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

Welcome everyone to the Jefferies First Annual Global Plasma Summit. With us up next, we have Adam Grossman and Brian Lenz, CEO and CFO of ADMA Biologics. We have 30 minutes allotted for a fireside chat session. So we look forward to the segment, and thank you both for joining us this year.

Thank you for having us.

Thank you very much, Anthony.

And maybe where we're starting off, Adam, is a little bit on a look back at 2020 and where we sit as of March, mid-March now we're approaching, it is the 1-year anniversary for most of COVID-19. So maybe a moment on how 2020 played out for ADMA and what are the most updated views as we sit here at the 1-year anniversary of COVID?

Sure. Thank you, Anthony. 2020, being able to look back on it, it was a phenomenal year for ADMA Biologics. It was certainly a roller coaster ride at times. Keeping our manufacturing operations ongoing and supply chain together throughout the beginning and middle of parts of COVID when everybody was sort of scrambling took a lot of cooperation and leadership from the staff at ADMA. So I take my hat off to them. Really, the reason why the company performed so well is because of the hard work and dedication of our staff, and quite frankly, our suppliers. We've been very fortunate. We've had no disruptions in our raw material plasma supply to speak of. Our production throughput has grown throughout of 2020. And I think that when we come out with final numbers later this month for 2020, you'll see that inventories are growing on schedule as we've spoken with you and others on the street. The commercial rollout for BIVIGAM and ASCENIV continued. It's slightly over 1 year for the launches of those products, and the uptake has been good. The demand for Ig continues. And really, the visibility on plasma, plasma collection, utilization of Ig, it's just been a benefit to the company. Throughout 2020, we continued and hit all of our goals and objectives with respect to enhancing our supply chain, our end-to-end control. We built more plasma centers. We stayed on schedule. And in fact, something that we say -- and we don't like to say that we've been capitalizing on some of the economic downturn from COVID, but we lease space, we don't build greenfield collection centers. We like the strip mall and the retail frontage location. And we all know what has happened in the retail sector, restaurant sector. So we're finding a number of properties that we otherwise couldn't afford or wouldn't have had access to have been available, and it's allowed us to accelerate the development of our collection center expansion. Throughout 2020, we also completed the installation of an aseptic fill/finish machine. I know people in the chat forums make fun of me for saying it's a state of the art machine, but really is that. It's a totally self-contained device and the yields that we've seen in the few batches that we've completed thus far are very encouraging. And we think enhancing this end-to-end control is going to ultimately improve margins, improve yield. It's going to shorten the working capital cycle times for the production cycle of our products. And quite frankly, it was just a very good, solid year. It was frantic. It was hectic. It was difficult, but it worked out for us. I think that some other notable achievements, we refinanced our debt at the end of last year. Brian, do you want to speak a little bit about the debt thing?

Sure. I was just going to mention, from a financial standpoint, our balance sheet has improved from the end of 2019 throughout 2020 in a variety of areas. Inventory increased, up 30% from $53 million to $70 million. Our cash at the end of September was about $60 million, increased from $27 million at the end of 2019. Accounts receivable increased because of higher sales. We had our best fourth quarter sales -- best quarter sales ever at $14 million from the -- in the fourth quarter of 2020. And then as you mentioned, Adam, we did refinance our debt. We had about $100 million coming due in early 2022 between Perceptive and an unsecured lender, Biotest. And what we did is we consolidated that debt. We increased our interest-only period. We're able to extend our interest-only period another 2 years from March of 2022 to March of '24 -- 2024. And by that time, we looked at our long-range forecast plan from a financial standpoint with revenues and gross margins, we expect to be profitable before that note matures in March of 2024. So certainly a better overall financial aspect from our standpoint, from a balance sheet and top line revenue throughout 2020.

When we take that as an intro and a backdrop in terms of the enhanced visibility on inventories, maybe spend a moment on how that is changing the discussion between end customers, whether those are hospitals, infusion centers or distributors between the company and those end channels. How has the discussion changed? And what is the level of engagement and funnel development across those 3 channels?

