expenses which represent all research and development salary expenses, $2.1 million and $2.1 million, respectively, of facility costs allocated to research and development and $0.9 million and $0.6 million, respectively, of unallocated other expenses.
Our current intentions with respect to our major development programs are described in “Business — Our Product Pipeline and Development Program”. We cannot determine with full certainty the duration and completion costs of the current or future clinical trials of our major development programs or if, when, or to what extent we will generate revenues from the commercialization and sale of any product candidates. We or our strategic partners may never succeed in achieving marketing approval for any product candidates. The duration, costs and timing of clinical trials and our major development programs will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation and whether our current or future strategic partners are committed to and make progress in programs licensed to them, if any. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. See “Item 3. Key Information — D. Risk Factors — Risks Related to Development, Regulatory Approval and Commercialization of Product Candidates.”
We will determine which programs to pursue and how much to fund each program in response to the scientific, pre-clinical and clinical outcome and results of each product candidate, as well as an assessment of each product candidate’s commercial potential. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements.
Selling and Marketing Expenses
In the year ended December 31, 2021, we incurred $6.3 million of selling and marketing expenses, as compared to $4.5 million in the year ended December 31, 2020, an increase of $1.8 million, or approximately 39%. This increase was primarily due to costs related to the marketing and distribution of newly acquired CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF as well as costs associated with pre-launch activities of new products in the Distribution segment that were launched during the year ended December 31, 2021 or are expected to be launched during the beginning of 2022.
In addition, for the year ended December 31, 2021, we incurred depreciation expenses in the amount of $0.2 million, related to intangible assets recognized pursuant to a business combination, which reduced the gross profits.
Selling and marketing expenses accounted for approximately 6.1% and 3.4% of total revenues for the years ended December 31, 2021 and 2020, respectively.
General and Administrative Expenses
In the year ended December 31, 2020, we incurred $12.6 million of general and administrative expenses, as compared to $10.1 million in the year ended December 31, 2019, an increase of $2.5 million, or approximately 24.6%. This increase was primarily due to costs associated with the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF (including advisory, legal and other professional fees) totaling $1.2 million as well as a $0.9 million increase in directors’ and officer’s liability insurance related costs.
General and administrative expenses accounted for approximately 12.2% and 7.6% of total revenues for the years ended December 31, 2021 and 2020, respectively.
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Other expenses
In the years ended December 31, 2021 and 2020, we incurred $0.8 and $0.1 million of other expenses. In connection with the transition of GLASSIA manufacturing to Takeda, during the second and third quarter of 2021, we implemented a planned workforce downsizing and incurred a one-time expense of $0.7 million related to excess severance remuneration for employees who were laid-off as part of this downsizing, which costs were accounted for in other expenses.
Financial Income
In the years ended December 31, 2021 and 2020, we generated $0.3 and $1.0 million of financial income, respectively. Financial income is primarily comprised of interest income on bank deposits and to a limited extent short-term investments.
Income (expense) in respect of securities measured at fair value, net
In the year ended December 31, 2020, we incurred $0.1 million of income in respect of securities measured at fair value, net. During 2020 we liquidated our securities portfolio and therefore, did not incur income in respect of securities measured at fair value, net, in 2021.
Income (expense) in respect of currency exchange differences and derivatives instruments, net
In the year ended December 31, 2021, we incurred $0.2 million of expenses in respect of currency exchange differences on balances in other currencies, mainly the NIS and the Euro versus the U.S. dollar, and derivatives impact, as compared to $$1.5 million in the year ended December 31, 2020.
Financial Expenses
In the year ended December 31, 2021, we incurred $1.3 million of financial expenses, as compared to $0.3 million in the year ended December 31, 2020. Financial expenses in the year ended December 31, 2021, included interest costs on debt facility obtained to partially fund the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. See below “Liquidity and Capital Resources.”
