ADMA Biologics, Inc. — Form 10-Q Summary
Business context and reporting period
ADMA is a vertically integrated biopharmaceutical company developing and manufacturing plasma-derived biologics for immune deficiencies and infectious diseases. The filing covers the quarter and six months ended June 30, 2019, with unaudited comparisons to the same 2018 periods.
Products include marketed Nabi-HB and newly approved ASCENIV and BIVIGAM. The FDA approved ASCENIV on April 1, 2019, approved the BIVIGAM Prior Approval Supplement on May 9, 2019, and transferred the BIVIGAM and Nabi-HB licenses to ADMA on July 2, 2019. Commercial launches of ASCENIV and BIVIGAM were expected in the second half of 2019.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $6.6 million | $4.7 million | $10.1 million | $8.7 million |
| Operating loss | $(11.3) million | $(13.4) million | $(24.5) million | $(29.9) million |
| Net loss | $(13.2) million | $(14.7) million | $(26.3) million | $(32.6) million |
| Loss per share | $(0.25) | $(0.35) | $(0.53) | $(0.74) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(32.9) million | $(31.3) million |
- Q2 revenue increased 41%, primarily from $2.4 million of contract manufacturing revenue; Nabi-HB revenue declined approximately $0.5 million due to shipment timing.
- Six-month revenue increased 16%, while product revenue increased to $10.0 million from $8.6 million.
- Gross loss was $3.9 million in Q2 and $9.8 million for the first six months. Approximate gross margins were negative 59.9% and negative 97.2%, respectively.
- Q2 operating margin was approximately negative 172.8%; six-month operating margin was approximately negative 243.3%. Q2 and six-month net margins were approximately negative 201.4% and negative 260.5%.
- Cash and cash equivalents were $73.6 million at June 30, 2019, compared with $22.8 million at December 31, 2018. Working capital was $93.8 million versus $34.9 million.
- Inventories increased to $23.6 million from $18.6 million, reflecting production and raw-material preparations for ASCENIV and BIVIGAM.
- Total debt included $67.5 million of net senior notes and $14.9 million of net subordinated debt. The senior facility bears interest at 11.0% at June 30, 2019 and matures March 1, 2022.
Material changes versus the prior comparable period
- Operating and net losses narrowed in both the quarter and six-month period, mainly because of higher revenue, lower product-related costs, reduced plasma-center expenses, and lower R&D expense.
- Interest expense increased to $2.1 million in Q2 and $3.6 million for six months, driven by higher borrowings after the February refinancing and May drawdown.
- The six-month results included a $11.5 million gain from transferring two plasma centers to BPC and a $10.0 million loss on extinguishment of the former debt facility. These unusual items materially affected reported net loss.
- Two plasma centers were transferred to BPC on January 1, 2019, leaving one FDA-licensed Kennesaw, Georgia collection facility. Plasma-center operating expenses declined substantially as a result.
- On May 21, 2019, ADMA issued 12.9 million common shares and received $48.4 million of net proceeds. Shares outstanding increased to 59.3 million at June 30, 2019 from 46.4 million at year-end 2018.
- ADMA adopted the new lease standard on January 1, 2019, recognizing approximately $1.4 million of right-of-use assets and $1.6 million of lease liabilities.
Liquidity, outlook, risks and contingencies
Management expects cash, projected revenue and receivables, and the remaining $12.5 million available under the senior credit facility to fund current operations into the fourth quarter of 2020. Management states that additional capital will be required during the fourth quarter of 2020 to continue as a going concern, potentially sooner if revenue, commercialization, or expense assumptions are not achieved. The filing states that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
- Senior debt is secured by substantially all tangible and intangible assets, including intellectual property, and includes a $3.0 million minimum cash covenant and trailing-revenue covenants. ADMA reported compliance at June 30, 2019.
- Planned uses of the May equity proceeds include ASCENIV and BIVIGAM launches, Boca Facility capacity expansion, raw-material purchases, plasma-center expansion, and general corporate purposes.
- Remaining 2019 capital expenditures were estimated at $3.0 million to $6.0 million.
- The Boca Facility remained subject to an outstanding FDA Warning Letter, although the Company reported improved inspection status and believed the April 2018 inspection was closed. The FDA had not issued a formal Warning Letter close-out as of the filing.
- Commercialization depends on manufacturing scale-up, fill/finish capacity, labeling, regulatory compliance, physician and payer acceptance, reimbursement, and adequate plasma supply.
- Contract manufacturing revenue was expected to continue in the second half of 2019, but the relevant contract was scheduled to expire at year-end 2019.
- Revenue and receivables were concentrated among a small number of customers. Three customers represented 84% of six-month revenue, and two customers represented 83% of accounts receivable at June 30, 2019.
- The Company had post-marketing study obligations for BIVIGAM, expected to be completed by the end of 2021, subject to product availability and manufacturing improvements.
- No material pending legal proceedings were reported, and management stated that there were no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether ASCENIV and BIVIGAM launched on schedule and generated meaningful commercial revenue after June 30, 2019.
- Whether the FDA formally closed the Boca Facility Warning Letter and whether ongoing compliance or remediation issues affect production.
- The pace of cash burn, operating losses, manufacturing ramp-up costs, and the timing of required additional financing.
- Compliance with senior-credit-facility revenue and minimum-cash covenants, including the terms and availability of the remaining $12.5 million commitment.
- Customer concentration, plasma supply arrangements, and the expiration or renewal of the contract manufacturing agreement.
- The effect of the May equity offering, outstanding options and warrants, and potential future dilution.