ADMA Biologics, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2013; comparative periods ended June 30, 2012. The interim financial statements are unaudited. ADMA develops plasma-derived immune globulin products, operates an FDA-licensed plasma collection center in Georgia, and is developing RI-002 for primary immunodeficiency disease.
Financial performance and liquidity
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Total revenue | $743,270 | $230,096 | $1,536,205 | $234,496 |
| Gross profit | $257,509 | $88,226 | $521,398 | $90,426 |
| Gross margin | 34.6% | 38.3% | 33.9% | 38.6% |
| Operating loss | $(4,843,127) | $(1,206,540) | $(7,993,216) | $(2,420,042) |
| Net loss | $(4,895,444) | $(1,206,715) | $(8,137,091) | $(1,804,029) |
| Basic and diluted loss per share | $(0.83) | $(0.20) | $(1.39) | $(0.39) |
| Cash used in operating activities | Not presented | Not presented | $(5,701,729) | $(3,041,811) |
- Revenue was primarily from plasma sales under the Biotest supply agreement; the company had not generated revenue from its therapeutics or research and development business. License revenue was $6,296 in the six-month period.
- At June 30, 2013, cash and cash equivalents were $7.65 million, compared with $12.54 million at December 31, 2012. Working capital was $7.14 million.
- Total assets were $10.69 million and total liabilities were $8.96 million at June 30, 2013. Stockholders’ equity declined to $1.73 million from $9.42 million at year-end 2012, principally because of the six-month net loss.
- Notes payable, net of debt discount, were $4.82 million. The company also reported a $132,500 end-of-term liability related to its Hercules loan, a $71,705 leasehold improvement loan, and a $171,590 warrant liability.
- Financing activities provided $994,345 in the first six months, primarily from a $1.0 million Hercules borrowing. Investing activities used $174,809 for property and equipment.
Material changes versus the prior comparable periods
- Three-month revenue increased by more than 100% to $743,270, while six-month revenue increased by more than 100% to $1.54 million, reflecting higher plasma sales and initial license revenue.
- Research and development expense increased to $3.47 million for the quarter and $4.94 million for the six-month period, primarily due to RI-002 Phase III clinical, manufacturing, testing, regulatory, and Biotest-related costs.
- General and administrative expense increased 48% for the quarter and 79% for the six-month period. Increases included staffing, compensation, stock-based compensation, and write-offs of deferred financing fees of $293,373 for the quarter and $750,893 for the six-month period.
- Net loss expanded substantially, driven by higher clinical development and corporate expenses. The prior-year six-month period included a $617,615 New Jersey state tax benefit; no comparable benefit was recorded in 2013.
- Interest expense increased to $287,640 for the six-month period from $11,592, reflecting the Hercules debt, debt discount amortization, and financing-cost amortization.
- Stock-based compensation expense was $441,315 for the six-month period, with $2.51 million of expense related to unvested options remaining to be recognized over an estimated weighted-average vesting period of approximately 2.8 years.
Guidance, outlook, risks, and unusual items
- Management expected R&D expenses to increase throughout 2013 as the RI-002 Phase III program progressed. The pivotal trial began in 2013 and was expected to enroll approximately 60 to 70 patients.
- Management did not expect FDA approval of RI-002 before the second half of 2015, if approval occurred at all. Consequently, commercialization revenue from RI-002 was not expected before that time.
- Management believed existing cash, the option to borrow an additional $1 million under the Hercules agreement following a qualifying financing, and a backstop financing arrangement could fund operations into the second quarter of 2014. The company stated that additional capital would be required before then.
- On August 12, 2013, the company extended to December 24, 2013 the deadline to pursue a follow-on financing of at least $5 million. If the financing could not be completed, specified investors agreed to subscribe for up to an aggregate $4.0 million, subject to proportional reductions under the agreement.
- The Hercules facility permits total borrowings of up to $6 million; $5 million had been borrowed by June 30, 2013. Principal repayment was scheduled to begin no later than May 1, 2014, and the loan matured no later than August 2016. The facility is secured by company assets other than intellectual property and includes financial and operating covenants.
- The company has incurred cumulative losses of approximately $45.3 million and has experienced negative operating cash flow since inception. Failure to obtain additional financing could require delaying, reducing, or discontinuing development and clinical programs and could threaten continuation of operations.
- Revenue was substantially concentrated in one customer, creating customer-concentration risk. Additional risks included clinical and regulatory failure, manufacturing delays, patient enrollment, dependence on key personnel, financing dilution, debt covenants, and the absence of assurance that RI-002 will be approved or commercially viable.
- The quarter included $82,497 of insurance proceeds as other income and a $21,027 gain from the decrease in the fair value of the Hercules warrant liability. These items may not recur and warrant remeasurement may create earnings volatility.
- The company disclosed a ten-year lease for its plasma collection facility with total minimum rent of $874,522 through September 2018. No legal proceedings were reported.
Investor verification points
- Verify the timing, terms, dilution, and closing status of the required follow-on financing and the related investor backstop.
- Assess cash burn, debt repayment requirements, Hercules covenants, collateral provisions, and the estimated runway beyond the second quarter of 2014.
- Track RI-002 Phase III enrollment, clinical results, manufacturing readiness, FDA interactions, and the timing and probability of a BLA and approval.
- Evaluate the sustainability of plasma revenue, reliance on Biotest and one principal customer, and the decline in gross margin.
- Reconcile reported operating cash flow and monitor deferred revenue, financing-fee write-offs, warrant-liability remeasurement, and remaining stock-based compensation expense.
- Confirm the impact of the August 2013 annual-meeting charter amendments and the company’s continuing related-party relationships.