Looking into ADMA Biologics (ADMA)

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Shoutout to @ryshab for first mentioning this company on the board. I had looked into ADMA previous report and thought it sounded interesting with good growth characteristics but there wasn’t enough there for me to want to invest. However, I believe this quarter’s results are a big step up along with management’s commentary.

First with financials, they reported on August 8,

  • revenue 107.2, +78% (had a one time 12.6M benefit just FYI)
  • GAAP net income of 32M up from -6M last year
  • adj EBITDA 45M, +600% yoy
  • raised 2024 revenue guide from 355M revenue to 400M, EBITDA from 110M to 150M, and net income from 85M to 105M
  • raised 2025 revenue guide from 410M to 455M, EBITDA from 160M to 200M, and net income from 135M to 155M

Going back two years the acceleration in metrics is consistent and impressive,

Revenue
41M → 50 → 57 → 60 → 67 → 74 → 82 → 107

Revenue growth rate yoy
99% → 89 → 96 → 77 → 64 → 48 → 44 → 78 (would be 57% without one time benefit)

EBITDA
-7.5M → -4.1 → 1.2 → 4.4 → 11.5 → 16.3 → 23.9 → 41.2

EBITDA margin
-18% → -8 → 2 → 7 → 17 → 22 → 29 → 38

Reviewing my previous analysis, and what the company does I wrote this about them,

The financials of this business are appealing and it’s reached profitability in the recent quarter. They make three FDA approved products which depend on getting plasma donations from people. The drugs themselves treat infectious diseases in people with immune disorders. It sounds like they are the only company in this niche business and it’s a growing market.

I almost started a position in this company however I discovered their R&D budget is very low. They basically bought the rights to distribute some existing drugs that nobody could make anymore due to lack of plasma donations. Unlike blood donations, people get paid to make plasma donations. They are operating centers for collecting it and this seems firing on all cylinders. Overall, I just do know if there is enough innovation going on here to take a further look.

However, a number of things have changed since that previous analysis with this new report,

  • they have reportedly found a new efficiency in plasma collection that results in a 20% yield gain on the same amount collected
  • their ADMAlytics platform is an AI platform which optimizes product processes and it sounds like this technology found the efficiency
  • favorable product mix shifts, higher margin portfolio accounts for over 50% of company revenue
  • operating cash flow of 45.6M
  • progress is R&D programs
  • pediatric clinical study of ASCENIV may provide label expansion opportunities

The company’s main product is ACENIV which treats primary humoral immunodeficiency (PI) also known as primary immune deficiency disease (PIDD) in ages 12+. Plasma is collected at collection centers and then blended in a special formula which contains anti-bodies and proteins which kill bacteria and viruses. Note that plasma collection is significantly different than blood collection. Plasma participants are typically paid, the collection process takes up to an hour, and plasma donors can donate more often than blood donors.

The companies three FDA approved biologic products include: BIVIGAM, ASCENIV, and NABI-HB. The first two treat PI, which NABI-HB enhances hepatitis B immunity. An FDA licensed facility in Boca Raton is the main production facility, and they company operates FDA sourced plasma collection in the US. The company is 624 employees with HQ in New Jersey.

Adding a couple more standouts from the conference call,

  • both breadth and depth of ASCENIV’s prescriber base continues to strengthen
  • implementing measures to increase availability of raw material plasma
  • shifting production capacity towards ASCENIV
  • 12B growing US immunoglobulin market
  • expanded ADAMlytics AI platform to commercial operations this quarter, shown impressive results so far with increased production efficiency and enhanced visability
  • 12.6M one time US Medicaid Benefit landed this Q
  • gross margin of 53.6% compared to 27.8% last year
  • net debt to adjusted EBITDA approaching 0
  • “committed to further fortifying our balance sheet, reducing the cost of capital and maximizing shareholder value”
  • six consecutive quarters of a beat and raise
  • goal to make as much ASCENIV as possible
  • CEO hints that they have a 500k - 600k liter capacity plant and if it was producing all ASCENIV would be 1B-2B annual revenue or maybe more in “total peak revenues”, then clarifies “I’m not guiding to that”
  • governor on growth is plasma collection
  • our centers are working more efficiently than ever before
  • severe cases of PI in 20k to 30k people who are resistant to other treatments, see good outcomes here and only have 3% market share of this segment
  • in great position to capitalize on real world outcomes with doctors and patients to ensure coverage
  • “so it’s all falling into place”
  • feel it is early days for us and really just beginning here
  • engaged deeply with large private practices and ambulatory/allocation infusion centers, specialty pharmacies
  • company is “structured for growth”
  • “we’re going to continue to run through walls for our shareholders”

I am really liking what management is saying in this report. ADMA has a strong growth trajectory and it sounds like a growing market where the company is improving operational efficiencies.

