There are numerous and varied risks that
may prevent us from achieving our goals. We believe that the following are the material risks that we face. If any of the following
risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such
case, the trading price of our Common Stock could decline and investors in our Common Stock could lose all or part of their investment.
Risks Relating to our Business
To date, we have generated limited product revenues, have
a history of losses and will need to raise additional capital to operate our business, which may not be available on favorable
terms, if at all.
To date, we have generated a substantial
portion of our revenues from the sale of plasma by our plasma collections facilities. Following completion of the Biotest Transaction,
we began generating revenues from the sale of Nabi-HB, and we recorded additional revenue in connection with a contract manufacturing
agreement. Unless and until we receive approval from the FDA and other regulatory authorities for our RI-002 product candidate
and other products and product candidates in our pipeline, we do not expect to sell and generate revenue from the commercialization
of RI-002 and other products and product candidates in our pipeline, and we will be required to raise additional funds through
the sale of our equity and/or debt securities in order to establish a commercial sales force, develop our commercial infrastructure
and recognize any significant revenues.
Our long-term liquidity will depend upon
our ability to raise additional capital, fund our research and development and commercial programs, establish and build out a commercial
sales force and commercial infrastructure and meet our ongoing obligations. If we are unable to successfully raise additional capital
prior to the end of the second quarter of 2019, we will likely not have sufficient cash flow and liquidity to fund our business
operations as we currently operate, forcing us to potentially curtail our activities and significantly reduce or cease operations.
Even if we are able to raise additional capital, such financings may only be available on unattractive terms, resulting in significant
dilution of stockholders' interests and, in such event, the value and potential future market price of our Common Stock may decline.
In addition, if we raise additional funds through license arrangements or through the disposition of any of our assets, it may
be necessary to relinquish potentially valuable rights to our product candidates or assets or grant licenses on terms that are
not favorable to us.
Based upon our projected revenue and expenditures
for fiscal 2018, including regulatory and consulting fees for the remediation of the Warning Letter and ongoing discussions with
the FDA, continuing implementation of our commercialization and expansion activities and certain other assumptions, we currently
believe that our cash, cash equivalents, projected revenue and accounts receivable, along with the additional $10.0 million we
expect to be able to access through our existing senior credit facility will be sufficient to fund our operations, as currently
conducted, into the second quarter of 2019. In order to have sufficient cash to fund our operations thereafter and to continue
as a going concern, we will need to raise additional equity or debt financing before the end of the second quarter of 2019. This
timeframe may change based upon how quickly we are able to execute on our quality management systems’ remediation plans for
the ADMA BioManufacturing operations, commercial manufacturing ramp-up activities and the various financing options available to
us. These estimates may also change based upon whether or when the FDA approves RI-002 or if any of our other assumptions change.
We currently do not have arrangements to obtain additional financing. Any such financing could be difficult to obtain or only available
on unattractive terms and could result in significant dilution to stockholders. Failure to secure necessary financing in a timely
manner and on favorable terms could have a material adverse effect on our business plan and financial performance and could delay,
discontinue or prevent product development, clinical trials, commercialization activities or the approval of any of our potential
products. In addition, we could be forced to reduce or forgo sales and marketing efforts and forgo attractive business opportunities.
Failure to timely and effectively remediate the outstanding
Warning Letter and other inspection issues and deficiencies at the Boca Facility will have a material adverse effect on our business.
Failure of the FDA to adhere to its stated timelines in the Code of Federal Regulations, as well as any potential government shut-downs
or unforeseen government office closings may affect our ability to resolve the Warning Letter and other inspection issues within
the timelines provided.
Prior to the closing of the Biotest Transaction,
BTBU was our third-party manufacturer for RI-002. In response to our RI-002 BLA submission in 2015, in July 2016 the FDA issued
the CRL. The CRL did not specify or request the need for any addition clinical trials or data; however, the CRL reaffirmed the
issues set forth in the Warning Letter issued to Biotest relating to inspection issues identified at the Boca Facility. The FDA
identified in the CRL, among other things, certain outstanding inspection issues and deficiencies related to Chemistry, Manufacturing
and Controls (“CMC”) and Good Manufacturing Practices (“GMP”) at the Boca Facility and at certain of our
third-party vendors, and requested documentation of corrections for a number of these issues. The FDA indicated in the CRL that
it cannot grant final approval of our RI-002 BLA until, among other things, these deficiencies are resolved. Following the completion
of the Biotest Transaction, we gained control over the regulatory, quality, general operations and drug substance manufacturing
process at the Boca Facility, and our highest priority has been to remediate the outstanding compliance issues at the Boca Facility
as indicated in the Warning Letter. We have been working with a consulting firm consisting of quality management systems and biologics
production subject matter experts with extensive experience in remediating compliance and inspection issues related to quality
management systems that manages a robust team of subject matter experts in plasma derived products and biologic drugs to assist
us in addressing all identified CMC and current good manufacturing practice (“cGMP”) issues and deficiencies. We believe
that we have successfully closed out the April 2018 FDA inspection of the Boca Facility, however there can be no assurances as
to the timing by which the FDA may make any determinations post-inspection concerning our compliance status. There can also be
no assurances that our ongoing efforts to remediate the Warning Letter and other inspection issues and deficiencies at the Boca
Facility will be effective or whether the FDA will accept these efforts. Failure to timely remediate the issues identified in the
Warning Letter and other inspection issues and deficiencies and/or receive approval from the FDA would have a material adverse
effect on our business, prospects, financial condition and results of operations. Additionally, we are unable to control the timing
of FDA inspections, responses, meeting requests, teleconference requests, requests for clarifications and similar regulatory communications
as well as whether or not the FDA will change its requirements, guidance or expectations.
We are currently not profitable and may never become profitable.
We have a history of losses and expect to incur substantial
losses and negative operating cash flow for the foreseeable future, and we may never achieve or maintain profitability. For the
years ended December 31, 2017 and 2016, we incurred net losses of $43.8 and $19.5 million, respectively, and for the six months
ended June 30, 2018 and 2017, we incurred net losses of $32.6 million and $15.6 million, respectively. From our inception in 2004
through June 30, 2018, we have incurred an accumulated deficit of $183.3 million. Even if we succeed in developing and commercializing
one or more of our product candidates, we expect to incur substantial losses for the foreseeable future and may never become profitable.
We also expect to continue to incur significant operating and capital expenditures and anticipate that our operating expenses will
increase substantially in the foreseeable future as we:
|
·
|
remediate the outstanding compliance deficiencies identified by the FDA in the CRL and Warning Letter at the Boca Facility;
|
|
·
|
seek regulatory approval(s);
|
|
·
|
initiate commercialization and marketing efforts;
|
|
·
|
implement additional internal systems, controls and infrastructure;
|
|
·
|
hire additional personnel;
|
|
·
|
expand and build out our plasma center network; and
|
|
·
|
continue to integrate the Biotest Assets into our business.
|
We also expect to experience negative cash
flows for the foreseeable future as we fund our operating losses and capital expenditures. As a result, we will need to generate
significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability
in the future. Our failure to achieve or maintain profitability could negatively impact the value of our securities.
Although our financial statements have been prepared on
a going concern basis, we must raise additional capital before the end of the second quarter of 2019 to fund our operations in
order to continue as a going concern.
CohnReznick LLP, our independent registered
public accounting firm, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial
statements as of and for the year ended December 31, 2017, indicating that our current liquidity position and history of losses
raise substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position we
may not be able to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate
our assets and may receive less than the value at which those assets are carried on our consolidated financial statements. We may
also be forced to make reductions in spending, including delaying or curtailing our clinical development, trials or commercialization
efforts, or seek to extend payment terms with our vendors and creditors. Our ability to raise or borrow the capital needed to improve
our financial condition may be hindered by a variety of factors, including market conditions and the availability of such financing
on acceptable terms, if at all. If we are unable to obtain sufficient funding, our business, prospects, financial condition and
results of operations will be materially and adversely affected and we may be unable to continue as a going concern. Our audited
consolidated financial statements as of and for the year ended December 31, 2017 do not include any adjustments that might result
if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities
other than in the normal course of business, which could cause our security holders to suffer the loss of all or a substantial
portion of their investment.
We anticipate that our principal sources
of liquidity will only be sufficient to fund our activities, as currently conducted, into the second quarter of 2019. In order
to have sufficient cash to fund our operations thereafter and to continue as a going concern, we will need to raise additional
equity or debt financing prior to the end of the second quarter of 2019. This time frame may change based upon how quickly we are
able to execute on our quality management systems’ remediation plans for the ADMA BioManufacturing operations, commercial
manufacturing ramp-up activities and the various financing options available to us. In order to have sufficient cash to fund our
operations thereafter, we will need to raise additional equity or debt capital, and we cannot provide any assurance that we will
be successful in doing so. If our assumptions underlying our estimated expenses prove to be wrong, we may have to raise additional
capital sooner than the end of the second quarter of 2019.
We have a limited operating history upon which to base
an investment decision.
We have not demonstrated an ability to perform
the functions necessary for the successful commercialization of RI-002. The successful development and commercialization of any
product candidate will require us or our collaborators to perform a variety of functions, including:
|
·
|
undertaking product development and clinical trials;
|
|
·
|
participating in regulatory approval processes;
|
|
·
|
formulating and manufacturing products; and
|
|
·
|
conducting sales and marketing activities once product approval is received.
|
Our operations thus far provide a limited basis for you to assess
our ability to commercialize our product candidates and the advisability of investing in our securities.
Business interruptions could adversely affect our business
.
ADMA BioCenters operates FDA-licensed, GHA
and KMFDS-certified source plasma collection facilities located in the United States, which provide us with a portion of our blood
plasma for the manufacture of our products and product candidates. Plasma collected from ADMA BioCenters' facilities that is not
used to manufacture our products and product candidates is sold to third-party customers in the United States and other locations
where we are approved globally under supply agreements or in the open "spot" market. Furthermore, we have completed the
construction of our third plasma collection facility, and we filed our BLA with the FDA and initiated collections for this facility
in December 2017. Nabi-HB and BIVIGAM are manufactured at the Boca Facility, an FDA-licensed facility certified by the GHA. A portion
of our revenues are dependent upon the continued operation of these facilities. Our operations are vulnerable to interruption by
fire, weather related events such as hurricanes, wind and rain, other acts of God, electric power loss, telecommunications failure,
equipment failure and breakdown, human error, employee issues and events beyond our control. We do not have detailed disaster recovery
plans for our facilities nor do we have a backup manufacturing facility, other than our other facilities, or contractual arrangements
with any other manufacturers in the event of a casualty to or destruction of any facility or if any facility ceases to be available
to us for any other reason. If we are required to rebuild or relocate any of our facilities, a substantial investment in improvements
and equipment would be necessary. We carry only a limited amount of business interruption insurance, which may not sufficiently
compensate us for losses that may occur.