Sure, Anthony. The key with immunoglobulin is the continuity of supply to ensure the continuity of care for the patients. Many patients on Ig receive the product every 3 to 4 weeks to allow them to live normal productive lives. With our labeled indication in primary immune deficiency, these are patients that are being seen in the hospital setting and the outpatient setting at the hospital as well as in alternate sites of care. Since ADMA received FDA approval for BIVIGAM and ASCENIV in late 2019, the discussion has really been around, okay, fine, you've got Igs. You've got differentiated Ig with ASCENIV because of the donor pool and the way you standardize the antibodies for respiratory viral pathogens. BIVIGAM, good solid product, great data, you've optimized the process. But if we put a patient on this product, how do we know that you're going to have supply next month and the month thereafter and the month after that? And this has been something that I think is unique to us as we started our commercial rollout. And look, it takes us 7 to 12 months to produce a batch of these drugs. We're no different than any of the larger global companies. It takes them 7 to 12 months to produce a batch of product. So we've been manufacturing with regular throughput, building upon that throughput quarter-over-quarter since probably the middle third quarter-ish of 2019. So we have been putting more plasma into the tanks every quarter. We've been building more inventory. We've enhanced our supply chain, if you will, with additional raw material suppliers, additional testing labs to ensure a more regular and routine FDA release schedule. As you know, maybe it's new to some others, every batch of immunoglobulin that ADMA produces under the FDA CFR, they're required to release and review every batch. So we get all the tests together. We send it to the FDA. And I think FDA, in the wake of COVID, is starting to get more comfortable and there's more predictability with respect to the timing around batch releases. So I think when you put all of this together from a customer standpoint, we're in a position where we've been able to demonstrate about over 18 months of continuous manufacturing, routine FDA lot releases and our inventory number continues to build. It's interesting because it's not typically a sales tool, but some of our reps and I and Brian have gotten on the phone with large and small alternate site providers as well as hospital groups and have talked about, look, you can be sure we've got this inventory because it's growing, look at our balance sheet. And I think that we are able now -- I think we've earned the trust of a number of large, medium, small, massive home care providers all the way down to independent infusion clinics and independent doctors' offices who infuse Ig. These are sticky books of business. These are patients that need the product, again, as I said, every 3 to 4 weeks. And I think we've been able to demonstrate over the last 18 months that we've been commercially producing and releasing batches that we're here for the long haul and any prior experience you may have had with products that came out of this plant prior to ADMA's acquisition of these assets in 2017, they're done. The conversation is one that we've got inventory. We're building inventory. We're building our safety stock. I think investors are going to see that inventory continue to build quarter-over-quarter throughout 2021 as well as you're going to see top line revenues growing quarter-over-quarter. We're doing it responsibly, and the customers are certainly engaged. A point that was made on some earlier calls, some of the larger fractionators have said publicly they're not taking on any new customers right now. They are at capacity with their throughput. They have contracts and other things on allocation. And obviously, we're a small producer. Our plant has the capability to supply 1 million to 2 million grams of Ig into the market. It's about 1% to 2% of the total Ig utilization. But we're here to service customers that can't get access to product. We're here to service the customers that are looking for another supplier because they've been cut back from a -- maybe one of the other larger providers. So the conversations are going both ways, Anthony. We're getting inbounds. We're still pounding the pavement. We've got more reps in the field than we've had before where we're bringing another 2 on. I got another interview today, but everybody is excited about the person. But we're going to have about 7 reps in the field, which is great. We're building our medical affairs team. You see us at the medical conferences. The business is growing. It's slow and steady. The demand for Ig has not changed. And I think that, that's a real key point here is that we, as an industry, are doing our best to continue to keep up with the pace of prescriptions, and that demand continues to grow.

Very helpful. And we'll jump into BIVIGAM in a moment. To round out the discussion on supply, certainly there's been some activity on -- with ADMA as it relates to the Knoxville, Tennessee center. You secured FDA clearance there. But also the Kennesaw facility, you can now sell plasma into Korea. And I believe you also cleared a hep B program out of that center. So maybe a bit on Knoxville, what we should be expecting as that center gets up and running? And then the implications of plasma sales into Korea out of Kennesaw?

