ADMA Biologics (NASDAQ:ADMA) Q1 2020 Earnings Call

0:01 Ladies and gentlemen, this is the operator. Today's conference call will begin in two minutes. Until such time, your line will remain on music hold. Please continue to standby. We thank you for your patience. Once again, today's conference call will begin in two minutes. Until such time, your line will remain on music hold. Please continue to standby. We thank you for your patience. Music Music Music Music Biologics Inc.

1:28 Music Music Music Music Good afternoon and welcome to the ADNA Biologics First Quarter 2020 Financial Results Conference Call on Wednesday, May 6, year 2020.

2:27 At this time, all participants are in a listen-only mode. There will be a question and answer session to follow. Please be advised that this call is being recorded at the company's request and will be available on the company's website approximately two hours following the end of the call. At this time, I would like to introduce Mr. Sam Martin, Managing Director at Argot Partners, ADMA's investor relations firm. Please go ahead.

2:59 Welcome, everyone. and thank you for joining us this afternoon to discuss ADMA Biologics financial results for the first quarter 2020. I'm joined today by Adam Grossman, President and Chief Executive Officer and Brian Lenz, Executive Vice President and Chief Financial Officer. During today's call, Adam will provide some introductory comments and provide a corporate update and then Brian will provide an overview of the company's first quarter 2020 financial results. Adam will then provide some brief summary remarks before opening up the call for your questions. Earlier today, we issued a press release detailing the first quarter 2020 financial results. The release is available on our website at admobiologics.com.

3:45 Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represent 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 Security 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 recording and should not be relied upon as representing our views as of any subsequent date.

4:37 We specifically disclaim any obligations to update any such statements. We refer you to the disclosure notice section in our earnings release we issued today and the risk factors section of the annual report on Form 10-K 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?

5:05 Thank you, Sam. Good afternoon, everybody, and thank you for joining us on this afternoon's call. So the first quarter of 2020 has been unprecedented due to the global COVID-19 pandemic. Faced with seemingly insurmountable challenges, Many of us have adapted, changed our behaviors and have reflected on what is meaningful to ourselves, our loved ones and our community. We see that as long as we can modify our behaviors, there are solutions to be found to ensure we continue to make progress in our lives and not let bumps in the road stop us from achieving our goals. I am proud to report that the staff of ADMA has been adaptable, problem solving and resilient during these times.

5:50 while also managing their personal lives like all of us participating on today's call. I would be remiss if I didn't express our sincere gratitude to our dedicated, hardworking staff for continuing to give of themselves to ensure ADMA's plasma-derived polyclonal antibody products are available to patients in need. I would like to commend and express our sincere gratitude for the dedication of our country's first responders. Physicians, nurses, scientists, government agencies, and the global healthcare community for coming together united to develop a prevention and cure for COVID-19. We are proud to play a small role in supporting the worldwide effort to combat this terrible infectious disease and have pledged our support and knowledge to the combined efforts of the COVID-19 Global Plasma Alliance led by CSL and Takeda as contributors.

6:49 Thank you for joining us today. Thank you for joining us. Thank you for joining us today.

8:06 Thank you for joining us. As previously disclosed, we invested in our supply chain robustness strategy and continue to make progress with reinforcing our commercial infrastructure by building on our sales force and medical affairs teams while generating encouraging first quarter total revenues of $10.2 million, which represents a 189% increase over the same period in 2019.

8:54 Biv again and Ascendant commercial launches continue to progress Thank you for joining us. Social Distancing and other government-enforced policies and laws, which include reduced in-person field force meetings and commercially focused opportunities resulting from medical conference cancellations, along with a decrease in customer site visit opportunities at hospitals and other medical institutions due to shelter-in-place orders across the country.

9:40 As such, we are developing and have successfully implemented a number of virtual engagement initiatives with prescribers, key opinion leaders, and other healthcare professionals to facilitate the ongoing commercial rollout. We continue to operate at our Boca Raton, Florida production facility without any significant impact from the COVID-19 crisis. Production timing is generally on schedule and in line with our internal forecasted ramp-up of immune globulin manufacturing throughput for our three commercial products and intermediate fractions. We continue to build our inventories to support the overall increasing market demand for immune globulin and to support the continued sales growth and market penetration of our commercial plasma products.

