ADMA Biologics, Inc. — FY2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing is an annual report, not a quarterly report. ADMA is a clinical-stage specialty immune globulin company developing RI-002, a plasma-derived intravenous immune globulin enriched with RSV antibodies, and operates an FDA-licensed plasma collection center in Norcross, Georgia.
Business Context and Development Status
- RI-002 was the company’s primary product candidate and was intended initially for patients with primary immunodeficiency disease.
- The company commenced its pivotal Phase III RI-002 trial in 2013, planning to enroll approximately 60 to 70 patients at about 12 U.S. sites.
- ADMA generated revenue only from plasma sales and other plasma inventory sales; it had not generated revenue from therapeutics or research and development products.
- The company completed a February 2012 private placement and reverse merger, becoming a public reporting company. Common shares outstanding were 4,622,831 at December 31, 2012 and March 5, 2013.
Financial Performance and Key Metrics
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $1.118 million | $0.761 million | 47% increase |
| Cost of revenues | $0.669 million | $0.208 million | 222% increase |
| Gross profit | $0.449 million | $0.553 million | 19% decrease |
| Gross margin | 40.1% | 72.7% | Down 32.6 percentage points |
| Research and development expense | $3.469 million | $0.647 million | 436% increase |
| Plasma center operating expense | $1.747 million | $1.163 million | 50% increase |
| General and administrative expense | $3.142 million | $1.432 million | 119% increase |
| Net loss | $7.301 million | $5.903 million | 24% increase in loss |
| Net loss per share | $1.76 | $16.72 | Improved due primarily to higher share count |
| Cash used in operating activities | $6.904 million | $1.431 million | 383% increase |
Revenue was primarily generated under the June 2012 plasma supply agreement with Biotest. The company’s revenue base was substantially concentrated in one customer. The 2012 net loss included significant operating expansion and development spending, while 2011 included a non-recurring $1.935 million loss on the sale of research and development inventory.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $12.536 million at December 31, 2012, compared with $0.088 million at December 31, 2011.
- Working capital was approximately $12.1 million, including $1.3 million of inventory, offset by $1.8 million of accounts payable and accrued expenses.
- Total liabilities were $6.132 million, including a $3.774 million Hercules note, a $0.229 million warrant liability and a $0.106 million end-of-term liability.
- In December 2012, ADMA borrowed $4.0 million from Hercules and received approximately $3.9 million net of fees. The facility permits up to an additional $2.0 million subject to milestones, including Phase III enrollment and a qualifying financing.
- The Hercules loan bears interest at a minimum annual rate of 8.5%, is secured by substantially all company assets other than intellectual property, and requires principal repayment beginning no later than May 1, 2014. The loan matures no later than August 2016.
- Financing activities provided $19.471 million in cash during 2012, including approximately $17.287 million from the February private placement and $3.906 million net proceeds from debt.
Material Changes Versus FY2011
- Revenue increased, but gross profit declined because plasma-related costs grew faster than sales.
- Research and development spending increased sharply as ADMA prepared for the RI-002 Phase III program, including manufacturing, testing, regulatory and clinical costs.
- General and administrative expense increased because of higher staffing, professional fees, SEC reporting costs and stock-based compensation.
- Interest expense fell to $31 thousand from $1.603 million because prior notes were converted or repaid; new Hercules debt was entered into near year-end.
- Cash liquidity improved substantially after the private placement and Hercules financing, but operating cash burn also increased materially.
- Preferred stock and related accumulated dividends were converted into common stock in connection with the February 2012 merger and financing.
- Management stated that previously reported material weaknesses in financial reporting controls had been remediated; management concluded internal control over financial reporting was effective as of December 31, 2012.
Guidance, Outlook, Risks and Unusual Items
- Management expected current cash, the potential additional Hercules borrowing and a $4 million backstop financing arrangement to fund operations into the second quarter of 2014, based on 2013 projections.
- ADMA did not expect FDA approval of RI-002 before the second half of 2015, if approval was obtained at all, and acknowledged that additional capital would be required before the second quarter of 2014.
- Management expected research and development and general and administrative expenses to increase during 2013 as clinical operations and staffing expanded.
- The company’s ability to continue as a going concern depended on raising additional capital. Failure to obtain financing could delay or terminate clinical development and potentially force a reduction or cessation of operations.
- Key risks include failure to complete or obtain approval for RI-002, limited clinical-trial enrollment, reliance on third-party manufacturers and suppliers, plasma supply constraints, regulatory compliance, product liability, reimbursement uncertainty and intense competition.
- ADMA had no issued patents and relied primarily on trade secrets, confidentiality agreements and proprietary assay methods.
- The company entered into a ten-year exclusive manufacturing, supply and license agreement with Biotest effective January 1, 2013 and granted Biotest territorial commercialization rights for RSV antibody-enriched IGIV. Certain license terms remained subject to finalization, and ADMA expected a related charge to operations when finalized.
- ADMA had no public trading market for its common stock as of the filing date and was seeking quotation on the OTC Bulletin Board.
Important Facts for Investors to Verify
- Confirm current cash runway, availability of the $2 million Hercules milestone tranches and enforceability and funding status of the $4 million backstop financing.
- Review subsequent filings for Phase III enrollment, trial progress, safety and efficacy results, and the timing or submission of any RI-002 BLA.
- Assess customer concentration and the financial and operating terms of the Biotest plasma supply and manufacturing agreements.
- Verify the final terms and accounting impact of the anticipated Biotest in-license agreement.
- Monitor debt repayment requirements, security interests, covenants, default provisions and potential warrant-liability valuation volatility.
- Evaluate the company’s ability to raise capital without substantial dilution and its ongoing going-concern risk.
- Confirm maintenance of the FDA license for ADMA BioCenters and the adequacy and cost of plasma supply for future RI-002 manufacturing.