Last Updated on May 31, 2019 by Sultan Beardsley
The past two months have been eventful for my number one stock pick ADMA Biologics (Nasdaq: ADMA). Moreover, on Friday May 24th, 2019 I added a new stock to the MS portfolio– Regenxbio (Nasdaq: RGNX). In this article, I want to take the opportunity update our community members on my outlook for ADMA and my investment objective.
Recent Events-ADMA
On April 1, 2019 ADMA got the green light from the FDA to launch RI-002 (ASCENIV) in the U.S. A couple weeks later the company was granted a patent for certain methods for the treatment and prevention of pneumonia lasting until 2037. On May 3rd ADMA elected to draw-down $27.5 million from a credit facility agreement with Perceptive Advisors to support ASCENIV’s commercial launch, procure more plasma, and build out another plasma collection center. Additionally, the company announced an amendment to the credit agreement with Perceptive adding another $12.5 million allotment contingent upon BIVIGAM’s approval.
Finally, on May 10th BIVIGAM’s prior approval supplement (PAS) was approved. Unfortunately, the news did not elicit the spike we were hoping for. ADMA continued to trade in the $4.50-5.20 range until a $45 million public offering was announced five days later. The move caught many people (including myself) by surprise. The offering closed May 21st having raised $51.75 million through the sale of 14.6 million shares at $4 per share. ADMA plans to use the funds to power the commercial launches of ASCENIV and BIVIGAM, increase its manufacturing capacity, obtain raw source material for ASCENIV and BIVIGAM, and expand ADMA’s plasma collection facility network.
Updated Investment Thesis For ADMA
On the heels of everything discussed above I remain bullish on the performance of ADMA. The approval of ASCENIV and BIVIGAM bridged ADMA’s transition from the clinic to the market place. Admittedly, the public offering threw a damper on things as it invited over more short-sellers. I believe the pain will be temporary, though, as management executes on plans for commercialization and expansion.
The U.S IVIG market is estimated to be a~$6.6 billion and $7.0 billion market opportunity in 2019 and 2020, respectfully. Fifty-percent of the ~250,000 immune compromised patients are treated with IVIG medicine. ASCENIV and BIVIGAM ADMA are well positioned to capture a large portion of this demographic. Although they are both IVIG medicine each has a unique constitution of antibodies allowing ADMA to reach patients across the PIDD spectrum. Additionally, the market opportunity extends beyond PIDD. IVIG medicines are commonly prescribed for 18 other conditions and insurance companies readily reimburse payers. Per the company’s guidance, ASCENIV should be hitting pharmacy shelves in the 2nd half of 2019. We are yet to hear the same details for the relaunch of BIVIGAM. We do know there are several conformance batches of BIVIGAM that could potentially be sold in the mean time.
Now that ASCENIV is approved for PIDD the company can focus more on the Respiratory Syncytial Virus (RSV) infection opportunity. RSV is a viral infection that causes flu like symptoms in healthy adults and children. In immune compromised individuals, though, it can cause more serious complications and even death. In a phase 2 clinical trial ASCENIV’s predecessor product was tested in 21 RSV infected patients. There was a statistically significant mean increase of 9.2 fold and 4.8 fold of RSV-antibodies in the high and low dose treatment groups, respectfully, compared to none in the placebo. This treatment effect was observed again with a 4-fold increase in patients treated under compassionate care use. One of ADMA’s priorities is to meet with the FDA and discuss expanding ASCENIV’s label to include RSV infections.
To summarize, I am bullish on the growth prospects of ADMA and have confidence in managements ability to execute their plan. Two pieces of criteria I like to see when evaluating a prospective investment is high insider and institutional ownership. In the case of ADMA, insiders hold 25% of the shares and institutions own 57%. Moreover, when ADMA performed the offering the largest institutional shareholder (Perceptive Advisors), ADMA CEO, as well as other insiders, all participated.
There is always risk when investing in the stock market, especially clinically stage biotech companies. Nothing is guaranteed. That is why our strategy involves doing our homework to identify well run companies with competitive product(s) and a compelling strategy to create value for stakeholders. ADMA embodies this description well and until something changes fundamentally my plan is continue to build my position. My 12-month price target for ADMA is $12. I would consider selling around this valuation all factors held constant.
Using our new scoring formula for small-cap, clinical stage or early commercial stage biotech companies, Adma receives a score of 35 out of 39 (i.e. an A-).
I am long ADMA.