10:26 While we are not experiencing any significant decreases in and our plasma collection operations to date. There have been reports that other plasma collection organizations are experiencing noticeable declines in their collections. We continue to closely monitor the global COVID-19 situation and are pleased to report again that we are not experiencing any material impact to our supply chain or operations at this time. Before I turn the call over to Brian to review the financial highlights, The most important point of my statements today is that our supply chain robustness plan remains on schedule and the expansion of our manufacturing facilities capacity remains on track. Thank you for watching.

11:39 Thank you very much. Thank you very much. Additionally, we anticipate the total volume of intermediate fractions that we produce will grow in line with the increased production capacity, providing further benefits from these investments into our IG manufacturing process.

12:46 Once these new systems and processes are in place and we receive any and all required regulatory approvals, we believe we will have the ability to ramp up total overall plant production capacity We continue to remain on target with the expansion efforts of our Plasma Collection Center business unit. During the quarter, we commenced the build-out of additional plasma centers and secured additional locations and leases as planned. The expansion of our plasma collection center network is designed to enhance our control over the valuable raw material source plasma used to produce our immune globulin products.

13:31 These three substantial objectives, increased raw material plasma collection, expanded production capacity, and aseptic filling capability, are anticipated to change the forward-looking outlook for ADMA in many positive ways, including potentially lowering costs, Thank you very much. Thank you for joining us. Thank you for joining us.

15:12 expand the manufacturing capacity of our Boca Raton facility, including adding certain important supply chain functions, and to further bolster our supply chain by allowing us to expand our plasma collection facility network. We are grateful to our shareholders for your trust and thank you for your commitment to plasma-derived antibody products. Before they were mainstream news and dinner table conversations, your investment in ADMA Biologics is making a difference in the lives of countless patients who require immune globulin and other plasma-derived therapies. We thank you for your support and trust. I would like to touch on the recent filing of our proxy statement.

15:57 In April, we nominated a new director for election, Ms. Martha Dembski, to the ADMA board. Martha is an experienced board member who, if elected, will bring more than 35 years of biotech manufacturing, operations, and financial experience to ADMA's Board of Directors. In her most recent full-time position, she served as Senior Vice President and Chief Financial Officer of Ajinomoto Althea up until her retirement in 2017. She currently serves as Chairman of the Board at Chimerics, as well as a director at Adamus Pharmaceuticals and Equilium Incorporated. We believe that Martha brings great operational, manufacturing, supply chain, and public company accounting and governance experience to our rapidly growing company, especially as we enhance our supply chain and increase our potential contract manufacturing capabilities.

16:53 We encourage our shareholders to vote their proxies according to the company's recommendations. In March, we announced strengthening of our intellectual property estate, further protecting Ascentive. We received a notice of allowance from the U.S. Patent Trademark Office for a patent extension application covering immune globulin plasma pool compositions used in the manufacturing of Ascentive. The patent extension is expected to publish during the first half of 2020. And finally, in early January... Thank you for joining us. Thank you for having me. Thank you, Adam. Since we issued a press release earlier today outlining our first quarter 2020 financial results, I'll just review some of the highlights.

17:57 To begin with, our total revenues for the first quarter 2020 are

18:22 were $10.2 million compared to $3.5 million for the first quarter ended March 31, 2019. And this represents an increase of approximately $6.7 million or 189%. The higher revenues are mainly attributed to our multiple revenue lines, increased sales and production throughput of $6.4 million of our immunoglobulin plasma products generated by our manufacturing operations at our BOCA facilities. and a $300,000 increase in plasma revenues generated by our plasma collection facility in 2020 as compared to the same period in the prior year. Our increased revenues for the first quarter of 2020 compared to the first quarter of 2019 were largely a result of the FDA approvals of Bibigam and Ascentive on May 9th, 2019 and April 1st, 2019 respectively, along with the long-term manufacturing New Customer Supply Agreement we entered into in January 2020 to produce and sell intermediate fractions.

19:26 Our consolidated net loss for the first quarter 2020 was $19.2 million, or a $0.26 loss per basic and diluted share. This was compared to a consolidated net loss of $13.1 million, or a $0.28 loss per basic and diluted share for the first quarter of 2019. The increase in net loss of $6.1 million was primarily due to the increase in cost of product revenues of approximately $7.4 million. This increase was mainly a result of the manufacturing of Bivagam's conformance lots at an increased plasma pool production scale, and this pertains to our planned capacity expansion and other production enhancement initiatives and investments at the Boca facility.

