Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion of our financial condition and results of operations, which refers to our historical results, should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including “Risk Factors” and our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed on March 24, 202223, 2023 (the “2021“2022 10-K”). The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout or referenced within this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements.” Our actual results may differ materially from our current expectations.
OVERVIEW
Our Business
ADMA Biologics, Inc. (the “Company,” “ADMA,” “we,” “us” or “our”) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing, marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases. Our targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons.
We currently have three products with U.S. Food and Drug Administration (the “FDA”) approval, all of which are currently marketed and commercially available: (i) BIVIGAM (Immune Globulin Intravenous, Human), an Intravenous Immune Globulin (“IVIG”) product indicated for the treatment of Primary Humoral Immunodeficiency (“PI”), also known as Primary Immunodeficiency Disease (“PIDD”), or Inborn Errors of Immunity, and for which we received FDA approval on May 9, 2019 and commenced commercial sales in August 2019; (ii) ASCENIV (Immune Globulin Intravenous, Human – slra 10% Liquid), an IVIG product indicated for the treatment of PI, for which we received FDA approval on April 1, 2019 and commenced first commercial sales in October 2019; and (iii) Nabi-HB (Hepatitis B Immune Globulin, Human), which is indicated for the treatment of acute exposure to blood containing hBsAgHBsAg and other listed exposures to Hepatitis B. We seek to develop a pipeline of plasma-derived therapeutics, including but not limited to, a product based on our most recently approved patent application under U.S. Patent No. 10,259,865 related to methods of treatment and prevention of S. pneumonia infection for an immunoglobulin manufactured to contain standardized antibodies to numerous serotypes of S. pneumoniae. Our products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases.
We manufacture these products at our FDA-licensed, plasma fractionation and purification facility located in Boca Raton, Florida with a peak annual source plasma processing capability of up to 600,000 liters (the “Boca Facility”). Based on current production yields, our completed and ongoing supply chain enhancements and capacity expansion initiatives, we believe this facility has the potential to produce quantities of our immune globulin (“IG”) products to generaterepresenting annual revenues of $220 million or more in 2023, potentially more than $250 million in annual revenue beginning in 2024 and potentially in excess of $300 million of annual revenue thereafter, as well as achieving profitability during the first quarter of 2024, as2024. At these revenue levels, we ramp-up production overforecast achieving consolidated gross margins in the next tworange of 40-50% and net income margins in the range of 20-30%. These assumptions translate to four years. Based on our early 2022 revenue growthpotential annual gross profit and gross margin trends, we have increased our total annual revenue target to $130net income in the range of $100-$150 million or more for fiscal year 2022.and $50-$100 million, respectively, during the 2024-2025 time period and beyond.
Through our ADMA BioCenters subsidiary, we currently operate FDA-licensedten source plasma collection facilities in the U.S. This business unit, which we refer to as our Plasma Collection Centers business segment, provides us with a portionsubstantially all of our blood plasma for the manufacture of our products, and product candidates, and also allows us to sell certain quantities of source plasma and certain other plasma products to third-party customers for further manufacturing. As a part of our planned supply chain robustness initiative, we have opened five new plasma collection centers during the past 18 months, and we now have ten plasma collection centers in various stages of approval and development, including seven that are operational and collecting plasma. With respect to our operational plasma collection centers, fiveeight plasma collection centers currently hold FDA licenses.licenses, with the remaining plasma collection centers anticipated to receive FDA approvals throughout 2023. In addition, onethree of our FDA-approved plasma collection centers also hashave approvals from the Korean Ministry of Food and Drug Safety (“MFDS”), as well as FDA approval to operate a Hepatitis B immunization program. After giving effect to the progress we madesupply chain robustness initiatives undertaken in 2021 and thus far in 2022 withas it pertains to our plasma collection network expansion, we believe we remain on track to achieve our goal of having 10 FDA-licensed plasma collection centers licensed by the FDA by the end of 2023. A typical plasma collection center, such as those operated by ADMA BioCenters, can collect approximately 30,000 to 50,000 liters of source and hyperimmune plasma annually, which may be sold for different prices depending upon the type of plasma, quantity of purchase and market conditions at the time of sale. Plasma collected from ADMA BioCenters’ facilities that is not used to manufacture our products or product candidates is sold to third-party customers in the U.S. and in other locations outside the U.S. where we are approved under supply agreements or in the open “spot” market.
We sell plasma-derived intermediate fractions to certain customers, which are generated as part of our FDA-approved manufacturing process for IG and IVIG products. In January 2020, we announced our entry into a five-year manufacturing and supply agreement to produce and sell these intermediate by-products, which are used as the starting raw material to produce other plasma-derived biologics. In addition, from time to time we provide contract manufacturing and testing services for certain third-party clients. We also provide laboratory contracting services to certain customers and anticipate providing contract filling, labeling and packaging services in light of the FDA approval of our in-house fill-finish capabilities.
On June 6, 2017, we completed the acquisition of certain assets (the “Biotest Assets”) of the Therapy Business Unit (“BTBU”) of Biotest Pharmaceuticals Corporation (“BPC” and, together with Biotest AG, “Biotest”), which included two FDA-licensed products, Nabi-HB and BIVIGAM, and the Boca Facility (the “Biotest Transaction”).
Our Products
BIVIGAM
BIVIGAM is a plasma-derived IVIG that contains a broad range of antibodies similar to those found in normal human plasma. These antibodies are directed against bacteria and viruses, and help to protect PI patients against serious infections. BIVIGAM is a purified, sterile, ready-to-use preparation of concentrated human Immunoglobulin G antibodies indicated for the treatment of PI, a group of genetic disorders. This includes, but is not limited to, the humoral immune defect in common variable immunodeficiency, X-linked agammaglobulinemia, congenital agammaglobulinemia, Wiskott-Aldrich syndrome and severe combined immunodeficiency. These pIsPIs are a group of genetic disorders. Based on recent estimates, these disorders are no longer considered to be very rare, with as many as one in every 1,200 people in the United States having some form of PI.
On May 9, 2019, the FDA approved the Prior Approval Supplement (the “PAS”) for the use of our IVIG manufacturing process, thereby enabling us to re-launch and commercialize this product in the United States. We resumed production of BIVIGAM during the fourth quarter of 2017 and commercial production is ongoing, using our FDA-approved IVIG manufacturing process under U.S. Department of Health and Human Services (“HHS”) License No. 2019. The commercial re-launch and first commercial sales for this product commenced in August of 2019.
On April 28, 2021, we announced that the FDA granted approval for our expanded plasma pool production scale process, allowing for a 4,400-liter plasma pool for the manufacture of our BIVIGAM IVIG product. We expect thisThis increased IVIG plasma pool scale, which will allowallows us to produce BIVIGAM at an expanded capacity will utilizeutilizing the same equipment, release testing assays and labor force, and to havehas had a favorable impact on our gross margins and operating results.
ASCENIV
ASCENIV is a plasma-derived IVIG that contains naturally occurring polyclonal antibodies, which are proteins that are used by the body’s immune system to neutralize microbes, such as bacteria and viruses, and prevent against infection and disease. We manufacture ASCENIV under HHS License No. 2019 using a process known as fractionation. The Centers for Medicare and Medicaid Services (“CMS”) has issued a permanent, product-specific-J-code for ASCENIV. Under the Healthcare Common Procedure Coding System (“HCPCS”), the J-code (J1554) became effective April 1, 2021. As part of our proprietary manufacturing process for ASCENIV, we leverage our unique, patented plasma donor screening methodology and tailored plasma pooling design, which blends normal source plasma and plasma from donors tested to have high levels of neutralizing antibody titers to respiratory syncytial virusRespiratory Syncytial Virus (“RSV”) using our proprietary microneutralization testing assay. We are able to identify the high titer or “hyperimmune” plasma that meets our internal and required specifications for ASCENIV with our patented testing methods and assay. This type of high titer plasma is typically found in less than 10% of the total donor collection samples we test.
ASCENIV is approved for the treatment of Primary Immune Deficiency Disorder (“PIDD”), a class of inherited genetic disorders that causes a deficient or absent immune system in adults and adolescents (12 to 17 years of age). Our pivotal Phase 3III clinical trial in 59 PIDD patients met the primary endpoint of no Serious Bacterial Infections (“SBI”) reported during 12 months of treatment. Secondary efficacy endpoints further demonstrated the benefits of ASCENIV in the low incidence of infection, therapeutic antibiotic use, days missed from work/school/daycare and unscheduled medical visits and hospitalizations. We believe this clinical data together with the FDA approval for the treatment of PIDD better positions ADMA to potentially further evaluate ASCENIV in immune-compromised patients infected with or at-risk for RSV infection or potentially other respiratory viral pathogens.pathogens at an appropriate time. Due to the COVID-19 pandemic, our plans have been delayed. In the future however, we plan tomay work with the FDA and the immunology and infectious disease community to design an appropriate clinical trial to evaluate the use of ASCENIV in this patient population. Commercial sales of ASCENIV commenced in October of 2019.2019 and our commercial and medical education efforts are focused on the labeled indication of patients with PIDD. ASCENIV’s prescriber and patient base continued to expand during the fourth quarter of 2022, which drove record utilization and pull-through for the product. These elevated demand trends have sustained into 2023, and ADMA currently expects that this product’s rapid growth will continue throughout 2023 and beyond.
The FDA granted approval for our expanded plasma pool production scale process, allowing for a 4,400-liter plasma pool for the manufacture of the ASCEINV IVIG product. This increased IVIG plasma pool scale, which allows us to produce ASCENIV at an expanded capacity utilizing the same equipment, release testing assays and labor force, is expected to have a favorable impact on our gross margins and operating results. During the second quarter of 2023, ADMA successfully commenced manufacturing of ASCENIV at the 4,400 Liter production scale for the first time in corporate history.
Nabi-HB
Nabi-HB is a hyperimmune globulin that is rich in antibodies to the Hepatitis B virus. Nabi-HB is a purified human polyclonal antibody product collected from plasma donors who have been previously vaccinated with a Hepatitis B vaccine. Nabi-HB is indicated for the treatment of acute exposure to blood containing HbsAg,HBsAg, prenatal exposure of infants born to HbsAg-positiveHBsAg-positive mothers, sexual exposure to HbsAg-positiveHBsAg-positive persons and household exposure to persons with acute Hepatitis B virus infection in specific, listed settings. Hepatitis B is a potentially life-threatening liver infection caused by the Hepatitis B virus. It is a major global health problem. It can cause chronic infection and puts people at high risk of death from cirrhosis and liver cancer. Nabi-HB has a well-documented record of long-term safety and effectiveness since its initial market introduction. The FDA approved Nabi-HB on March 24, 1999. Production of Nabi-HB at the Boca Facility has continued under our leadership since the third quarter of 2017. In early 2018, we received authorization from the FDA for the release of our first commercial batch of Nabi-HB for commercial distribution in the U.S. and we continue to manufacture Nabi-HB under HHS License No. 2019.
