Q1 2021 ADMA Biologics Inc Earnings Call
Good afternoon, and welcome to add my Biologics first quarter 2021 financial results and corporate update.
On Wednesday May 12, 2021.
At this time, all participant lines on a listen only mode. There.
And 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 scholar Bloom and director of Investor Relations and corporate strategy and Admob biologics.
Please go ahead.
Welcome everyone and thank you for joining us this afternoon to discuss asthma biologics financial results for the first quarter 2021, and recent corporate updates I'm joined today by Adam Grossman, President and Chief Executive.
Officer, and Brian Lenz, Executive Vice President and Chief Financial Officer.
During today's call and Adam will provide some introductory comments and provide a corporate update and then Brian will provide an overview of the company's first quarter ended March 31, 2021 and financial results.
Adam will then provide some brief summary remarks before opening up the call for your questions.
Earlier today, we issued a press release detailing the first quarter 2021 financial results and summarize certain first quarter achievements and recent corporate updates. The release is available on our website at www dot asthma biologics dot com.
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 and 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 this date on this call and 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.
We refer you to the disclosure notice section and our earnings release, we issued today and the risk factors section of our 2020 annual report on form 10-K, and our quarterly report on form 10-Q for the first quarter ended March 31, 2021 for a discussion of important factors that could cause actual results to differ materially from these forward looking statements.
With that I would now like to turn the call over to Adam Grossman Adam.
Thank you Skyler and good afternoon, everyone and thank you for joining us on today's call.
We hope those joining us today continued to remain healthy and safe.
And Mac is off to an excellent start to 2021 and the company's accomplishments during the first quarter and in the weeks thereafter establish the foundation for what we expect will be a very strong year of continued growth and asset value creation.
We believe the transformative milestones achieved since the beginning of 2021 across both our bio centers plasma collection segment as well as the bio manufacturing segment meaningfully derisk the pathway for the company to continue to deliver revenue growth as well and ongoing strategic and longer term financial commitments.
The stockholders, including reaching profitability no later than the first quarter of 2024.
Financially and.
And it exceeded analysts' consensus top line revenue forecast generating record revenues of $16 million during the quarter.
This represents a 57% growth rate compared to the first quarter of 2020.
Additionally for the first time since the launch of Admins and <unk> product portfolio.
Top line revenue growth outpaced operating spend which enabled the company to successfully narrow both gross losses as well as net losses quarter over quarter.
Trend the company anticipates will continue in the coming quarters and accelerate throughout 2022.
And Additionally grew its total asset value to our quarter and balance of $235 7 million, which is approximately a 13% increase quarter over quarter.
The growth and asset value and notably includes $94 $1 million and inventories, which admin expects will support continued production ramp up as well as quarter over quarter revenue growth throughout 2021 and.
In addition to ensuring the continuity of product supply and.
And ongoing supply constrained immune globulin market.
We strongly believe that admins asset base and future growth prospects are substantially undervalued when compared to the valuations of precedent acquisitions and the plasma product space.
I will discuss this in more detail following Brian's financial remarks.
In the face of pandemic related challenges and in the context of high profile regulatory setbacks seen elsewhere and pharmaceutical supply chains and my has taken aggressive measures to strengthen its supply chain and to ensure the continuity of high quality product supply and patient care.
With seven plasma collection facilities now at various stages of approval and development, including four facilities that are presently operating and collecting plasma.
And my remains on track to have 10 or more plasma collection centers and operation by 2024.
Over the remainder of 2021 admin expects to receive FDA approval for one plasma collection facility currently pending a biologic license application or BLA.
And anticipate filing BLA for two additional plasma collection centers before year end.
Supplementing its growing internal plasma collection network admins.
Admin disclosed and extension of its existing third party plasma supply agreement from June 2022 through December 2022.
And it's also in the late stages of negotiations with additional third party plasma suppliers to further solidify the continuity.
Source plasma supply too.
To achieve anticipated plasma supply self sufficiency and the 'twenty 'twenty four time period.
It still is on track.
Adam is growing internal plasma collection network, coupled with its contractually committed third party plasma supply obligations and positioned the company well to easily access sufficient quantities of raw material sourced plasma to meet both ongoing as well as future production requirements.
