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

Thank you, everyone, for joining us today. I'm Drew Ranieri, a medical device analyst here at Morgan Stanley. It's my pleasure to have Adam Grossman, President and CEO; and Brian Lenz, EVP and CFO, from ADMA Biologics today. Before we jump into Q&A, I just have to get the disclaimer out of the way first. But for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, Adam, Brian, thanks so much for being with us today, looking forward to the conversation.

And really as an observer of the company, it looks like there's been a tremendous amount of progress on both the commercial side and operationally over the last 12 months. So you've essentially spent kind of the last several years knocking down some barriers that came up, not because you caused them. But how are you feeling about the business overall today? Is it all about execution at this point? And really kind of what are you seeing in terms of any potential risks?

Thank you very much, Drew. Thanks for the question, and thank you to the Morgan Stanley analysts and making team for the invitation to the conference. We've been very, very good at fixing some other people's problems. And then we've learned a lot along the way, and I think that we've been able to demonstrate that the team here at ADMA Biologics, the extended leadership team and quite frankly, all the staff are dedicated and committed to providing high-quality plasma-derived products to patients in need, filling the supply and demand imbalance that has been plaguing the immunoglobulin market for decades, doing our part to provide this high-quality product to patients. So it's been a long road. And again, it was not something that was in the original business plan. But senior leadership, extended operational management, we rose to the challenge. And since 2017, we brought a biologics production facility back into compliance with FDA. We have 3 FDA-approved, immunoglobulins and hyperimmune globulin products that are all commercial with multiple vial presentations. We've expanded our raw material supply, plasma collection business segment. We now have 8 plasma centers under our corporate umbrella in various stages of construction, collections and approval. And then when you look at the manufacturing side, and I'm speaking today from our Boca Raton manufacturing campus, I mean we've executed -- I'd like to say my team has executed flawlessly. And I congratulate and commend them, and I'm proud to be the CEO of this organization. We've just this year alone expanded the capacity for BIVIGAM for its plasma pool scale, increasing it from 2,200 liters to 4,400 liters taking the total potential manufacturing throughput of our facility to approximately 600,000 liters annually, which could translate into roughly 2 million to 2.5 million grams of IG available for the U.S. market. New vial sizes, plasma center approvals this year amongst a whole bunch of other assay and other enhancements to improve costs, enhance efficiencies, turnaround times. And most recently, we announced yesterday, thank you to the FDA for giving us an approval early so that we could talk about it with you here today, but we're really proud of the fact that not only are we producers of our drug substance, but now we can manufacture drug product with our aseptic fill-finish machine. We installed this machine during COVID, and it was quite an undertaking, and we used all means necessary to bring the machine into the United States and get it operational during the height of the COVID pandemic, if you will. And we mentioned earlier this year that we needed an FDA inspection in order to receive approval, and the FDA gratefully came out to inspect us if you can be grateful for an FDA inspection. And you may have seen earlier this year, we announced 0 observations in that pre-approval inspection. So -- the business is just running really well. We've embarked -- when we did our financing with Morgan Stanley back in early 2020, we embarked on the supply chain robustness strategy, and we've hit every milestone since then. And I really commend the team here at ADMA for just continuing to deliver in the face of adversity and putting their personal challenges through COVID aside and focusing on the patients that are counting on us to deliver these drugs. So far, this year, we've had consistent top line revenue growth quarter-over-quarter, and we anticipate that to continue for the foreseeable future. The business is really doing well. The demand for IG, as I'm sure you know following some other players in the plasma collection and plasma space, the demand for IG is unwavering with COVID, without COVID. Patients require this product in order to live every 3 to 4 weeks for the rest of their life. Our novel hyperimmunes also continued to see increase in demand. And we're one of the only, if not the only public plasma fractionator that's saying we are taking new customers. We are open for business, and we anticipate having more product available to the U.S. market next year than we had this year and all the way through where we're forecasting peak revenues of $250 million or more forecasted for 2024. We anticipate consistent quarter-over-quarter growth. So we feel really proud of what we've accomplished. To your point, Drew, we've cleaned up some mess created by others, but that's long behind us. And now we've got a fully vertically integrated end-to-end producer of plasma-derived immunoglobulins and hyperimmune globulins, and we're making a difference in patient lives every day, and that means the world to us.

It all sounds fantastic. And just with your comment on the $100 million revenue run rate in the fourth quarter. Just at a high level, kind of what gives you that confidence in achieving that $25 million in fourth quarter sales? And more specifically, just maybe help us bridge the sequential improvement in guidance from 2Q, which was about $17.8 million to the $25 million run rate. It's just like over the last 3 quarters, you've beaten consensus by 8% to 10%. The average revenue increase has really been about $2.5 million sequentially over the past 4 quarters and consensus is really kind of just implying like a $1 million step up. So is this The Street just being too conservative? Or are there headwinds that we should be better appreciating with Delta or any of the COVID situation?