POTENTIAL IMPACT OF COVID-19
We continue to monitor the ongoing developments related to the COVID-19 pandemic, including the emergence of the Delta, Omicron and BA.2 variants and other resistant strains of the coronavirus, and its impacts to our commercial and manufacturing operations and plasma collection facilities, including collections of source plasma, procurement of raw materials and packaging materials, a portion of which are sourced internationally, and the testing of finished drug product that is required prior to its availability for commercial sale. A substantial portion of such testing has historically been performed by contract laboratories outside the United States.
Due to a combination of previouspreviously mandated state and local “shelter-in-place” orders, as well as government stimulus packages, persisting social distancing measures and varying roll-outs of vaccinations by state, we had experienced at times lower than normal donor collections at our FDA approved plasma collection centers. Wecenters during 2021 and part of 2022. From time to time during 2021 and 2022, we were also subject to delays in shipments of source plasma from our contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of our products. In addition, we arehave been subject to supply chain delays as a result of certain of our suppliers diverting significant resources towards the rapid development and distribution of COVID-19 vaccines and, as a result, we have elected to carry more raw materials inventory than we have in the past. The COVID-19 pandemic has alsopreviously impacted, to a certain degree, our customer engagement initiatives, whereby ADMA’s sales and medical affairs field personnel have faced difficulties communicating directly with physicians and other healthcare professionals, as well as the cancellation or postponement of a number of key scientific and medical meetings, further limiting our ability to communicate with potential customers. We have implemented a comprehensive suite of virtual engagement initiatives; however, clinician engagement has been reduced due to rapidly evolving COVID-19 priorities at U.S. medical centers.
The pandemic could also impact our ability to interact with the FDA or other regulatory authorities and maycould result in delays in the conduct of inspections or review of pending applications or submissions. Although we have received FDA approvals for five of our plasma collection centers since January 1, 2022 and received several other FDA approvals andwhile two FDA inspections of the Boca Facility were completed during the year ended December 31, 2021, no assurances can be provided as to the timing for completion of any otherfuture regulatory submissions or applications that may be impacted by restrictions related to COVID-19.
During the three months ended March 31, 20222023 and 2021,2022, our revenue attributable to international customers was approximately 6%7% and 15%6%, respectively, of our total revenues. As we seek to grow this aspect of our business, we may also be subject to the impacts of the COVID-19 pandemic in locations outside the United States.
Notwithstanding the foregoing, the COVID-19 pandemic to date has not had a material impact on our financial condition or results of operations, and we do not believe that our production operations at the Boca Facility, our contract fill/finishers or our plasma collection facilities have been significantly impacted by the COVID-19 pandemic. As a result, we do not anticipate and have not experienced any material impairments with respect to any of our long-lived assets, including our property and equipment, goodwill or intangible assets.
Although the COVID-19 pandemic has not, to date, materially adversely impacted our capital and financial resources, because we are unable to determine the ultimate severity or duration of the pandemic or its long-term effects on, among other things, the global, national or local economies, the capital and credit markets or our workforce, customers or suppliers, at this time we are unable to predict whether COVID-19, or any known or future variant or government order, will have a material adverse impact on our business, financial condition, liquidity and results of operations. After the COVID-19 global pandemic has settled, we may continue to experience adverse impacts to our business as a result of evolving macroeconomic factors, including general economic uncertainty, unemployment rates, inflationary pressures and any actual economic recession that has occurred or may occur in the future.
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. Significant estimates include rebates and certain other deductions from gross revenues, impairment of long-lived assets, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under our equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for our deferred tax assets.
Some of the estimates and assumptions we have to make under U.S. GAAP require difficult, subjective and/or complex judgments about matters that are inherently uncertain and, as a result, actual results could differ from those estimates. Due to the estimation processes involved, the following summary of accounting estimates and their application are considered to be critical to understanding our business operations, financial condition and results of operations. For a description of our significant accounting policies, see Note 2 to the Consolidated Financial Statements included in the 20212022 10-K. Estimates and assumptions used in projecting future liquidity and capital requirements are described in Note 1 to the condensed Consolidated Financial Statementsconsolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Revenues
Our gross product revenues are subject to a variety of deductions, which are estimated and recorded in the same period that the revenues are recognized. These deductions primarily consist of rebates, distribution fees, chargebacks and sales allowances. These deductions represent estimates of the related obligations, some of which are contractual in nature and do not require extensive judgment to be exercised by management, while other estimates require complex or subjective matters of knowledge and judgment when estimating the impact of these revenue deductions on net revenues for a reporting period.
Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material to our overall business. However, two of our primary immunoglobulin products, ASCENIV and BIVIGAM, were only approved for commercial sale by the FDA in 2019, and as such our historical experience with rebates with respect to these products is limited. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. Estimates that are most at risk for material adjustment are those associated with U.S. Medicaid rebates because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally take up to several years or more. While our results of operations to date have not required any material adjustment due to this risk, the lag timedelay between when this obligation is initially recorded and ultimately settled could potentially materially impact our revenues and our results of operations in the future.
Stock-Based Compensation and Valuation of Warrants
All equity-based payments, including grants of stock options and restricted stock unitsRestricted Stock Units (“RSUs”) are recognized at their estimated fair value at the date of grant, and compensation expense is recognized on a straight-line basis over the grantee’s requisite vesting period. For the purpose of valuing stock options granted to our employees, directors and officers, we use the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of publicly traded options, which have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the underlying Black-Scholes assumptions can materially affect the fair value estimate. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of the grant with a term consistent with the expected term of our awards. The expected term of the options granted is in accordance with SECU.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletins 107 and 110 and is based on the average between vesting terms and contractual terms. The expected dividend yield reflects our current and expected future policy for dividends on our Common Stock. The expected stock price volatility for our stock options was calculated by examining the historical volatility of our Common Stock since our Common Stock became publicly traded in the fourth quarter of 2013. We will continue to analyze the expected stock price volatility and expected term assumptions and will adjust our Black-Scholes option pricing assumptions as appropriate. Any changes in the foregoing Black-Scholes assumptions, or if we were to elect to utilize an alternative method for valuing stock options granted to employees, directors and officers, could potentially impact our stock-based compensation expense and our results of operations.
We also use the Black-Scholes option valuation model for the purpose of estimating the fair value of warrants we issue from time to time in connection with the issuance of notes payable. Changes in our Black-Scholes assumptions, or if we were to utilize an alternative method for valuing warrants issued to our lenders, could impact our interest expense and results of operations.
Impairment of Long-Lived Assets
We assess the recoverability of our long-lived assets, which include property and equipment and definite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the three months ended March 31, 20222023 and 2021,2022, we determined that there was no impairment of our long-lived assets. Examples of events or circumstances that may be indicative of impairment that would require the use of significant judgment by management include:
A significant adverse change in legal factors or in the business climate that could affect the value of the asset.
Significant and continued cash flow losses.
A significant adverse change in the extent or manner in which an asset is used, such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture our products using a particular asset.
An expectation of losses or reduced profits associated with an asset. This could result, for example, from the introduction of a competitor’s product that impacts projected revenue growth, or a change in the acceptance of a product by patients, physicians and payers that results in an inability to sustain projected product revenues.
Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The testing of goodwill for impairment requires us to determine whether or not the fair value of the reporting unit associated with the goodwill is less than its carrying amount, including goodwill and other intangible assets. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, with the impairment loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. In order to determine the fair value of the reporting unit, we utilize the fair value of the Company as a whole, as determined by its market capitalization. Determination of the fair value and carrying value of each reporting unit, relative to the fair value of the Company, requires management to employ certain estimates, assumptions and judgment, which we believe are reasonable. However, any changes to these estimates and assumptions could impact our determination of whether or not our goodwill is impaired. We did not recognize any impairment charges related to goodwill for the three months ended March 31, 20222023 and 2021.2022.
Deferred Tax Assets
We maintain a full valuation allowance against all of our net deferred tax assets, and as a result have recorded no income tax benefit in the accompanying consolidated financial statements. This valuation allowance reflects our assessment of whether it is more likely than not that we will generate sufficient taxable income in the future to be able to utilize our deferred tax assets. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies. We consider all positive and negative evidence to estimate if sufficient future taxable income will be generated to realize our deferred tax assets. We consider cumulative losses in recent years to be a significant type of negative evidence. Based on our history of losses, at this time we have not included future projected taxable income as a source of income to recognize our deferred tax assets.
