ADMA Biologics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017; filed August 11, 2017. ADMA develops, manufactures and markets plasma-derived biologics. On June 6, 2017, it acquired selected Biotest Therapy Business Unit assets, including Nabi-HB, Bivigam and the Boca Raton manufacturing facility.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $3.4 million, up 50% | $6.0 million, up 37% |
| Gross profit/(loss) | $(0.9) million | $0.1 million |
| Gross margin | (27.5%), versus 40.8% | 1.3%, versus 40.6% |
| Operating loss | $(8.4) million | $(14.3) million |
| Net loss | $(9.0) million, versus $(6.0) million | $(15.6) million, versus $(10.6) million |
| Loss per share | $(0.55), versus $(0.50) | $(1.06), versus $(0.93) |
| Cash flow from operations | $(14.2) million, versus $(10.0) million |
Revenue consisted primarily of plasma sales, with $0.5 million of Nabi-HB revenue in the six-month period and $5.4 million of plasma revenue. License and other revenue was $71,417. Bivigam production had been suspended and was not expected to resume during the remainder of 2017.
At June 30, 2017, cash and cash equivalents were $25.6 million, working capital was $28.6 million, total assets were $84.6 million and stockholders’ equity was $27.7 million, compared with a deficit of $4.5 million at December 31, 2016. Inventory increased to $13.2 million from $5.0 million, primarily reflecting acquired inventory and manufacturing materials.
Debt included $17.2 million of gross Oxford senior notes outstanding before discount, $15.0 million of gross subordinated related-party debt owed to Biotest, and a $12.6 million purchase-price payable related to the future transfer of two plasma centers. Oxford debt began amortizing in February 2017 and matures no later than January 2020; the Biotest note bears interest at 6% and matures June 6, 2022.
Material changes versus the prior comparable period
- Revenue increased, driven by higher plasma sales and the addition of $0.5 million of Nabi-HB sales following the Biotest acquisition.
- Profitability deteriorated substantially. Cost of product revenue rose 128% for the six-month period, including approximately $2 million of Boca Facility operating and FDA remediation costs while the facility was not producing.
- Research and development expense declined 53% for the six-month period because RI-002 validation, testing and production activity decreased after receipt of the FDA Complete Response Letter.
- General and administrative expense increased 154%, including approximately $3.8 million of Biotest transaction costs and higher compensation expense.
- Cash increased by $15.7 million during the six months, primarily from $12.5 million of cash acquired in the transaction, redemption of $5.4 million of short-term investments and $15.0 million of Biotest debt financing, partly offset by operating cash burn and debt repayments.
- The acquisition was funded partly with 12.9 million shares of voting and non-voting common stock valued at approximately $47.2 million. Biotest became a principal stockholder and related party.
Guidance, outlook, risks and unusual items
- Management expected to be inspection-ready for the Boca Facility by the end of 2017 and anticipated resubmitting the RI-002 BLA around mid-2018. The prior FDA Complete Response Letter cited manufacturing, inspection and vendor deficiencies, not clinical safety or efficacy concerns.
- Management expected Bivigam to remain unavailable for sale through the remainder of 2017. Resumption depends on remediation satisfactory to the FDA.
- Cash, projected revenue and receivables, together with Biotest’s $12.5 million equity commitment, were expected to fund operations into the first quarter of 2018. Additional financing was expected to be required by the end of that quarter.
- The filing states that recurring losses and negative operating cash flows raise substantial doubt about the Company’s ability to continue as a going concern. No additional financing was firmly committed other than the Biotest equity commitment.
- Revenue concentration was significant: BPC represented approximately 75% and SK approximately 15% of six-month revenue. BPC also became a related party, creating customer, supplier and financing concentration risk.
- The Company must transfer two plasma collection centers to BPC on January 1, 2019; the related purchase-price payable was $12.6 million.
- The Company assumed pending Bivigam post-marketing studies expected to be completed by the end of 2021, subject to product availability and manufacturing improvements. A contract manufacturing arrangement may require a $1.5 million annual payment if minimum production requirements are not met.
- Management reported effective disclosure controls, but excluded the acquired Biotest Assets from its internal-control assessment during the permitted acquisition integration period.
Important facts for investors to verify
- Progress and FDA acceptance of Boca Facility remediation, inspection readiness and RI-002 BLA resubmission.
- Availability, manufacturing restart and commercial prospects for Bivigam and Nabi-HB.
- Timing, terms and dilution associated with required financing after the expected first-quarter 2018 cash runway.
- Compliance with Oxford debt covenants, scheduled principal repayments and refinancing prospects.
- Reliance on BPC and SK, including related-party transactions and the planned transfer of two plasma centers.
- Inventory recoverability, manufacturing costs and potential write-offs while the Boca Facility remains inactive.
- Completion of the preliminary purchase-price allocation for the Biotest acquisition and any resulting changes to goodwill or acquired asset values.