Taxes on Income
In the year ended December 31, 2021, we recorded a $0.3 million tax expense primarily related to excess costs tax payment due to the Israeli tax authority and current taxes on account of our U.S commercial operations. In the year ended December 31, 2020, we recorded a $1.4 million tax expense relating primarily to the utilization of a deferred tax asset on account of earnings that were offset against our net operating loss carryforward for tax purposes.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Segment Results
| Change | ||||||||||||||||
| 2020 vs. 2019 | ||||||||||||||||
| 2020 | 2019 | Amount | Percent | |||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Proprietary Products | $ | 100,916 | $ | 97,696 | $ | 3,220 | 3 | % | ||||||||
| Distribution | 32,330 | 29,491 | 2,839 | 10 | % | |||||||||||
| Total | 133,246 | 127,187 | 6,059 | 5 | % | |||||||||||
| Cost of Revenues: | ||||||||||||||||
| Proprietary Products | 57,750 | 52,425 | 5,325 | 10 | % | |||||||||||
| Distribution | 27,944 | 25,025 | 2,919 | 12 | % | |||||||||||
| Total | 85,694 | 77,450 | 8,244 | 11 | % | |||||||||||
| Gross Profit: | ||||||||||||||||
| Proprietary Products | $ | 43,166 | $ | 45,271 | $ | (2,105 | ) | (5 | )% | |||||||
| Distribution | 4,386 | 4,466 | (80 | ) | (2 | )% | ||||||||||
| Total | $ | 47,552 | $ | 49,737 | $ | (2,185 | ) | (4 | )% | |||||||
Revenues
In the year ended December 31, 2020, we generated $133.2 million of total revenues, as compared to $127.2 million in the year ended December 31, 2019, an increase of $6.0 million, or approximately 5%. This increase was primarily due to a $3.2 million increase in the Proprietary Products segment, comprised of a $4.1 million increase in sales of KAMRAB and other Proprietary products in ex-U.S. markets, mainly Israel, Latin America and Asia, and a $1.9 million increase in sales of KEDRAB to Kedrion, which was offset in part by a $3.2 decrease in GLASSIA sales to Takeda, and a $2.8 million increase in our Distribution segment attributed to increased sales of IVIG product.
Cost of Revenues
In the year ended December 31, 2020, we incurred $85.7 million of cost of revenues, as compared to $77.5 million in the year ended December 31, 2019, an increase of $8.2 million, or approximately 11%. The increase is mainly attributable to the increase in volume of sales and changes in sales mix.
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Gross profit
Gross profit and gross margins in our Proprietary Products segment for the year ended December 31, 2020 were $43.2 and 42.8%, respectively, as compared to $45.3 and 46.3% for the year ended December 31, 2019, respectively, representing a decrease of $2.1 million and 4.7%, respectively. Such decrease is primarily attributed to the change in product sales mix and specifically the increase in sales of KAMRAB and other proprietary products in ex-U.S. markets, mainly Israel, Latin America and Asia, which carries relatively lower gross margins, as well as the decrease in sales of GLASSIA to Takeda. In addition, such decrease was attributable to reduced plant utilization which resulted in increase in the cost per vial sold.
Gross profit and gross margins in our Distribution segment for the year ended December 31, 2020 were $4.4 and 13.6%, respectively, as compared to $4.5 and 15.1% for the year ended December 31, 2019, respectively, representing a decrease of $0.1 million and 1.8%, respectively. Such decrease is primarily related to the increase in IVIG sales which carries relatively lower gross margins as well as other changes in product sales mix which were associated with demand changes driven by the effects of the COVID-19 pandemic.
Research and Development Expenses
In the year ended December 31, 2020, we incurred $13.6 million of research and development expenses, as compared to $13.1 million in the year ended December 31, 2019, an increase of $0.5 million, or approximately 3.8%. As a result of the impact of the COVID-19 pandemic on our pivotal Phase 3 InnovAATe clinical trial, we incurred a lower than projected increase in research and development expenses in the year ended December 31, 2020, as compared to the year ended December 31, 2019. Research and development expenses for the year ended December 31, 2020 includes a total of $1.1 million associated with the development of our Anti-SARS-CoV-2 IgG product as a potential therapy for COVID-19 patients. Such costs are net of $0.7 million receivables from the Israel Innovation Authority and Kedrion. Research and development expenses accounted for approximately 10.2% and 10.3% of total revenues for the years ended December 31, 2020 and 2019, respectively.
Set forth below are the research and development expenses associated with our major development programs in the years ended December 31, 2020 and 2019:
| Year ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| (U.S. Dollars in thousands) | ||||||||
| Inhaled AAT | $ | 3,266 | $ | 3,192 | ||||
| Anti-SARS-CoV-2 | 1,110 | - | ||||||
| Recombinant AAT | 426 | 352 | ||||||
| Anti-Rabies | 126 | 272 | ||||||
| AAT IV for treatment of GvHD | - | 666 | ||||||
| AAT IV for lung transplantation rejection | - | 34 | ||||||
| Unallocated salary | 6,045 | 5,816 | ||||||
| Unallocated facility cost allocated to research and development | 2,064 | 2,146 | ||||||
| Unallocated other expenses | 572 | 581 | ||||||
| Total research and development expenses | $ | 13,609 | $ | 13,059 | ||||
Unallocated expenses are expenses that are not managed by project and are allocated between various tasks that are not always related to a major project. In the years ended December 31, 2020 and 2019, we incurred $6.0 million and $5.8 million, respectively, of unallocated salary expenses which represent all research and development salary expenses, $2.1 million and $2.1 million, respectively, of facility costs allocated to research and development and $0.6 million and $0.6 million, respectively, of unallocated other expenses.