Three Months Ended March 31, 20222023 Compared to Three Months Ended March 31, 20212022
The following table presents a summary of the changes in our results of operations for the three months ended March 31, 2022,2023, our first fiscal quarter, compared to the three months ended March 31, 2021:2022:
| | Three Months Ended March 31, | |
| | 2023 | | | 2022 | | | Increase (Decrease) | |
Revenues | | $ | 56,913,534 | | | $ | 29,103,093 | | | $ | 27,810,441 | |
Cost of product revenue | | | 40,400,544 | | | | 25,441,046 | | | | 14,959,498 | |
Gross profit | | | 16,512,990 | | | | 3,662,047 | | | | 12,850,943 | |
Research and development expenses | | | 855,351 | | | | 624,111 | | | | 231,240 | |
Plasma center operating expenses | | | 1,780,463 | | | | 3,974,589 | | | | (2,194,126 | ) |
Amortization of intangibles | | | 178,838 | | | | 178,838 | | | | - | |
Selling, general and administrative expenses | | | 14,511,656 | | | | 13,699,575 | | | | 812,081 | |
Loss from operations | | | (813,318 | ) | | | (14,815,066 | ) | | | 14,001,748 | |
Interest expense | | | (6,115,484 | ) | | | (3,389,038 | ) | | | (2,726,446 | ) |
Loss on extinguishment of debt | | | - | | | | (6,669,941 | ) | | | 6,669,941 | |
Other income (expense), net | | | 139,987 | | | | (133,812 | ) | | | 273,799 | |
Net loss | | $ | (6,788,815 | ) | | $ | (25,007,857 | ) | | $ | 18,219,042 | |
| | | | | | | | | | | | |
Adjusted EBITDA * | | $ | 2,469,800 | | | $ | (11,717,273 | ) | | $ | 14,187,073 | |
27
* - See Non-GAAP Financial Measures appearing at the end of this discussion
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | | | Increase (Decrease) | |
Revenues | | $ | 29,103,093 | | | $ | 16,048,618 | | | $ | 13,054,475 | |
Cost of product revenue | | | 25,441,046 | | | | 17,770,122 | | | | 7,670,924 | |
Gross profit (loss) | | | 3,662,047 | | | | (1,721,504 | ) | | | 5,383,551 | |
Research and development expenses | | | 624,111 | | | | 987,649 | | | | (363,538 | ) |
Plasma center operating expenses | | | 3,974,589 | | | | 2,242,343 | | | | 1,732,246 | |
Amortization of intangibles | | | 178,838 | | | | 178,838 | | | | - | |
Selling, general and administrative expenses | | | 13,699,575 | | | | 10,033,915 | | | | 3,665,660 | |
Loss from operations | | | (14,815,066 | ) | | | (15,164,249 | ) | | | 349,183 | |
Interest expense | | | (3,389,038 | ) | | | (3,195,750 | ) | | | (193,288 | ) |
Loss on extinguishment of debt | | | (6,669,941 | ) | | | - | | | | (6,669,941 | ) |
Other expense, net | | | (133,812 | ) | | | (19,942 | ) | | | (113,870 | ) |
Net loss | | $ | (25,007,857 | ) | | $ | (18,379,941 | ) | | $ | (6,627,916 | ) |
Revenues
We recorded total revenues of $56.9 million during the three months ended March 31, 2023, as compared to $29.1 million during the three months ended March 31, 2022, as compared to $16.0 million during the three months ended March 31, 2021, an increase of $13.1$27.8 million, or approximately 81%96%. The increase is dueprimarily related to increased sales of our immunoglobulin products, mainly ASCENIV and BIVIGAM, generated by our Boca Facility manufacturing operations in 2022, primarily ASCENIV and BIVIGAM,2023 of $12.3$23.8 million, as we continue to expand our customer base for BIVIGAM and experience increased physician, payer and patient acceptance and utilization of ASCENIV.ASCENIV and expand our customer base for BIVIGAM. We also benefitted from an increaseda substantial increase in sales of normal source plasma through ADMA BioCentersour Plasma Collection Centers business segment of $0.7$4.0 million.
During the first quarter of 2023, we fulfilled our entire commitment to supply normal source plasma to our third-party customer for fiscal 2023. As a result, we do not expect to generate comparable revenues from our Plasma Collection Centers during the remainder of 2023, as we anticipate using all of the plasma collected during that period to support our IVIG production operations.
Cost of Product Revenue and Gross Profit
Cost of product revenue was $40.4 million for the three months ended March 31, 2023, as compared to $25.4 million for the three months ended March 31, 2022, as compared to $17.8 million for the three months ended March 31, 2021.2022. This increase is primarily attributable to increasedvolume-driven increases in product revenue costs related to the saleincreased sales of our immunoglobulin products of $5.2$15.2 million and increased product revenue costs related tosales of normal source plasma by our ADMA BioCentersPlasma Collection Centers business segment in the amount of $0.9$3.0 million. The increase also reflects additional costs relatedThese increases were partially offset by a decrease in other manufacturing expenses of approximately $3.3 million in the first quarter of 2023 as compared to the otherwisesame period of a year ago, mainly due to a shorter routine shutdown of the Boca Facility for a portion of the first quarter of 2022, which we electedin 2023 as compared to extend in order to complete certain projects that had been forecasted for completion later in fiscal 2022.
For the three months ended March 31, 2022,2023, we had gross profit of $3.7$16.5 million, as compared to a gross loss of $1.7$3.7 million for the same period of a year ago. This gross profit improvement of $5.4approximately $12.9 million was primarily due to the revenue increases and the reduction in other manufacturing costs discussed above as we elected to extend our otherwise-routine plant shutdown in the first quarter of 2022 in order to complete certain projects. As a more favorable mixresult, we achieved a gross margin of our higher margin products, notably ASCENIV, as well as29.0% in the benefits we have begun to realize from our expanded plasma pool production scale process, allowing for a 4,400-liter plasma pool for the manufacturefirst quarter of our BIVIGAM IVIG product,2023 as compared to a 2,200-liter plasma pool we were utilizing with BIVIGAM prior to receiving FDA approval12.6% in 2021 for the expanded production scale.first quarter of 2022.
Research and Development Expenses
Research and development (“R&D&D”) expenses totaled $0.9 million for the first quarter of 2023, as compared to $0.6 million for the three months ended March 31, 2022, as compared to $1.0 million for the three months ended March 31, 2021.first quarter of 2022. The decreaseincrease is primarily due to reduced compensation costs, including stock-based compensation, associated with R&D activities duehigher expenditures related to the resignationBIVIGAM and ASCENIV post-marketing commitments we have with the FDA, which are required to be completed by June of our former Chief Medical and Scientific Officer in2023 (see Note 10 to the second quarter of 2021consolidated financial statements).
Plasma Center Operating Expenses
During the first quarter of 2022, we had six plasma collection centers in operation, excluding our seventh plasma collection center that opened on March 29, 2022, as compared to three plasma collection centers in operation during the first quarter of 2021. As a result, plasma center operating expenses increased by $1.7Plasma Center Operating Expenses decreased from $4.0 million in the first quarter of 2022 to $1.8 million in the first quarter of 2023. As a result of our plasma center expansion initiatives, including three additional plasma collection facilities that opened subsequent to March 31, 2022, we experienced a significant increase in the number of liters of plasma collected in the first quarter of 2023 as compared to the first quarter of 2022. In addition, as a result of changes in the market price of normal source plasma and the impact on the net realizable value of our plasma inventory, the amount of plasma center costs we capitalized into inventory increased by approximately $10.6 million in the first quarter of 2023 as compared to the same period of a year ago. The increase is mainly comprised of higherThis amount was largely offset by increases in donor fees in the amount $2.1of $3.4 million, employee compensation and benefits of $1.3$1.1 million, softgoods and supplies of $0.7$1.3 million, donor testing expenses of $0.4$1.1 million, depreciation of $0.3 million, temporary labor expenses of $0.3 million, software maintenance expense of $0.2 million, utilities and janitorial expense of $0.2 million, travel expenses of $0.1 million, transportation costs of $0.1 million, advertising expensesexpense of $0.1 million, repairs and maintenance expense of $0.1 million and rent of $0.1 million, partially offset by increased donor collections which had the impact of reducing our operating expenses by $3.4 million, as such expenses were charged to inventory for future manufacturing or sales. As we continue our planned expansion with the goal of having ten plasma collection centers licensed by the FDA by the end of 2023, we expect our plasma center operating expenses to continue to increase.million.
Amortization of Intangibles
Amortization expense pertains to the amortization of intangible assets acquired in the Biotest Transactiona 2017 acquisition transaction and was $0.2 million for the three months ended March 31, 20222023 and 2021.2022.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $13.7$14.5 million for the three months ended March 31, 2022,2023, an increase of $3.7$0.8 million from the three months ended March 31, 2021.2022. The increase reflects $1.3increases in data services and market intelligence fees in support of the continued ASCENIV and BIVIGAM commercialization efforts in the amount of $0.7 million, other professional services of $0.6 million, insurance expense of $0.2 million, employee recruiting of $0.2 million, software maintenance expense of $0.2 million, utilities and janitorial expense of $0.1 million, marketing expenses of $0.1 million and travel and entertainment costs of $0.1 million, partially offset by the non-recurring professional fees incurred in connection with ourthe Morgan Stanley strategic alternatives process induring the first quarter of 2022 with no comparable amount in 2021. In addition, we had an increase in employee compensation and related expenses, including travel, relocating and recruiting, in the amount of $2.4 million due to increased headcount associated with the overall size and scope of the organization and the stepped-up commercialization efforts for BIVIGAM and ASCENIV, increased insurance expense of $0.3 million and increased software maintenance fees of $0.2$1.4 million. These costs were partially offset by $0.5 million of third-party market intelligence fees for a one-time project related to ASCENIV that concluded in the first quarter of 2021.
Loss from Operations
Our operating loss was $0.8 million for the first quarter of 2023, as compared to $14.8 million for the first quarter of 2022, as compared to $15.2 million for the first quarter of 2021.2022. The $0.4$14.0 million decrease in operating loss was mainly due to the improved gross profit of $5.4$12.9 million and lower R&Dthe reduction in Plasma Center Operating expenses largelyof $2.2 million, partially offset by the increases in plasma center operating expensesR&D and SG&A.
Interest Expense
The increase in interestInterest expense of $0.2for the three months ended March 31, 2023 was $6.1 million, as compared to $3.4 million for the three months ended March 31, 2022. The increase is mainly due to approximately $55.7 million of additional debt principal resulting from the refinancing of our senior credit facility on March 23, 2022 (see Note 7 to the consolidated financial statements and “Liquidity and Capital Resources”), including interest payments made “in kind” in the form of additional indebtedness of approximately $4.0 million, as well as an increase in the stated interest rate on our senior debt from 10.75% in 2022 to 14.1% in 2023.
Other Income (Expense), Net
Other income, net, for the three months ended March 31, 2023 was $0.1 million, as compared to other expense, net, of $0.1 million for the three months ended March 31, 2022. The increase is mainly due to an increase in interest and other income of approximately $0.2 million in 2023, and to several non-recurring non-operational charges in 2022 of approximately $0.2 million.
Net Loss
Our net loss was $6.8 million for the first quarter of 2023, as compared to $25.0 million for the first quarter of 2022. The $18.2 million decrease in net loss was mainly due to the narrowed operating loss of $14.0 million attributable to the increased revenues and gross profit and the loss on extinguishment of debt of $6.7 million we recorded in the first quarter of 2022 in connection with the refinancing of our senior credit facility, partially offset by the increase in interest expense.
