ADMA Biologics (NASDAQ:ADMA) Q2 2020 Earnings Call

0:00 Good afternoon and welcome to ADMA Biologics' second quarter 2020 financial results conference call on Wednesday, August 5, 2020. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being recorded at the company's request and will be available on the company's website approximately two hours following the end of the call. At this time, I would like to introduce Michelle Papanastos, Managing Director of Argo Partners,

0:35 Welcome, everyone, and thank you for joining us this afternoon to discuss ADMA Biologics' financial results for the second quarter 2020. I am joined today by Adam Grossman, President and Chief Executive Officer, and Brian Lenz, Executive Vice President and Chief Financial Officer. During today's call, Adam will provide some introductory comments and provide a corporate update and then Brian will provide an overview of the company's second quarter and six months and to June 30th, 2020 financial results. Adam will then provide some brief summary remarks before opening the call up for your questions. Earlier today, we issued a press release detailing the second quarter 2020 financial results. The release is available on our website at www.admobiologics.com.

1:24 Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represent the company's intentions, expectations, or beliefs concerning future events which constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to factors, risks, and uncertainties such as those detailed in today's press release announcing this call. and in our filings with the SEC which may cause actual results to differ materially from the results expressed or implied by such statements. In addition, any forward-looking statements represent our views only as of the date of this recording. It should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update any such statements except as required by the federal securities laws.

2:18 We refer you to the disclosure notice section in our earnings release we issued today and the risk factors section of our 2019 annual report on Form 10-K and our second quarter 2020 10-Q, which we expect to file following this conference call for a discussion of important factors that could cause actual results to differ materially from those forward-looking statements. With that, I would now like to turn the call over to Adam Grossman. Adam?

2:44 Thank you, Michelle. Good afternoon, everyone, and thank you for joining us on this afternoon's call. Thank you for joining us. Thank you for joining us today. We are working on a number of early stage development activities at the present time targeting COVID-19, including testing assays, as well as potential treatments with differentiated plasma-derived therapies.

4:02 As we progress with these R&D activities, we will be sure to inform our stakeholders. We thank you, our shareholders, for your continued support and commitment as an important part of the ADMA Biologics team, assisting us to pursue forward-thinking research and development activities with the promise and power of plasma-derived antibody products. Thank you. Now I would like to review progress in the second quarter and some of our recent milestones and achievements. At the end of June, we announced the opening and first collections at a new plasma collection center. We have successfully submitted the accompanying Biologics license application to receive U.S. FDA approval for this center Thank you very much.

5:14 and these investments into ADMA BioCenter's business unit are anticipated to support ongoing production and growth into the future. As many of you are aware, during the second quarter, ADMA joined the COVID-19 Global Plasma Alliance, a plasma industry collaboration led by CSL and Takeda that was established to accelerate the development of a plasma-derived hyperimmune globulin therapy for COVID-19. As an alliance member company, Adam's whole and own subsidiary, Adna Biocenters, has been collecting and providing COVID-19 high-titer plasma to the Alliance from individuals who have recovered from COVID-19 infection. We are truly grateful for all of the donors who continue to do good for others and donate their plasma.

6:01 We need many more donations as an industry, and we encourage all U.S. citizens to make a difference and donate your plasma. Thank you for joining us today. Thank you for joining us. Thank you very much.

7:25 Adma must not lose sight of the fact that building brand loyalty and ensuring that our patients need not worry if they will have their IG supply next month or the months thereafter is of paramount importance for the long-term success of our business. We are a company committed to responsible inventory management and treat our prescribers, patients, and distribution partners' needs as a top priority. As we continue the commercial rollouts of Biv again and Ascentive, as well as continue to promote the use of non-BHB in the face of the logistic and engagement challenges due to COVID-19, our company's grassroots promotional efforts are starting to pay off. We've been setting the stage for building long-term brand loyalty and company awareness in a market that has been dominated by large players for decades.

8:13 We are building a business one patient at a time. Thank you very much for joining us. Thank you very much. Thank you for joining us.

9:33 Thank you for joining us. These delays were experienced during the latter part of the second quarter, which have been resolved during July. In response to these delays and in partnership with the FDA, we rapidly identified and added additional release testing laboratories to our approved consortium listed in our drug approval documents.

10:21 We believe that we completely resolved this issue, and we do not anticipate any additional testing or batch release delays going forward. As of mid-July, we began receiving FDA releases for several completed product badges with our new testing laboratories data. As we'll be seeing in our second quarter 2020 10Q, our finished goods inventory has increased 75% to $9.1 million since year-end December 31, 2019. This translates into having more product badges ready for commercial sale as soon as the testing results are received. Thank you very much. Thank you for joining us.

