ADMA Biologics, Inc. — Q1 2019 Form 10-Q Summary
Business context and reporting period
ADMA is a vertically integrated biopharmaceutical company developing and manufacturing plasma-derived biologics for immune deficiencies and infectious diseases. The filing covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Products included marketed Nabi-HB, FDA-approved ASCENIV, and BIVIGAM, which remained unavailable for commercial distribution pending FDA review of its manufacturing supplement.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $3.5 million | $4.0 million | Down 13% |
| Gross loss | $(5.9) million | $(8.2) million | Improved $2.3 million |
| Operating loss | $(13.2) million | $(16.5) million | Improved $3.3 million |
| Net loss | $(13.1) million | $(17.8) million | Improved $4.8 million |
| Loss per share | $(0.28) | $(0.39) | Improved $0.11 |
| Cash used in operations | $(14.3) million | $(16.4) million | Improved $2.1 million |
Approximate margins were negative 167% gross, negative 374% operating, and negative 370% net in Q1 2019. Product revenue was $3.49 million and license revenue was $35,708. Revenue declined primarily because of lower Nabi-HB shipments and reduced source-plasma revenue following the expiration of the Biotest plasma supply agreement and the transfer of two plasma centers.
At March 31, 2019, cash and cash equivalents were $16.5 million, working capital was $30.0 million, total assets were $78.1 million, and stockholders’ equity was $10.0 million. The company reported an accumulated deficit of $229.5 million. Total senior notes payable were $45.0 million face value, or $40.9 million net of discount, and the related-party Biotest note was $15.0 million face value, or $14.9 million net of discount. Senior debt carried an 11.0% interest rate at quarter-end and was secured by substantially all company assets, including intellectual property.
Cash decreased by $10.2 million during the quarter. Financing cash flow was $4.2 million, reflecting the February refinancing, while investing cash flow was $(0.1) million. Management expected available cash, projected revenue and receivables, and undrawn credit capacity to fund operations into the fourth quarter of 2019, but stated that additional capital would be required by that time to continue as a going concern.
Material changes versus the prior comparable period
- Revenue decreased $0.5 million, or approximately 13%, primarily from lower Nabi-HB and source-plasma sales.
- Cost of product revenue declined $2.8 million, partly because Q1 2018 included $4.1 million of expense for three ASCENIV conformance lots and one BIVIGAM lot, compared with $0.8 million for one BIVIGAM lot in Q1 2019.
- Plasma center operating expenses decreased $1.2 million following the transfer of two facilities to Biotest effective January 1, 2019.
- SG&A increased $0.3 million, mainly due to higher legal and professional fees and stock-based compensation.
- The company refinanced its prior senior debt in February 2019 with a $45.0 million Perceptive term loan. The refinancing generated a $10.0 million loss on extinguishment of debt, including a $6.5 million prepayment penalty and a $3.5 million write-off of unamortized debt discount.
- The transfer of the two plasma centers generated an $11.5 million nonrecurring gain, substantially offsetting the debt extinguishment loss in reported net income.
Guidance, outlook, risks and unusual items
- On April 1, 2019, after quarter-end, the FDA approved ASCENIV for treatment of primary humoral immunodeficiency in adults and adolescents ages 12 to 17. Management anticipated commercial launch during the second half of 2019.
- On May 3, 2019, after quarter-end, ADMA borrowed the additional $27.5 million available under its Perceptive facility. The proceeds were intended for the ASCENIV launch, plasma-center expansion, raw-material inventory, working capital and general corporate purposes.
- Perceptive also committed up to an additional $12.5 million, contingent principally on FDA approval of the BIVIGAM PAS and other conditions. The facility’s stated aggregate commitment after the amendment was up to $85.0 million.
- BIVIGAM remained subject to FDA review after a December 2018 Complete Response Letter. The company had responded to information requests but had not received a formal resubmission acknowledgment or a clear review timeline.
- The FDA had not formally issued a close-out letter for the prior Warning Letter involving the Boca Raton facility, despite the company’s improved inspection status and its belief that remediation efforts were progressing.
- Management stated that substantial doubt existed regarding the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow and the need for additional financing by the fourth quarter of 2019.
- Key operating risks include FDA and manufacturing compliance, BIVIGAM approval and relaunch timing, ASCENIV commercialization, plasma availability, reliance on third-party suppliers and customers, reimbursement and market acceptance, and execution of commercial expansion plans.
- Two customers represented 81% of Q1 2019 revenue, while four customers represented 96% of accounts receivable, creating significant concentration risk.
- The company had a contract manufacturing commitment requiring a payment of $1.5 million annually if minimum production volumes were not met, absent another breach or default.
Important facts for investors to verify
- Whether ASCENIV launched on schedule and generated meaningful commercial revenue during the second half of 2019.
- Whether the FDA formally closed the Boca facility Warning Letter and whether BIVIGAM received PAS approval and was successfully relaunched.
- Actual cash burn, financing activity and liquidity after the $27.5 million post-quarter-end borrowing.
- Compliance with Perceptive’s $3.0 million minimum cash covenant and quarterly trailing-revenue requirements.
- Ability to raise additional capital by the projected funding shortfall and the resulting dilution or debt burden.
- Inventory realizability, particularly BIVIGAM and ASCENIV inventory subject to regulatory and commercialization uncertainties.
- Customer concentration, plasma supply arrangements and the effect of transferring two plasma collection centers to Biotest.