20:12 The additional increase in net loss during the first quarter of 2020 is also attributed to higher selling, general and administrative expenses of $2.3 million. This is mainly due to increases in our commercialization efforts for Bibigam's relaunch and Ascentive's launch, employee headcount, compensation, in addition to increased interest expense of $1.2 million, mainly due to accessing additional debt during the second quarter of 2019. along with higher research and development expenses of $400,000 related to a study we commenced for Ascentive to potentially extend its approved and labeled expiration dating. Included in the net loss for the first quarter 2020 were non-cash expenses of approximately $1.9 million for stock-based compensation, depreciation, amortization, and non-cash interest expense.

21:05 At March 31, 2020, Adma had cash and cash equivalents of $101.2 million and accounts receivable of $7.1 million. And this is compared to cash and cash equivalents and accounts receivable of $26.8 million and $3.5 million respectively at December 31st, 2019. Adma's net working capital as of March 31st, 2020 was $151.6 million. and that's compared to $71.8 million as of December 31, 2019. As Adam mentioned earlier, in February 2020, we completed an underwritten public offering of approximately 27 million shares of our common stock at a public offering price of $3.50 per share, which resulted in net proceeds of $88.7 million after deducting underwriting discounts, commissions and other offering expenses.

22:04 With that, I'm now turning the call back over to Adam for closing remarks.

22:10 Thank you, Brian. The first quarter of 2020 demonstrated to me that our team at ADMA is adaptable and willing to accept changes without hesitation. Our team has risen to the occasion time and time again to do whatever it takes in the face of challenges and adversity to keep the company on track to meet its goals and objectives. To my team listening on the call today, first, I thank you for listening. Thank you for joining us. and bringing each product to patients with life-threatening immune deficiencies.

23:06 We look forward to sharing ADMA's continued progress with you all as 2020 progresses, and we wish you all continued health and safety. And with that now, operator, we'd like to open up the call for some questions. Thank you. Today's question and answer session will be contacted electronically. To ask a question, you will need to press Par 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Anthony Patron from Jefferies. Your line is now open.

23:47 Thanks and congratulations on the quarter. I hope everyone is staying safe. Maybe, Adam, I'll start with a few questions on the more recent trends We're getting updates from a number of companies just on how trends in March were exiting in the last two weeks of March and then any updates in April specifically. I guess both on the source plasma side in terms of collection volumes, but also just anything notable on the infusion clinic size. Are you seeing... Any impacts in terms of scheduling for IG appointments and things like that? And then I'll have a few follow-ups.

24:31 Sure. And, you know, Anthony, I can speak to ADMA and our operations, and I can speak to some of the things that I hear through my participation at the PPTA board level and just through conversations that I've had. You know, first and foremost, ADMA, I mean, we're experiencing very, very minimal collection issues. Thank you very much. With respect to IG, you know, again, Bivigan is selling. Bivigan is being utilized. It's being pulled through the channel.

25:29 We have not heard any significant issues with respect to Bivigan during the quarter. What I can comment on with respect to things that we just know is There are some other companies out there that have reported between 20% to 30% declines in collections. Now, it varies. It varies upon region. It varies by collector. So it's really hard for me to speak specifically about each individual competing plasma company out there. But the overall sentiment that I'm hearing is that it probably was a three- to five-week period between March and maybe the beginning of April where the industry saw – A substantial decrease, this 20% to 30% decrease. However, it was for a very, very short, finite period of time. And I actually listened to a conference call the other day from a company like Humanetics, and they were saying how they're already seeing volumes come back to normal as early as mid-April. So from my perspective, you know, Thank you for joining us.

26:45 but I have heard reports that there are some patients that have received approvals from payers for some subcutaneous IG administration, but overall I don't believe that there's going to be a substantial disruption from this short downturn in collections. And in fact, if I carry it forward and if I use my crystal ball, Anthony, Thank you for watching. Thank you for joining us.

27:59 There is a plea out there. I think because plasma and plasma donation is becoming more of a household conversation these days, at least in my house it's certainly... All the rage to talk about. But I think that what we're going to see is it used to be that altruism and people were typically only giving of their blood altruistically. I think that we may see some outpouring of our society now looking at plasma donation differently. I think that it really is a wonderful gift that we can give. It's giving the gift of life by donating plasma. So I think all these things together, I think ultimately what we're going to see is a stronger plasma collection community. which ultimately is going to help support the tightness of IgI-V supply that's out there, and that hasn't changed, Anthony.

