The information in this
preliminary prospectus supplement is not complete and may be changed. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission and is effective. This preliminary prospectus supplement and the accompanying
prospectus are not an offer to sell these securities and they are not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale thereof is not permitted.
RISK FACTORS
Investing in our common stock involves a high degree
of risk. Before making an investment decision, you should carefully consider the risks described below and in the accompanying
prospectus, as well as other information we include or incorporate by reference in this prospectus. In particular, you should carefully
consider the information in Item 1A. “Risk Factors” as well as the factors listed under the heading “Forward-Looking
Information,” in each case contained in our 2018 10-K and our Form 10-Q for the quarter ended September 30, 2019, which are
incorporated by reference in this prospectus. If any of these risks actually occur, our business, financial condition and results
of operations could be affected negatively. In that event, the trading price of our common stock could decline and you could lose
all or part of your investment. Additional risks and uncertainties that are not yet identified or that we do not believe are material
may also affect our business, operating results and financial condition and could result in a complete loss of your investment.
Risks Relating to this Offering
You will experience immediate and
substantial dilution in the book value per share of the common stock you purchase in the offering.
You will incur immediate and substantial
dilution as a result of this offering. The public offering price per share of our common stock offered pursuant to this prospectus
supplement is substantially higher than the net tangible book value per share. Accordingly, at the public offering price of $ per
share, purchasers of common stock in this offering will experience immediate dilution of $ per share in as adjusted net tangible
book value of the common stock. In addition, as of September 30, 2019, there were 5,639,539 shares of common stock subject to outstanding
options at a weighted average exercise price per share of $4.76, of which 1,958 shares were subsequently issued upon the
exercise of stock options after September 30, 2019, and 2,138,160 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted-average exercise price of $3.81 per share. To the extent that additional shares of common stock are issued
upon the exercise of these options or warrants at prices per share below the public offering price per share in this offering or
we issue additional shares under our equity incentive plans at prices below the public offering price per share in this offering,
you will incur further dilution. See “Dilution” for a more detailed discussion of the dilution you will incur if you
purchase shares of common stock in this offering. We may also acquire or license other technologies or finance strategic alliances
by issuing equity, which may result in additional dilution to our stockholders.
Future sales or other issuances of
our common stock could depress the market for our common stock.
Sales of a substantial number of
shares of our common stock, or the perception by the market that those sales could occur, could cause the market price of our
common stock to decline or could make it more difficult for us to raise funds through the sale of equity in the future. In
connection with this offering, we, and our executive officers and directors, and certain of their affiliates, have entered
into lock-up agreements for a period of 90 days following this offering. These lock-up obligations may be released prior to
the expiration of the lock-up period at the sole discretion of the representatives of the underwriters. See
“Underwriters” beginning on page S-45 of this prospectus supplement and “Plan of Distribution” in the
accompanying prospectus for additional information. Upon expiration or earlier release of these lock-ups, we and our
executive officers and directors, and their applicable affiliates, may sell shares into the market, which could adversely
affect the market price of shares of our common stock.
You may experience future dilution
as a result of future issuances of common stock, including through equity offerings.
To raise additional capital, we may in
the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock
at prices that may not be the same as the price per share in this offering. We may sell shares or other securities in any other
offering at a price per share that is less than the price per share paid by investors in this offering, and investors purchasing
shares of our common stock or other securities in the future could have rights superior to existing stockholders. The prices per
share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future
transactions may be higher or lower than the price per share paid by investors in this offering.
Future issuances of common stock could
further depress the market for our common stock. We expect to continue to incur drug development and selling, general and administrative
costs, and to satisfy our funding requirements, we will need to sell additional equity securities, which may include sales of significant
amounts of common stock to strategic investors, and which common stock may be subject to registration rights. The sale or the proposed
sale of substantial amounts of our common stock or other equity securities in the public markets or in private transactions may
adversely affect the market price of our common stock and our stock price may decline substantially. Our stockholders may experience
substantial dilution and a reduction in the price that they are able to obtain upon sale of their shares. Also, new equity securities
issued may have greater rights, preferences or privileges than our existing common stock. In addition, we have a significant number
of shares of restricted stock, restricted stock units, and stock options outstanding. To the extent that outstanding stock options
have been or may be exercised or other shares issued, investors purchasing our common stock in this offering may experience further
dilution.
If we make one or more significant acquisitions
in which the consideration includes stock or other securities, our stockholders’ holdings may be significantly diluted. In
addition, stockholders’ holdings may also be diluted if we enter into arrangements with third parties permitting us to issue
shares of common stock in lieu of certain cash payments upon the achievement of milestones.
Our management will have broad discretion to use the net
proceeds from this offering, and our investment of these proceeds pending any such use may not yield a favorable return.
Our management will have broad discretion
as to the use of the net proceeds from this offering by us and could use them for purposes other than those contemplated at the
time of this offering. Accordingly, you will be relying on the judgment of our management with regard to the use of these net
proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being
used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return
for ADMA.
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 our plasma-derived immune globulins, which include: Nabi-HB, BIVIGAM, ASCENIV, intermediate fractions
and the contract manufacturing of plasma-derived products for a third-party. On April 1, 2019, the FDA approved ASCENIV, formerly
referred to as RI-002, and the first commercial sales of this product took place in October 2019. On May 9, 2019 we received approval
from the FDA for BIVIGAM, and the commercial re-launch of this product commenced in August 2019. In December 2019, we generated
initial sales of our plasma-derived intermediate fractions.
