The following slide deck was published by RPM International Inc. in conjunction with their 2019 Q3 earnings call.
FILE PHOTO: White House economic adviser Larry Kudlow gives a thumbs up after speaking at the Conservative Political Action Conference (CPAC) at National Harbor in Oxon Hill, Maryland, U.S., February 28, 2019. REUTERS/Kevin Lamarque/File Photo
WASHINGTON (Reuters) – Trade talks between the United States and China are progressing and both sides hope to get closer to a deal this week, White House economic adviser Larry Kudlow said on Wednesday as negotiators prepared to start a fresh round of talks in Washington.
Talks between the two economic powerhouses made good headway last week in Beijing, Kudlow told reporters at an event hosted by the Christian Science Monitor.
Kudlow said China has acknowledged problems of intellectual property theft, forced technology transfer and hacking for the first time as a result of the trade talks.
He said U.S. charges against Chinese telecommunications giant Huawei Technologies Co Ltd has generally not come up during trade talks.
Kudlow also said no decisions have been made on auto tariffs.
Reporting by Jeff Mason; Writing by Susan Heavey; Editing by Tim Ahmann and Chizu Nomiyama
Photo Source: Nicolas Asfouri/Pool via REUTERS. China’s Vice Premier Liu He gestures next to U.S. Treasury Secretary Steven Mnuchin as they pose for a group photo at Diaoyutai State Guesthouse in Beijing, China March 29, 2019.
U.S. investors pushed equity funds to their strongest quarterly gains since Q4 2010 while hanging on every bit of news concerning the U.S./China trade negotiations and Federal Reserve Board meetings during the quarter. For Q1 2019, the average equity fund posted a 12.64% gain, with Lipper’s U.S. Diversified Equity Funds (USDE) macro-classification (+13.27%) outpacing the other three major equity groups for the second quarter in three. In this segment, I highlight the Q1 and March 2019 performance results for equity mutual funds and ETFs.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
FILE PHOTO: Coaxial TV Cable is seen in front of Vodafone and Liberty Global logos in this illustration taken May 9, 2018. REUTERS/Dado Ruvic/Illustration/File Photo
LONDON/BRUSSELS (Reuters) – Vodafone still expects to secure EU antitrust approval for its $22 billion purchase of Liberty Global’s assets in Germany and eastern Europe by the middle of the year, it said on Tuesday.
The world’s second-largest mobile operator expressed its confidence after receiving the European Commission’s statement of objections, which set out the watchdog’s concerns about the deal.
Reuters reported on March 20 that the EU competition enforcer would warn the company about possible anti-competitive effects from the proposed deal. The Commission had previously voiced worries about the impact in Germany, the Czech Republic, Hungary and Romania.
“The Commission’s statement of objections is an expected part of the review process. We will review the statement and continue our constructive dialogue with the Commission,” Vodafone said in a statement.
“We still expect to receive final approval in the middle of this year.”
Reporting by Paul Sandle in London and Foo Yun Chee in Brussels; Editing by David Goodman
Highlights from Fourth Quarter 2018 results
On Thursday 21 March, Dynagas LNG Partners (DLNG) finally released their 4th Quarter 2019. I am not sure why it takes nearly three full months for them to come out with the report, bearing in mind the small size of the company. Anyway, let us look at what we can learn from it.
The average time charter earnings of the six ships, for the last quarter, was about $57,500 per day per vessel. They managed to achieve 100% utilization rate, and their operating expenses came in at $11,500 per day per vessel.
They reported a free cash flow of $109.9 million, and available liquidity of $139.9 million as of December 31, 2018.
Their 2013 built vessel “Lena River” completed its scheduled dry-docking in October last year, and was chartered out to an unnamed energy company prior to the commencement of its multi-year charter with Yamal.
It was a pity that management decided not to disclose how much they managed to get for this period charter of roughly 1 year. As can be seen below, October of last year was near the peak of the market for the year, with 1-year charter rates averaging as much as $90,000 per day. To DLNG’s defense, they might have signed a confidentiality agreement, which is common for such deals. Nevertheless, it would have been a sign of transparency, had they chosen to share this information.
