ADMA Biologics, Inc. (ADMA) Earnings Call Transcript & Summary

Hi, everyone. Thanks for joining our fireside chat with ADMA Biologics. We have with us today ADMA's CEO, Adam Grossman; and CFO, Brian Lenz. Adam and Brian, thanks for joining us. Before we start, I need to read a quick disclaimer for the webcast. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representatives. [Operator Instructions] So Adam, do you want to kick us off and maybe you can give a brief introduction of ADMA for those who may not be familiar with the story?

Sure. Thank you so much, Christine, and thank you to the Morgan Stanley banking team for the opportunity to present at this prestigious conference. A disclaimer as well. We are a publicly traded company. We trade under the symbol ADMA in the NASDAQ markets. And please visit our website, www.admabiologics (sic) [ www.admabiologics.com ] and click on the Investors tab, which will refer you to forward-looking statement disclosures that we will make during this fireside chat. So ADMA Biologics, we are in a unique area of the biotech and pharmaceutical space. We're an end-to-end commercial manufacturing company that is committed to making specialty plasma-derived products for the prevention and treatment of certain infectious diseases in immunocompromised patients and other patients at risk for infectious diseases. The main products that we produce out of human plasma are called immunoglobulins, hyperimmune globulins and intravenous immunoglobulin. For lay people, we like to say that we make healthy immune systems in a bottle. The market that we operate in, in the United States, it's about a $7 billion market. And based on a number of industry forecast and analyst projections, this market is anticipated to grow at a rate of about 8% to 10% year-over-year, and it's forecasted to double by 2025, approximately $14 billion in revenue. There are very, very few players in this market in the United States. There are about 6 companies that do provide immunoglobulins and/or hyperimmune globulins in the U.S., and this consolidation has created a lot of market opportunities for ADMA. Safety, efficacy and reimbursement of our drugs as well as other plasma-derived drugs has been well established for many, many years. There's limited substitution for the products that we make, and there's low-risk of generics or third world, low-cost competitors coming in because you must use U.S. plasma collected from U.S. citizens in the United States in order to make these drugs. The market is expanding, and the life cycle of these products spans decades. There are tremendous regulatory barriers to getting an FDA approval for the manufacturing of these drugs in the United States. There have been plenty of companies that have tried over the last couple of years, with novel plasma separation processes and companies building plants, but it's very, very hard to do that. And we're really proud that over the 3-plus years that we've owned this facility, we've been able to turn it around, and we are producing more drug in 2020, and this plan has produced in the preceding 5 years combined. We currently manufacture and market 3 FDA-approved drugs. These are hyperimmune globulins and immunoglobulin called BIVIGAM, ASCENIV and Nabi-HB. And we control all aspects of the manufacturing, regulatory affairs and quality assurance process. We're currently embarking on initiatives to expand our raw material plasma collection by investing capital expenditures into the development and construction of new plasma centers as well as increasing the production capacity for our BIVIGAM product as well as bringing aseptic fill/finish capabilities in-house. And all of these opportunities are designed to increase our production yields as well as enhancing top line revenue while ultimately maximizing our gross margins. With our existing infrastructure and the building blocks that we have in place, we believe that we are positioned over the next 3 to 5 years to generate revenues in excess or equal to $250 million annually. Again, we feel really, really proud of the work that we're doing. We're still well underway with the launch of our recently approved immunoglobulin, BIVIGAM and ASCENIV, and we're very, very pleased with the acceptance of all of our products in the market today. I guess maybe one other thing I can add is that we are a member of the a global CoVIg-19 Plasma Alliance that's being led by Takeda and CSL, and we are very proud to have a seat at the table with these esteemed manufacturers and multinational global leaders in the plasma-derived biologic space, helping to develop and potentially commercialize a hyperimmunoglobulin for the treatment of patients infected with COVID-19. And so I guess with that being said, Christine, that's a good summary on who we are and what we do, and I hope I didn't leave too much out.

Great. Thanks, Adam. That's a great start. And we do have some questions coming in, but maybe, you mentioned towards the end of your introduction, the $250 million a year of revenue target. So one of the questions is that, given the capabilities you have with the infrastructure investments that you've made, how soon until you expect to see more significant revenue?

