Some interesting insight into CSL, the competition and the CSL Behring golden goose.
A fascinating vertically integrated plasma pharma company
background
ADMA Biologics was started back in 2004 by Jerrold and Adam Grossman, a father/son team that had deep expertise in plasma donation and pharma. The company has evolved over the nearly 2 decades but now is a vertically integrated pharma business. ADMA owns 10 plasma donation centers and a manufacturing facility to make its three IVIG drugs. IVIG stands for “Intravenous Immunoglobulin”, which is a category of biologic drugs composed from plasma. Before getting too far, plasma is the liquid component of blood that is actually yellow in color and accounts for about half of its volume. Plasma, itself, is about 90% water but it is a rich source of proteins, which are great for clotting and fighting infection.
Most healthy people can sign up to donate plasma. It takes about an hour and you can get paid between $50-70. Some people actually donate twice a week, which can lead to anemia but it’s not guaranteed – patients just have to be very mindful of that. Donation centers also include incentives for regular donors so some folks make about $500/month by donating plasma.
Last year, in the US, there were 39 million liters of source plasma collected. ADMA made up a very small percentage of that total but it is one of 4 main companies in the world that does plasma donation. However, it is the only US-based company that is vertically integrated. Once the plasma is collected, ADMA sends it to the manufacturing facility in Boca Raton, Florida, where it will be centrifuged and turned into one of its three IVIG products.
The first IVIG that was approved was BIVIGAM in 2012 for immunodeficiencies. Then, it acquired Nabi-HB for Hepatitis B in 2017 when it bought BioTest’s assets out of bankruptcy. And lastly, in 2019, ASCENIV was approved.
The Numbers
ADMA is a rare bird in that it is a fully vertically integrated biopharma company that has GAAP profits. The company’s 4,400 liter fully-ramped facility in Florida has really proven to have economies of scale. Further, there were quite a few start-up costs to get all 10 plasma centers operational. For example, plasma center operating expenses dropped from $18 million last year to just $4 million this year as the company could capitalize those costs into inventory. Meanwhile, gross margins expanded from 23% to 35% as high-margin, ASCENIV took off. So GAAP EBIT margins improved YoY from -25% to 8% and FCF margins went from -48% to 1%.
The company also provides two years of guidance. At the end of Q4, 2024 growth was expected to be 28% and then for 2025, management estimates 15%. However, last year, the company beat its original guide by $48 million or 23%. If that magnitude of a beat happens again, revenue growth would be over 60%. But if the beat is similar in absolute dollars, growth could be more like 46%. Somewhere between this number and 28% is probably a good estimate based on management’s track record but what’s crazy is that after Q1, the revenue guidance already increased to 38%!
Further, management has also provided net income and EBITDA guidance for the next two years. The EBITDA guides imply margins of 27% and 36% for the next two years.
Once the company can get rid of its $90 million in debt, then FCF will track much more closely to EBITDA. I do think it’s possible that the company eats into a good chunk of the debt this upcoming year as FCF really ramps up. As more insurance companies cover ADMA’s IVIGs and the manufacturing economies of scale accelerate, the company should be quite profitable. In fact, ADMA’s net income guidance for 2025 implies 30% net margins. That probably includes lower interest expenses but even at 5% of revenue and some tax expenses, EBIT margins could easily reach 35-40% over the next two years. And the company should still be growing 20% at that point so 40% isn’t even fully mature. That just goes to show how profitable this business really could be. The plasma donation piece of the business typical runs at breakeven – made possible by selling plasma to other companies that need it. And then really good batches of IVIG are incredibly high margin – ASCENIV fully-ramped could probably reach 90% gross margins.
Market Size
The company pegs the US market at $10 billion, growing to $20 billion over the next 5-7ish years as IVIG biologics take share. If you tally up the global revenue from the top 3 competitors, the cumulative immunoglobulin revenue is nearly $11 billion, but it grew 27%! This is quite a tailwind as biologics have quite a bit of optionality. For instance, IVIGs typically can address various immune diseases rather than one pharmaceutical drug.
Right now, ADMA only has three approved drugs but it would be great to see them get more label expansions and even get more drugs approved to widen its revenue opportunity. However, at $260 million in TTM revenue, the company has a long way to go. Globally, the market is probably already about $20 billion so they are just a drop in the bucket at this point.