Our long-term liquidity depends upon our ability to grow our
commercial programs, expand our commercial operations at our Boca Facility, improve our supply-chain capabilities, improve production
yields, provide more control and visibility for timing of commercial product releases, raise additional capital, fund and successfully
implement our research and development and commercial programs, establish and build out a commercial sales force, medical affairs
organization and commercial infrastructure and meet our ongoing obligations.
We currently anticipate, based upon our projected revenue
and expenditures, as well as the additional funds we are able to draw-down under the Credit Agreement and Guaranty (the
“Perceptive Credit Agreement”) between us and Perceptive Credit Holdings II, LP (“Perceptive”), that
our current cash, cash equivalents and accounts receivable, together with the estimated net proceeds of this offering, will
be sufficient to fund our operations into the first half of 2021. This time frame may change based upon how quickly we are
able to execute on our commercialization efforts and operational initiatives. However, if the assumptions underlying our
estimated revenues and expenses prove to be incorrect, we may have to raise additional capital sooner than we currently
expect. We expect that we will not be able to generate a sufficient amount of product revenue to achieve profitability before
2021, and as a result, we expect that we will need 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 commercialization efforts as well as product development activities, including conducting
clinical trials for our product candidates and purchasing clinical trial materials from our suppliers. 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.
Our history of net operating losses and our accumulated
deficit raise substantial doubt regarding our ability to continue as a going concern. If we do not continue as a going concern,
investors could lose their entire investment.
Although our financial statements have been prepared on a going
concern basis, we must raise additional capital before the end of the fourth quarter of 2020 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, 2018,
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 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. Our determination of substantial doubt
about our ability to continue as a going concern could also materially limit our ability to raise additional funds. 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. The accompanying consolidated financial statements 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.
Without giving effect to this offering and the use of proceeds
expected therefrom, we anticipate that our principal sources of liquidity will only be sufficient to fund our activities, as currently
conducted, into the fourth quarter of 2020. 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 fourth quarter of 2020. 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 we are
exploring. 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 fourth quarter of 2020.
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, 2018 and 2017, we incurred net losses of $65.7 million and $43.8 million, respectively, and for the nine
months ended September 30, 2019 and 2018, we incurred net losses of $37.7 million and $47.7 million, respectively. From our inception
in 2004 through September 30, 2019, we have incurred an accumulated deficit of $254.2 million. Even if we succeed in developing
and commercializing one or more of our products and 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:
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expand commercialization and marketing efforts;
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implement additional internal systems, controls and infrastructure;
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hire additional personnel;
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expand and build out our plasma center network; and
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expand production capacity at the Boca Facility.
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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.
We contract with third parties for the filling, packaging
and labeling of the drug substance we manufacture. This reliance on third parties carries the risk that the services upon which
we rely may not be performed in a timely manner or according to our specifications, which could delay the availability of our finished
drug product and could adversely affect our commercialization efforts and our revenues.
Third-party fill/finish providers may not perform as agreed
or in accordance with FDA requirements. Any significant problem that our fill/finish providers experience could delay or interrupt
our supply of finished drug product until the service provider cures the problem or until we locate, negotiate for, validate and
receive FDA approval for an alternative provider (when necessary), if one is available. Failure to obtain the needed fill/finish
services could have a material and adverse effect on our business, financial condition, results from operations and prospects.
Although in the future we plan to build our own fill/finish
suite within the Boca Facility, we also intend to continue to utilize third parties to supplement our fill/finish process for final
drug substance and we may, in any event, never be successful in developing our own fill/finish suite. Our anticipated reliance
on a limited number of third-party manufacturers exposes us to the following risks:
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we may be unable to identify contract fill/finishers on acceptable terms or at all because the number of potential service
providers is limited and the FDA must inspect and qualify any contract manufacturers for current good manufacturing practice (“cGMP”)
compliance as part of our marketing application;
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a new fill/finisher would have to be educated in, or develop substantially equivalent processes for, the production of our
products and product candidates;
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our contracted fill/finishers’ resources and level of expertise with plasma-derived biologics may be limited, and therefore
they may require a significant amount of support from us in order to implement and maintain the infrastructure and processes required
to deliver our finished drug product;
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our third-party fill/finishers might be unable to timely provide finished drug product in sufficient quantity to meet our commercial
needs;
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contract manufacturers may not be able to execute our inspection procedures and required tests appropriately;
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contract manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to
ensure strict compliance with cGMP and other government regulations and we do not have control over third-party providers’
compliance with these regulations;
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our third-party fill/finishers could breach or terminate their agreements with us; and
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our contract fill/finishers may have unacceptable or inconsistent drug product quality success rates and yields, and we have
no direct control over our contract fill/finishers’ ability to maintain adequate quality control, quality assurance and qualified
personnel.
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Each of these risks could delay or prevent the completion of
finished drug product and the release of finished drug product by the FDA, which could result in higher costs or adversely impact
commercialization of our product.
The estimates of market opportunity and forecasts of market
and revenue growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve
the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts are subject
to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. In particular, the size
and growth of the overall U.S. IVIG and source plasma markets are subject to significant variables that can be difficult to measure,
estimate or quantify. Our business depends on, among other things, successful commercialization of our existing products, market
acceptance of such products and ensuring that our products are safe and effective. Further, there can be no assurance that we will
be able to generate the revenue that we believe our products and plasma facilities are capable of generating. As a result, we may
not be able to accurately forecast or predict revenue. For these reasons, the estimates and forecasts in this prospectus relating
to revenue generation and growth may prove to be inaccurate. Even if the markets in which we compete meet our size estimates and
forecasted growth, our business could fail to grow at similar rates, if at all.
