ADMA BIOLOGICS, INC. quarterly report, Q1 FY2016

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ADMA Biologics, Inc. — Form 10-Q Summary

Business context and reporting period

ADMA Biologics is a late-stage biopharmaceutical company developing plasma-derived biologics for immune-compromised patients. Its lead product candidate, RI-002, is intended to treat Primary Immune Deficiency Disease. The company also operates two FDA-licensed plasma collection centers in Georgia and sells collected plasma to third parties. The filing covers the unaudited three months ended March 31, 2016, compared with the three months ended March 31, 2015.

Financial performance and position

  • Revenue: $2.124 million, up 41% from $1.503 million. Product revenue was $2.088 million, primarily from plasma sales; license and other revenue was $35,708. Revenue was substantially attributable to one customer.
  • Gross profit: $857,465, compared with $593,477. Gross margin was approximately 40.4%, versus 39.5%.
  • Operating expenses: $6.282 million, up 34%, including research and development of $2.028 million, plasma center expenses of $1.280 million, and general and administrative expenses of $1.708 million.
  • Operating loss: $4.159 million, compared with $3.202 million. Operating margin was approximately negative 195.8%, versus negative 213.1%.
  • Net loss: $4.612 million, or $0.43 per basic and diluted share, compared with a net loss of $3.606 million, or $0.37 per share. Net margin was approximately negative 217.2%, versus negative 239.9%.
  • Cash flow: Operating cash use was $5.168 million, compared with $4.221 million. Investing activities provided $3.656 million, principally from sales of short-term investments. Financing cash use was $3,659.
  • Liquidity: Cash and cash equivalents were $8.925 million and short-term investments were $2.695 million at March 31, 2016. Working capital was approximately $13.1 million.
  • Debt: The company reported $14.381 million of notes payable, net of debt discount, plus a $1.432 million end-of-term liability and leasehold improvement loan obligations. The Oxford facility bears interest at the greater of 7.80% or three-month LIBOR plus 7.54%; principal repayment was scheduled to begin in February 2017 under the original terms.
  • Equity: Stockholders’ equity declined from $821,000 at December 31, 2015 to a deficiency of $3.369 million at March 31, 2016, principally due to the quarterly net loss.

Material changes versus the prior comparable period

  • Revenue increased $621,000, primarily because the second plasma collection center received FDA approval to sell plasma in the United States during the third quarter of 2015.
  • Gross profit increased $264,000, while gross margin improved modestly.
  • Research and development expense increased $626,000 due primarily to testing and validation activities for RI-002 and increased personnel costs.
  • Plasma center expenses increased $232,000 because of additional wages, rent, maintenance, and collection supplies associated with the second facility.
  • General and administrative expense increased $362,000 due to pre-launch commercial planning, market research, consulting, headcount, and related compensation costs.
  • Net loss increased $1.007 million, and operating cash burn increased $947,000.
  • Cash and cash equivalents declined from $10.441 million to $8.925 million, while short-term investments declined from $6.368 million to $2.695 million as investments were liquidated to fund operations.

Guidance, outlook, risks, contingencies, and unusual items

  • Management expected FDA action on the RI-002 BLA in the second half of 2016 and indicated that potential first commercial sales could occur as early as the fourth quarter of 2016, subject to approval. The filing does not provide definitive approval or sales guidance.
  • Management expected general and administrative expenses to increase throughout 2016 as commercialization preparations continued.
  • Management stated that cash, cash equivalents, short-term investments, and accounts receivable were expected to fund operations, as currently conducted, into the second half of 2017. This estimate depends on spending, manufacturing scale-up, regulatory timing, and RI-002 revenue assumptions.
  • The company has incurred losses and negative operating cash flows since inception and reported a cumulative deficit of $92.0 million through March 31, 2016. Additional financing may be required sooner than expected, and future equity or debt financing may be dilutive or unavailable on acceptable terms.
  • RI-002 depends on FDA approval, successful manufacturing and commercialization, clinical and safety outcomes, reimbursement, market acceptance, and third-party manufacturing arrangements. Failure to obtain approval could materially impair the company’s prospects.
  • Subsequent to quarter-end, in May 2016, the company completed an equity offering of 2,176,154 shares for approximately $14.1 million gross proceeds and approximately $13.0 million net proceeds. It also borrowed an additional $4.0 million under an amended Oxford facility, bringing total principal borrowed to $20.0 million, and issued warrants for up to 24,800 shares at an exercise price of $6.37.
  • The amended Oxford agreement also provided a potential additional $5.0 million loan upon FDA approval of the RI-002 BLA by January 31, 2017. The debt is secured by company assets other than intellectual property, which is subject to a negative pledge, and contains customary covenants and default provisions.
  • The company’s plasma business was substantially dependent on one customer, creating customer concentration risk. Minimum rent commitments for the two plasma center leases totaled approximately $2.9 million through their respective lease terms.
  • Management reported no material legal proceedings and concluded that disclosure controls and procedures were effective as of March 31, 2016.

Important facts for investors to verify

  • FDA review status, approval timing, labeling, and commercial launch requirements for RI-002.
  • Whether the reported liquidity runway remains adequate after commercialization spending, manufacturing scale-up, and debt service.
  • Plasma collection volumes, margins, customer concentration, and the sustainability of revenue from the two Georgia centers.
  • Terms, covenants, amortization schedule, interest burden, final payment obligations, and collateral provisions under the amended Oxford debt facility.
  • Share dilution from the May 2016 equity offering, outstanding options, and warrants.
  • Reliance on Biotest and other third parties for plasma purchases, manufacturing, licensing, and potential milestone payments.
  • Whether RI-002 can achieve regulatory approval, commercial reimbursement, physician adoption, and sufficient sales to offset continuing operating losses.