ADMA BIOLOGICS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of our financial condition and results of operations, which refers to our historical results, should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including “Risk Factors” and our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on March 24, 2022 (the “2021 10-K”). The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout or referenced within this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements.” Our actual results may differ materially from our current expectations. OVERVIEW Our Business ADMA Biologics, Inc. (the “Company,” “ADMA,” “we,” “us” or “our”) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing, marketing and developing specialty plasma-derived biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases. Our targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons. We currently have three products with U.S. Food and Drug Administration (the “FDA”) approval, all of which are currently marketed and commercially available: (i) BIVIGAM (Immune Globulin Intravenous, Human), an Intravenous Immune Globulin (“IVIG”) product indicated for the treatment of Primary Humoral Immunodeficiency (“PI”), also known as Primary Immunodeficiency Disease (“PIDD”), and for which we received FDA approval on May 9, 2019 and commenced commercial sales in August 2019; (ii) ASCENIV (Immune Globulin Intravenous, Human – slra 10% Liquid), an IVIG product indicated for the treatment of PI, for which we received FDA approval on April 1, 2019 and commenced first commercial sales in October 2019; and (iii) Nabi-HB (Hepatitis B Immune Globulin, Human), which is indicated for the treatment of acute exposure to blood containing HBsAg and other listed exposures to Hepatitis B. We may also seek to develop a pipeline of plasma-derived therapeutics, including but not limited to, a product based on our most recently approved patent application under U.S. Patent No. 10,259,865 related to methods of treatment and prevention of S. pneumonia infection for an immunoglobulin manufactured to contain standardized antibodies to numerous serotypes of S. pneumoniae. In May 2022, the United States Patent and Trademark Office issued U.S. Pat. No. 11,339,206 (the “‘206 Patent”). The ‘206 Patent relates to methods of treating respiratory infections and expands ADMA’s estate of patents encompassing its proprietary immunotherapeutic compositions. In particular, the ‘206 Patent encompasses use of standardized, hyperimmune globulin for treating respiratory infections including those caused by respiratory syncytial virus (“RSV”), coronavirus, influenza virus, parainfluenza virus, and metapneumovirus. Our products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases. We manufacture these products at our FDA-licensed, plasma fractionation and purification facility located in Boca Raton, Florida with a peak annual source plasma processing capability of up to 600,000 liters (the “Boca Facility”). Based on current production yields, our completed and ongoing supply chain enhancements and capacity expansion initiatives, we believe this facility has the potential to produce quantities of our immune globulin (“IG”) products to generate approximately $250 million or more in annual revenue beginning in 2024 and approximately $300 million or more thereafter, as well as achieving profitability during the first quarter of 2024, as we ramp-up production over the next several years. Based on our current 2022 revenue growth year-to-date, we have increased our total annual revenue target to approximately $145 million for fiscal year 2022. 23 Index Through our ADMA BioCenters subsidiary, we currently operate seven FDA-licensed source plasma collection facilities in the U.S., with two additional collection facilities in operation and collecting plasma presently under FDA licensing preparation and review and another facility under construction. This business unit, which we refer to as our Plasma Collection Centers business segment, provides us with a portion of our blood plasma for the manufacture of our products, and also allows us to sell certain quantities of source and hyperimmune plasma to third-party customers for further manufacturing. As a part of our planned supply chain robustness initiative, we have opened four new plasma collection centers during the past 12 months, and we now have ten plasma collection centers in various stages of approval and development, including nine that are operational and collecting plasma. In addition, three of our FDA-approved plasma collection centers also have approvals from the Korean Ministry of Food and Drug Safety (“MFDS”), as well as FDA approval to operate a Hepatitis B immunization program. After giving effect to the progress we made in 2021 and thus far in 2022 with our plasma collection network expansion, we believe we remain on track to achieve our goal of having ten plasma collection centers licensed by the FDA by the end of 2023. A typical plasma collection center, such as those operated by ADMA BioCenters, can collect approximately 30,000 to 50,000 liters of source plasma annually, which may be sold for different prices depending upon the type of plasma, quantity of purchase and market conditions at the time of sale. Plasma collected from ADMA BioCenters’ facilities that is not used to manufacture our products or product candidates is sold to third-party customers in the U.S. and in other locations outside the U.S. where we are approved under supply agreements or in the open “spot” market. We sell plasma-derived intermediate fractions to certain customers, which are generated as part of our FDA-approved manufacturing process for IG and IVIG products. In January 2020, we announced our entry into a five-year manufacturing and supply agreement to produce and sell these intermediate by-products, which are used as the starting raw material to produce other plasma-derived biologics. In addition, from time to time we provide contract manufacturing and testing services for certain third-party clients. We also provide laboratory contracting services to certain customers and anticipate providing contract filling, labeling and packaging services in light of the FDA approval of our in-house fill-finish capabilities. On June 6, 2017, we completed the acquisition of certain assets (the “Biotest Assets”) of the Therapy Business Unit (“BTBU”) of Biotest Pharmaceuticals Corporation (“BPC” and, together with Biotest AG, “Biotest”), which included two FDA-licensed products, Nabi-HB and BIVIGAM, and the Boca Facility (the “Biotest Transaction”). Our Products BIVIGAM BIVIGAM is a plasma-derived IVIG that contains a broad range of antibodies similar to those found in normal human plasma. These antibodies are directed against bacteria and viruses, and help to protect PI patients against serious infections. BIVIGAM is a purified, sterile, ready-to-use preparation of concentrated