With the recent FDA approval.
It's 4400 leader IV plasma production scale add much strength and its supply chain and enhanced its manufacturing capabilities and the financial and strategic impact of this FDA approval cannot be overstated.
The approval enables admins to significantly expand its production capabilities of 200 2200 liter production scales well at the same time, keeping a substantial portion of its fixed cost structure unchanged.
As we expanded capacity throughput works through the 7% to 12 months IV manufacturing cycle.
We anticipate meaningful gross margin improvements beginning potentially in the second half of 2021 and accelerating throughout 2022.
We also anticipate enhanced supply chain visibility and improved working capital efficiencies as a result of this FDA approval.
Additionally, we expect the approval of the 100 ml vial configuration for began to meaningfully benefit the products go to market offering as it facilitates greater ease of use for the health care professional at the site of care.
Taken collectively add my remains committed to revenue growth throughout 2021, and beyond and we believe the company now has the capabilities to generate peak revenues in excess of $300 million, which.
Resents, a 20% increase to our previously stated topline expectations.
As a matter of update on the van Rx still finished machine.
The FDA has proceeded with the review of our prior approval supplement however in light of COVID-19 travel and other restrictions. The agency has been unable to expedite our AR required facility inspection.
<unk> is actively working with the FDA to find a way to expedite the plant inspection and the company sees a potential pathway for receiving approval during the fourth quarter of 2021.
The pieces are in place for admin to sustain the momentum realized during the first quarter and move even closer to profitability.
To our employees, we thank you for your tireless efforts and unwavering commitment.
And it is because of these unified efforts that we are proud of being able to serve our customers and to ensure the continuity of IV <unk> product supply for the underserved immune deficient patient populations that are life sustaining plasma derived therapeutics treat.
We are additionally, sincerely grateful to our stockholders for their continued support of our efforts to provide these lifesaving products to patients in need.
And we are confident that our continued operating execution will unlock meaningful value and the periods ahead.
Each and every stated goal the company has set since taking over this manufacturing plants from our then CMO and June of 2017 has been met on a timely basis.
We have remediated a warning letter.
Received multiple FDA product approvals, allowing us to now commercialized three immune globulin products generating year over year and increasing revenues.
And we have significantly expanded the capacity of this plant, which we believe will unlock value that has not yet been realized at this facility.
Driven by an experienced management team our Boca Raton facility is successfully operating as a compliant drug manufacturer.
And we take what we do extremely seriously and we plan to continue to execute on our goal.
Patients are counting on us and we know it could be us or view that needs one of our products. We cut no corners, we engage our teams and we watch our operation top down to ensure continued adherence to GMP regulations.
I reaffirm my commitment to our stockholders that we remain and.
Continued operating compliance and I truly thank my fellow admin team members for their focus commitment and dedication as well.
With that said I'd now like to turn the call over to Brian for a review of the first quarter 2021 financial.
Thank you Adam.
We issued a press release earlier today outlining our first quarter 2021 financial results.
Just to review some of the highlights for the three months ended March 31, 2021, total revenues were $16 million compared to $10 2 million for the first quarter of 2020.
This represents an increase of $5 $8 million or approximately 57%.
The revenue growth for the first quarter of 2021 compared to the first quarter of 2020 was favorably impacted by the continued commercial ramp up of our IV <unk> product portfolio and expanding customer base and both are biosensors plasma collection segment as well as and our bio manufacturing segment.
As Adam mentioned earlier, our total inventory as of March 31, 2021 was approximately $94 $1 million up 80% from $52 $3 million and the first quarter of 2020.
This inventory consists of raw materials, including source plasma and other material is expected to be used and the production as well as work and process and finished goods inventories comprised of our commercial IV hygiene products and intermediate fractions.
And the periods ahead, we anticipate continuing to purchase raw materials, while also growing our internal plasma collection Center network building work and process inventories as well as finished goods inventories, which we believe will translate to a quarter over quarter revenue growth throughout 2021 and beyond.