Our lead pipeline product candidate, RI-002, requires
extensive clinical data analysis and regulatory review and may require additional testing. Clinical trials and data analysis can
be very expensive, time-consuming and difficult to design and implement. If we are unsuccessful in obtaining regulatory approval
for RI-002, or any of our product candidates do not provide positive results, we may be required to delay or abandon development
of such product, which would have a material adverse impact on our business.
Continuing product development requires
additional and extensive clinical testing. Human clinical trials are very expensive and difficult to design and implement, in part
because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. While we have
met the primary endpoint for our pivotal Phase III trial for RI-002, we cannot provide any assurance or certainty regarding when
we might receive regulatory approval of our RI-002 BLA. Furthermore, failure can occur at any stage of the process, and we could
encounter problems that cause us to abandon our RI-002 BLA or repeat clinical trials. The commencement and completion of clinical
trials for any current or future development product candidate may be delayed by several factors, including:
|
·
|
unforeseen safety issues;
|
|
·
|
determination of dosing issues;
|
|
·
|
lack of effectiveness during clinical trials;
|
|
·
|
slower than expected rates of patient recruitment;
|
|
·
|
inability to monitor patients adequately during or after treatment; and
|
|
·
|
inability or unwillingness of medical investigators to follow our clinical protocols.
|
In addition, the FDA or an independent institutional review
board may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks
or if the FDA finds deficiencies in our Investigational New Drug (“IND”) submissions or the conduct of these trials.
Therefore, we cannot provide any assurance or predict with certainty the schedule for future clinical trials. In the event we do
not ultimately receive regulatory approval for RI-002, we may be required to terminate development of our only product candidate.
Unless we acquire or develop other product candidates that are saleable, our business will be limited to plasma collection and
sales, as well as sales of Nabi-HB and BIVIGAM.
If the results of our clinical trials do not support our
product candidate claims, completing the development of such product candidate may be significantly delayed or we may be forced
to abandon development of such product candidate altogether.
Even though our clinical trials for RI-002
have been completed as planned, we cannot be certain that their results will support our product candidate claims. Success in preclinical
testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the
results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. The clinical trial
process may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure
would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination
of, our clinical trials will delay our ability to commercialize our product candidates and generate product revenues. In addition,
our clinical trials involve a relatively small patient population. Because of the small sample size, the results of these clinical
trials may not be indicative of future results. In addition, certain portions of the clinical trial and product testing for RI-002
were performed outside of the United States, and therefore, may not have been performed in accordance with standards normally required
by the FDA and other regulatory agencies.
If we do not obtain the necessary U.S. or worldwide regulatory
approvals to commercialize RI-002, we will not be able to sell RI-002.
If we cannot obtain regulatory approval
for RI-002, we will not be able to generate revenue from this product candidate. As a result, our sources of revenue may continue
to be from a product mix consisting only of plasma collection and sales revenues, revenues generated from sales of our FDA-approved
commercial products, revenues generated from ongoing contract manufacturing for third parties and revenues generated from the sales
of manufacturing intermediates. We cannot assure you that we will receive the approvals necessary to commercialize RI-002 or any
other product candidate we may acquire or develop in the future. In order to obtain FDA approval of RI-002 or any other product
candidate requiring FDA approval, our clinical development must demonstrate that the product candidate is safe for humans and effective
for its intended use, and we must successfully complete an FDA BLA review. Obtaining FDA approval of any other product candidate
generally requires significant research and testing, referred to as preclinical studies, as well as human tests, referred to as
clinical trials. Satisfaction of the FDA's regulatory requirements typically takes many years, depends upon the type, complexity
and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict
whether our research and clinical approaches will result in products that the FDA considers safe for humans and effective for indicated
uses. The FDA has substantial discretion in the product approval process and may require us to conduct additional preclinical and
clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation,
future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays
in obtaining regulatory approvals may:
|
·
|
delay commercialization of, and our ability to derive product revenues from, our product candidate;
|
|
·
|
impose costly procedures on us; and
|
|
·
|
diminish any competitive advantages that we may otherwise enjoy.
|
Even if we comply with all FDA requests,
the FDA may ultimately reject our RI-002 BLA. In addition, the FDA could determine that we must test additional subjects and/or
require that we conduct further studies with more subjects. We may never obtain regulatory approval for RI-002, or any other
future potential product candidate or label expansion activity. Failure to obtain FDA approval of any of our product candidates
will severely undermine our business by leaving us without the ability to generate additional accretive revenues. There is no guarantee
that we will ever be able to develop or acquire other product candidates. In foreign jurisdictions, we must receive approval from
the appropriate regulatory authorities before we can commercialize any products or product candidates outside the United States.
Foreign regulatory approval processes generally include all of the risks and uncertainties associated with the FDA approval procedures
described above. We cannot assure you that we will receive the approvals necessary to commercialize any product candidate for sale
outside the United States.
Even if we receive approval from the FDA to market
RI-002, our ability to market RI-002 for alternative applications could be limited.
The FDA strictly regulates marketing, labeling,
advertising and promotion of prescription drugs. These regulations include standards and restrictions for direct-to-consumer advertising,
industry-sponsored scientific and educational activities, promotional activities involving the Internet and off-label promotion.
The FDA generally does not allow drugs to be promoted for “off-label” uses — that is, uses that
are not described in the product’s labeling and that differ from those that were approved by the FDA. Generally, the FDA
limits approved uses to those studied by a company in its clinical trials. In addition to the FDA approval required for new formulations,
any new indication for an approved product also requires FDA approval. We have sought approval from the FDA to market RI-002 for
the treatment of PIDD and, even if approved, we cannot be sure whether we will be able to obtain FDA approval for any desired future
indications for RI-002.
While physicians in the United States may
choose, and are generally permitted, to prescribe drugs for uses that are not described in the product’s labeling, and for
uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote our products
is narrowly limited to those indications that are specifically approved by the FDA. “Off-label” uses are common across
medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities
in the United States generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities
do, however, restrict communications by pharmaceutical companies on the subject of off-label use. Although recent court decisions
suggest that certain off-label communications, such as truthful and non-misleading speech, may be protected under the First Amendment,
the scope of any such protection is unclear, and there are still significant risks in this area as it is unclear how these court
decisions will impact the FDA’s enforcement practices, and there is likely to be substantial disagreement and difference
of opinion regarding whether any particular statement is truthful and not misleading. Moreover, while we intend to promote our
products consistent with what we believe to be the approved indication for our drugs, the FDA may disagree. If the FDA determines
that our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from,
or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines related to promotion and
advertising may cause the FDA to issue warning letters or untitled letters, bring an enforcement action against us, suspend or
withdraw an approved product from the market, require a recall or institute fines or civil fines, or could result in disgorgement
of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our reputation and our business.
We depend on third-party researchers, developers and vendors
to develop RI-002, and such parties are, to some extent, outside of our control.
We depend on independent investigators and
collaborators, such as universities and medical institutions, contract laboratories, clinical research organizations, contract
manufacturers and consultants to conduct our preclinical, clinical trials, CMC testing and other activities under agreements with
us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs.
These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking
such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our product-development programs,
or if their performance is substandard, the approval of our FDA application(s), if any, and our introduction of new products, if
any, will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete
with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed. Additionally, any
change in the regulatory compliance status of any of our vendors may impede our ability to receive approval for our product candidates.
Historically a single customer has accounted for a significant
amount of our total revenue and, together with a second customer, represented 78% of our total revenue for the year ended December
31, 2017 and, collectively with two other customers, represented an aggregate of 90% of our total revenue for the six months ended
June 30, 2018. Therefore, the loss of such single customer could have a material adverse effect on our business, results of operations
and financial condition.
Historically, a significant amount of our
total revenue is attributable to a single customer, BPC. For the year ended December 31, 2017, BPC and Sanofi represented 78% of
our total revenue, with BPC representing 47% of our total revenue and Sanofi representing 31% of our total revenue. For the six
months ended June 30, 2018, three customers represented an aggregate of 90% of our consolidated revenues, with BPC, McKesson Corporation
and AmerisourceBergen representing 55%, 14% and 21%, respectively, of our consolidated revenues. For the six months ended June
30, 2017, sales to BPC represented 75% of our consolidated revenues, and sales to SK Plasma Co., Ltd. represented 15% of our consolidated
revenues.
Although we expect this concentration to
continue to decrease during 2018 as additional accretive revenues are generated from the Biotest Assets, BPC is still expected
to account for a significant portion of our total revenue in fiscal 2018.
The loss of BPC as a customer or a material
change in the revenue generated by BPC could have a material adverse effect on our business, results of operations and financial
condition. Factors that could influence our relationships with our customers include, among other things:
|
·
|
our ability to sell our products at competitive prices;
|
|
·
|
our ability to maintain features and quality standards for our products sufficient to meet the expectations of our customers; and
|
|
·
|
our ability to produce and deliver a sufficient quantity of our products in a timely manner to meet our customers’ requirements.
|
Additionally, an adverse change in the financial condition of
BPC could have a material adverse effect on our business and results of operations.
Issues with product quality could have a material adverse
effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.
Our success depends upon the quality of
our products. Quality management plays an essential role in meeting customer requirements, preventing defects, improving our products
and services and assuring the safety and efficacy of our products. Our future success depends on our ability to maintain and continuously
improve our quality management program. A quality or safety issue may result in adverse inspection reports, warning letters, product
recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions,
costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing
approvals and licenses. An inability to address a quality or safety issue by us or by a third-party vendor in an effective and
timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may
result in the loss of sales and difficulty in successfully commercializing our current products and launching new products.
