ADMA Biologics, Inc. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020; filed August 5, 2020. ADMA is a commercial biopharmaceutical company manufacturing and marketing plasma-derived biologics, including BIVIGAM, ASCENIV and Nabi-HB, with operations spanning manufacturing, plasma collection and contract manufacturing.
Financial Performance and Position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $7.8 million | $6.6 million | $18.0 million | $10.1 million |
| Gross loss | $(5.7) million | $(3.9) million | $(12.3) million | $(9.8) million |
| Operating loss | $(17.1) million | $(11.3) million | $(33.9) million | $(24.5) million |
| Net loss | $(20.2) million | $(13.2) million | $(39.4) million | $(26.3) million |
| Loss per share | $(0.23) | $(0.25) | $(0.49) | $(0.53) |
| Operating cash flow | — | — | $(45.9) million | $(32.9) million |
- Q2 revenue increased approximately 19%; six-month revenue increased approximately 78%, primarily from higher immunoglobulin sales following the BIVIGAM relaunch and ASCENIV launch. Plasma revenue declined.
- Gross margins remained materially negative: approximately negative 73% in Q2 and negative 69% for the first six months. Operating margins were approximately negative 220% and negative 188%, respectively.
- Cost of product revenue included $2.7 million of Q2 and $6.6 million of six-month production costs for BIVIGAM conformance lots that were expensed because additional FDA approval is required before commercial sale.
- Research and development expense rose to $1.7 million in Q2 and $3.2 million for the six-month period. SG&A increased to $8.7 million and $16.6 million, respectively, reflecting commercialization staffing, marketing, insurance and infrastructure costs.
- At June 30, 2020, cash and cash equivalents were $75.8 million, working capital was $130.1 million, total assets were $191.5 million and stockholders’ equity was $76.9 million.
- Inventories were $56.0 million, including $22.1 million of work-in-process and $9.1 million of finished goods.
- Debt consisted principally of $85.0 million of senior secured notes and a $15.0 million subordinated note payable to Biotest. The senior facility bears interest at 11.0% at quarter-end and matures March 1, 2022; the subordinated note bears interest at 6.0% and matures June 6, 2022.
- Capital expenditures were $6.2 million during the first six months, largely for Boca Facility expansion, equipment and plasma-center development. Management expected an additional $7.0 million to $12.0 million of 2020 capital expenditures.
Material Changes Versus the Prior Comparable Period
- Revenue growth was offset by higher manufacturing, R&D and SG&A spending, resulting in a $7.0 million increase in Q2 net loss and a $13.1 million increase in the six-month net loss.
- Interest expense increased by $1.0 million in Q2 and $2.2 million for the six-month period due to higher debt balances, including the March 2020 $12.5 million draw under the senior facility.
- The six-month 2019 results included 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 2020.
- ADMA completed a February 2020 public offering of 27.025 million shares for net proceeds of approximately $88.7 million, increasing shares outstanding from 59.3 million at year-end 2019 to 86.35 million at June 30, 2020.
- ADMA opened a new plasma collection center on June 30, 2020, subject to FDA licensure, and continued development of additional centers and manufacturing capacity.
Outlook, Risks and Unusual Items
- Management expected cash, projected revenue and accounts receivable to fund operations as currently conducted into the second quarter of 2021. Additional capital was expected to be required before the end of that quarter, and the filing states that there were no firm financing commitments.
- The company expected not to generate sufficient product revenue to achieve profitability before 2021 and expected continued operating losses and negative operating cash flow into fiscal 2021. The filing states that these conditions raise substantial doubt about the ability to continue as a going concern.
- On August 5, 2020, ADMA entered into an at-the-market equity sales agreement permitting sales of up to $50.0 million of common stock. No shares had been sold under the agreement through the filing date; commissions may be up to 3.0% of gross proceeds.
- COVID-19 caused lower donor collections, delays in source-plasma and other material deliveries, difficulties with physician engagement and delays in third-party final product release testing. ADMA added testing laboratories and stated that operations had not been materially affected to date, but the ultimate impact remained uncertain.
- The company relies substantially on third-party plasma suppliers, fill-finish providers, testing laboratories and other vendors. For the six months, three customers represented 81% of consolidated revenue, and three customers represented 76% of accounts receivable.
- The Perceptive facility is secured by substantially all company assets and includes minimum cash and trailing-revenue covenants. ADMA reported compliance with all covenants at June 30, 2020. Failure to comply could permit acceleration and enforcement against collateral.
- Material ongoing obligations include BIVIGAM and ASCENIV post-marketing studies, plasma supply commitments, FDA compliance and facility validation requirements, and additional capital for commercialization and expansion.
Investor Verification Checklist
- Verify the pace and profitability of BIVIGAM, ASCENIV and Nabi-HB sales, including whether product revenue growth can overcome manufacturing and commercialization costs.
- Monitor cash burn, inventory conversion, capital expenditures and the timing and terms of required financing.
- Review the $50.0 million ATM facility for actual share issuances and resulting dilution.
- Assess senior-debt maturity and covenant compliance, particularly the March 2022 maturity and minimum cash and revenue requirements.
- Track FDA approvals and validation for expanded manufacturing capacity, the new plasma collection centers and BIVIGAM conformance lots.
- Evaluate the effects of COVID-19 and third-party testing, fill-finish and plasma-supply disruptions on product availability and revenue timing.
- Consider customer concentration, reimbursement and market acceptance risks, as well as the company’s disclosed going-concern uncertainty.