ADMA Biologics, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2016; filed August 12, 2016. The interim financial statements are unaudited and prepared under U.S. GAAP.
Business context
ADMA is a late-stage biopharmaceutical company developing plasma-based biologics, led by RI-002 for primary immune deficiency disease (PIDD). Its two FDA-licensed Georgia plasma collection centers generate plasma sales and supply a portion of ADMA’s manufacturing needs. The company has not yet generated revenue from its therapeutic product development business.
Key financial metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $2.27 million | $1.31 million | $4.40 million | $2.81 million |
| Product revenue | $2.24 million | $1.29 million | $4.32 million | $2.78 million |
| Gross profit | $0.93 million | $0.52 million | $1.78 million | $1.12 million |
| Gross margin | 40.8% | 40.0% | 40.6% | 39.7% |
| Loss from operations | $(5.49) million | $(3.52) million | $(9.65) million | $(6.72) million |
| Net loss | $(6.01) million | $(4.68) million | $(10.62) million | $(8.28) million |
| Net loss per share | $(0.50) | $(0.44) | $(0.93) | $(0.81) |
| Operating cash flow | Not separately provided | Not separately provided | $(9.97) million | $(8.67) million |
Research and development expense increased to $3.40 million in the quarter and $5.43 million for the six months, primarily due to RI-002 validation, testing, production and regulatory consulting. Total operating expenses rose 61% year over year in the quarter and 47% for the six-month period.
Liquidity, debt and capital resources
- At June 30, 2016, cash and cash equivalents were $12.55 million and short-term investments were $11.27 million.
- Working capital was approximately $24.4 million; total assets were $31.74 million and total liabilities were $27.83 million.
- Oxford debt had gross principal of $20.0 million and a carrying value of $18.05 million, net of debt discounts. An additional $5.0 million may be available if RI-002 receives FDA approval by January 31, 2017.
- Debt bears interest at the greater of 7.80% or three-month LIBOR plus 7.54%; principal repayment was scheduled to begin in February 2017 unless the additional tranche is drawn.
- The May 2016 equity offering issued 2.18 million shares and generated approximately $13.0 million of net proceeds. Common shares outstanding increased to 12.89 million from 10.71 million at December 31, 2015.
- Management believed existing cash, investments and accounts receivable would fund operations, as currently conducted, into the second half of 2017. This estimate was dependent on regulatory timing, manufacturing scale-up and spending levels.
Material changes versus the prior comparable period
- Six-month revenue increased 56%, principally because the Marietta, Georgia plasma center received FDA approval during the third quarter of 2015 and contributed additional plasma sales.
- Six-month net loss increased 28%, reflecting substantially higher RI-002 development spending, plasma-center expenses and general and administrative costs.
- Operating cash use increased to $9.97 million from $8.67 million, while financing cash inflows increased to $17.04 million from $10.59 million.
- Interest expense increased because of the additional $4.0 million Oxford borrowing, although the prior-period $0.7 million debt-extinguishment loss did not recur.
- Inventories rose to $4.21 million from $3.45 million, primarily reflecting normal-source and RSV high-titer plasma accumulation and purchases.
Outlook, commentary, risks and unusual items
- After quarter-end, in July 2016, the FDA issued a Complete Response Letter for the RI-002 BLA. The FDA did not identify concerns with the submitted clinical safety or efficacy data and did not request additional clinical studies, but cited inspection deficiencies involving third-party manufacturing, fill-and-finish and testing vendors. Approval is contingent on resolving these issues and providing requested documentation.
- The CRL delayed the anticipated RI-002 commercial launch. The FDA had not finalized product labeling, and the company could face additional regulatory requests even after deficiencies are addressed.
- Management expected research and development and general and administrative expenses to continue increasing during 2016 because of regulatory activities, validation, manufacturing, market research, commercial planning and hiring.
- The company has incurred cumulative losses of approximately $98.0 million since inception and expects continued losses and negative operating cash flow. Additional equity or debt financing may be required and could dilute shareholders or impose additional restrictions.
- Revenue is substantially attributable to one customer, increasing customer-concentration risk. The company also depends on third-party manufacturers, vendors and plasma availability.
- Minimum rent under the Georgia facility leases totaled approximately $2.8 million through the lease expirations. Management reported no legal claims expected to have a material adverse effect.
- On August 12, 2016, ADMA entered into an amended services agreement with Areth LLC, a company controlled by Vice Chairman Jerrold Grossman, for warehousing, distribution, office and administrative services at $16,000 per month.
Investor verification points
- Confirm the status and timing of remediation of the third-party vendor deficiencies identified in the July 2016 CRL and any subsequent FDA correspondence.
- Assess whether the company’s projected liquidity into the second half of 2017 remains realistic after regulatory delays and increased commercialization costs.
- Review Oxford loan covenants, repayment dates, interest costs, final payment obligations and the conditions for accessing the additional $5.0 million.
- Monitor cash burn, inventory levels and customer concentration in plasma revenue.
- Evaluate potential dilution from future equity financing, outstanding options and warrants, and the effect of any additional debt.