On August 1, 2022 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the second quarter ended June 30, 2022 (Press release, Emergent BioSolutions, AUG 1, 2022, View Source [SID1234617189]).
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"Central to Emergent’s mission – to protect and enhance life – is our ability to provide quality products and services for the benefit of our patients and customers," said Robert G. Kramer, president and CEO of Emergent BioSolutions. "We continue to focus on combating critical public health threats with our core medical countermeasure and commercial businesses, executing on our growth strategy with M&A opportunities, and further strengthening our public-private partnerships, development pipeline, and manufacturing network to reinforce the durability of our diversified business."
Executed an agreement to acquire from Chimerix its worldwide rights to TEMBEXA(R) (brincidofovir), the first FDA-approved smallpox oral antiviral for all ages; continue to anticipate transaction closing in Q3 2022.
Announced that the U.S. Food and Drug Administration (FDA) has accepted for review the Biologics License Application (BLA) for AV7909 (Anthrax Vaccine Adsorbed, Adjuvanted), the company’s new anthrax vaccine candidate; the goal date for a decision by the FDA is in April 2023.
Announced a collaboration with Ridgeback Biotherapeutics ("Ridgeback Bio") to expand the availability of Ebanga (Ansuvimab-zykl), a monoclonal antibody therapeutic approved by the FDA in December 2020 for the treatment of Ebola.
Initiated a phase 3 safety and immunogenicity study to evaluate CHIKV VLP, the Company’s single-dose chikungunya vaccine candidate, in adults 65 and older, in addition to the current phase 3 study in individuals aged 12 to 64, for which enrollment into the study is ongoing.
Continued to repurchase the Company’s common stock under an existing authorization by the Board of Directors to management to repurchase up to $250.0 million through November 11, 2022; during the quarter ended June 30, 2022, the Company purchased an additional 0.7 million shares for $23.3 million, resulting in an aggregate of approximately 4.4 million shares for $187.9 million since initiating repurchases in Q4 2021.
Expanded the Company’s leadership with the appointment of Sujata Dayal to the board of directors; Ms. Dayal was appointed a member of both the Nominating and Governance Committee as well as the Special Committee on Manufacturing and Quality Oversight.
Product Sales, net
Anthrax vaccines
For Q2 2022, revenues from Anthrax vaccines increased $44.1 million as compared to Q2 2021. The increase is largely driven by timing of deliveries to the U.S. government (USG), specifically the Strategic National Stockpile (SNS). The Company received an AV7909 contract modification in September 2021 valued at approximately $399.0 million to deliver additional AV7909 doses through March 2023.
Nasal naloxone products
For Q2 2022, revenues from nasal naloxone products decreased $4.6 million as compared to Q2 2021. The decrease was driven by a reduction in commercial retail sales following the launch of a generic in December 2021. This decrease was offset by strong growth in unit sales of branded NARCAN (naloxone HCl) Nasal Spray to public interest customers in the U.S. and customers in Canada, as well as from sales of the authorized generic product licensed to Sandoz, which launched in December 2021.
Other (4)
For Q2 2022, revenues from other product sales increased $16.5 million as compared to Q2 2021. The increase was primarily due to sales of two of the Company’s Government/Medical Countermeasure (MCM) products: i) VIGIV [Vaccinia Immune Globulin Intravenous (Human)], driven by timing of deliveries to the SNS; and ii) BAT [Botulism Antitoxin Heptavalent (A, B, C, D, E, F, G) – (Equine)] , driven by timing of deliveries to international customers.
Contract Development and Manufacturing
CDMO Services
For Q2 2022, revenues from contract development and manufacturing services decreased $100.9 million as compared to Q2 2021. This decrease is largely due to lower combined revenues of $82.0 million from AstraZeneca and Janssen reflecting the impact of reduced production activities at the Bayview facility as a result of a cessation of manufacturing activities under the AstraZeneca contract which occurred in 2021, and a pause and eventual cessation of manufacturing activities under the Janssen contract which began in Q1 2022. Additionally for Q2 2022, the Company reversed $8.3 million of previously recognized revenue under the Janssen contract to align cumulative revenue recognized with cumulative cash collections. The decrease also reflects reduced production at the Camden facility in the quarter driven by additional investments in strengthening quality and compliance that restricted the Company’s ability to optimally utilize the existing capacity at the site. These declines in revenues were offset by an increase in contracted manufacturing activities at the Winnipeg facility.
