Adma Biologics, Inc. Q2 FY2022 Earnings Call

Good afternoon, and welcome to the ADMA Biologics Second Quarter 2022 Financial Results and Corporate Update Conference Call on Wednesday, August 10, 2022. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at the company's request and will be available on the company's website approximately 2 hours following the end of the call. At this time, I'd like to introduce Skyler Bloom, Senior Director of Business Development and Corporate Strategy at ADMA Biologics. Please go ahead.

Welcome, everyone, and thank you for joining us this afternoon to discuss ADMA Biologics' financial results for the second quarter 2022 and recent corporate updates. I'm joined today by Adam Grossman, President and Chief Executive Officer; and Brian Lenz, Executive Vice President, Chief Financial Officer and General Manager, ADMA BioCenters. During today's call, Adam will provide some introductory comments and provide an update on corporate progress, and then Brian will provide an overview of the company's second quarter 2022 financial results. Finally, Adam will then provide some brief summary remarks before opening up the call for questions. Earlier today, we issued a press release detailing the second quarter 2022 financial results and summarized certain achievements and recent corporate updates. The release is available on our website at www.admabiologics.com. Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represents the company's intentions, expectations or beliefs concerning future events, which constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to factors, risks, and uncertainties such as those detailed in today's press release announcing this call and in our filings with the SEC, which may cause actual results to differ materially from the results expressed or implied by such statements. In addition, any forward-looking statements represent our views only as of the date of this call and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update any such statements except as required by the federal securities laws. We refer you to the disclosure notice section in our earnings release we issued today in the Risk Factors section of our 2021 annual report on Form 10-K for the year ended December 31, 2021 as well as the risk factors section of our quarterly report on Form 10-Q for the quarter ended June 30, 2022 for a discussion of important factors that could cause actual results to differ materially from these forward-looking statements. With that, I would now like to turn the call over to Adam Grossman. Adam?

Thank you, Skyler. Good afternoon, everyone, and thank you for joining us on today's call. We hope you all remain healthy and safe. The second quarter of 2022 was another banner period of execution for our company. During the quarter, we grew total revenues by 90% year-over-year, generated significant improvement of gross margin and meaningfully narrowed net losses from prior periods. The significant revenue growth, coupled with our disciplined expense management, establishes a strong foundation for the company to accelerate towards profitability. Consistent with the robust year-to-date trends previously highlighted, we are particularly pleased with the continued growth for our higher-margin IG product, ASCENIV. Drawing from the strong underlying product demand trends, we are confident the product and margin mix will continue to favorably evolve over the coming period. In this context, we anticipate the company's pathway to profitability will become increasingly visible as the year progresses and our anticipated margin expansion unfolds. Enabled by the company's strong execution during the first half of the year, we are well-positioned to generate full year 2022 revenues exceeding $130 million. The revenue increases will be driven by both IVIG and market growth as well as anticipated share gains for our product portfolio. ASCENIV adoption continues to accelerate, and we are confident the product upside will sustain over the near and longer term periods. Our commercial organization has successfully positioned the product, constructed and conveyed appropriate commercial messaging and mobilized targeted medical education campaigns, which are focused on expanding the brand's awareness and product utility. Our team has identified yet-to-be-realized growth opportunities among both new providers as well as headroom for increased penetration within existing institutions. Importantly, the at-risk primary immunodeficient patients being treated with ASCENIV are demonstrating real-world benefits and quality of life improvements. Anecdotal market feedback has been resoundingly positive, and this patient population is oftentimes poorly controlled on standard IVIG products. We believe this validates and supports our company's mission to commercialize novel products for immunodeficient patients at risk for infection. It is our devotion to this underserved population that fuels us. And we are proud that the ADMA Biologics name is now synonymous with trust and confidence with physicians, providers, and patients. Finally, on ASCENIV, our nimble manufacturing capabilities provide for time and cost-efficient production flexibility, as our product demand grows. Additionally, we believe we have sufficient internal and external RSV plasma supply to support the upside revenue targets for our products. We are well prepared from a raw material RSV and normal source plasma supply standpoint, as well as manufacturing capacity to meet our products' rapidly growing demand. Turning to BIVIGAM. The product continues to penetrate and gain market share in the growing U.S. immunoglobulin market. We are pleased with growth and overall product-specific execution. The second quarter of 2022 represented the highest period of utilization and demand pull-through since the product's relaunch in 2019. Our confidence in BIVIGAM's ongoing and peak revenue potential is unwavering and fully intact. As we have throughout the pandemic, ADMA remains committed to delivering the continuity of patient care. Our strong normal source and RSV plasma supply inventories, which are included in total inventories of $146 million, recorded at the end of the second quarter are anticipated to support all upwardly revised revenue forecasts on an ongoing basis across our IG product portfolio. This robust plasma supply position is a result of the execution by our biosensors team in rapidly expanding our internal plasma collection center network and management's assertive efforts to secure third-party plasma supply contracts. At present, in our BioCenter segment, we have 10 plasma collection centers under our corporate umbrella. Six centers are FDA licensed, two additional collection centers are operational and collecting plasma, and two centers are in various stages of construction. We remain on track to have all 10 plasma collection centers FDA licensed by the end of next year, at which point we anticipate having substantial plasma supply self-sufficiency. At present, we are encouraged with our donor foot traffic inflection bonds, which are now considerably exceeding our organization's pre-pandemic levels. With respect to macroeconomic conditions, in addition to the novel altruism associated with donating plasma, we believe the remuneration for plasma donations can help donors manage and offset increased pressures due to the historic consumer inflation rates. It is in this context that ADMA is proud to be a trusted partner with the local communities we serve. And we look forward to welcoming many more donors to our state-of-the-art BioCenters facilities. These truly remarkable accomplishments across our business could not have been possible without the dedication and focus of ADMA's staff, leadership, and advisors. Our organization’s collective vision and dedication to establishing complete end-to-end control of our operations is now our reality. Thank you for your dedication and hard work in achieving our corporate goals and delivering on our commitments to the patients, prescribers, and stockholders to whom we have made these promises. We commend the entire ADMA team for your remarkable efforts focused on improving healthcare for patients who we know are counting on us. Additionally, before turning the call over to Brian, I'd like to confirm our strategic alternatives process remains a top priority and is ongoing. Our objective is to maximize stockholder value, and we will update the market as developments materialize. With that said, I'd now like to turn the call over to Brian for a review of the second quarter 2022 financials.