Non-GAAP Financial Measures
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA
EBITDA and Adjusted EBITDA are important non-GAAP financial measures used by our management and board of directors to assess our operating performance. We use EBITDA and Adjusted EBITDA as key performance measures because we believe that they facilitate operating performance comparisons from period to period that exclude potential differences driven by the impact of variations of non-cash items such as depreciation and amortization, as well as, in the case of Adjusted EBITDA, stock-based compensation or certain non-recurring items. In addition, we believe that EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities. See below for a reconciliation of our EBITDA and Adjusted EBITDA to net income/loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
Because EBITDA and Adjusted EBITDA are measures not deemed to be in accordance with U.S. GAAP and are susceptible to varying calculations, our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA and Adjusted EBITDA in a different manner than we calculate these measurements. Although the Company uses Adjusted EBITDA as one of several financial measures to assess its operating performance, its use is limited as it excludes certain significant operating expenses. EBITDA and Adjusted EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income/loss, net income/loss or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP. The following table presents the reconciliation of net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2023 and 2022:
| | Three Months Ended March 31, | |
| | 2023 | | | 2022 | |
Net loss | | $ | (6,788,815 | ) | | $ | (25,007,857 | ) |
Depreciation | | | 1,854,127 | | | | 1,411,378 | |
Amortization | | | 178,838 | | | | 178,839 | |
Interest expense | | | 6,115,484 | | | | 3,389,038 | |
EBITDA | | | 1,359,634 | | | | (20,028,602 | ) |
Stock-based compensation | | | 1,110,166 | | | | 1,641,388 | |
Loss on extinguishment of debt | | | - | | | | 6,669,941 | |
Adjusted EBITDA | | $ | 2,469,800 | | | $ | (11,717,273 | ) |
Adjusted EBITDA increased by $14.2 million for the three months ended March 31, 2023 as compared to the same period of a year ago was mainly due to higher amortization of debt discount related to our new senior credit facility. (see “Liquidity and Capital Resources”).
Loss on Extinguishment of Debt
On March 23, 2022, we refinanced our senior credit facility (see “Liquidity and Capital Resources”). In connection with this transaction, we incurred a loss onago. The improvement is driven primarily by the extinguishment of debt in the amount of $6.7 million as a result of the redemption premium we paid to retire our previously existing credit facility in the amount of $2.0 million, and the write-off of unamortized debt discount of $4.7 million related to that facility.
Net Loss
Ourlower net loss was $25.0 million for the three months ended March 31, 2022, as comparedattributable to $18.4 million for the three months ended March 31, 2021. The $6.6 million increaseincreased sales and gross profit and, to a lesser extent, lower total operating expenses in net loss was primarily due to the loss on extinguishment of debt in 2022 of $6.7 million, with no comparable amount in 2021.2023.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2022,2023, we had working capital of $208.2$227.4 million, primarily consisting of $139.1$164.0 million of inventory, cash and cash equivalents of $69.5$69.2 million and $26.5 million of accounts receivable, of $25.6 million, partially offset by accounts payable and accrued expensescurrent liabilities of $30.8$36.7 million, as compared to working capital at December 31, 2022 of $178.4$231.1 million, primarily consisting of $124.7$163.3 million of inventory, cash and cash equivalents of $51.1$86.5 million and accounts receivable of $28.6$15.5 million, partially offset by $29.6 millioncurrent liabilities of accounts payable and accrued expenses, as of December 31, 2021.$39.3 million. We have incurred an accumulated deficit of $437.1$484.8 million since inception and had negative cash flows from operations of $26.0$14.7 million and $33.2$26.0 million for the three months ended March 31, 20222023 and 2021,2022, respectively, and had negative cash flows from operations of $112.4$59.5 million and $102.0$112.4 million for the years ended December 31, 20212022 and 2020,2021, respectively. We have funded our operations over the past few years primarily from the sale of our equity and debt securities. Our material cash requirements are primarily comprised of:
The procurement of raw material plasma and other raw materials necessary to maintain and scale up our manufacturing operations;
Employee compensation and benefits;
Capital expenditures to complete the buildout for the building of additionaland maintain our plasma collection facilities and for equipment upgrades and capacity expansion at the Boca Facility;
Plasma donor fees and plasma center supplies;
Marketing programs and continued commercialization efforts;
Boca Facility maintenance, repairs and supplies; and
Conducting required post-marketing clinical trials for our FDA-approved products.
In addition, our end-to-end production cycle time from procurement of raw materials to commercial release of finished product can take between seven and 12 months or potentially longer, requiring substantial investments ininventories of raw material plasma and other manufacturing materials.materials and single use disposables.
We expect that we will not be able to generate a sufficient amount of product revenue to achieve profitability until the beginning of 2024. We currently anticipate, based upon our projected revenue and expenditures, that our current cash, cash equivalents and accounts receivable including the proceeds received and expected to be received from the refinancing of our senior credit facility as discussed below, along with the remaining amounts available under the distribution agreement for the sale of our common stock also discussed below, will be sufficient to fund our operations, as currently conducted, intothrough the firstend of the second quarter of 2024, atby which time we believe we will begin to generate positive cash flow from operations. This time frame may change based on several factors, including the success of our commercial efforts with respect to the sale of our products and the acceptability of our immune globulin products by physicians, patients or payers, and whether or not the assumptions underlying our projected revenues and expenses are correct. If we are unable to achieve positive cash flow by the beginning of 2024, we may need to raise additional capital and if needed, includingsuch capital is not available due to widespread liquidity constraints or significant market instability that could result from the COVID-19 pandemic, inflationary pressures or other factors beyond our control, we may have to delay, curtail or eliminate some of our commercialization efforts or product development activities. WeIf we are also continuingunable to generate sufficient revenue to achieve positive cash flow by the beginning of 2024 and need to raise additional capital, we may decide to do so through public or private equity offerings or debt financings, or we may enter into a corporate collaboration or licensing arrangement. The sale of additional equity or debt securities, if convertible, could result in dilution to our stockholders and, in such event, the value and potential future market price of our common stock may decline.
ADMA continues to evaluate a variety of strategic alternatives through ourits ongoing engagement with Morgan Stanley asStanley. The exploration of value-creating opportunities remains a financial advisor.top corporate priority for ADMA.
On March 23, 2022, (the “Hayfin Closing Date”) we and all of our subsidiaries entered into a Credit and Guaranty Agreement (the “Hayfin Credit Agreement”) with Hayfin Services LLP (“Hayfin”). The Hayfin Credit Agreement provides for a senior secured term loan facility in a principal amount of up to $175.0 million (the “Hayfin Credit Facility”), composed of (i) a term loan made on the Hayfin Closing Date in the principal amount of $150.0 million (the “Hayfin Closing Date Loan”), and (ii) a delayed draw term loan in the principal amount of $25.0 million (the “Hayfin Delayed Draw Loan” and, together with the Hayfin Closing Date Loan, the “Hayfin Loans”). ThePursuant to an amendment to the Hayfin Credit Agreement dated May 1, 2023 (the “Hayfin Second Amendment”), the obligation of the lenders to make the Hayfin Delayed Draw Loan expires on March 22,December 31, 2023, and iswas subject to the satisfaction of certain conditions, including, but not limited to, our meeting certain 12-month revenue targets as set forth in the Hayfin Credit Agreement.Agreement which have been met. The Hayfin Credit Facility has a maturity date of March 23, 2027 (the “Hayfin Maturity Date”), subject to acceleration pursuant to the Hayfin Credit Agreement, including upon an Event of Default (as defined in the Hayfin Credit Agreement).
On the Hayfin Closing Date, we used $100.0 million of the Hayfin Closing Date Loan to terminate and pay in full all of the outstanding obligations under our previous senior credit facility with Perceptive (see Note 7 to the Consolidated Financial Statements). We also used $2.0 million of the Hayfin Closing Date Loan proceeds to pay a redemption premium to Perceptive and used approximately $0.6$1.0 million of the Hayfin Closing Date Loan proceeds to pay certain fees and expenses incurred in connection with this transaction. In addition, a $1.8 million upfront fee payable to Hayfin was paid “in kind” and was added to the outstanding principal balance in accordance with the terms of the Hayfin Credit Agreement. The remainder of the proceeds received or to be received from the Hayfin Loans will beare being used for working capital and other general corporate purposes.
After giving effect to the Hayfin Second Amendment, borrowings under the Hayfin Credit Agreement currently bear interest at our election, at either (a) a base rate (equal to the highest of (i) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the federal funds rate in effect on such day plus 0.50% and (iii) the adjusted Term SOFR for a one-month tenor in effect on such day plus 1.00%), plus an applicable margin of 8.50% or (b) adjusted Term SOFR for either a one-month or three-month tenor, as elected by us, and subject to a floor of 1.25%, plus an applicable margin of 9.5%8.5% (the “Applicable Margin”); provided, however, that upon, and during the continuance of, an Event of Default, the Applicable Margin shall increase by an additional 3% per annum. We will also pay “in kind” a portion of the interest on the Hayfin Loans for each monthly or quarterly interest period in an amount equal to 2.5% per annum. Such interest paid “in kind” will reduce our quarterly cash interest obligation by approximately $1.0 million and will be added to the principal amount of the outstanding debt under the Hayfin Credit Facility. As a result, our outstanding debt principal on the Hayfin Loans will increase each month as long as we elect to continue to pay a portion of our interest obligation “in kind.” On the Hayfin Closing Date ourand as of March 31, 2023, the stated interest rate on the Hayfin Loans was 10.75%. and 14.4%, respectively. On the last day of each calendar month or quarter during the term of the Hayfin Credit Facility, we are required to pay accrued interest to Hayfin of approximately $1.1$1.5 million per month or $3.2approximately $4.4 million per quarter based on current interest rates, after giving effect to the “in kind” interest of 2.5% per annum, but without giving effect to the Hayfin Delayed Draw Loan.Loan, which we have yet to draw upon.
On the Hayfin Maturity Date, we will pay Hayfin the entire outstanding principal amount underlying the Hayfin Loans and any accrued and unpaid interest thereon, as well as an exit fee of 1.0% of the outstanding principal amount being paid. Prior to the Hayfin Maturity Date, there are no scheduled principal payments on the Hayfin Loans. We may prepay outstanding principal on the Hayfin Loans at any time and from time to time upon five business days’ prior written notice, subject to the payment to Hayfin of, (A) any accrued but unpaid interest on the prepaid principal amount plus (B) an earlya prepayment fee in the amount equal to (i) 7.0% of the prepaid principal amount, if prepaid on or prior to the first anniversary of the Hayfin Closing Date,Second Amendment, (ii) 3.0% of the prepaid principal amount, if prepaid after the first anniversary of the Hayfin Closing DateSecond Amendment and on or prior to the second anniversary of the Hayfin Closing Date,Second Amendment, or (iii) 1.0% of the prepaid principal amount, if prepaid after the second anniversary of the Hayfin Closing DateSecond Amendment and on or prior to the third anniversary of the Hayfin Closing Date.Second Amendment. The Hayfin Second Amendment also provides for a 50% reduction to the foregoing early prepayment fees if the Hayfin Loans are prepaid under certain circumstances as defined in the Hayfin Second Amendment. In addition, for any prepayments of principal, we are required to pay anthe 1.0% exit fee of 1.0% offor the amount of principal being paid.