CDMO Leases
For Q2 2022, revenues from contract development and manufacturing leases decreased $91.8 million as compared to Q2 2021. The decrease was primarily due to the completion of the Company’s public-private partnership with BARDA in November 2021, which contributed $70.4 million in Q2 2021 and a $21.9 million decrease in lease revenues related to the Janssen contract. Included in the $21.9 million decrease, the Company reversed $5.0 million of previously recognized revenue under the Janssen contract to align cumulative revenue recognized with cumulative cash collections.
Contracts and Grants
For Q2 2022, revenues from contracts and grants decreased $18.1 million as compared to Q2 2021. The decrease is primarily due to lower revenue from BARDA as a result of the completion of the Center for Innovation and Advanced Development and Manufacturing (CIADM) agreement, which occurred in November 2021, as well as decreases in development activities associated with various other externally funded R&D projects, most notably the AV7909 program, which has now completed its clinical phase and for which a BLA is currently under review by the FDA with an anticipated goal date for completion in April 2023.
Cost of Product Sales
For Q2 2022, cost of product sales increased $9.8 million as compared to Q2 2021. The increase is primarily due to the higher volume of product sales.
Cost of CDMO
For Q2 2022, cost of CDMO decreased $67.8 million as compared to Q2 2021. The decrease is primarily due to reduced production activities across our CDMO network in Q2 2022 compared to Q2 2021 resulting in decreased raw materials consumption, as well as a $41.5 million inventory write-off in Q2 2021. These decreases were partially offset by increased costs at the Company’s Winnipeg facility due to an increase in manufacturing activities and Camden facility due to additional investments in quality enhancement and improvement initiatives.
Research and Development
For Q2 2022, research and development expenses were consistent with Q2 2021 reflecting the Company’s continued commitment to investment in important pipeline programs addressing additional public health preparedness and response areas of focus.
Selling, General and Administrative
For Q2 2022, selling, general and administrative expenses decreased $10.1 million due to reduced professional services and marketing costs partially offset by higher compensation costs.
Additional Financial Information
Segment Information
During Q1 2022, the Company began assessing its operating performance by focusing on two reportable segments: 1) a products segment (Products) consisting of the MCM and Commercial products business lines; and 2) a services segment (Services) consisting of the CDMO services business line. The Company evaluates the performance of these reportable segments based on revenue and adjusted gross margin. Segment revenue includes external customer sales but does not include inter-segment services. The Company does not allocate contracts and grants, R&D, SG&A, amortization of intangible assets, interest and other income (expense) or taxes to its evaluation of the performance of these segments.
Gross margin is calculated as Revenues less cost of sales. Gross margin % is calculated as gross margin divided by Revenues.
*** Adjusted gross margin is calculated as Revenues less Adjusted cost of sales. Adjusted gross margin % is calculated as Adjusted gross margin divided by Revenues.
NM – Not Meaningful
For the three and six months ended June 30, 2022, Product gross margin increased $46.2 million and $117.7 million, respectively, as compared to the three and six months ended June 30, 2021. Product adjusted gross margin for the three and six months ended June 30, 2022 increased $45.5 million and $117.8 million, respectively, as compared to the three and six months ended June 30, 2021. The increases in Product gross margin and Product adjusted gross margin are primarily due to increased volumes and changes in product mix.
For the three months ended June 30, 2022, Services gross margin and Services adjusted gross margin decreased $124.9 million as compared to the three months ended June 30, 2021. For the six months ended June 30, 2022, Services gross margin and Services adjusted gross margin decreased $276.8 million as compared to the six months ended June 30, 2021. The decreases in 2022 are primarily due to the decline in revenue at the Bayview facility as a result of the completion of the Company’s arrangement with BARDA, the pause in manufacturing activities for improvement and modifications, and an increase in professional services costs.