The dry-docking of the Lena River incurred costs of $2.4 million, which was $1 million below budget. The duration of this dry-docking was 17 days, which is a period where the vessel is off-hire, and no money is earned. The multi-year charter to Yamal is expected to commence in the third quarter this year.
Their cash breakeven, including distributions to both the common and preferred unitholders, is now reported to be $49,000 per day per vessel. It was good news to learn that their average earnings will increase to around $61,000 per day from the second half of this year. This should bring in an additional profit of $3.78 million.
Another positive thing to keep in mind is that DLNG does not have any scheduled dry-docks until 2023, which will help them retain more of the cash.
With their entire fleet now chartered out, the revenue stream is fixed for the next two years. Obviously, in a rising market, that is a negative thing, as the company then has no chance of benefiting from the rising rate environment. However, as we all know, rates can – and they will – go both ways. There are too many cases of shipping companies getting into financial difficulties, as they are victims of poor freight markets insufficient to cover their costs of operation.
For DLNG the first vessel that might become free in the market is the “Arctic Aurora”, which is on charter to Equinor ASA (NYSE:EQNR). This vessel could be available in 2021. However, EQNR has an option to continue the charter, and I would not be surprised to see them exercising this option. Traditionally, they have a history of keeping ships they like for long periods of time, providing the rate is roughly in line with the market.
Refinancing of the loan
The focus for management is clearly the refinancing of the $250 million notes, which will mature on October 30, 2019.
Source: DLNG 4 Quarter 2018 Presentation
When this will be done, there is no major debt maturing between 2020 and 2022. Judging from the Q&A session during the conference call, it did seem that the management are confident that the refinancing will be concluded sometimes by the second quarter of 2019.
It is crucial to see what kind of terms they can achieve on this $250 million. Will DLNG have to change the amortization profile? All this is important, because it will be the main factor, which will decide what will happen to the distribution, which again will have an impact on what people are willing to pay for the share. This will also have an impact on DLNG’s willingness to go down the route of possible raising more equity. At today’s low price, I doubt they want to raise equity, unless they are forced to do so. Having said that, the company has little room to increase the distribution in view of the amortization they are facing. There could be some growth, but investors who are hoping for a return to past levels are unrealistic.
During the presentation to analysts, the company CFO Michael Gregos said that:
The financial strategy of having essentially non-amortizing debt in order to distribute to common unitholders all of the partnership’s cash flow available after debt service and distribution to preferred unitholders is no longer workable
With all due respect, it never was workable, and never will be. In several of my earlier articles on DLNG, I have highlighted that this is not sustainable.
On Feb 17, 2019, I pointed out in my article DLNG: Think Like A Business Owner, that: “Not enough money at DLNG was put aside to deal with the debt refinancing. You cannot have your cake and eat it too”.
Furthermore, going back to Nov 19, 2018, I raised my concern that the “floating interest rate on the $474 million Term Loan B, which was amortized annually by only $4.8 million, could make finance cost considerable more expensive going forward, should the interest rate continue to increase. This would put further financial strains on DLNG”. During the last few months, the Fed has communicated that it plan to halt further interest rate hikes for 2019.
With $700 mill debt to pay, how could they actually think that they could get away with just making amortizations of just $5 million per year on their entire fleet? It would take 140 years to pay it down. I am well aware that LNG ships do have a longer life, than the ordinary crude oil tanker, but to push life span further out than 30 to 35 years is not viable.
Would you prefer the preferred?
Some authors and commentators here on SA are more interested in DLNG’s preferred units, as opposed to the commons. Authors Richard Lejeune and Rubicon Associates have written articles about DLNG’s preferred, and I would recommend anyone to head over and read their articles.