Sure. Look, we see an opportunity in the market with a lot of the acquisitions that have gone on of independent collectors and some other smaller collection organization. There's a void in the market. We've had a relationship with some South Korean fractionators in the past. And what can I say, they like the way we do things, so they came back to us. It's an opportunity for us. Look, we -- first and foremost, we are building out our collection centers to really benefit our production throughput and our forecasted growth between now and peak sales of $250 million forecasted for 2024, but there are some ways for us to be opportunistic. With respect to the Korean Ministry of Food and Drug Safety approval, it starts with one center. We now have the blessing to sell plasma into South Korea, which we plan to do, as well as the hepatitis B program. As you know, we have now BHP. It's a product that we acquired in the asset acquisition back in 2017. It's a good product, hyperimmune product, nice margins. It's sort of stable, stable opportunity for us. We think there could be some growth opportunity. But at the present time, we have a contract with Grifols to supply us with 100% of our need for hepatitis B plasma. By getting an FDA approval for running our own hyperimmune collection program, it's not simple. You have to do the test, you have to submit the application, the FDA has to review it. So now we can supply a portion of our needs ourselves if we have to, but we can also supply hepatitis B plasma now in the U.S. as well as to South Korea. So hyperimmune plasma typically sell to the premium for normal source. I don't know what Matthew this morning -- I wasn't able to hear his talk, I'll listen to the replay. But a unit of normal source is trading in the spot market anywhere from $180 to $200 or so, whatever you can get for it. Hyperimmune plasma typically sells $300 to $500 per liter. So we look at this as an opportunity for us to look at you, look at other analysts and investors and say, we are enhancing the supply chain in all areas to make sure that as God forbid something happens, we've got the ability to self-supply. So I think that there is an opportunity for us to generate more revenue out of our collection center division. I think that there's enhancements to our supply chain that can be realized by collecting all types of plasma for our own use. And we're just excited. We're doing everything that we're supposed to be doing, Anthony. We're building a company for the long term. We're building a company that is going to become a player on the global stage. We're focused on the U.S. right now. We're working with other partners around the globe with our intermediate fractions that we generate revenue from. So we have all the plans in place and we're executing really, really well to build a mini global plasma company. And slow and steady wins this race. And we're going to continue to deliver on quarter-over-quarter top line growth, building that inventory going forward.

Final to close out on the supply side. Just a recap of the broader ambitions for the plasma collection side of the supply chain within Haemonetics. I think this brings you up to 3 FDA-cleared centers. I know that in the capital plan, there's a scenario where you continue to build out centers. How many centers ultimately does the company plan to have? What is the time frame once you get there? And how does that play with the Grifols supply agreement?

Sure. So I'll touch on Grifols' supply agreement. It runs through -- the initial term runs through June of '22. Grifols has been a great supplier. We have a great relationship with the principals of Grifols, and we work well together. We don't see any reason why that supply agreement would not be extended. We have 2 2-year extensions in that agreement. And again, they've been supplying us all throughout COVID on-schedule, fair prices. And again, they really are doing a great job for a smaller player in the industry. And we take our hat off to them and we thank Grifols very much. With that being said, it's not 100% of our capacity. It supplies a portion of our capacity. And each plasma collection center pre-COVID, we said they can collect anywhere up to about 50,000 liters per year. In the era of COVID with the restrictions that FDA has on collection centers with respect to social distancing and the beds being spaced 6 feet apart and other restrictions around donors in the center, we're thinking in the upper 30s, low to mid 40,000 liters per center. As you mentioned, we've said up to 10 centers over the next 3 to 5 years. Brian and I have been modifying the way that we're explaining this. Just to correct one thing that you said, Anthony, we have 2 FDA-approved centers right now, not 3. We have another one pending. And we plan to have 2 more applications -- at least 2 more applications on file this year. Brian cracks the whip on our centers and we're trying to do it faster, but we're going to have at least 10 centers under our belts within the next -- what are we saying now, Brian? How long?

Call it, the next 2 to 3 years. Just to put a little color and context on it, this time last year, we had 3 centers under our corporate umbrella. Now we have 7. We originally set list -- this time last year, we said we would have 5 to 10 centers over the next 3 to 5 years, and we've essentially taken the 5 away. We've already surpassed that. We're at 10 now. Again, doing the math, typical plasma center, call it, post-COVID 30,000 to 40,000 liters. We have a 400,000 liter plant. And that math subscribes to about a 400,000 liter supply chain of raw material that we'd be able to bring in from our plasma centers. And they're doing a great job. We're finding great locations, very favorable lease terms. It's very encouraging from what we've seen over the past, call it, 6 to 12 months.