human Immunoglobulin G antibodies indicated for the treatment of PI, a group of genetic disorders. This includes, but is not limited to, the humoral immune defect in common variable immunodeficiency, X-linked agammaglobulinemia, congenital agammaglobulinemia, Wiskott-Aldrich syndrome and severe combined immunodeficiency. These PIs are a group of genetic disorders. Based on recent estimates, these disorders are no longer considered to be very rare, with as many as one in every 1,200 people in the United States having some form of PI. On May 9, 2019, the FDA approved the Prior Approval Supplement (the “PAS”) for the use of our IVIG manufacturing process, thereby enabling us to re-launch and commercialize this product in the United States. We resumed production of BIVIGAM during the fourth quarter of 2017 and commercial production is ongoing, using our FDA-approved IVIG manufacturing process under U.S. Department of Health and Human Services (“HHS”) License No. 2019. The commercial re-launch and first commercial sales for this product commenced in August of 2019. On April 28, 2021, we announced that the FDA granted approval for our expanded plasma pool production scale process, allowing for a 4,400-liter plasma pool for the manufacture of our BIVIGAM IVIG product. This increased IVIG plasma pool scale allows us to produce BIVIGAM at an expanded capacity, utilizing the same equipment, release testing assays and labor force, and has had a favorable impact on our gross margins and operating results. 24 Index ASCENIV ASCENIV is a plasma-derived IVIG that contains naturally occurring polyclonal antibodies, which are proteins that are used by the body’s immune system to neutralize microbes, such as bacteria and viruses, and prevent against infection and disease. We manufacture ASCENIV under HHS License No. 2019 using a process known as fractionation. The Centers for Medicare and Medicaid Services (“CMS”) has issued a permanent, product-specific-J-code for ASCENIV. Under the Healthcare Common Procedure Coding System (“HCPCS”), the J-code (J1554) became effective April 1, 2021. As part of our proprietary manufacturing process for ASCENIV, we leverage our unique, patented plasma donor screening methodology and tailored plasma pooling design, which blends normal source plasma and plasma from donors tested to have high levels of neutralizing antibody titers to respiratory syncytial virus (“RSV”) using our proprietary microneutralization testing assay. We are able to identify the high titer or “hyperimmune” plasma that meets our internal and required specifications for ASCENIV with our patented testing methods and assay. This type of high titer plasma is typically found in less than 10% of the total donor collection samples we test. ASCENIV is approved for the treatment of Primary Immune Deficiency Disorder (“PIDD”), a class of inherited genetic disorders that causes a deficient or absent immune system in adults and adolescents (12 to 17 years of age). Our pivotal Phase 3 clinical trial in 59 PIDD patients met the primary endpoint of no Serious Bacterial Infections reported during 12 months of treatment. Secondary efficacy endpoints further demonstrated the benefits of ASCENIV in the low incidence of infection, therapeutic antibiotic use, days missed from work/school/daycare and unscheduled medical visits and hospitalizations. We believe this clinical data together with the FDA approval for the treatment of PIDD better positions ADMA to potentially further evaluate ASCENIV in immune-compromised patients infected with or at-risk for RSV infection or potentially other respiratory viral pathogens at an appropriate time. Due to the COVID-19 pandemic, our plans have been delayed. In the future however, we may work with the FDA and the immunology and infectious disease community to design an appropriate clinical trial to evaluate the use of ASCENIV in this patient population. Commercial sales of ASCENIV commenced in October of 2019 and our commercial and medical education efforts are focused on the labeled indication of patients with PIDD. Nabi-HB Nabi-HB is a hyperimmune globulin that is rich in antibodies to the Hepatitis B virus. Nabi-HB is a purified human polyclonal antibody product collected from plasma donors who have been previously vaccinated with a Hepatitis B vaccine. Nabi-HB is indicated for the treatment of acute exposure to blood containing HBsAg, prenatal exposure of infants born to HBsAg-positive mothers, sexual exposure to HBsAg-positive persons and household exposure to persons with acute Hepatitis B virus infection in specific, listed settings. Hepatitis B is a potentially life-threatening liver infection caused by the Hepatitis B virus. It is a major global health problem. It can cause chronic infection and puts people at high risk of death from cirrhosis and liver cancer. Nabi-HB has a well-documented record of long-term safety and effectiveness since its initial market introduction. The FDA approved Nabi-HB on March 24, 1999. Production of Nabi-HB at the Boca Facility has continued under our leadership since the third quarter of 2017. In early 2018, we received authorization from the FDA for the release of our first commercial batch of Nabi-HB for commercial distribution in the U.S. and we continue to manufacture Nabi-HB under HHS License No. 2019. POTENTIAL IMPACT OF COVID-19 We continue to monitor the ongoing developments related to the COVID-19 pandemic, including the emergence of the Delta, Omicron and BA.2 variants and other resistant strains of the coronavirus, and its impacts to our commercial and manufacturing operations and plasma collection facilities, including collections of source plasma, procurement of raw materials and packaging materials, a portion of which are sourced internationally, and the testing of finished drug product that is required prior to its availability for commercial sale. A substantial portion of such testing has historically been performed by contract laboratories outside the United States. 