ADMA Biologics: Sell-Off Provides Buying Opportunity Ahead Of Projected Growth
Summary
- ADMA Biologics recently reported a mixed Q4/2020 earnings with a slight miss on EPS and a slight beat on revenue. Consequently, ADMA has been under substantial selling pressure.
- The ongoing pandemic has disrupted the industry; however, ADMA was able to report record revenue and expects to report quarter-over-quarter revenue growth.
- ADMA has updated their BioCenter construction guidance from constructing 5-10 facilities by 2024 to 10+ facilities by 2024. In addition, the company believes they will be profitable by Q1 of 2024.
- I have been adding aggressively during this sell-off in anticipation that my current ADMA strategy will pay off. I discuss my strategy and my long-term plan.
ADMA Biologics (NASDAQ:ADMA) recently reported their Q4/2020 earnings with a slight miss on EPS and a slight beat on revenue. Despite the record revenue and strengthened balance sheet, the market punished ADMA in the subsequent trading days and is now trading just above its 52-week low. I believe this recent sell-off is unjustified and could be a great opportunity to buy ADMA at a deep discount.
I intend to review ADMA’s Q4/2020 earnings and will highlight some critical material for the bulls. In addition, I discuss one of my leading near-term downside risks and how I intend to manage my position around them. Finally, I reveal my current strategy for my ADMA position.
2020 Charts Path to Profitability
2020 was an unprecedented year for businesses and difficult for most of the nation due to the pandemic. However, ADMA was able to pull off several accomplishments, including a record annual revenue of $42.2M, which was a 44% increase over 2019. In addition, ADMA significantly reinforced the company’s balance sheet and finished 2020 with assets adding up to $207.7M. What is more, ADMA strengthened their inventories to a year-end balance of $81.5M, with approximately $15M in finished product.
The company’s strong execution during the first full calendar year for BIVIGAM and ASCENIV encouraged the company to “confidently reiterate” their expectation to produce quarter-over-quarter revenue growth all the way through 2021. In addition, the company forecasted their revenue guidance of $250M+ in 2024 and will be hitting “profitability by no later than the first quarter of 2024.”
BioCenters
ADMA has been working hard to expand the company’s ADMA BioCenters plasma collection center network and improve their raw material supply. By adding more BioCenters, ADMA will be able to have greater control over their plasma supply and move closer to becoming a comprehensive vertically integrated company. Back in February, ADMA received approval for an additional center and they have another facility that could be approved in the second half of this year. Moreover, ADMA projects they will file for two more centers this year, which has motivated them to revise their guidance from constructing 5-10 facilities by 2024 to 10+ facilities by 2024.
This abrupt change in guidance was likely due to the company being able to take advantage of the retail industry hurting from the COVID-19 pandemic. Retail buildings are leasing at a discounted rate and ADMA is looking to lock in 10+ year leases at $15-25 per square foot. ADMA believes they can build these centers for between $3M-5M, which would be cheap compared to some recent blood center deals that had centers being acquired at $14M. So, we can say ADMA is making some great investments that could drastically change the company’s intrinsic value and long-term outlook.
Bullish Outlook
I believe the company is well-positioned to execute on the company’s goal of generating significant revenues and moving towards profitability from all their business segments. It appears ADMA is prepared to make 2021 another transformative year that will be fixated on moving closer to becoming a fully integrated commercial company by improving the company’s control of their supply chain and expanding their BioCenter network. By securing some additional in-house control of the company’s manufacturing, ADMA should improve operating efficiencies, thus, improving gross margins and moving the company closer to profitability.
In addition to improved operations, investors need to remember that there is an ongoing IVIG shortage in the United States and IVIG continues to remain on the FDA drug shortage list. Therefore, any additional product being made by ADMA should be quickly consumed by the market, which will help the company continue to deliver quarter-over-quarter revenue growth in 2021 and beyond.
The combination of improved operations efficiency and strong revenue growth should eventually have a positive influence on the share price.
Downside Risks
Despite the company’s commercial progress, the near term still has a few downside risks to consider. First and foremost, the impact of the pandemic on blood center collections will continue to throttle ADMA. The company believes they will see quarter-over-quarter improvements as vaccine rollout improves. However, the fact remains ADMA reported a consolidated net loss of $75.7M for 2020, which was a significant increase compared to the $48.3M for the full-year 2019.
Indeed, the commercial launch of BIVIGAM and ASCENIV was the primary driver behind the cash burn; however, a prolonged pandemic could continue to thin out ADMA’s wallet. ADMA only had $55.9M in cash and cash equivalents at the end of 2020, which the company believes will be sufficient to fund the company “into the fourth quarter of 2021.”
ADMA might be seeing quarter-over-quarter and week-over-week improvements from the collection centers, but the combination of the impact of the pandemic on blood centers and a thinning cash position does cast some uncertainty about financing. It is possible ADMA will have to resort to additional secondary offerings, continue the use of their ATM, or take on debt to keep the company running at full steam. These unknowns could cast a shadow over ADMA and have a negative impact on the share price until we see the industry return to pre-pandemic levels.
My Current Strategy
I’ve been employing the “buying dips and selling rips” approach for ADMA over the past year and it has worked out well. However, I have been adding aggressively over the past couple of weeks as the stock continues to trade around the 52-weeks lows (Figure 1).
Figure 1: ADMA Daily (Source: Trendspider)
The sell-off has cut the share price in half, however, the move has occurred under average volumes. Now that the stock has moved into the oversold area on the RSI, I am expecting a quick bounce, followed by a retest of the lows before breaking the short-term downtrend (red line). Once the share price has broken that downtrend, I am going to make a few more additions until the share price rises above $2.00 per share. Once I get my fill, I will be looking to unload some profits just below $3.00 per share and will hold onto the majority of my position until I hit my next target.
Long-Term Plan
Long term, I plan on sticking to my strategy of accumulating on dips and selling on the rips to help improve my cost average while banking some profits. Overall, I am going to keep a core position on the books in anticipation ADMA is going to become one of the leaders in the IG market and will experience strong double-digit revenue growth in the coming years (Figure 2).
Figure 2: ADMA Revenue Estimates (Source: Seeking Alpha)
At some point, I have to believe ADMA’s revenue growth should outpace its cash burn and a path to profitability will be revealed. At that point, I will switch my strategy as the investment stabilizes due to additional investors starting to gain interest in the ticker as a result of ADMA’s growth and improving fundamental outlook.
This article was written by
Biologics is a full-time healthcare investor who developed a passion for biotech and life saving therapies after working in the medical field for years. His trade focus is around innovative companies developing breakthrough therapies and/or pharmaceuticals with catalysts for potential acquisitions.
He is the leader of the investing group Compounding Healthcare. Features of the group include: Several model healthcare portfolios, a weekly newsletter, a daily watchlist, and chat for dialogue and questions. Learn more.Analyst’s Disclosure: I am/we are long ADMA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (34)
The 4,400-liter IVIG plasma pool scale for BIVIGAM will allow ADMA to expand its manufacturing plant's total processing capacity from 400,000 liters to an anticipated peak throughput of up to 600,000 liters.Tempted to sell on the news, but i am holding.
