Business Context and Reporting Period
ADMA Biologics, Inc. is a commercial biopharmaceutical company developing, manufacturing and marketing plasma-derived biologics for immunodeficient patients and prevention of infectious diseases. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, filed November 6, 2019.
- FDA approved ASCENIV on April 1, 2019; commercial sales began in October 2019.
- FDA approved the BIVIGAM manufacturing Prior Approval Supplement on May 9, 2019; commercial relaunch began in August 2019.
- Nabi-HB remained commercially available.
- Following the January 1, 2019 transfer of the Norcross and Marietta plasma centers, ADMA operated one FDA-licensed plasma collection facility at September 30, 2019.
Financial Results and Key Metrics
| Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 |
|---|---|---|---|---|
| Total revenue | $7.2 million | $4.2 million | $17.3 million | $12.9 million |
| Gross loss | $(0.7) million | $(4.9) million | $(10.5) million | $(18.1) million |
| Operating loss | $(9.1) million | $(13.8) million | $(33.6) million | $(43.7) million |
| Net loss | $(11.4) million | $(15.1) million | $(37.7) million | $(47.7) million |
| Loss per share | $(0.19) | $(0.33) | $(0.72) | $(1.06) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(56.5) million | $(43.9) million |
- Q3 revenue increased 71% year over year, while nine-month revenue increased 34%.
- Approximate margins were: Q3 gross margin negative 9.6%, operating margin negative 125.3% and net margin negative 158.4%; nine-month gross margin negative 60.6%, operating margin negative 194.1% and net margin negative 217.9%.
- At September 30, 2019, cash and cash equivalents were $48.0 million, working capital was $82.2 million, total assets were $137.8 million and stockholders’ equity was $36.1 million.
- Inventory rose to $40.3 million from $18.6 million at December 31, 2018, primarily reflecting plasma and production inventory for ASCENIV and BIVIGAM. Accounts receivable increased to $7.3 million from $1.4 million.
- Capital expenditures were $2.2 million during the first nine months of 2019. Management expected additional 2019 capital expenditures of approximately $1.0 million to $3.0 million.
Debt, Liquidity and Capitalization
- Senior notes had a face amount of $72.5 million and a carrying amount of $67.8 million at September 30, 2019. The facility bears interest at 7.5% plus the greater of one-month LIBOR or 3.5%; the stated rate was 11.0% at quarter-end and maturity is March 1, 2022.
- The senior credit facility included an undrawn $12.5 million tranche available through March 31, 2020, subject to conditions.
- The company also had a $15.0 million subordinated note, with a carrying amount of $14.9 million, bearing 6.0% interest and maturing June 6, 2022.
- Financing activities generated $80.0 million in the first nine months, including $48.4 million of net proceeds from a May 2019 offering of 12.9 million common shares and net debt financing proceeds.
- Management stated that available cash, projected revenue and receivables, and the additional credit facility capacity were expected to fund operations into the fourth quarter of 2020. Additional capital was expected to be required before the end of that quarter.
- The filing states that recurring losses and negative operating cash flow raise substantial doubt about the company’s ability to continue as a going concern.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven principally by increased immunoglobulin manufacturing and contract manufacturing activity, partially offset by lower plasma revenue after transferring two collection centers to Biotest.
- Q3 gross loss improved by $4.2 million, primarily because higher production reduced underabsorbed manufacturing costs. Nine-month cost of product revenue also benefited from lower pre-approval production charges and lower facility remediation costs.
- Research and development expense declined to $0.5 million in Q3 and $1.9 million year to date, partly because certain ASCENIV plasma testing and storage costs moved into inventory and product costs after approval.
- Plasma center operating expense declined materially because two centers were transferred on January 1, 2019.
- SG&A increased to $7.2 million in Q3 and $18.9 million year to date, reflecting commercialization, professional services, information technology, customer support and staffing investments.
- Interest expense increased to $2.6 million in Q3 and $6.3 million year to date due to higher borrowings.
- Year-to-date results included a $10.0 million loss on extinguishment of the former debt facility and an $11.5 million gain from transferring the two plasma centers; these unusual items materially affected the comparison.
- Common shares outstanding increased to 59.3 million from 46.4 million at December 31, 2018, primarily due to the May equity offering.
Guidance, Outlook, Commentary and Risks
- Management expected continued operating losses and negative operating cash flow while it scales manufacturing, launches ASCENIV and BIVIGAM, expands plasma collection capacity and funds regulatory and post-marketing activities.
- The company expected the assumed BIVIGAM pediatric and post-authorization safety studies to be completed by the end of 2021, subject to product availability and manufacturing improvements.
- The Boca Facility had improved from FDA “Official Action Indicated” to “Voluntary Action Indicated,” but the FDA had not issued a formal close-out letter for the outstanding Warning Letter.
- Key risks include inability to obtain additional financing, dilution or restrictive debt terms, failure to achieve commercial acceptance or reimbursement, manufacturing scale-up and quality issues, FDA compliance and inspection outcomes, and insufficient supply of suitable plasma.
- Revenue and credit exposure are concentrated. Four customers represented 86% of nine-month revenue, and three customers represented 88% of accounts receivable at September 30, 2019.
- Grifols supplied approximately 78% of inventory purchases during the first nine months of 2019, creating significant supplier concentration.
- The Perceptive facility is secured by substantially all company assets, including intellectual property, and includes minimum cash and revenue covenants. The company reported compliance at September 30, 2019.
- No material pending legal proceedings were disclosed, and management reported that disclosure controls and procedures were effective.
Important Facts for Investors to Verify
- Actual post-quarter commercial sales, demand, pricing, reimbursement and gross margins for ASCENIV and relaunched BIVIGAM.
- Cash burn, inventory conversion and accounts receivable collections relative to the company’s fourth-quarter 2020 funding estimate.
- Availability and conditions of the remaining $12.5 million senior credit tranche and compliance with revenue and minimum-cash covenants.
- FDA resolution and formal close-out status of the Boca Facility Warning Letter and any continuing remediation costs.
- Manufacturing capacity, product release timing, quality performance and access to FDA-approved plasma supplies.
- Customer and supplier concentration, including the expiration of the contract manufacturing agreement at the end of 2019.
- Potential dilution from future capital raises, outstanding options and 2.1 million warrants.