ADMA Biologics, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2012. The interim consolidated financial statements are unaudited. ADMA develops plasma-derived therapeutics and operates an FDA-licensed source-plasma collection center in Georgia. The company completed a reverse merger and a private financing in February 2012.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $360,338 | $0 | $594,834 | $0 |
| Gross profit | $215,647 | $0 | $306,073 | $0 |
| Gross margin | 59.8% | Not applicable | 51.5% | Not applicable |
| Loss from operations | $(3,248,820) | $(768,164) | $(5,668,862) | $(4,501,309) |
| Net loss | $(3,245,747) | $(981,077) | $(5,049,776) | $(4,948,674) |
| Basic and diluted loss per share | $(0.70) | $(2.79) | $(1.27) | $(14.08) |
Revenue was generated exclusively by plasma sales from the Georgia collection center, primarily under a June 2012 supply agreement with Biotest Pharmaceuticals. No revenue was generated from the therapeutic development business.
- Research and development expense was $1.94 million in Q3 and $2.20 million for the nine months, compared with $56,607 and $443,188, respectively, in the prior-year periods.
- General and administrative expense was $1.03 million in Q3 and $2.45 million for the nine months, reflecting increased staffing, stock-based compensation, professional fees and public-company reporting costs.
- Plasma-center operating expense increased to $489,300 in Q3 and $1.33 million for the nine months, largely due to increased donor collections.
- Q3 net loss increased substantially because operating expenses grew faster than initial plasma revenue. Nine-month net loss was broadly comparable with the prior year because the 2011 period included a $1.93 million loss on the sale of research-and-development plasma inventory.
Cash flow, liquidity and debt
- Cash and cash equivalents were $10.72 million at September 30, 2012, compared with $87,771 at December 31, 2011.
- Working capital was $10.58 million. Total assets were $13.22 million and total liabilities were $1.62 million.
- Operating cash use was $5.10 million for the first nine months, compared with $1.42 million in the prior-year period. Investing cash use was $83,521, primarily for information-technology equipment.
- Financing activities provided $15.81 million, primarily from the February 2012 private placement. Gross proceeds were approximately $17.3 million and net cash proceeds were approximately $15.6 million after financing and transaction costs.
- Debt was limited to a leasehold-improvement loan of approximately $91,288, including a current portion of $10,177. Related-party notes were repaid or converted into common stock during the period.
- The company had an accumulated deficit of $34.86 million at September 30, 2012 and has experienced recurring losses and negative operating cash flow since inception.
Material changes and unusual items
- The February 2012 reverse merger and financing materially changed the capital structure. Preferred stock was converted, common shares increased to 4.65 million at September 30, and additional paid-in capital increased to $46.46 million.
- Stock-based compensation increased to $408,544 for the first nine months, compared with $19,623 in the prior-year period. Unrecognized compensation expense related to unvested options was $3.05 million at quarter-end.
- The company received a $617,615 state income-tax benefit from the sale of New Jersey net operating losses. The benefit is subject to conditions that could require repayment if proceeds are not used appropriately or if the company does not maintain qualifying New Jersey operations.
- On October 1, 2012, the company purchased and retired 31,472 shares for $150,000, reducing shares outstanding from 4,654,303 to 4,622,831.
Outlook, risks and contingencies
Management expected available cash to fund operations, research and development, and capital expenditures into the third quarter of 2013. Because FDA approval for the lead product candidate was not expected before the second half of 2015, if at all, management stated that additional capital would be required before the third quarter of 2013. The company had no existing commitments for future external funding.
- The development plan called for filing an IND for RI-002 during the fourth quarter of 2012 and pursuing a pivotal Phase III study involving approximately 60 to 70 patients. FDA approval is uncertain and additional studies may be required.
- Management expected research and development and general and administrative expenses to increase during the remainder of 2012.
- Failure to obtain additional financing could require the company to delay, reduce or discontinue development programs and clinical trials, or potentially cease operations. Future financing could dilute existing stockholders or impose additional fixed obligations and restrictive covenants.
- Key risks include clinical and regulatory failure, manufacturing delays, inability to recruit patients, dependence on contract manufacturing and key personnel, competition, protection of intellectual property, and limited operating history and revenue.
- Disclosure controls were determined to be ineffective because of a material weakness involving inadequate segregation of duties in the financial reporting function.
- The filing reported no legal proceedings, defaults upon senior securities or off-balance-sheet arrangements.
Investor verification points
- Verify the cash runway and the timing, amount and terms of the anticipated capital raise before the third quarter of 2013.
- Assess whether plasma-center revenue growth and the Biotest supply agreement can offset collection-center operating costs.
- Track the RI-002 IND filing, FDA feedback, Phase III enrollment and manufacturing readiness.
- Reconcile the post-merger share count, outstanding options and warrants, and potential dilution from future financing.
- Review remediation of the inadequate-segregation-of-duties material weakness.
- Evaluate the conditions attached to the $617,615 New Jersey tax benefit and the potential repayment exposure.