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Thanks @wpr101 for the shoutout. Makes me happy to be able to contribute to this board that I continue to gain a lot from. As always, excellent summary of ADMA’s current quarterly results.

A couple of things that stood out to me:

  • They are claiming this is early stages of their growth curve. This is backed by the fact that their IG market penetration is at 2% and the biggest players have 25% share of the market.
  • During Q&A, as a hypothetical, the CEO pointed out if they only made ASCENIV in their current plant the max capacity revenue would be 1 bil. to 2 bil. dollars. They are forecasting NTM revenue to be 400M. So there is more room to grow as they fill out capacity.
  • They have mentioned multiple times demand is much more than capacity across their competitors too.
  • Their corporate presentation shows the market growing at 7% till 2030. Combine that with the fact they want to move from 2% to major player status, which is roughly 25%, there is definitely potential here.

Obviously, this was a good quarter. So on a personal front, I will try to add to this on pullbacks. Currently, it’s grown to 9% of my portfolio. I am happy to hold between 10-15% allocation.

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Adding one new piece of information and one potential concern I discovered,

ADMA does “aseptic filling” as a contractor sometimes, which is putting commercially sterilized products into sterile containers. It sounds like it provides this contract manufacturing and laboratory services for "certain clients. I’ve been unable to find information about the volume of sales from this side business. It sounds like a way to keep their factories active when they are not using them for their own production.

The concern I have with ADMA is the rising share count which has a lot of dilution from 9.3M shares at IPO to 233M shares currently. I would be interested for the board’s feedback on this topic in general as Aspen Aerogels is a company with a similar situation.

It sounds like the expansion of the business was done through additional equity raises. I learned recently this is a common business model for biotech companies, but I am not sure how much share dilution is normal or what is considered excessive.

Here’s the shares outstanding count by year,

ADMA shares outstanding
ADMA shares outstanding2854×1104 200 KB

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Probably worth an update here that ADMA’s auditor CohnReznick LLP, resigned today. Although they will complete the current quarter and filing with helping to transition to a new auditor.

Not a great look, but it doesn’t sound like the auditor was announcing anything wrong necessarily. I trimmed my position a little bit with the added uncertainty. I’m planning to see how this next earnings looks and see what they say about the auditor.

The stock is down ~16% on the news so looks the market is a bit spooked by the announcement.

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That isn’t a great look with their CFO having stepped down in February at the age of 47.

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Updating that I ended up selling my full position last week. The new CFO plus the auditor resigning is one angle.

The other concern I have is that there is a low TAM with patients counts, combined with an extremely highly priced product. This immune condition they are treating is rare, plus ASCENIV is only used on the rarest of rare cases where the person is not responding to other treatments. The price of the product is very high and the company is extremely profitable right now. I could see insurers or possibly doctors wondering why the product is so cheap to produce and so expensive to sell.

Lastly there were some OT portfolio considerations. I got up to 11 stocks and was looking to cut a company. I’d just added Harrow (HROW) and Castle Biosciences (CSTL) which makes my portfolio heavier on Biotech and I like the potential upside of these companies a bit more, without the worry of the new CFO + auditor lowering my confidence.

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Since ADMA is one of my major positions, I wanted to provide a mid-month update too.

I have used this opportunity to raise my position in ADMA. I am comfortable holding between 10 and 15% position in this business.

My rationale for holding on to ADMA are:

  1. The auditor transition seems to me as a normal transition. The auditor backed the historic financials. Here is the source where Mizuho confirms this.
  2. ADMA reiterated their guidance for 2024 and 2025
  3. CFO Brian Lenz’s resignation was pretty cordial. I re-read the Feb earnings call and almost all long standing analysts congratulated Brian and the mood of the call seemed more celebratory than suspicious.
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