It's really been amazing. And I know it's an n of one, but our center, they typically take 12 months from the time that we file the BLA for an approval. And again, we take our hat off to the FDA. Look, they're familiar with us. They're familiar with our procedures. But they were able to have that center fully reviewed and approved within 6, 7 months of us filing the application. So we look at this as a benefit. We think that if that were to continue, we could see some upside case on the ability to have plasma either for sale or to expand manufacturing capacity. And as I know you're aware, we've got these FDA decisions pending in the middle of this year for the expansion of BIVIGAM's plasma pool scale, taking it from 2,200 liters to 4,400 liters as well as bringing our fill/finish in-house. But when you couple the capacity expansion potential decision in the middle of this year by FDA, coupled with our ability to bring some of these centers on a little faster, we're not ready to revise anything at this time, but at the appropriate time, once the approvals are in and we've got more visibility, there may be upside to our $250 million top line peak revenue and time line to get to profitability.

It's a good segue into BIVIGAM lot expansion and fill/finish. And so maybe a quick recap on what lot expansion can do for your manufacturing process. What fill -- in-house fill/finish can do for the timing to release batches? And so we'll start there and then we'll talk about timing to implementation, but maybe a recap on the benefits of lot expansion for BIVIGAM and the benefit of bringing fill/finish in-house.

Absolutely. Benefit of lot expansion, look, we've got a payroll here. We've got a payroll that sometimes makes my eyes go wow. But you need experienced people to make these products. And -- but if we can take the same payroll; we can take the same tanks; the same raw materials, excluding the plasma cost obviously; but the same filter; the same tubing; the same resins, et cetera; the same testing, if you think about it, if you're going to put double the amount of raw material plasma in, you're going to get double the amount of finished goods out across an essentially similar cost of goods, excluding the additional cost of plasma. We expect cost of goods to go down. We expect margins to go up. It's very simple. The FDA has put out a number of letters to the plasma industry, to the fractionators saying, come to us with ideas that you have to accelerate the production and availability of more Ig in your plants. And this is something that ADMA was thinking about even before COVID. And I think that during COVID, the FDA has been playing -- paying very close attention to not just ADMA, but all of us in this effort to get more Ig into the hands of treaters and into the arms of patients. So the 4,400 liter scale-up increase allows us flexibility, number one. We can produce batches at 2,000-liter scale, 4,000-liter scale, gives us some flexibility. Also as we grow and expand potential contract manufacturing opportunities, it offers 2 scales. But ultimately, it's to drive more product into the plant across the same workforce, across the same infrastructure. And in -- theoretically with the approval, you would anticipate our ability to process more plasma through this facility. On the fill/finish side of things, look, I hate relying on third party. The reason why I'm talking to you from the boardroom in the Boca Raton manufacturing headquarters today is because when you rely on third parties, sometimes things happen. And the best thing to do is to take matters into your own hands. We love our third-party fill/finish provider. They're great. They do a great job for us. But let's be realistic, I only know what I can control, and I don't have the power to influence someone else except to ask nicely. So bringing this in-house allows us more control, more visibility. We don't have shipping costs. We don't have insurance risk of loss. We don't have to wait for additional samples to be taken and sent back for identification. The amount of time it takes to go from bulk drug substance to finished product is going to be reduced. I don't have the total figure for you, Anthony, but it could be reduced as much as 1, 2, maybe even 3 months off of that 7 to 12 month time frame. We're -- we've said to you in the past, we're about 10 to 12 months production cycle time. It would be really nice and it would be a real benefit to our working capital if we could be in the 7 to 9-month range. So we're hopeful and optimistic that we can shave some time off because we have control. Additionally, and I love my machine, the Vanrx machine. Great machine, the yields are much better. There are no destructive weight checks. The way that the machine operates, there are less inherent loss in the process. So we think we're going to see improved yields in finished goods, lower costs. And our capacity, even with the scale up, at full scale, Anthony, from what my statistical modelers and supply chain forecasters have done, they've shown me that we probably will only use about 50%, maybe 60% of the Vanrx machines' throughput capacity. So that allows us to have 40%, 50% capacity available for third parties. The one thing I've heard over the last 2 weeks on the financial news media when I'm able to get Cramer and some of these other programs on, they talk about the vaccine manufacturers are sucking up aseptic fill/finish capacity all over the globe. There is a shortage. So we are in -- we, upon the approval of this machine, in theory, we've done CMO work, CDMO work for clinical stage, commercial stage companies before. We think that this also gives us an opportunity to become a third-party aseptic fill/finish provider for clinical or commercial-stage companies because it's being done in our GMP FDA-approved facility.

