The number of authorized coronavirus treatment options increased by one over the weekend, and the market's already pushing up shares of companies that could see a related revenue bump. The Food and Drug Administration's recent emergency use authorization (EUA) of convalescent plasma for the treatment of COVID-19 sent shares of ADMA Biologics (ADMA -0.31%) soaring in anticipation of a huge revenue bump.
Can this convalescent plasma stock continue climbing? Here's what investors should know.
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ADMA Biologics is a plasma pure play
This company earns most of its revenue marketing FDA-approved products made from plasma. ADMA Biologics also runs its own plasma collection facilities and sells what it can't use to drug manufacturers, researchers, and other third parties.
With just $18 million in revenue during the first half of 2020, ADMA Biologics is tiny compared to its main competitors, Grifols, CSL Behring, and Takeda Pharmaceutical. Around 90% of all plasma products sold in the U.S. are produced by one of these three companies.
Grifols, CSL, and Takeda are international healthcare giants that generate billions in annual revenue from diverse operations. While plasma products contribute significantly to their overall revenue streams, there aren't enough hospitalized COVID-19 patients in the U.S. to make a big difference to their bottom lines.
Reasons to buy
Liberating disease-fighting immunoglobulin proteins from healthy volunteer plasma and delivering them to immunocompromised patients is a centuries-old technique that's seen a resurgence in recent years. The FDA has approved the use of plasma products for a growing variety of patients, including those with primary immunodeficiency.
The market for plasma products was increasing between 6% and 11% annually before the COVID-19 pandemic sparked unprecedented interest in convalescent plasma treatments. Odds are good that it will continue growing for ADMA Biologics long after the pandemic ends, even if demand for COVID-19 treatment falls off a cliff.
In the U.S. alone, there are over 250,000 patients with 350 rare diseases that can lead to primary immunodeficiency, and around half are treated with plasma-derived products. In the years to come, approvals to treat immunocompromised patients with ADMA's products could extend to bone marrow and solid organ transplant recipients.
On Sunday, the FDA authorized the emergency use of plasma products to treat hospitalized COVID-19 patients. In the absence of highly effective treatments, convalescent plasma has already been used to treat more than 70,000 COVID-19 patients, and the FDA's recent EUA could send this figure soaring further. According to the COVID Tracking Project, there were more than 39,000 hospitalized COVID patients in the U.S. on Aug. 23, 2020.
Image source: Getty Images.
Reason to wait
It's important to remember that ADMA Biologics' ability to ramp up production of COVID-19 treatments will be limited by the number of recovered coronavirus patients living in proximity to the company's only FDA-approved collection center in Atlanta, Georgia. ADMA is currently collecting plasma at a new facility in Knoxville, Tennessee, but it hasn't been approved by the FDA yet.
Any revenue derived from COVID-19 treatment sales probably won't last very long in the face of incoming competition from companies like Eli Lilly (LLY -1.60%) and Regeneron (REGN 0.76%). Both biopharmaceutical heavyweights are in late-stage clinical trials with antibody-based treatments that prevent SARS-CoV-2, the virus responsible for COVID-19, from entering host cells.
The EUA for plasma-based COVID-19 treatment was based on an observational study that lacked a control group for comparison. A subgroup of patients given plasma with high antibody concentration was 37% less likely to die from COVID-19 than another group given low-concentration plasma, but there are many caveats. These were results isolated from a subgroup of patients under the age of 80 years old who were hospitalized, but whose cases were not severe enough for intubation, and who were treated with plasma less than 72 hours after diagnosis.
There are several challenges to gathering rigorous data that compares convalescent plasma to standard care. The lack of strong evidence to date should make investors nervous about the future of plasma products as a COVID-19 treatment.
A buy now?
ADMA Biologics finished June with $75.6 million in cash on its balance sheet after losing $39.4 million during the first six months of 2020. Second-quarter product sales grew 19% year over year to $7.8 million, but the company spent $13.5 million on production.
There could be a temporary bump in revenue associated with COVID-19 treatment sales, but investors want to watch ADMA Biologics from a safe distance until they see signs this company can actually earn a profit selling plasma-based products.