No. I don't think The Street is being conservative, especially when you have other fractionators out there saying they're not going to be able to produce and they're not taking on new customers. So I look at it as it's the efficiency of the ADMA operation, I think dedication of the workforce at ADMA. We haven't necessarily given the quarter guidance. We anticipate being close to a potential annualized run rate of $100 million as we exit 2021. What gives me that confidence is if you just look at the balance sheet and you look at the inventory valuation, I think as we ended the second quarter, we were roughly $100 million of inventory value. We had roughly -- of that $100 million of inventory valuation -- and again, remember, it's a 7- to 12-month production cycle. So about what, 70%, Brian, of our inventory is work in process...

It does, coming through in the next, call it, 3 to 6 months on the back half of the production cycle time frame, but the majority of our inventory has already been in production or it's going through production currently.

So I feel confident, and this is something that we've been explaining to The Street since the FDA approvals for BIVIGAM and ASCENIV in mid-2019. The inventory balance, our sales force, honestly, speaks about it too, because the inventory balance is really what gives our customers the confidence of the continuity of supply. And it gives me the confidence as the CEO to stand here in front of you and others on this live webcast, we've got the inventory. We've got it made. I mean, look, there's still things that -- there are risks inherent with biologic drug manufacturing. And please refer to our risk factors on our website for a forward-looking statement guidance. But at the end of the day, the demand is there, Drew. And when you've got the larger fractionators saying they're not taking on new customers, and we've got the product available. I mean I feel confident, plus or minus $1 million here or there at this point, whenever the timing of lot releases comes in. I think as we continue to grow, as we continue to put more product into our plant and have it coming out of the facility, we've talked about building the safety stock, which we're still currently trying to do. I think that will allow us to better guide The Street and have more predictable revenues. I think VanRx approval and the ability to control some of our fill/finish and the timing around when we're going to be filling and doing some of this testing and with yield movements and shipping problems that occur when you're sending stuff to your third-party CMO that's not in the same building, I think all of these things as we continue to operate and gain more efficiencies will allow us to have better visibility. But certainly nothing in this industry is a slam dunk. Quarter-over-quarter growth is something that takes work of hundreds of employees. And it's all 500 of us here at ADMA Biologics and ADMA BioCenters that are really made a difference in the lives of patients. But we're open for business, and we're taking new customers, and we've got the inventory. So that's why we feel so confident.

Okay. So a couple -- have several follow-ups in there. Before I do, just I wanted to make sure that -- so you got the VanRx system that's in place, you have FDA approval. I mean as you talk to investors, I mean, what are you pointing them towards in terms of catalysts as we end out -- end 2021 and even into 2022 that could give them kind of better visibility on the regulatory front or even commercial milestones?

Sure. I think it's important to stress that we have largely derisked from a regulatory affairs standpoint ADMA Biologics as an investment. I think all of the major regulatory milestones with respect to product approvals, capacity expansion approvals and fill/finish, if you will, I think that those certainly we've executed within a reasonable amount of time from what we promised. And I think, again, our story is largely derisked. I think that you can anticipate seeing normal course of business type milestones for us, expanding our plasma collection center. We've got 8 centers we say in various stages of construction and approval. We plan to have 2 more plasma centers on file with FDA later this year. We should have another 3, 4, 5 next year on file and/or approved in 2022. We continue to guide that we are going to build north of 10 plasma collection centers. In total, maybe closer to 14 or so in order to ensure self-sufficiency and navigate any potential other risks from a pandemic-related perspective. Additionally, I think other normal course potential. Again, nothing is guaranteed, but we had a 2-year expiration date on our products. We think that as we continue to get more data, more stability data, there's potential to expand the potential dating on some of our products, maybe additional vial presentations to make us even more competitive in different infusion centers or different types of patient populations that may use higher volumes of IG. But I think for all intents and purposes, we've really built this business since 2017, taking over this plant, which was not producing any products to where we are today, in the back half of 2021, it's really blocking and tackling, derisked regulatory commercial execution story. And again, not to sound like a broken record, but when our larger competitors are not taking on new customers, when our larger competitors are having to sell other plasma proteins, other finished goods alongside their IG, I think it really puts ADMA in a differentiated position where we can service the needs of the alternate site, we've got a differentiated product with ASCENIV. We feel that the way that we manufacture the product and the patents around how we blend the plasma pool and form the plasma pool and have it standardized with donors that are tested to have appropriate levels of neutralizing titers to respiratory syncytial virus and other respiratory viral pathogens, and our hyperimmune for Nabi-HB, we really feel that as a commercial organization, we're set up for success.

