ADMA Biologics, Inc. — Fiscal 2017 Form 10-K Summary
Business context and reporting period
ADMA Biologics is a vertically integrated biopharmaceutical company focused on plasma-derived biologics for immune deficiencies and infectious diseases. The filing covers the fiscal year ended December 31, 2017; results include the acquired Biotest Therapy Business Unit assets from June 6, 2017 onward.
- Marketed products: Nabi-HB for Hepatitis B exposure and Bivigam for primary humoral immunodeficiency.
- Pipeline: RI-002, an IVIG candidate for primary immunodeficiency disease, with potential future evaluation in respiratory syncytial virus indications.
- Operations include plasma collection centers in Georgia and the acquired Boca Raton, Florida fractionation and manufacturing facility.
- The Biotest transaction added Nabi-HB, Bivigam, the Boca Facility and related manufacturing activities, but also added significant regulatory remediation requirements.
Financial performance and key metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $22.8 million | $10.7 million | Up 113% |
| Gross profit (loss) | $(6.4) million | $4.3 million | Declined |
| Operating loss | $(39.3) million | $(17.3) million | Loss increased 127% |
| Net loss | $(43.8) million | $(19.5) million | Loss increased 124% |
| Loss per share | $(1.91) | $(1.61) | Higher loss per share |
| Cash used in operations | $(37.3) million | $(18.3) million | Higher cash burn |
| Cash and cash equivalents | $43.1 million | $9.9 million | Up $33.2 million |
| Working capital | $53.7 million | $10.4 million | Improved |
| Stockholders’ equity | $40.3 million | $(4.5) million | Improved |
- Revenue included $4.0 million of Nabi-HB sales, $7.0 million from a Sanofi contract amendment, $10.7 million of plasma sales to Biotest and $0.1 million of license revenue.
- Cost of product revenue was $29.2 million, including $12.8 million of unabsorbed Boca Facility manufacturing costs, $3.8 million of Warning Letter remediation costs, $3.3 million of Nabi-HB costs and $1.6 million of Bivigam production costs.
- Research and development expense declined to $6.2 million from $7.7 million, primarily because of lower RI-002 validation, testing, BLA and production costs.
- SG&A increased to $18.1 million from $8.5 million, reflecting acquired operations, transaction costs, insurance and higher stock-based compensation.
- The Company recorded a $0.8 million asset impairment charge, $1.2 million of acquired-intangible amortization and a $1.2 million loss on extinguishment of debt.
Liquidity, debt and financing
- November 2017 equity offering: 19.5 million common shares issued for $42.0 million of gross proceeds and approximately $39.2 million of net proceeds.
- Marathon senior secured facility: $30.0 million drawn, with up to an additional $10.0 million subject to FDA, revenue and financial conditions. The facility matures April 10, 2022 and bears interest at LIBOR plus 9.50%, subject to specified adjustments.
- Biotest subordinated note: $15.0 million principal, bearing 6% interest and maturing June 6, 2022.
- Total liabilities were $67.7 million at year-end, including $25.4 million of senior notes, $14.8 million of related-party debt and $12.6 million representing the obligation to transfer two plasma centers to Biotest.
- Cash flow from financing activities was $60.8 million; investing activities provided $15.2 million, including $12.5 million of acquisition-related cash and $5.4 million from short-term investment redemptions.
- Management expects available cash, projected revenue, accounts receivable and potential additional Marathon borrowings to fund operations through the end of 2018. Additional equity or debt financing is expected to be required by the end of 2018.
Material changes versus the prior comparable period
- The Biotest transaction materially expanded revenue, assets, manufacturing capacity and debt, but caused the 2017 results to be not directly comparable with 2016 because acquired operations were included only from June 6, 2017.
- Revenue more than doubled, but gross profit shifted to a gross loss because the Boca Facility operated below capacity and incurred remediation and production costs.
- Net loss more than doubled, and operating cash burn increased by approximately $19.0 million.
- Bivigam commercial production had been suspended by Biotest in December 2016. ADMA produced two conformance lots in the fourth quarter of 2017, but Bivigam was not commercially available during fiscal 2017.
- ADMA resumed Nabi-HB production in the third quarter of 2017 and received FDA authorization after year-end to release its first commercial batch for U.S. distribution.
- ADMA completed construction of a third plasma collection facility, filed its BLA in December 2017 and began collections; FDA approval was anticipated in the second half of 2018.
Guidance, outlook, risks and unusual items
- Management expected to submit a Prior Approval Supplement for Bivigam in the first half of 2018 and sought a relaunch in the second half of 2018.
- Management believed the Boca Facility was inspection-ready by year-end 2017 and expected an FDA re-inspection in the first half of 2018. Subject to resolving the Warning Letter issues, ADMA expected to refile the RI-002 BLA in the second half of 2018.
- RI-002’s Phase III trial met its primary endpoint, with no serious bacterial infections reported among 59 patients; however, FDA approval remained contingent on manufacturing, quality and regulatory remediation.
- The independent auditor included an explanatory paragraph stating that losses, negative operating cash flows and liquidity needs raised substantial doubt about the Company’s ability to continue as a going concern.
- Key risks include failure to remediate the FDA Warning Letter, inability to obtain RI-002 or Bivigam approvals, manufacturing interruptions, inadequate plasma supply, customer concentration, debt acceleration and inability to raise additional capital.
- BPC and Sanofi represented 78% of 2017 revenue, with BPC at 47% and Sanofi at 31%. Sanofi also represented 48% of year-end accounts receivable.
- Under the Biotest transaction, two plasma collection facilities are scheduled to transfer to BPC on January 1, 2019, subject to applicable rights and conditions.
- The Sanofi contract amendment generated a one-time $7.0 million compensation fee in 2017 and imposed minimum production and potential liquidated-damages obligations for 2018 and 2019.
Most important facts for investors to verify
- Liquidity: Confirm available unrestricted cash, restricted cash, borrowing capacity and the timing and terms of required financing after 2018.
- Going concern: Review the auditor’s going-concern language and management’s assumptions supporting projected funding through year-end 2018.
- FDA remediation: Verify the outcome of the Boca Facility inspection, Warning Letter status, Bivigam PAS and RI-002 BLA resubmission.
- Commercial execution: Track Nabi-HB sales, Bivigam relaunch timing, manufacturing utilization and gross-margin improvement.
- Contract concentration: Assess dependence on BPC and Sanofi, including customer receivables and contractual minimum-volume or liquidated-damages provisions.
- Asset transfer: Confirm the status and financial impact of transferring two plasma centers to BPC on January 1, 2019.
- Debt restrictions: Review Marathon covenants, minimum liquidity requirements, collateral coverage, interest expense and acceleration risks.