ADMA Biologics, Inc. — Fiscal 2016 Form 10-K Summary
Business context and reporting period
ADMA Biologics is a late-stage biopharmaceutical company developing plasma-derived biologics for immune deficiencies and infectious diseases. Its lead candidate, RI-002, is intended to treat primary immune deficiency disease (PIDD). The company also operates two FDA-licensed plasma collection centers in Georgia and generates revenue primarily from plasma sales.
This filing covers the fiscal year ended December 31, 2016, with comparative results for 2015. The Form 10-K was filed February 24, 2017.
Financial performance and liquidity
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $10.661 million | $7.178 million | +48.5% |
| Product revenue | $10.518 million | $7.050 million | +49.2% |
| License and other revenue | $0.143 million | $0.127 million | +12.2% |
| Gross profit | $4.300 million | $2.866 million | +50.0% |
| Gross margin | 40.3% | 39.9% | Approx. +0.4 points |
| Loss from operations | $(17.330) million | $(15.514) million | Loss increased |
| Net loss | $(19.515) million | $(17.970) million | Loss increased 8.6% |
| Net loss per share | $(1.61) | $(1.73) | Improved on higher share count |
| Cash used in operations | $(18.269) million | $(15.418) million | Use increased |
Operating expenses totaled $27.991 million, including $7.688 million of research and development expense, $5.448 million of plasma-center expense, and $8.495 million of general and administrative expense. The resulting operating margin was approximately negative 162.6%; net margin was approximately negative 183.0%.
At December 31, 2016, cash and cash equivalents were $9.915 million, short-term investments were $5.390 million, inventories were $5.020 million, and accounts receivable were $1.018 million. Working capital was approximately $10.4 million. Total liabilities were $28.142 million, including $18.433 million of Oxford debt before current/noncurrent presentation and debt discounts, plus a $1.790 million end-of-term liability. Stockholders’ equity was negative $4.457 million.
The company raised approximately $12.9 million net from a May 2016 common-stock offering and borrowed an additional $4.0 million from Oxford, bringing Oxford principal borrowings to $20.0 million. Principal repayment began in February 2017, and the loan matures no later than January 2020.
Material changes versus the prior comparable period
- Revenue increased primarily because the Marietta plasma center, approved for U.S. sales in the third quarter of 2015, contributed a full year of increased collections and sales.
- Product revenue growth exceeded the increase in cost of product revenue, raising gross profit and slightly improving gross margin.
- R&D expense increased $0.672 million to $7.688 million due to higher RI-002 validation, testing, production, and regulatory consulting costs.
- Plasma-center expense increased $0.830 million as collections expanded at the Marietta facility.
- G&A expense increased $1.749 million, driven by acquisition-related fees, commercialization planning, consulting, headcount, wages, and benefits.
- Net loss increased by $1.545 million. The 2015 results included a $0.719 million loss on extinguishment of debt that did not recur in 2016, but 2016 included higher interest expense following the additional Oxford borrowing.
- Shares outstanding increased from 10.713 million at December 31, 2015 to 12.887 million at December 31, 2016, primarily reflecting the 2016 equity offering.
Guidance, outlook, risks, contingencies, and unusual items
In July 2016, the FDA issued a Complete Response Letter for the RI-002 BLA. The FDA did not identify concerns with the submitted clinical safety or efficacy data and did not request additional clinical studies, but cited inspection and Chemistry, Manufacturing and Controls deficiencies involving third-party manufacturers and vendors. Final approval remains dependent on satisfactory remediation and documentation.
On January 21, 2017, ADMA entered into a proposed agreement to acquire certain Biotest/BPC assets, including a 126,000-square-foot FDA-licensed Boca Raton manufacturing facility, rights to Nabi-HB, Bivigam, and investigational Civacir, and at least $5.0 million of in-process inventory. Consideration includes equity representing approximately 50% less one share of the post-closing company, a $12.5 million capital contribution, and a $15.0 million subordinated five-year loan at 6% interest. The transaction requires stockholder approval and other conditions and was targeted for completion in the first half of 2017; the filing states there is no assurance it would close.
Management expected 2017 cash, short-term investments, receivables, and projected revenue to fund operations into the second half of 2017. The proposed BPC funding package was expected to extend liquidity into the first quarter of 2018 if the transaction closed. The auditors and management disclosed substantial doubt about the company’s ability to continue as a going concern absent additional financing.
Key risks include continued operating losses and negative cash flow, dependence on third-party manufacturing and plasma suppliers, FDA remediation and approval risk, concentration of customers, reimbursement and market-acceptance uncertainty, debt repayment and covenant risk, potential dilution from equity financing or the proposed acquisition, and integration and assumed-liability risks related to the BPC transaction.
For 2016, BPC represented approximately 82% of total revenue and SK Plasma represented approximately 14%; together they represented more than 95% of revenue. The company had not generated revenue from its therapeutics research and development business.
Most important facts for investors to verify
- Whether the FDA deficiencies and warning-letter issues were fully remediated and whether RI-002’s BLA was resubmitted and approved.
- Whether the proposed BPC/ Biotest asset acquisition closed, including the required stockholder approval, equity issuance, assumed liabilities, and financing commitments.
- Actual cash runway, additional financing completed, and compliance with Oxford debt repayment requirements beginning in 2017.
- Changes in customer concentration, plasma volumes, pricing, inventory levels, and dependence on BPC and SK.
- Whether the company achieved commercialization of Nabi-HB, Bivigam, or RI-002 and generated material product revenue beyond plasma sales.
- Potential dilution from the proposed Biotest equity interest, warrants, stock options, and future capital raises.
- The continuing validity and usability of the company’s federal and state net operating loss carryforwards following ownership changes.