ADMA Biologics, Inc. — Q1 2020 Form 10-Q Summary
Business Context and Reporting Period
ADMA is a commercial biopharmaceutical company manufacturing, marketing and developing plasma-derived biologics. Its marketed products are BIVIGAM, ASCENIV and Nabi-HB, supported by plasma collection, contract manufacturing and intermediate-product sales. The filing covers the three months ended March 31, 2020, compared with the three months ended March 31, 2019. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $10.2 million | $3.5 million | +$6.7 million, approximately 189% |
| Product revenue | $10.2 million | $3.5 million | +$6.7 million |
| Gross loss | $(6.6) million | $(5.9) million | Loss increased $0.8 million |
| Operating loss | $(16.8) million | $(13.2) million | Loss increased $3.6 million |
| Net loss | $(19.2) million | $(13.1) million | Loss increased $6.2 million |
| Loss per share | $(0.26) | $(0.28) | Improved per share despite higher total loss |
| Cash used in operations | $(24.6) million | $(14.3) million | Use increased $10.4 million |
| Capital expenditures | $2.1 million | $0.1 million | Increase of $2.0 million |
| Cash and cash equivalents | $101.2 million | $26.8 million at Dec. 31, 2019 | Increase of $74.5 million |
Calculated gross margin was approximately negative 65% in Q1 2020 versus negative 167% in Q1 2019. Operating margin was approximately negative 164% versus negative 374%, and net margin was approximately negative 189% versus negative 370%.
Revenue growth primarily reflected increased immunoglobulin sales and production throughput following the FDA approvals and commercial launches of BIVIGAM and ASCENIV, higher plasma revenue, and a January 2020 intermediate-fractions manufacturing and supply agreement. Three customers represented approximately 82% of consolidated revenue; BioCare, Biolife and Reliance represented approximately 43%, 24% and 15%, respectively.
Liquidity, Debt and Capital Structure
- Working capital was $151.6 million at March 31, 2020, including $101.2 million of cash and cash equivalents, compared with $71.8 million at December 31, 2019.
- Senior debt had a principal balance of $85.0 million and a carrying value of $81.2 million; the Perceptive facility bears interest at 11.0% as of March 31, 2020 and matures March 1, 2022.
- The Company drew the final $12.5 million tranche under the Perceptive facility on March 20, 2020. The facility is secured by substantially all tangible and intangible assets and requires a minimum cash balance of $3.0 million and specified trailing revenue levels. The Company reported compliance with its covenants.
- A $15.0 million subordinated note payable to Biotest carries 6.0% interest and matures June 6, 2022.
- Financing activities provided $101.2 million in Q1 2020, consisting primarily of $88.7 million of net proceeds from a February public offering and $12.5 million of debt proceeds. The offering issued 27.025 million common shares, increasing shares outstanding to 86.345 million at March 31, 2020.
- Management expects current cash, projected revenue and accounts receivable to fund operations into the second quarter of 2021, but expects to raise additional capital before the end of that quarter. No firm additional financing commitment existed at the filing date.
Material Changes Versus the Prior Comparable Period
- Revenue increased approximately 189%, driven by commercial ramp-up of BIVIGAM and ASCENIV and increased manufacturing and plasma activity.
- Cost of product revenue increased to $16.8 million from $9.4 million. Approximately $3.9 million related to BIVIGAM conformance lots produced at increased scale; these costs were expensed because additional FDA approval was required before commercial sale.
- SG&A increased to $7.9 million from $5.6 million, primarily due to higher commercial staffing, information technology consulting and insurance costs.
- R&D increased to $1.5 million from $0.9 million, including ASCENIV expiration-dating work and BIVIGAM post-marketing studies.
- Interest expense increased to $2.7 million from $1.5 million because of higher outstanding debt.
- Q1 2019 included unusual items: a $10.0 million loss on debt extinguishment and an $11.5 million gain on the transfer of plasma center assets. Neither item recurred in Q1 2020.
- Operating cash use increased substantially, while financing proceeds produced a $74.5 million increase in cash during Q1 2020.
Guidance, Outlook, Risks and Unusual Items
- Management does not expect sufficient product revenue to achieve profitability before 2021 and expects continued operating losses and negative operating cash flow into fiscal 2021.
- Remaining 2020 capital expenditures were estimated at $10 million to $15 million, principally for the Boca Facility, manufacturing capacity and plasma collection expansion.
- The Company disclosed substantial doubt about its ability to continue as a going concern because of its cumulative deficit, continuing losses, negative operating cash flow, debt obligations and expected need for additional financing. The financial statements contain no going-concern adjustment.
- COVID-19 had not materially affected financial condition, results or core production operations through the filing date. However, management could not predict the pandemic’s effect on supply chains, international materials, third-party testing, commercial activities, customers, suppliers, workforce or capital markets.
- Key operating risks include access to FDA-approved plasma, dependence on Grifols and other suppliers, third-party fill/finish and testing providers, manufacturing scale-up and FDA validation, product quality and regulatory compliance, reimbursement and market acceptance.
- The Boca Facility’s historical FDA Warning Letter issues had been addressed through remediation and the facility’s status had improved, but neither ADMA nor BPC had received a formal Warning Letter close-out letter.
- Two BIVIGAM post-marketing studies were expected to be completed by the end of 2021; the ASCENIV pediatric study is required to be completed by June 2023.
Investor Verification Priorities
- Verify the pace, mix and sustainability of BIVIGAM, ASCENIV and Nabi-HB sales, including customer concentration and reimbursement levels.
- Verify whether manufacturing costs, conformance-lot expenses and capacity expansion translate into improved gross margins and reduced cash burn.
- Monitor cash runway, additional financing needs, potential dilution and the Company’s ability to meet the March 2022 debt maturities and interest obligations.
- Review compliance with Perceptive’s revenue and minimum-cash covenants and the consequences of any default or acceleration.
- Assess the availability and cost of plasma supplies, including dependence on Grifols and the progress of new plasma collection centers.
- Track COVID-19 effects on supply, third-party testing, manufacturing, sales activity and access to capital.
- Follow FDA inspections, Warning Letter status, post-marketing commitments and any required supplements affecting commercial product availability.