Additionally, given COVID-19 related uncertainties across the pharmaceutical supply chain, we intend to retain a portion of our growing inventories as safety stock, which we believe will strengthen our position as a reliable supplier to our customers distribution partners and prescribers over the coming quarters.
Our consolidated net loss for the quarter ended March 31, 2021 was $18 4 million or <unk> 16 cents loss per basic and diluted share compared to a consolidated net loss of $19 2 million or a 26 cents loss per basic and diluted share for the quarter ended March 31 2020.
The decrease and year over year net loss was primarily attributable to increased revenues as a result of customer expansion and narrowing gross losses the.
And the improved net loss was partially offset by increased plasma collection center operating expenses to support our biosensors plasma collection and network expansion strategy as well as an increase and SG&A expenses attributable to commercialization efforts for our IV <unk> product portfolio.
With that I'll now turn the call back over to Adam for closing remarks.
Thank you Brian.
As evidenced by our recent accomplishments, including exceeding analysts' consensus topline revenue forecast for three consecutive quarters as well as continued operating successes in the face of COVID-19 challenges admit continues to deliver on its commitments to stockholders and we look forward to building on the most.
And we demonstrated during the first quarter of 2021.
We believe admin enters the remainder of the year from a position of strength.
The multiyear remediation and production enhancement objectives, and our biologics manufacturing plant are nearing a successful conclusion.
And the supply chain investments are on the precipice of yielding significant returns and the way of margin improvement.
And anticipated quarter over quarter revenue growth is poised to continue throughout 2021 and beyond.
Prior to opening up the call for Q&A.
I'd like to provide some brief commentary around the current stock price as well as to quantify the asset value demonstrated by precedent acquisitions within the highly acquisitive plasma derived therapeutics space.
A sizable common stockholders, we as a management team are acutely aware of the increasing disconnect between admins market value and the intrinsic value that our asset base fairly commands.
Although the total asset value recorded on our balance sheet is $235 $7 million in accordance with generally accepted accounting principles.
Valuations from precedent acquisitions of comparable plasma collection networks, and fractionation facilities support and our opinion and asset value of $450 million to $650 million or more for admins current asset base.
We encourage the investment community to review the publicly available information and these valuations regarding plasma derived therapies production facilities on a global scale as well as the multiple transactions reported for plasma collection centers in the U S and abroad.
What we do the market, we are entrenched and the growing demand for plasma and plasma derived therapies is a highly durable sustainable and needed area of the biotech industry.
<unk> capabilities patents regulatory and commercial successes should not be overlooked what we do has significant barriers to entry and admin is finding success in this market dominated by a select few players.
Adam and has a strong foothold in the U S with and integrated end to end supply chain and production capabilities.
<unk> only substantially larger valued companies can stake a claim to.
With consideration to the significant asset valuation arbitrage as well as the additional value yet to be realized for our anticipated future cash flows. We are actively evaluating all strategic and financial alternatives to maximize stockholder value and minimize equity.
Dilution.
We intend to update the market with developments as appropriate.
On behalf of the entire asthma biologics team I.
Thank you our stockholders for your continued support as your investment and Admah helps to advance our mission to save lives.
Many and make good safe products that help our friends family and neighbors. Please donate plasma please help save lives and with that I'd now like to open up the call for your questions operator.
Thank you.
Today's question and answer session will be conducted electronically.
To ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key well pause just a moment to assemble the roster.
Our first question comes on the line of Anthony Petrone with Jefferies. Your line is now open.
Yes.
Thanks, Good afternoon, everyone and congratulations on another strong quarter.
Maybe you didn't see you.
And maybe to begin.
Adam we can start a little bit on the inventory comments $94 million and the.
And the desire to have a level of safety stock going forward, maybe can you give us an idea of what that magic level is and safety stock and where do you expect debt to be on a consistent basis going forward.
And then secondly on on inventory cycles can you also give us a sense of what the inventory cycle will look like in terms of timing.
Once the expanded later pull process is fully up and running and then thinking ahead to van Rx coming in where is it today and where will it trend to overtime and then I'll have a couple of follow ups.
Sure. So let me touch on.
Part of the inventory question so.
From our perspective, it's all about the continuity of care for these patients.
Our immune globulin product and incentive and vivid gammer labeled for.