All of our obligations under the Hayfin Credit Agreement are secured by a first-priority lien and security interest in substantially all of our tangible and intangible assets, including intellectual property and all of the equity interests in our subsidiaries. The Hayfin Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The negative covenants restrict or limit our ability and the ability of our subsidiaries to, among other things and subject to certain exceptions contained in the Hayfin Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to our or our subsidiaries’ business activities; make certain Investments or Restricted Payments (each as defined in the Hayfin Credit Agreement); change our fiscal year; pay dividends; repay other certain indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting our ability to make loan repayments under the Hayfin Credit Agreement. In addition, we are required (i) at all times prior to the Maturity Date to maintain a minimum cash balance of $6.0 million; and (ii) as of the last day of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022, report IVIG product and related revenues for the trailing 12-month period that exceed the amounts set forth in the Hayfin Credit Agreement, which range from $75.0 million for the fiscal quarter ending June 30, 2022 to $250.0 million for the fiscal quarter ending December 31, 2026 and each fiscal quarter thereafter. As of March 31, 2023, we were in compliance with all of the financial covenants contained in the Hayfin Credit Agreement.
On October 25, 2021,December 9, 2022, we completed an underwritten public offering whereby we issued 57.5 million24,125,873 shares of our common stock and received gross proceeds of $57.5 million.stock. Net proceeds after underwriting discounts and expenses associated with the offering were approximately $53.8$64.6 million and are being used (i) to advance the commercial sales of ouraccelerate commercialization and production activities, complete plasma center buildouts and obtain FDA approved products through the procurement of raw materialsapprovals, to conclude post‑FDA marketing approval research and development projects, and for the manufacturing of BIVIGAMworking capital, capital expenditures and ASCENIV; (ii) to expand our plasma collection facility network; (iii) to scale up the manufacturing capacity of the Boca Facility and make continuous improvements in order to adhere to cGMP compliance; (iv) to explore business development opportunities; and (v) for general corporate purposes and other capital expenditures.purposes.
On September 3, 2021, we entered into a distribution agreement with Raymond James & Associates, Inc., as agent (“Agent”), pursuant to which we may offer and sell, from time to time, at our option, through or to the Agent, up to an aggregate of $50 million of shares of our common stock (the “Distribution Agreement”). We currently intend to use any net proceeds from the sale of our common stock under the Distribution Agreement for general corporate purposes, including procurement of source plasma and other raw materials, supply chain initiatives and production expenditures, funding expansion of plasma collection centers, working capital, capital expenditures, expansion and resources for commercialization activities, and other potential research and development and business opportunities. We currently have approximately $42.8 million of shares available to sell under the Distribution Agreement.
Cash Flows
The following table sets forth a summary of our cash flows for the periods indicated:
| | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Net cash used in operating activities | | $ | (26,013,413 | ) | | $ | (33,229,126 | ) | | $ | (14,722,274 | ) | | $ | (26,013,413 | ) |
Net cash used in investing activities | | | (2,842,085 | ) | | | (2,571,161 | ) | | (1,944,596 | ) | | (2,842,085 | ) |
Net cash provided by financing activities | | | 47,271,326 | | | | 41,844,844 | | |
Net cash (used in) provided by financing activities | | | | (650,509 | ) | | | 47,271,326 | |
Net change in cash and cash equivalents | | | 18,415,828 | | | | 6,044,557 | | | (17,317,379 | ) | | 18,415,828 | |
| | | | | | | | | | | | | |
Cash and cash equivalents - beginning of year | | | 51,089,118 | | | | 55,921,152 | | |
Cash and cash equivalents - beginning of period | | | | 86,521,542 | | | 51,089,118 | |
Cash and cash equivalents - end of period | | $ | 69,504,946 | | | $ | 61,965,709 | | | $ | 69,204,163 | | $ | 69,504,946 | |
Net Cash Used in Operating Activities
Cash used in operations for the three months ended March 31, 20222023 was $26.0$14.7 million, a decrease of $7.2$11.3 million from the same period of a year ago, mainly due to reductions in accounts receivable and prepaid expenses and other current assets.a lower net loss after non-cash items. The following table illustrates the primary components of and changes to our cash flows from operations:
| | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Net loss | | $ | (25,007,857 | ) | | $ | (18,379,941 | ) | | $ | (6,788,815 | ) | | $ | (25,007,857 | ) |
Non-cash expenses, gains and losses | | | 10,452,680 | | | | 2,419,892 | | | 4,593,386 | | 10,452,680 | |
Changes in accounts receivable | | | 2,947,233 | | | | (2,124,740 | ) | | (11,013,446 | ) | | 2,947,233 | |
Changes in inventories | | | (14,422,219 | ) | | | (12,610,601 | ) | | (704,826 | ) | | (14,422,219 | ) |
Changes in prepaid expenses and other current assets | | | (1,180,056 | ) | | | (2,756,142 | ) | | 716,465 | | (1,180,056 | ) |
Changes in accounts payable and accrued expenses | | | (89,802 | ) | | | 236,101 | | | (1,626,719 | ) | | (89,802 | ) |
Other | | | 1,286,608 | | | | (13,695 | ) | | | 101,681 | | | 1,286,608 | |
Cash used in operations | | $ | (26,013,413 | ) | | $ | (33,229,126 | ) | | $ | (14,722,274 | ) | | $ | (26,013,413 | ) |
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2023 and 2022 and 2021 was $2.8$1.9 million and $2.6$2.8 million, respectively, consisting of capital expenditures for the construction and buildout of new plasma collection centers and related equipment and capital expenditures at the Boca Facility. WeWhile we currently have no firm commitments for capital expenditures, we expect our total capital expenditures will be between $8.0$7.0 million and $12.0$9.0 million for the remainder of fiscal 2022,2023, mainly for continued plasma collection center expansion.additional upgrades to the Boca Facility manufacturing operations and related systems.
Net Cash Provided by Financing Activities
Cash used in financing activities was $0.7 million for the three months ended March 31, 2023, as compared to cash provided by financing activities ofwas $47.3 million for the three months ended March 31, 2022 and primarilywhich mainly consisted of proceeds received from the Hayfin Credit Facility, net of payments to retire our previously existing credit facility with Perceptive. Cash provided by financing activities of $41.8 million for the three months ended March 31, 2021 was mainly comprised of net proceeds received from the issuance of our common stockPerceptive (see Note 87 to the Consolidated Financial Statements).
Effect of Inflation
Although inflation or changing prices did not have a significant impact on our revenues or net loss for the year ended December 31, 2020 or the three months ended March 31, 2021, inflation did impactInflation impacted a number of facets of our business during the year ended December 31, 2021 and the first three months ofended March 31, 2023 and 2022 at both of our business segments. We experienced price increases for, among other items, certain raw materials, consumable supplies, services for repairs and maintenance of our facilities, utilities, shipping and freight charges, fuel surcharges and labor costs. We expect this trend to continue at least into the second half of 2022,through 2023 and potentially longer, which could have a significant impact on our future results of operations. In addition, some of our plasma purchase agreements provide for annual price increases that are tied to various consumer price indices, which have resulted in higher than historical percentage price increases and has resulted in and is expected to continue to result in higher source plasma and other raw material and supplies costs in 2022the remainder of 2023 and future periods.
Off-Balance Sheet Arrangements
None.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We designed our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (the “SEC”)SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of March 31, 2022.2023. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures as of March 31, 20222023 were functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosures.
A control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. We do not expect that our disclosure controls and procedures or our internal control over financial reporting are able to prevent with certainty all errors and all fraud.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings. |
We may become subject to certain legal proceedings and claims arising in connection with the normal course of our business. In the opinion of management, there are currently no material pending legal proceedings that would have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-Q, the 2022 10-K and our other filings with the SEC, before making an investment decision regarding our common stock.
We have a history of losses and we may, in the future, need to raise additional capital to operate our business, which may not be available on favorable terms, if at all.
We are currently not profitable and may never become profitable.
The COVID-19 pandemic or other pandemics and efforts to reduce itstheir spread has significantly affected worldwide economic conditions and could have a material adverse impact on our business, liquidity, financial condition and results of operations, as well as a change to the overall market size and potential for our products.
We contract with third parties for the filling, packaging, testing and labeling of the drug substance we manufacture. This reliance on third parties carries the risk that the services upon which we rely may not be performed in a timely manner or according to our specifications, which could delay the availability of our finished drug product and could adversely affect our commercialization efforts and our revenues.
The estimates of market opportunity and forecasts of market and revenue growth included in our filings may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
Both of our business segments and our facilities are subject to periodic inspections by the FDA, which, depending on the outcome of such inspections, could result in certain FDA actions, including the issuance of observations, notices, citations or warning letters.
Business interruptions could adversely affect our business.
If we are unsuccessful in obtaining regulatory approval for any of our product candidates or if any of our product candidates do not provide positive results, we may be required to delay or abandon development of such product, which would have a material adverse impact on our business.
Although we have received approval from the FDA to market ASCENIV as a treatment for PIDD, our ability to market or seek approval for ASCENIV for alternative indications could be limited and FDA could require clinical trials beyond what we may deem to be reasonable. Unless additional clinical trials are successfully conducted and the FDA approves a BLA or other required submission for review, we may not be authorized to market ASCENIV for any other indication.
With the approval to market ASCENIV, BIVIGAM and Nabi-HB, there can be no assurance that we will be successful in further developing and expanding commercial operations or balancing our research and development activities with our commercialization activities.
We depend on third-party researchers, developers and vendors to develop, manufacture, supply materials for or test our products and product candidates, and such parties are outside of our control.
We may be unable to successfully expand our manufacturing processes to fulfill demand for our products or increase our production capabilities through the addition of new equipment, including if we do not obtain requisite approval from the FDA.
Our products, and any additional products for which we may obtain marketing approval in the future, could be subject to post-marketing restrictions or withdrawal from the market and we could be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products following approval.
Historically, a few customers have accounted for a significant amount of our total revenue and accounts receivable and the loss of any of these customers could have a material adverse effect on our business, results of operations and financial condition.
Issues with product quality and compliance could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.
If physicians, payers and patients do not accept and use our current products or our future product candidates, our ability to generate revenue from these products will be materially impaired.
Our long-term success may depend on our ability to supplement our existing product portfolio through new product development or the in-license or acquisition of other new products, product candidates and label expansion of existing products, and if our business development efforts are not successful, our ability to achieve profitability may be adversely impacted.
Our ADMA BioCenters operations collect information from donors in the U.S. that subjects us to consumer and health privacy laws, which could create enforcement and litigation exposure if we fail to meet their requirements.
