The company I am discussing in this article has a strong potential to run 50-100% in the near-term. Fundamentals and technicals have converged at an intriguing time-point giving me a high degree of confidence in the trade.
Intravenous immunoglobulins (IVIGs) is a plasma-derived medicine used to treat individuals with primary immune deficiency disorder (PIDD). Essentially patients with PIDD have immune systems incapable of producing certain antibodies (proteins that fight off pathogens). IVIG medicine consists of antibodies harvested from healthy individuals via plasma donations. Presently there is an IVIG shortage in the U.S. Adma Biologics (ADMA) is well positioned to help meet demand as one of the fastest growing companies in the state of New Jersy and owner of two of the highest quality IVIG products (ASCENIV and BIVIGAM). A third IVIG product Nabi-HB is used to treat people with a high risk of contracting Hepatitis B is an additional revenue stream.
If you have been following my articles on MS Money Moves you know I have been watching ADMA for some time now. My first article in October 2018 identified ADMA as a potentially lucrative opportunity amid a stock market bloodbath. A couple of months later the company received a complete response letter (CRL) from the FDA regarding its prior approval supplement (PAS) for its IVIG product BIVIGAM. The share price tanked taking ADMA to its 52-week low of $2.08. It was at this time I took an in-depth look into ADMA’s valuation and potential growth. What I found was that within 5-years ADMA could be valued at $19 per share (+280% upside).
In February 2019 I opened my position in ADMA at ~$2.90. Since then I have increased my cost basis as I’ve added more shares to my position. Hopefully without beating a dead horse; in this article, I will discuss my rationale for why despite gaining upwards of 65% since February I see further upside for ADMA in the near and long-term.
BIVIGAM Regulatory Update Imminent
On May 7th it will have been 4-months since ADMA responded to the FDA’s CRL for BIVIGAM. According to ADMA CEO and chairman Adam Grossman, the CRL can be summed up as an information overload for the FDA. A couple of weeks later on January 7th, 2019 ADMA responded to the CRL and stated they anticipated the FDA would formally receive their response within 30 days.
Assuming the FDA indeed received ADMA’s response within this time frame means sometime in May or June will be the 4-month mark. Why do we care? The answer lies in the deficiencies FDA identified in ADMA’s PAS submission.
The CRL did not mention any issues regarding BIVIGAM’s efficacy or safety. Rather it requested information pertaining to BIVIGAM chemistry manufacturing and controls (CMC). CRLs of this nature generally garner a response from the FDA in 4-months of receipt of the CRL response. Hence, sometime in May/June ADMA should get a regulatory update on whether or not they can proceed with BIVIGAMs commercial relaunch. Why am I confident that the update will be positive?
There are several components to the answer. For one, ADMAs management team has proved to be competent and mindful of its shareholders. They have done a great job keeping the share price afloat despite heavy shorting by releasing timely press releases highlighting operational and commercial updates and achievements. In particular, ADMA alerted stakeholders of a license to sell ASCENIV from the Department of Health and Human Services (DHHS) a day after approval. A few weeks after that we learned via another press release ADMA was granted a patent for methods of treatment and prevention of pneumonia. So when the CEO says during a conference call with cool confidence the CRL was to due to a shortage of time to review the submission, and then gets a similar product (RI-002) approved 3-months later I take his words to heart.
Another thing is that RI-002 (ASCENIV) uses many of the same 3rd parties as BIVIGAM for its fill and finish processes. While the two submissions (BIVIGAM PAS and RI-002 BLA) are independent this means that these 3rd party operations are FDA compliant. Moreover, the Boca Raton facility used to manufacture BIVIGAM and ASCENIV was upgraded in September 2018 from Office Action Indicated (OAI) to Voluntary Action Indicated (VAI). And as the aforementioned press release told us a license from DHHS was granted for interstate commerce with ASCENIV indicating the Boca Raton manufacturing facility is FDA compliant.
And finally, May 3rd ADMA announced they would be tapping into $27.5 million available through a credit facility with Perceptive Advisors. Per an amendment to the original agreement, ADMA negotiated for an additional $12.5 million to be available predicated on FDA approval of BIVIGAM. ADMA specified that the $27.5 million is to be used in support of ASCENIV’s commercial launch and to help secure another plasma facility.
The biggest risk right now is if the FDA finds some other deficiencies with BIVIGAM delaying approval even longer. This would certainly send the share price under $4. If and when ADMA eventually gets both products on the market it’s vital they remain competitive. After products make it through the clinical process the focus of investors and analysts shifts to sales revenue growth and magnitude compared to operating expenses. In other words, how much money the company can generate and how much of that money is actually profit.
Sunday, May 5th president Trump announced he would be raising a 10% tariff on 200 Bn in Chinese imports by an additional 15% effective Friday. The president even threatened to slap another 25% tariff on $350 Bn of Chinese goods. Futures took a dive today and equities sold off in the Chinese market, healthcare stocks included. U.S. market will likely see a similar knee jerk reaction.
On the previous runup- ADMA ran over 30% into its PDUFA for RI-002. Last Friday 5/3/2019 ADMA broke up and out the bull flag (triangle) formation and continuously ran, closing the day up over 9%. Looking at the historical chart pattern since receiving its CRL Dec. 2018; Adma has had a repeating pattern. After making higher lows since December the share price would retrace approximately.786 (Fibonacci ratio), where we kept adding to our positions. ADMA has now formed another Vector Wave( exclusive to Biotech algorithmic trading). We are looking for a continued run back around $5.50-$6 into the Bivigam catalyst.
ADMA has a lot of room to grow with BIVIGAM’s potential approval on the horizon and ASCENIV now being marketed. Depending on when the FDA formally received ADMA’s CRL response a regulatory update for BIVIGAM should come in May or June. This is based on the submission being a PAS (prior approval supplements) not a BLA (biologics license application). Thus, the FDA does not treat it the same and should review and respond to ADMA in 4-months from receipt. After that happens and assuming BIVIGAM is cleared for commercialization the focus will shift to sales revenue and market penetration.
Unfortunately with president Trumps latest round of Tariff hikes ahead of trade talks with China scheduled for Wednesday the stock may go down again before up. Any dips down are a good opportunity to add and build a position in my opinion. My 12-month price target for ADMA is $7-8 (46-67% upside).
I am/we are long ADMA.
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