And use in patients with primary humoral immunodeficiency. These are patients who need these products every three to four weeks for the rest of their life.
From our perspective somewhere in a three to four months of finished goods probably is a.
Strong safety stock, but as you know our production cycle times with the 4400 liter approval or without any of our immunoglobulin products are typically and it's still going to be within the 7% to 12 month production cycle. Anthony So nothing really changes there I think I've said publicly and I know that you and I have spoken.
On balance this we're currently in the call it 10 and 11 months.
Range today.
About being on Rex within Rx, where we're not totally comfortable on on on.
Giving firm commitments, but we do believe it should shorten that time, but it's not going to make it any.
Faster than that 7% to 12 month cycle.
And quite frankly.
The approval of the 4400 liter process meaningfully de risks.
The company and our path to profitability, the fact that rough.
Roughly about 80% or more.
On.
Of our production at the present time is coming from Big again. This is really going to substantially improve throughput into the facility better user utilizing that capacity absorbing that manufacturing overhead and ultimately improving margins because we are keeping the fixed cost structure for <unk>.
Certain consumable single use disposables filters labor electricity water all of these things and if it stays the same so we anticipate significant margin improvements from from this approval and more product coming out of the plant over the next seven to 12 months as we are.
Our <unk>.
Implementing this 4400 process.
Maybe to touch more on the inventory.
And Brian maybe you can add some more color regarding the current inventory.
Sure. Thank you Adam So a couple of very encouraging things happened. During this first quarter number one our production efforts continued to increase and that resulted in us allocating more direct labor more overhead directly to work and process and finished goods, which attributable which is attributed to <unk>.
Building more safety stock.
The other thing that happened that was very encouraging during the quarter. Our unabsorbed manufacturing overhead continued to decrease and again, that's as a result of continuing to increase production as we moved through the first quarter and we expect those trends to continue throughout the rest of the year, especially as we received approval for a 4400 liter capacity.
<unk>.
A couple a couple of follow ups would be to stick to margins and sort of the progression from here.
Couple of follow ups, one would be as we think of absorbed manufacturing overhead continuing to decline, maybe just a little bit more visibility on on sort of where that number is today and where it can go over the next say 12 months and then maybe a quick update on the began conformance lots as the timing of that.
Still in 2021, and and if so when do you expect those to be realized.
Sure.
I'll touch on the <unk>.
On the Unabsorbed manufacturing overhead over the past three quarters, we've seen several millions of dollars being essentially transferred out of Unabsorbed manufacturing overhead moving direct labor hours and overhead into wet work and process as well as into finished goods, we expect that trend to continue.
As I mentioned throughout the rest of this year as we continue to expand on.
Our capacity going from 2200 4400 leaders.
And as well as into 2022, and 2023 and our margins gross losses will continue to narrow returning on gross profit and then essentially this is going to put us on a path to profitability.
And last for me and I'll hop back in queue. Appreciate I. Appreciate the color here would just be on plasma collection centers. You mentioned that three are currently under development should have been.
And place.
At least a handful before the end of the year.
And then there's a pipeline moving towards 10, so maybe jumping ahead to the end of 'twenty, two and how many plasma centers and total.
Should be up and running.
Say over the next 18 months, Buddy and a 22, thanks again and I'll hop back in queue.
Sure I would say Anthony.
Brian you can certainly take it but Anthony we're talking and we should have 10 centers open and operating by the end of 'twenty two absolutely Brian you want to add some color.
Absolutely so we have a.
Two FDA approved centers currently we have one on file with the BLA for hopefully another approval. This year, we're going to file two additional BLA by the end of this year.
And I mentioned, we expect to have 10 or more centers open and operating FDA approved by the end of 2024, and we just restate our updated that guidance favorably to increase those number of centers to meet our meet our demand as well as to become self sufficient for our raw material normal source plasma.
Supply.
Thanks, and I'll also say Anthony.
The real estate market is still pretty.
Pretty good for retail space, even though the market is opening up we're still very optimistic we've got a number of locations and sites identified.
And then I can tell you we are accelerating this process, we feel really good now that we've got 4400 approval I mean, the market will take more product, we're going to put more product into the plant and and.