As of June 30, 2022, the number of CDMO customers declined by one versus the prior reported period of March 31, 2022. The mix of customers for the Company’s CDMO services remains largely a combination of small and medium sized biopharmaceutical companies.
During the three months ended June 30, 2022, the Company secured new CDMO services business of $16.0 million. This new business was on behalf of existing customers for non-COVID related work on both new and existing projects and molecules.
For the three months ended June 30, 2022, capital expenditures decreased largely due to less spending associated with the expansion project at the Company’s Rockville facility, which has progressed to a less capital intensive phase. The Company anticipates completing this expansion project by year end 2022.
2022 FINANCIAL FORECAST(1)
The Company has resumed providing financial guidance for 2022 and announces the following update to its full year 2022 forecast.
Assumptions
The Company’s 2022 financial forecast takes into consideration the following assumptions.
2022 Product and Contract and Grant Revenues
Anthrax vaccines revenues are expected to continue at similar levels to 2021 under the terms of the Company’s existing contract with BARDA.
ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) vaccine deliveries are expected to continue under the terms of the Company’s existing contract with the U.S. Department of Health and Human Services (HHS) at unit volume levels consistent with 2021 deliveries.
Nasal naloxone products revenues reflect the formation of a generic market and comprise revenues from a combination of NARCAN Nasal Spray and the authorized generic of NARCAN Nasal Spray, a product licensed to Sandoz and launched in late 2021 and one in which the Company retains a financial interest.
Other Products + Contracts and Grants revenues: 1) other products revenues reflect continued procurement of other products not highlighted on a standalone basis from various government customers under existing multi-year contracts; 2) contracts and grants revenues reflect continued funding of select development programs from various government and other non-dilutive sources.
CDMO
CDMO revenues are expected to re-baseline throughout the year as the Company transitions the business to a focus on non-COVID projects and on expanding its drug product capabilities as it progresses toward a higher level of capacity utilization principally at the Camden, Rockville and Winnipeg sites. CDMO revenues exclude further contribution from Janssen.
Other
Pipeline progress is expected across the R&D portfolio with the advancement of the CHIKV VLP Phase 3 clinical trials, the FDA acceptance of the Company’s BLA filing for AV7909, and anticipated advancements of a number of early-stage programs.
Capital expenditures, net of reimbursement, are expected to be approximately 10% of total revenues at the midpoint, reflecting ongoing investments in capacity and capability expansions related to the CDMO business and the Company’s R&D programs, and aligned with the average over the previous five-year period.
The updated forecasted ranges do not take into account the impact of the addition of TEMBEXA, the acquisition of which is expected to close in the third quarter of 2022.
Q3 2022 Total Revenues
The Company is also providing a forecast for Q3 2022 total revenues of $230 – $270 million.
FOOTNOTES
(1) All financial information incorporated within this release is unaudited.
(2) See "Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)," "Reconciliation of Net Income (Loss) to Adjusted EBITDA," and "Adjusted Revenues" for a definition of terms and the reconciliation tables.
(3) Product sales, net are reported net of variable consideration including returns, rebates, wholesaler fees and prompt pay discounts in accordance with U.S. generally accepted accounting principles.
(4) Other can include a combination of sales of any of the following products: BAT, VIGIV, Anthrasil, raxibacumab, RSDL, Trobigard, Vivotif, and Vaxchora.
(5) CDMO Customer is defined as a client (commercial, government, NGO) for whom the Company has performed CDMO services where there is evidence of meeting all of the following criteria: i) completion of any billable project milestones in the preceding 24-month period, indicating ongoing work; ii) secured project work planned in the future, which has not yet been invoiced, capturing future work not yet indicated in the invoice record; and, iii) neither the Company nor the client having yet to formally terminate the last remaining project, thereby removing any client for whom work has fully concluded.
(6) CDMO New Business Secured is defined as initial value of contracts secured as well as incremental value of existing contracts modified within the indicated period.
CONFERENCE CALL, PRESENTATION SUPPLEMENT AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, August 1, 2022, to discuss these financial results. The conference call and presentation supplement can be accessed from the Company’s website or through the following:
A replay of the call can be accessed from the Investors page of the Company’s website.