Our senior credit facility with Hayfin Services LLP (“Hayfin”) is subject to acceleration in specified circumstances, which may result in Hayfin taking possession and disposing of any collateral.
If we are unable to protect our patents, trade secrets or other proprietary rights, if our patents are challenged or if our provisional patent applications do not get approved, our competitiveness and business prospects may be materially damaged.
Cyberattacks and other security breaches could compromise our proprietary and confidential information, which could harm our business and reputation.
Our ability to continue to produce safe and effective products depends on the safety of our plasma supply, testing by third parties and the timing of receiving the testing results, and manufacturing processes against transmittable diseases.
We could become supply-constrained and our financial performance would suffer if we cannot obtain adequate quantities of FDA-approved source plasma with proper specifications or other necessary raw materials.
We require additional funding and may be unable to raise capital in the future, which would force us to delay, curtail or eliminate one or more of our research and development programs or potentially modify our ongoing operations, commercialization efforts and expansion plans, as well as impact the overall business plan for the organization.
The market price of our common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Risk Factors
Described below are various risks and uncertainties that may affect our business. These risks and uncertainties are not the only ones we face. You should recognize that other significant risks and uncertainties may arise in the future, which we cannot foresee at this time. Also, the risks that we now foresee might affect us to a greater or different degree than expected. Certain risks and uncertainties, including ones that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, may also affect our business. If any of the risks described below actually occur, our business, financial condition or results of operations could be materially and adversely affected. You should carefully consider the following risk factors and the section entitled “Special Note Regarding Forward-Looking Statements” before you decide to invest in our securities.
Risks Relating to our Business
To date, we have a history of losses and have historically needed to raise, and in the future may be required to raise, additional capital to operate our business.
Our long-term liquidity depends upon our ability to grow our commercial programs, expand our commercial operations at the Boca Facility, improve our supply-chain capabilities, improve production yields, provide more control and visibility for timing of commercial product releases, continue to build out our commercial infrastructure and meet our ongoing obligations. In addition, our end-to-end production cycle from procurement of raw materials to commercial release of finished product can take between seven and 12 months or potentially longer, requiring substantial investments in raw material plasma and other manufacturing materials.
We currently anticipate, based upon our projected revenue and expenditures, that our current cash, cash equivalents and accounts receivable including the proceeds received and expected to be received from the refinancing of our senior credit facility and the amount of remaining funds available under the distribution agreement for the sale of our common stock (see “Liquidity and Capital Resources”), will be sufficient to fund our operations, as currently conducted, intothrough the firstend of the second quarter of 2024, atby which time we believe we will begin to generate positive cash flow from operations. This time frame may change based upon how quickly we are able to execute on our commercialization efforts and operational initiatives and whether or not the assumptions underlying our projected revenues and expenses are correct. We are also continuing to evaluate a variety of strategic alternatives through our ongoing engagement with Morgan Stanley as a financial advisor. We anticipate that we will not be able to generate a sufficient amount of product revenue to achieve profitability until the beginning of 2024. If we are unable to generate sufficient positive cash flow in the first quarter of 2024 and cannot raise additional capital if needed, we may have to delay, curtail or eliminate our commercialization efforts as well as product development activities. Even if we are able to raise additional capital, such equity or debt financings may only be available on unattractive terms, resulting in significant dilution of stockholders’ interests and, in such event, the value and potential future market price of our common stock may decline. In addition, if we raise additional funds through license arrangements or through the disposition of any of our assets, it may be necessary to relinquish potentially valuable rights to our product candidates or assets or grant licenses on terms that are not favorable to us.
We also continue to evaluate a variety of strategic alternatives through our ongoing engagement with Morgan Stanley. The exploration of value-creating opportunities remains a top corporate priority for ADMA.
Historically, the major source of our cash has been from proceeds from various public and private offerings of our common stock.stock and the issuance of debt securities. The actual amount of additional cash that we willmay need, if any, is subject to many factors. There can be no assurances that additional financing will be available if needed or that management will be able to obtain financing on terms acceptable to us or that we will become profitable and generate positive operating cash flow.
We are currently not profitable and may never become profitable.
We have a history of losses and expect to incur substantial losses and negative operating cash flows intoin fiscal 2023, and we may never achieve or maintain profitability. For the three monthsyears ended MarchDecember 31, 2022 and 2021, we incurred net losses of $25.0$65.9 million and $18.4$71.6 million, respectively, and for the yearsthree months ended DecemberMarch 31, 20212023 and 2020,2022 we incurred net losses of $71.6$6.8 million and $75.7$25.0 million, respectively. From our inception in 2004 through DecemberMarch 31, 2021,2023, we have incurred an accumulated deficit of $437.1$484.8 million. We expect that we will not be able to generate a sufficient amount of product revenue to achieve profitability until the beginning of 2024 and as a result,if we are unable to achieve positive cash flow we may need to continue to finance our operations through additional equity or debt financings or corporate collaboration and licensing agreements. We also expect to continue to incur significant operating and capital expenditures and anticipate that as our business continues to grow our operating expenses will increase substantially in the foreseeable futureaccordingly as we:
expand commercialization and marketing efforts;
implement additional internal systems, controls and infrastructure;
hire additional personnel;
expand and build out our plasma center network; and
expand production capacity at the Boca Facility.
As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future.
The COVID-19 pandemic and efforts to reduce its spread has significantly affected worldwide economic conditions, caused supply chain disruptions and could have a material adverse impact on our business, liquidity, financial condition and results of operationsoperations.
The COVID-19 pandemic, including the Delta, Omicron and OmicronBA.2 variants and other resistant, mutating and emerging strains of the coronavirus, has the potential to adversely impact several aspects of each of our business segments, our commercial manufacturing operations and plasma collection facilities, including but not limited to potential disruptions to our supply-chain operations, including procurement of raw materials and packaging materials, a portion of which are sourced internationally, and the testing of finished drug product that is required prior to its availability for commercial sale. Such testing has historically been performed by contract laboratories outside the United States. While we do not believe that the COVID-19 pandemic has significantly affected operations and immunoglobulin production at our Boca Facility or our ADMA BioCenters plasma collection operations at this time, we may experience adverse effects in the future.future from the COVID-19 pandemic or future pandemics. For example, our employees becoming ill, the imposition of additional mandatory remote working environments and federal, state and local responses to the pandemic could materially affect the efficiency and pace of our operations and manufacturing at our Boca Facility. Employee or donor illness, if not properly managed, could also impact the availability of and quality of our products. Further, in certain instances and geographic regions, we may experience decreased customer engagement (for example, as a result of a temporary shutdown of a customer’s facilities resulting from the COVID-19 pandemic or the continuation of no in-person meetings) could impact our results of operations. In addition, travel and other restrictions that have beenwere implemented in the United States or could be implemented in the future could impact our commercial efforts with respect to any of our products, including BIVIGAM and ASCENIV, as trade shows, industry and medical conferences and other events we had been planning to utilize and exhibit and attend with our staff to increase awareness of our products by physicians and payers arewere subject to limitations, rescheduling, virtual attendance or outright cancellation in response to the pandemic. Also, due to a combination of previous state and local “shelter-in-place” orders, as well as government stimulus packages, amongst other initiatives, we have experienced,were experiencing, and may experience in the future, lower than expected donor collections at our FDA-licensed plasma collection centers. We wereare also subject to delays in shipments of source plasma from our contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture, testing and distribution of our products. We have also experienced supply chain delays as a result of significant resources being diverted towards the rapid development and distribution of COVID-19 vaccines, which could result in our need to carry more inventory than we have in the past, which would put an additional strain on our cash resources. After the COVID-19 global pandemic has settled, we may continue to experience adverse impacts to our business as a result of evolving macroeconomic factors, including general economic uncertainty, unemployment rates, high inflation, recessionary pressures and any actual economic recession that has occurred or may occur in the future.
In the future we may continue to experience pandemic-related challenges with respect to obtaining and manufacturing a sufficient amount of supplies, raw materials, and finished product to meet our need for commercial and clinical product supply. If we or any of our suppliers or manufacturers are adversely impacted by the pandemicpandemics or the restrictions resulting from the outbreak,outbreaks, if they or we cannot obtain the necessary supplies, or if third parties need to prioritize other products or customers over us, including under the Defense Production Act, we may experience future delays or disruptions in our supply chain, which could have a material and adverse impact on our business. Moreover, we, our suppliers, and any third-party manufacturers may also need to implement measures and changes, or deviate from typical requirements, because of the pandemicpandemics that may otherwise adversely impact our supply chains or the quality of the resulting products or supplies. Depending on the change, we may need to obtain FDA pre-approval or otherwise provide the FDA with a notification of the change.
To the extent that we or our partners are conducting clinical trials, the pandemicpandemics could cause delays or disruptions in these or future development programs. By example, the pandemic may result in slower enrollment, the need to suspend enrollment into studies, patient withdrawals, postponement of planned clinical or preclinical studies, redirection of site resources from studies, study modification, suspension, or termination, the introduction of remote study procedures and modified informed consent procedures, study site changes, direct delivery of investigational products to patient homes requiring state licensing, study deviations or noncompliance, and changes or delays in site monitoring. The foregoing maycould require that we consult with relevant review and ethics committees, IRBs, and the FDA. The foregoing maycould also impact the integrity of our study data. The effects of the COVID-19 pandemicpandemics may also increase the need for clinical trial patient monitoring and regulatory reporting of adverse effects. The pandemicPandemics could further impact our ability to interact with the FDA or other regulatory authorities and may result in delays in the conduct of inspections or review of pending applications or submissions. No assurances can be provided as to the timing for completion of any regulatory submissions or applications that may be impacted by restrictions related to COVID-19 or other circumstances unknown to us presently or that are out of our direct control. Due to the potential impact of the COVID-19 outbreak on clinical trials, drug development, and manufacturing, the FDA issued a number of guidances specifically concerning COVID-19, including guidancesguidance with respect to blood and blood components. The FDA’s guidance is continually evolving.
The COVID-19 pandemic resulted in and future pandemics may also result in changes in laws and regulations. By example, in March 2020, the U.S. Congress passed the CARES Act, which includes various provisions regarding FDA drug shortage reporting requirements, as well as provisions regarding supply chain security, such as risk management plan requirements, and the promotion of supply chain redundancy and domestic manufacturing. The CARES Act further included reporting requirements related to the volume of products produced over the course of the year. FDA recently issued guidance regarding this requirement. This and any future changes in law may require that we change our internal processes and procedures to ensure continued compliance. Additionally, the previous guidelines that were issued by public health authorities or any new or changing recommendations or guidelines may still impact the demand for or usage as well as the prescriptions of our IVIG products.
