ADMA Biologics, Inc. — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 12, 2020. ADMA is a commercial biopharmaceutical company manufacturing and developing plasma-derived biologics for immunodeficient and infection-risk patients.
Business Context
- ADMA had three FDA-approved marketed products: BIVIGAM for primary immunodeficiency, ASCENIV for primary immunodeficiency, and Nabi-HB for hepatitis B exposure.
- BIVIGAM received FDA approval for commercial relaunch on May 9, 2019, with commercial sales beginning in August 2019. ASCENIV was approved April 1, 2019, with first commercial sales in October 2019.
- The Boca Raton, Florida facility has stated annual plasma fractionation capacity of 400,000 liters. ADMA operated one FDA-approved plasma collection center at year-end and planned five to 10 additional centers over three to five years.
- ADMA had 314 employees as of December 31, 2019.
Financial Performance and Position
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $29.3 million | $17.0 million | +$12.4 million, 72.8% |
| Product revenue | $29.2 million | $16.8 million | +$12.4 million |
| Cost of product revenue | $39.5 million | $42.2 million | -$2.7 million |
| Gross loss | $10.2 million | $25.2 million | Improved by $15.1 million |
| Gross margin | (34.6%) | (148.4%) | Improved |
| Operating loss | $41.4 million | $60.3 million | Improved by $18.9 million |
| Net loss | $48.3 million | $65.7 million | Improved by $17.5 million |
| Basic and diluted loss per share | $0.89 | $1.45 | Improved |
| Net cash used in operations | $76.2 million | $62.7 million | Use increased by $13.5 million |
| Cash and cash equivalents | $26.8 million | $22.8 million | +$4.0 million |
| Working capital | $71.8 million | $34.9 million | +$36.9 million |
| Inventory | $53.1 million | $18.6 million | +$34.4 million |
| Stockholders’ equity | $26.2 million | $19.8 million | +$6.4 million |
Revenue growth primarily reflected $15.4 million of increased Boca Facility revenue, including immunoglobulin products, intermediate fractions and contract manufacturing, partly offset by a $3.0 million decline in plasma-center revenue following the transfer of two collection centers to BPC.
The 2019 loss included a $9.96 million loss on extinguishment of debt and an $11.53 million gain on the transfer of plasma-center assets. These were unusual items and materially affected reported net loss.
Cash Flow, Debt and Liquidity
- Operating cash consumption increased to $76.2 million, primarily because inventory increased by $34.7 million in preparation for the BIVIGAM and ASCENIV launches.
- Investing cash use was $3.8 million, principally for Boca Facility capital expenditures. Management expected 2020 capital expenditures of approximately $10 million to $20 million.
- Financing activities provided $80.0 million, including $48.4 million of net proceeds from the May 2019 equity offering and $72.5 million of new debt proceeds, partly offset by refinancing-related payments.
- Perceptive senior debt had $72.5 million outstanding at year-end, with a potential additional $12.5 million commitment available through March 31, 2020. The facility matures March 1, 2022, bears interest at 11.0% as of year-end, and is secured by substantially all company assets, including intellectual property.
- ADMA also had a $15.0 million subordinated Biotest note bearing 6.0% interest and maturing June 6, 2022.
- Management expected existing cash, projected revenue and receivables, the February 2020 equity offering proceeds and potential remaining debt availability to fund operations into the second quarter of 2021. Additional financing was expected to be required thereafter, or sooner if assumptions were not achieved.
Material Changes Versus 2018
- Commercial transition began: BIVIGAM was relaunched and ASCENIV entered the market, while Nabi-HB remained commercially available.
- Boca Facility revenue increased substantially, but the company remained loss-making and generated negative operating cash flow.
- Inventory increased nearly threefold to support commercial production and product launches.
- Debt increased materially following the Perceptive refinancing, while interest expense rose from $5.5 million to $9.0 million.
- Plasma-center revenue and operating expenses declined after two collection centers were transferred to BPC on January 1, 2019.
- SG&A increased from $22.5 million to $25.9 million because of infrastructure, headcount, marketing and insurance costs.
- ADMA ceased to qualify as an emerging growth company effective January 1, 2019, increasing certain reporting and internal-control compliance costs.
Outlook, Commentary and Risks
- Management planned to expand commercial sales and marketing for BIVIGAM and ASCENIV, increase Nabi-HB marketing, optimize Boca Facility capacity and margins, strengthen the supply chain, and expand plasma collection operations.
- ADMA intended to evaluate ASCENIV for additional uses, including RSV treatment in immune-compromised patients. Such expansion would require additional clinical and regulatory work and was not yet approved.
- Management expected profitability no earlier than 2021 and anticipated continued operating losses and negative operating cash flow into fiscal 2021.
- The Boca Facility had a history of FDA manufacturing and compliance deficiencies. Its status improved from Official Action Indicated to Voluntary Action Indicated, and the company received the relevant product approvals, but the filing states that no formal close-out letter had been received for the prior warning letter.
- ADMA relied heavily on third-party plasma supply, fill-finish providers and other vendors. Grifols supplied approximately 82% of 2019 inventory purchases, creating concentration and supply risks.
- Customer concentration was significant: three customers represented approximately 70% of 2019 revenue, and two customers represented 89% of year-end accounts receivable.
- Key risks include FDA and cGMP compliance, product quality, plasma availability, manufacturing yields, reimbursement and market acceptance, competition, clinical and regulatory uncertainty, debt acceleration, additional financing needs, dilution and dependence on third parties.
- ADMA had post-marketing commitments for BIVIGAM, including pediatric and safety studies expected to be completed by the end of 2021, and a pediatric study for ASCENIV required by June 2023.
Important Facts for Investors to Verify
- Whether BIVIGAM and ASCENIV sales scale sufficiently to improve gross margins and reduce operating cash burn.
- Actual cash balances, inventory utilization and working-capital needs following the February 2020 equity offering.
- Whether ADMA drew the remaining $12.5 million under the Perceptive facility and remains compliant with its financial covenants.
- The status of the Boca Facility warning-letter close-out and continuing FDA inspections, post-marketing studies and manufacturing obligations.
- Supply continuity and pricing under ADMA’s plasma agreements, particularly its dependence on Grifols.
- Customer concentration, reimbursement levels and the sustainability of early commercial demand for BIVIGAM and ASCENIV.
- Timing and terms of any additional financing required before or after the projected second quarter of 2021 liquidity horizon.
- The impact of the February 2020 issuance of 27.025 million shares, which generated approximately $88.5 million in net proceeds and materially increased potential dilution.