ADMA Biologics, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2013, compared with the three months ended March 31, 2012. The interim financial statements are unaudited. ADMA develops plasma-derived immune globulins and operates an FDA-licensed plasma collection center in Georgia. Its lead product candidate, RI-002, is being developed for primary immunodeficiency disease.
Financial Highlights
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $792,935 | $4,400 |
| Gross profit | $263,889 | $2,200 |
| Gross margin | 33.3% | 50.0% |
| Research and development expense | $1,467,584 | $81,820 |
| Total operating expenses | $3,413,978 | $1,215,702 |
| Loss from operations | $(3,150,089) | $(1,213,502) |
| Net loss | $(3,241,647) | $(597,314) |
| Basic and diluted loss per share | $(0.55) | $(0.18) |
| Net cash used in operating activities | $(3,074,771) | $(1,998,699) |
| Cash and cash equivalents at period end | $10,320,517 | $14,239,828 |
- Q1 2013 revenue was generated from sales of normal-source plasma at the Georgia collection center, primarily under the Biotest Pharmaceuticals supply agreement. The company reported no therapeutic or research-and-development product revenue.
- Working capital was $10,204,752 at March 31, 2013. Total assets were $13,817,307 and total liabilities were $7,416,664.
- Notes payable, net of debt discount, were $4,793,867. Including the end-of-term liability and leasehold improvement loan, reported debt-related liabilities totaled approximately $5.0 million, excluding the separate warrant liability of $192,617.
- Stockholders’ equity declined to $6,400,643 from $9,423,746 at December 31, 2012, primarily because of the quarterly net loss.
Material Changes Versus the Prior Comparable Period
- Revenue increased substantially to $792,935 from $4,400 as plasma collection and sales expanded under the Biotest agreement.
- Gross profit increased to $263,889, although gross margin declined to 33.3% from 50.0% because cost of sales grew with plasma volumes.
- Research and development expense increased by $1,385,764, reflecting the Phase III RI-002 program, manufacturing, testing, regulatory work, clinical costs, wages and stock-based compensation.
- General and administrative expense increased by $756,517 to $1,431,106. The increase included a $457,520 write-off of deferred financing fees related to a proposed financing and higher compensation and stock-based compensation costs.
- Interest expense increased materially because of the Hercules debt facility, including interest, debt-discount amortization and deferred-financing-cost amortization.
- Cash declined by $2,215,155 during the quarter. Operating cash use and capital expenditures exceeded financing inflows, despite $1.0 million of additional Hercules borrowings.
- The company granted 25,587 employee stock options during the quarter and recognized $218,544 of stock-based compensation expense.
Guidance, Outlook, Risks and Unusual Items
- Management expects research and development expenses to increase throughout 2013 as the RI-002 Phase III program progresses. General and administrative expenses are also expected to rise as the company adds staff and supports its public-company obligations.
- The pivotal Phase III RI-002 trial commenced in 2013 and is intended to enroll approximately 60 to 70 patients at roughly 12 U.S. treatment centers.
- Management stated that current cash, the potential additional $1.0 million Hercules borrowing, and a backstop financing arrangement are expected to fund operations into the second quarter of 2014 based on current projections.
- The company expects that FDA approval of RI-002, if obtained, would occur no earlier than the second half of 2015. Additional capital is therefore expected to be required before the second quarter of 2014.
- ADMA has incurred losses and negative operating cash flow since inception, with an accumulated deficit of $40,350,975 at March 31, 2013. Management states that continued operations depend on raising additional capital.
- Potential future equity or convertible-debt financings could dilute existing shareholders; additional debt could increase fixed obligations and impose restrictive covenants. The filing states that no existing commitment for future external funding is in place.
- The Hercules facility permits total borrowings of up to $6 million; $5 million had been borrowed by March 31, 2013, with a potential additional $1 million subject to an equity or subordinated convertible-debt financing before June 30, 2013. The facility is secured by company assets, excluding intellectual property, and contains customary covenants and default provisions.
- The Hercules warrant is accounted for as a liability and remeasured each reporting period, which may create volatility in reported results. A $36,728 gain from the change in fair value was recognized in Q1 2013.
- On April 4, 2013, the company completed a 1.27-for-1 stock split through a 0.27-for-1 stock dividend; historical share and per-share amounts were retroactively adjusted.
- Revenue is substantially attributable to one customer, creating customer-concentration risk. The company also faces clinical, manufacturing, regulatory, product-approval, financing, intellectual-property and commercialization risks.
Important Facts for Investors to Verify
- Whether plasma sales under the Biotest agreement are sustainable and whether customer concentration has changed.
- Progress, enrollment, safety results and costs of the RI-002 Phase III trial, including any FDA requests for additional studies.
- Actual cash-burn rates and whether the company obtained the potential additional $1.0 million Hercules borrowing or other financing.
- Timing and terms of required future capital raises, including potential dilution and debt covenants.
- Remaining availability, repayment schedule, collateral requirements and covenant compliance under the Hercules facility.
- Changes in the fair value of the Hercules warrant liability and the resulting effect on reported earnings.
- Whether cash and projected financing remain sufficient to fund operations through the stated second-quarter 2014 target.
- Potential accounting impact of the planned in-license agreement with Biotest, which management expected to finalize by the end of the second quarter of 2013.