25 Index Due to a combination of previous state and local “shelter-in-place” orders, as well as government stimulus packages, persisting social distancing measures and varying roll-outs of vaccinations by state, we were experiencing lower than normal donor collections at our FDA approved plasma collection centers. We are also subject to delays in shipments of source plasma from our contracted third-party suppliers, as well as delays in deliveries for personal protective equipment, reagents and other non-plasma raw materials and supplies used in the manufacture and distribution of our products. In addition, we are subject to supply chain delays as a result of certain of our suppliers diverting significant resources towards the rapid development and distribution of COVID-19 vaccines and, as a result, we have elected to carry more raw materials inventory than we have in the past. The COVID-19 pandemic previously impacted, to a certain degree, our customer engagement initiatives, whereby ADMA’s sales and medical affairs field personnel faced difficulties communicating directly with physicians and other healthcare professionals, as well as the cancellation or postponement of a number of key scientific and medical meetings, further limiting our ability to communicate with potential customers. The pandemic could also impact our ability to interact with the FDA or other regulatory authorities and may result in delays in the conduct of inspections or review of pending applications or submissions. Although we received several FDA approvals and two FDA inspections of the Boca Facility were completed during the year ended December 31, 2021, no assurances can be provided as to the timing for completion of any other regulatory submissions or applications that may be impacted by restrictions related to COVID-19. During the nine months ended September 30, 2022 and 2021, our revenue attributable to international customers was approximately 7% and 13%, respectively, of our total revenues. As we seek to grow this aspect of our business, we may also be subject to the impacts of the COVID-19 pandemic in locations outside the United States. Notwithstanding the foregoing, the COVID-19 pandemic to date has not had a material impact on our financial condition or results of operations, and we do not believe that our production operations at the Boca Facility, our contract fill/finishers or our plasma collection facilities have been significantly impacted by the COVID-19 pandemic. As a result, we do not anticipate and have not experienced any material impairments with respect to any of our long-lived assets, including our property and equipment, goodwill or intangible assets. Although the COVID-19 pandemic has not, to date, materially adversely impacted our capital and financial resources, because we are unable to determine the ultimate severity or duration of the pandemic or its long-term effects on, among other things, the global, national or local economies, the capital and credit markets or our workforce, customers or suppliers, at this time we are unable to predict whether COVID-19, or any known or future variant or government order, will have a material adverse impact on our business, financial condition, liquidity and results of operations. After the COVID-19 global pandemic has settled, we may continue to experience adverse impacts to our business as a result of evolving macroeconomic factors, including general economic uncertainty, unemployment rates, inflationary pressures and any actual economic recession that has occurred or may occur in the future. RESULTS OF OPERATIONS Critical Accounting Policies and Estimates This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. Significant estimates include rebates and certain other deductions from gross revenues, impairment of long-lived assets, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under our equity incentive plans and warrants issued in connection with the issuance of notes payable and the valuation allowance for our deferred tax assets. 26 Index Some of the estimates and assumptions we have to make under U.S. GAAP require difficult, subjective and/or complex judgments about matters that are inherently uncertain and, as a result, actual results could differ from those estimates. Due to the estimation processes involved, the following summary of accounting estimates and their application are considered to be critical to understanding our business operations, financial condition and results of operations. For a description of our significant accounting policies, see Note 2 to the Consolidated Financial Statements included in the 2021 10-K. Estimates and assumptions used in projecting future liquidity and capital requirements are described in Note 1 to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Revenues Our gross product revenues are subject to a variety of deductions, which are estimated and recorded in the same period that the revenues are recognized. These deductions primarily consist of rebates, distribution fees, chargebacks and sales allowances. These deductions represent estimates of the related obligations, some of which are contractual in nature and do not require extensive judgment to be exercised by management, while other estimates require complex or subjective matters of knowledge and judgment when estimating the impact of these revenue deductions on net revenues for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material to our overall business. However, two of our primary immunoglobulin products, ASCENIV and BIVIGAM, were only approved for commercial sale by the FDA in 2019, and as such our historical experience with rebates with respect to these products is limited. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. Estimates that are most at risk for material adjustment are those associated with U.S. Medicaid rebates because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally take up to several years or more. While our results of operations to date have not required any material adjustment due to this risk, the lag time between when this obligation is initially recorded and ultimately settled could potentially materially impact our revenues and our results of operations in the future. Stock-Based Compensation and Valuation of Warrants All equity-based payments, including grants of stock options and Restricted Stock Units (“RSUs”) are recognized at their estimated fair value at the date of grant, and compensation expense is recognized on a straight-line basis over the grantee’s requisite vesting period. For the purpose of valuing stock options granted to our employees, directors and officers, we use the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of publicly traded options, which have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the underlying Black-Scholes assumptions can materially affect the fair value estimate. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of the grant with a term consistent with the expected term of our awards. The expected term of the options granted is in accordance with U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletins 107 and 110 and is based on the average between vesting terms and contractual terms. The expected dividend yield reflects our current and expected future policy for dividends on our Common Stock. The expected stock price volatility for our stock options was calculated by examining the historical volatility of our Common Stock since our Common Stock became publicly traded in the fourth quarter of 2013. We will continue to analyze the expected stock price volatility and expected term assumptions and will adjust our Black-Scholes option pricing assumptions as appropriate. Any changes in the foregoing Black-Scholes assumptions, or if we were to elect to utilize an alternative method for valuing stock options granted to employees, directors and officers, could potentially impact our stock-based compensation expense and our results of operations. We also use the Black-Scholes option valuation model for the purpose of estimating the fair value of warrants we issue from time to time in connection with the issuance of notes payable. Changes in our Black-Scholes assumptions, or if we were to utilize an alternative method for valuing warrants issued to our lenders, could impact our interest expense and results of operations. 