We're going to sprint and run through walls to get to.
The promise and stated goal of $250 million of top line by year end 'twenty four and then again.
We've revised the total top line.
And be able to generate in excess of $300 million with Fitch recent FDA approval of the 4400 leader we might need to build some more plasma centers, we do say 10 or more but.
We.
We should have.
We've got four centers currently opened and collecting right now as Brian said three more and development. We're hoping to have open by the end of the year more BLA is on file and next year more of the same we continue to knock down our milestones we continue to hit our timelines within reasonable timeframe you see the FDA works with us.
Not just giving your lip service here.
We appreciate the Fda's pension to the lifesaving need of these drugs.
Getting approvals, we're delivering things during COVID-19 and it's it's still present and may be based in Florida, but with COVID-19 and still around.
And we're managing the supply chain.
And our contractors are managing inventories of raw materials and the supplies we need to build these plasma centers and we continue to remain on track we are not revising any of our timelines and here. We are moving forward full speed. We are a company firing on all cylinders and we plan to continue to execute throughout the rest of this year.
Just like we've done and the beginning part of 'twenty one.
Thanks Ian.
Thank you hope you're doing well.
Our last question comes from the line of Elliot Wilbur with Raymond James Your line is now open.
Yeah, Hi, guys. This is this is actually Michael <unk> on for Elliot Thanks for taking my questions.
Sure.
So so first if you could talk a little bit about just kind of the incremental importance of offer and the 100 mill offer and a bit of a game.
And how the company plans to really capitalize on on that new market opportunity.
Sure so.
How do I say this a number of our competitors offer various vial sizes, when we came to market with it again.
And we offered a five gram 50 ml vial.
If you read the packaging for dosing it's typically.
300 to 800 milligrams per kg of body weight.
A typical dose for an adult primary immune deficient patients, let's just say somewhere between 25% to 35 grams.
The way I view it typically.
On.
Is infused is a pharmacy will pool, the product together and to some sort of and administration bag and.
The more vials and they have to manipulate the more work there is for the pharmacist.
What our competitors do is they are able to offer them different vial sizes and the five grand and the 10 Gram sized 15, net 100 ml size and it allows for an easier administration of the product so the <unk>.
<unk> for the 100 amount is that look we've been very successful with the introduction of <unk> again, with the singular bio presentation, and and and that shouldn't be lost on folks.
People liked it began the game is a high quality product specifications and they've been using it and now it puts us on the same playing field with a number of our competitors who offer multiple vial sizes. So we've got the ability to go to these higher volume clinics higher volume infusion centers that.
Okay, and maybe they were using some busy game, but now it allows them to use more and faster it puts us on the same playing field as a number of our competitors, we're really proud to be able to offer both vial size and as you know to customers who may be listening today, we've got some on inventory, but again through the seven to 12 month production cycle, I think and as we get to.
The back half of this year and into 2022 I think we.
And we will start to see more 100 ml vials available and the market, but we.
We think it really just continues to keep AD and at the forefront of being a competitive player.
At the site of care and offering and ease of administration to the caregiver.
Alright, thanks for that that's helpful and.
And then maybe one for Brian if you have it on hand, the finished goods number.
And then inventory cadence for the rest of the year and then also on that note.
You guys have mentioned multiple times about gross margin expansion I know that historically, we typically look at inventory with a 40% margin and can kind of back into a revenue number using that.
How should we adjust that 40% or should we still go about saying thinking thinking about it like that.
Sure. So regarding the first part of your question on finished goods or finished goods and number was $21 2 million of the $94 $2 million that number has continued to grow quarter over quarter for the last several quarters and this is where our safety stock is going to reside as well as some of our raw materials all <unk>.
And its raw material width and finished goods has continued to grow and and we think it's very important to show the.
Our customers suppliers distributors that were going.
And it continued to build this inventory balance and the past we've said gross margins by 2024, 40% to 50% as we see the 4400 batches start rolling out realizing we just received FDA approval just a few weeks ago seven to 12 month manufacturing lead time, we hope to start seeing some of those gross margin improvements as.
