ADMA Biologics, Inc. — Q3 2020 Form 10-Q Summary
Business context and reporting period
ADMA is a commercial biopharmaceutical company manufacturing, marketing and developing specialty plasma-derived biologics. Its marketed products are BIVIGAM, ASCENIV and Nabi-HB, supported by plasma collection, contract manufacturing, laboratory services and intermediate-product sales. The filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Total revenue | $10.3 million | $7.2 million | +42% |
| Gross loss | $1.6 million | $0.7 million | Loss increased |
| Gross margin | (15.4%) | (9.6%) | Lower |
| Operating loss | $13.8 million | $9.1 million | Loss increased |
| Net loss | $16.9 million | $11.4 million | Loss increased |
| Net loss per share | $0.19 | $0.19 | Unchanged |
| Metric | Nine months 2020 | Nine months 2019 | Change |
|---|---|---|---|
| Total revenue | $28.3 million | $17.3 million | +63% |
| Gross loss | $13.9 million | $10.5 million | Loss increased |
| Gross margin | (49.3%) | (60.6%) | Improved |
| Operating loss | $47.7 million | $33.6 million | Loss increased |
| Net loss | $56.3 million | $37.7 million | Loss increased |
| Net loss per share | $0.68 | $0.72 | Improved |
Revenue growth was driven primarily by increased BIVIGAM and ASCENIV sales, higher Boca Facility manufacturing revenue and intermediate-fraction sales. Q3 revenue included $9.0 million from ADMA BioManufacturing, $1.2 million from Plasma Collection Centers and $0.04 million of license revenue.
Q3 cost of product revenue was $11.9 million, exceeding revenue. Management attributed the increase to higher product costs, partly offset by lower unabsorbed manufacturing expenses. Nine-month cost of product revenue included $7.3 million of BIVIGAM conformance-lot production costs and was partly offset by a $6.9 million reduction in unabsorbed manufacturing expenses.
Q3 operating expenses were $12.2 million excluding cost of product revenue, including $1.7 million of research and development, $1.2 million of plasma-center expenses and $9.1 million of selling, general and administrative expense. Interest expense was $3.1 million for the quarter and $8.9 million for the nine-month period.
Liquidity, cash flow and debt
- Cash and cash equivalents were $59.7 million at September 30, 2020, versus $26.8 million at December 31, 2019.
- Working capital was $123.1 million, and stockholders’ equity was $71.4 million at September 30, 2020.
- Nine-month operating cash flow was negative $69.8 million, compared with negative $56.5 million in 2019.
- Nine-month investing cash flow was negative $9.1 million, principally for facility, equipment and plasma-center expansion.
- Nine-month financing cash flow was positive $111.8 million, including $88.7 million from the February equity offering, $12.5 million from the final senior-loan tranche and $10.6 million from the at-the-market offering.
- Senior secured debt had $85.0 million of principal outstanding, with a carrying value of $82.1 million, an interest rate of 11.0% at September 30, 2020 and maturity on March 1, 2022.
- The company also had a $15.0 million subordinated Biotest note bearing 6.0% interest and maturing June 6, 2022.
- The senior facility is secured by substantially all company assets and requires a minimum cash balance of $3.0 million and compliance with trailing revenue covenants. ADMA reported compliance as of September 30, 2020.
Material changes versus the prior comparable period
- Revenue increased substantially as BIVIGAM and ASCENIV moved further into commercial scale-up, but losses widened because production, commercialization, research and plasma-center expansion costs grew faster than revenue.
- Research and development expense increased to $4.9 million for the first nine months from $1.9 million, primarily due to filling-line development, post-marketing studies, ASCENIV expiration-dating work and assay development.
- SG&A increased to $25.8 million from $18.9 million, driven by staffing, insurance and ASCENIV commercialization costs.
- Unlike 2019, the first nine months of 2020 included no debt-extinguishment loss or gain from transferring plasma-center assets. The 2019 period included a $10.0 million debt-extinguishment loss and an $11.5 million gain on the plasma-center transfer.
- Inventory increased to $69.8 million from $53.1 million at year-end 2019, reflecting raw-material and work-in-process investment required by the seven- to 12-month production cycle.
- Common shares outstanding increased to 89.6 million at September 30, 2020 from 59.3 million at December 31, 2019, primarily due to equity offerings.
Guidance, outlook, commentary and risks
Management stated that the Boca Facility could ultimately support more than $250 million of annual revenue as production ramps over three to five years. ADMA expects additional capital expenditures of approximately $3 million to $6 million for the remainder of 2020 and expects SG&A to increase in 2021.
The company does not expect sufficient product revenue to achieve profitability before the end of 2021. Based on current assumptions, cash, projected revenue and accounts receivable are expected to fund operations into the second quarter of 2021, but additional capital is anticipated before the end of that quarter. Management disclosed substantial doubt about the company’s ability to continue as a going concern and stated that no firm commitment for additional financing existed at the filing date.
ADMA experienced delays in third-party final drug-product release testing, source-plasma shipments and other supplies during the COVID-19 pandemic. It added laboratories to its FDA-approved testing consortium and believes the release-testing issue was adequately addressed. COVID-19 had not materially affected financial condition or results through the filing date, but future effects remain uncertain.
Key risks include continued operating losses and negative cash flow, dependence on additional financing, debt maturity and secured-creditor enforcement risk, reliance on third-party plasma suppliers and fill-finishers, FDA inspections and post-marketing obligations, plasma availability and quality, customer concentration, reimbursement and market acceptance, production scale-up, COVID-19 disruptions and potential dilution from additional equity issuance.
After quarter-end, ADMA sold an additional 4.1 million shares under its at-the-market agreement for $9.6 million of net proceeds through October 31, 2020. On November 5, 2020, the agreement was amended to permit up to an additional $20 million of shares to be sold.
Most important facts for investors to verify
- Whether BIVIGAM and ASCENIV sales can grow rapidly enough to reduce negative gross margins and operating cash burn.
- The timing, pricing and dilution associated with additional equity or debt financing needed before or during the second quarter of 2021.
- ADMA’s ability to refinance or repay the $85.0 million senior secured facility and $15.0 million subordinated note when they mature in 2022.
- Progress in validating and expanding Boca Facility capacity, reducing unabsorbed manufacturing costs and completing FDA-required studies.
- Availability, cost and regulatory quality of source plasma, particularly given reliance on Grifols and other third-party suppliers.
- Customer concentration and the effect of losing or reducing business with BioCare, Biolife or Reliance.
- Whether COVID-19, FDA inspections, third-party testing delays or supply-chain disruptions could materially affect product release and revenue.