Selling and Marketing Expenses
In the year ended December 31, 2020, we incurred $4.5 million of selling and marketing expenses, as compared to $4.4 million in the year ended December 31, 2019, an increase of $0.1 million, or approximately 3.4%. This increase was primarily due to the significant increase in shipping and freight costs in the wake of the COVID-19 pandemic. Selling and marketing expenses accounted for approximately 3.4% and 3.4% of total revenues for the years ended December 31, 2020 and 2019, respectively.
General and Administrative Expenses
In the year ended December 31, 2020, we incurred $10.1 million of general and administrative expenses, as compared to $9.2 million in the year ended December 31, 2019, an increase of $0.9 million, or approximately 10.3%. This increase was primarily due to an increase of $0.6 million in insurance costs, specifically directors’ and officers’ liability insurance costs which dramatically increased in recent years. General and administrative expenses accounted for approximately 7.6% and 7.2% of total revenues for the years ended December 31, 2020 and 2019, respectively.
Other expenses
In the years ended December 31, 2020 and 2019, we incurred $0.1 million and $0.3 million of other expenses, respectively, related to an ongoing technology transfer project performed with an external service provider, which was expected to be completed during 2020, however, due to several factors including the effect of the COVID-19 pandemic, the project was delayed.
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Financial Income
In the years ended December 31, 2020 and 2019, we generated $1.0 million and $1.1 million of financial income, respectively. Financial income is primarily comprised of interest income on bank deposits and to a limited extent short-term investments.
Income (expense) in respect of securities measured at fair value, net
In the year ended December 31, 2020, we incurred $0.1 million of income in respect of securities measured at fair value, net, as compared to $5,000 of expenses in the year ended December 31, 2019. During 2020 we liquidated our securities portfolio.
Income (expense) in respect of currency exchange differences and derivatives instruments, net
In the year ended December 31, 2020, we incurred $1.5 million of expenses in respect of currency exchange differences on balances in other currencies, mainly the NIS and the Euro versus the U.S. dollar, and derivatives impact, as compared to $0.7 million in the year ended December 31, 2019.
Financial Expenses
In the year ended December 31, 2020, we incurred $0.3 million of financial expenses, as compared to $0.3 million in the year ended December 31, 2019.
Taxes on Income
In the year ended December 31, 2020, we recorded a $1.4 million tax expense, as compared to $0.7 million in the year ended December 31, 2019. Tax expenses relate primarily to the utilization of a deferred tax asset on account of earnings that were offset against our net operating loss carryforward for tax purposes.
Quarterly Results of Operations
The following tables set forth unaudited quarterly consolidated statements of operations data for the four quarters of fiscal years 2021 and 2020. We have prepared the statement of operations data for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this Annual Report and, in the opinion of management, each statement of operations includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report. These quarterly operating results are not necessarily indicative of our operating results for any future period.
| Three Months Ended | ||||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Revenues from Proprietary Products | $ | 18,205 | $ | 17,123 | $ | 19,323 | $ | 20,870 | $ | 23,283 | $ | 29,691 | $ | 22,625 | $ | 25,317 | ||||||||||||||||
| Revenues from Distribution | 13,264 | 5,911 | 4,916 | 4,030 | 8,259 | 5,634 | 10,464 | 7,973 | ||||||||||||||||||||||||
| Total revenues | 31,469 | 23,034 | 24,239 | 24,900 | 31,542 | 35,325 | 33,089 | 33,290 | ||||||||||||||||||||||||
| Cost of revenues from Proprietary Products | 12,589 | 12,078 | 11,059 | 12,468 | 13,933 | 15,936 | 12,934 | 14,947 | ||||||||||||||||||||||||
| Cost of revenues from Distribution | 12,285 | 5,226 | 4,108 | 3,501 | 7,444 | 4,568 | 9,040 | 6,892 | ||||||||||||||||||||||||
| Total cost of revenues | 24,874 | 17,304 | 15,167 | 15,969 | 21,377 | 20,504 | 21,974 | 21,839 | ||||||||||||||||||||||||
| Gross profit | 6,595 | 5,730 | 9,072 | 8,931 | 10,165 | 14,821 | 11,115 | 11,451 | ||||||||||||||||||||||||
| Research and development expenses | 3,448 | 2,545 | 2,736 | 2,628 | 3,274 | 3,365 | 3,623 | 3,347 | ||||||||||||||||||||||||
