ADMA Biologics, Inc. — Q2 2023 Form 10-Q Summary
Business Context and Reporting Period
ADMA is a commercial biopharmaceutical company that manufactures, markets and develops plasma-derived biologics. Its marketed products are BIVIGAM and ASCENIV, both indicated for primary immunodeficiency, and Nabi-HB, indicated for certain hepatitis B exposures. The company also operates ten U.S. plasma collection centers, nine of which were FDA licensed as of June 30, 2023.
This filing covers the three and six months ended June 30, 2023. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Results and Key Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Revenue | $60.1 million | $33.9 million | $117.0 million | $63.0 million |
| Gross profit | $16.7 million | $7.8 million | $33.2 million | $11.4 million |
| Gross margin | 27.8% | 22.9% | 28.4% | 18.1% |
| Operating loss | $0.5 million | $9.2 million | $1.3 million | $24.0 million |
| Net loss | $6.4 million | $13.8 million | $13.2 million | $38.8 million |
| Adjusted EBITDA | $6.4 million | $(6.3) million | $8.9 million | $(18.0) million |
| Loss per share | $0.03 | $0.07 | $0.06 | $0.20 |
Revenue growth was primarily driven by increased ASCENIV and BIVIGAM sales, reflecting higher physician, payer and patient acceptance. Six-month revenue from immunoglobulin products increased by approximately $51.5 million. Two customers represented 68% of six-month revenue, and three customers represented 94% of accounts receivable at June 30, 2023.
Interest expense increased to $6.3 million in Q2 and $12.4 million for the six-month period, reflecting higher variable interest rates, additional principal from paid-in-kind interest and debt-discount amortization.
At June 30, 2023, cash and cash equivalents were $62.5 million, accounts receivable were $36.7 million, inventory was $161.8 million and working capital was $224.3 million. Total assets were $343.0 million and stockholders’ equity was $146.8 million.
Net cash used in operating activities was $20.8 million for the first six months, compared with $38.8 million in the prior-year period. Capital expenditures were $2.8 million, and cash used in financing activities was $0.4 million. Cash declined by $24.0 million from December 31, 2022.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 77% and first-half revenue increased 86% year over year.
- First-half gross margin improved to 28.4% from 18.1%, aided by greater IVIG volume, lower manufacturing costs and less emphasis on lower-margin plasma sales.
- The operating loss narrowed substantially, and adjusted EBITDA became positive, although the company remained unprofitable under GAAP.
- Plasma center operating expenses declined because more collection costs were capitalized into inventory as plasma collections increased. Management stated that plasma collections more than doubled year over year.
- Third-party plasma sales declined in Q2. Management does not expect significant plasma-center revenue for the remainder of 2023 because collected plasma is expected to support internal IVIG production.
- The company recorded a $2.1 million non-recurring inventory charge after two BIVIGAM batches were discarded following an IT systems disruption. Plasma center operating expenses were also adversely affected by approximately $0.7 million.
- Debt principal increased to $156.7 million from $154.7 million at year-end, while the carrying value of senior notes declined to $140.3 million because of debt discount.
- The company issued additional Hayfin warrants to purchase 2.4 million shares, valued at approximately $5.6 million, and Hayfin-affiliated holders completed a cashless exercise resulting in the issuance of approximately 2.0 million shares.
Debt, Liquidity, Outlook and Risks
The Hayfin senior secured facility matures March 23, 2027 and is secured by substantially all company assets, including intellectual property and subsidiary equity. The stated interest rate was 13.7% at June 30, 2023; the effective interest rate was approximately 17.4%. A 2.5% annual portion of interest may be paid in kind and added to principal. The company was in compliance with its debt covenants and was required to maintain at least $6.0 million of cash.
Management expects existing cash, cash equivalents, projected revenue and accounts receivable to fund operations through the end of the third quarter of 2024, assuming current projections. Management expects profitability and positive operating cash flow beginning in early 2024, but states that additional financing may be required if those targets are not achieved. Remaining 2023 capital expenditures are expected to be $5.0 million to $7.0 million.
Management estimates potential 2023 revenue capacity of at least $240 million, potential 2024 revenue of more than $275 million and potential annual revenue exceeding $325 million thereafter. These are forward-looking estimates, not guidance supported by a formal range or commitment. Management also forecasts potential consolidated gross margins of 40% to 50% and net income margins of 20% to 30% in 2024–2025 and beyond.
Key risks include continued operating losses and negative cash flow, reliance on additional financing, high variable-rate secured debt, dependence on a small number of customers, plasma availability and FDA licensing, third-party fill-finish and testing providers, manufacturing and product-quality requirements, regulatory inspections, reimbursement and market acceptance, supply-chain and inflationary pressures, cybersecurity incidents and potential dilution from equity awards, warrants or future financings.
The June 2023 IT disruption temporarily made certain systems inaccessible. The investigation remained ongoing, although the company reported no loss of original financial systems or evidence of data exfiltration. Insurance reimbursement for related charges is uncertain. The company also terminated its financial advisory agreement with Morgan Stanley while continuing to evaluate strategic alternatives.
Investor Verification Priorities
- Verify the sustainability of ASCENIV and BIVIGAM demand growth, customer concentration and revenue quality after rebates, chargebacks and other deductions.
- Monitor conversion of the substantial $161.8 million inventory balance into commercial sales and cash, including production cycle times of seven to twelve months or longer.
- Assess whether the company reaches profitability and positive operating cash flow in early 2024 and remains funded through the projected third quarter of 2024.
- Track Hayfin interest expense, paid-in-kind interest, covenant compliance, delayed-draw availability through December 31, 2023 and refinancing or repayment requirements.
- Evaluate progress toward FDA approval of the tenth plasma center, capacity expansion at the Boca Facility and the reliability and cost of third-party plasma supplies.
- Follow the investigation and insurance recovery related to the IT disruption and any resulting operational, cybersecurity or compliance consequences.
- Consider dilution from approximately 12.5 million outstanding warrants, 9.6 million stock options and 4.8 million unvested restricted stock units as of June 30, 2023.