27 Index Impairment of Long-Lived Assets We assess the recoverability of our long-lived assets, which include property and equipment and definite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the nine months ended September 30, 2022 and 2021, we determined that there was no impairment of our long-lived assets. Examples of events or circumstances that may be indicative of impairment that would require the use of significant judgment by management include: • A significant adverse change in legal factors or in the business climate that could affect the value of the asset. • Significant and continued cash flow losses. • A significant adverse change in the extent or manner in which an asset is used, such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture our products using a particular asset. • An expectation of losses or reduced profits associated with an asset. This could result, for example, from the introduction of a competitor’s product that impacts projected revenue growth, or a change in the acceptance of a product by patients, physicians and payers that results in an inability to sustain projected product revenues. Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The testing of goodwill for impairment requires us to determine whether or not the fair value of the reporting unit associated with the goodwill is less than its carrying amount, including goodwill and other intangible assets. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, with the impairment loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. In order to determine the fair value of the reporting unit, we utilize the fair value of the Company as a whole, as determined by its market capitalization. Determination of the fair value and carrying value of each reporting unit, relative to the fair value of the Company, requires management to employ certain estimates, assumptions and judgment, which we believe are reasonable. However, any changes to these estimates and assumptions could impact our determination of whether or not our goodwill is impaired. We did not recognize any impairment charges related to goodwill for the nine months ended September 30, 2022 and 2021. Deferred Tax Assets We maintain a full valuation allowance against all of our net deferred tax assets, and as a result have recorded no income tax benefit in the accompanying consolidated financial statements. This valuation allowance reflects our assessment of whether it is more likely than not that we will generate sufficient taxable income in the future to be able to utilize our deferred tax assets. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies. We consider all positive and negative evidence to estimate if sufficient future taxable income will be generated to realize our deferred tax assets. We consider cumulative losses in recent years to be a significant type of negative evidence. Based on our history of losses, at this time we have not included future projected taxable income as a source of income to recognize our deferred tax assets. Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 The following table presents a summary of the changes in our results of operations for the three months ended September 30, 2022, our third fiscal quarter, compared to the three months ended September 30, 2021: 28 Index Three Months Ended September 30, 2022 2021 Increase (Decrease) Revenues $ 41,090,137 $ 20,680,550 $ 20,409,587 Cost of product revenue 31,433,496 20,295,213 11,138,283 Gross profit 9,656,641 385,337 9,271,304 Research and development expenses 1,041,947 770,557 271,390 Plasma center operating expenses 4,859,450 3,146,221 1,713,229 Amortization of intangibles 178,838 178,838 - Selling, general and administrative expenses 12,893,139 10,726,797 2,166,342 Loss from operations (9,316,733 ) (14,437,076 ) 5,120,343 Interest expense (5,580,366 ) (3,298,680 ) (2,281,686 ) Other (expense) income, net (2,405 ) 22,802 (25,207 ) Net loss $ (14,899,504 ) $ (17,712,954 ) $ 2,813,450 Revenues We recorded total revenues of $41.1 million during the three months ended September 30, 2022, as compared to $20.7 million during the three months ended September 30, 2021, an increase of $20.4 million, or approximately 99%. The increase is due to increased sales of immunoglobulin products, primarily ASCENIV and BIVIGAM, generated by our Boca Facility manufacturing operations in 2022 of $18.2 million, as we continue to experience increased physician, payer and patient acceptance and utilization of ASCENIV and expand our customer base for BIVIGAM. We also benefitted from an increase in sales of normal source plasma through ADMA BioCenters of $2.2 million. Cost of Product Revenue and Gross Profit Cost of product revenue was $31.4 million for the three months ended September 30, 2022, as compared to $20.3 million for the three months ended September 30, 2021. This increase is primarily attributable to increased product revenue costs related to the increased sales of our immunoglobulin products of $10.6 million and increased product revenue costs related to our ADMA BioCenters business segment in the amount of $2.0 million. These increases were partially offset by a decrease in unabsorbed manufacturing expenses of approximately $1.3 million in the third quarter of 2022 as compared to the same period of a year ago, due to higher production levels at the Boca Facility in 2022. For the three months ended September 30, 2022, we had gross profit of $9.7 million, as compared to $0.4 million for the same period of a year ago. This gross profit improvement of $9.3 million was primarily due to the revenue increase discussed above and a more favorable mix of our higher margin products, notably ASCENIV, as well as the benefits we have begun to realize from our expanded production scale process, allowing for a 4,400-liter plasma pool for the manufacture of our BIVIGAM IVIG product, which was approved by the FDA in the second quarter of 2021, as compared to our 2,200-liter plasma pool. As a result, we achieved a gross margin of 23.5% in the third quarter of 2022 as compared to 1.9% in the third quarter of 2021. Research and Development Expenses Research and development (“R&D”) expenses totaled $1.0 million for the third quarter of 2022, as compared to $0.8 million for the third quarter of 2021. The increase is primarily due to higher expenditures related to the BIVIGAM post-marketing commitments we have with the FDA (see Note 10 to the consolidated financial statements). Plasma Center Operating Expenses During the third quarter of 2021, we had five plasma collection centers in operation. During the third quarter of 2022, we had eight plasma collection centers in operation, with our ninth collection center opening at the end of the third quarter of 2022. As a result, for the three months ended September 30, 2022 we had increases in donor fees of $3.4 million, compensation and benefits of $1.5 million, softgoods and supplies of $1.1 million, donor testing expenses of $0.9 million, depreciation of $0.3 million, advertising of $0.1 million, software maintenance expense of $0.1 million, professional services of $0.2 million, transportation costs of $0.1 million and rent of $0.1 million. These increases were largely offset by substantially increased plasma collections resulting in an additional $6.5 million of costs that were capitalized into inventory. 