ADMA Biologics, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
ADMA Biologics is a vertically integrated biopharmaceutical company developing, manufacturing and marketing plasma-derived biologics for primary immune deficiency and infectious diseases. The filing covers the unaudited three months ended March 31, 2018, with comparison to the three months ended March 31, 2017.
Results include the Biotest assets acquired on June 6, 2017, including Nabi-HB, Bivigam and the Boca Raton manufacturing facility. Accordingly, management states that the periods are not directly comparable.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $4.0 million | $2.6 million | 54% increase |
| Product revenue | $4.0 million | $2.6 million | 54% increase |
| Cost of product revenue | $12.2 million | $1.6 million | 657% increase |
| Gross loss | $(8.2) million | $1.0 million gross profit | Material deterioration |
| Operating loss | $(16.5) million | $(5.9) million | 178% increase in loss |
| Net loss | $(17.8) million | $(6.5) million | 173% increase in loss |
| Basic and diluted loss per share | $(0.39) | $(0.51) | Improved per share due primarily to higher share count |
| Cash used in operating activities | $(16.4) million | $(5.4) million | Higher cash burn |
Reported gross margin was approximately negative 203%, operating margin approximately negative 409% and net margin approximately negative 441% in Q1 2018. These margins are not comparable with Q1 2017 because the acquired manufacturing operations were included only after June 6, 2017.
- Nabi-HB revenue was approximately $1.7 million and commercial sales resumed during the quarter.
- Plasma revenue was approximately $2.3 million, compared with $2.6 million in Q1 2017.
- License and other revenue was approximately $36,000 in both periods.
- Approximately $5.2 million of cost of product revenue represented unabsorbed Boca Facility manufacturing costs; additional costs included $2.5 million for RI-002 production, $1.1 million for Bivigam production and $0.7 million for Warning Letter remediation.
- Research and development expense was $1.3 million, plasma center expense was $1.8 million, amortization expense was $0.2 million and SG&A expense was $5.0 million.
At March 31, 2018, cash and cash equivalents were $26.1 million, total current assets were $46.4 million, working capital was approximately $37.0 million and stockholders’ equity was $23.0 million. Total assets were $91.1 million and total liabilities were $68.1 million. Cash, including restricted cash, was $31.6 million.
Outstanding debt included $30.0 million of senior notes, recorded net of discount at $25.6 million, and a $15.0 million subordinated related-party note, recorded net of discount at $14.9 million. The senior facility permits access to an additional $10.0 million subject to conditions, bears interest at LIBOR plus 9.50% with a 1% floor, and matures April 10, 2022. The company was in compliance with its debt covenants at March 31, 2018 and was required to maintain at least $5.5 million of liquidity in the debt service reserve account.
Material changes versus the prior comparable period
- Revenue increased by $1.4 million, primarily because Nabi-HB sales began contributing revenue, partially offset by lower plasma sales.
- Manufacturing and remediation costs increased substantially following the Biotest acquisition, resulting in a shift from gross profit to a significant gross loss.
- Interest expense increased to $1.3 million from $0.6 million because of higher debt balances, the related-party note and higher senior debt rates.
- Operating cash usage increased by approximately $11.0 million, reflecting the higher net loss and ongoing manufacturing, regulatory and commercialization spending.
- Cash and cash equivalents declined by $17.0 million from December 31, 2017, while working capital declined from approximately $53.7 million to $37.0 million.
- Three customers represented 90% of consolidated revenue; BPC represented 58%, McKesson 17% and AmerisourceBergen 15%.
Guidance, outlook, commentary and risks
- Management expected to file a Bivigam Prior Approval Supplement during the first half of 2018 and to relaunch Bivigam no earlier than the second half of 2018, subject to FDA approval.
- Management anticipated refiling the RI-002 BLA in the second half of 2018, subject to remediation of FDA Warning Letter and Complete Response Letter issues. Initial RI-002 commercial sales were not expected before the first half of 2019.
- Management expected FDA approval of the Kennesaw, Georgia plasma center during the second half of 2018.
- Management expected $2.0 million to $3.0 million of additional capital expenditures during the remainder of 2018.
- Cash, projected revenue and receivables, and the expected $10.0 million of additional credit availability were projected to fund operations into the fourth quarter of 2018. The company stated that it must raise additional capital before the end of 2018 to continue as a going concern and had no firm financing commitment.
- The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern. Failure to obtain financing could require reductions or delays in product development, regulatory activities and commercialization, or potentially a cessation of operations.
- FDA remediation at the Boca Facility remains a key contingency. Delays or failure to resolve the Warning Letter and related manufacturing deficiencies could prevent Bivigam commercialization and RI-002 approval.
- The company must transfer two FDA-approved plasma centers to BPC on January 1, 2019 under the Biotest transaction. The company may need a waiver or extension if the third center is not approved by then.
- A contract manufacturing agreement requires minimum production volumes and may require a $1.5 million annual payment if minimum volumes are not met and no other breach or default exists.
On May 14, 2018, after quarter-end, BPC transferred 8,591,160 non-voting shares to ADMA for no cash consideration; ADMA immediately retired those shares. In exchange, ADMA released Biotest from potential indemnity claims and relinquished its rights to repurchase the two plasma centers scheduled for transfer. BPC also waived its rights to appoint a director and observer. BPC agreed, subject to regulatory approvals, to transfer its remaining 10,109,534 common shares to the Biotest Trust by the earlier of required governmental consent or July 1, 2018.
Most important facts for investors to verify
- Progress and FDA acceptance of remediation activities at the Boca Facility, including the timing and outcome of the next FDA inspection.
- Filing and approval status of the Bivigam PAS and the timing of any commercial relaunch.
- Timing and FDA response to the RI-002 BLA refiling and the ability to commercialize existing RI-002 inventory.
- Actual cash burn, access to the additional $10.0 million under the senior credit facility and the terms and timing of required new financing.
- Whether the third plasma center receives FDA approval before the January 1, 2019 transfer obligation for the two existing centers.
- Customer concentration, particularly the continuing dependence on BPC and other major customers.
- The effect of the May 14, 2018 Biotest transfer agreement on ownership, governance, indemnification rights and future share overhang.