There are two preferred classes to choose from. They are DLNG.PA and DLNG.PB
Source: Seeking Alpha
DLNG’s Series A Preferred Units has a fixed rate of 9%
Source: Seeking Alpha
DLNG’s Series B Preferred Units has a fixed rate of 8.75%. When DLNG issued these units, it was done to repay earlier outstanding preferred which had a fixed rate of only 6.25%. In other words, they had to pay up to get this done. 2,2 million units was issued at a price of $25. Net proceed received was $53 million after fees. These units are cumulative, redeemable, and perpetual.
For those that are not familiar with preferred shares, what the redeemable part means is that after a certain date the management has the option to buy the shares back at par value, or a slightly higher set price. This limits the likelihood of a significant increase in the share price. No sane person would pay $35 for such unit, if the management has an option to buy it back from him at $25.
If an investor is predominantly looking for yield, the preferred shares are less likely to miss on distribution payments. The common units are the first to be hit, when a company need to reduce distribution. However, it is wrong to assume that there is little or no risks attached to preferred shares. Their value can still go to zero. In the event of a bankruptcy, such as what happened at Seadrill (SDRL), both the common and the preferred units got just a few pennies on each dollar they had invested. Said differently, they had lots of downside, and minimal upside.
For the records, I am not against preferred shares and have owned some in real estate in the past.
In my article titled “DLNG: Update of Current Events” dated May 27, 2018, I did raise my concern about the highly concentrated dependence on one Russian customer, namely Gazprom (TCPK:OGZPY), which is 50.23% controlled by the Russian government.
Russia has certainly been given a hard time, based on several negative factors. One of them was the collusion theory coming from Washington. Two weeks ago, Special Counsel Robert Mueller seems to have come up empty handed. Still, the rather frosty relationship between Russia and the U.S. is not going to thaw anytime soon.
Since 2014, the U.S. government took action to put pressure on Russia over what they consider was Russia’s violation of Ukraine’s territorial integrity and sovereignty.
The U.S. Treasury imposed several sanctions in place with the intended consequence of limiting Russian companies, in the way they do their business. Gazprom is one of them.
I do not wish to engage in any political debate on what is right and wrong, but I am not sure if such sanctions has as much effect as what they were intended to have. It seems to me that Gazprom is doing just fine. Russia will still find buyers for their oil and gas. As I have pointed out in the past, the North Arctic sea passage – from the Yamal Peninsula to Northern part of Asia, like Japan, Korea, and China makes Russian LNG export very interesting.
The recent comments on LNG market for 2019
Many of the big LNG traders were in Lausanne lasts week for the annual Financial Times Commodities Global Summit – a summit sounds sexier than a conference.
Vitol’s head of LNG Pablo Galante Escobar raised his concern about a big oversupply of LNG this year, with many new LNG export facilities being completed. This will continue to put pressure on spot prices for LNG cargoes. Recently they had seen prices for LNG delivered into N. E. Asia fall to a nearly three-year low of $4.30 per million British thermal units (mmBtu).
It seems that the battle between the U.S. LNG exports into Europe, in direct competition to Russian gas coming in through their pipelines, will continue. This will have a positive impact on DLNG, as Russia will focus more on export to Asia, where some of its supply from the Northern hemisphere has to be shipped by LNG carriers.
Low prices might be bad for the producers, but it is a boon for shippers. Vital had record imports of LNG into Europe. Three years ago, they saw 63 cargoes in one month, in March they saw 125 cargoes. For the coming months, they believe we might see 150 to 170 cargoes per month.
Why own DLNG?
It is a good question.
