Kamada Looks Cheap As Takeda Deal Creates Value

Summary

• We believe Kamada looks cheap, as there are long-tailed asset returns from the Takeda deal which the market may be overlooking.
• Recent retraction in Kamada's shares on the charts signals a potential dislocation in value and to today's trading.
• Our long-term thesis sees this alongside other key differentiators in COVID-19 exposure and the rabies treatment segment, setting a price target of $10.64.

Investment Thesis

We believe Kamada Ltd. (NASDAQ:KMDA) looks cheap at current valuations, and several key developments in the developmental pipeline look yet to be priced in from the market. Whilst the stock seems cheap on a valuation front, investors have shied away from share support, and the stock has given away -84% since September to today's trading of $7.05. We believe that KMDA has unique exposure to the Israeli market, alongside COVID-19 and rabies treatment differentiators, which can create value in the coming years. These points are coupled with key differentiators in these segments that insulate the company from peers on a competitive level. Such differentials include expansion to paediatrics in the rabies segment and focus on a treatment vs a vaccine in the COVID-19 segment. Further, the company has created large value through their latest production arrangement for Glassia with Takeda Pharmaceutical Company (TAK). This sees royalty payments at a respectful yield until 2040, thus creating long-tailed asset returns and widening future reinvestment opportunities, which are included into our valuation for the company.

Catalysts for Price Change

KMDA has completed agreements with TAK on extension of Glassia production into 2021. Glassia is an alpha-1 proteinase inhibitor, indicated for chronic augmentation and maintenance therapy in individuals with emphysema caused by a deficiency of that molecule. Kamada, being the holder of the license applications for the drug, will continue to receive royalty payments on net sales at a yield of 12% until 2025, 6% thereafter until 2040. The agreement sets a floor on royalties to be received of $5 million per year, thus guaranteeing KMDA that minimum yearly from 2022 to 2040. In the base case, KMDA expects a royalty payment in the ranges of $10 million to $20 million per year across this time frame, based on Glassia sales trajectory and projected sales growth. This translates to a range of $180 million to $360 million across this entire period, notwithstanding

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in KMDA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.