The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, operations, or financial condition, or on healthcare systems or the global economy as a whole. Although the COVID-19 pandemic has not adversely affected our capital and financial resources to date, the pandemic’s effects could have a material impact on our ability to access the capital markets as needed and on our operations and business, including those of the third parties on which we rely. Because we are unable to determine the ultimate severity or duration of the pandemic or its effects on, among other things, the global, national or local economies, the capital and credit markets, our workforce, our customers or our suppliers, at this time we are unable to predict whether COVID-19 will have a material adverse impact on our business, financial condition, liquidity and results of operations.
We contract with third parties for a portion of the filling, packaging, testing and labeling of the drug substance we manufacture. This reliance on third parties carries the risk that the services upon which we rely may not be performed in a timely manner or according to our specifications, which could delay the availability of our finished drug product and could adversely affect our commercialization efforts and our revenues.
Third-party fill/finish providers may not perform as agreed or in accordance with FDA requirements. Any significant problem that our fill/finish providers experience could delay or interrupt our supply of finished drug product until the service provider cures the problem or until we locate, negotiate for, validate and receive FDA approval for an alternative provider (when necessary), if one is available. Failure to obtain the needed fill/finish services meeting the necessary quality standards or at all could have a material and adverse effect on our products, business, financial condition and results from operations.
Although we have received FDA approval for theare utilizing our FDA-approved fill/finish suite that we built at the Boca Facility for a portion of our finished drug product, we also intend to continue to utilize third parties to supplement our fill/finish process for final drug substance. product. Any failure by us, our contract fill/finishers, or other third parties involved in the process for producing our products or product candidates to comply with the applicable manufacturing, including manufacturing quality requirements, could place us and them at risk of regulatory enforcement actions, recalls and other adverse consequences, could adversely impact our products, and could adversely impact patients receiving our products, which may negatively impact our business and our ability to produce and supply products to meet commercial and clinical needs.
Our anticipated reliance on a limited number of third-party manufacturers exposes us to the following risks:
we may be unable to identify contract fill/finishers on acceptable terms or at all because the number of potential service providers is limited and the FDA must inspect and qualify any contract manufacturers for current cGMP compliance as part of our marketing application;
a new fill/finisher would have to be educated in, or develop substantially equivalent processes for, the production of our products and product candidates;
the COVID-19 pandemic could adversely affect our contracted fill/finishers’ operations, supply chain or workforce;
our contracted fill/finishers’ resources and level of expertise with plasma-derived biologics may be limited, and therefore they may require a significant amount of support from us in order to implement and maintain the infrastructure and processes required to deliver our finished drug product;
our third-party fill/finishers might be unable to timely provide finished drug product in sufficient quantity to meet our commercial needs;
contract manufacturers may not be able to execute our inspection procedures and required tests appropriately;
contract manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations, and we do not have control over third-party providers’ compliance with these regulations;
contract manufacturers may fail to comply with applicable regulatory requirements, placing them and us at risk of regulatory enforcement actions, recalls and other adverse consequences, which may negatively impact our business and their ability to supply products to meet our development, clinical and commercial needs;
our third-party fill/finishers could breach or terminate their agreements with us; and
our contract fill/finishers may have unacceptable or inconsistent drug product quality success rates and yields, and we have no direct control over our contract fill/finishers’ ability to maintain adequate quality control, quality assurance and qualified personnel.
Each of these risks could delay or prevent the completion of our finished drug product and the release of finished drug product by us or the FDA, which could result in higher costs or adversely impact the commercialization of our products.revenues. These risks could also result in the delay in obtaining clinical supplies, which would delay our development programs. In addition, our contract fill/finishers and our other third-party vendors may source their materials and supplies globally and are therefore subject to supply disruptions in the event of fire, weather related events such as hurricanes, wind and rain, international conflicts, trade and sanction requirements and limits, other acts of God or force majeure events or global health occurrences and emergencies, including the COVID-19 pandemic.
The estimates of market opportunity and forecasts of market and revenue growth included in our filings may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of changing circumstances during the ongoing COVID-19 pandemic. In particular, the size and growth of the overall U.S. IVIG and source plasma markets are subject to significant variables that can be difficult to measure, estimate or quantify. Our business depends on, among other things, successful commercialization of our existing products, market acceptance of such products and ensuring that our products are safe and effective. Further, there can be no assurance that we will be able to generate the revenue that we believe our products and plasma collection facilities are capable of generating. As a result, we may not be able to accurately forecast or predict revenue. For these reasons, the estimates and forecasts in our filings relating to revenue generation and growth may prove to be inaccurate. Even if the markets in which we compete meet our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all.
Both of our business segments and our facilities, as well as our suppliers and contractors, are subject to periodic inspections by the FDA, which, depending on the outcome of such inspections, could result in certain FDA actions, including the issuance of observations, notices, citations or warning letters.
We and our suppliers and contractors may be unable to comply with our specifications, cGMP requirements and with other FDA, state, and foreign regulatory requirements for commercial and clinical supply. The FDA is authorized to perform inspections and remote regulatory assessments of our and our suppliers’ facilities, including the Boca Facility. The FDA also may inspect and approve our and our third-parties’ facilities before they may be used for commercial production. At the end of such an inspection, the FDA could issue a Form 483 Notice of Inspectional Observations, which could cause the FDA to not approve the use of the facility and cause us to modify certain activities identified during the inspection. Following such inspections, the FDA may issue an untitled letter as an initial correspondence that cites violations that do not meet the threshold of regulatory significance of a warning letter. FDA guidelines also provide for the issuance of warning letters for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. FDA also may issue warning letters and untitled letters in connection with events or circumstances unrelated to an FDA inspection. Depending on the seriousness of any findings, we or our suppliers may be subject to additional significant enforcement actions which could have a material impact on our business.
In the event of any FDA enforcement actions, we and our third-party contractors would need to implement remedial actions which may be time-intensive or costly. We may not be able to timely resolve concerns raised by the FDA as a result of an inspection or without expending significant resources. We are unable to control the timing of FDA inspections, communications and actions, and will be required to respond to the FDA and make certain submissions within certain timeframes. We also do not know whether or not the FDA will change its requirements, guidance or expectations. If the FDA determines that we have not remediated the issues identified in a warning letter or any other inspection issues and deficiencies, any failure of ours to address or provide requested documentation of corrections for these issues could disrupt our business operations and the timing of our commercialization efforts and could have a material adverse effect on our financial condition and operating results.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our commercial manufacturing and any research and development activities involve the use of biological and hazardous materials and produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption ofto our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized internally and by our third-party manufacturers and service providers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our commercial manufacturing, research and development, or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties, or other sanctions.
Business interruptions could adversely affect our business.
Our operations, including our headquarters located in Ramsey, NJ, the Boca Facility and our plasma collection facilities, are vulnerable to interruption by fire, weather related events such as hurricanes, wind and rain, other acts of God or force majeure events, electric power loss, telecommunications failure, equipment failure, cyberattacks on our operations and information technology systems and breakdown, human error, employee issues, global health occurrences such as the COVID-19 pandemic, war, geopolitical conditions and emergencies, product liability claims and events beyond our control. While we maintain several insurance policies with reputable carriers that provide partial coverage for a variety of these risks, including replacing or rebuilding a part of our facilities, these policies are subject to the insurance carriers’ final determination of compensation to us and we may not have adequate coverage if we need to rebuild or replace our inventory, infrastructure, business income or our entire facility. In addition, our disaster recovery plans for our facilities may not be adequate and we do not have an alternative manufacturing facility or contractual arrangements with other manufacturers in the event of a casualty to or destruction of any of our facilities. If we are required to rebuild or relocate any of our facilities, a substantial investment in improvements and equipment would be necessary. We carry only a limited amount of business interruption insurance, which may not sufficiently compensate us for losses that may occur. As a result, any significant business interruption could adversely affect our business and results of operations.
If we are unsuccessful in obtaining regulatory approval for any of our product candidates or if any of our product candidates do not provide positive results, we may be required to delay or abandon development of such product, which would have a material adverse impact on our business.
Product candidates require extensive clinical data analysis and regulatory review and may require additional testing. Clinical trials and data analysis can be very expensive, time-consuming and difficult to design and implement. The conduct of preclinical studies and clinical trials is subject to numerous risks and results of the studies and trials are highly uncertain. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. Furthermore, delays or setbacks can occur at any stage of the process, and we could encounter problems that cause us to abandon our product development programs and related INDs or BLAs, or to repeat clinical trials. The evolving COVID-19 pandemic may directly or indirectly affect the pace of enrollment in clinical trials as patients may be restricted in traveling to and accessing healthcare facilities and physicians’ offices. Additionally, such healthcare facilities and offices have their limited resources directed towards treating patients with COVID-19 symptoms. The commencement and completion of clinical trials or ultimate product approval for any current or future development product candidate may be delayed by several factors, including:
unforeseen safety issues;
determination of dosing issues;
lack of safety or effectiveness during clinical trials;
slower than expected rates of patient recruitment;
inability to monitor patients adequately during or after treatment; and
inability or unwillingness of medical investigators to follow our clinical protocols; andprotocols.
temporary suspension resulting from the COVID-19 pandemic.
We cannot be certain as to what type and how many clinical trials the FDA, or equivalent foreign regulatory agencies, will require us to conduct before we may successfully gain approval to market any of our product candidates that still require FDA approval. Prior to approving a new drug or biologic, the FDA generally requires that the effectiveness of the product candidate (which is not typically fully investigated until Phase 3)III) be demonstrated in two adequate and well-controlled clinical trials. However, if the FDA or an equivalent foreign regulatory authority determines that our Phase 3III clinical trial results do not demonstrate a statistically significant, clinically meaningful benefit with an acceptable safety profile, or if a relevant regulator requires us to conduct additional Phase 3III clinical trials in order to gain approval, we will incur significant additional development costs and commercialization of these products would be prevented or delayed and our business could be adversely affected.
In addition, the FDA or an IRB may not permit us to commence a clinical trial, may require amendments to our clinical trial protocols, or may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA or IRB finds deficiencies in our IND submissions or the conduct of these trials. Regulatory authorities may also not accept data from clinical trials if the trials are not conducted in accordance with the applicable regulatory requirements. Failure to comply with the applicable regulatory requirements may also result in enforcement actions. Therefore, we cannot provide any assurance or predict with certainty the schedule for future clinical trials. In the event we do not ultimately receive regulatory approval for our product candidates, we may be required to terminate development of such product candidates. If we fail to obtain regulatory approval to market and sell our product candidates, or if approval is delayed, we will be unable to generate revenue from the sale of these products, our potential for generating positive cash flow will be diminished and the capital necessary to fund our operations will increase.