There are certainly many other LNG ocean transportation companies listed on the stock exchange. Teekay LNG Partners (TGP) and Golar LNG Ltd (GLNG) comes to my mind. Newcomer FLEX Ltd, listed on the Oslo Stock Exchange under ticker code (FLNG.NO), and controlled by John Fredriksen, did a 1 for 10 reverse split recently from roughly 11 Norwegian Krone to 110. They did this with the intention of seeking a secondary listing in the U.S. They control 13 vessels, with 4 on the water and 9 newbuildings to be delivered shortly. The company has no long-term charter coverage. Fredriksen is used to gamble. It will certainly be interesting to follow this company. I have in other articles stated that I believe a deal between Ship Finance International (SFL) and FLNG.NO would make a lot of sense. The Fredriksen Group of companies has a long relationship with Shell (RDS.A, RDS.B) and their Shell Shipping & Trading division. Fortunately, the nature of LNG transportation is that long-term charters are quite normal, in view of the fact that the main usage of LNG is for power generation. SFL has a good liquidity, and it would be easy for them to obtain favorable terms on financing it, providing the sale and charter back is backed up by an underlying long-term charter to a large charterer like RDS.A. Watch this space, this year. I have no plan to buy FLNG.NO, but would look positive on a deal with SFL, providing it comes with a long term charter.
However, back to DLNG. There are only one other company which owns a fleet of vessels with Ice-Class – 1A notations. Five out of DLNG’s six vessels hold this highest ice class. Apparently, there are presently only two other vessels in the world, apart from those controlled by DLNG’s sponsor company Dynagas. I believe these two vessels are owned by TGP, and they are already chartered out on long term charters. I like niche businesses which can differentiate the company from all the others. .
As pointed out in my first article on DLNG , optionality of exporting to Europe or Asia with the advantage of cutting the sea journey from the Yamal Peninsula to Asia in half, when the ships can go through the norther route- 6,800 nautical miles versus 12,200 nautical miles. With the high earnings per day of a ship, such savings are huge, making these ships very attractive to Russian exporters.
What was the deciding factors for me, buying into DLNG, was because I like companies with long-term charters. I have too many years in the trenches, chartering vessels, so I know how important it is to have charter coverage. I like companies which concentrate on long-term charters, over those that like to roll the dice in the spot market. Should you wonder how volatile the market gets, take a look at the table over spot rates below.
Hence, my other shipping investments are restricted to just SFL and Navios Maritime Partners (NMM). DLNG has average coverage for their fleet of 8.9 years, while SFL has an average coverage of 8.6 years. I initially bought into NMM, as I thought Navios Holding (NM) intended to build NMM into a company similar to that of SFL. After all, it had dry cargo ships and containerships. It could have added tankers from sister company Navios Maritime Acquisitions (NNA) which owns as many as 43 (crude and clean product) tankers.
It did not pan out quite that way, as their management had other plans. They decided to reduce diversification, and making NMM into a pure dry cargo play.
Some criticism came out from commentators here on SA over the last year about why DLNG fixed out their entire fleet, and by doing so missed the very good spot rates which was achieved in the second half of 2018. It peaked at $185,000 per day in October.
Source: Data from Fearnley Shipbrokers, compiled by author.
It is true that rates went to $185,000/day – but last reported spot rates averaged only $32,500/day which is a far cry from what DLNG is achieving on the long term charters.
At the end of the day, I shy away from companies that rely heavily on the spot market. The fact that DLNG has as they say a best-in-class revenue contract backlog, which amounts to about $230 million per vessel, makes me stay long DLNG.
Is it a buy, hold or sell?
Bear in mind that there is a risk, even though the revenue stream is fixed. The management is working hard on securing refinancing of the $250 million notes coming due on October 30th this year. I would want to see the terms of this refinancing, and how they are going to amortize the debt. When this is clear, it will also be clearer what they intend to, and are able to, do with the distribution on the common units.
With regard to the distribution, when we look at the 4th quarter 2018 numbers, their distributable cash flow was $5.5 million and after payment of distribution to preferred unitholders, distributable cash flow available to common unitholders was $2.9 million, and they paid out $2.2 million, hence their distribution coverage ratio was 1.32 times
First, I want to see how they refinance the notes by middle of this year, as this will set the tone for future growth and distribution policy.
Until this has been settled, the stock is a hold.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NMM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York, U.S., March 26, 2019. REUTERS/Lucas Jackson/File Photo
(Reuters) – U.S. stocks opened higher on Monday, as a surprise recovery in China factory activity and further signs of progress in the U.S.-China trade talks helped extend last quarter’s upbeat mood.
