ADMA BIOLOGICS, INC. quarterly report, Q3 FY2022

ADMA Biologics, Inc. — Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2022; filed November 9, 2022. ADMA manufactures, markets and develops plasma-derived biologics, including BIVIGAM, ASCENIV and Nabi-HB. Operations include the Boca Raton manufacturing facility and the ADMA BioCenters plasma-collection network.

Financial Highlights

Metric	Three Months Ended September 30	Nine Months Ended September 30
Total revenue	$41.1 million, up 99% from $20.7 million	$104.1 million, up 91% from $54.6 million
Gross profit	$9.7 million versus $0.4 million	$21.1 million versus a $2.3 million gross loss
Gross margin	23.5% versus 1.9%	20.3% versus approximately negative 4.3%
Operating loss	$9.3 million versus $14.4 million	$33.3 million versus $45.2 million
Net loss	$14.9 million, or $0.08 per share, versus $17.7 million, or $0.13 per share	$53.7 million, or $0.27 per share, versus $55.0 million, or $0.44 per share
Cash flow from operations	Not separately provided	$(52.1) million versus $(78.9) million

Product revenue increased to $41.1 million in the quarter and $104.0 million for the nine-month period; license revenue was $35,708 and $107,125, respectively.
Revenue growth was primarily driven by higher ASCENIV and BIVIGAM sales, increased customer acceptance and expanded BIVIGAM production scale. Plasma sales also increased.
Operating expenses for the nine months were $54.4 million, including $38.6 million of selling, general and administrative expense and $12.8 million of plasma-center operating expense.
Cash and cash equivalents were $34.9 million at September 30, 2022, compared with $51.1 million at December 31, 2021. Working capital was $179.7 million, heavily weighted toward $162.9 million of inventory.
Capital expenditures were $10.2 million for the first nine months; management expected an additional $2.0 million to $4.0 million during the remainder of 2022.

Material Changes Versus Prior Comparable Period

Revenue nearly doubled in the third quarter and increased 91% for the nine-month period, while gross margins improved materially due to increased production, favorable product mix and the expanded 4,400-liter BIVIGAM plasma-pool process.
Operating losses narrowed despite higher plasma-center and commercialization costs. Plasma-center operating expense increased by $4.6 million for the nine months as the company expanded its collection network.
Interest expense increased to $13.5 million for the nine months from $9.7 million, primarily because of increased borrowings and rising variable interest rates.
The company recorded a $6.7 million loss on extinguishment of debt in connection with the March 2022 refinancing, which largely offset the operating improvement in the nine-month net loss comparison.
Inventory increased from $124.7 million at December 31, 2021 to $162.9 million, reflecting raw-material requirements and increased production activity.
Outstanding common shares increased modestly to 196.8 million from 195.8 million. The company issued 9.1 million warrants to Hayfin and had 13.6 million warrants outstanding at September 30, 2022.

Debt, Liquidity and Outlook

Senior notes payable, net of discount, were $141.4 million at September 30, 2022, compared with $94.9 million at year-end 2021. Principal debt was approximately $153.8 million before discount.
The Hayfin facility provides up to $175.0 million, consisting of a $150.0 million term loan and a $25.0 million delayed draw. The delayed-draw commitment expires March 22, 2023 and is subject to conditions, including revenue targets.
The Hayfin debt had a stated interest rate of approximately 12.1% at September 30, 2022, with a 2.5% annual portion permitted to be paid in kind and added to principal. Management expects interest rates and interest expense to continue increasing.
The facility matures March 23, 2027, is secured by substantially all company assets, and requires a minimum cash balance of $6.0 million and compliance with trailing 12-month IVIG revenue covenants. ADMA reported compliance as of September 30, 2022.
Management expects current cash, receivables, projected revenue, refinancing proceeds and approximately $42.8 million remaining under its equity distribution agreement to fund operations into the first quarter of 2024.
Management expects positive operating cash flow and profitability beginning in the first quarter of 2024. The company increased its 2022 revenue target to approximately $145 million and stated that the Boca facility could support approximately $250 million or more of annual revenue beginning in 2024 and approximately $300 million or more thereafter.
ADMA continues to evaluate strategic alternatives with Morgan Stanley. No transaction or outcome is assured.

Management Commentary, Risks and Unusual Items

The company expanded to ten plasma-collection facilities in various stages of approval and development, including nine operational facilities, and remains targeted toward ten FDA-licensed centers by the end of 2023.
Management expects a greater proportion of collected plasma to be used internally beginning in 2023 and therefore does not anticipate significant plasma-sale revenue beginning in that year.
The normal-source-plasma agreement with Grifols expires December 31, 2022. ADMA is seeking supplemental suppliers and expanding internal collection capacity, but supply, cost and licensing risks remain.
Required BIVIGAM and ASCENIV post-marketing studies are expected to cost approximately $4 million to $5 million in aggregate and are expected to be completed by June 2023.
COVID-19, supply-chain constraints, inflation, labor costs and rising freight and raw-material prices could affect plasma collection, manufacturing, testing and liquidity. Management stated that COVID-19 had not materially affected results through the reporting date, but future effects remain uncertain.
Revenue and receivables are concentrated: two customers represented 72% of nine-month revenue, and four customers represented 93% of accounts receivable at September 30, 2022.
Key risks include continued operating losses and cash burn, potential need for additional financing and dilution, high-cost secured debt, variable interest rates, dependence on third-party testing and fill-finish providers, FDA and cGMP compliance, plasma availability, product acceptance and reimbursement, customer concentration, and potential debt acceleration.
No material pending legal proceedings were reported. Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting.

Important Facts for Investors to Verify

Whether revenue growth and improved gross margins continue as BIVIGAM and ASCENIV production and utilization increase.
Whether the company achieves its approximately $145 million 2022 revenue target and reaches profitability and positive operating cash flow in the first quarter of 2024.
Whether cash, inventory conversion, operating cash flow and available equity capacity are sufficient through the projected funding period without additional dilutive or expensive financing.
Compliance with Hayfin’s minimum-cash and IVIG revenue covenants, the rising variable interest burden and the impact of payment-in-kind interest on debt balances.
Renewal or replacement of the Grifols normal-source-plasma arrangement and progress toward ten FDA-licensed collection centers.
FDA status, third-party testing and fill-finish capacity, post-marketing study completion, and any product-quality or regulatory developments.
Customer concentration, rebate and chargeback estimates, inventory realizability, and the company’s ability to convert its substantial inventory balance into commercial sales.
Any material development from the Morgan Stanley strategic-alternatives process.