Thank you, Adam. We issued a press release earlier today, outlining our second quarter 2022 financial results. And I'll now discuss some of the key highlights. As Adam mentioned earlier, total revenues for the second quarter ended June 30, 2022 were $33.9 million as compared to $17.8 million during the second quarter of 2021. This represents an increase of $16.1 million, or approximately 90%. The revenue growth for the second quarter of 2022 compared to the second quarter of 2021 was favorably impacted by the continued commercial ramp-up of our IVIG product portfolio and expansion of our customer base for BIVIGAM and ASCENIV. As a result of the encouraging first half of 2022, we are well-positioned to generate full year 2022 revenues in excess of $130 million. During the second quarter of 2022, ADMA realized a gross profit of $7.8 million compared to a gross loss of $1 million for the second quarter of 2021. Gross profit during the second quarter was driven by a favorable contribution from our higher-margin product, ASCENIV. Our consolidated net loss for the quarter ended June 30, 2022 was $13.8 million, or a net loss of $0.07 per basic and diluted share, compared to a consolidated net loss of $18.9 million, or net loss of $0.15 per basic and diluted share for the quarter ended June 30, 2021. Net loss decreased by approximately $5.1 million. This is primarily attributed to higher gross margins of $8.8 million, offset by a $1.3 million increase in interest expense as a result of additional debt, as well as rising interest rates, along with increased plasma center operating expenses of $1.1 million attributed to having eight plasma centers in operation compared to four centers this time last year, as well as increased general administrative expenses of $1.5 million, resulting in increased headcount, commercialization, and marketing expenditures. We look forward to expanding on these trends in the quarters ahead, as we expect to continue to grow revenues, grow gross profits, and narrow net losses as 2022 progresses. In doing so, we anticipate our pathway to profitability will become increasingly clear. We have significantly strengthened our balance sheet and funding position over recent periods. On a pro forma basis, the company's total liquidity stands at greater than $96 million, and this includes current cash on hand at the end of the second quarter of $52 million, accounts receivable of $19 million, and access to an additional $25 million in non-dilutive funds from Hayfin, which is now accessible at our discretion. In the context of expected improvements and net losses moving forward, ADMA is in the best financial position the company has been in since inception. As of June 30, 2022, ADMA's total asset value was $297 million, notably including $146 million of total inventory recorded at the company's cost, cash and cash equivalents of $52 million as well as accounts receivable of $19 million. Lastly, we're very pleased with the expansion progress at our BioCenters with eight centers now in operation and collecting plasma compared to four this time last year. During the first half of this year, we received FDA approvals for three of our centers, bringing the total FDA approved centers to now six. We also have two additional centers presently under FDA licensing, preparation, and another two under construction. We are well-positioned to achieve our stated goal of having all 10 centers collecting and FDA licensed by year-end 2023. With that, I will now turn the call back over to Adam for closing remarks.

