2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | |||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||
| Basis of presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (the “FASB”).
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 29, 2018. These condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X, and therefore omit or condense certain footnotes and other information normally included in consolidated interim financial statements prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2018 and its results of operations for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017.
During the three and nine months ended September 30, 2018 and 2017, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated statements of operations. In addition, certain prior year balances have been reclassified to conform to the current presentation. Specifically, Other current liabilities at December 31, 2017 of approximately $58,000 have been reclassified into Accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. |
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| Use of estimates |
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the fair value of assets acquired and liabilities assumed in a business combination, the valuation of inventory and assumptions used in the fair value determination of stock-based compensation and the allowance for the valuation of future tax benefits. |
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| Business Combinations |
The Company accounts for business combinations using the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations. Identifiable assets acquired, liabilities assumed, and contingent consideration are recorded at their acquisition date fair values. Any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, is recognized in the period of the estimated fair value change. Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed as a result of the business combination. Identifiable assets with finite lives are amortized over their useful lives. Acquisition related costs are expensed as incurred. |
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| Fair value of financial instruments |
The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents and accounts payable, are shown at cost which approximates fair value due to the short-term nature of these instruments. The debt outstanding under the Company’s senior secured term loan (see Note 4) approximates fair value due to the variable interest rate on this debt. With respect to the related party note payable in the amount of $15.0 million as of September 30, 2018 which is held by a principal stockholder of the Company and was issued concurrent with an acquisition transaction with an affiliate of such stockholder (see Note 4), the Company has concluded that an estimation of fair value for this note is not practicable. |
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| Accounts receivable |
Accounts receivable are reported at realizable value, net of allowances for contractual credits and doubtful accounts, which are recognized in the period the related revenue is recorded. At September 30, 2018, four customers accounted for an aggregate of 93% of the Company’s total accounts receivable, and at December 31, 2017, two customers accounted for approximately 79% of the Company’s total accounts receivable. |
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| Inventories |
Inventories, including plasma intended for resale and plasma intended for internal use in the Company's research and development and future anticipated commercialization activities, are carried at the lower of cost or net realizable value determined by the first-in, first-out method. Research and development plasma used in engineering lots or clinical trials is processed to a finished product and subsequently expensed to research and development.
Although the Company expects that the BIVIGAM and RI-002 inventory produced during 2017 and 2018 will ultimately be available for commercial sale, due to uncertainties at the time of production surrounding the timing and outcome of any FDA determinations concerning the Warning Letter and the PAS that must be approved by the FDA prior to this inventory being available for commercial sale, all costs related to the production of BIVIGAM during the nine months ended September 30, 2018 in the amount of $1.1 million have been charged to cost of product revenue in the accompanying consolidated statement of operations. In addition, the costs related to the manufacture of conformance lots of RI-002 during the nine months ended September 30, 2018 in the amount of $2.9 million were also charged to cost of product revenue. |
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| Goodwill |
Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill at September 30, 2018 and December 31, 2017 was $3.5 million. All of the Company’s goodwill is attributable to its ADMA BioManufacturing business segment.
Goodwill is not amortized, but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The Company has the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, then it must perform a goodwill impairment test by comparing the fair value of the reporting unit to its carrying value. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company performs its annual goodwill impairment test as of October 1 of each year. |
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| Impairment of long-lived assets |
The Company assesses the recoverability of its long-lived assets, which include property and equipment and definite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the three and nine months ended September 30, 2018 and 2017, the Company determined that there was no impairment of its long-lived assets. |
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| Revenue recognition |
Revenue from the sale of Nabi-HB is recognized when the product reaches the customer’s destination. Nabi-HB revenue is recorded net of estimated customer prompt pay discounts and contractual allowances in accordance with managed care agreements, including wholesaler chargebacks, rebates, customer returns and other wholesaler fees. For sales of intermediates, title typically transfers when the product is delivered to a third party warehouse. With all other contract manufacturing, the title transfers to the customer when they take possession of the product from the Boca Facility. As the Company maintains a significant risk of loss throughout the contract manufacturing process, contract manufacturing revenue is not recognized until the product is released and title transfers to the customer.
Product revenues from the sale of human plasma collected at the Company’s plasma collection centers are recognized at the time of transfer of title and risk of loss to the customer, which generally occurs at the time of delivery.
License and other revenues are primarily attributable to the out-licensing of RI-002 to Biotest to market and sell this product in Europe and selected countries in North Africa and the Middle East. Biotest has provided the Company with certain services and financial payments in accordance with the related Biotest license agreement and is obligated to pay the Company certain amounts in the future if certain milestones are achieved. Deferred revenue is recognized over the term of the Biotest license. Deferred revenue is amortized into income for a period of approximately 20 years, the term of the Biotest license agreement.