Sure. So at the end of our Q2 -- or I should say at the end of Q2, during our earnings call, we mentioned that we believe that we should have considerable revenue growth in the second half of this year. And something that we've been spending time talking with investors about is understanding the production cycle time of our product, so this is not unique just to ADMA. But the time it takes to collect plasma, to test that plasma, then to manufacture that plasma into the immunoglobulin drug substance, then fill it as well as then do all the release testing that must be performed as well as go through an FDA review of every batch of biologic drugs, the FDA still goes through reviews and provides [ LOP ] release authorization. This process takes anywhere from 7 to 12 months. And again, not unique to ADMA, that's pretty much standard across all manufacturers in this industry. So what we're trying to message to our investors and our shareholders is that drug that we started making after our FDA approval of BIVIGAM in incentive last year in the first half, we started producing drug in the middle of the year, second half. We're just starting to see that inventory coming offline now. And we have been increasing our production throughput in a very methodical and steady pace to ensure that we continue to meet all the FDA's requirements and that we are manufacturing within a controlled system and our controlled processes, and we've been very successful at doing that. So we're just starting to see larger amounts of finished goods inventory coming through the supply chain. So we anticipate second half of 2020 to be better than the first half, and we anticipate this going into '21. We anticipate the first half of '21 being better than the second half of '20, and we anticipate really substantial, substantial revenue growth towards the tail end of '21 into '22 when a number of our supply chain enhancements should be FDA-approved, including the capacity expansion for BIVIGAM, which hopefully will be submitted to FDA sometime early next year as well as our fill/finish capability. All of these are going to lead to the ability to generate revenue faster and have improved gross margins as we move forward.

Great. Thank you. And so you talked about the production time that it takes to get from raw material to finished product. And just given that it takes that long, is there -- the plasma collection reduction that the industry saw in the second quarter, is that -- do you expect that to affect production in 2021 for ADMA?

Sure. That's a great question, and a number of investors have been asking us this. I'm very pleased to report that ADMA has not experienced any difficulty in procuring plasma for further manufacturing in its plan. We do not anticipate any plasma supply shortfall from our third-party suppliers. We have a contract in place with Grifols, and they have been honoring that contract, and we've been getting supply in accordance with our delivery schedule. They have not missed a beat. They've been a very, very good and firm supplier to our organization. Our own collections, we did see a dip in our own collections, but we see ourselves recovering. And again, forward-looking for the back half of 2020 into 2021, we do not anticipate any plasma shortfall that will affect our ability to produce and generate meaningful and substantial revenue growth quarter-over-quarter as we progress.

Okay. Great. And you mentioned the CoVIg-19 global plasma alliance that you're part of as given the pandemic that we're in. And then earlier this month, you also did a press release about the ImmunoRank assay. Can you tell us a little bit more about that and the status of that?

Sure. So as many of our shareholders may know, and if you visit our website, admabiologics.com, there's some information about our unique patent portfolio that we have. To the best of my knowledge, ADMA is the only company that has a patent on the use of an immunoglobulin for the potential treatment of a respiratory infectious disease as well as we have patents around developing assays for donor screen methodologies and also tailoring hyperimmune plasma pool compositions. All of these things really lend themselves to the world that we're living in today, trying to develop preventions and cures for COVID-19. The assay, which we've developed with our partner, Leinco Technologies, is really a way to standardize, if you will, and simplify the detection of recovered COVID-19 patients, convalescent patients from COVID-19 that have neutralizing antibodies, but not only detecting that they have the presence of neutralizing antibody, but that our assay will actually allow us to quantify the level of neutralizing antibody that they have in a platform that takes about 80 to 90 minutes. The tests are not yet currently FDA-approved. We plan on submitting an EUA in the near-term to be able to use this by the plasma industry as well as the blood collection industry, who are collecting plasma for therapeutic transfusion. One thing I would like to say is at ADMA, we feel that maybe we've been a little bit unfairly classified in the convalescent plasma world. Just to clarify something for a moment, we are in the business of collecting plasma for further manufacturing. We collect plasma from donors that are hyperimmune to COVID-19 because they have recovered from a recent infection. What we don't do is we're not in the business of using that plasma for therapeutic transfusion. So I think there's been a lot of confusion there. And just to point out that if you dig into the data on convalescent plasma, the units that are tested to have the highest level of neutralizing antibodies to the SARS-CoV-2 virus, those high-titer units are considered to be the most efficacious. So what our assay is going to allow us to do is identify which convalescent COVID-19 recovered plasma donors have the highest level of antibodies, and then we can use that plasma, in our partnership with the alliance or with others that we may be working on, to essentially standardize the way that we manufacture a hyperimmune to ensure a consistent level of high-titer neutralizing antibodies to the receptor binding domain. That is the right way to make a hyperimmune globulin. So convalescent plasma, right now, it's a little bit rushed, I would say. But this assay that we've developed, we believe, can help standardize that for therapeutic treatment as well as help the plasma industry to make an immunoglobulin. Our role with the CoVIg-19 alliance, we play a supportive role right now, but we're very proud of that role. I mean we're sitting at the table with these large multinational fractionators who typically like to do things themselves, and they know how to do these things. And I think that they've seen that ADMA can bring some unique insights into the alliance. We certainly have made our focus, over the last 10, 12 years of our development, on targeted hyperimmunes, if you will, for respiratory viral infections, and I think that we've been able to be helpful to expedite this. And over the coming weeks and months, I think the alliance will have some announcements out there. I'm not a spokesman for the alliance, but I think there'll be some more announcements coming at that will be pretty exciting, and we're really, really very honored and humbled to be able to play a part in working together with these great companies to help find a treatment for this deadly disease.