Thank you, Brian. In summary, we have successfully implemented all requisite measures to enable our company's collective advancement toward profitability. We comprehensively reiterate all previously provided longer-term financial guidance. We believe that ADMA is on track to generate $250 million or more in top line revenue in 2024 and $300 million or more annually thereafter. At this level, we continue to anticipate generating potential annual gross profit and net income of $100 million to $150 million and $50 million to $90 million, respectively, during the 2024, 2025 time period and beyond. While guided profitability is reiterated for no later than the first quarter of 2024, accelerated profitability timelines are possible should the demand trends for IG portfolio previously characterized and current market dynamics sustain. At the timing of profitability becomes clear, we will formally revisit this guidance. In closing, I'd like to thank our stockholders for your continued support. As your investment in ADMA helps to advance our mission to save lives and make high-quality, safe, and efficacious products to help our friends, family, and neighbors. Please donate plasma and help save lives. And with that, we will now open up the call for your questions. Operator? Hello? Operator? Wanda, Jason. The operator seems to have disconnected. Working on getting a new one. Sorry for the technical difficulties everyone. Please stand by. Michelle?

Our first question comes from Elliot Wilbur with Raymond James. Your line is open.

Thanks. The operator has probably misplaced her personal PIN code as well.

How are you doing, Elliot?

Thank you for your time. It's great to connect again. Congratulations on a successful quarter. I have a couple of questions, starting with Brian. Considering the anticipated sequential increase in revenue for the remainder of the year, how should we view gross margin in both absolute dollar terms and percentages? Last quarter, you mentioned a few factors and one-time issues that could affect second-quarter margins, particularly the shutdown's impact. Additionally, it was expected that some long-dated inventory would have a positive effect. I'm trying to understand how the margins from this quarter might be indicative of levels for the rest of the year.

Thank you for the compliments and the questions, Elliot. We see the remainder of the year focused on expanding gross profit, reducing net losses, and continuing revenue growth. The impact of recognizing the longer dated inventory was incremental. As mentioned in previous calls, our revenue is increasingly coming from higher-margin products like ASCENIV and Nabi. Historically, we anticipated a mix with BIVIGAM's standard IVIG, but now we're seeing a 70% higher-margin mix of BIVIGAM and ASCENIV. With four consecutive quarters of positive gross margin, including this quarter at 23%, we are optimistic about maintaining this positive trend and achieving eight quarters of revenue growth. We've also seen narrowing net losses, and we consider this quarter to have been very strong. We expect continued revenue growth, improved gross margins, and reduced net losses in the upcoming quarters. In previous quarters, margins were in the 10% to 15% range, and we achieved 23% this quarter. We anticipate a modest upward trend in gross margins for the rest of the year, with peak gross margins for BIVIGAM projected to be between 25% and 35%, and ASCENIV's margins expected in the 80% to 85% range. Nabi is anticipated to be in the 70% to 75% range on a blended basis. We expect to reach a blended gross margin of 50% by the end of 2023 and into 2024, indicating a modest continued increase in gross margins as we progress through the remaining months of this year.

I would like to add that we are really pleased with the 90% year-over-year growth. The business is performing exceptionally well. We’ve been producing a lot of product, and it is coming off the line. Inventory turnover is happening a bit faster. Things are really going in our favor these days. It's important to note that we have always been conservative in our estimates. We are a management team that sets achievable expectations, and we certainly enjoy meeting them. We have reiterated our guidance, enhancing it to say that we expect to exceed $130 million. However, we want to be cautious due to the macroeconomic uncertainties affecting pharmaceutical manufacturers, including supply chain issues and inflationary pressures. We want to remain conservative here, but we are very pleased with our execution during the quarter. We have managed expenses well, and the demand for our product continues to grow. We anticipate continued growth quarter-over-quarter, leading to profitability.

Thanks. And just following up on some of your comments there. Could you just talk about the current macro environment on the collection side? What you're seeing in terms of foot traffic, collection volumes? You mentioned remuneration, and you've prepared commentary, but what you're seeing in terms of overall inflationary pressures there in terms of being able to get donors into centers, but maybe just kind of high-level commentary on the collection side?

