ADMA Biologics, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2018. ADMA is a vertically integrated biopharmaceutical company developing, manufacturing and marketing plasma-derived biologics for primary immune deficiency disease and infectious diseases. Its operations include three FDA-licensed plasma collection centers and the Boca Raton fractionation facility acquired from Biotest in June 2017.
Marketed products include Nabi-HB and BIVIGAM. Nabi-HB production resumed in the third quarter of 2017. BIVIGAM production resumed in late 2017, but commercial relaunch remained subject to FDA approval of a manufacturing Prior Approval Supplement. RI-002, the lead pipeline product, was resubmitted to the FDA on September 28, 2018.
Financial performance and liquidity
| Metric | Three months ended September 30, 2018 | Three months ended September 30, 2017 | Nine months ended September 30, 2018 | Nine months ended September 30, 2017 |
|---|---|---|---|---|
| Total revenue | $4.23 million | $4.73 million | $12.93 million | $10.76 million |
| Product revenue | $4.19 million | $4.69 million | $12.82 million | $10.65 million |
| Gross loss | $(4.93) million | $(6.56) million | $(18.12) million | $(6.48) million |
| Operating loss | $(13.79) million | $(14.43) million | $(43.74) million | $(28.77) million |
| Net loss | $(15.14) million | $(15.20) million | $(47.71) million | $(30.78) million |
| Basic and diluted loss per share | $(0.33) | $(0.59) | $(1.06) | $(1.67) |
| Operating cash flow | Not separately provided for the quarter | $(43.89) million | $(23.91) million |
Approximate gross margin was negative 116.6% in the third quarter of 2018 versus negative 138.8% in the prior-year quarter, and negative 140.2% for the first nine months of 2018 versus negative 60.3% in the prior-year period. The filing reports gross losses rather than positive gross margins.
At September 30, 2018, cash and cash equivalents were $42.4 million, working capital was $52.6 million, total assets were $106.3 million and stockholders’ equity was $37.2 million. Cash, cash equivalents and restricted cash totaled $46.4 million, including $4.0 million of restricted cash.
Debt included $26.2 million of senior notes net of discount, a $2.8 million end-of-term liability, and $14.9 million net of discount under a related-party note with a $15.0 million principal amount. The senior facility has a stated capacity of up to $40.0 million, including $10.0 million of additional borrowing subject to conditions, bears interest at LIBOR plus 9.50% with a 1% floor, and matures in April 2022.
Material changes versus the prior comparable period
- Third-quarter revenue declined 11% year over year, primarily because of lower source-plasma revenue caused by shipment timing; Nabi-HB revenue increased modestly.
- Nine-month revenue increased approximately 20%, but the comparison is not fully comparable because the Biotest business was included for only part of the 2017 period and for the full 2018 period.
- Third-quarter cost of product revenue fell $2.1 million, principally because facility remediation costs declined by approximately $1.8 million and prior-year Nabi-HB inventory had a higher acquisition-date carrying value.
- Nine-month cost of product revenue increased $13.8 million, driven by a full nine months of Boca Facility operations, approximately $10.4 million of additional unabsorbed manufacturing costs, and expensing of approximately $2.9 million of RI-002 manufacturing costs and $1.5 million of BIVIGAM and intermediate production costs.
- Third-quarter SG&A increased $1.2 million to $5.4 million, reflecting higher headcount, professional fees, branded prescription-drug fees, insurance, and commercialization preparation.
- Interest expense increased to $1.4 million in the quarter and $4.1 million for the first nine months, reflecting higher debt, interest rates and debt-discount amortization.
- In June 2018, ADMA issued 9.6 million common shares and received net proceeds of $42.9 million. Shares outstanding increased to 46.4 million at September 30, 2018 from 36.7 million at December 31, 2017.
- In May 2018, 8.6 million non-voting shares previously held by Biotest were transferred to ADMA and retired.
Outlook, commentary, risks and unusual items
- The FDA accepted the BIVIGAM manufacturing supplement for review in July 2018, with a PDUFA target action date of December 18, 2018. Management anticipated a relaunch during the first half of 2019, subject to FDA action, fill/finish capacity, labeling and other requirements.
- The FDA acknowledged the RI-002 BLA resubmission in October 2018 and set an April 2, 2019 PDUFA target action date. Management anticipated a full commercial launch in the second half of 2019 if approved.
- Management reported that the April 2018 FDA inspection of the Boca Facility had been closed out and that the facility’s status had improved to Voluntary Action Indicated. Regulatory approval and continued compliance were not assured.
- Management expected cash, projected revenue and receivables, and the potential additional $10.0 million under the senior credit facility to fund operations into the second quarter of 2019. The company stated that it would need to raise additional capital before the end of that quarter.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern because of recurring losses and negative operating cash flow. The financial statements contain no going-concern adjustments.
- ADMA agreed to transfer two plasma collection centers to Biotest on January 1, 2019. The related obligation was recorded at approximately $12.6 million, and the transferred centers had historically generated a substantial portion of revenue.
- Three customers represented 90% of nine-month revenue, including BPC at 54%, McKesson at 20% and AmerisourceBergen at 16%. Customer and related-party concentration remains material.
- A contract manufacturing agreement requires minimum production volumes or an annual payment of $1.5 million if minimum volume is not manufactured and no other breach or default occurs.
- Key risks include FDA approval and compliance, manufacturing and plasma supply constraints, continued operating losses, financing and dilution risk, debt covenant and acceleration risk, customer concentration, competition, product quality and liability exposure, and dependence on third-party vendors.
Important facts for investors to verify
- Whether the FDA approved the BIVIGAM supplement and whether BIVIGAM was commercially relaunched as projected.
- The FDA’s action on the RI-002 BLA resubmission and the timing and conditions of any approval.
- Actual cash burn after September 30, 2018 and the timing, terms and dilution associated with subsequent financing.
- Compliance with the senior credit facility’s liquidity requirements and the availability of the additional $10.0 million tranche.
- The operational and revenue impact of transferring two plasma centers to Biotest on January 1, 2019.
- The realizability of BIVIGAM and RI-002 inventory that had been expensed because regulatory approval was uncertain.
- Customer concentration, related-party plasma transactions and the continuing dependence on Biotest-related arrangements.