On February 27, 2023 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the fourth quarter and year ended December 31, 2022 (Press release, Emergent BioSolutions, FEB 27, 2023, View Source [SID1234627755]).

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"Our 2022 performance reflects the transition the company is undergoing and, together with our 2023 forecast, stands as a baseline from which we will grow post-pandemic," said Robert G. Kramer, president and CEO of Emergent BioSolutions. "Moving forward, our strategy will continue to put patients and customers first and support governments and their public health preparedness and response capabilities while returning Emergent to sustainable long-term growth and profitability."

FINANCIAL HIGHLIGHTS (1)
Q4 2022 vs. Q4 2021
($ in millions, except per share amounts) Q4 2022 Q4 2021 % Change
Total Revenues $330.7 $723.2 (54)%
Net Income (Loss) $(88.0) $189.3 *
Net Income (Loss) per Diluted Share $(1.76) $3.50 *
Adjusted Net Income (Loss) (2)
$(15.1) $243.4 *
Adjusted Net Income (Loss) (2) per Diluted Share
$(0.31) $4.50 *
Adjusted EBITDA (2)
$34.2 $191.5 (82)%
Gross Margin % 32% 67% NM
Adjusted Gross Margin % (2)
48% 67% NM
* % change is greater than +/- 100%
NM – Not Meaningful

Full Year 2022 vs. Full Year 2021
($ in millions, except per share amounts)
Full Year 2022
Full Year 2021
% Change
Total Revenues $1,120.9 $1,792.7 (37)%
Net Income (Loss) $(223.8) $230.9 *
Net Income (Loss) per Diluted Share $(4.47) $4.27 *
Adjusted Net Income (Loss) (2)
$(111.9) $325.7 *
Adjusted Net Income (Loss) (2) per Diluted Share
$(2.23) $6.02 *
Adjusted EBITDA (2)
$26.1 $517.6 (95)%
Gross Margin % 36% 54% NM
Adjusted Gross Margin % (2)
41% 55% NM
* % change is greater than +/- 100%
NM – Not Meaningful

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SELECT Q4 2022 AND OTHER RECENT BUSINESS UPDATES
•Announced U.S. Food and Drug Administration (FDA) acceptance and priority review of supplemental New Drug Application for NARCAN (naloxone HCl) Nasal Spray 4 mg as an over-the-counter (OTC) emergency treatment for known or suspected opioid overdose
•Announced unanimous vote by the FDA Nonprescription Drugs and Anesthetic and Analgesic Drug Products Advisory Committees in favor of NARCAN Nasal Spray for OTC use
•Announced agreement to sell travel health business to Bavarian Nordic for up to $380.0 million
•Awarded a five-year, indefinite-delivery, indefinite-quantity procurement contract to supply RSDL (Reactive Skin Decontamination Lotion Kit) to the U.S. Department of Defense (DoD) valued at up to $379.6 million
•Announced a research award by the DoD Congressionally Directed Medical Research Programs to evaluate efficacy of the Company’s single-dose chikungunya virus virus-like particle vaccine candidate in a post-approval field efficacy study in areas with active chikungunya virus transmission
•Announced organization changes as part of sharpened strategic focus comprising the formation of a newly created Science and Development function and the elimination of 132 positions with an anticipated annualized savings of over $60.0 million when fully implemented

Q4 2022 FINANCIAL PERFORMANCE (1)
Revenues
($ in millions) Q4 2022 Q4 2021 % Change
Product sales, net (3):
•Anthrax vaccines
$50.9 $137.7 (63)%
•ACAM2000
$— $125.8 (100)%
•Nasal naloxone products
$91.1 $120.6 (24)%
•TEMBEXA
$117.6 $— NM
•Other (4)
$46.1 $50.2 (8)%
Total product sales, net $305.7 $434.3 (30)%
Contract development and manufacturing (CDMO):
•Services
$17.7 $51.2 (65)%
•Leases
$0.2 $167.1 (100)%
Total CDMO $17.9 $218.3 (92)%
Contracts and grants $7.1 $70.6 (90)%
Total revenues $330.7 $723.2 (54)%
NM – Not Meaningful