11:51 Thank you for joining us. We also purchased and installed a new aseptic filling machine, a VanRx SA25 work cell, and manufactured four conformance batches of Bibigam at an increased scale that will allow us to ultimately manufacture at twice the volume compared to the scale that is FDA approved and in place today.

12:41 These important initiatives are designed to reduce operating costs, improve our overall margins, and provide for faster production cycle turnaround time. providing the company with increased control and independence from third-party vendors and contractors. We remain on track to submit the appropriate applications to the FDA during the second half of 2020 and into 2021 and expect to begin benefiting from our supply chain investments as early as mid-2021. As we progress and make these regulatory filings, we will report any material news as it develops to our shareholders. Like many other companies in the life science sector, we experienced our share of COVID-19 challenges during the second quarter. In addition to the delay in expedient resolution of the final GMP product release testing that I mentioned earlier, we also experienced certain COVID-19 related impacts to other areas of our supply chain, as well as our commercial engagement efforts.

13:40 As a result of past state and local shelter-in-place orders, we experienced lower than normal donor collections at our FDA-approved plasma center during the second quarter. During this early part of the third quarter, we have already observed an increase in plasma collections compared to the second quarter in 2020. We also experienced delayed shipments of non-plasma bore materials, source plasma from our contracted third-party suppliers, as well as delays in deliveries of personal protective equipment, reagents, and supplies used in the manufacture of our products. During the quarter, we observed certain impacts to our customer engagement initiatives. Thank you for joining us. Thank you for joining us.

15:16 Thank you very much. Congrats to the team, if you're listening, for achieving this great milestone. And with that, I'll turn the call now over to Brian Lenz, our CFO, to review the financials. Brian?

15:54 Thank you, Adam. Since we issued a press release earlier today outlining our second quarter 2020 financial results, I'll review some of the highlights. For the three months ended June 30, 2020, total revenues were $7.8 million compared to $6.6 million for the second quarter of 2019. This represents an increase of approximately $1.2 million, or 19%. The favorable revenue realized during the second quarter of 2020 was primarily due to sales of Bibigam, Ascentive, and plasma-derived intermediate fractions compared to no sales from these products during the same prior year period. Recall, both Ascentive and Bibigam were approved by the FDA in April and May of 2019, respectively, and the contract for certain plasma-derived intermediate fractions was executed in early 2020.

16:43 Subsequent to these FDA approvals of Ascenta and Bibigan, our Boca facility began the commercial production ramp-up during the second half of 2019. As Adam mentioned earlier, our finished goods commercial inventory has increased by 75% from $5.2 million as of December 31, 2019 to $9.1 million as of June 30, 2020. Please keep in mind, in accordance with generally accepted accounting principles, the value of our inventory is stated at our cost. This increase reflects our stated manufacturing cycle time from the second half of 2019's commercial production ramp-up, and we look forward to now being in a good position with solid inventories to continue adding customers, distribution partners, and prescribers over the coming quarters, and potentially generating considerable increased revenue from Thank you for joining us.

18:00 Total revenues were $18 million compared to $10.1 million for the six months ended June 30th, 2019. And this represents an increase of $7.9 million or nearly 80%. The increase in revenues was primarily attributable to sales of Bibigam Ascentive and plasma-derived intermediate fractions, none of which again were available for commercial sale during the same prior year period. Consolidated net loss for the six months ended June 30th, 2020 Thank you for joining us. and accounts receivable of $3.5 million at December 31, 2019.

19:03 ADMA's net working capital as of June 30, 2020 was $130.1 million compared to $71.8 million as of December 31, 2019. With that, I will now turn the call back over to Adam for closing remarks.

19:20 Thank you, Brian. ADMA has made excellent progress during 2020 thus far. on its key corporate priorities, including initiatives to strengthen our supply chain, which will greatly benefit the company over the long term by reducing operating costs, improving margins, and shortening production cycle timelines. Given the unprecedented macro market conditions in the U.S. and the COVID-19 effects being experienced by us and our third-party vendors and suppliers, we believe these effects are temporary and that our future is bright and ripe for growth. While we have experienced some variability during our first year of sales, especially since we are commercializing our products on the backdrop of the COVID-19 pandemic, we are highly confident that revenues for the second half of 2020 will be considerably higher than that of the first half.