Sure, absolutely. I think that I'm one of the last people to say this publicly, but some of the other plasma companies have stated that collection volumes are increasing, centers are operating very well. It's the same for ADMA. I can let Brian speak to the actual numbers here. But foot traffic is up. I'll just say, for those who've been following the company for a while, I mean, we've been public since 2013. Those can recall some of the headlines from the 2008 to 2012 timeline. Inflation rates and pressures to the general population certainly are positives for plasma donation. It's a way for folks to sort of offset some of these increasing costs that they're experiencing at the grocery store and at the pump and in their regular daily lives. So, government programs are sun-setting. Inflation is at an extremely high level. We think that donor foot traffic should continue to accelerate. We work very closely, and we're really a big part of the communities where our centers are located. As we said during the prepared remarks, we've got 10 centers under our corporate umbrella. We've got eight centers that are currently operating and collecting plasma. And we're ramping up; we are staffing, and we're seeing collection volumes month-over-month that are improving across the board in all of our geographies. So we feel very confident that we're going to be able to get to self-sufficiency sometime next year. And we're really pleased with the opportunities ahead of us from a collection standpoint. So just to elaborate a little bit more on that. Our donor foot traffic and collections are certainly much higher today than they were pre-pandemic as a result of opening up more centers, running special donor programs. But I think having the centers remain open throughout the pandemic, that's one of the things that ADMA was able to do. We didn't shut down our center. So we were able to roll out programs, we were able to keep the donors still coming in, even with some social distancing that was previously inactive. Obviously, now that's gone away. We're extremely excited geographically where we're located as well. So we think that even though inflation is increasing, we think that there's an opportunity for donors to earn additional income to augment their income based on rising prices, gas, and groceries. So we're certainly happy to add to the local economies in the 10 centers that we've located throughout the United States.

Okay, thanks. Maybe just one final question for me, and I will get back in the queue here. But another more of a macro subject and wondering if we have any visibility into the legislation coming out of Washington with respect to good price negotiation. I know the original legislation had a carve-out for plasma therapies such that they would not be subject to the provisions of that legislation, but a lot of kind of last moving, or fast moving changes and additions and deletions to legislation as it's come through both chambers here. I'm just wondering if you have any perspective in terms of whether or not that exemption still exists in the latest iteration of that bill.

Yes, the exemption is present in the latest draft of the bill. I want to acknowledge the efforts of ADMA's policy team and our collaboration with the Plasma Protein Therapeutics Association and other companies in the plasma-derived product sector. Historically, plasma products were excluded under the Affordable Care Act, and we were confident that this exclusion would remain. I believe a plasma caucus has recently been formed on Capitol Hill due to the combined efforts of the industry. Those involved in drug pricing reform recognize that the plasma sector operates differently from small molecules and some generic products. Plasma cannot be manufactured in labs; it relies on individuals generously donating it. The costs continue to increase, especially with global pandemics, infectious diseases, and the stringent testing and manufacturing practices we must uphold. Some regulators seem to recognize these additional costs and pressures. Moreover, when we examine the profit margins of plasma companies, they differ significantly from those in the pharmaceutical sector. We are pleased that the government has made beneficial decisions, and we believe that excluding plasma from Medicare and Medicaid price negotiations is a positive move that will ensure patients receive the necessary products.

Thanks for the questions, Elliot. Our next question comes from Kristen Kluska with Cantor. Your line is open.

Hi, good afternoon, everyone. Thanks for taking my questions and congrats on another strong quarter. So I appreciate your conservative approach that you give as it relates to your forecasting. But could you talk about what you would need to see in these next few months or quarters to adjust some of your profitability guidance? And, for example, does your current internal forecasts assume the lower end of this revenue guidance that you've provided and similar growth trends on these individual product bases?