Great. And you mentioned briefly that you're expecting to submit the EUA for the ImmunoRank assay shortly. Is that -- is there any kind of timing that you could provide on expectations or is that TBD?

That's TBD right now. I think that investors should believe that we are certainly -- it's desirous to get this done as soon as possible. We do have a partner here with Leinco Technologies, so this is not solely an ADMA Biologics-controlled asset. But we are working very, very well together, and we hope to provide updates as material announcements transpire. We'll be certain to keep the market informed.

Okay. Great. And obviously, this year has been a unique year, to say the least. And you did talk about how the decline in the plasma collection you don't expect, and you haven't seen any impact to the raw materials that you're receiving for your products. Can you talk just a little bit more generally on how ADMA's doing in this environment? And if there's any key milestones that have been achieved year-to-date that you want to highlight?

Sure. No, absolutely. That's a great question. I mean part of me wants to lay down on a couch to answer this question, but it's -- I think we all, as human beings living in this world today, I mean, there are a lot of external pressures that you just don't normally face with your regular day-to-day. And quite frankly, I think it's quite remarkable that we have, honestly, been able to continue operating, continue producing. We don't let hurricanes stand in our way, we don't let COVID-19 stand in our way. I mean our workforce here at ADMA Biologics is -- I'm proud of every single staff member that we have. Between fighting through all the personal struggles, we continue to produce on schedule every single day. I think holding the business together, being able to transition from an office-based, if you will, environment to a virtual working environment, except for our production team and our laboratory and facilities teams, it's certainly been challenging. You couple that with the fact that the medical congresses that were all canceled in the early part of this year when we had a number of scientific engagement initiatives scheduled to take place with clinical immunologist and infectious disease treaters, P&T committee meetings, getting into hospitals has basically been a struggle. And I think that when you look at the fact that our revenues are growing year-over-year, you look at the fact that we are continuing to put out positive press releases and positive news. I think it speaks to the dedication of the workforce here at ADMA Biologics, and we are truly proud of that. From a supply chain perspective, I think we all are experiencing those e-mails from Amazon that say your delay -- your deliveries may be delayed due to the COVID-19 pandemic. We're not immune to that. We have seen delays in testing reagents and in certain PPE supplies and pricing fluctuations, and we have to qualify new vendors. And there's a lot of scrambling that goes on behind the scenes in order to keep the ship moving forward as well as we have, but we've been able to weather the storm. In Q2, we had 1 of our testing labs overseas. They were mandated by their government to get out of their normal business and go into the COVID testing business, and that left us with some test results that we were not able to obtain, but the FDA worked very rapidly with us to rectify the situation, and that's been fully resolved, and we've been receiving batch releases extremely rapidly now that we have a new testing lab in our FDA-approved BLA for the U.S. We are on track, Christine, with our corporate goals and objectives. We're on track with our supply chain robustness initiatives that we announced in the tail end of 2019. Brian and our plasma center team are well ahead of schedule on the development of our plasma centers. We've already announced the opening of center 2. Center 3 is fast approaching. Hopefully, we can announce that before the end of the year. And the one thing I will say is that with COVID, there also comes some opportunities, and one of those opportunities has been there's a lot of retail real estate available, and it's a lot less expensive than it used to be. And I hate to say that we're being opportunistic here during COVID, but there's plenty of landlords would love a plasma center to come in there and sign a 10, 20-year lease at a discounted rate just to make sure that he's got -- he or she has the place rented. So we've been very opportunistic there, and I think we're ahead of schedule on our build plan. And we're on time with our 4,400-liter capacity expansion from 2,200-liter production runs for BIVIGAM as well as our aseptic fill/finish machine have been installed. The machine was built in Canada. We had to pull a lot of strings with our government to get the machine to be able to be shipped in over the border once the shelter-in-place orders were mandated in late March, early April, but I'm extremely pleased with the progress, and we're very hopeful that we can have a potential FDA application on file by the end of the year. So with all the issues that COVID has presented. Yes, we're impacted, just like everybody else, from a commercial engagement standpoint, but we've been able to continue to be nimble and shift our focus to outpatient home infusion companies, small physicians' offices, freestanding independent infusion clinics as well as now that the dust is settling at many Tier 1 hospitals around the country, we're really starting to reengage with folks, and we're optimistic about the prospects for commercial engagement going forward. Bri, did I leave anything out there? I think that...