ADMA Biologics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
ADMA Biologics is a late-stage biopharmaceutical company developing plasma-based biologics for immunocompromised patients, including RI-002 for primary immune deficiency disease. Its subsidiary operates FDA-licensed plasma collection centers in Georgia. This unaudited report covers the three and nine months ended September 30, 2015, with comparisons to the corresponding 2014 periods.
- RI-002 BLA submitted to the FDA on July 31, 2015 and accepted for review on September 18, 2015.
- Marietta, Georgia plasma center received FDA approval to sell human source plasma in the United States on September 17, 2015.
- Common shares outstanding at November 10, 2015: 10,713,087.
Financial Performance and Position
| Metric | Q3 2015 | Q3 2014 | Nine Months 2015 | Nine Months 2014 |
|---|---|---|---|---|
| Total revenue | $1.85 million | $1.37 million | $4.67 million | $4.43 million |
| Gross profit | $0.74 million | $0.50 million | $1.86 million | $1.64 million |
| Gross margin | 39.9% | 36.5% | 39.8% | 37.1% |
| Loss from operations | $(4.66) million | $(3.04) million | $(11.38) million | $(12.31) million |
| Net loss | $(5.10) million | $(3.38) million | $(13.39) million | $(13.25) million |
| Basic and diluted loss per share | $(0.48) | $(0.36) | $(1.28) | $(1.43) |
| Cash used in operating activities | Not separately reported for the quarter | $(11.34) million | $(11.80) million |
- Q3 revenue consisted primarily of $1.82 million of plasma product revenue and $31,184 of license revenue. Nine-month product revenue was $4.60 million.
- Q3 operating expenses increased 48% to $6.52 million, including R&D of $2.11 million, plasma-center expenses of $1.21 million and G&A expenses of $2.08 million.
- Nine-month R&D expense declined 34% to $5.02 million because the Phase III study and substantial drug-product manufacturing were completed in 2014.
- As of September 30, 2015, cash and cash equivalents were $9.18 million, short-term investments were $11.76 million, and working capital was approximately $20.9 million.
- Total liabilities were $22.91 million and stockholders’ equity was $4.91 million. Notes payable, net of discount, were $14.12 million, with a $1.43 million end-of-term liability and additional leasehold improvement loan obligations.
Material Changes Versus the Prior Comparable Period
- Q3 revenue rose 36%, primarily from plasma sales generated by the second collection center and higher license revenue.
- Q3 net loss widened 51% because of higher R&D costs related to the BLA filing, increased plasma-center costs, and substantially higher commercialization-related G&A expenses.
- Nine-month revenue increased 5%, while total operating expenses declined 4%; the net loss nevertheless increased slightly because other expense more than doubled.
- Nine-month other expense included a $719,097 loss on extinguishment of debt related to refinancing the Hercules facility.
- In March 2015, the company raised approximately $10.2 million net through an underwritten equity offering.
- In June 2015, the company entered into a $21.0 million Oxford Finance facility, initially drawing $16.0 million and using most proceeds to repay Hercules debt. The additional $5.0 million is available at the company’s option upon FDA approval of the RI-002 BLA by January 31, 2017.
- Shares outstanding increased from 9.29 million at December 31, 2014 to 10.71 million at September 30, 2015, reflecting equity issuance and option exercises.
Guidance, Outlook, Risks and Unusual Items
- Management believed available cash, short-term investments and accounts receivable were sufficient to fund operations into the second half of 2016, based on projected expenses and revenue.
- Management did not expect commercial RI-002 revenue before the second half of 2016, if FDA approval is obtained at all.
- G&A expenses were expected to increase through the remainder of 2015 due to pre-launch planning, market research and hiring. Plasma-center expenses were also expected to rise as collection volumes increased.
- The company has incurred losses and negative operating cash flow since inception, with an accumulated deficit of $82.8 million at September 30, 2015. Additional financing may be required sooner than expected and is not committed.
- Key risks include FDA rejection or delay of the RI-002 BLA, clinical or manufacturing setbacks, inability to commercialize the product, dependence on one major plasma customer, regulatory requirements, competition, dilution from future equity financing and restrictive debt covenants.
- The Oxford facility bears interest at the greater of 7.80% or three-month LIBOR plus 7.54%, requires principal repayment beginning February 1, 2017, and matures no later than January 1, 2020. It is secured by company assets other than intellectual property, which is subject to a negative pledge.
- Deferred revenue included $1.5 million related to a Biotest milestone payment associated with the BLA filing; the amount is being recognized over approximately 20 years rather than immediately.
- Management reported no material legal proceedings and concluded that disclosure controls were effective as of September 30, 2015.
Investor Verification Priorities
- Verify the FDA’s subsequent action on the RI-002 BLA, including approval timing, requested additional information and any impact on the expected commercialization schedule.
- Assess liquidity relative to the company’s continuing operating cash burn and determine whether additional equity or debt financing was required after September 30, 2015.
- Review the Oxford loan’s repayment schedule, covenants, collateral, end-of-term payment and conditions for accessing the additional $5.0 million tranche.
- Evaluate customer concentration, particularly the company’s substantial dependence on Biotest for plasma revenue and license-related payments.
- Monitor revenue growth, collection volumes and profitability of the Marietta plasma center after receiving FDA approval.
- Reconcile the reported working capital and debt balances with subsequent filings, including changes in inventory, deferred revenue and accumulated losses.