28:49 And just two follow-ups, one for you, Adam, one for Brian. In terms of development of a hyperimmune Ig product for COVID, what are your high-level views on that program in terms of timing when we could see a hyperimmune globulin Will that be a seasonal product and exactly what is ADMA's role on the Plasma Alliance? And then for Brian, can you just quantify what will happen to the working capital cycle when you take the three initiatives the company is invested in, raw material, production, and aseptic filling? Where is the working capital cycle now in terms of months and where can it go once those are all fully in place?

29:34 Thanks again.

29:36 Brian, since we're not in the same room today, I'll take the first part first.

29:40 Absolutely.

29:42 Sure. So, Anthony, I can, you know, not to sound like a broken record, but plasma supply. Plasma supply is by far the largest rate-limiting factor with respect to the development of a hyperimmune for COVID-19. Thank you for joining us. and as you know, even though it's a major problem and it's taking over our lives, there are still, in the scheme of our total population, very few people infected.

30:37 We have a population of over 340 million people and there's only a few million people that have tested positive. So that's why we're encouraging anyone to go and donate plasma right now because the asymptomatic people who've never had a test Thank you for joining us. and I think that that is really what's going to drive the timing. I'm not a spokesperson for the Alliance, Anthony, so I'm gonna have to direct you to them for comment with respect to how quickly that they can bring the product to market. But it really right now is all dependent upon the supply of raw material plasma.

31:24 And one of the key activities that ADMA's going to be contributing is obviously Any COVID-positive donors, we're going to be sharing that inventory with the Alliance to help increase the amount of supply that they have available to make a hyperimmune globulin for investigation. Our role in the Alliance is also to support them through other scientific and advisory means. As you know, we are pretty knowledgeable with respect to micronutrient assays as they pertain to respiratory viral pathogens. and we've extensively studied the role of immune globulin in treating certain respiratory viral infections and we think that we have the ability to provide some knowledge, know-how and insight to help collaborate with these larger plasma companies and quite frankly we were asked to join because I believe that these other companies believe that we do add value to the industry and that we do have certain know-how and technology that could be valuable to in the development of a specific hyperimmune against COVID-19.

32:29 So hopefully that answers your question. Brian?

32:32 Thank you. Sure. Okay. Thank you for your question, Anthony, regarding working capital and cycle times. If we recall in our corporate presentation, we discussed the timeframe it takes to manufacture one lot of an FDA-approved product, and that ranges anywhere from seven to 12 months. It could be longer. We view the investments that we've made here in the first quarter, the filling machine, the capacity expansion of the Bibigam plasma pool scale-up. These investments are imperative to undertake the successful achievement for the company for improved margins, providing our products to market faster. This will also provide, obviously, improved inventory turns, inventory to sales cycles metrics. Again, it will essentially improve overall working capital and putting cash back into the business Thank you very much.

33:47 reduce our working capital timeframe of outlay of inventory to receiving cash from the sales like we would believe somewhere in maybe two to three months could be even more. Okay, thank you. Thank you, Anthony. Your next question comes from the line of Elliot Goldberg from Raymond James. The line is now open.

34:12 Hey, Elliot.

34:16 Hey, there. Thanks for the questions. Good to hear from you guys. First question for Adam. I guess with respect to Bibigam and Ascentive, just in the context of COVID-19 and plasma therapies, which obviously have kind of moved front and center now in terms of mainline therapeutic options. Obviously, that's been focused more on convalescent plasma and the prospect for a hyperimmune, but I guess we're starting to see sort of an emerging body of discussion regarding the use of traditional IVIG therapies in the treatment of COVID-19. I know there's a couple of studies in China that have kicked off in recent weeks. There's one at Sharp Memorial in San Diego looking at open label use of IVIG in ventilator-dependent COVID-19 patients.

35:08 Then we've seen some recent case reports of this, you know, unusual sort of pediatric inflammatory condition being reported in New York City. So, you know, seems like there may potentially be a role for IVIG in treatment of COVID-19. Just wondering, you know, what you're hearing there and, you know, whether or not, you know, there's been any – Any discussion as far as either participating in the trial or some sort of open label studies with investigators?