If the results of our clinical trials do not support our product candidate claims, completing the development of such product candidate may be significantly delayed or we may be forced to abandon development of such product candidate altogether.
We cannot be certain that the clinical trial results of our product candidates will support our product candidates’ claims. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing.
The clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay our ability to commercialize our product candidates and generate product revenues.
Other issues that may impact our clinical trials and that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, include:
Delays in reaching, or failure to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and our CROs;
Regulators requiring us to perform additional or unanticipated clinical trials to obtain approval or becoming subject to additional post-marketing testing, surveillance, or REMS requirements to maintain regulatory approval;
Failure by our third-party contractors to comply with regulatory requirements or the clinical trial protocol, or meet their contractual obligations to us in a timely manner, or at all, or our being required to engage in additional clinical trial site monitoring;
The cost of clinical trials of our product candidates being greater than we anticipate or our having insufficient funds for a clinical trial or to pay the substantial user fees required by FDA upon the filing of a marketing application;
Insufficient supply or inadequate quality of our product candidates or other materials necessary to conduct clinical trials;
Inability to achieve sufficient study enrollment, subjects dropping out or withdrawing from our studies, delays in adding new investigators or clinical trial sites or a withdrawal of clinical trial sites;
Flaws in our clinical trial design that are not discoverable until the clinical trial has progressed;
Disagreement by the FDA or comparable foreign regulatory authorities with our intended indications or study design, including endpoints, or our interpretation of data from preclinical studies and clinical trials, finding that a product candidate’s benefits do not outweigh its safety risks or requiring that we conduct additional development or study work;
The need to make changes to our product candidates that require additional testing or that cause our product candidates to perform differently than expected;
Global trade policies that may impact our ability to obtain raw materials and/or finished product for commercialization;
FDA or comparable regulatory authorities taking longer than we anticipate to make decisions on our products or product candidates; and
Potential inability to demonstrate that a product or product candidate provides an advantage over current standards of care or current or future competitive therapies in development.
In addition, our clinical trials involve a relatively small patient population. Because of the small sample size, the results of these clinical trials may not be indicative of future results. In addition, certain portions of our clinical trials and product testing for our product candidates may be performed outside of the U.S., and therefore, may not be performed in accordance with standards normally required by the FDA and other regulatory agencies.
If we do not obtain and maintain the necessary U.S. or international regulatory approvals to commercialize a product candidate, we will not be able to sell that product candidate, which would make it difficult for us to recover the costs of researching and developing such product candidate.
If we are not able to generate revenue from our products and product candidates, our sources of revenue may continue to be from a product mix consisting only of plasma collection and sales revenues, revenues generated from sales of our FDA-approved commercial products, revenues generated from ongoingnew contract manufacturing forarrangements with third parties and revenues generated from the sales of manufacturing intermediates. We cannot assure you that we will receive the approvals necessary to commercialize any product candidate we may acquire or develop in the future. In order to obtain FDA approval of any product candidate requiring FDA approval, our clinical development must demonstrate that the product candidate is safe for humans and effective for its intended use, and we must successfully complete an FDA BLA review. Obtaining FDA approval of a product candidate generally requires significant research and testing, referred to as preclinical studies, as well as human tests, referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in products that the FDA considers safe for humans and effective for indicated uses. The FDA has substantial discretion in the product approval process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies or may require additional CMC or other data and information, and the development and provision of this data and information may be time-consuming and expensive. The approval process may also be delayed by changes in government regulation, future legislation diversion of resources for FDA review during the ongoing COVID-19 pandemic or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals may:
delay commercialization of, and our ability to derive revenues from, our product candidates;
impose costly procedures on us; and
diminish any competitive advantages that we may otherwise enjoy.
Even if we comply with all FDA requests, the FDA may ultimately reject our product candidate’s BLA. In addition, the FDA could determine that we must test additional subjects and/or require that we conduct further studies with more subjects. We may never obtain regulatory approval for any future potential product candidate or label expansion activity. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by leaving us without the ability to generate additional accretive revenues. There is no guarantee that we will ever be able to develop or acquire other product candidates. In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize any products or product candidates outside the U.S. Foreign regulatory approval processes generally include all of the risks and uncertainties associated with the FDA review, inspection and approval procedures described above. We cannot assure you that we will receive the approvals necessary to commercialize any product candidate for sale outside the U.S.
Although we have received approval from the FDA to market ASCENIV as a treatment for PIDD, our ability to market or seek approval for ASCENIV for alternative indications could be limited, unless additional clinical trials are conducted successfully and the FDA approves a BLA or other required submission for review.
The FDA and other governmental authorities strictly regulate and monitor marketing, labeling and the advertising and promotion of prescription drugs. These regulations include standards and restrictions for direct-to-consumer advertising, industry-sponsored scientific and educational activities, promotional activities involving the Internet and off-label promotion. The FDA does not allow drugs to be promoted for “off-label” uses — that is, uses that are not described in the product’s labeling and that differ from those that were approved by the FDA. The FDA limits approved uses to those studied by a company in its clinical trials. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. Although we have received approval from the FDA to market ASCENIV as a treatment for PIDD, we cannot be sure whether we will be able to obtain FDA approval for any desired future indications for ASCENIV.
While physicians in the U.S. may choose, and are generally permitted, to prescribe drugs for uses that are not described in the product’s labeling, and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote our products is narrowly limited to those indications that are specifically approved by the FDA. “Off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If the FDA determines that our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines related to promotion and advertising may cause the FDA to issue warning letters or untitled letters, bring an enforcement action against us, suspend or withdraw an approved product from the market, require a recall, require payment of civil fines or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution, among other consequences, any of which could harm our reputation and our business.
With the approval of ASCENIV, there can be no assurance that we will be successful in further developing and expanding commercial operations or balancing our research and development activities with our commercialization activities.
Since receiving FDA approval for ASCENIV, we have been commercializing this product while also continuing our research and development activities. There can be no assurance that we will be able to successfully manage the balance of our research and development operations with our commercialization activities. Potential investors and stockholders should be aware of the problems, delays, expenses and difficulties frequently encountered by companies balancing development of product candidates, which can include problems such as unanticipated issues relatingrelated to clinical trials and receipt of approvals from the FDA and foreign regulatory bodies, with commercialization efforts, which can include problems related to managing manufacturing and supply, including supply chain constraints directly or indirectly caused by the ongoing COVID-19 pandemic and government responses thereto,, reimbursement, marketing challenges, development of a comprehensive compliance program, and other related and additional costs. For example, the raw material plasma we collect and procure to manufacture ASCENIV using our patented proprietary microneutralization assay is comprised of plasma collected from donors which contains high titer antibodies to RSV. This high titer plasma which meets our internal specifications for the manufacture of ASCENIV that we are able to identify with our patented testing assay amounts to less than 10% of the total donor collection samples we test. As a result, we may experience an insufficient supply of this plasma.
Our product candidates will require significant additional research and clinical trials, and we will need to overcome significant regulatory burdens prior to commercialization in the U.S. and other countries. In addition, we may be required to spend significant funds on building out our commercial operations. There can be no assurance that after the expenditure of substantial funds and efforts, we will successfully develop and commercialize any of our product candidates, generate any significant revenues or ever achieve and maintain a substantial level of sales of our products.
We depend on third-party researchers, developers and vendors to develop, manufacture or test products and product candidates, as well as for other pre-and-post approval services, and such parties are, to some extent, outside of our control.
We depend on independent investigators and collaborators, such as universities and medical institutions, contract laboratories, CROs, contract manufacturers, contract fill/finishers and consultants to conduct our preclinical activities, clinical trials, CMC testing and other activities under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs or the impact that the ongoing COVID-19 pandemic will have on suchprograms. These third parties. These investigatorsparties may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our product-development programs, or if their performance is substandard or does not comply with the applicable regulatory standards, our trials may be repeated, extended, delayed, or terminated, the approval of our FDA application(s), if any, and our introduction of new products, if any, will be delayed. We or they may also be subject to regulatory enforcement actions and we may not be able to meet commercial demand. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed. Additionally, any change in the regulatory compliance status of any of our vendors may impede our ability to receive and maintain approval for our product candidates.
We may be unable to successfully expand our manufacturing processes to fulfill demand for our products or
increase our production capabilities through the addition of new equipment, including if we do not obtain requisite approval from the FDA.
We currently anticipate expanding the manufacturing capacity of our Boca Facility by approximately 50% or more. We also anticipate expanding our production capabilities through the addition of our fill-finish machine at our Boca Facility. Following the expansion of any of our manufacturing processes or the addition of new equipment, such as our fill-finish machine, we will need to validate the expanded facility and equipment, make the necessary submissions to FDA, obtain any FDA required approvals and have it inspected by the FDA. Given the significant delays that may result during the validation process, including due to any diverted FDA attention during the COVID-19 pandemic, we may experience a significant supply shortage of our products or our production capabilities may be limited until completion of and validation of our facility expansion and new manufacturing equipment.
Our products, and any additional products for which we may obtain marketing approval in the future, could be subject to post-marketing restrictions or withdrawal from the market and we could be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products following approval.
Our products, and any additional products for which we may obtain marketing approval in the future, could be subject to post-marketing restrictions, new FDA guidance, or other regulatory actions, such as withdrawal from the market. Such products, as well as the manufacturing processes, post-marketing studies and measures, labeling and advertising and promotional activities for such products, among other things, are subject to ongoing regulatory compliance requirements, and oversight, review, and inspection by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, adherence with labeling and promotional requirements and restrictions, requirements relatingrelated to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding safeguarding the drug supply chain as well as the distribution of samples to physicians and recordkeeping. For example, the FDA’s approval of our PAS to allow for the commercial relaunch of BIVIGAM, requiresas well as the FDA’s approval of our BLA for ASCENIV, require us to conduct specified post-marketing studies related to our manufacturing controls and processes and submit specified post-marketing reports to the FDA. If, during the post-marketing period (after marketing approval) previously unknown adverse events, discovery that the product is less effective than previously thought, or other potential concerns regarding our products or their manufacturing processes emerge, or we are observed in any way to fail to comply with the numerous regulatory requirements to which we are subject, those circumstances may yield various results, including:
restrictions on such products or manufacturing processes;45
| • | restrictions on such products or manufacturing processes; |
| • | restrictions on the labeling or marketing of a product; |
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
| • | clinical holds or termination of clinical trials; |
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