Sure, I'll start by addressing the question about what it would take to adjust our profitability guidance. We're performing very well and managing to unlock potential even amidst supply chain and economic challenges. If we maintain the growth in BIVIGAM utilization and continue to see ASCENIV's utilization accelerate, we're not surprised by our results, but we are definitely pleased. Our commercial team is operating effectively, and the medical messaging and education campaigns are functioning as intended. Our grassroots sales strategy is proving successful. As we approach the third quarter, we're seeing strong demand trends continuing, which gives us confidence in the potential to accelerate our profitability timeline by the end of the year. We will formally revisit our guidance as the year progresses. As I mentioned in our prepared statement, the more we operate, the clearer profitability becomes. We aim to avoid setting expectations that could be impacted by unforeseen macroeconomic pressures, but we are optimistic about being on track for profitability by the end of Q1 2024. If we keep executing effectively, we have the inventory to meet increasing demand trends, even if they accelerate faster than expected. We've significantly ramped up ASCENIV production this year. Our plant can adapt to whichever plasma is available, allowing us to efficiently switch production between products. We're able to increase batches of ASCENIV at the same time as managing our BIVIGAM production. Plus, with the recently mentioned 36-month shelf life extension, we have sufficient inventory to meet market expectations. We feel confident about our position, though I can't make specific commitments today. I assure you that we are dedicated to achieving continued quarterly growth and fulfilling our commitments to patients, prescribers, and stockholders. And I think just a couple of things to add to that as we continue to ramp up production at the plant. Presently, we're about 50% to 60% production that we've said historically we have a 600,000-liter plant to produce close to 2 million grams and that will be in that 2024, 2025 timeframe. So as we continue to realize efficiencies at the plant, improved inventory turns, perhaps increasing expediting testing results, all that will lead to improved working capital and improved gross margin. So we're going to continue to obviously, monitor these things very closely improved inventory turns and other things, efficiencies in the business to continue to improve margins and narrow net losses.

Thank you. Appreciate that. So now that you've had a couple of successful quarters with ASCENIV and you've highlighted that the momentum is ongoing. Are you seeing that the average number of doses per year has increased? Or is a lot of the growth also attributed to new patient starts? Or is it really just a combination of these two factors?

The answer is yes. We are seeing patients. Most patients are going on a set of therapy, Kristen, because they've had complications and they have other comorbidities. And their success on standard IG is less than optimized. So clinicians are switching these primary immune deficient patients, secondary immune deficient patients off of their standard IG onto a set of therapy, which is labeled indicated use. And we're seeing patients remaining on therapy for a long period of time. A couple of patients that we have on therapy are in their second year. Typically, in this patient population, if you do well on a drug, you tend to stay on that drug. And we're starting to see that and we believe that the business that we're building is certainly sticky. We're seeing very, very consistent utilization amongst existing prescribers and existing patients. And we are seeing growth again at the same institutions and we're adding new institutions all the time. We feel very, very proud of what we're doing here. And I was just traveling around a little bit now that the world is opening up a couple of regional medical meetings and meeting with some of our KOLs. And I can tell you that the message out there is one of that we're making a product that's truly, truly differentiated in the eyes of a number of prescribers, and that it's making a difference in the quality of life and outcomes for patients. So while I can't quantify that, specifically, today, I can tell you that we have a problem with their PI patient on another IVIG. We now have something where they can try, and that's not just increasing the amount of IG or increasing the frequency. They now have a product that's manufactured with a plasma pool that's derived from donors that are tested to have sufficient levels of RSV antibodies. And we've shown in the public domain, in our papers and in our patents that these donors have high titers to a panel of other respiratory viral pathogens. And we feel that we're offering a differentiated opportunity to the doctors to provide for their patients. And we feel very, very good that the demand trends are going to continue to hold and that we're going to see accelerated pull-through as the battery of publications on patient outcomes continues to enter into the scientific domain.

Okay. And do you have a general sense of ballpark what percent of the IVIG market kind of fits into this bucket of either having complications with IG or they have these other comorbidities or they simply just don't respond well?

In the population of primary immune deficiency patients, we estimate that around 30% of the immunoglobulin market is represented by this group. Typically, about 100 million grams are used annually, which translates to approximately 30 million grams for those with primary and secondary immune deficiencies. Our internal models suggest there are roughly 150,000 primary immune deficiency patients, with about 10% to 20% classified as higher risk due to comorbidities, chronic lung conditions, and persistent infections requiring prolonged antibiotic use. Focusing on this subset, we identify our target market to be between 15,000 to 30,000 patients. Given the dosing of immunoglobulin and the utilization of incentives, even a modest penetration in this market could yield significant revenue for the company and enhance profitability.

Great. Thank you.

There are no further questions. I'd like to turn the call back over to Adam Grossman for any closing remarks.

Sure. Thank you everybody for your attention and time. Sorry for the technical difficulties, and we appreciate your continued support in allowing us to make good products to help these immune-compromised patients. Have a great afternoon.

This concludes the program. Have a great day.