ADMA Biologics, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2023; filed November 8, 2023. The statements are unaudited and compare with the same periods in 2022. ADMA manufactures and commercializes plasma-derived biologics, including BIVIGAM, ASCENIV and Nabi-HB, through its Boca Raton manufacturing facility and ten U.S. plasma collection centers, nine of which were FDA-licensed at September 30, 2023.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $67.3 million | $41.1 million | $184.3 million | $104.1 million |
| Gross profit | $24.7 million | $9.7 million | $57.9 million | $21.1 million |
| Gross margin | 36.6% | 23.5% | 31.4% | 20.3% |
| Operating income (loss) | $8.7 million | $(9.3) million | $7.4 million | $(33.3) million |
| Net income (loss) | $2.6 million | $(14.9) million | $(10.6) million | $(53.7) million |
| Adjusted EBITDA | $12.7 million | $(6.1) million | $21.7 million | $(24.1) million |
Q3 revenue increased 64%, primarily from higher BIVIGAM and ASCENIV sales, partially offset by a $3.1 million decline in third-party plasma sales. Nine-month revenue increased 77%, driven mainly by an $80.9 million increase in immunoglobulin product sales.
Q3 was the company’s first quarter with positive net income and positive operating cash flow. Q3 operating cash flow was approximately $12.0 million. For the nine months, operating cash flow remained negative at $8.8 million, although this improved from negative $52.1 million in the prior-year period. Nine-month adjusted EBITDA improved by $45.8 million year over year.
Cash and cash equivalents were $74.2 million at September 30, 2023, compared with $86.5 million at December 31, 2022. Working capital was $231.9 million. Accounts receivable increased to $31.3 million from $15.5 million, while inventory remained substantial at $163.1 million.
Senior notes had a principal balance of $157.7 million and a carrying value of $142.0 million, with a stated interest rate of approximately 13.9% at September 30, 2023. The Hayfin facility matures March 23, 2027, has no scheduled principal amortization before maturity, and is secured by substantially all company assets. Interest expense was $18.8 million for the first nine months, up from $13.5 million. The company may pay 2.5% of interest in kind, increasing debt principal.
Material changes versus the prior comparable periods
- Revenue growth and improved product mix increased Q3 gross margin to 36.6% from 23.5%; nine-month gross margin increased to 31.4% from 20.3%.
- Operating results shifted from losses to operating income in both Q3 and the nine-month period, despite higher SG&A and interest expense.
- Plasma center operating expenses declined substantially as collections increased and more costs were capitalized into inventory. Management stated that plasma collected during the remainder of 2023 is expected to support internal IVIG production rather than generate significant third-party plasma revenue.
- Interest expense increased because of higher variable rates and accumulated in-kind interest.
- Shares outstanding increased to 225.96 million at September 30, 2023 from 221.82 million at December 31, 2022. Additional dilution may result from outstanding warrants, options and RSUs.
Guidance, outlook and management commentary
- Management believes current cash, cash equivalents, projected revenue and accounts receivable will fund operations as currently conducted through the end of fiscal 2024 and expects to continue generating positive operating cash flow. Management cautions that profitability and cash-flow projections may not be achieved.
- The Boca Facility is described as having potential to support annual IG-related revenue of at least $250 million in 2023, more than $290 million in 2024 and more than $335 million thereafter, subject to production yields, supply-chain execution, demand and regulatory matters.
- At those revenue levels, management forecasts consolidated gross margins of 40% to 50% and net income margins of 20% to 30%, with potential annual gross profit of more than $110 million to $160 million and net income of $55 million to $100 million during 2024–2025. These are forward-looking estimates, not reported results or firm guidance.
- Management continues to evaluate strategic alternatives and value-creating opportunities.
- Post-marketing studies for BIVIGAM were completed and submitted to the FDA. The ASCENIV pediatric study remains ongoing, with approximately $1.3 million of additional expected costs and a required completion date of June 2026.
Risks, contingencies and unusual items
- A June 2023 IT systems disruption made certain systems inaccessible for less than one week. Two in-process BIVIGAM batches were discarded, resulting in a $2.1 million second-quarter inventory charge; plasma center operations were also adversely affected by approximately $0.7 million. The company is pursuing insurance reimbursement, but recovery is not assured.
- Revenue and receivable concentration is significant: two customers represented approximately 71% of nine-month revenue, and four customers represented approximately 95% of accounts receivable at September 30, 2023.
- The company relies on third parties for plasma, testing, fill-finish, packaging and other manufacturing services. Delays, quality failures, regulatory actions or supply constraints could reduce product availability.
- Plasma availability, FDA licensing of collection centers, production yields, reimbursement, product acceptance and compliance with FDA requirements remain key operating risks.
- The Hayfin facility includes financial covenants, a $6.0 million minimum cash requirement, variable-rate exposure and acceleration provisions. A hypothetical 100-basis-point rate increase would have an estimated annual negative impact of approximately $1.6 million on earnings and cash flow.
- Inflation has increased costs for plasma, labor, supplies, utilities, repairs, freight and other operating inputs. The company also faces potential effects from pandemics, geopolitical conflicts, cyberattacks and broader economic uncertainty.
- The company had an accumulated deficit of $488.6 million and may need additional capital if it cannot sustain positive cash flow. Additional financing could dilute stockholders or impose restrictive terms.
- No material pending legal proceedings were reported, and management stated that disclosure controls and procedures were effective as of September 30, 2023.
Investor verification points
- Verify whether Q3 positive net income and operating cash flow continue in subsequent quarters and whether the company achieves sustained profitability.
- Track BIVIGAM and ASCENIV volume, pricing, payer acceptance, gross margins and the company’s ability to convert substantial inventory and receivables into cash.
- Reconcile management’s 2023–2025 revenue and margin projections with actual production capacity, plasma availability and FDA approvals.
- Monitor Hayfin principal growth from in-kind interest, variable interest rates, covenant compliance, the delayed-draw expiration and the March 2027 maturity.
- Assess customer concentration, rebate and chargeback accruals, and the collectability and timing of the $31.3 million accounts receivable balance.
- Follow remediation and insurance recovery related to the IT disruption and assess cybersecurity and business-continuity controls.
- Evaluate potential dilution from approximately 12.5 million outstanding warrants, equity awards and available equity financing capacity.