29 Index Amortization of Intangibles Amortization expense pertains to the amortization of intangible assets acquired in the Biotest Transaction and was $0.2 million for the three months ended September 30, 2022 and 2021. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses were $12.9 million for the three months ended September 30, 2022, an increase of $2.2 million from the three months ended September 30, 2021. The increase reflects higher employee compensation and related expenses, including travel, relocation and recruiting, in the amount of $1.1 million due to increased headcount associated with the overall size and scope of the organization and the stepped-up commercialization efforts for BIVIGAM and ASCENIV, increased insurance expense of $0.2 million, increased expenses for market intelligence and data fees of $0.7 million to support the BIVIGAM and ASCENIV commercialization efforts and $0.2 million of increased marketing expenses. Loss from Operations Our operating loss was $9.3 million for the third quarter of 2022, as compared to $14.4 million for the third quarter of 2021. The $5.1 million decrease in operating loss was mainly due to the improved gross profit of $9.3 million, partially offset by the increases in plasma center operating expenses and SG&A. Interest Expense Interest expense for the three months ended September 30, 2022 was $5.6 million, as compared to $3.3 million for the three months ended September 30, 2021. The increase is mainly due to approximately $53.8 million of additional debt principal resulting from the refinancing of our senior credit facility on March 23, 2022 (see Note 7 to the consolidated financial statements and “Liquidity and Capital Resources”). We expect our interest expense to continue to increase during the remainder of 2022 and thereafter due to rising interest rates. Net Loss Our net loss was $14.9 million for the third quarter of 2022, as compared to $17.7 million for the third quarter of 2021. The $2.8 million decrease in net loss was mainly due to the narrowed operating loss, partially offset by the increase in interest expense. Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 The following table presents a summary of the changes in our results of operations for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021: 30 Index Nine Months Ended September 30, 2022 2021 Increase (Decrease) Revenues $ 104,098,237 $ 54,559,758 $ 49,538,479 Cost of product revenue 83,010,156 56,897,959 26,112,197 Gross profit (loss) 21,088,081 (2,338,201 ) 23,426,282 Research and development expenses 2,539,444 2,917,072 (377,628 ) Plasma center operating expenses 12,755,525 8,191,890 4,563,635 Amortization of intangibles 536,514 536,514 - Selling, general and administrative expenses 38,563,136 31,198,880 7,364,256 Loss from operations (33,306,538 ) (45,182,557 ) 11,876,019 Interest expense (13,542,419 ) (9,741,110 ) (3,801,309 ) Loss on extinguishment of debt (6,669,941 ) - (6,669,941 ) Other expense, net (153,369 ) (74,531 ) (78,838 ) Net loss $ (53,672,267 ) $ (54,998,198 ) $ 1,325,931 Revenues We recorded total revenues of $104.1 million during the nine months ended September 30, 2022, as compared to $54.6 million during the nine months ended September 30, 2021, an increase of $49.5 million, or approximately 91%. The increase is primarily due to increased sales of immunoglobulin products, mainly ASCENIV and BIVIGAM, generated by our Boca Facility manufacturing operations in 2022 of $46.3 million. We also benefitted from increased sales of normal source and hyperimmune plasma through ADMA BioCenters of $3.2 million. Our consolidated revenues of $104.1 million for the first nine months of 2022 includes sales of normal source plasma through our ADMA BioCenters subsidiary of $8.7 million (see Note 11 to the consolidated financial statements). In 2023 and beyond, we expect that a substantial portion of the plasma collected at our plasma collection facilities will be utilized in our Boca Facility manufacturing operations. Therefore, we do not anticipate significant revenues from the sale of normal source plasma beginning in 2023. Cost of Product Revenue and Gross Profit Cost of product revenue was $83.0 million for the nine months ended September 30, 2022, as compared to $56.9 million for the nine months ended September 30, 2021. This increase of $26.1 million is primarily attributable to volume-related increases in product revenue costs related to the sale of our immunoglobulin products of $21.4 million and increased product revenue costs related to our ADMA BioCenters business segment in the amount of $3.3 million. In addition, we also experienced an increase in other manufacturing expenses of approximately $1.3 million in the first nine months of 2022 as compared to the same period of a year ago, which is indicative of certain inflationary pressures being experienced by our industry for labor, materials, freight, fuel surcharges and third-party services. Our gross profit of $21.1 million for the nine months ended September 30, 2022 represents an improvement over the same period of a year ago of $23.4 million and is mainly due to the higher sales volume, the improved margins we are experiencing with BIVIGAM at the larger plasma pool production scale, and to the increased relative contribution of ASCENIV to our total revenues. As a result, we achieved a gross margin of 20.3% for the first nine months of 2022, as compared to a negative gross margin for the first nine months of 2021. Research and Development Expenses R&D expenses totaled $2.5 million for the nine months ended September 30, 2022, as compared to $2.9 million for the nine months ended September 30, 2021. The decrease is primarily due to reduced compensation costs, including stock-based compensation, of $0.6 million associated with R&D activities due to the resignation of our former Chief Medical and Scientific Officer in the second quarter of 2021, partially offset by $0.2 million of increased expenses related to BIVIGAM clinical studies which are part of our FDA post-marketing commitments . 