ADMA: Insiders Showing Their Cards

Summary

• ADMA has been trading in a downward trajectory over the past few years.
• ADMA's stock price has taken a beating from several equity offerings as the business continues to invest in the future.
• ADMA has positioned itself to perform well and insiders have been putting their money where their mouths are, with recent purchases.
• This idea was discussed in more depth with members of my private investing community, Invest With A Stacked Deck. Learn More »

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It has been painful to be a shareholder of ADMA Biologics (NASDAQ:ADMA) for the past few years. ADMA has financed its growth by issuing numerous equity offerings, which has caused a lot of downward pressure on the stock price.

Source: Admabiologics.com

Despite the stock performing poorly, ADMA's business has been thriving and it remains on track to have 10 or more FDA approved plasma collection facilities in operation by 2024 as well as becoming profitable no later than the first quarter of 2024. With this guidance and insiders buying as well (detailed further below), I believe this is a prudent time to invest in ADMA.

Data by YCharts

Since my last article on ADMA, from August 22, there have been a few notable developments, which I'll detail in this article and go in order of the events.

VanRx Aseptic Fill-Finish Machine

On September 8th, ADMA received FDA approval for its in-house aseptic fill-finish machine, the VanRx SA25 (VanRx). ADMA's CEO, Adam Grossman, noted the implications of this approval in a press release:

With the VanRx operational, we are anticipating meaningfully improved gross margins, enhanced patient supply consistency, accelerated inventory production cycle times, and increased control and visibility of commercial product lot releases, creating more predictable near-term revenue results.

Importantly, this provides flexibility in ADMA's business model since it will be able to now onboard new fill-finishing contract manufacturing opportunities with third parties. This can help to expand and diversify ADMA's revenue streams. ADMA announced in the press release that this opportunity may allow ADMA to "exceed previous financial targets". This indicates it may be profitable sooner than Q1 of 2024 and may generate more revenue than previously guided.

Equity Offering

Next, on October 20th, ADMA announced an underwritten public offering of shares, with Raymond James and Cantor Fitzgerald as the joint-book runners. This offering was for 50M shares, but included a 30-day option for the underwriters to purchase an additional 7.5 million shares in the offering. Ultimately, the underwriters did purchase all extra shares, resulting in a 57.5M total offering. With a pricing of $1 per share, the total proceeds (before underwriting discounts, commissions and expenses) were $57.5 million.

As of June 30, 2021, ADMA had net working capital of $153.2 million and was burning through cash at a rate of approximately $37M each 6 months, meaning a cash flow burn rate of approximately $75M per year. With this new financing in place, ADMA should now have enough cash to reach its prior profitability guidance (which may actually be sooner than previously guided, as noted above). Shareholders can rejoice as this may have been the last dilutive offering.

Insider Purchases

Outside of one fund, Perceptive Advisors, selling shares, the insiders in ADMA have been purchasing shares over the past few years and, more recently, directors and officers participated in the newest equity offering and purchased shares at $1 per share. Note, however, that insiders were buying shares during 2020 at a level much higher than today's trading level and purchased shares as high as $3.50 per share.

Source: OpenInsider.com

One insider that I'd like to highlight that purchased shares was Dr. Young Kwon, who recently joined ADMA's board. Dr. Kwon is an operating partner at Lightstone Ventures and has M&A experience, most recently leading a sale of Momenta to Johnson & Johnson for approximately $6.5 billion in 2020.

It is notable that on his page on Lightstone's website, it lists him with the responsibility for "deal sourcing, due diligence and portfolio company management". I'd also like to point out that in September of 2021, Lightstone Ventures raised $375 million for its largest venture-capital fund that will enable it to place bets on bio and medical tech startups in the U.S. and abroad. With valuations of private biotech companies soaring and VC money flooding this sector, I believe it is plausible that this fund will look at public opportunities that are undervalued.

Strategic Alternatives

The final update on ADMA is that, on October 20th, ADMA announced that it is "currently evaluating a variety of strategic and financing alternatives and have engaged Morgan Stanley as a financial advisor in connection with certain of those strategic alternatives".

It also indicated that it will not likely not need to issue any more equity offerings:

We currently anticipate, based upon our projected revenue and expenditures, that our current cash, cash equivalents and accounts receivable, together with the estimated net proceeds of this offering, as well as our plans to refinance and expand our existing debt, will be sufficient to fund our operations to cash flow positive, anticipated to be achieved no later than the first quarter of 2024.

Conclusion

I am bullish on ADMA and believe the pain of equity offerings is behind them. The investments that ADMA has made over the past few years is about to payoff and insiders know this, hence the recent insider buying.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ADMA either through stock ownership, options, or other derivatives. 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.