Great. That's great to hear. And just kind of -- you've talked briefly about the customer relationships. And just specifically on the competitive landscape side, I'd like to better appreciate or better understand like how you can win in the market. I mean, at full capacity, just doing the dumb math here, the implied -- your implied market share would kind of be in the low single digits. I mean if you get to that point, it's a substantial increase in your revenue base. But how can ADMA win in a space with just significantly larger companies at play? I mean what are you going to do differently? Is it just approaching a different customer base? I think the vial sizes might be helpful for you to some degree, but just would love a little bit more detail there.

Someone told me earlier today not to say that this is a very durable business and that it's got a decade's long life cycle. But I think if we look historically, there's been a supply and demand imbalance with immunoglobulins for decades, plain and simple. The largest fractionators have not been able to keep up with the demand and utilization of IG. And COVID-19 certainly makes that harder. I think that there have always been -- and there's always been a need for the smaller player in the U.S. plasma space. While the U.S. may not be experiencing substantial tightness of supply, there are countries around the world that are experiencing substantial tightness of supply because -- look, the U.S. is the most lucrative market in the world for plasma-derived products and immunoglobulin specifically. So while it may be a small market share, Drew, we are an independent end-to-end vertically integrated producer of plasma-derived drugs domiciled in the United States. We've got collections that are not as impacted from COVID-19 and the border issues, which I know that you may be aware of with respect to some of the changes in view of the Biden administration and custom and border patrol. But we're not impacted by these things. So -- and not everybody wears Nikes and not everybody wears Adidas. And there's all these other smaller brands that are out there. And when you look at our core customers, we have some very, very large attractive national customers that the contracts are public, and we talk about them in our Ks and Qs. But there are plenty of smaller home infusion companies. There are plenty of other alternate site physicians' offices, alternate site areas where our sales force calls on these people. And we sell with a smile. We don't force you to buy things that you don't want to buy. We treat our customers the way that they want to be treated, in the way that they should be treated, and we help them. And we ensure their continuity of product supplies that they can ensure the continuity of care for their patients. So this has been a historically tight market for decades. I've spent my -- all my adult life, either carrying a bag as a salesperson for plasma-derived drugs and immunoglobulins and hyperimmune globulins specifically and working at ADMA on developing ASCENIV and turning this plant into a viable commercial manufacturing organization. And the one thing that remains constant is the demand for plasma globally. Raw material plasma continues to grow and the demand for immunoglobulin continues to grow. And this is really because of aging population, novel immune-modulating drugs, CAR T-cell therapy, other novel ways of treating cancer. I mean how do you support the immune system of somebody who's got secondary immune deficiency because of an autoimmune disease or some other type of drug therapy treatment. The way you do it is through passive immunity through immunoglobulin. So we don't see that stopping anytime soon. So how do we win? We win by continuing to do what we do. We win by this dedicated workforce at ADMA showing up every day, giving 110% because they know that the patients are counting on us. And as long as we stay in FDA compliance, as long as we continue to hold ourselves to an extremely high standard of manufacturing, a high-quality, safe and efficacious drug product, we're ultimately going to win because the market demand is there. And we are here to service the customers and the patients with the needs that are there. And you take all of this together and you echo some of the other comments that I made, we truly believe that we've got an ability here to maximize value for shareholders. And we've communicated that we're actively exploring all ways to explore strategic and other types of alternatives to bring non-dilutive capital into the company or potentially find ways to maximize shareholder value. And I think when you look at the fact that we are the only stand-alone end-to-end producer in the best market for immunoglobulin in the world with great reimbursement, I might add, for our drugs, we think that it's certainly -- it may not be reflected in our market cap today, but we certainly believe that there are folks out there who see the value that the assets that we put together are and we look forward to maximizing value. I sit alongside my shareholders. Brian does as well. I've got over $10 million, $15 million invested at this company over the years. My average price is well north of where we are today. And I certainly am fighting alongside our shareholders to minimize the dilution and maximize shareholder value. But the way we win, I feel like we've already won. All we have to do is do our jobs right.

Yes. We've seen -- just to add on to that, Adam. We're very encouraged from our P&L standpoint. Our gross margins are improving. Our net losses are narrowing. We've seen incrementally meaningful quarter-over-quarter, year-over-year revenue, double-digit revenue growth. And we expect that to continue to proceed in the future quarters and future years growing to the 50% blended gross margin and $250 million top line by -- in 2024.

Got it. And just on the search for even non-dilutive options in terms of financing the company, a couple of questions here. It's like -- you've talked before about having the only U.S. domiciled plants. So I want to kind of better understand, is there really a true value there from that perspective in terms of maybe a strategic buyer? And I mean you have a vertically integrated business, plasma centers feeding into your fractionation plant? I mean, is it a potential package deal? Or could you consider just portions?