31 Index Plasma Center Operating Expenses Subsequent to September 30, 2021, we opened four new plasma collection centers. As a result, plasma center operating expenses increased by $4.6 million in the first nine months of 2022 as compared to the same period of a year ago. The increase is mainly comprised of higher donor fees in the amount $8.1 million and increased expenses associated with employee compensation and benefits of $4.0 million, softgoods and supplies of $2.5 million, donor testing expenses of $1.9 million, depreciation expense of $0.8 million, software maintenance and professional services of $0.6 million, shipping and freight costs of $0.2 million, advertising expenses of $0.3 million, janitorial and utilities expense of $0.2 million, travel expense of $0.2 million and rent of $0.3 million, partially offset by significantly increased donor collections which had the impact of reducing our operating expenses by approximately $15.0 million, as such expenses were charged to inventory for future manufacturing or sales. As we continue our planned expansion with the goal of having ten plasma collection centers licensed by the FDA by the end of 2023, we expect our plasma center operating expenses to continue to increase. Amortization of Intangibles Amortization expense pertains to the amortization of intangible assets acquired in the Biotest Transaction and was $0.5 million for the nine months ended September 30, 2022 and 2021. Selling, General and Administrative Expenses SG&A expenses were $38.6 million for the nine months ended September 30, 2022, an increase of $7.4 million from the nine months ended September 30, 2021. The increase reflects $1.4 million of professional fees incurred in connection with the Morgan Stanley strategic alternatives process in 2022 with no comparable amount in 2021. In addition, we had an increase in employee compensation and related expenses, including travel, relocation and recruiting, in the amount of $4.8 million, $1.9 million of which is stock-based compensation, due to increased headcount, increased insurance expense of $1.0 million, and increases in marketing expense of $0.3 million, market intelligence and data fees of $1.0 million and utilities of $0.2 million. These costs were partially offset by the absence of the $0.8 million severance obligation recognized in 2021 in connection with the resignation of our former chief medical officer with no comparable amount in fiscal 2022 as well as lower repairs and maintenance expense in 2022 of $0.4 million. Loss from Operations Our operating loss was $33.3 million for the first nine months of 2022, as compared to $45.2 million for the first nine months of 2021. The $11.9 million decrease in operating loss was mainly due to the improved gross profit of $23.4 million, largely offset by the increases in plasma center operating expenses and SG&A. Interest Expense The increase in interest expense of $3.8 million for the nine months ended September 30, 2022 as compared to the same period of a year ago was mainly due to the additional indebtedness and increase in amortization of debt discount resulting from the refinancing of our senior credit facility on March 23, 2022 (see “Liquidity and Capital Resources”). Because our new senior credit facility allows us to pay “in kind” a portion of our monthly interest obligation, as well as the expected continued rise in global interest rates, we expect our principal debt balance, along with the associated interest expense, to increase each reporting period for the foreseeable future. Loss on Extinguishment of Debt In connection with the refinancing of our senior credit facility on March 23, 2022, we incurred a loss on the extinguishment of debt in the amount of $6.7 million as a result of the redemption premium we paid to retire our previously existing credit facility in the amount of $2.0 million, and the write-off of unamortized debt discount of $4.7 million related to that facility. Net Loss Our net loss was $53.7 million for the nine months ended September 30, 2022, as compared to $55.0 million for the nine months ended September 30, 2021, as the $11.9 million decrease in loss from operations for the period was largely offset by the loss on extinguishment of debt in 2022 of $6.7 million, with no comparable amount in 2021, and to the increase in interest expense resulting from our increased debt principal balance and rising interest rates. 32 Index LIQUIDITY AND CAPITAL RESOURCES At September 30, 2022, we had working capital of $179.7 million, primarily consisting of $162.9 million of inventory, cash and cash equivalents of $34.9 million and accounts receivable of $20.9 million, partially offset by current liabilities of $44.4 million, as compared to working capital of $178.4 million, primarily consisting of $124.7 million of inventory, cash and cash equivalents of $51.1 million and accounts receivable of $28.6 million, partially offset by $30.4 million of current liabilities, as of December 31, 2021. We have incurred an accumulated deficit of $465.8 million since inception, had negative cash flows from operations of $52.1 million and $78.9 million for the nine months ended September 30, 2022 and 2021, respectively, and had negative cash flows from operations of $112.4 million and $102.0 million for the years ended December 31, 2021 and 2020, respectively. We have funded our operations over the past few years primarily from the sale of our equity and debt securities. Our material cash requirements are primarily comprised of: • The procurement of raw material plasma and other raw materials necessary to maintain and scale up our manufacturing operations; • Employee compensation and benefits; • Capital expenditures for the building of additional plasma collection facilities and for equipment upgrades and capacity expansion at the Boca Facility; • Plasma donor fees and plasma center supplies; • Interest on our debt; • Marketing programs and continued commercialization efforts; • Boca Facility maintenance, repairs and supplies; and • Conducting required post-marketing clinical trials for our FDA-approved products. In addition, our end-to-end production cycle time from procurement of raw materials to commercial release of finished product can take between seven and 12 months or potentially longer, requiring substantial inventories of raw material plasma and other manufacturing materials and single use disposables. We expect that we will not be able to generate a sufficient amount of product revenue to achieve profitability until the beginning of 2024. We currently anticipate, based upon our projected revenue and expenditures, that our current cash, cash equivalents and accounts receivable, including the available funds from the March 2022 refinancing of our senior credit facility as discussed below, along with the remaining