20:11 And most importantly for our shareholders, we remain on track to achieve our stated goal of generating an excess of $250 million in annual revenues over the next three to five years. Thank you very much. to work relentlessly to ensure you have your immune globulin available when you need it. You can count on ADMA Biologics as a reliable and committed provider of immune globulins.

21:02 We extend our sincerest gratitude and commend the efforts of the entire ADMA Biologics team that continues to rise to the challenge of navigating the company through this burdensome period in order to ensure that the critical plasma derived antibody rich products we produce are available Over the long term and continuously for our patients and customers. I truly thank all of you. With that, we will now open up the call for your questions. Thank you. Operator? Sure. Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of Anthony Patron with Jefferies. Your line is open. Please go ahead.

21:55 Hey, this is Zach on for Anthony. Can you just talk about how many batches were locked up and delayed due to FDA testing?

22:07 Thank you for joining us. and unfortunately they were just unable to get test results to us. And we worked very, very rapidly with FDA. We're really pleased that the issue is totally resolved now. And we've resumed lot releases and we are back in regular lot release land, if that works. But everything has been resolved completely.

22:55 Okay, that's helpful. And then looking at the second half, how should we look at expenses going forward?

23:03 Brian?

23:06 Sure. So as we previously mentioned, we manufactured four conformance lots and we disclosed it's about a little over $6 million for those batches. I would say that there are some extraordinary items in the cost of sales, but as we continue to grow the organization, grow the plasma operating centers, you would look at it pretty comparable to where we had the first six months of this year, excluding the conformance batches.

23:36 Okay. And then batch testing on Bivigam. Can you just give us an update on that?

23:43 Batch testing on Bivigam for releases, or are you talking about the capacity expansion project?

23:48 The capacity expansion.

23:50 Sure. So I think during the quarter we produced some additional conformance batches. and we are on schedule. As I said in my prepared remarks, we do have plans to submit the applications for a number of our ongoing supply chain robustness activities including the fill finish machine for all three of our products as well as the capacity expansion for BIVIGAM taking it from the already FDA approved scale of 2200 liters to Thanks, Zach. Thanks, Zach. Thank you. And our next question comes from the line of Elliott Wilbur with Raymond James. Your line is open. Please go ahead.

25:00 Thanks. I have trouble with that name myself. Just specifically following up on the actual filing process for the scale-up, Adam, I presume that that would qualify as a prior approval supplement and somewhere in the range of four to six months for final FDA approval. Is that correct?

25:23 That's correct, Elliot. I think the way to answer that question, we should be looking at this as it's a standard prior approval supplement, so we will put that on file, and then the FDA would have four to six months. But I'm optimistic that there are ways to expedite certain reviews with FDA during this period. I think should COVID-19 persist, Thank you very much. for budgeting, forecasting, planning purposes, we are looking this as, that's correct, it is a standard PAS prior approval supplement to amend our existing FDA approved BOA to allow us to manufacture at that scale.

26:29 Okay, and then with respect to Ascenev, obviously this is a very detailed cell and to some extent that's kind of been hindered in the current environment. But just any anecdotes that you can offer in terms of a direct physician interaction, detailing the product, discussions with P&T committees, just trying to get a sense of sort of where you are kind of here in the early stages of that commercial launch.

26:59 Sure. I'll just come straight out and say P&T committees, getting everybody that you need is definitely hard. With that being said, we've had a number of customer engagement meetings one-on-one at academic centers, at regional medical centers, as well as in the outpatient setting for incentive. And I think that in light of the current environment and the current situation with the backdrop of COVID-19, and the increased awareness, if you will, and understanding that antibodies that are in immune globulin and that are naturally occurring antibodies are helpful when trying to manage, prevent and or treat different types of infectious diseases. So we certainly have had a number of inbounds requesting information through our medical affairs department.

27:49 We got a full library of information that we can share depending upon the patient populations. As well as in the outpatient setting, we're seeing that there are certain clinicians out there who are looking at different risk factors that their patients have, looking at environmental risk factors. And if you've seen, Elliot, the Ascentive.com website, Thank you for having me. and that roughly 90% of patients who are on IVIG still have problems with certain chronic persistent recurring infections.

28:41 So we're seeing some patients receiving authorization and third party payer approval to switch from standard IG on to Ascentive and we're very hopeful that with this recent announcement that we've received Thank you very much. We're keeping it all ready because we think we're going to come through this and be stronger as a country and as a global society, and we'll get the message out there.