For the nine months ended September 30, 2018, three customers represented an aggregate of 90% of the Company’s consolidated revenues, with BPC representing 54% of the Company’s consolidated revenues and the other two customers representing an aggregate of 35% of the Company’s consolidated revenues. For the nine months ended September 30, 2017, sales to BPC represented 68% of the Company’s consolidated revenues, and another customer represented 8% of the Company’s consolidated revenues. |
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| Cost of product revenue |
Cost of product revenue includes expenses related to process development as well as scientific and technical operations when these operations are attributable to marketed products. When the activities of these operations are attributable to new products in development, the expenses are classified as research and development expenses.
Expenses associated with remediating the issues identified in the Warning Letter for the three and nine months ended September 30, 2018 were approximately $0.1 million and $1.3 million, respectively, and are reflected in cost of product revenue in the accompanying consolidated statements of operations. For the three and nine months ended September 30, 2017, these expenses totaled $2.0 million and $2.5 million. In addition, for the nine months ended September 30, 2018, all operating expenses associated with the Boca Facility, other than the Nabi-HB production that was capitalized into inventory, have been expensed as incurred. |
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| Loss per common share |
Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. For purposes of computing basic and diluted loss per common share, the non-voting class of common stock (see Notes 3 and 5) is included in the common stock outstanding as the characteristics of the non-voting class are substantially the same as the voting class of common stock.
Diluted loss per common share is calculated by dividing net loss attributable to common stockholders, as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentially dilutive common stock includes the shares of common stock issuable upon the exercise of outstanding stock options and warrants, using the treasury stock method. Potentially dilutive common stock is excluded from the diluted loss per common share computation to the extent that it would be anti-dilutive. As a result, no potentially dilutive securities are included in the computation of any of the accompanying diluted loss per share amounts as the Company reported a net loss for all periods presented. For the nine months ended September 30, 2018 and 2017, the following securities were excluded from the calculation of diluted loss per common share because of their anti-dilutive effects:
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| Stock-based compensation |
The Company follows recognized accounting guidance which requires all equity-based payments, including grants of stock options, to be recognized in the statements of operations as compensation expense based on their fair values at the date of grant. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term (see Note 5).
During the three and nine months ended September 30, 2018, the Company granted options to purchase an aggregate of 61,800 and 1,044,700 shares of common stock, respectively, to its directors and employees, and during the nine months ended September 30, 2018, the Company granted options to purchase 20,000 shares of common stock to a third party service provider. During the three and nine months ended September 30, 2017, the Company granted options to purchase an aggregate of 86,000 and 1,942,595 shares of common stock, respectively, to its directors and employees. |
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| Income Taxes |
The accounting and reporting requirements with respect to accounting for income taxes require an asset and liability approach. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.
In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of September 30, 2018 and December 31, 2017. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2013 and its tax returns may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. No interest expense or penalties have been recognized as of September 30, 2018 and December 31, 2017. During the three and nine months ended September 30, 2018 and 2017, the Company recognized no adjustments for uncertain tax positions.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted, which included a reduction of the corporate income tax rate from 35% to 21%. This portion of the TCJA resulted in a reduction to the Company’s net deferred tax assets before valuation allowance of $17.2 million for the year ended December 31, 2017, with a corresponding $17.2 million reduction in the Company’s valuation allowance, resulting in no net impact to the Company’s tax provision. The Company expects to complete its analysis related to the TCJA and its impact on the Company’s consolidated financial statements, including the re-measurement of deferred tax assets and liabilities for the change in the corporate income tax rate, during the fourth quarter of 2018. However, the Company does not expect that the completion of this analysis will have a material impact on its consolidated financial statements. |
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| Recent Accounting Pronouncements |
In May 2017, the FASB issued ASU No. 2017-09, Modification Accounting for Share-Based Payment Arrangements, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718, Compensation – Stock Compensation. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. Adoption of this new guidance in 2018 did not have a material impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. ASU 2016-02 requires modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Based on the lease agreements the Company had in place as of September 30, 2018, and after giving effect to the Company’s obligation to transfer ownership of two of its plasma collection centers to Biotest on January 1, 2019 (see Note 3), the Company does not believe this new standard will have a material impact on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued new guidance related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. ASC 606 defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance. The new guidance became effective in calendar year 2018. Two methods of adoption are permitted: (a) full retrospective adoption, meaning the standard is applied to all periods presented; or (b) modified retrospective adoption, meaning the cumulative effect of applying the new guidance is recognized at the date of initial application as an adjustment to the opening retained earnings balance.
In March 2016, April 2016 and December 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts with Customers (ASC 606): Principal Versus Agent Considerations, ASU No. 2016-10, Revenue From Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers, respectively, which further clarify the implementation guidance on principal versus agent considerations contained in ASU No. 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, narrow-scope improvements and practical expedients which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition. These standards became effective for the Company beginning in the first quarter of 2018.
ADMA adopted the new revenue recognition standard and related updates effective January 1, 2018, using the modified retrospective method of adoption. Adoption of the new revenue recognition guidance did not have a material impact on the Company’s consolidated financial statements. |
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