Even though we operate under our own FDA-issued license,
we may not be able to officially resolve or receive a final close-out letter with respect to the Warning Letter issued to Biotest’s
License #1792 for the Boca Facility.
Prior to the closing of the Biotest Transaction, BTBU was our
third-party manufacturer for ASCENIV, formerly referred to as RI-002. In response to our Biologics License Application (“BLA”)
submission for RI-002 in 2015 (the “RI-002 BLA”), in July 2016 the FDA issued a Complete Response Letter (“CRL”)
for RI-002 (the “RI-002 CRL”). The RI-002 CRL did not specify or request the need for any addition clinical trials
or data; however, the RI-002 CRL reaffirmed the issues set forth in a November 2014 warning letter (the “Warning Letter”)
that the FDA had issued to BPC related to certain compliance and other inspection issues and deficiencies identified at the Boca
Facility. The FDA identified in the RI-002 CRL, among other things, certain outstanding inspection issues and deficiencies related
to chemistry, manufacturing and control (“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 RI-002 CRL that it could not grant final approval of our RI-002 BLA until, among other things, these deficiencies were
resolved. In response to the Warning Letter, in December 2016, BTBU temporarily suspended the production of BIVIGAM 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, 2018, and until August 2019.
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 was to remediate the outstanding compliance issues at the Boca Facility as indicated in the Warning Letter. We
worked with a leading consulting firm with extensive experience in remediating compliance and inspection issues related to quality
management systems that managed 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. In April 2018, the FDA inspected the Boca Facility and,
in July 2018, our FDA status improved from Official Action Indicated (“OAI”) to Voluntary Action Indicated (“VAI”),
and this inspection of the Boca Facility has been successfully closed out as indicated on the FDA’s website inspection database.
The FDA subsequently approved ASCENIV in April 2019 and BIVIGAM in May 2019, and, on July 2, 2019, notified us that the licenses
for BIVIGAM and Nabi-HB had been revoked from BPC’s U.S. License No. 1792, with respect to which the Warning Letter was
issued, and transferred and issued to our U.S. License No. 2019. The commercial re-launch and first commercial sales of BIVIGAM
under our ownership occurred in August 2019. Commercial sales of ASCENIV commenced in October 2019. Although we received
FDA approval of our RI-002 BLA on April 1, 2019 and the FDA has transferred the BIVIGAM and Nabi-HB licenses to us, neither we
nor BPC has received a “Warning Letter close-out letter” from the FDA. We believe that we have successfully closed
out the April 2018 FDA inspection of the Boca Facility, and we believe that as result of the FDA’s transfer of the BIVIGAM
and Nabi-HB licenses to us, we have neither a right nor an obligation to close out the Warning Letter, which applied to BPC’s
U.S. License No. 1792. Consequently, we may not be able to officially close out the Warning Letter issued to Biotest under their
license #1792 related to the Boca Facility.
There can be no assurance that the FDA will not in the future
determine that our efforts to remediate the underlying concerns at the Boca Facility that resulted in the Warning Letter and the
CRL in July 2016 have not been effective. 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. If the FDA determines that we have not remediated the issues identified
in the Warning Letter or any other inspection issues and deficiencies, any failure of ours to address or provide requested documentation
of corrections for these issues could disrupt our business operations and the timing of our commercialization efforts and could
have a material adverse effect on our financial condition and operating results.
Business interruptions could adversely affect our business.
Our operations, including our headquarters located in Ramsey,
NJ, the Boca Facility and our Kennesaw, GA plasma collection facility, 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, product liability claims and events beyond our control. While we maintain several
insurance policies with reputable carriers, these policies provide partial coverage for a variety of these risks, including replacing
or rebuilding a part of our facilities, these policies are subject to the insurance carriers’ final determination of compensation
to us and may not be in amounts adequate to provide coverage if we need to rebuild or replace portions of or our entire facility.
In addition, our disaster recovery plans for our facilities may not be adequate and we do not have an alternative manufacturing
facility or contractual arrangements with other manufacturers in the event of a casualty to or destruction of any of our facilities.
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. As a result, any significant business interruption could adversely affect our business and results of operations.
If we are unsuccessful in obtaining regulatory approval
for any of our product candidates or if 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.
Product candidates require 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. The conduct of preclinical studies and clinical trials is subject to numerous risks and
results of the studies and trials are highly uncertain. 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. Furthermore,
delays or setbacks can occur at any stage of the process, and we could encounter problems that cause us to abandon our product
development programs and related Investigational New Drugs (“INDs”) or biologics license applications, or to 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:
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unforeseen safety issues;
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determination of dosing issues;
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lack of effectiveness during clinical trials;
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slower than expected rates of patient recruitment;
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inability to monitor patients adequately during or after treatment; and
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inability or unwillingness of medical investigators to follow our clinical protocols.
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We cannot be certain as to what type and how many clinical trials
the FDA, or equivalent foreign regulatory agencies, will require us to conduct before we may successfully gain approval to market
any of our product candidates that still require FDA approval. Prior to approving a new drug or biologic, the FDA generally requires
that the effectiveness of the product candidate (which is not typically fully investigated until Phase 3) be demonstrated in two
adequate and well-controlled clinical trials. However, if the FDA or an equivalent foreign regulatory authority determines that
our Phase 3 clinical trial results do not demonstrate a statistically significant, clinically meaningful benefit with an acceptable
safety profile, or if a relevant regulator requires us to conduct additional Phase 3 clinical trials in order to gain approval,
we will incur significant additional development costs and commercialization of these products would be prevented or delayed and
our business would be adversely affected.