We rollout and the rest of this year and certainly into 2020 two.
And those margins are gross losses are going to narrow gross profit will be realized and the very near future and as I said.
And these things are going to continue to rollout and a very positive trend as we continue to see from the fourth quarter to the first quarter gross losses are narrowing net loss is being is lower and we're very encouraged for what we're seeing going forward.
Got it thanks for that.
And then last one for me.
Believe you guys have set and the past the 10 to 12 or 14 plasma centers put you on the playing field for being fully self sufficient.
So just wondering if you could speak to what Youre looking for and the New third party supply contracts that you mentioned that you are.
And the process of negotiating for post 2022. Thank you.
Sure.
We reiterate that 10 or more centers, certainly is going and get us to self sufficiency, but I think as I've said previously.
And things May change, but.
Boy do they also stay the same and and one thing I can say is.
I think it's good practice to have multiple suppliers, especially for your raw material you never know when youre going to have an issue at a center.
No and Youre going to have a weather event, you never know when youre going to have some.
And I'm sort of outbreak you just never know what's going to happen. So.
Certainly the goal is to rely heavily on internal supply and Thats and Thats the goal.
You may have heard and my comments were flooring, all potential alternatives to minimize dilution for shareholders here there'll be a strategic <unk>.
Speaking with debt lenders thinking about equity whenever it it may be.
I think investors acquirers. They wanted to know that you've got the capabilities to be self sufficient.
We will have the capabilities to be 100% self sufficient.
But the right thing to do is to bolster your supply with some plasma from third parties. This ensures consistency it ensures a diverse donor base may come from centers from different geographic regions.
And it allows you to also offset by having some contracts to supply plasma to other third parties to generate revenues, where we could potentially pay.
And last from one of our suppliers and charge more to a potential customer. So we just think it's good.
On prudent business practices to do this again, our goal to be totally self sufficient to be able to support that now up to 600000 leaders on.
Of plasma fractionation capacity.
With that capacity.
Typical plasma center pre COVID-19 was collecting about 50000 liters annually.
In light of COVID-19 plasma centers are collecting and a 35 to 40 45000 liters of capacity. So that can give you an idea of roughly how many centers, we might need and all.
And to be self sufficient.
But I can tell you that.
And we plan to be and this business is adding on biologics, whether we're running the company or someone requires this company, but we're going to set ourselves up for success.
Was talking to someone earlier today, the reason why I am and the chair on managed costs.
And we relied heavily on third parties, we don't want to rely heavily on third parties, but certainly third parties can support your business and be a very important part of <unk>.
Protecting your business to ensure continuity as you continue.
On the value and the plasma center collection network cannot be understated.
Plasma centers typically are valued in precedent transactions and the market and in our opinion, there is still value pretty pretty strongly and that $10 million to $15 million range. They cost us $2 million to $3 million to build we're going to continue to do this we're going to continue to build our asset value and and I can't overstate It and now you've got a management team and our workforce and.
And the biologics and highly dedicated and.
And we're going to continue to hit these milestones and.
We're doing it we're doing it and the face of COVID-19 and.
We're just really really pleased with the progress and we thank everyone for all their all of their continued support all the shareholders. Thank you.
Got it thanks for taking my questions again, guys and congrats on the quarter.
Thanks, so much send our regards.
Thank you.
Ladies and gentlemen, this will conclude our question and answer a question on the call I would like to turn it back over to Adam for additional closing remarks.
Thank you very much everybody I just want to thank you for taking the time to listen in and I know it was an interesting market day and we just want to thank you and the biologics. Despite all the headwinds we continue to deliver for you our shareholders. We continue to drive this I cannot reiterate enough our asset value as we reported.
Today $235 million is greater than where our market cap is today.
We truly believe that this is an undervalued asset and we're going to continue to create create value for you and a mark this throughout the rest of the year.
Donate plasma get vaccinated help save some lives visit www dot adenovirus centers Dot com.
To see where our plasma collection centers are and if Theres one near you we'd love to see the donor stay healthy and safe and we appreciate you all very much have a good afternoon.
Ladies and gentlemen, this does conclude the conference call for today. We appreciate your participation and you may now disconnect.
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