If physicians and patients do not accept and use our current
products or our future product candidates, our ability to generate revenue from these products will be materially impaired.
Even if the FDA approves a product made
by us, physicians and patients may not accept and use it. Acceptance and use of our products will depend on a number of factors
including:
|
·
|
perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our products;
|
|
·
|
cost-effectiveness of our products relative to competing products;
|
|
·
|
availability of reimbursement for our products from government or other healthcare payers; and
|
|
·
|
the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.
|
The failure of our current and future products to find market
acceptance would harm our business and could require us to seek additional financing or make such financing difficult to obtain
on favorable terms, if at all.
Industry and other market data used in our periodic reports
filed with the SEC and certain other materials, including those undertaken by us or our engaged consultants, may not prove to be
representative of current and future market conditions or future results.
Our periodic reports filed with the SEC
and certain other materials include statistical and other industry and market data that we obtained from industry publications
and research, surveys and studies conducted by third parties and surveys and studies we commissioned regarding the market potential
for our current products as well as RI-002. Although we believe that such information has been obtained from sources believed to
be reliable, neither the sources of such data, nor we, can guarantee the accuracy or completeness of such information. While we
believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified
such data. With respect to the information from third-party consultants, the results of this data represent the independent consultants’
own methodologies, assumptions, research, analysis, projections, estimates, composition of respondent pool, presentation of data
and adjustments, each of which may ultimately prove to be incorrect, and cause actual results and market viability to differ materially
from those presented in any such report or other materials. Readers should not place undue reliance on this information.
Our long-term success may depend on our ability to supplement
our existing product portfolio through new product development or the in-license or acquisition of other new products and product
candidates, and if our business development efforts are not successful, our ability to achieve profitability may be adversely impacted.
Our current product development portfolio
consists primarily of RI-002 and label expansion activities for Nabi-HB and BIVIGAM. We have initiated small scale preclinical
activities to potentially expand our current portfolio through new product development efforts or to in-license or acquire additional
products and product candidates. If we are not successful in developing or acquiring additional products and product candidates,
we will have to depend on our ability to raise capital for, and the successful development and commercialization of, RI-002, as
well as the revenue we may generate from the sale of Nabi-HB, BIVIGAM, contract manufacturing, and intermediates and plasma attributable
to the operations of ADMA BioCenters, to support our operations.
Our ADMA BioCenters facilities collect information from
donors in the United States that subjects us to consumer and health privacy laws, which could create enforcement and litigation
exposure if we fail to meet their requirements.
Consumer privacy is highly protected by
federal and state law. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by as
amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their respective
implementing regulations, impose, among other things, obligations, including mandatory contractual terms, with respect to safeguarding
the privacy, security and transmission of individually identifiable health information held by covered entities and business associates.
A “covered entity” is the primary type of HIPAA-regulated entity. Health plans/insurers, health care providers engaging
in standard transactions (insurance/health plan claims and encounters, payment and remittance advice, claims status, eligibility,
enrollment/disenrollment, referrals and authorizations, coordination of benefits and premium payments), and health care clearinghouses
(switches that convert data between standard and non-standard data sets) are covered entities. A “business associate”
provides services to covered entities (directly or as subcontractors to other business associates) involving arranging, creating,
receiving, maintaining, or transmitting protected health information (“PHI”) on a covered entity’s behalf. In
order to legally provide access to PHI to service providers, covered entities and business associates must enter into a “business
associate agreement” (“BAA”) with the service provider PHI recipient. Among other things, HITECH made certain
aspects of the HIPAA’s rules (notably the Security Rule) directly applicable to business associates – independent contractors
or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf
of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties
directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or
injunctions in federal court to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing
federal civil actions. The Department of Health and Human Services Office of Civil Rights (“OCR”) has increased its
focus on compliance and continues to train state attorneys general for enforcement purposes. OCR has recently increased both its
efforts to audit HIPAA compliance and its level of enforcement, with one recent penalty exceeding $5 million.
While we are not a covered entity or business
associate subject to HIPAA, even when HIPAA does not apply, according to the U.S. Federal Trade Commission (the “FTC”),
failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in
or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C § 45(a). The FTC expects
a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information
it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
Medical data is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing
consumers’ personal information is similar to what is required by the HIPAA Security Rule. In addition, states impose a variety
of laws protecting consumer information, with certain sensitive information such as HIV/Sexually Transmitted Disease status subject
to heightened standards. In addition, federal and state privacy, data security, and breach notification laws, rules and regulations,
and other laws apply to the collection, use and security of personal information, including social security number, driver’s
license numbers, government identifiers, credit card and financial account numbers. We could be subject to enforcement action and
litigation exposure if we fail to adhere to these data privacy and security laws.
We may not realize the strategic and financial benefits
currently anticipated from the Biotest Transaction.
We may not realize all of the strategic
and financial benefits currently anticipated from the Biotest Transaction. For example, we may not realize the anticipated benefits
of acquiring control of all aspects of RI-002 drug manufacturing, regulatory affairs and business operations. In addition, we may
not be able to resolve the outstanding issues at the Boca Facility that resulted in the Warning Letter. As part of the remediation
of the Warning Letter, in December 2016 BTBU temporarily suspended the production of BIVIGAM in order to focus on the completion
of planned improvements to the manufacturing process. As a result, BIVIGAM was not available for sale or distribution throughout
fiscal 2017. If we are unable to address the underlying concerns at the Boca Facility that resulted in the Warning Letter and the
CRL in July 2016 that identified deficiencies and inspection issues related to certain of our third-party contract manufacturers,
including BPC, and provide requested documentation of corrections for a number of these issues, we will not be able to apply for
the PAS related to the manufacturing of BIVIGAM or reapply for FDA approval to market and sell RI-002, which could have a material
adverse effect on us. Failure to resolve any outstanding issues or any administrative actions taken or changes made by the FDA
toward our contract manufacturers, vendors or us could impact our ability to receive approval for RI-002, including the timing
thereof, disrupt our business operations and the timing of our commercialization efforts and may have a material adverse effect
on our financial condition and operating results.
Through the Biotest Transaction, we assumed
a contract manufacturing agreement related to the fractionation of plasma provided by one of our third-party customers that includes
certain minimum production requirements. If we are unable to meet our contractual obligations under this agreement, we may be liable
for the payment of liquidated damages. If we are unable to resolve these issues, such failure could have a material adverse effect
on us.
There is also uncertainty as to whether
the combined business will be able to operate at a profitable level in the future given the relatively small size of the Biotest
Assets and the competitive environment in which we operate. Furthermore, there is no assurance and no definitive timeline as to
when or if the Warning Letter will be resolved by the FDA, and we have no assurances as to the timing by which the FDA may inspect
the Boca Facility and/or make any determinations post-inspection concerning our compliance status. These factors could have a material
adverse effect on us.
We may not be successful in integrating the Biotest Assets
into our business.
The Biotest Transaction involves the integration
of two businesses that previously have operated independently with principal offices in two distinct locations. We are expending
significant management attention and resources to integrate the two companies following completion of the Biotest Transaction.
The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result
in the combined company’s failure to achieve some or all of the anticipated benefits of the Biotest Transaction.
Potential difficulties that may be encountered
in the integration process include, but are not limited to, the following:
|
·
|
using our cash and other assets efficiently to develop the business on a post-Biotest Transaction basis;
|
|
·
|
appropriately managing the liabilities of our Company on a post-Biotest Transaction basis;
|
|
·
|
potential unknown or currently unquantifiable liabilities associated with the Biotest Transaction and the operations of our Company on a post-Biotest Transaction basis;
|
|
·
|
potential unknown and unforeseen expenses, delays or regulatory conditions associated with the Biotest Transaction; and
|
|
·
|
performance shortfalls in one or both of the businesses as a result of the diversion of the applicable management’s attention caused by completing the Biotest Transaction and integrating the business.
|
Delays in the integration process could adversely affect the
combined company’s business, financial results, financial condition and stock price following the Biotest Transaction. Even
if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration
will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible
from this integration or that these benefits will be achieved within a reasonable period of time.
By completing the Biotest Transaction, we agreed to transfer
assets that have historically generated substantially all of our revenue.
As part of the purchase price to acquire
the Biotest Assets, we have agreed to transfer to BPC ownership of our two licensed plasma collection facilities in the United
States and certain related assets and liabilities. These plasma collection facilities to be transferred have historically been
the source of substantially all of our revenue. Although we have completed construction of a new plasma collection facility, there
can be no assurances that we will generate similar revenues as historically reported from the plasma collection facilities we will
transfer to BPC on January 1, 2019.
The Biotest Transaction exposes us to liabilities, a release
of claims and competition that could have a material adverse effect on our business, financial condition, results of operations
and stock price.
As part of the consideration for the Biotest
Transaction, we agreed to assume certain liabilities of BPC related to BTBU. Because we agreed to assume liabilities related to
the Biotest Assets, we are exposed to liabilities that are not within our control and we cannot predict the extent to which these
liabilities may arise in the future. Any liabilities that may arise could have a material adverse effect on our business, financial
condition, results of operations and stock price.
The Purchase Agreement contains indemnification
undertakings by the parties thereto for certain losses, including, among other things, indemnification for any losses arising from
breaches of its representations, warranties, covenants and agreements in the Purchase Agreement. In connection with the Biotest
Transfer Agreement, we granted a full release to Biotest from any and all past, present or future indemnification claims arising
under or in connection with the Purchase Agreement. Significant indemnification claims by BPC or its affiliates or breaches by
BPC or its affiliates of any indemnity obligations which would have been owed to us under the Purchase Agreement prior to the release
granted in the Biotest Transfer Agreement could have a material adverse effect on our business, financial condition, results of
operations and stock price.
As part of the consideration for the Biotest
Transaction, the parties also agreed to a mutual release, pursuant to which the parties agreed not to bring any suit, action or
claim for any breach or default under the existing manufacturing and supply agreement or master services agreement prior to the
closing of the Biotest Transaction. This release remains effective from and after the closing of the Biotest Transaction. Without
this release, we would have otherwise been permitted to bring a claim against BPC related to the Warning Letter that could have
possibly entitled us to remedies in the event that we are unable to resolve the Warning Letter. The inability to seek these remedies
could have a material adverse effect on our business, financial condition, results of operations and stock price.