29:33 But we're doing it grassroots, Elliot. We're able to engage one doc at a time, one treatment center at a time, and we feel that we are making progress.

29:43 Thanks. Just want to ask you a follow-up question to one of your last points there with respect to the recent JCODE issuance. Ultimately, how important do you expect Medicare to be in terms of the incentive book of business. And then with the issuance of that code, and correct me if I'm wrong, I mean, that basically allows clinicians to essentially use the product without any sort of prior authorization in the Medicare setting. Is that correct?

30:14 So I think, and so I guess your first part of the question, you know, there are a number of patients that receive IVIG who are on Medicare. What percentage of assent is business? It's important. Every patient is important to us with a drug-like assent. With respect to payer, to answer your question, the short answer is yes, you're correct. However, with immune globulin, typically 90% of immune globulin starts, whether they're on label or in an evidence-based use, they typically do require some type of prior authorization. So from what our sales force has been able to do is they work hand-in-hand, and our medical affairs force provides any sort of papers in the literature, and we're working hand-in-hand with the treaters to achieve the prior authorization needed.

31:07 But to answer your question, in theory, patients will now be able to receive Ascentive if they have a prescription for intravenous immune globulins and the doctor feels that Ascentive is the right product for their patient.

31:22 And then just last question with respect to COVID-19. There's been some investigator-initiated studies looking at standard IVIG. Curious if you've heard any anecdotes with respect to either further studies or any stories of success there. and whether or not you've seen any utilization of incentive in COVID-19 patients given that there's a certain percentage that also tend to have a fairly high prevalence of RSV and other respiratory illnesses.

32:10 Sure. Great question, Elliot. Thank you. I've read the same data as most of you and it seems that Thank you very much. Manage These Infections. Now, this is outside of the package insert labeling, and admin does not have any ongoing trials looking at these uses. I think the way to answer your next question, I mean, I hear a lot of things from our sales force. I hear a lot of things from a lot of people.

32:56 And I don't think it's, you know, I don't have a way to confirm what they're using Ascentive for other than what people are telling me. So I think the best way to answer your question is our products are commercially available. Thank you for joining us. And I think that it's reasonable to assume that IVIG, including ADMIS products, based on availability, will be used in these hospitals.

33:47 I think that's the best way I can answer your question.

33:54 Okay, those were the questions. Thank you. Thanks, Elliot, very much. Thank you. And our next question comes from the line of Ram Samalaju with HC Rainwater. Brain White, your line is open. Please go ahead.

34:08 Thanks so much for taking my question. So a general question which had been on my mind for quite some time. I was wondering if you could comment on the implications for ADMA of the shift from intravenously administered immunoglobulin to subcutaneously administered immunoglobulin. and if you think that that might potentially present some benefit or opportunity to ADMA. And also specifically if you could comment on the potential for incentive in particular to be in the subcutaneous.

34:39 Sure. Thanks, Ram. Hope you're well. So ADMA at the present time does not have any FDA approved products that are administered through the subcutaneous route of administration. Our products are administered intravenously or with knob EHB intramuscularly. I think that we can debate until the cows come home about some of the benefits of giving immune globulin for certain patients intravenously compared to giving the benefits of immune globulin subcutaneously. And I think with the patient population that ADMA has its labeled indication for, which are patients with primary immune deficiency, We believe that the IV route of administration certainly allows for rapid bioavailability of the antibody, and it's been shown to work for 20, 30 years.

35:31 We look at the data and we look out there, and subcutaneous route of administration certainly offers convenience. It certainly offers the ability for patients to Thank you for joining us. that the payers have been approving at-home IV administration. So from our perspective, we don't see any impact.

36:17 And the last thing I'll say is that when you look at the data, and I was just on a panel, it feels like just, but Elliot's not on the line anymore, but it was at the Raymond James Conference, and I was under the, at least the data that I've seen, is that in order to achieve the same IgG trough levels, Thank you very much. Thank you very much.

37:22 Okay, and then a couple other minor detailed things. I was wondering if you could just verify that the new filling line expense that contributed to the increase in R&D spending is a non-recurring item, and then also if you could specify what percentage of the 2Q revenue base came from intermediate fractions.

37:45 Okay. Sure, I can take this, Ram. The R&D, look, throughout the year we're going to have various projects in R&D, but this should be the bulk of the expenses from this fill line. With regards to breaking out revenues, we look at Bibigam, Ascentive, NaviHB, and our intermediate fractions as all part of our collective aggregate revenues and the total amount of revenues for those products. We do not break our individual products separately.