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 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 our product candidates, we may be required to terminate development of such product candidates. If we fail to obtain regulatory
approval to market and sell our product candidates, or if approval is delayed, we will be unable to generate revenue from the sale
of these products, our potential for generating positive cash flow will be diminished and the capital necessary to fund our operations
will increase.
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.
We cannot be certain that the clinical trial results of our
product candidates will support our product candidates’ 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 our clinical trials and product testing for our product candidates may be performed outside
of the U.S., and therefore, may not be performed in accordance with standards normally required by the FDA and other regulatory
agencies.
If we do not obtain and maintain the necessary U.S. or
international regulatory approvals to commercialize a product candidate, we will not be able to sell that product candidate, which
would make it difficult for us to recover the costs of researching and developing such product candidate.
If we are not be able to generate revenue from our products
and product candidates, 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 any product candidate we may acquire or develop in the future. In order to obtain FDA
approval of any 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 a 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, or may require additional CMC or other
data and information, and the development and provision of this data and information may be time-consuming and expensive. There
are numerous FDA personnel assigned to review different aspects of a BLA, and uncertainties can be presented by their ability to
exercise judgment and discretion during the review process. 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:
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delay commercialization of, and our ability to derive product revenues from, our product candidate;
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impose costly procedures on us; and
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diminish any competitive advantages that we may otherwise enjoy.
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Even if we comply with all FDA requests, the FDA may ultimately
reject our product candidate’s 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 any 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 U.S. 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 U.S.
Although we have received approval from the FDA to
market ASCENIV as a treatment for PIDD, our ability to market or seek approval for ASCENIV for alternative indications could be
limited, unless additional clinical trials are conducted successfully and the FDA approves a BLA or other required submission for
review.
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. Although we have received approval from the FDA to market ASCENIV as a treatment
for PIDD, we cannot be sure whether we will be able to obtain FDA approval for any desired future indications for ASCENIV.
While physicians in the U.S. 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 U.S. 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. 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.
With the approval of ASCENIV, there can be no assurance
that we will be successful in developing and expanding commercial operations or balancing our research and development activities
with our commercialization activities.
With the approval of ASCENIV, we plan to commercialize this
product, while also continuing our research and development activities. There can be no assurance that we will be able to successfully
manage the balance of our research and development operations with our planned commercialization activities. Potential investors
and stockholders should be aware of the problems, delays, expenses and difficulties frequently encountered by companies balancing
development of product candidates, which can include problems such as unanticipated issues relating to clinical trials and receipt
of approvals from the FDA and foreign regulatory bodies, with commercialization efforts, which can include problems related to
managing manufacturing and supply, reimbursement, marketing challenges, development of a comprehensive compliance program, and
other related and additional costs. For example, the raw material plasma we collect and procure to manufacture ASCENIV using our
patented proprietary microneutralization assay is comprised of plasma collected from donors which contains high titer antibodies
to RSV. This high titer plasma which meets our internal specifications for the manufacture of ASCENIV that we are able to
identify with our patented testing assay amounts to less than 10% of the total donor collection samples we test. Our product candidates
will require significant additional research and clinical trials, and we will need to overcome significant regulatory burdens prior
to commercialization in the U.S. and other countries. In addition, we may be required to spend significant funds on building
out our commercial operations. There can be no assurance that after the expenditure of substantial funds and efforts, we will successfully
develop and commercialize any of our product candidates, generate any significant revenues or ever achieve and maintain a substantial
level of sales of our products.
We depend on third-party researchers, developers and vendors
to develop, manufacture and test products and product candidates, 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, contract fill/finishers 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.
Our products, and any additional
products for which we may obtain marketing approval in the future, could be subject to post-marketing restrictions or withdrawal
from the market and we could be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience
unanticipated problems with our products following approval.
Our products, and any additional
products for which we have or may obtain marketing approval in the future, could be subject to post-marketing restrictions,
new FDA guidance, or other regulatory actions, such as withdrawal from the market. Such products, as well as the
manufacturing processes, post-marketing studies and measures, labeling, advertising and promotional activities for such
products, among other things, are subject to ongoing regulatory compliance requirements, and oversight, review, and
inspection by the FDA and other regulatory authorities. These requirements include submissions of safety and other
post-marketing information and reports, registration and listing requirements, adherence with labeling and promotional
requirements and restrictions, requirements relating to manufacturing, quality control, quality assurance and corresponding
maintenance of records and documents, requirements regarding safeguarding the drug supply chain as well as the distribution
of samples to physicians, and recordkeeping. For example, the FDA’s approval of our PAS to allow for the commercial
relaunch of BIVIGAM requires us to conduct specified post-marketing studies related to our manufacturing controls and
processes, and submit specified post-marketing reports to the FDA. If, during the post marketing period (after marketing
approval) previously unknown adverse events or other potential concerns regarding our products or their manufacturing
processes emerge, or we are observed in any way to fail to comply with the numerous regulatory requirements to which we are
subject, those circumstances may yield various results, including:
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restrictions on such products or manufacturing processes;
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restrictions on the labeling or marketing of a product;
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restrictions on product distribution or use;
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requirements to conduct further post-marketing studies or clinical trials;
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warning letters or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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restrictions on coverage by third-party payors;
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fines, restitution or disgorgement of profits or revenues;
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suspension or withdrawal of marketing approvals;
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refusal to permit the import or export of products;
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injunctions or the imposition of civil or criminal penalties.