In addition, while the Purchase Agreement
contains certain non-compete clauses, such clauses do not prohibit either the Biotest Guarantors or their other affiliates from
directly or indirectly (other than through BPC) competing with BTBU after the closing of the Biotest Transaction. Such competition
could result in the loss of existing or new customers, price reductions, reduced operating margins and loss of market share, which
could have a material adverse effect on our business, financial condition, results of operations and stock price.
If our due diligence investigation for the Biotest Transaction
was inadequate and/or the representations, warranties and indemnification given to us by BPC was inadequate, then it could result
in a material adverse effect on our business.
Even though we believe that we conducted
a reasonable and customary due diligence investigation of BTBU and we received market representations, warranties and indemnities
from Biotest and BPC, we cannot be sure that our due diligence investigation uncovered all material or non-material issues that
may be present. There also can be no assurances that we received access to or had the ability to diligence certain information,
as well as appropriate representations and or warranties, that it would be possible to uncover all material issues through customary
due diligence, or that issues outside of our control will not later arise or that all material issues which could have been discovered
would otherwise be covered by the representations and warranties of Biotest and BPC and therefore indemnifiable. In connection
with the Biotest Transfer Agreement, we granted a full release to Biotest from any and all past, present or future indemnification
claims arising under or in connection with the Purchase Agreement. If we failed to identify any important issues, or if it were
not possible to uncover all material issues, any such material issue could result in a material adverse effect on our business,
financial condition, results of operations and stock price.
Our credit agreement (the “Credit Agreement”)
with Marathon Healthcare Finance Fund, L.P. (“Marathon”) is subject to acceleration in specified circumstances, which
may result in Marathon taking possession and disposing of any collateral.
On October 10, 2017, we entered into the
Credit Agreement with Marathon which provides for a senior secured term loan Credit Facility in an aggregate amount of up to $40.0
million, comprised of (i) the $30.0 million Tranche One Loan, (ii) an additional Tranche Two Loan to be made in the maximum principal
amount not to exceed $10.0 million, which Tranche Two Loan availability is subject to the satisfaction of certain conditions. The
Loans each have a Maturity Date of April 10, 2022, subject to acceleration pursuant to the Credit Agreement, including upon an
Event of Default (as defined in the Credit Agreement). The Loans are secured by substantially all of our assets, including our
intellectual property. Events of Default include, among others, non-payment of principal, interest, or fees, violation of covenants,
inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material
contracts and events constituting a change of control. In addition to an increase in the rate of interest on the Loans of 5% per
annum, the occurrence of an Event of Default could result in, among other things, the termination of commitments under the Credit
Facility, the declaration that all outstanding Loans are immediately due and payable in whole or in part, and Marathon taking immediate
possession of, and selling, any collateral securing the Loans.
Developments by competitors may render our products or
technologies obsolete or non-competitive.
The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological change. Our current products, RI-002 (if we obtain
regulatory approval) and any future product we may develop will have to compete with other marketed therapies. In addition, other
companies may pursue the development of pharmaceuticals that target the same diseases and conditions that we are targeting. We
face competition from pharmaceutical and biotechnology companies in the United States and abroad. In addition, companies pursuing
different but related fields represent substantial competition. Many of these organizations competing with us have substantially
greater financial resources, larger research and development staffs and facilities, longer product development history in obtaining
regulatory approvals and greater manufacturing and marketing capabilities than we do. These organizations also compete with us
to attract qualified personnel and parties for acquisitions, joint ventures or other collaborations.
If we are unable to protect our patents, trade secrets
or other proprietary rights, if our patents are challenged or if our provisional patent applications do not get approved, our competitiveness
and business prospects may be materially damaged.
As we move forward in clinical development
we are also uncovering novel aspects of our product and are drafting patents to cover our inventions. We rely on a combination
of patent rights, trade secrets and nondisclosure and non-competition agreements to protect our proprietary intellectual property,
and we will continue to do so. There can be no assurance that our patent, trade secret policies and practices or other agreements
will adequately protect our intellectual property. Our issued patents may be challenged, found to be over-broad or otherwise invalidated
in subsequent proceedings before courts or the United States Patent and Trademark Office. Even if enforceable, we cannot provide
any assurances that they will provide significant protection from competition. The processes, systems, and/or security measures
we use to preserve the integrity and confidentiality of our data and trade secrets may be breached, and we may not have adequate
remedies as a result of any such breaches. In addition, our trade secrets may otherwise become known or be independently discovered
by competitors. There can be no assurance that the confidentiality, nondisclosure and non-competition agreements with employees,
consultants and other parties with access to our proprietary information to protect our trade secrets, proprietary technology,
processes and other proprietary rights, or any other security measures relating to such trade secrets, proprietary technology,
processes and proprietary rights, will be adequate, will not be breached, that we will have adequate remedies for any breach, that
others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise
gain access to our trade secrets or proprietary knowledge. To the extent that our consultants, contractors or collaborators use
intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how
and inventions.
We could lose market exclusivity of a product earlier
than expected.
In the pharmaceutical and biotechnology
industries, the majority of an innovative product’s commercial value is realized during its market exclusivity period. In
the United States and in some other countries, when market exclusivity expires and generic versions are approved and marketed or
when biosimilars are introduced (even if only for a competing product), there are usually very substantial and rapid declines in
a product’s revenues.
Market exclusivity for our products is based
upon patent rights and certain regulatory forms of exclusivity. The scope of our patent rights may vary from country to country
and may also be dependent on the availability of meaningful legal remedies in a country. The failure to obtain patent and other
intellectual property rights, or limitations on the use or loss of such rights, could be material to us. In some countries, basic
patent protections for our products may not exist because certain countries did not historically offer the right to obtain specific
types of patents and/or we (or our licensors) did not file in those markets. In addition, the patent environment can be unpredictable
and the validity and enforceability of patents cannot be predicted with certainty. Absent relevant patent protection for a product,
once the data exclusivity period expires, generic versions can be approved and marketed.
Patent rights covering RI-002 may become
subject to patent litigation. In some cases, manufacturers may seek regulatory approval by submitting their own clinical trial
data to obtain marketing approval or choose to launch a generic product “at risk” before the expiration of our patent
rights/or before the final resolution of related patent litigation. Enforcement of claims in patent litigation can be very costly
and no assurance can be given that we will prevail. There is no assurance that RI-002, or any other of our products for
which we are issued a patent, will enjoy market exclusivity for the full time period of the respective patent.
Third parties could obtain patents that may require us
to negotiate licenses to conduct our business, and there can be no assurance that the required licenses would be available on reasonable
terms or at all.
We may not be able to operate our business
without infringing third-party patents. Numerous U.S. and foreign patents and pending patent applications owned by third parties
exist in fields that relate to the development and commercialization of immune globulins. In addition, many companies have employed
intellectual property litigation as a way to gain a competitive advantage. It is possible that infringement claims may occur as
the number of products and competitors in our market increases. In addition, to the extent that we gain greater visibility and
market exposure as a public company, we face a greater risk of being the subject of intellectual property infringement claims.
We cannot be certain that the conduct of our business does not and will not infringe intellectual property or other proprietary
rights of others in the United States and in foreign jurisdictions. If our products, methods, processes and other technologies
are found to infringe third-party patent rights, we could be prohibited from manufacturing and commercializing the infringing technology,
process or product unless we obtain a license under the applicable third-party patent and pay royalties or are able to design around
such patent. We may be unable to obtain a license on terms acceptable to us, or at all, and we may not be able to redesign our
products or processes to avoid infringement. Even if we are able to redesign our products or processes to avoid an infringement
claim, our efforts to design around the patent could require significant time, effort and expense and ultimately may lead to an
inferior or more costly product and/or process. Any claim of infringement by a third party, even those without merit, could cause
us to incur substantial costs defending against the claim and could distract our management from our business. Furthermore, if
any such claim is successful, a court could order us to pay substantial damages, including compensatory damages for any infringement,
plus prejudgment interest and could, in certain circumstances, treble the compensatory damages and award attorney fees. These damages
could be substantial and could harm our reputation, business, financial condition and operating results. A court also could enter
orders that temporarily, preliminarily or permanently prohibit us, our licensees, if any, and our customers from making, using,
selling, offering to sell or importing one or more of our products or practicing our proprietary technologies or processes, or
could enter an order mandating that we undertake certain remedial activities. Any of these events could seriously harm our business,
operating results and financial condition.
If we are unable to successfully manage our growth, our
business may be harmed.
Our success will depend on the expansion
of our commercial and manufacturing activities, supply of plasma and overall operations and the effective management of our growth,
which will place a significant strain on our management and on our administrative, operational and financial resources. To manage
this growth, we must expand our facilities, augment our operational, financial and management systems and hire and train additional
qualified personnel. If we are unable to manage our growth effectively, our business could be harmed.
The loss of one or more key members of our management
team could adversely affect our business.
Our performance is substantially dependent
on the continued service and performance of our management team, who have extensive experience and specialized expertise in our
business. In particular, the loss of Adam S. Grossman, our President and Chief Executive Officer, could adversely affect our business
and operating results. We do not have "key person" life insurance policies for any members of our management team. We
have employment agreements with each of our executive officers; however, the existence of an employment agreement does not guarantee
retention of members of our management team and we may not be able to retain those individuals for the duration of or beyond the
end of their respective terms. The loss of services of key personnel, or the inability to attract and retain additional qualified
personnel, could result in delays in development or approval of our product candidates and diversion of management resources. Notwithstanding
the foregoing, in the event Mr. Grossman is terminated for cause or resigns other than for good reason, then the standstill provisions
contained in the Stockholders Agreement, which prohibits BPC or its transferee from, among other things, acquiring more than (i)
50%, less one share, of our issued and outstanding shares of capital stock on an as-converted basis, or (ii) 30% of the issued
and outstanding shares of Common Stock, will terminate and be of no further force and effect. Such event could result in BPC or
its transferee acquiring additional shares of our Common Stock or taking other actions with the goal of acquiring additional shares
of our Common Stock.
Cyberattacks and other security breaches could compromise
our proprietary and confidential information which could harm our business and reputation.
In the ordinary course
of our business, we generate, collect and store proprietary information, including intellectual property and business information.