38:19 The intermediate fractions is probably a minor contributor, right, if we were to characterize it qualitatively?

38:26 We previously announced in early 2020 that we entered into a long-term supply agreement with a third-party customer that we would be selling intermediate fractions in the several million dollars this year, and then it would grow to $10 to $15 to $20 million over the next two to three years' annual growth. So I would say it's a meaningful contributor. We just signed the agreement earlier this year, and we are seeing ongoing revenue increases.

38:58 That's right. As our production ramp grows, we're going to be obviously producing more of the plasma drive intermediates for sale, and we're looking forward to it.

39:10 Okay, and then just one last one on the plasma collection volume. When do you anticipate that those could return to sort of a quote-unquote normalized level?

39:21 Well, that's a great question. If I could ask you one back, when do you think COVID-19 is going to be gone? I think that that is the question that we're all asking, right? You know, look, ADMA has exposure to this market. We've got a center that's operating. As I mentioned in my prepared remarks, and I think Brian has said too, We have certainly seen a rebound if you will from the lows that were experienced during the second quarter. already in the third quarter. So we're doing better. We feel pretty good. I think the industry as a whole is feeling better that, you know, look, the government has made a decision on the unemployment additional stipend. There are other things that have been changing around the country with respect to certain geographic regions opening up. Thank you very much.

40:35 Thank you very much. We feel very good that we're able to weather this storm probably a little bit better than some of the other fractionators that may have a bigger exposure with respect to their collections. Does that answer your question?

41:15 Yep, no, that's very helpful. Thank you.

41:17 Thanks, Ron. Thank you. And our next question comes from the line of Leland Gershwell with Oppenheimer. Your line is open. Please go ahead.

41:27 Hi, Adam. Thanks for taking my questions. Just a question or two. Just on the inventory line, you've been keeping that number pretty stable, 56 million now versus 53 back at the end of the year and 52 at the end of the first quarter. So should we expect overall inventories then to continue to remain stable, or will those also go up as you make more immunoglobulin products? In addition to the fact that the finished product inventory obviously will continue to rise as we think about that relationship.

42:00 I'll give you a very short answer, but I'll let Brian give you some more detail. Go ahead, Brian.

42:06 Sure. Leland, hope you're doing well. We think the inventory is going to continue to increase. Now that we have entered into commercial scale ramp up since the second half of 2019, as you can see, the finished goods, Thank you very much. We're anticipating $250 million in revenues over the next three to five years. You need inventory to grow to meet those numbers, and we are doing that.

42:53 Okay, great. That's helpful. I'm just wondering if you could quantify in any way possible kind of the advantages with the new aseptic filling machine in terms of both expense and margins and also times. Timelines to Finish Product. Anyway, you can quantify. I know it won't be coming online until probably mid-next year, but I just wanted to see if you could share any thoughts there. Thanks.

43:20 I mean, I think I could take a stab at this, Bri. Leland, you know, it's hard for me to give you exact numbers because we haven't really made that much in it yet. But what I can tell you that attracted me to this machine itself is that it does not use destructive weight checks. and for anybody who's been in the fill finish industry and who understands how this process works, depending upon if there's a purge vessel, depending upon if there are other types of feeder pumps and areas that go into this, there are places throughout the fill finish process that are inherent for loss. So we're really looking at this from the standpoint of there's non-destructive weight checks Thank you for joining us.

44:31 We can also expedite, if you will, the production throughput process because we'll now have all that control. And ultimately, we think that that will contribute to being able to turn our inventory into commercial product faster, maybe on the shorter side of that 7-12 month period rather than being within that 7-12 month period. So there could potentially be some additional improvements, if you will, and enhancements to overall margins, Thank you very much for joining us. IG is a very, very scarce resource, and we want to make sure that we can maximize all of it in the vial to go to patients, not to go for losses.

45:43 Great, great. Okay, thanks for taking my questions. Thank you, Leland. Thank you. And this does close today's question and answer session, and I would like to turn the conference back over to Adam Grossman for any further remarks.

45:59 Sure. I just want to thank everybody for your continued confidence and support and understanding during this time. The company is really doing great. We're really proud of the work that we're doing. And again, please, please donate plasma. It's not lip service. The only way we're going to really, really save our fellow countrymen and family members is to donate plasma. So thanks for your attention. Thanks for your support. And we look forward to hopefully seeing you soon. Take care, everybody. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.