We're open for business, Drew. And those that know me and those that know Brian, we are extremely creative. When we acquired this plant, we used equity and then we got a lot of that equity back at one point in time. I mean, I think if you follow the story here, we certainly are creative. We've got a board that is highly experienced in deal negotiation as well in the plasma space. Look, we offer a turnkey asset. We offer turnkey entry into the United States market, which is the market that everyone wants to be in. Everyone wants to have access to U.S. plasma. It's arguably the safest in the world. We're one of the leading procurers of plasma because we allowed -- we allow for paid plasma donation. Many countries around the world don't allow for that. And the cost to collect is just prohibitive. Especially on the global stage, when you look at the pricing of plasma-derived products, they're not the same as the U.S. market. So we're open for business. It could be some assets, it could be the whole company. It could be -- look, we've got IP that we think is quite novel for other hyperimmunes and maybe there's opportunities to out-license IP. So there's a whole bunch of opportunities that we have here. We're a creative leadership team. We're a creative Board of Directors, and we're certainly going to explore all opportunities, leaving no stone unturned. And again, when you look at the balance sheet and the asset value here, we've got over $230 million at the end of the second quarter of asset value, plant, property, equipment. And that's all at our cost. I mean, if you look at what we paid for this plant, I forgot the number, Brian, but it's on our books, what, $30 million?

Correct. All in, yes, that's correct.

You can't get 15 acres of land right now in Boca Raton for $30 million, let alone a GMP, FDA approved biologics production facility. So I think that when you really look at that and you look at what we have here and you look at what this great team in ADMA Biologics has created, the value may not be reflected today in the stock price, but I'm fairly confident that we're going to find ways to unlock this value for our stockholders. And ultimately, the staff here at ADMA should be very proud of what they're building and the patient lives that they're impacting because ultimately, that's what happens. That's our philosophy and our culture here at ADMA. If you make good products that help people, all the good things fall into place. And every day, we wake up and we fight the good fight, and that's delivering a high quality product to patients and the demand is there.

Got it. And we're coming up to the top of our time here. But just to sneak in maybe a couple of questions. With your current facility in Boca, I think it supports up now up to 600,000 liters of capacity, especially with the VanRx system. So you mentioned it's expensive to buy land in Boca, as I would imagine. So I mean, have you reached full capacity? Are there still additional items that could come into play to increase that over time? It's just looking at some other fractionation plants, they tend to be into the million. So just do you have that opportunity to add on any modularity to the capacity?

So I can tell you, we certainly have not reached our peak capacity. The guidance that we've given for 2024 is roughly $250 million in top line revenue, and that would be at about 400,000 liters plus capacity. So when we got the approval for 4,400 liter in April of this year, we revised guidance to say that after 2024, we believe the potential could be north of $300 million for the capacity. So we're not there yet. We will get there by 2024, but we're at a fraction right now of the 600,000 liter capacity. We expect it to grow roughly what, Brian, 20%, 30% year-over-year until we get to that 400,000 liter plus run rate in 2024. So hopefully, that gives you a little bit of color there. We've got a couple of acres of land right behind out those windows there that is undeveloped. I haven't spoken to the City of Boca Raton yet about what we can do, but I do feel confident that at the right time, and it's certainly not happening now. Our focus is on driving the profitability, Drew. So I don't want to -- I don't want people to think just because we're thinking about this or we have an idea of what could be done that we're doing it. We're not doing it yet, but you could blow out the back, you probably could add another 50,000, 100,000 square feet on to our existing manufacturing plant, put more tanks, put more filter presses, put more centrifuges, put more VanRx machines in. But I think where we are today, look, we're building an infrastructure to support a 600,000 liter manufacturing capacity end-to-end. That, in turn, will be a $300-plus million revenue opportunity. And again, with 40% to 50% blended gross margins, and I think we're being conservative there, bringing roughly 25%, 30% to the bottom line. I mean this is a -- are we going to be CSL, Grifols, Takeda? No. That's not the model, but we're going to be a mini CSL, Grifols or Takeda. And we're going to be a reliable supply source. And again, we offer that turnkey opportunity at the right time for somebody who: a, doesn't have a plant in the U.S., but operates in the U.S.; b, doesn't operate in the U.S. yet and wants to get immediate access; or c, they want more capacity in the U.S. because when you look at our reimbursement profile for our products and you look at our plasma centers and you look at just how we've set this business up and our great high-quality workforce that we have here, I really think that we offer lots of opportunities to a lot of potential partners into the future.

Great. Great to hear. And we hit our -- top of our time, so we're going to have to cut it there. But Adam and Brian, really appreciate the time today.

Pleasure. Thank you. Thank you very much, Drew. Look forward to continuing the conversation. Talk to you soon.