Moat/Competition
The three main competitors to keep an eye on are all international pharma companies – Takeda from Japan, Grifols from Spain, and CSL Behring is HQ’d in Australia.
Takeda got into the IVIG space from its $62 billion acquisition of Shire, the maker of Adderall. Grifols runs a pretty extensive plasma donation network and this is who ADMA actually bought plasma from before it ramped its own network. And CSL Behring has traditionally been the leader in IVIG, getting its first approval all the way back in 2005.
Like I mentioned, between the three companies, global immunoglobulin revenue was roughly $11 billion but they grew 27% annually. Anecdotally, and it certainly bears out in the numbers, there have been extreme shortages of IVIGs since COVID. It’s not easy to make this stuff – it typically takes between 7-9 months to fully produce a batch and there has been a lot of demand from hospitals and infusion centers. This has led to some price increases and a bit of backlash from insurance companies. But as ADMA has ramped its facility and gotten some recent approvals to store IVIG at room temperature, I think supply could catch up to demand here fairly soon.
ADMA’s competitive advantage mainly consists of its vertical integration. It owns 10 FDA-approved plasma donation centers that it then sends to its manufacturing facility to turn into high margin drugs. So it pays $40-50 per sample (maybe 500 mL) and then turns that same plasma into a small vial that may cost insurance companies $850 for 50 mL. Sure, there are quite a few steps in-between but there are many more people that can give plasma than can manufacture IVIG’s. ADMA captures this spread.
The moat also lies in regulation. It takes an awfully long time to get a drug approved and get FDA-approval for donation centers. Add to this creating your own manufacturing facility and you see why ADMA has almost gone bankrupt a handful of times. It would be very tough for another upstart company to replicate the journey of ADMA, especially with interest rates much higher now. It is possible for a large company to do this but the market is just small enough right now that it probably wouldn’t make sense for them. Eventually, as the market grows, we may see large companies jump in but ADMA’s footing should be much more solid by then.
Risks
The first risk is insurance coverage. IVIGs are expensive and there are several approved for similar purposes. For example, United HealthCare (UHC) stopped covering ASCENIV in November of 2023, essentially because it was too expensive. The nuance here is that ASCENIV is not a first-line treatment, meaning it’s not a doctor’s first choice to prescribe due to the price tag. However, as alternatives don’t get the job done, physicians resort to prescribing this because of its quality. ADMA actually screens plasma donation patients for specific antibodies that contribute to how well the drug works. This is very rare for competitors to do this. And this is one example of why the company’s vertical integration is so important. If ADMA didn’t have complete control over the value chain, they likely wouldn’t be able to do particular screens like this.
The point still remains, though, that if insurance companies don’t cover ASCENIV, then growth could slow down. If Medicare stopped covering ASCENIV, then I would be worried. For now, while UHC makes up a large portion of the market, the actual financial impacts haven’t manifested yet and it has already been about 6 months since it went off the formulary.
Second, competition is fairly tough. The large players have a lot of approvals and educating physicians about all of the different IVIGs takes resources. Further, there is no guarantee that ADMA is able to get any other drugs approved in the future. Without any optionality, I’d be less sure of a huge outcome here. If we see inventory continue to build up on ADMA’s balance sheet, I’d be worried that supply has corrected in the industry and the company’s sell-through has slowed down. I would ideally not like to see inventory grow all that much faster than revenue but the 7-9 months lead times make that difficult for the company to predict. The fact that the company has to tie up rather large chunks of cash in inventory is something to keep an eye on here. If the product is selling very quickly and helping patients, then it’s not something to worry about but we do have to keep in mind the hit to free cash flow conversion resulting from this dynamic.
Management
The Grossman father/son duo is notoriously private. I could barely find a single public interview, other than, of course, earnings calls. Jerrold, the father, is Chairman now and owns less than 1% of outstanding shares. Adam, the son, owns a bit over 2% of shares as the company had to dilute so much just to stay alive. His stake is worth more than $40 million so it’s certainly not nothing but fairly small in percentage terms for a founder.
Adam Grossman seems to have done an incredible job getting the company to this point. I can’t overemphasize how difficult this journey has been so to even survive is impressive.
Conclusion
ADMA is a very interesting vertically integrated company. While it does face risks like insurance companies not covering its drugs and not getting new drugs approved, the company has faced many challenges in the past and has come out the other side. As profitability inflects and the balance sheet strengthens, the story gets even more de-risked, especially with the founders still involved and the industry tailwinds.
