Last Updated on April 3, 2019 by Kevin Douglass
Today Adma Biologics (Nasdaq: ADMA) sold off ~10% closing at $3.50. Most of us already in Adma were not phased. Personally, I saw this as a healthy pullback. Since February 1st ADMA has gained 25% even after conceding .40 cents today which coincides with key Fibonacci levels.
In this article, I’d like to discuss positive technical and fundamental indicators supporting bullish sentiments.
BIVIGAM CRL Appears Easily Resolvable
ADMA submitted 1000’s of pages of robust data and details for the FDA to review. This is most probably why the PDUFA date was extended to December 18th, 2018 from the initial date of October 25th, 2018. ADMA believes all the clarifications requested in the CRL are either already contained within the PAS submission or are on hand. It’s entirely possible that if the FDA had more time to review the extensive information load the PAS submission would have been approved.
The submission was split into two parts- Operations at the Boca Raton Plant and Fill and Finish of Bivigam at their Contract Manufacturing Organizations (CMO) and final release testing of Bivigam filled and packaged into vials.
The compliance status of the Boca Raton manufacturing facility was upgraded in September of 2018 from Office Action Indicated (OAI) to Voluntary Action Indicated (VAI). Moreover, ADMA was issued an Establishment Inspection Report (EIR). The implication of which is ADAM’s manufacturing facility is operating within compliance.
With regards to the efficacy and efficiency of Bivigams manufacturing process; ADMA performed a comparative analysis of the old production method with 3 conformance batches using their new “optimized IVIG manufacturing process”. They found prior issues of filters clogging and impurities in the final product were resolved and everything was in accordance with Good Manufacturing Practices (GMP). The CRL primarily asked for clarification on these topics.
All of the third-party labs and associated lot release tests used for Bivigam are in good standing and compliant. Many of these are also utilized for production processes for RI-002.
RI-002 PDUFA on April 02
The initial PDUFA for RI-002 in 2016 received a CRL. A statement from the press release points out that the FDA was not concerned with RI-002’s efficacy or safety.
The CRL did not cite any concerns with the clinical safety and efficacy data for RI-002 submitted by ADMA in the BLA, nor has the FDA requested any additional clinical studies be conducted prior to FDA approval of RI-002 for PIDD.
Source: ADMA Press Release July 31, 2016.
The FDA identified in the CRL certain outstanding inspection issues and deficiencies at ADMA’s third-party contract manufacturers, including its contract drug substance and product manufacturer, its contract fill and finisher and compliance issues with a third-party contract testing laboratory, and requested documentation of corrections for a number of those issues.
As discussed on December 20, 2018, BIVIGAM regulatory update conference call all of ADMA’s third-party facilities used for fill and finish processes are in good standing and compliant.
Technicals Are Aligned With Fundamentals
What makes true cup and handle?
To form a proper cup and handle chart pattern I look for prior uptrend of around 20-30%, in a cup-like formation. The idea of the “handle” stems from a pullback after the cup formation. The minimum length of the base of the cup should be at least 7 weeks; the longer the better. I am looking for the stock to consolidate thus giving the run a higher probability.
As shown in the chart above the stock begins forming a stairway formation (numbered 1-5) as it takes breathers and continues the uptrend. Let’s walk through the replay.
These stairways hold key Fibonacci ratios. As shown in ADMA’s chart, from the base $2.08 (start of leg 1 and Double Bottom) to where it made its first “step” up. ADMA ended its uptrend at ~ $3.64. Furthermore, pulled-back at exactly .618 retracement to $2.56 leading me to believe the imminent start of a new uptrend while following Elliot wave theory (See leg (2) above). The next step up was from $2.56 (start of leg 3) to $4.48 where it started the current pullback and landed us to where we are with the current stock price of $3.50 (leg 4). This and other proprietary indicators lead me to think ADMA has capitulated after the 10%+ sell-off on 3/21/2019.
You may have heard the phrase “don’t catch the falling knife.” This is where this trade becomes even more exciting. According to Elliot Wave theory, leg 1 pulls back between .618 and .786 which forms a higher low and Leg 3 is known to retrace ~.382, creating another higher lows as ADMA breaths from a strong run-up.
These stairs (which are numbered 1-5) on the chart have moved about $1.50 to the upside each step up, which gets me to my final point. Elliot wave theory states that two of the legs are equal in price movement and the third extends. With key catalysts coming in the next couple weeks, it is not unreasonable, with “good data” for another move of $1.50+ to the upside. Extrapolating the chart patterns, cup and handle, and Fibonacci importance. Historical chart data has shown formations like this form what I like to call the “Stairway to Heaven.”
A Facility Loan Agreement With Perceptive Advisors
In February ADMA Biologics (Nasdaq: ADMA) entered into a senior secured loan term facility with Perceptive Advisors for up to $72.5 million under 2 funding tranches.
Perceptive Advisors LLC is a financier of biotechnology and health care companies, not a set of actual “advisors”. Their focus is on forwarding the agenda of promising life sciences companies (like ADMA) providing financial resources needed to bring products to market. They presently have ~$4.2 billion in assets under management. What ADMA did was put up one of their facilities to borrow $72.5 million divided into two “funding tranches”.
Right To Buy
Six members of the board of directors each have options that fully vest 30k shares February 2020. They have the right to buy at $3.89
ADMA is presenting us with a rare opportunity. Essentially two products could be approved in April- RI-002, and BIVIGAM. The consequence of which would be a new valuation between $6-$8 by our projections. In my opinion, even approval of one of these products would put ADMA within that range.
Today’s pullback makes for a great entry opportunity for investors caught on the sidelines.
Of course, there is always inherent risk present. If you decide to hold through the next few weeks please understand that in biotech CRL’s result in a negative reaction by the market. Also, just because the PDUFA date is on April 2 does not mean a decision cannot come earlier.
That said, I am personally very excited. It’s not too often we see a technical setup like this heading into a material event. Long-term I am bullish on the performance of ADMA. In the united states, there is an ongoing shortage of IVIG medicine such as RI-002 and BIVIGAM.
Whether you are buying for a swing into the PDUFA or holding for the long-run, good luck to all! And as always, let’s get it!
I am long ADMA.