The Dow Jones Industrial Average rose 146.42 points, or 0.56 percent, at the open to 26,075.10. The S&P 500 opened higher by 14.23 points, or 0.50 percent, at 2,848.63. The Nasdaq Composite gained 70.92 points, or 0.92 percent, to 7,800.24 at the opening bell.
Reporting by Shreyashi Sanyal in Bengaluru; Editing by Arun Koyyur
Back on December 19th, ADMA Biologics (ADMA) received a complete response letter “CRL” from the FDA concerning their PAS for BIVIGAM. The FDA had provided an improved compliance status at BIVIGAM’s manufacturing facility back in September and had already delayed the PDUFA date in order to review the company’s submitted package. Moreover, the company received a PAS approval for the drug product, but not for the drug substance. The CRL was a shock to the company and investors because most signs pointed towards approval. ADMA’s CEO Grossman believes “the FDA ran out of time” and could not provide a complete approval for BIVIGAM.
Despite the reassuring post-CRL conference call, the share price remained in the doldrums until the company submitted their responses to the CRL on January 7th. Since the submission, the FDA has asked for information from the company about their BIVIGAM re-submission, yet, the company has not been provided “a formal BIVIGAM CRL re-submission acknowledgment” or “formal clarity on the FDA’s intended review timing.” Typically, the FDA is able to provide this acknowledgment with 30 days of receiving the responses to the CRL. This is a growing concern as we move closer to being 2 months overdue and RI-002’s PDUFA is on the horizon.
Is FDA running behind schedule again?
It appears the company, investors, the stock, the IG market, just about every party involved is ready for BIVIGAM to be on the market…except for the FDA. Unfortunately, the FDA has the privilege to take as long as they need to review a submission. Despite BIVIGAM and RI-002 being two separate products and submissions, I am still apprehensive to add to my position until RI-002 is in the bag. In my previous ADMA article, I had revealed my original plan to make a decision on to hold or liquidate my position depending on the FDA’s decision on the BIVIGAM response type. Due to the lack of an FDA decision, I now have to make that verdict on whether or not RI-002 gets approved.
I intend to offer a detailed review of RI-002 and how an approval will dramatically change the company’s potential for 2019 and beyond. In addition, I review the latest company developments and post-approval plan.
RI-002 is an “IVIG product containing naturally occurring polyclonal anti-pathogen antibodies” for the management of PIDD. RI-002 is the company’s lead pipeline product candidate that has completed its Phase III trial which hit both primary and secondary endpoints. RI-002 is created from a blend of normal donor plasma and plasma from donors with high Respiratory Syncytial Virus “RSV” titers.
Back in Q3 of 2015, the company submitted their RI-002 BLA for the treatment of PIDD. In July of the next year, the FDA delivered a CRL to ADMA for RI-002. The CRL didn’t mention one issue with RI-002’s safety or efficacy data, and the FDA didn’t call for further studies. So, RI-002’s ability to be an approved product was not in question. The CRL cited matters that were the cause of a Warning Letter issued to Biotest back November 2014. The Warning Letter was a result of CMC and GMP problems and deficiencies at the Boca Facility. The FDA was not going to grant approval until these problems were put to rest.
ADMA was able to gain control over the Boco Facility through their deal with Biotest in January of 2017. As a result, the company had the ability to address the issues cited in the CRL and reestablish regulatory compliance. In April 2018, the FDA inspected the Boca Facility and improved the facilities status from Official Action Indicated “OAI”, up to Voluntary Action Indicated “VAI” in September. With the issues at the Boca Facility resolved, ADMA resubmitted a BLA for RI-002 in September. The FDA accepted the company’s BLA in October and informed: “the Company should no longer receive CRLs solely for compliance reasons.”
Now, the company has an upcoming PDUFA date for RI-002 on April 2nd. In terms of the product, RI-002 confirmed affirmative results in a Phase III study, with hitting its primary endpoint of no Serious Bacterial Infections “SBIs” recorded. Plus, the company promotes the “safety profile of RI-002 is similar to that of other immune globulin products.”
