ADMA Biologics: Significant Derisking, Product Launches In Second Half Of The Year

Shares of ADMA Biologics (ADMA) have lost over a third over their value over during the past three years. However, the stock has really turned around in 2019 after multiple positive developments, delivering a 92% gain during that time frame.

I'd lightly glanced at ADMA Biologics in the past, but chose to wait until regulatory risk was behind us before digging deeper. Thesis here was intriguing considering that ASCENIV alone is thought capable of doing $200 million in peak US sales and phase 3 data achieved both primary and secondary endpoints (our element of downside cushion and derisking). Also, BIVIGAM provided another revenue generator in the $6 billion IVIG market noted for its consistent issues with having enough supply to meet steadily growing demand.

Additionally, my attention was again drawn here after recent insider buying and a 4 million share purchase by Joseph Edelman's Perceptive Advisors, both of which could be indicative of the company finally turning a corner. After the recent financing, my objective is to determine whether there's a near- to medium-term opportunity for us to take advantage of.

Chart

Figure 1: ADMA daily advanced chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see December's gap down after the company received a Complete Response Letter from the FDA in response to its application for approval to relaunch BIVIGAM. However, the stock price recovered soon after as less than a month later the company submitted its response to CMC issues raised. In February, the stock received another boost after news broke of its credit facility with Perceptive Advisors and vaulted again in April after ASCENIV (RI-002) received FDA approval. Currently, shares appear to be consolidating in the mid-$4s (potentially offering an ideal entry point for patient investors).

Overview

Founded in 2004, ADMA Biologics considers its primary mission to create superior products for immunodeficient patients at risk of infection. An ambitious goal has been set of becoming a leader in the plasma-derived therapeutics market, ultimately helping extend and improve the lives of these patients who are immunocompromised due to natural or medical causes.

ADMA is led by President and CEO Adam Grossman serving at the company since 2007 and prior at GenesisBPS and MedImmune. Interestingly enough, the Chairman of the Board of Directors is Steven Elms (Managing Partner at Aisling Capital).

The company's plan in the near term is to hire a small, dedicated sales force to market ASCENIV to key clinics, hospitals and other specialty treatment organizations. Another avenue of growth is to expand use of ASCENIV into other relevant patient populations that stand to benefit (think Respiratory Syncytial Virus or RSV longer term).

It feels like ADMA's past is well-known at this point, but for those who are new, the cliff notes version is essentially that BIVIGAM was first approved in 2012 yet failed to reach its potential due to manufacturing issues which eventually caused it to get pulled off the market in 2016. ADMA in turn bought its CDMO (contract and development manufacturing organization), fixed up its plant, got a CRL from the FDA last December for CMC issues and finally appears to have righted itself.

With dilution out of the way and approvals under its belt, the company's chief challenge now is to launch product and make inroads into the crowded but supply constrained IVIG market to transition into a revenue growth (and eventually earnings growth) story.

Select Recent Developments

On October 3rd, the company received FDA approval for its third plasma collection center in Marietta, Georgia. The facility is now FDA licensed to collect and enter into interstate commerce to sell and use the human source plasma for further manufacturing in the U.S. Additionally, ADMA BioCenters received FDA approval for a license supplement to collect whole blood from donors with a rare blood type to produce source plasma that contains high levels of Anti-D antibodies which is the basis for producing Rho Immune Globulin. Other plasma products manufacturers use this Anti-D high-titer plasma to make a hyperimmune globulin which is used to prevent and treat conditions associated with Rh negative blood type. This is important considering that market prices for Anti-D plasma are much higher (up to twice) than normal source plasma.

On December 19th, the company announced that the FDA issued a Complete Response Letter for the drug substance Prior Approval Supplement submission and previously approved the drug product PAS submission. Keep in mind the CRL was related only to the drug substance PAS submission (chemistry, manufacturing and controls information).

On February 12th, the company received needed funding (and an important vote of confidence) in the form of a senior secured term loan facility with Perceptive Advisors for up to $72.5 million under two funding tranches. $45 million was used to prepay ADMA's prior senior credit facility of $30 million with the second loan facility tranche of $27.5 million due on approval of RI-003 or BIVIGAM Prior Approval Supplement. Loan terms provide for interest only period through March 2022.