| Selling and marketing expenses | 2,475 | 1,256 | 1,424 | 1,123 | 1,221 | 1,179 | 1,178 | 940 | ||||||||||||||||||||||||
| General and administrative expenses | 3,833 | 2,691 | 3,303 | 2,809 | 3,006 | 2,514 | 2,307 | 2,312 | ||||||||||||||||||||||||
| Other expense (income) | 141 | 42 | 563 | 7 | 15 | 0 | 32 | 2 | ||||||||||||||||||||||||
| Operating income (loss) | (3,302 | ) | (804 | ) | 1,046 | 2,364 | 2,649 | 7,763 | 3,975 | 4,850 | ||||||||||||||||||||||
| Financial income | 18 | 68 | 99 | 110 | 162 | 250 | 298 | 317 | ||||||||||||||||||||||||
| Financial expenses | (1,099 | ) | (61 | ) | (63 | ) | (53 | ) | (62 | ) | (69 | ) | (58 | ) | (77 | ) | ||||||||||||||||
| Income (expense) in respect of securities measured at fair value, net | - | - | - | - | - | 0 | 0 | 102 | ||||||||||||||||||||||||
| Income (expense) in respect of currency exchange differences and derivatives instruments, net | (281 | ) | (48 | ) | (145 | ) | 266 | (839 | ) | (761 | ) | (367 | ) | 432 | ||||||||||||||||||
| Income (loss) before taxes on income | (4,664 | ) | (845 | ) | 937 | 2,687 | 5,518 | 6,037 | 6,373 | 5,053 | ||||||||||||||||||||||
| Taxes on income | 345 | - | - | - | 156 | 214 | 230 | 130 | ||||||||||||||||||||||||
| Net income (loss) | $ | (5,009 | ) | $ | (845 | ) | $ | 937 | $ | 2,687 | $ | 5,362 | $ | 5,823 | $ | 6,143 | $ | 4,923 | ||||||||||||||
85
Liquidity and Capital Resources
Our primary uses of cash are to fund working capital requirements, research and development expenses and capital expenditures. Historically, we have funded our operations primarily through cash flow from operations (including sales of our proprietary products and distribution products), payments received in connection with strategic partnerships (including milestone payments from collaboration agreements), issuances of ordinary shares (including our 2005 initial public offering and listing on the Tel Aviv Stock Exchange, our 2013 initial public offering in the United States and listing on Nasdaq, our 2017 underwritten public offering and our 2020 private placement), and the issuance of convertible debentures and warrants to purchase our ordinary shares.
The balance of cash and cash equivalents and short-term investments as of December 31, 2021, 2020 and 2019, totaled $18.6 million, $109.3 million and $73.9 million, respectively. We plan to fund our future operations and strategic initiatives (See “Item 4. Information on the Company”) through our financial resources, continued sales and distribution of our proprietary and distribution products, commercialization and or out-licensing of our pipeline product candidates, and to the extent required, raising additional capital through the issuance of equity or debt.
Our capital expenditures for the years ended December 31, 2021, 2020 and 2019 were $3.7 million, $5.5 million and $2.3 million, respectively. Our capital expenditures currently relate primarily to the maintenance and improvements of our facilities. We expect our capital expenditures to increase in the coming years mainly due to the planned expansion our plasma collection operations as well as to facilitate the transition manufacturing of HEPGAM B, VARIZIG and WINRHO SDF to our manufacturing facility in Beit Kama, Israel, which will require possible upgrades to plant infrastructure as well as to upgrade manufacturing automation. To date, we have not made any material commitments towards such planned expenditures.
In addition to our capital expenditure, during the year ended December 31, 2021, we acquired CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF from Saol. Under the terms of the agreement, we paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration subject the achievement of sales thresholds for the period commencing on the acquisition date and ending on December 31, 2034. We may be entitled for up to $3 million credit deductible from the contingent consideration payments due for the years 2023 through 2027, subject to certain conditions as defined in the agreement between the parties. In addition, we acquired inventory and agreed to pay the consideration to Saol in ten quarterly installments of $1.5 million, each or the remaining balance at the final installment. In addition, we assumed certain of Saol’s liabilities for the future payment of royalties (some of which are perpetual) and milestone payments to a third parties subject to the achievement of corresponding CYTOGAM related net sales thresholds and milestones. The fair value of such assumed liabilities at the acquisition date was estimated at $47.2 million. For additional information also see above under “Key Components of Our Results of Operations—Business Combination and Note 19e to our consolidated financial statements included in this Annual Report.