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Historically, a few customers have accounted for a significant
amount of our total revenue and the loss of any of these customers could have a material adverse effect on our business, results
of operations and financial condition.
For the year ended December 31, 2018, BPC, McKesson Corporation (“McKesson”) and AmerisourceBergen
Corporation (“AmerisourceBergen”) represented 56%, 16% and 15%, respectively, of our total revenue. For the nine months
ended September 30, 2019, four customers represented an aggregate of 86% of our consolidated revenues, with Biolife Plasma Services,
L.P. (“Biolife”), Sanofi Pasteur, S.A. (“Sanofi”), McKesson and AmerisourceBergen representing approximately
35%, 29%, 12% and 10%, respectively, of our consolidated revenues.
The loss of any key customers or a material change in the revenue
generated by any of these customers could have a material adverse effect on our business, results of operations and financial condition.
The initial term of our Amended and Restated Plasma Supply Agreement with BPC, pursuant to which we supplied BPC with normal source
plasma, expired by its terms on December 31, 2018 and was not renewed, and we fulfilled our commitment under our supply agreement
with Sanofi during the year ended December 31, 2019. Moreover, we anticipate deriving increasingly considerable revenue from BioCARE,
Inc. (“BioCare”). Factors that could influence our relationships with our customers include, among other things:
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our ability to sell our products at competitive prices;
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our ability to maintain features and quality standards for our products sufficient to meet the expectations of our customers;
and
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our ability to produce and deliver a sufficient quantity of our products in a timely manner to meet our customers’ requirements.
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Additionally, an adverse change in the financial condition of
BioCare, Biolife, McKesson, Sanofi or AmerisourceBergen could negatively affect revenue derived from such customer, which in turn
would have a material adverse effect on our business and results of operations.
Issues with product quality and compliance 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 failure to obtain product approval, 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, payers 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, payers
and patients may not accept and use it. Acceptance and use of our products depends on a number of factors including:
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perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our products;
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cost-effectiveness of our products relative to competing products;
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availability of reimbursement for our products from government or other healthcare payers; and
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the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.
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The failure of our current or 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.
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, product
candidates and label expansion of existing products, 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 label expansion activities for Nabi-HB, BIVIGAM and ASCENIV. 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 commercialization of ASCENIV, 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 Bio Centers,
to support our operations.
Our ADMA Bio Centers operations collect information from
donors in the U.S. 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 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, healthcare 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 healthcare 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 HHS
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 $5.0 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. Some state privacy and security laws apply more broadly
than HIPAA and associated regulations. For example, California recently enacted legislation—the California Consumer Privacy
Act, or CCPA—which went into effect January 1, 2020. The CCPA, among other things, creates new data privacy obligations
for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures
of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby
potentially increasing risks associated with a data breach. It remains unclear what, if any, modifications will be made to this
legislation or how it will be interpreted. We could be subject to enforcement action and litigation exposure if we fail to adhere
to these data privacy and security laws.
We may neither be successful in integrating the Biotest
Assets into our business nor realize the strategic and financial benefits currently anticipated from the Biotest Transaction.
The Biotest Transaction involves the integration of two
businesses that previously have operated independently with principal offices in two distinct locations. We continue to
expend 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. 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.
Potential difficulties that may be encountered in the integration
process include, but are not limited to, the following:
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using our cash and other assets efficiently to develop the business on a post-Biotest Transaction basis;
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appropriately managing the liabilities of our Company on a post-Biotest Transaction basis;
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potential unknown or currently unquantifiable liabilities associated with the Biotest Transaction and the operations of our
Company on a post-Biotest Transaction basis;
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potential unknown and unforeseen expenses, delays or regulatory conditions associated with the Biotest Transaction; and
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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.
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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.
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, which exposes us 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 Master Purchase and Sale Agreement, dated as of January
21, 2017 (the “Master 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 Master Purchase Agreement. In connection with the Share Transfer, Amendment and Release Agreement
among us, BPC, Biotest AG, Biotest US Corporation and The Biotest Divestiture Trust (the “Biotest Trust”) (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 Master 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 Master 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 Master Purchase Agreement contains certain
non-compete clauses, such clauses do not prohibit either the Biotest Guarantors (as defined therein) 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 were 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 are or 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 Master 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.
The Perceptive Credit Facility is subject to acceleration
in specified circumstances, which may result in Perceptive taking possession and disposing of any collateral.
The Perceptive Credit Agreement provides us with a senior secured
term loan facility (the “Perceptive Credit Facility”) in an aggregate amount of up to $85.0 million, comprised of (i)
the Perceptive Tranche I Loan made on February 11, 2019 with an outstanding principal amount of $45.0 million, (ii) the Perceptive
Tranche II Loan made on May 3, 2019 with an outstanding principal amount of $27.5 million, and (iii) the Perceptive Tranche III
Loan in the principal amount of $12.5 million, which has yet to be drawn down and is available until March 31, 2020 (together with
the Perceptive Tranche I Term Loan and the Perceptive Tranche II Loan, the “Loans”). The Loans each have a maturity
date of March 1, 2022, subject to acceleration pursuant to the Perceptive Credit Agreement, including upon an Event of Default
(as defined in the Perceptive 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 4% per annum, the occurrence
of an Event of Default could result in, among other things, the termination of commitments under the Perceptive Credit Facility,
the declaration that all outstanding Loans are immediately due and payable in whole or in part, and Perceptive 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 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 U.S. 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 products 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 U.S. 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 U.S. 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 our products 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, time-consuming and no
assurance can be given that we will prevail. In addition, any such litigation may divert our management’s attention
from our core business and reduce the resources available for our clinical development, manufacturing and marketing activities,
and consequently have a material and adverse effect on our business and prospects, regardless of the outcome.
