ADMA Biologics presents at Cantor Fitzgerald Healthcare Conference

[wpr101]

ADMA Biologics did a Q&A session at the Cantor Fitzgerald Global Healthcare Conference on September 17. The CEO Adam Grossman answered questions from an analyst and was joined by the CFO Brad Tade.

Some new information from the conference for my understanding of this company was that they have no competitors for this immunoglobulin (IG) based treatment for immune disorders, and that it would take many years for even a large company to get into this line of business. Their ASCENIV product is made from the same base materials as BIVIGAM, however ASCENIV is 25x more profitable based on selling prices. The difference in the medications is that ASCENIV treats the more severe cases of immune disorders.

Patients are also staying on the treatments much longer than the CEO expected as they thought patients might use them for 6-9 months, but they are seeing patients continue year to year. They have no issues getting payers/insurance to cover this medication. Visibility of demand and their manufacturing process is clear. Additionally, covid raised the awareness of immune compromised disorders and ASCENIV is seen as the best medication on the market for severely immune compromised patients.

Highlights from the conference include,

• ADMA is a manufacturer of human derived immunoglobulin
• there are 10 collection centers owned for collecting plasma and have a 600k liter manufacturing capacity in Boca Raton
• an analogy was given of IG being a healthy immune system in a bottle
• making the majority of their product in house but still work with third parties to augment the supply chain
• full visibility and control into the manufacturing cycle
• the cycle of plasma collection takes about 6-9 months from collection before resulting in a commercial drug
• unique visibility into forward looking revenue that can be generated
• products include, NABI-HB for prevention and management of Hepatitis-B infection, BIVIGAM standard intravenous IG treatment, ASCENIV home grown superstar product for primary immune deficiency
• production cycle time is predictable
• covid actually helped bring attention to immune compromised patients
• commercial sales have been happening since since half of 2019
• grass roots medical education efforts at the time have paid off
• visibility of the demand side came to fruition in the last 12-24 months
• label on ASCENIV is similar to other products, but outcomes and real world evidence shows superior outcomes
• patents on testing methodology to identify donors
• proprietary micro neutralization assay
• the plasma needs to meet certain criteria to collect
• IP around formulating the plasma pool and resulting composition runs through 2035
• multi year path for anybody to compete, estimates 4-5 years for someone to get into a competing business, and the CEO detailed why each step takes so long
• in this business since 2007, so it’s not something new for ADMA
• nobody we are aware of on our heels for competition
• patients stories are impressive and very proud of this, not something detailed in earnings calls
• want investors to understand the use case
• very focused on refractive, co-morbid very sick patients who have exhausted all alternatives
• analyst asked why patients are staying on ASCENIV so long, CEO says the length patients are using even surprised him
• figured out which are the right patients for ACENIV and payers do not push back
• “compounding demand”, checked the boxes to prove durability, highly durable and just the beginning, lot of room to grow as we collect more plasma
• patients were previously missing 200 days out of the year for school or work
• people familiar with this condition from the Bubble Boy movie, or where a person has to be isolated from the environment, and nobody has done as much as ADMA to treat this condition
• analyst mentions if you only sold and produced ASCENIV you could be doing 2B in revenue or 5x the revenue of today
• CEO says capacity is 2.4M grams @ $9.60/gram ASCENIV price, and that would lead to revenue of 1.5-2B+ range
• waiting to get more visibility when the yield enhancement they discovered could be FDA approved
• BIVIGAM and ASCENIV are the same manufacturing process and making less BIVIGAM now
• meeting the needs of immuno-comprimised patients who were not having good outcomes previously
• have internal collection network, 10 plasma collection centers and a lot of control over who donates
• incentivizing donors with more compensation, SWAG, and greeting and treating donors with a smile at clinics
• also incentivizing plasma collection centers to collect more by paying more per unit the more they collect, which is typically the opposite of how paying in bulk works
• have margin available to cede said the CEO and mentioned the CFO would not like this comment
• 80% gross margins on ASCENIV, “corporate gross margins” in the 50% range
• liter of plasma generates 4 grams of IG, yield enhancement adds 20% to that
• CFO says plasma collection selling afterwards is “near 100% mark”, so the yield enhancement is impactful
• centers make donors very comfortable
• getting the best Google reviews, even some commenting how clean the bathrooms are at facilities
• want donors to be able to come all the time as the plasma donors are saving lives
• CFO says company is generating cash very nicely, paid down a little bit of debt
• management is aligned with shareholders
• “we’ve really cracked the code”
• R&D engine is not expensive to fund
• want to provide differentiated products
• as mix shifts to ASCENIV, going to see margin profile improve
• long runway including yield enhancements
• ASCENIV gross profitability is 25x that of BIVIGAM on a dollar basis
• trying to fill demand in an efficient way
• 5000-8000 patients could be treated if doing only ASCENIV

I like that this company has a lot of visibility on both demand and production capacity. It seems like they have the only viable treatment for severely immune compromised patients. The business is run extremely efficiently and it’s win-win for patients, plasma donors, doctors, and ADMA Biologics.