The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation.
Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential
information including e-mails and other electronic communications. In addition, an employee, contractor, or other third party with
whom we do business may attempt to obtain such information, and may purposefully or inadvertently cause a breach involving such
information. While we have certain safeguards in place to reduce the risk of and detect cyber-attacks, including a company-wide
cybersecurity policy, our information technology networks and infrastructure may be vulnerable to unpermitted access by hackers
or other breaches, or employee error or malfeasance. Any such compromise of our data security and access to, or public disclosure
or loss of, confidential business or proprietary information could disrupt our operations, damage our reputation, provide our competitors
with valuable information and subject us to additional costs, which could adversely affect our business.
If we are unable to hire additional qualified personnel,
our ability to grow our business may be harmed.
We will need to hire additional qualified
personnel with expertise in commercialization, sales, marketing, medical affairs, reimbursement, government regulation, formulation
and manufacturing and finance and accounting. In particular, over the next 12-24 months, we expect to hire several new employees
devoted to commercialization, sales, marketing, medical and scientific affairs, regulatory affairs, quality control, financial,
general and operational management. We compete for qualified individuals with numerous biopharmaceutical companies, universities
and other research institutions. Competition for such individuals is intense, and we cannot assure you that our search for such
personnel will be successful. Attracting and retaining qualified personnel will be critical to our success and any failure to do
so successfully may have a material adverse effect on us.
We currently collect human blood plasma at our ADMA BioCenters
facilities, and if we cannot maintain FDA approval for these facilities we may be adversely affected and may not be able to sell
or use this human blood plasma for future commercial purposes.
We intend to maintain FDA and other governmental
and regulatory approvals of our ADMA BioCenters collection facilities for the collection of human blood plasma. These facilities
are subject to FDA and other governmental and regulatory inspections and extensive regulation, including compliance with current
cGMP, FDA and other government approvals. Failure to comply with applicable governmental regulations or to receive applicable approvals
for our future facilities, including our third facility, may result in enforcement actions, such as adverse inspection reports,
warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products,
civil or criminal sanctions, costly litigation, refusal of regulatory authority approvals and licenses, restrictions on operations
or withdrawal of existing approvals and licenses, any of which may significantly delay or suspend our operations for these locations,
potentially having a materially adverse effect on our ability to manufacture our products or offer for sale plasma collected at
the affected site(s).
We currently manufacture our current marketed products,
pipeline products, and products for third parties in our manufacturing and testing facilities, and if we cannot maintain appropriate
FDA status for these facilities, we may be adversely affected, and may not be able to sell, manufacture or commercialize these
products.
We currently operate under the Warning Letter
due to issues identified by the FDA in their prior inspections while the Boca Facility was under Biotest’s ownership and
operational control. We engaged a consulting firm with extensive experience in remediating compliance and inspection issues related
to quality management systems and which manages a robust team of subject matter experts in plasma derived products and biologic
drugs to assist us in addressing all identified CMC and cGMP issues and deficiencies. We believe that we have successfully closed
out the April 2018 FDA inspection of the Boca Facility, however there can be no assurances as to the timing by which the FDA may
make such a determination after any inspection.
If we do not receive FDA approval for additional plasma
collection centers, including our third center for which construction was completed in late 2017, before January 1, 2019, then
we may be required to seek a waiver and extension from Biotest for the contractually required transfer of two of our facilities.
We recently completed construction our third
plasma center and plan to leverage our existing plasma center license in order to seek approval for this new facility with the
FDA. The BLA for this facility was filed with the FDA in December 2017. If we do not receive FDA approval for this third plasma
center on or before January 1, 2019, then we will be required to seek a waiver and extension from Biotest for our contractual obligation
to transfer the two facilities under the Purchase Agreement. However, there can be no assurances that Biotest will waive or extend
its rights with respect to such transfer. In the event Biotest refuses to waive and extend such right, we will be obligated to
transfer the two facilities under the Purchase Agreement and risk not having an FDA-approved plasma center in the event of a delay
or refusal to issue our future license for the new plasma center by the FDA. Any such delay or refusal to issue the license by
the FDA could have a material adverse effect on our operations.
We may incur substantial liabilities and may be required
to limit commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products
entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may
incur substantial liabilities or be required to limit commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of pharmaceutical products we develop, either alone or with collaborators.
Many of our business practices are subject to scrutiny
by federal and state regulatory authorities, as well as to lawsuits brought by private citizens under federal and state laws. Failure
to comply with applicable law or an adverse decision in lawsuits may result in adverse consequences to us.
The laws governing our conduct in the United
States are enforceable on the federal and state levels by criminal, civil and administrative penalties. Violations of laws such
as the Federal Food, Drug, and Cosmetic Act, the Social Security Act (including the Anti-Kickback Law), the Public Health Service
Act and the Federal False Claims Act, and any regulations promulgated under the authority of the preceding, may result in jail
sentences, fines or exclusion from federal and state programs, as may be determined by Medicare, Medicaid and the Department of
Health and Human Services and other regulatory authorities as well as by the courts. Similarly, the violation of applicable laws,
rules and regulations of the State of Florida with respect to the manufacture of our products and product candidates may result
in jail sentences, fines or exclusion from applicable state programs. There can be no assurance that our activities will not
come under the scrutiny of federal and/or state regulators and other government authorities or that our practices will not be found
to violate applicable laws, rules and regulations or prompt lawsuits by private citizen "relators" under federal or state
false claims laws.
For example, under the Anti-Kickback Law
and similar state laws and regulations, the offer or payment of anything of value for patient referrals, or in return for purchasing,
leasing, ordering or arranging for or recommending the purchase, lease, or ordering of any time or service reimbursable in whole
or in part by a federal health care program is prohibited. This places constraints on the marketing and promotion of
products and on common business arrangements, such as discounted terms and volume incentives for customers in a position to recommend
or choose products for patients, such as physicians and hospitals, and these practices can result in substantial legal penalties,
including, among others, exclusion from the Medicare and Medicaid programs. Arrangements with referral sources such as purchasers,
group purchasing organizations, physicians and pharmacists must be structured with care to comply with applicable requirements.
Also, certain business practices, such as payments of consulting fees to healthcare providers, sponsorship of educational or research
grants, charitable donations, interactions with healthcare providers that prescribe products for uses not approved by the
FDA and financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled
limits to avoid any possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products or
as a reward for past prescribing. Under the Patient Protection and Affordable Care Act and the companion Health Care and Education
Reconciliation Act, which together are referred to as the “Healthcare Reform Law”, such payments by pharmaceutical
manufacturers to U.S. healthcare practitioners and academic medical centers must be publicly disclosed. A number of states have
similar laws in place. Additional and stricter prohibitions could be implemented by federal and state authorities. Where such practices
have been found to be improper incentives to use such products, government investigations and assessments of penalties against
manufacturers have resulted in substantial damages and fines. Many manufacturers have been required to enter into consent decrees
or orders that prescribe allowable corporate conduct.
Failure to satisfy requirements under the
Federal Food, Drug, and Cosmetic Act can also result in penalties, as well as requirements to enter into consent decrees or orders
that prescribe allowable corporate conduct. In addition, while regulatory authorities generally do not regulate physicians' discretion
in their choice of treatments for their patients, they do restrict communications by manufacturers on unapproved uses of approved
products or on the potential safety and efficacy of unapproved products in development. Companies in the United States, Canada
and the European Union cannot promote approved products for other indications that are not specifically approved by the competent
regulatory authorities such as the FDA in the United States, nor can companies promote unapproved products. In limited circumstances,
companies may disseminate to physicians information regarding unapproved uses of approved products or results of studies involving
investigational products. If such activities fail to comply with applicable regulations and guidelines of the various regulatory
authorities, we may be subject to warnings from, or enforcement action by, these authorities. Furthermore, if such activities are
prohibited, it may harm demand for our products. Promotion of unapproved drugs or devices or unapproved indications for a drug
or device is a violation of the Federal Food, Drug, and Cosmetic Act and subjects us to civil and criminal sanctions. Furthermore,
sanctions under the Federal False Claims Act have recently been brought against companies accused of promoting off-label uses of
drugs, because such promotion induces the use and subsequent claims for reimbursement under Medicare and other federal programs.
Similar actions for off-label promotion have been initiated by several states for Medicaid fraud. The Healthcare Reform Law significantly
strengthened provisions of the Federal False Claims Act, the Anti-Kickback Law that applies to Medicare and Medicaid, and other
health care fraud provisions, leading to the possibility of greatly increased qui tam suits by relators for perceived violations.
Violations or allegations of violations of the foregoing restrictions could materially and adversely affect our business.
We are required to report detailed pricing
information, net of included discounts, rebates and other concessions, to the Centers for Medicare & Medicaid Services (“CMS”)
for the purpose of calculating national reimbursement levels, certain federal prices and certain federal and state rebate obligations.
Inaccurate or incomplete reporting of pricing information could result in liability under the False Claims Act, the federal Anti-Kickback
Law and various other laws, rules and regulations.
We will need to establish systems for collecting
and reporting this data accurately to CMS and institute a compliance program to assure that the information collected is complete
in all respects. If we report pricing information that is not accurate to the federal government, we could be subject to fines
and other sanctions that could adversely affect our business. If we choose to pursue clinical development and commercialization
in the European Union or otherwise market and sell our products outside of the United States, we must obtain and maintain regulatory
approvals and comply with regulatory requirements in such jurisdictions. The approval procedures vary among countries in complexity
and timing. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all, which
would preclude us from commercializing products in those markets.
In addition, some countries, particularly
the countries of the European Union, regulate the pricing of prescription pharmaceuticals. In these countries, pricing discussions
with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement
or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our
product candidate to other available therapies. Such trials may be time-consuming and expensive, and may not show an advantage
in efficacy for our products. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set
at unsatisfactory levels, in either the United States or the European Union, we could be adversely affected.