Couple -- we have a few moments left. One, maybe for you, Brian, and then I'm going to hop to ASCENIV, but just timing on the BIVIGAM conformance batch lots being released. Is there an update there? And then when we think about ASCENIV, the company secured now a J-code. Is that J-code similar to the prior pass-through C-code? And sort of how does this benefit ASCENIV?

Brian would take on the conformance.

Yes, sure. So the conformance batches, we manufacture the conformance batches throughout 2020. And as everybody have seen in our financials, we did expense those batches because they're not FDA-approved yet. Once we get FDA approval, achieve FDA approval and hopefully in the middle of '21, we're going to be able to sell those conformance batches at 100% gross margin, so be on the look out for that. I think we'll see some improved margins throughout the second half of '21.

On the ASCENIV J-code, Anthony, it's ASP. ASP for ASCENIV -- the last published ASP is $909 per gram. CMS Medicare is reimbursing at ASP plus $6. A J-code, as far as we understand, should be in line with the current reimbursement rate under the C-code. This extends our ability to secure reimbursement. It extends our ability to ensure access to the product by the caregivers and for the patients who are being prescribed it. We're seeing utilization of ASCENIV in the inpatient setting inside the hospital. We're seeing utilization in the outpatient setting. And quite frankly, with the backdrop of COVID-19 and the unique antibody profile from blending this plasma that we tested from donors that have levels of antibodies to respiratory syncytial virus in this panel of other respiratory viral pathogens, blending that with normal sourced plasma, I think that if you look at the asceniv.com website, you can really understand that not all PI patients are created equal. There are a lot of different risk factors there. And I think that clinicians are really starting to stratify risk in their population. And we're seeing people move on to ASCENIV. Quarter-over-quarter, we're seeing growth there in the outpatient setting. And now with this permanent J-code, there's no risk when you put it through with any of the miscellaneous codes that -- and you could be reimbursed at a potentially different price with this J-code, with the published CMS reimbursement. And we feel confident that, that should continue.

And maybe spend one moment, we're almost about half hour here, just on R&D. Earlier this year, pneumococcal pneumonia was presented in a poster. There's also other efforts internally at ADMA. So maybe just a quick update on the R&D front.

Sure. I want to -- I don't -- I want to confirm, Anthony, that we are laser-focused on getting this company to profitability, enhancing the supply chain, getting to profitability. So the R&D that we do do, we do it for 2 reasons. Number one, we've got a lot of smart people here. We've got a lot of know-how. We've got a lot of expertise. We know how to develop assays. We know how to develop novel formulations by blending different types of plasma together and forming these unique compositions, if you will, from a plasma pool perspective. We want to continue to show the scientific community, the medical community as well as the investment community that we have other ideas. We're not a, if you will, one or two trick pony that's just going to do this. There are other opportunities here. I think we've learned that from the COVID-19 space that there are a whole host of different infectious diseases where there are no potential treatments. Strep pneumonia is the leading infectious cause of death globally. In the era of widespread vaccination, go figure, there are plenty of vaccines of Strep pneumonia. So we've come up with a novel vaccination strategy. We published data on that vaccination strategy. We're now able standardize a hyperimmune. And the recent data that we published talks about that there are unmet medical needs throughout the developed world as well as the emerging world. And ADMA is a company with the assets. And when we are profitable, we have the ability to even take this to a much higher level than the numbers that we're talking about now from a revenue generation standpoint. About 70%, 80% of our throughput today is BIVIGAM. The goal would eventually be to replace all of the BIVIGAM production, say, with novel unique hyperimmunes filling a certain niche, but you can't get there until you get to profitability. So we're laser-focused on enhancing the supply chain. We're pushing forward. From an R&D perspective, someone mentioned to me earlier, we've got a few ongoing post-marketing commitment pediatric study, safety study that the FDA requires for the CFR. So you'll see a little spend there, but really the amount of capital that we're investing into R&D right now, it's not a big-ticket item. The big-ticket items are putting money to work from capital expenditures for building out the plasma centers, expanding capacity, fill/finish and growing the commercial team to generate more revenue.

And with that, we are bottom -- we're at the bottom of the 30-minute slot. We want to thank you, Adam, thank you, Brian, for joining us. We wish you well, and we'll speak soon.

Thank you.

Thanks for putting us on, Anthony. Thank you to the Jefferies entire banking analyst team. We appreciate it.

Thanks.

Everybody, get your vaccine. Take care.