So, it looks as if the data is sufficient and the production facility is now in compliance…RI-002 should get approval right?
I have been cautiously optimistic about the chances of RI-002 gaining FDA approval. The FDA has had some difficulty reviewing BIVIGAM’s submissions with a PDUFA delay, CRL, and now appears to be delayed to determine the CRL response type. Although RI-002 is a separate product, I can’t separate RI-002 from the same FDA who is struggling to approve a similar product. I’m not doubting the product’s potential to be approved, I am just concerned the FDA is behind schedule in with RI-002 and will have to postpone.
At the moment, ADMA utilizes distributors and wholesalers as sales proxies for Nabi-HB. However, if RI-002 is approved, the company plans to hire a sales force to help market RI-002 to heavy users of IVIG products such as hospitals, clinics, and infusion centers. In addition, we have to expect the company will expand its support staff for quality assurance, reimbursements, logistics, and other SG&A tasks. The company has not provided any specifics on the number hires needed but investors should expect a significant increase in SG&A expenses in the second half of 2019.
RI-002 in the PIDD Market
The company estimates that there are approximately 250K patients with PIDD in the U.S., with roughly half of them being recurrently treated with IVIG. This population contributes to overall IG market that was estimated to be $6.2B in 2017 with $300M in the Hyperimmune Globulin (Figure 3).
Figure 3: IG Market (Source ADMA)
The company expects RI-002 to “target the most at-risk and severely immune compromised population of PIDD patients.” Looking at figure 4, we can see these at-risk populations that could benefit from RI-002.
Figure 4: RI-002 Target Populations (Image Source)
Not only would RI-002 allow ADMA to begin establishing a percentage of the market but it could claim the lion’s share of the severe immune-compromised population.
Expanding RI-002 Usage
If RI-002 is approved, the company intends to expand RI-002 usage into other indications. The company has hinted at going after RSV, a communal virus that typically leads to cold-like symptoms that can be dangerous for people with PIDD or who are immune-compromised. The company points to RI-001’s Phase II study data that revealed a statistically significant improvement in RSV titers in the RI-001 groups compared with placebo by day 18. In fact, the high dosage group had a “four-fold” increase in RSV titer compared to placebo. In addition, data acquired from RI-002 assessment in animal models supports the exploration of RI-002 in RSV and shows potential use of the product in other “respiratory pathogens.”
In addition to RSV, the company has recently presented other potential indications for RI-002. Looking at Figure 1, we can see that RI-002 has a broad spectrum of applications that the company can take aim at including patients who have received transplants and patients receiving chemotherapy.
Figure 1: RI-002 Follow-On Indications (Source ADMA)
Transplants often require the immune to be suppressed before the procedure to ensure a successful graft. Whereas chemotherapy often suppresses the immune system as a result of the process.
Therefore, it would be helpful to have RI-002 ready to go to help bolster the patient’s immune system to fight off potential infection.
In addition to expanding the label, the company’s IVIG has a laundry list of potential off-label uses for their IVIG products including the indications in figure 2.
Figure 2: IVIG Reimbursed Uses (Source ADMA)
Overall, IVIG products have a multitude of applications and can address serious life-threatening issues. If approved, RI-002 opens the door for ADMA into this vast arena of opportunity.
Perceptive Advisors Loan
Back in February, the company signed into a two-tranche loan facility for up to $72.5M with Perceptive Advisors. The first tranche of $45M was used to pay-off ADMA’s previous credit facility of $30M plus fees. The second tranche is $27.5M and is grounded on either BIVIGAM or RI-002 FDA approval. The new loan has a maturity date of March 1st, 2022, with ADMA paying 7.5% interest per annum and “the greater of one-month LIBOR rate and 3.5%.”