Also, under the U.S. Foreign Corrupt Practices
Act, the United States has increasingly focused on regulating the conduct by U.S. businesses occurring outside of the United States,
generally prohibiting remuneration to foreign officials for the purpose of obtaining or retaining business. To enhance compliance
with applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities such as
the U.S. Health and Human Services Department Office of Inspector General (the “OIG”) have recommended the adoption
and implementation of a comprehensive health care compliance program that generally contains the elements of an effective compliance
and ethics program described in Section 8B2.1 of the U.S. Sentencing Commission Guidelines Manual. Increasing numbers of U.S.-based
pharmaceutical companies have such programs. In the future, we may need to adopt healthcare compliance and ethics programs that
would incorporate the OIG's recommendations, and train our applicable employees in such compliance. Such a program may be expensive
and may not assure that we will avoid compliance issues.
We are also required to comply with the
applicable laws, rules, regulations and permit requirements of the various states in which our business operates, including the
State of Florida where our manufacturing facility is located. These regulations and permit requirements are not always in
concert with applicable federal laws, rules and regulations regulating our business. Although compliant with applicable federal
requirements, we may be required to comply with additional state laws, rules, regulations and permits. Failure to appropriately
comply with such state requirements could result in temporary or long-term cessation of our manufacturing operations, as well
as fines and other sanctions. Any such penalties may have a material adverse effect on our business and results of operations.
The manufacturing processes for plasma-based biologics
are complex and involve biological intermediates that are susceptible to contamination.
Plasma is a raw material that is susceptible
to damage and contamination and may contain human pathogens, any of which would render the plasma unsuitable as raw material for
further manufacturing. For instance, improper storage of plasma, by us or third-party suppliers, may require us to destroy some
of our raw material. If unsuitable plasma is not identified and discarded prior to the release of the plasma to the manufacturing
process, it may be necessary to discard intermediate or finished product made from that plasma or to recall any finished product
released to the market, resulting in a charge to cost of product revenue. The manufacture of our plasma products is an extremely
complex process of fractionation, purification, filling and finishing. Our products can become non-releasable or otherwise fail
to meet our stringent specifications or regulatory agencies' specifications through a failure in one or more of these process steps.
We may detect instances in which an unreleased product was produced without adherence to our manufacturing procedures or plasma
used in our production process was not collected or stored in a compliant manner consistent with our cGMP or other regulations.
Such an event of noncompliance would likely result in our determination that the implicated products should not be released or
maybe replaced or withdrawn from the market and therefore should be destroyed. Once manufactured, our plasma-derived products must
be handled carefully and kept at appropriate temperatures. Our failure, or the failure of third parties that supply, ship or distribute
our products, to properly care for our products may require that those products be destroyed. Even if handled properly, biologics
may form or contain particulates or have other issues or problems after storage which may require products to be destroyed or recalled.
While we expect to write off small amounts of work-in-progress in the ordinary course of business due to the complex nature of
plasma, our processes and our products, unanticipated events may lead to write-offs and other costs materially in excess of our
expectations and the reserves we have established for these purposes. Such write-offs and other costs could cause material fluctuations
in our results of operations.
Furthermore, contamination of our products
could cause investors, consumers, or other third parties with whom we conduct business to lose confidence in the reliability of
our manufacturing procedures, which could adversely affect our revenues. In addition, faulty or contaminated products that are
unknowingly distributed could result in patient harm, threaten the reputation of our products and expose us to product liability
damages and claims from companies for whom we do contract manufacturing.
Our ability to continue to produce safe and effective
products depends on the safety of our plasma supply and manufacturing processes against transmittable diseases.
Despite overlapping safeguards, including
the screening of donors and other steps to remove or inactivate viruses and other infectious disease causing agents, the risk of
transmissible disease through blood plasma products cannot be entirely eliminated. For example, since plasma-derived therapeutics
involves the use and purification of human plasma, there has been concern raised about the risk of transmitting human immunodeficiency
virus (“HIV”), prions, West Nile virus, H1N1 virus or "swine flu" and other blood-borne pathogens through
plasma-derived products. There are also concerns about the future transmission of H5N1 virus, or "bird flu." In the 1980s,
thousands of hemophiliacs worldwide were infected with HIV through the use of contaminated Factor VIII. Other producers of Factor
VIII, though not us, were defendants in numerous lawsuits resulting from these infections. New infectious diseases emerge in the
human population from time to time. If a new infectious disease has a period during which time the causative agent is present in
the bloodstream but symptoms are not present, it is possible that plasma donations could be contaminated by that infectious agent.
Typically, early in an outbreak of a new disease, tests for the causative agent do not exist. During this early phase, we must
rely on screening of donors for behavioral risk factors or physical symptoms to reduce the risk of plasma contamination. Screening
methods are generally less sensitive and specific than a direct test as a means of identifying potentially contaminated plasma
units. During the early phase of an outbreak of a new infectious disease, our ability to manufacture safe products would depend
on the manufacturing process' capacity to inactivate or remove the infectious agent. To the extent that a product's manufacturing
process is inadequate to inactivate or remove an infectious agent, our ability to manufacture and distribute that product would
be impaired. If a new infectious disease were to emerge in the human population, the regulatory and public health authorities could
impose precautions to limit the transmission of the disease that would impair our ability to procure plasma, manufacture our products
or both. Such precautionary measures could be taken before there is conclusive medical or scientific evidence that a disease poses
a risk for plasma-derived products. In recent years, new testing and viral inactivation methods have been developed that more effectively
detect and inactivate infectious viruses in collected plasma. There can be no assurance, however, that such new testing and inactivation
methods will adequately screen for, and inactivate, infectious agents in the plasma used in the production of our products.
We could become supply-constrained and our financial performance
would suffer if we cannot obtain adequate quantities of FDA-approved source plasma with proper specifications.
In order for plasma to be used in the manufacturing
of our products, the individual centers at which the plasma is collected must be licensed by the FDA and approved by the regulatory
authorities of any country in which we may wish to commercialize our products. When we open a new plasma center, and on an ongoing
basis after licensure, it must be inspected by the FDA for compliance with cGMP and other regulatory requirements. An unsatisfactory
inspection could prevent a new center from being licensed or risk the suspension or revocation of an existing license. We do not
and will not have adequate plasma to manufacture our products. Therefore, we are reliant on the purchase of plasma from third parties
to manufacture our products. We can give no assurances that appropriate plasma will be available to us on commercially reasonable
terms, or at all, to manufacture our products. In order to maintain a plasma center's license, its operations must continue to
conform to cGMP and other regulatory requirements. In the event that we determine that plasma was not collected in compliance with
cGMP, we may be unable to use and may ultimately destroy plasma collected from that center, which would be recorded as a charge
to cost of product revenue. Additionally, if non-compliance in the plasma collection process is identified after the impacted plasma
has been pooled with compliant plasma from other sources, entire plasma pools, in-process intermediate materials and final products
could be impacted. Consequently, we could experience significant inventory impairment provisions and write-offs which could adversely
affect our business and financial results. We plan to increase our supplies of plasma for use in the manufacturing processes through
increased purchases of plasma from third-party suppliers as well as collections from our existing ADMA BioCenters plasma collection
centers. This strategy is dependent upon our ability to maintain a cGMP compliant environment in both plasma centers and to expand
production and attract donors to both centers. There is no assurance that the FDA will inspect and license our unlicensed plasma
collection centers in a timely manner consistent with our production plans. If we misjudge the readiness of a center for an FDA
inspection, we may lose credibility with the FDA and cause the FDA to more closely examine all of our operations. Such additional
scrutiny could materially hamper our operations and our ability to increase plasma collections. Our ability to expand production
and increase our plasma collection centers to more efficient production levels may be affected by changes in the economic environment
and population in selected regions where ADMA BioCenters operates its current or future plasma centers, by the entry of competitive
plasma centers into regions where ADMA BioCenters operates such centers, by misjudging the demographic potential of individual
regions where ADMA BioCenters expects to expand production and attract new donors, by unexpected facility related challenges, or
by unexpected management challenges at selected plasma centers.
Our ability to commercialize our products, alone or with
collaborators, will depend in part upon the extent to which reimbursement will be available from governmental agencies, health
administration authorities, private health maintenance organizations and health insurers and other healthcare payers, and also
depends upon the approval, timing and representations by the FDA or other governmental authorities for our product candidates.
As the FDA BLA review process is ongoing, we are subject to information requests and communications from the FDA on a routine basis
and may not have clarity on any or all specific aspects of the approval timing, language, name, claims and any other future requirements
that may be imposed by the FDA or other governmental agencies for marketing, authorization and ultimately financial reimbursement
for patient utilization.
Our ability to generate product revenues
will be diminished if our products sell for inadequate prices or patients are unable to obtain adequate levels of coverage. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare products, as well as to the timing, language, specifications
and other details pertaining to the approval of such products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs
by limiting both coverage and the level of reimbursement for products. Even if one of our product candidates is approved by the
FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover such product. If government
and other healthcare payers do not provide adequate coverage and reimbursement levels for one of our products, once approved, market
acceptance of such product could be reduced. Prices in many countries, including many in Europe, are subject to local regulation
and certain pharmaceutical products, such as plasma-derived products, are subject to price controls in several of the world's principal
markets, including many countries within the European Union. In the United States, where pricing levels for our products are substantially
established by third-party payers, including Medicare, if payers reduce the amount of reimbursement for a product, it may cause
groups or individuals dispensing the product to discontinue administration of the product, to administer lower doses, to substitute
lower cost products or to seek additional price-related concessions. These actions could have a negative effect on our financial
results, particularly in cases where our products command a premium price in the marketplace, or where changes in reimbursement
induce a shift in the site of treatment. The existence of direct and indirect price controls and pressures over our products could
materially adversely affect our financial prospects and performance.
The new biosimilar pathway established as part of the
healthcare reform may make it easier for competitors to market biosimilar products.
The Healthcare Reform Law introduced an
abbreviated licensure pathway for biological products that are demonstrated to be biosimilar to an FDA-licensed biological product.
A biological product may be demonstrated to be “biosimilar” if data show that, among other things, the product is “highly
similar” to an already-approved biological product, known as a reference product, and has no clinically meaningful differences
in terms of safety and effectiveness from the reference product. The law provides that a biosimilar application may be submitted
as soon as four years after the reference product is first licensed, and that the FDA may not make approval of an application effective
until 12 years after the reference product was first licensed. Since the enactment of the law, the FDA has issued several
guidance documents to assist sponsors of biosimilar products in preparing their approval applications. The FDA approved the
first biosimilar product in 2015, and approved three biosimilar products in 2016. As a result of the biosimilar pathway in
the United States, we expect in the future to face greater competition from biosimilar products, including a possible increase
in patent challenges.