There is no assurance that ASCENIV, 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 IG. 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 U.S.
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.
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
emails 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 cyberattacks, 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 and retain a substantial number
of qualified personnel, our ability to sustain and 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, quality control, 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 Bio
Centers facility, and if we cannot maintain FDA approval for this facility or obtain FDA approval for additional facilities that
we create or acquire rights to, 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 approval of our ADMA Bio Centers collection
facility in Kennesaw, GA for the collection of human blood plasma and we may seek other governmental and regulatory approvals for
this facility. We also plan to grow through the building and licensing of additional ADMA Bio Centers facilities in various regions
of the U.S. Collection facilities are subject to FDA and potentially other governmental and regulatory inspections and extensive
regulation, including compliance with current cGMP, FDA and other government approvals, as applicable. Failure to comply with applicable
governmental regulations or to receive applicable approvals for our future facilities 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 or our vendors 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.
The FDA had identified issues in the Warning Letter
resulting from their prior inspections while the Boca Facility was under BPC’s operational control. We engaged a
leading consulting firm with extensive experience in remediating compliance and inspection issues related to quality
management systems that managed 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. Although we have improved our compliance status
at the Boca Facility, there are no assurances we will be able to maintain compliance with all FDA or other regulations. Our
third-party vendors may perform activities for themselves or other clients and we may not be privy to all regulatory findings
or issues discovered by the FDA or other regulatory agencies. Such findings, which are out of our control, may adversely
affect our ability to continue to work with these vendors, or our ability to release commercial drug product or perform
necessary testing or other actions for us or our clients, which may be required in order to remain FDA compliant or to
commercialize our products.
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 and maintain 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 U.S. 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 Statute), 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 HHS 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 Statute 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 healthcare 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. Legislators and
regulators may seek to further restrict the scope of financial relationships that are considered appropriate. For example, HHS
issued a proposed rule in February 2019, which aims to eliminate certain Anti-Kickback Statute safe harbor protection for drug
rebates. 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 (“ACA”) and the companion Health
Care and Education Reconciliation Act, which together are referred to as the “Healthcare Reform Law,” payments and
transfers of value by pharmaceutical manufacturers subject to this “Sunshine Act” and its implementing regulations
to U.S.–licensed physicians and teaching hospitals, must be tracked and reported, and will be publicly disclosed. Such “applicable
manufacturers” are also required to report certain ownership interests held by physicians and their immediate family members.
In 2018, the Sunshine Act was extended to require tracking and reporting of payments and transfers of value to physician assistants,
nurse practitioners, and other mid-level practitioners (with reporting requirements going into effect in 2022 for payments and
transfers of value made in 2021). 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 U.S., 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 U.S., 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 Statute that applies to Medicare and Medicaid, and other healthcare 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
Statute 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 U.S., 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 U.S. 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 U.S. or the European Union, we could be adversely affected.
Also, under the U.S. Foreign Corrupt Practices Act, the U.S.
has increasingly focused on regulating the conduct by U.S. businesses occurring outside of the U.S., generally prohibiting remuneration
to foreign officials for the purpose of obtaining or retaining business. To enhance compliance with applicable healthcare laws,
and mitigate potential liability in the event of noncompliance, regulatory authorities such as the HHS Office of Inspector General
(the “OIG”) have recommended the adoption and implementation of a comprehensive healthcare 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. We will need to adopt
healthcare compliance and ethics programs that would incorporate the OIG’s recommendations and train our employees. Such
a program may be expensive and may not provide assurance 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.
We are subject to extensive and rigorous governmental
regulation, including the requirement of FDA and other federal, state and local business regulatory approval before our products
and product candidates may be lawfully marketed, and our ability to obtain regulatory approval of our products and product candidates
from the FDA in a timely manner, access the public markets and obtain necessary capital in order to properly capitalize and continue
our operations may be hindered by inadequate funding for the FDA, the SEC and other state and local government agencies.
Both before and after the approval of our products, our products,
our operations, our facilities, our suppliers and our contract research organizations are subject to extensive regulation by federal,
state and local governmental authorities in the U.S. and other countries, with regulations differing from country to country. In
the U.S., the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency,
labeling, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products. Failure
to comply with applicable requirements could result in, among other things, one or more of the following actions: notices of violation,
untitled letters, warning letters, complete response letters, fines and other monetary penalties, unanticipated expenditures, delays
in approval or refusal to approve a product or product candidate, product recall or seizure, interruption of manufacturing or clinical
trials, operating restrictions, injunctions and criminal prosecution. Our products and product candidates cannot be lawfully marketed
in the U.S. without FDA and other federal, state and local business regulatory approval. Any failure to receive the marketing approvals
necessary to commercialize our product or product candidates could harm our business.