35:44 Sure. You know, I can tell you, Elliot, that both Bivigim and Ascentive are commercially available. I don't have insights into all the diagnoses and the reasons why docs are using one product or another in particular patients. A lot of this is also protected under HIPAA rules and regulations. We have not made any public disclosures yet about any patients being treated with a incentive for COVID. If and when there is an appropriate amount of data that we are able to generate and work with clinicians on, certainly we will make that public. Thank you so much for joining us.

36:49 and just being that I'm a student of immune globulin for many, many years in the immune system, one of the unique mechanisms of action of IVIG is the ability of the product in itself to just downregulate the cytokine storm, as they call it, and as people have may heard on the news. So I think that it certainly makes sense. to consider IVIG as a potential add-on to the existing standard of care that docs are using. IVIG supports the immune system. One interesting fact, Leland, that we've uncovered and that we see in the data is that one out of every five COVID-19 infected patients is co-infected with some other respiratory pathogen.

37:41 So I think that that speaks to the fact that these patients are not typically just infected with COVID. They may have some other underlying bacterial infection or viral infection. And that's where IVIG also, because of its broad spectrum polyclonal antibodies, makes a lot of rational sense to use. But now let's talk about some of the other considerations that I think some of the medical ethicists and some of the P&T committees and medical directors at institutions are dealing with. There's a tightness of supply of Ig already for the existing patients who need it in order to, if you will, live outside of the bubble or to live without certain types of chronic illnesses. I think that there is... Thank you very much.

38:46 Thank you very much. and ultimately the drug is fairly safe if it's administered according to the labeled recommendation. So hopefully that answers your question.

39:27 Yes, thanks. And perhaps for Brian, I guess with respect to the expense tied to production of ViviGam conformance batches in the quarter, Can those actually be commercialized at some point and give you the ability to recover those costs or not?

39:54 Absolutely, Elliot. That's a great question. I'm glad you brought it up. The capacity expansion that we've gone through for the conformance batches for this increased scale level, if you will, While we had to expense these production batches during this quarter, since in accordance to generally accepted accounting principles, these batches, once we submit and receive FDA approval, we will be able to sell those batches at essentially 100% margin. So while we took the investment charge in the first quarter, those multiple batches, let's call it, will be able to produce 100% margin batches. Later this year or sometime in the first half of 2021, depending on timing of FDA approval.

40:40 And, you know, if I can, Elliot, I just want to add, you know, we use the term investments because, you know, look, we understand the accounting rules and we understand where this has to go. And we don't want shareholders and our analysts to have concerns. Terence Kohler, Jerrold Grossman As we are growing this business, we are not letting COVID stop us, and we are pushing this forward to ensure that we can deliver the needed products to patients as we've seen demonstrated by this COVID-19 crisis.

41:39 Plasma-derived antibodies are good, and they save lives, and we're going to make more of them.

41:45 Just one final question, maybe considering the level of investment, just maybe detail the timeline and the remaining gating factors before you can actually commence commercial production.

42:04 With the increased scale? Sure. So while I'm all excited that we've actually got an expanded process that will potentially double, maybe even more, our throughput capacity, and while we have the ability now with Phil's finished machine in the building, that was so cool to watch them cut a hole in the outside of the building and bring this thing in with this crane. It was great. Thank you very much. So before December 31, we should have the appropriate applications on file. Again, depending upon the level of work, depending upon our conversations with FDA, I assume it's going to be a prior approval supplement, which can come with a four to six month review time.

42:58 Thank you very much. So it's a little early for us to give clear guidance on the timing, but you figure by the end of the year we should be on file with FDA, and then we'll let you guys estimate when FDA is going to have the time, effort, energy, and bandwidth to review all of our applications. But we expect it should be sometime the approvals in 2021.

43:42 All right. Thank you for taking the questions.

43:47 Thank you very much, Elliot. We appreciate it all. Ladies and gentlemen, this will conclude our question and answer portion of the call. I'd like to turn it back over to Adam now for additional closing remarks.

44:03 Sure. I just want to say thank you, everybody. Someone sent me a text. It is National Nurses Day, so we do want to thank all of our great nurses out there who help us. Look, we appreciate it and we look forward to keeping our investors and shareholders apprised of our growth and developments as they progress. Thanks for taking the time to listen to us today. And please, everybody, follow the rules of your government. Please stay healthy and safe. And please go out and donate plasma and help us save lives. Take care, everybody. Ladies and gentlemen, this does conclude the conference call for today. We appreciate your participation and you may now disconnect.