The implementation of the Healthcare Reform Law in the
United States may adversely affect our business.
Through the March 2010 adoption of the Healthcare
Reform Law in the United States, substantial changes are being made to the current system for paying for healthcare in the United
States, including programs to extend medical benefits to millions of individuals who currently lack insurance coverage. The changes
contemplated by the Healthcare Reform Law are subject to rule-making and implementation timelines that extend for several years,
and this uncertainty limits our ability to forecast changes that may occur in the future. However, implementation has already begun
with respect to certain significant cost-saving measures under the Healthcare Reform Law, for example with respect to several government
healthcare programs, including Medicaid and Medicare Parts B and D, that may cover the cost of our future products, and these efforts
could have a material adverse impact on our future financial prospects and performance. For example, in order for a manufacturer's
products to be reimbursed by federal funding under Medicaid, the manufacturer must enter into a Medicaid rebate agreement with
the Secretary of the U.S. Department of Health and Human Services and pay certain rebates to the states based on utilization data
provided by each state to the manufacturer and to CMS and pricing data provided by the manufacturer to the federal government.
The states share these savings with the federal government, and sometimes implement their own additional supplemental rebate programs.
Under the Medicaid drug rebate program, the rebate amount for most branded drug products was previously equal to a minimum of 15.1%
of the Average Manufacturer Price (“AMP”) or the AMP less Best Price, whichever is greater. Effective January 1, 2010,
the Healthcare Reform Law generally increased the size of the Medicaid rebates paid by manufacturers for single source and innovator
multiple source (brand name) drug products from a minimum of 15.1% to a minimum of 23.1% of AMP, subject to certain exceptions.
For non-innovator multiple source (generic) products, the rebate percentage is increased from a minimum of 11.0% to a minimum of
13.0% of AMP. In 2010, the Healthcare Reform Law also newly extended this rebate obligation to prescription drugs covered
by Medicaid managed care organizations. These increases in required rebates may adversely affect our future financial prospects
and performance. In order for a pharmaceutical product to receive federal reimbursement under the Medicare Part B and Medicaid
programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate
in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid
rebate amounts reported by the manufacturer. As the 340B drug pricing is determined based on AMP and Medicaid rebate
data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to
increase.
Effective in 2011, the Healthcare Reform
Law imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic
agents, apportioned among these entities according to their market share in certain government healthcare programs. These fees
may adversely affect our future financial prospects and performance. The Healthcare Reform Law established the Center
for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid
spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for
Medicare and Medicaid Innovation through 2019.
The Healthcare Reform Law also creates new
rebate obligations for our products under Medicare Part D, a partial, voluntary prescription drug benefit created by the U.S. federal
government primarily for persons 65 years old and over. The Part D drug program is administered through private insurers that contract
with CMS. Beginning in 2011, the Healthcare Reform Law generally requires that in order for a drug manufacturer's products to be
reimbursed under Medicare Part D, the manufacturer must enter into a Medicare Coverage Gap Discount Program agreement with the
Secretary of the U.S. Department of Health and Human Services, and reimburse each Medicare Part D plan sponsor an amount equal
to 50% savings for the manufacturer's brand name drugs and biologics which the Part D plan sponsor has provided to its Medicare
Part D beneficiaries who are in the "donut hole" (or a gap in Medicare Part D coverage for beneficiaries who have expended
certain amounts for drugs). The Part D plan sponsor is responsible for calculating and providing the discount directly to its beneficiaries
and for reporting these amounts paid to CMS's contractor, which notifies drug manufacturers of the rebate amounts it must pay to
each Part D plan sponsor. The rebate requirement could adversely affect our future financial performance, particularly if contracts
with Part D plans cannot be favorably renegotiated or the Part D plan sponsors fail to accurately calculate payments due in a manner
that overstates our rebate obligation. Regarding access to our products, the Healthcare Reform Law established and provided significant
funding for a Patient-Centered Outcomes Research Institute to coordinate and fund Comparative Effectiveness Research (“CER”).
While the stated intent of CER is to develop information to guide providers to the most efficacious therapies, outcomes of CER
could influence the reimbursement or coverage for therapies that are determined to be less cost-effective than others. Should any
of our products be determined to be less cost effective than alternative therapies, the levels of reimbursement for these products,
or the willingness to reimburse at all, could be impacted, which could materially impact our future financial prospects and results.
There have been repeated attempts by Congress
to repeal or change the Healthcare Reform Law. At this time, it remains unclear whether there will be any changes made to or any
repeal or replacement of the Healthcare Reform Law, with respect to certain of its provisions or in its entirety.
Developments in the worldwide economy may adversely impact
our business.
The difficult economic environment may adversely
affect demand for our products. RI-002, our current product candidate, is expected to be sold to hospitals, specialty pharmacies
and clinicians in the United States. As a result of loss of jobs, patients may lose medical insurance and be unable to purchase
our products or may be unable to pay their share of deductibles or co-payments. Hospitals adversely affected by the economy may
steer patients to less costly therapies, resulting in a reduction in demand, or demand may shift to public health hospitals, which
may purchase at a lower government price.
Risks Relating to our Finances, Capital Requirements and
Other Financial Matters
We require additional funding and may be unable to raise
capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development programs or
commercialization efforts.
Our operations have consumed substantial
amounts of cash since inception. For the six three months ended June 30, 2018 and 2017, we had negative cash flows from operations
of $31.3 million and $14.2 million, respectively, and for the years ended December 31, 2017 and 2016, we had negative cash flows
from operations of approximately $37.3 million and $18.3 million, respectively. We expect to continue to spend substantial amounts
on product development, including commercialization activities, procuring raw material plasma, manufacturing, conducting potential
future clinical trials for our product candidates and purchasing clinical trial materials from our suppliers. We currently anticipate,
based upon our projected revenue and expenditures, as well as the additional $10.0 million we expect to be able to access under
the Credit Agreement, that our current cash, cash equivalents and accounts receivable will be sufficient to fund our operations,
as currently conducted, into the second quarter of 2019. In order to have sufficient cash to fund our operations thereafter and
to continue as a going concern, we will need to raise additional equity or debt financing prior to the end of the second quarter
of 2019. This time frame may change based upon how quickly we are able to execute on our operational initiatives and the various
financing options available to us. However, if the assumptions underlying our estimated expenses prove to be incorrect, we may
have to raise additional capital sooner than we currently expect. Until such time, if ever, as we can generate a sufficient amount
of product revenue to achieve profitability, we expect to continue to finance our operations through additional equity or debt
financings or corporate collaboration and licensing arrangements. If we are unable to raise additional capital as needed, we will
have to delay, curtail or eliminate our product development activities, including conducting clinical trials for our product candidates
and purchasing clinical trial materials from our suppliers, as well as future commercialization efforts.
Raising additional funds by issuing securities or through
licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish
proprietary rights.
To the extent that we raise additional capital
by issuing equity securities, the share ownership of existing stockholders will be diluted. Any future debt financing may involve
covenants that, among other restrictions, limit our ability to incur liens or additional debt, pay dividends, redeem or repurchase
our Common Stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. In addition,
if we raise additional funds through licensing arrangements or the disposition of any of our assets, it may be necessary to relinquish
potentially valuable rights to our product candidates or grant licenses on terms that are not favorable to us.
Our cash, cash equivalents and short-term investments
could be adversely affected if the financial institutions in which we hold our cash, cash equivalents and short-term investments
fail.
We regularly maintain cash balances at third-party
financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit. While we monitor the cash balances
in our operating accounts on a daily basis and adjust the balances as appropriate, these balances could be impacted, and there
could be a material adverse effect on our business, if one or more of the financial institutions with which we deposit cash fails
or is subject to other adverse conditions in the financial or credit markets. To date, we have experienced no loss or lack of access
to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents
will not be impacted by adverse conditions in the financial and credit markets.
If we fail to maintain proper and effective internal control
over financial reporting in the future, our ability to produce accurate and timely financial statements could be impaired, which
could harm our operating results, investors' views of us and, as a result, the value of our Common Stock.
Pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”) and related rules, our management is required to report on the effectiveness
of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our
internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
To comply with the requirements of being a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), we have been required to upgrade, and may need to implement further upgrades, to our financial, information and operating
systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting
and finance staff.
Our ability to use our net operating loss carryforwards
(“NOLs”) may be limited.
We have incurred substantial losses during
our history. As of December 31, 2017, we had federal and state NOLs of $125.3 million and $201.5 million, respectively. These NOLs
will begin to expire at various dates beginning in 2027, if not limited by triggering events prior to such time. Under the provisions
of the Internal Revenue Code, changes in our ownership, in certain circumstances, will limit the amount of federal NOLs that can
be utilized annually in the future to offset taxable income. In particular, Section 382 of the Internal Revenue Code imposes limitations
on a company’s ability to use NOLs upon certain changes in such ownership. If we are limited in our ability to use our NOLs
in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs. We may
experience ownership changes in the future as a result of subsequent shifts in our stock ownership that we cannot predict or control
that could result in further limitations being placed on our ability to utilize our federal NOLs.
The recently passed Tax Cuts and Jobs Act (the “TCJA”)
could adversely affect our business and financial condition.
On December 22, 2017, President Trump
signed into law the TCJA which significantly reforms the Internal Revenue Code. The TCJA, among other things, contains significant
changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of
21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation
of the deduction for net operating losses generated after December 31, 2017 to 80% of current year taxable income and elimination
of net operating loss carrybacks, immediate deductions for certain new investments instead of deductions for depreciation expense
over time and modifying or repealing many business deductions and credits. Federal net operating losses arising in taxable years
ending after December 31, 2017 will be carried forward indefinitely pursuant to the TCJA. We continue to examine the impact
this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall
impact of the TCJA is uncertain and our business and financial condition could be adversely affected. The impact of this tax reform
on holders of our Common Stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and
tax advisors with respect to such legislation and the potential tax consequences of investing in our Common Stock.
Risks Associated with our Common Stock
The market price of our Common Stock may be volatile and
may fluctuate in a way that is disproportionate to our operating performance.