The regulatory review and approval process of governmental authorities
is lengthy, expensive and uncertain. For example, in December 2016, BPC, the owner of BIVIGAM prior to the Biotest Transaction
in June 2017, temporarily suspended the commercial production of BIVIGAM in order to focus on the completion of planned improvements
to the manufacturing process. We resumed production of BIVIGAM utilizing our now FDA-approved IVIG manufacturing process with two
conformance lots in the fourth quarter of 2017 and a third conformance lot in the first quarter of 2018. During the first half
of 2018, we qualified and filled the BIVIGAM conformance batches and the product is on stability. In June 2018, we filed a drug
substance PAS with the FDA for BIVIGAM to include the ADMA improvements for BIVIGAM and to seek FDA authorization which would enable
us to resume commercial scale manufacturing and re-launch and commercialize this product. On December 19, 2018, we received the
BIVIGAM CRL for our PAS submission for BIVIGAM drug substance. The BIVIGAM CRL requested certain additional information and clarifications
relating to CMC matters contained in our PAS submission for drug substance, including complete resolution of certain manufacturing
related deviations, information pertaining to how certain in-process manufacturing samples are taken, as well as updates on certain
stability data previously submitted. As the information we believed necessary to address and respond to the matters raised in the
BIVIGAM CRL was readily available in our files, on January 7, 2019 we announced that our responses to the BIVIGAM CRL were submitted
to the FDA for further review. Subsequent to the January 7, 2019 resubmission to the FDA, we received an information request for
a limited number of questions. On May 9, 2019, we received FDA approval for our PAS for BIVIGAM.
Additionally, the ability of the FDA and other federal, state
and local business regulatory agencies to review and approve products and product candidates can be affected by a variety of factors,
including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and
statutory, regulatory, and policy changes. Average review times at the FDA and other federal, state and local business regulatory
agencies have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies
on which our operations may rely, including those that fund research and development activities is subject to the political process,
which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for products
and product candidate submissions to be reviewed and/or approved by necessary government agencies, which would adversely affect
our business. For example, over the last several years, including in December 2018 and January 2019, the U.S. government has shut
down several times and certain regulatory agencies, such as the FDA and SEC, have had to furlough critical employees and stop critical
activities. If a prolonged government shutdown reoccurs, it could significantly impact the ability of the FDA to timely review
and process our regulatory submissions and other reporting requirements which could have a material adverse effect on our business.
Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order
to properly capitalize and continue our operations.
The manufacturing processes for plasma-based biologics
are complex and involve biological intermediates that are susceptible to contamination and impurities.
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, testing by third parties 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 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, or if there were a reemergence of an infectious disease, 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 or other necessary
raw materials.
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. Therefore, even if we are
able to construct new plasma collection centers to complement our Kennesaw, GA plasma collection facility, 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 Bio Centers plasma collection
facility. This strategy is dependent upon our ability to maintain a cGMP compliant environment in our plasma facility and to expand
production and attract donors to our facility. There is no assurance that the FDA will inspect and license any of our unlicensed
plasma collection facilities which we may, in the future, construct, 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 facility to more efficient production levels may
be affected by changes in the economic environment and population in selected regions where ADMA Bio Centers operates its current
or future plasma facilities, by the entry of competitive plasma centers into regions where ADMA Bio Centers operates such centers,
by misjudging the demographic potential of individual regions where ADMA Bio Centers expects to expand production and attract new
donors, by unexpected facility related challenges, or by unexpected management challenges at selected plasma facilities held by
us from time to time.
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.
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 U.S., 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 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 shows 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 has since approved a number of biosimilars. As a result of the biosimilar pathway in
the U.S., 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
U.S. may adversely affect our business.
Through the March 2010 adoption of the Healthcare Reform Law
in the U.S., substantial changes are being made to the current system for paying for healthcare in the U.S., 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 HHS 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 HHS,
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.
Further, on January 20, 2017, the new administration signed
an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions
from, or delay the implementation of any provision of the Healthcare Reform Law that would impose a fiscal or regulatory burden
on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. More recently,
the U.S. District Court for the Northern District of Texas struck down the Healthcare Reform Law, deeming it unconstitutional given
that Congress repealed the individual mandate in 2017. This decision has been stayed pending outcome of an appeal to the U.S. Fifth
Circuit Court of Appeals. Although there is no immediate impact on the ACA, we will continue to evaluate the effect that the Healthcare
Reform Law and its possible repeal and replacement, or potential total revocation by the Supreme Court of the United States, has
on our business.
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 nine months ended September 30, 2019 and 2018, we had negative cash flows from operations of $56.5 million
and $43.9 million, respectively, and for the years ended December 31, 2018 and 2017, we had negative cash flows from operations
of approximately $62.7 million and $37.3 million, respectively. We expect to continue to spend substantial amounts on procurement
of raw material plasma and other raw materials necessary to scale up our manufacturing operations, commercial product launches,
capacity expansion at the Boca Facility, building additional plasma collection facilities, product development, quality assurance,
regulatory affairs and conducting clinical trials for our product candidates and purchasing clinical trial materials, some of
which may be required by the FDA. We currently anticipate, based upon our projected revenue and expenditures, as well as the additional
funds we are able to draw down under the Perceptive Credit Facility, that our current cash, cash equivalents and accounts receivable
will be sufficient to fund our operations, as currently conducted, into the fourth quarter of 2020. 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 fourth quarter of 2020. This time frame may change based upon how quickly we are able to execute on our
operational initiatives and the various financing options that may be available to us in 2020. 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 commercialization efforts
or our product development activities, including conducting clinical trials for our product candidates and purchasing clinical
trial materials.
We may not have cash available to us in amounts sufficient
to enable us to make interest or principal payments on our indebtedness when due.
The Perceptive Credit Facility provides for term loans of up
to an aggregate principal amount of $85.0 million, of which we have drawn down $72.5 million, all of which remains outstanding.