This news was welcomed by both investors and the market, as the share price climbed from below $3.00 on the 12th to the mid-$4.00 area on the 15th. When reading the press release, you can see why the market reacted in such a positive fashion. An excerpt to make note of…
“The Perceptive loan facility provides for an interest only period through the entire duration of the loan facility maturing in March 2022, as well as a more favorable interest rate as compared to ADMA’s former senior secured credit facility. Additionally, the new Perceptive loan facility does not include any back-end fees.”
CEO Adam Grossman stated,
“This access to capital, combined with the potential FDA approvals of our product candidates, will allow us to increase our manufacturing activities, initiate building additional plasma collection centers, and prepare for the potential commercialization of BIVIGAM® and RI-002 this year.”
Not only did the company secure a better loan compared to the previous arrangement, but perhaps they secured enough funding to prevent shareholder dilution. The quote above provides me with some confidence that the present cash position and newly acquired loan facility is adequate to fund the company into BIVIGAM and RI-002 launch.
Figure 5: ADMA Financial Summary (Source ADMA)
How’s the Chart Look?
After the BIVIGAM CRL slashed ADMA by over 50% but the share price recovered after the announcement of the new loan agreement. Recently, the share price ran into long-term downtrend line on the daily chart (Figure 6) that was established back in September.
Figure 6: ADMA Daily (Source Trendspider)
If the RI-002 is approved we can expect a significant move up, however, we should expect some swing traders who bought after the December CRL to take some profits. Still, if the share price can remain above the $5.00 mark, we might see the stock move above the 200-day moving average. If the share price remains above the 200-day moving average for a few days we could see a change in the trend.
Double Catalysts Doubling Revenue
ADMA could be getting ready for a double catalyst in the coming weeks with a RI-002 PDUFA and possible FDA update for BIVIGAM. In addition, the company has already prepared the product in anticipation for launch in 2019. With two potential product launches and increasing NABI-HB sales, ADMA could experience a rapid increase in revenues over the next couple of years (Figure 7).
Figure 7: ADMA Annual Revenue Estimates (Source Seeking Alpha)
Looking at the figure above, we can see the drastic increase in revenue estimates from 2019 to 2020, which should generate considerable momentum in the share price if it comes to fruition. In addition to the revenue growth, notice the figure’s FWD Price/Sales ratios for 2019 and 2020; having a price to sales ratio around 5 is on par with the biotech sector. This tells us the company is currently overpriced for 2019 sales estimates, however, it is heavily discounted compared to 2020s. As a potential long-term investor, I found these estimates to be very reassuring that the street sees this company making substantial headway in the coming years. In addition, it has provided me with some confidence to make a technical buy if the opportunity arises.
Figure 8: ADMA Quarterly Revenue Estimates (Source Seeking Alpha)
However, it appears the street has anticipated another quarter of weak revenue followed by sequential growth (Figure 8). If the company is able to display follow this progression we could see a rapid move in the share price towards the end of 2019 as a cash-flow positive point could be projected.
As we approach RI-002’s PDUFA, investors should remain vigilant for a company press release announcing FDA approval or another CRL. I expect the stock to experience an increase in volatility after the FDA delivers their verdict as the market attempts to find a new value for the company. In my opinion, this binary event carry’s a bit more potential than most PDUFA decisions. If the company receives an approval, RI-002 opens the door to a multi-billion dollar IG market, while a CRL means more time and money wasted that the company cannot afford. This binary potential is compounded due to the prolonged unknown fate of BIVIGAM. As the pressure builds, investors need to have a game plan on how they are going to manage their position in all potential outcomes for BIVIGAM and RI-002.
Personally, I am still prepared to hold ADMA for up to 5 years if BIVIGAM and RI-002 can get approved in 2019. If they are approved, I anticipate 5-year price target of $24.00, which I balanced on the estimated IG market in 2024, and the outlook that ADMA will achieve 10% of the market share in 2024. I will continue to add if the company can continue to hit revenue estimates and can quickly expand RI-002 usage into other indications.
If ADMA does not achieve FDA approval for BiVIGAM and RI-002 products, I will liquidate my position upon news release.
Disclosure: I am/we are long ADMA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.