On April 2nd, the company announced that the FDA approved ASCENIV (formerly RI-002) for the treatment of Primary Humoral Immunodeficiency Disease (PIDD) in adults and adolescents. Launch is anticipated in the second half of the year and management's enthusiasm was palpable in regards to being able to help address current shortages in IVIG supply in the United States. A Department of Health and Human Services license was issued by the FDA covering the company's Boca Raton manufacturing facility showing that it finally is in compliance with requirements to manufacture and enter into interstate commerce.

On April 17th, the company's intellectual property portfolio received another boost with the issuance of U.S. Patent No. 10,259,865 related to methods of treatment and prevention of S. pneumonia infection (expires in March 2037). This patent could lead to business development as it could attract a partner interested in developing and commercializing a therapy for the treatment and prevention of infection in immune compromised, immunodeficient and elderly patients who are poorly responsive to available S. pneumonia vaccines. President and CEO Adam Grossman noted that around "one million U.S. adults get pneumococcal pneumonia each year and as many as 400,000 hospitalizations from pneumococcal pneumonia occur annually in the U.S. and about 5-7% of those who are hospitalized from it will die despite the widespread use of multiple vaccines for disease prevention."

May was a good month in terms of accessing capital and extending the firm's operational runway. At the beginning of the month, ADMA chose to draw-down $27.5 million from its credit facility with Perceptive Advisors and amended the agreement to allow for drawing an additional $12.5 million of funding (includes warrant to purchase 250,000 shares of common stock based on 10-day volume weighted average price). From there, on May 21st, the company received $51.75 million of proceeds from a secondary offering (12,937,500 shares of its common stock at price point of $4 per share). Investment banks involved included Jefferies, Raymond James and Oppenheimer.

Also in the month, the company received FDA approval of its Prior Approval Supplement for BIVIGAM (letting them initiate marketing to patients with Primary Humoral Immunodeficiency). Again, it is management's hope that launch of the product (in the second half of the year) will help address supply issues in the $6 billion IVIG market.

Other Information

For the first quarter of 2019, the company reported cash and equivalents of $16.5 million (net working capital was $30 million). This figure does not include $27.5 million of additional funding from Perceptive Advisors (plus $12.5 million related to BIVIGAM approval) nor proceeds from the secondary offering. Total revenues decreased slightly to $3.5 million while net loss fell to $13.1 million.

As mentioned prior, launch of ASCENIV and relaunch of BIVIGAM are two catalysts to look forward to (should see more headway made with Nabi-HB as well).

As for institutional investors of note, major stakes are owned by Perceptive Advisors (recently disclosed 19.4% stake), Consonance Capital, Broadfin Capital and others. Significant insider buying in May is encouraging as well.

Final Thoughts

To conclude, it looks like several tailwinds including ongoing shortages in IVIG marketplace should aid the company as it seeks to relaunch product and grow revenues. Long suffering shareholders will likely be rewarded in the medium to long term as it appears the pieces are finally in place to see significant value creation (and major material risks such as regulatory approval are now behind us). On the other hand, with shares recently showing some weakness, I wonder how much positive news in upcoming quarters it will take to regain momentum and push forward to new highs. Significant optionality exists here as the company pursues additional indications for ASCENIV.

For readers who are interested in the story and have done their due diligence, ADMA Biologics is a Buy and I suggest initiating a pilot position in the near term followed by patiently accumulating dips in coming quarters.

Given recent financing, dilution in the near term appears unlikely. Other risks include substantial competition in the IVIG space, setbacks in upcoming product launches, continual cash burn requiring further financing or access to capital at some point (i.e., in 2020). Further manufacturing issues are always a possibility as well.

For our purposes in ROTY, I plan on revisiting this one in the second half of the year after getting more commentary and clarification from management in quarterly reports.

Useful Links:

Immunoglobulin Product Availability Issues: The Sky Is Not Falling but the World Needs More Plasma

A shortage of blood plasma leaves some Triad patients trying not to 'panic'

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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