amounts available under the distribution agreement for the sale of our common stock also discussed below, will be sufficient to fund our operations, as currently conducted, into the first quarter of 2024, at which time we believe we will begin to generate positive cash flow from operations. This time frame may change based on several factors, including the success of our commercial efforts with respect to the sale of our products and the acceptability of our immune globulin products by physicians, patients or payers, and whether or not the assumptions underlying our projected revenues and expenses are correct. Depending on the cost of capital, we may decide to raise capital through public or private equity offerings or debt financings, or we may enter into a corporate collaboration or licensing arrangement. The sale of additional or equity debt securities, if convertible, could result in dilution to our stockholders and, in such event, the value and potential future market price of our common stock may decline. If we are unable to raise additional capital if needed, including due to widespread liquidity constraints or significant market instability that could result from the COVID-19 pandemic, inflationary pressures or other factors beyond our control, we may have to delay, curtail or eliminate some of our commercialization efforts or product development activities. ADMA continues to evaluate a variety of strategic alternatives through its ongoing engagement with Morgan Stanley. The Company will communicate material developments as required by the SEC. The exploration of value-creating opportunities remains a top corporate priority for ADMA. 33 Index On March 23, 2022, (the “Hayfin Closing Date”) we and all of our subsidiaries entered into a Credit and Guaranty Agreement (the “Hayfin Credit Agreement”) with Hayfin Services LLP (“Hayfin”). The Hayfin Credit Agreement provides for a senior secured term loan facility in a principal amount of up to $175.0 million (the “Hayfin Credit Facility”), composed of (i) a term loan made on the Hayfin Closing Date in the principal amount of $150.0 million (the “Hayfin Closing Date Loan”), and (ii) a delayed draw term loan in the principal amount of $25.0 million (the “Hayfin Delayed Draw Loan” and, together with the Hayfin Closing Date Loan, the “Hayfin Loans”). The obligation of the lenders to make the Hayfin Delayed Draw Loan expires on March 22, 2023, and is subject to the satisfaction of certain conditions, including, but not limited to, our meeting certain 12-month revenue targets as set forth in the Hayfin Credit Agreement. The Hayfin Credit Facility has a maturity date of March 23, 2027 (the “Hayfin Maturity Date”), subject to acceleration pursuant to the Hayfin Credit Agreement, including upon an Event of Default (as defined in the Hayfin Credit Agreement). On the Hayfin Closing Date, we used $100.0 million of the Hayfin Closing Date Loan to terminate and pay in full all of the outstanding obligations under our previous senior credit facility with Perceptive (see Note 7 to the Consolidated Financial Statements). We also used $2.0 million of the Hayfin Closing Date Loan proceeds to pay a redemption premium to Perceptive and used approximately $1.0 million of the Hayfin Closing Date Loan proceeds to pay certain fees and expenses incurred in connection with this transaction. In addition, a $1.8 million upfront fee payable to Hayfin was paid “in kind” and was added to the outstanding principal balance in accordance with the terms of the Hayfin Credit Agreement. The remainder of the proceeds received or to be received from the Hayfin Loans will be used for working capital and other general corporate purposes. Borrowings under the Hayfin Credit Agreement currently bear interest at the adjusted Term SOFR for either a one-month or three-month tenor, as elected by us, and subject to a floor of 1.25%, plus an applicable margin of 9.5% (the “Applicable Margin”); provided, however, that upon, and during the continuance of, an Event of Default, the Applicable Margin shall increase by an additional 3% per annum. We will also pay “in kind” a portion of the interest on the Hayfin Loans for each monthly or quarterly interest period in an amount equal to 2.5% per annum. Such interest paid “in kind” will reduce our quarterly cash interest obligation by approximately $1.0 million and will be added to the principal amount of the outstanding debt under the Hayfin Credit Facility. As a result, our outstanding debt principal on the Hayfin Loans will increase each month as long as we elect to continue to pay a portion of our interest obligation “in kind.” On the Hayfin Closing Date and as of September 30, 2022, the stated interest rate on the Hayfin Loans interest rate was 10.75% and approximately 12.1%, respectively. On the last day of each calendar month or quarter during the term of the Hayfin Credit Facility, we are required to pay accrued interest to Hayfin of approximately $1.1 million per month or $3.2 million per quarter, after giving effect to the “in kind” interest of 2.5% per annum, but without giving effect to the Hayfin Delayed Draw Loan, which we have yet to draw upon. Our interest obligations under the Hayfin credit agreement are subject to variable interest rates based on the Term SOFR in effect at the beginning of each monthly interest period. With the global rise in interest rates, we expect our interest rate and our monthly cash interest obligation to increase over the remainder of fiscal 2022 and into 2023 and beyond. For example, our stated interest rate, which was 10.75% for the month of June 2022, increased to approximately 12.06% for the month of September and is expected to be approximately 13.34% for the month of November. On the Hayfin Maturity Date, we will pay Hayfin the entire outstanding principal amount underlying the Hayfin Loans and any accrued and unpaid interest thereon, as well as an exit fee of 1.0% of the outstanding principal amount being paid. Prior to the Hayfin Maturity Date, there are no scheduled principal payments on the Hayfin Loans. We may prepay outstanding principal on the Hayfin Loans at any time and from time to time upon five business days’ prior written notice, subject to the payment to Hayfin of, (A) any accrued but unpaid interest on the prepaid principal amount plus (B) a prepayment fee in the amount equal to (i) 7.0% of the prepaid principal amount, if prepaid on or prior to the first anniversary of the Hayfin Closing Date, (ii) 3.0% of the prepaid principal amount, if prepaid after the first anniversary of the Hayfin Closing Date and on or prior to the second anniversary of the Hayfin Closing Date, or (iii) 1.0% of the prepaid principal amount, if prepaid after the second anniversary of the Hayfin Closing Date and on or prior to the third anniversary of the Hayfin Closing Date. In addition, for any prepayments of principal, we are required to pay the 1.0% exit