Our stock price may experience substantial volatility as a result
of a number of factors, including:
|
·
|
sales or potential sales of substantial amounts of our Common Stock;
|
|
·
|
our ability to successfully leverage the anticipated benefits and synergies from the Biotest Transaction, including optimization of the combined businesses, operations and products and services, including the nature, strategy and focus of the combined company and the management and governance structure of the combined company;
|
|
·
|
delay or failure in initiating or completing preclinical or clinical trials or unsatisfactory results of these trials;
|
|
·
|
delay in FDA approval for RI-002;
|
|
·
|
the timing of acceptance, third-party reimbursement and sales of RI-002;
|
|
·
|
our ability to resume the manufacturing of BIVIGAM once the deficiencies identified in the CRL have been resolved by us to the satisfaction of the FDA;
|
|
·
|
announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions;
|
|
·
|
developments concerning our licensors or third-party vendors;
|
|
·
|
litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
|
|
·
|
conditions in the pharmaceutical or biotechnology industries;
|
|
·
|
governmental regulation and legislation;
|
|
·
|
variations in our anticipated or actual operating results; and
|
|
·
|
change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations.
|
Many of these factors are beyond our control. The stock markets
in general, and the market for pharmaceutical and biotechnology companies in particular, have historically experienced extreme
price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of
these companies. These broad market and industry factors could reduce the market price of our Common Stock, regardless of our actual
operating performance.
An investment in our Common Stock
is extremely speculative and there can be no assurance of any return on any such investment.
An investment in our Common Stock is extremely
speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial
risks involved in an investment in us, including the risk of losing their entire investment.
Sales of a substantial number of shares of our Common
Stock, or the perception that such sales may occur, may adversely impact the market price of our Common Stock.
As of August 10, 2018 most of our 46,349,514 outstanding shares
of Common Stock, as well as a substantial number of shares of our Common Stock underlying outstanding warrants, were available
for sale in the public market, subject to certain restrictions with respect to sales of our Common Stock by our affiliates, either
pursuant to Rule 144 under the Securities Act (“Rule 144”) or under effective registration statements. The 4,295,580
shares of Common Stock and the 8,591,160 NV Biotest Shares acquired by BPC in the Biotest Transaction were subject to a lock-up
for six months after closing of the Biotest Transaction, which lock-up expired on December 6, 2017. For three years after the end
of such six-month period, subject to certain limited exceptions, under the Stockholders Agreement, sales by the Biotest Trust (as
the transferee of BPC’s remaining 10,109,534 shares of our Common Stock pursuant to the Biotest Transfer Agreement effective
July 24, 2018) of our equity interests may not exceed 15% of the issued and outstanding Common Stock in any twelve-month period;
provided, however, that if our market capitalization increases to double our market capitalization immediately following the closing
of the Biotest Transaction, then the Biotest Trust may sell up to 20% of our issued and outstanding Common Stock in any twelve-month
period; provided, further, that (x) if our market capitalization increases to triple our market capitalization immediately following
the closing of the Biotest Transaction, or (y) upon the one-year anniversary of the Biotest Trust holding less than a 25% economic
interest in us, then the Biotest Trust may sell its equity interests in us at any time (subject to applicable securities laws).
On May 14, 2018, we, ADMA BioManufacturing and ADMA BioCenters entered into the Biotest Transfer Agreement with BPC, Biotest AG,
Biotest US and the Biotest Trust whereby BPC transferred to us, for no cash consideration, the 8,591,160 NV Biotest Shares, representing
100% of our then-issued and outstanding non-voting common stock. Immediately upon transfer of the NV Biotest Shares to us, the
shares were retired and are no longer available for issuance. At the closing of the Biotest Transaction, we entered into the Registration
Rights Agreement with BPC, pursuant to which the Biotest Trust, as BPC’s transferee, has, among other things, certain registration
rights under the Securities Act with respect to its shares of our Common Stock, subject to certain transfer restrictions. Sales
of a substantial number of shares of our Common Stock, or the perception that such sales may occur, may adversely impact the market
price of our Common Stock.
Our affiliates control a substantial amount of our shares
of Common Stock. Provisions in our Amended and Restated Certificate of Incorporation (the “A&R Certificate of Incorporation”),
our Amended and Restated Bylaws (the “Bylaws”) and Delaware law might discourage, delay or prevent a change in control
of our Company or changes in our management and, therefore, depress the trading price of our Common Stock.
Provisions of our A&R Certificate of
Incorporation, our Bylaws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change
in control of our Company or changes in our management, including transactions in which our stockholders might otherwise receive
a premium for their shares over then current market prices. As of June 30, 2018, the Biotest Trust, our directors and executive
officers and their affiliates beneficially owned in excess of 36% of the outstanding shares of our Common Stock. In addition, these
provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These
provisions include:
|
·
|
the inability of stockholders to call special meetings;
|
|
·
|
the ability of our Board to institute a stockholder rights plan, also known as a poison pill, that would work to dilute our stock;
|
|
·
|
classification of our Board and limitation on filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our Company; and
|
|
·
|
authorization of the issuance of “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the Board, without any need for action by stockholders.
|
In addition, Section 203 of the Delaware General Corporation
Law
(the “DGCL”)
prohibits a publicly-held Delaware corporation from engaging in
a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the
last three years, has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is approved in a prescribed manner. The existence
of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future
for shares of our Common Stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that
you could receive a premium for your Common Stock in an acquisition. In addition, as a result of the concentration of ownership
of our shares of Common Stock, our stockholders may, from time to time, observe instances where there may be less liquidity in
the public markets for our securities.
We have never paid and do not intend to pay cash dividends
in the foreseeable future. As a result, capital appreciation, if any, will be your sole source of gain.
We have never paid cash dividends on any
of our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business.
In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation,
if any, of our Common Stock will be your sole source of gain for the foreseeable future.
If we fail to adhere to the strict listing requirements
of the Nasdaq Capital Market (“Nasdaq”), we may be subject to delisting. As a result, our stock price may decline and
our Common Stock may be delisted. If our stock were no longer listed on Nasdaq, the liquidity of our securities likely
would be impaired.
Our Common Stock currently trades on Nasdaq
under the symbol “ADMA.” If we fail to adhere to Nasdaq's strict listing criteria, including with respect to stock
price, our market capitalization and stockholders’ equity, our stock may be delisted. This could potentially impair
the liquidity of our securities not only in the number of shares that could be bought and sold at a given price, which may be depressed
by the relative illiquidity, but also through delays in the timing of transactions and the potential reduction in media coverage.
As a result, an investor might find it more difficult to dispose of our Common Stock. We believe that current and prospective investors
would view an investment in our Common Stock more favorably if it continues to be listed on Nasdaq. Any failure at any time to
meet the Nasdaq continued listing requirements could have an adverse impact on the value of and trading activity of our Common
Stock. Although we currently satisfy the listing criteria for Nasdaq, if our stock price declines dramatically, we could be at
risk of failing to meet the Nasdaq continued listing criteria.
Penny stock regulations may affect
your ability to sell our Common Stock.
Because the price of our Common Stock has
historically traded below $5.00 per share, our Common Stock may be subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker dealers which sell these securities to persons other than established customers
and accredited investors. Under these rules, broker-dealers who recommend penny stocks to persons other than established customers
and “accredited investors” must make a special written suitability determination for the purchaser and receive the
purchaser’s written agreement to a transaction prior to sale, which includes an acknowledgement that the purchaser’s
financial situation, investment experience and investment objectives forming the basis for the broker-dealer’s suitability
determination are accurately stated in such written agreement. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated
risks. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting
transactions in our Common Stock and may make it more difficult for holders of our Common Stock to sell shares to third parties
or to otherwise dispose of them.
We are an “emerging growth company,” and elect
to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our Common
Stock less attractive to investors.
We are an “emerging growth company,”
as defined by the Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act contains provisions that, among
other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,”
we may, under Section 7(a)(2)(B) of the Securities Act, delay adoption of new or revised accounting standards applicable to public
companies until such standards would otherwise apply to private companies. We may continue to take advantage of
this extended transition period until the first to occur of the date that we (i) are no longer an “emerging growth company”
or (ii) affirmatively and irrevocably opt out of this extended transition period.
We could be an emerging growth company until
December 31, 2018, which is the last day of the fiscal year following the fifth anniversary of the first sale of our common equity
securities pursuant to an effective registration statement under the Securities Act. However, if certain events occur prior to
the end of such five-year period, including if we become a “large accelerated filer,” our total annual gross revenues
exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be
an emerging growth company prior to the end of such five-year period.
We have elected to take advantage of the
benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies
that comply with such new or revised accounting standards. Until the date that we are no longer an “emerging growth
company” or affirmatively and irrevocably opt out of the exemption provided by Securities Act Section 7(a)(2)(B), upon issuance
of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public
and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on
which we will adopt the recently issued accounting standard. As an emerging growth company, we are also exempt from the requirement
to have our independent registered public accounting firm provide an attestation report on our internal control over financial
reporting.
We cannot predict if investors will find
our Common Stock less attractive as a result of our reliance on these exemptions. If some investors find our Common Stock less
attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our Common Stock,
our stock price may be more volatile and our stock price may decline dramatically.
We will incur increased costs when we cease being an “emerging
growth company.”
When we cease to be an “emerging growth
company” and when our independent registered public accounting firm is required to undertake an assessment of our internal
control over financial reporting, the cost of our compliance with Section 404 of the Sarbanes-Oxley Act (“Section 404”)
will correspondingly increase. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in
a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control
over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be
subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and
management resources.
Our Board may, without stockholder
approval, issue and fix the terms of shares of preferred stock and issue additional shares of Common Stock adversely affecting
the rights of holders of our Common Stock.
Our A&R Certificate of Incorporation
authorizes the issuance of up to 10,000,000 shares of “blank check” preferred stock, with such designation rights and
preferences as may be determined from time to time by the Board. Currently, our A&R Certificate of Incorporation authorizes
the issuance of up to 75,000,000 shares of Common Stock, of which 23,870,861 shares remain available for issuance and may be issued
by us without stockholder approval, and up to 8,591,160 shares of non-voting common stock, all of which were reacquired by us in
May 2018 pursuant to the Biotest Transfer Agreement and were subsequently retired and are no longer available for issuance.