We have entered into long term lease agreements with respect to office facility, storage spaces, vehicles and certain office equipment. The terms of such lease arrangements are between 3 to 10 years. The outstanding lease obligation as of December 31, 2021 totaled $4.3 million. For additional information see Note 16 to our consolidated financial statements included in this Annual Report.
We are also obligated to make certain severance or pension payments to our Israeli employees upon their retirement in accordance with Israeli law. For additional information, see “Post-Employment Benefits Liabilities” and Note 2u and Note 18 to our consolidated financial statements included in this Annual Report.
We believe our current cash and cash equivalents will be sufficient to satisfy our liquidity requirements for the next 12 months.
Credit Facility and Loan Agreement with Bank Hapoalim B.M.
In connection with the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF from Saol, on November 15, 2021, we secured a $40 million of debt facility from Bank Hapoalim B.M., which is comprised of a $20 million five-year loan and a $20 million short-term revolving credit facility.
The long-term loan bears interest at a rate of SOFR (Secured Overnight Financing Rate) + 2.18% and is repayable in 54 equal monthly installments commencing on June 16, 2022. The credit facility is in effect for a period of 12 months and thereafter, renews automatically for additional terms of 12 months each, unless either party otherwise notifies the other party in writing. Borrowings under the credit facility accrue interest at a rate of SOFR + 1.75 and are repayable no later than 12 months from the date advanced. We are required to pay an annual fee of 2% of the unutilized credit facility.
The terms of the loan and credit facility include certain financial covenants, for the years ending December 31, 2022, and onwards, including that we maintain: (i) minimum equity capital of 30% of the balance sheet and no less than $120 million, examined on a quarterly basis, (ii) a maximum working capital to debt ratio of 0.8, examined on a quarterly basis, and (iii) a minimum debt coverage ratio of 1.1 during 2022-2024 and 1.25 in 2025 and onwards, examined on an annual basis. In addition, the terms of the loan and credit facility contain certain restrictive covenants including, among others, limitations on restructuring, the sale of purchase of assets, material licenses, certain changes of control and the creation of floating charges over our property and assets. In addition, we undertook not to create any first ranking floating charge over all or materially all of our property and assets in favor of any third party unless certain conditions, as defined in the loan agreement, have been satisfied. See “Item 3. Key Information — D. Risk Factors —Risks Related to Our Financial Position and Capital Resources — Our financial position and operations may be affected as a result of the indebtedness we incurred to partially fund the Saol acquisition.”
86
Cash Flows from Operating Activities
Net cash used in operating activities was $8.8 million for the year ended December 31, 2021. This net cash used in operating activities reflects net loss of $2.2 million, $7.7 million for non-cash income and expenses, $14.4 million increase in assets, net of liabilities, and $0.1 million of interest income, net of interest and tax expenses paid in cash.
Net cash provided by operating activities was $ 19.1 million for the year ended December 31, 2020. This net cash provided by operating activities reflects net income of $17.1 million, $8.1 million of non-cash expenses and a decrease in inventories of $1.2 million, a decrease in trade receivables of $1.3 million and a decrease in trade payables of $9.5 million.
Net cash provided by operating activities was $27.6 million for the year ended December 31, 2019. This net cash provided by operating activities reflects net income of $22.3 million, $6.3 million of non-cash expenses and an increase in inventories of $14.0 million, a decrease in trade receivables of $5.1 million and an increase in trade payables of $6.3 million.
Cash Flows from Investing Activities
Net cash used in investing activities was $61.1 million for the year ended December 31, 2021, which comprises of $96.4 million related to the Saol and B&PR acquisitions, $39.1 million gained from disposition of short-terms investment and $3.7 million of capital expenditures.
Net cash used in investing activities was $13.1 million for the year ended December 31, 2020, which comprises of investment in short term investment and bank deposits of $7.6 million and purchase of property, plant and equipment of $5.5 million.
Net cash used in investing activities was $0.6 million for the year ended December 31, 2019, which comprises of proceeds from short term investment of $1.7 million and purchase of property, plant and equipment of $2.3 million.
Cash Flows from Financing Activities
Net cash provided by financing activities was $18.6 million for the year ended December 31, 2021, and is mainly related to the receipt of the long-term loan from Bank Hapoalim.
Net cash provided by financing activities was $23.3 million for the year ended December 31, 2020, mainly due to proceeds from our January 2020 private placement to the FIMI Funds of an aggregate 4,166,667 ordinary shares at a price of $6.00 per share, for an aggregate $25 million gross proceeds.