fee for the amount of principal being paid. 34 Index All of our obligations under the Hayfin Credit Agreement are secured by a first-priority lien and security interest in substantially all of our tangible and intangible assets, including intellectual property and all of the equity interests in our subsidiaries. The Hayfin Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The negative covenants restrict or limit our ability and the ability of our subsidiaries to, among other things and subject to certain exceptions contained in the Hayfin Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to our or our subsidiaries’ business activities; make certain Investments or Restricted Payments (each as defined in the Hayfin Credit Agreement); change our fiscal year; pay dividends; repay other certain indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting our ability to make loan repayments under the Hayfin Credit Agreement. In addition, we are required (i) at all times prior to the Maturity Date to maintain a minimum cash balance of $6.0 million; and (ii) as of the last day of each fiscal quarter, report IVIG product and related revenues for the trailing 12-month period that exceed the amounts set forth in the Hayfin Credit Agreement, which range from $75.0 million for the fiscal quarter ending June 30, 2022 to $250.0 million for the fiscal quarter ending December 31, 2026 and each fiscal quarter thereafter. As of September 30, 2022, we were in compliance with all of the financial covenants contained in the Hayfin Credit Agreement. On October 25, 2021, we completed an underwritten public offering whereby we issued 57.5 million shares of our common stock and received gross proceeds of $57.5 million. Net proceeds, after underwriting discounts and expenses associated with the offering, were approximately $53.8 million, and were used (i) to advance the commercial sales of our FDA approved products through the procurement of raw materials for the manufacturing of BIVIGAM and ASCENIV; (ii) to expand our plasma collection facility network; (iii) to scale up the manufacturing capacity of the Boca Facility and make continuous improvements in order to adhere to cGMP compliance; (iv) to explore business development opportunities; and (v) for general corporate purposes and other capital expenditures. On September 3, 2021, we entered into a distribution agreement with Raymond James & Associates, Inc., as agent (“Agent”), pursuant to which we may offer and sell, from time to time, at our option, through or to the Agent, up to an aggregate of $50 million of shares of our common stock (the “Distribution Agreement”). We currently intend to use any net proceeds from the sale of our common stock under the Distribution Agreement for general corporate purposes, including procurement of source plasma and other raw materials, supply chain initiatives and production expenditures, funding expansion of plasma collection centers, working capital, capital expenditures, expansion and resources for commercialization activities, and other potential research and development and business opportunities. We currently have approximately $42.8 million of shares available to sell under the Distribution Agreement. Cash Flows The following table sets forth a summary of our cash flows for the periods indicated: Nine Months Ended September 30, 2022 2021 Net cash used in operating activities $ (52,128,942 ) $ (78,903,750 ) Net cash used in investing activities (10,162,650 ) (9,835,404 ) Net cash provided by financing activities 46,108,494 67,228,572 Net change in cash and cash equivalents (16,183,098 ) (21,510,582 ) Cash and cash equivalents - beginning of period 51,089,118 55,921,152 Cash and cash equivalents - end of period $ 34,906,020 $ 34,410,570 Net Cash Used in Operating Activities Cash used in operations for the nine months ended September 30, 2022 was $52.1 million, a decrease of $26.8 million from the same period of a year ago, mainly due to reductions in accounts receivable and a lower net loss after non-cash items. The following table illustrates the primary components of our cash flows from operations: 35 Index Nine Months Ended September 30, 2022 2021 Net loss $ (53,672,267 ) $ (54,998,198 ) Non-cash expenses, gains and losses 19,825,704 7,620,142 Changes in accounts receivable 7,674,472 (7,155,331 ) Changes in inventories (38,189,543 ) (32,587,272 ) Changes in prepaid expenses and other current assets (1,033,238 ) (2,812,580 ) Changes in accounts payable and accrued expenses 13,435,589 11,735,352 Other (169,659 ) (705,863 ) Cash used in operations $ (52,128,942 ) $ (78,903,750 ) Net Cash Used in Investing Activities Net cash used in investing activities for the nine months ended September 30, 2022 and 2021 was $10.2 million and $9.8 million, respectively, consisting of capital expenditures for the construction and buildout of new plasma collection centers and related equipment and capital expenditures at the Boca Facility. We expect our total capital expenditures will be between $2.0 million and $4.0 million for the remainder of fiscal 2022, mainly for continued plasma collection center expansion and additional upgrades to the Boca Facility manufacturing operations. Net Cash Provided by Financing Activities Cash provided by financing activities was $46.1 million for the nine months ended September 30, 2022 and mainly consisted of proceeds received from the Hayfin Credit Facility, net of payments to retire our previously existing credit facility with Perceptive. Cash provided by financing activities of $67.2 million for the nine months ended September 30, 2021 was mainly comprised of net proceeds received from the issuance of our common stock (see Note 8 to the consolidated financial statements). Effect of Inflation Although inflation or changing prices did not have a significant impact on our revenues or net loss for the year ended December 31, 2020 or the first six months of 2021, inflation did impact a number of facets of our business during the year ended December 31, 2021 and the first nine months of 2022 at both of our business segments. We experienced price increases for, among other items, certain raw materials, consumable supplies, services for repairs and maintenance of our facilities, utilities, shipping and freight charges, fuel surcharges and labor costs. We expect this trend to continue at least into 2023 or longer, which could have a significant impact on our future results of operations. In addition, some of our plasma purchase agreements provide for annual price increases that are tied to various consumer price indices, which have resulted in higher than historical percentage price increases and has resulted in and is expected to continue to result in higher source plasma and other raw material and supplies costs in the remainder of 2022 and future periods. Off-Balance Sheet Arrangements None. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.