ADMA Biologics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited results for the three and nine months ended September 30, 2016, compared with the corresponding 2015 periods. ADMA is a late-stage biopharmaceutical company developing plasma-based biologics, primarily RI-002 for primary immune deficiency disease, and operates two FDA-licensed plasma collection centers in Georgia. The filing was signed November 10, 2016.
RI-002’s Biologics License Application received a Complete Response Letter from the FDA in July 2016. The FDA did not identify concerns with clinical safety or efficacy or request additional clinical studies, but cited inspection and compliance deficiencies involving third-party manufacturers, a fill-and-finish provider and a testing laboratory.
Financial Metrics
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Total revenue | $2.9 million | $1.9 million | $7.3 million | $4.7 million |
| Product revenue | $2.9 million | $1.8 million | $7.2 million | $4.6 million |
| Gross profit | $1.2 million | $0.7 million | $3.0 million | $1.9 million |
| Gross margin | 40.9% | 39.9% | 40.7% | 39.8% |
| Loss from operations | $(3.7) million | $(4.7) million | $(13.4) million | $(11.4) million |
| Net loss | $(4.3) million | $(5.1) million | $(15.0) million | $(13.4) million |
| Net loss per share | $(0.34) | $(0.48) | $(1.26) | $(1.28) |
| Net cash used in operations | Not separately reported for the quarter | $(14.7) million | $(11.3) million |
Q3 net margin was approximately negative 147%; nine-month net margin was approximately negative 204%. The company has incurred cumulative losses of approximately $102.4 million since inception.
At September 30, 2016, cash and cash equivalents were $7.9 million, short-term investments were $11.0 million, and working capital was approximately $20.6 million. Total assets were $27.5 million and total liabilities were $27.6 million, resulting in stockholders’ deficiency of $0.2 million.
Gross Oxford debt was $20.0 million, with a carrying value of $18.2 million after debt discounts and financing costs. The current portion of notes payable was $4.4 million, and the company also reported a $1.8 million end-of-term liability. Principal repayment was scheduled to begin in February 2017 unless the additional borrowing option was exercised.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 59% and nine-month revenue increased 57%, primarily because the Marietta, Georgia plasma center increased collections and sales after receiving FDA approval during Q3 2015.
- Q3 gross margin improved to approximately 40.9% from 39.9%; nine-month gross margin improved to approximately 40.7% from 39.8%.
- Q3 research and development expense decreased 21% to $1.7 million as testing and validation spending was reduced after the FDA response. Nine-month R&D expense increased 42% to $7.1 million because of higher RI-002 validation, testing, production and regulatory consulting costs.
- Q3 general and administrative expense decreased 14% to $1.8 million as certain commercialization activities were deferred. Nine-month G&A expense increased 7% to $5.2 million due to commercialization planning, headcount, rent, wages and consulting costs.
- Q3 net loss improved by $0.8 million, but the nine-month net loss increased by $1.6 million because operating expenses rose substantially.
- Cash used in operations increased to $14.7 million from $11.3 million, driven partly by inventory, accounts receivable and prepaid expense increases.
- In May 2016, ADMA issued 2.2 million shares for approximately $14.1 million of gross proceeds and borrowed an additional $4.0 million from Oxford, bringing total Oxford principal to $20.0 million. Shares outstanding increased to 12.9 million from 10.7 million at year-end 2015.
Outlook, Risks, Contingencies and Unusual Items
- Management estimated that cash, short-term investments, projected revenue and accounts receivable would fund operations as currently conducted into the second half of 2017. This estimate depends on FDA timing, manufacturing scale-up, spending, revenue and other assumptions.
- ADMA could borrow an additional $5.0 million under its Oxford facility only if RI-002 received FDA approval by January 31, 2017. The additional borrowing would extend the interest-only period by six months. No other committed future funding was identified.
- Management expects continuing losses and negative operating cash flow for the foreseeable future and may need additional equity, debt, grants or collaboration financing. Financing may be unavailable or could dilute existing stockholders and impose additional covenants.
- RI-002 approval remains dependent on resolving third-party manufacturing, fill-and-finish and laboratory deficiencies identified in the FDA’s CRL. The filing did not provide a definitive BLA resubmission or approval date.
- Product revenue was substantially concentrated in two customers; one represented more than 80% and another more than 10% of nine-month 2016 product revenue.
- The company depends on third-party manufacturers and vendors, including one manufacturer for RI-002, and on adequate supplies of normal-source and RSV high-titer plasma.
- Debt bears interest at the greater of 7.80% or three-month LIBOR plus 7.54%, is secured by company assets other than intellectual property, and includes financial and operational covenants, end-of-term payments and prepayment charges.
- The company reported no material legal claims, no defaults upon senior securities and no material changes to previously disclosed risk factors.
Important Facts for Investors to Verify
- Progress and timing of remediation, FDA feedback and resubmission of the RI-002 BLA.
- Whether the company can obtain FDA approval by the deadline required to access the additional $5.0 million Oxford tranche.
- Actual cash burn, inventory utilization, plasma collection growth and customer concentration.
- Debt repayment requirements beginning in 2017, including end-of-term liabilities, interest costs and covenant compliance.
- Availability and terms of any future equity, debt or strategic financing, and resulting dilution risk.
- Ability of the plasma collection business to generate sufficient gross profit while funding RI-002 development and potential commercialization.