[PaulWBryant]

@wpr101

very focused on refractive, co-morbid very sick patients who have exhausted all alternatives

I think I saw they said there are maybe 20,000 to 30,000 such patients…do you know how many they treated in Q2? (If not…how many in 2023?) I know they throw out big numbers from 10b to 20b for total immunoglobulin TAM, but If that’s close to true wouldn’t that be ~$1,000,000 per patient?

Bear

PS here’s the quote from the Q2 conference call – so maybe more like $500,000 per patient?

To better understand ASCENIV’s unique position and growth potential within the $12 billion and growing U.S. immunoglobulin market, it is critical to consider our core focus on the 20,000 to 30,000 risk-stratified refractive immunodeficient patients…

[GDavenport]

I have direct, 2nd hand experience with a close relative who used Bivigam. Patients typically use about $15,000 to $18,000 per session. Sessions are usually NO LONGER than 4 weeks, with some patients requiring 3 weeks or even 2 week periods.

The rheumatology and endocrinology departments along with immunology are prescribing these drugs.

Imagine never getting sick, again… ever. In several patients who shared HOURS of time each session getting the iv drip during the years of my experience, almost no allergy symptoms are reported in these patients, either.

There is strong incentive to STAY on this prescription once the patients are issued it. For those who have insurance, this usually means meeting the deductible at first treatment before January is closed. By February’s treatments, out of pocket maximum occurs.

As a result, almost the entirety of their marginal and clinical success depends on group healthcare plans continuing to approve these treatments.

They are the standard of care for patients in their indications, however.

This company’s pricing power is immense.

The immunosuppressed are only one of the many immunodysfunctional groups who benefit. Those with hyperactive immune systems ALSO benefit. The ig treatments overwhelm these types of symptoms, resulting in a brief post application window of flu-like symptoms and then blissful relief until the next treatment. (vs the chronic inflammation syndromes that occur with immune system run amok)

The market for this drug type is quite limited, however. It will NEVER be broadly applicable to any significant subset of the population unless something dramatic happens to deteriorate general population immune function.

Having said all of that, I want to bring into focus a couple of points:

1. This company’s market growth is severe limited to current conditions. They will not “unlock new markets” beyond this case. without also investing significant research and time into those cases.
   I do see adjacencies where the ivig drug indications are added. This may not be that interesting for investments as these indications may only serve to clarify some of the rather fuzzy diagnoses for which CURRENT patients are administered the drug currently. (cannibalize current customers, fracturing them in to sub cohorts - NOT new customers)

(e.g. lupus but also suffers from stiff man syndrome, etc. - not a new patient, but a clearer diagnosis of the same patient)

2. Pricing for this company and any share price growth will follow as fair market value dislocation exists. Is this company priced for perfection already? Recent growth implies much of this terminal value is priced in already.

3. The sky high prices for this drug and it’s application method means it will continue to be a prescription of last resort. While I acknowledge that I said “standard of care” above, it is important to note that all manner of pills, shots and “therapy” are typically exhausted before a payor will approve this Cadillac (effective and pricey!) treatment.

This means they will always follow a laborious process to produce and administer the drug (eats profit and challenges applications when patients cannot get to an IV suite due to health related issues (ironic))

Further, approval for a new patient to begin receiving these treatments is at the whim of a set of companies in the value chain which are actively incentivized to NOT approve their use.

In my case, my family member was singled out as THE most expensive patient in the employer’s plan of more than 8,000 people. This includes cancer sufferers. There are complicating factors that led to this discovery and some were not directly related to the ivig treatments.

These patients are the sickest of the sick in many cases which makes them a beneficiary of this drug - and a fulcrum for payors to pivot upon. Beware.

[wpr101]

@PaulWBryant @GDavenport These are good callouts on the potentially limited size of the TAM for the business. This is also my biggest concern for the company that there is a limited number of patients to treat. I’m interested to find out more if this condition is staying static as a percentage of the population, or if the conditions they are treating are becoming more prevalent.

The first time I looked into the business I thought maybe they didn’t have enough innovation going on, but then in this last earnings they discovered a yield enhancement through an AI system they developed. Additionally, they raised their 2024 full year guide as follows,

Revenue 355M → 400M
EBITDA 110M → 150M
Net income 85M → 105M

I’m okay with keeping a small or medium sized position in this company until they reach some growth limitations or have a poor report. I doubt this one will become a high confidence position though without understanding some of those questions raised on the TAM here.