We became eligible, subject to certain conditions, to draw-down the remaining $12.5 million upon the FDA approval of the PAS submission
for BIVIGAM on May 9, 2019, provided that such draw-down must occur no later than March 31, 2020. Borrowings under the Perceptive
Credit Facility bear interest at a rate per annum equal to 7.5% plus the greater of (i) one-month LIBOR and (ii) 3.5%; provided,
however, that upon, and during the continuance of, an Event of Default, the interest rate will automatically increase by an additional
400 basis points. We are required to make monthly payments of interest only during the term of the Perceptive Credit Facility.
The Perceptive Credit Facility has a maturity date of March 1, 2022, subject to acceleration pursuant to the Perceptive Credit
Agreement, including upon an Event of Default. All of our obligations under the Perceptive Credit Facility are secured by a first-priority
lien and security interest in substantially all of our and our subsidiaries’ tangible and intangible assets, including intellectual
property, and all of the equity interests in our subsidiaries.
In addition, we have $15.0 million in principal amount of indebtedness
outstanding under an unsecured subordinated note issued by ADMA BioManufacturing to Biotest on June 6, 2017, which note bears interest
at a rate of 6.0% per annum and matures on June 6, 2022. We are obligated to make semi-annual interest payments to Biotest, with
all principal and unpaid interest due at maturity.
Our current cash, cash equivalents and accounts receivable,
together with the estimated net proceeds of this offering, will not be sufficient to repay all of our current outstanding debt
obligations. If we are unable to obtain additional financing and are otherwise unable to become profitable and generate cash from
operations in the amounts necessary to repay our outstanding debt obligations when due, our creditors would be able to accelerate
all of the amounts due and, in the case of the Perceptive Credit Facility, seek to enforce their security interests, which could
lead to our creditors taking immediate possession of and selling substantially all of our assets with no return provided to our
stockholders.
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 and cash equivalents could be adversely affected
if the financial institutions in which we hold our cash and cash equivalents 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 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, 2018, we had federal and state NOLs of $108.5 million and $72.3 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 of 1986, as amended (the “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 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. The Biotest Transaction on June 6, 2017 resulted in a change in ownership of ADMA under Section
382 and as a result, we were required to write off $57.6 million of federal NOLs. We may experience ownership changes in the future
as a result of subsequent changes 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 Tax Cuts and Jobs Act (the “TCJA”) could
adversely affect our business and financial condition.
The TCJA, among other things, reduced the corporate tax
rate from a top marginal rate of 35% to a flat rate of 21%, limited the tax deduction for interest expense to 30% of adjusted
earnings (except for certain small businesses), limited the deduction for net operating losses generated after December 31,
2017 to 80% of current year taxable income and eliminated net operating loss carrybacks, provided immediate deductions for certain
new investments instead of deductions for depreciation expense over time and modified or repealed 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:
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sales or potential sales of substantial amounts of our common stock;
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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;
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delay or failure in initiating or completing preclinical or clinical trials or unsatisfactory results of these trials;
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delay in a decision by federal, state or local business regulatory authority;
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the timing of acceptance, third-party reimbursement and sales of BIVIGAM;
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announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions;
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developments concerning our licensors or third-party vendors;
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litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
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conditions in the pharmaceutical or biotechnology industries;
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governmental regulation and legislation;
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variations in our anticipated or actual operating results; and
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change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations.
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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.
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 September 30, 2019, most of our 59,318,355 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, or under effective registration statements. 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 Second Amended and Restated Certificate of Incorporation (the “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.
As of November 1, 2019, Perceptive, our directors and executive
officers and their affiliates beneficially owned approximately 31% of the outstanding shares of our common stock. Additionally,
on November 14, 2018, the standstill provisions contained in that certain Stockholders Agreement, dated as of June 6, 2017, by
and between us and BPC, as amended by that certain Share Transfer, Amendment and Release Agreement, dated as of May 14, 2018,
among BPC, Biotest AG and the Biotest Trust, which prohibited the Biotest Trust 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, terminated and are of no further force and effect. This event could result in the Biotest
Trust acquiring additional shares of our common stock or taking other actions with the goal of acquiring additional shares of
our common stock.
Provisions of our 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. 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:
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the inability of stockholders to call special meetings;
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the ability of our Board of Directors (the “Board”) to institute a stockholder rights plan, also known as a poison pill, that would work to dilute our stock,
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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
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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.
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In addition, Section 203 of the Delaware General Corporation
Law 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. For example, the Perceptive Credit Agreement
prohibits 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 Global 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 the Nasdaq Global Market
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 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 currently trades below
$5.00 per share, our common stock is 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 will continue to incur increased costs now that we
are no longer an “emerging growth company.”
Effective January 1, 2019, we ceased to be 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 took advantage of certain benefits afforded to “emerging growth companies” under Section
7(a)(2)(B) of the Securities Act, which included delaying the adoption of new or revised accounting standards applicable to public
companies until such standards would otherwise apply to private companies. As an emerging growth company, we were also exempt from
the requirement to have our independent registered public accounting firm provide an attestation report on our internal control
over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act.
Consequently, we have, and will continue to, incur increased
costs related to our compliance with Section 404 of the Sarbanes-Oxley Act. For example, in 2018, our Audit Committee retained
the services of BDO, a Sarbanes-Oxley advisor, to assist with our internal controls over financial reporting and information technology
relating to Section 404. 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 common 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 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 Certificate of Incorporation authorizes the issuance of up
to 150,000,000 shares of common stock. As of September 30, 2019, there were 82,903,946 shares remaining available for issuance,
after giving effect to 7,777,699 shares of our common stock which were subject to outstanding stock options, warrants or other
convertible securities as of September 30, 2019 that may be issued by us without stockholder approval.