Product Sales, net
Anthrax vaccines
For Q4 2022, revenues from anthrax vaccines decreased $86.8 million as compared with Q4 2021. The decrease was largely driven by a decrease in deliveries of AV7909 (Anthrax Vaccine Adsorbed, Adjuvanted) to the U.S. government (USG), specifically the Strategic National Stockpile (SNS).
ACAM2000
For Q4 2022, revenues from ACAM2000 (Smallpox (Vaccinia) Vaccine, Live) decreased $125.8 million to $0.0 as compared with Q4 2021. The decrease was driven by the timing of deliveries to the USG.
Nasal naloxone products
For Q4 2022, revenues from nasal naloxone products decreased $29.5 million as compared with Q4 2021. The decrease was primarily driven by a reduction in commercial retail sales and a decrease in the price per unit following
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the launch of a generic version of NARCAN Nasal Spray 4mg in December 2021, partially offset by an increase in U.S. public interest and Canadian sales.
TEMBEXA
TEMBEXA (brincidofovir) sales, following the Company’s September 2022 acquisition of worldwide rights to TEMBEXA, contributed $117.6 million in revenues for Q4 2022.
Other (4)
For Q4 2022, revenues from other product sales decreased $4.1 million as compared with Q4 2021. The decrease was primarily due to lower sales of two of the Company’s Government/Medical Countermeasure (MCM) products: i) BAT [Botulism Antitoxin Heptavalent (A, B, C, D, E, F, G) – (Equine)], driven by timing of deliveries to the SNS and to international customers; and, ii) VIGIV [Vaccinia Immune Globulin Intravenous (Human)], driven by timing of deliveries to the SNS and international customers. These were partially offset by an increase in sales of Vivotif (Typhoid Vaccine Live Oral Ty21a) and Anthrasil [Anthrax Immune Globulin Intravenous (human)].
CDMO
CDMO Services
For Q4 2022, revenues from contract development and manufacturing services decreased $33.5 million as compared with Q4 2021. This decrease was largely due to no revenues in the quarter from the AstraZeneca and Janssen contracts both of which contributed combined revenues of $31.8 million in Q4 2021. Specifically, there was a cessation of manufacturing activities under the AstraZeneca contract at the Company’s Bayview facility in 2021, and a pause and eventual cessation of manufacturing activities under the Janssen contract initiated in Q1 2022. 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 partially offset by an increase in services revenues earned at the Company’s Winnipeg facility.
CDMO Leases
For Q4 2022, revenues from contract development and manufacturing leases decreased $166.9 million as compared with Q4 2021. This decrease was largely due to no revenues in the quarter from the lease components of the contracts with the Center for Innovation in Advanced Development and Manufacturing ("CIADM") and Janssen, which contributed a combined $167.1 million in revenues in Q4 2021.
Contracts and Grants
For Q4 2022, revenues from contracts and grants decreased $63.5 million as compared with Q4 2021. The decrease was a result of $59.7 million being recognized in Q4 2021, primarily deferred revenue, which was lower in Q4 2022 as a result of the termination of the base CIADM contract coupled with decreases in third party development activities.
Operating Expenses
($ in millions) Q4 2022 Q4 2021 % Change
Cost of product sales $167.3 $145.0 15%
Cost of CDMO $52.1 $67.9 (23)%
Research and development $57.6 $83.0 (31)%
Selling, general and administrative $94.2 $94.2 —%
Goodwill impairment $6.7 $41.7 (84)%
Amortization of intangible assets $17.9 $14.0 28%
Total operating expenses $395.8 $445.8 (11)%

Cost of Product Sales
For Q4 2022, cost of product sales increased $22.3 million as compared with Q4 2021. The increase was primarily due to an increase in product sales for TEMBEXA and inventory write offs related to AV7909, partially offset by decreases in product sales for ACAM2000 and generic and branded nasal naloxone products.
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Cost of CDMO
For Q4 2022, cost of CDMO decreased $15.8 million as compared with Q4 2021. The decrease is primarily due to reduced production activities across the Company’s CDMO network in Q4 2022 compared to Q4 2021. These decreases were partially offset by increased costs at the Company’s Camden facility due to additional investments in quality enhancement and improvement initiatives.
Research and Development (2)
For Q4 2022, research and development expenses decreased $25.4 million as compared with Q4 2021. The decrease is primarily due to the non-cash write-off of $38.0 million associated with a contract asset balance resulting from the 2021 CIADM contract termination, partially offset by an increase in costs associated with the Company’s Phase 3 R&D efforts in chikungunya. Net of contracts and grants revenue, which consists primarily of reimbursements against development investments, adjusted research and development expenses were $50.5 million for Q4 2022.
Selling, General and Administrative
For Q4 2022, selling, general and administrative expenses were consistent with Q4 2021.
Goodwill Impairment
During Q4 2022, as part of its annual goodwill impairment testing, the Company recognized a $6.7 million impairment charge to goodwill in the CDMO Services reporting unit reducing the reporting unit’s goodwill balance to zero as of December 31, 2022.
Capital Expenditures
($ in millions) Q4 2022 Q4 2021 % Change
Gross capital expenditures $23.6 $46.7 (49)%
Less: capital expenditures reimbursed $2.5 $60.5 (96)%
Net capital expenditures $21.1 $(13.8) *
Gross capital expenditures as a % of total revenues 7% 6% 100 bps
Net capital expenditures as a % of total revenues 6% (2)% 800 bps
* % change is greater than +/- 100%

For Q4 2022, gross capital expenditures decreased largely due to lower spending associated with the expansion project at the Company’s Rockville facility, which was completed in 2021.
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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 and 2) a services segment (Services) consisting of CDMO business services. The Company evaluates the performance of these 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.
($ in millions) Products Services
Three Months Ended December 31, Three Months Ended December 31,
2022 2021 % Change 2022 2021 % Change
Revenues $305.7 $434.3 (30)% $17.9 $218.3 (92)%
Cost of sales $167.3 $145.0 15% $52.1 $67.9 (23)%
Less: Changes in fair value of contingent consideration $0.2 $0.3 (33)% $— $— NM
Less: Inventory step-up provision $51.4 $— NM $— $— NM
Adjusted cost of sales ** $115.7 $144.7 (20)% $52.1 $67.9 (23)%
Gross margin *** $138.4 $289.3 (52)% $(34.2) $150.4 *
Gross margin % *** 45% 67% NM (191)% 69% NM
Adjusted gross margin **** $190.0 $289.6 (34)% $(34.2) $150.4 *
Adjusted gross margin % **** 62% 67% NM (191)% 69% NM
* % change is greater than +/- 100%
** Adjusted cost of sales, which is a non-GAAP financial measure, is calculated as cost of sales less changes in fair value of contingent consideration and inventory step-up provision, both of which are non-cash items.
*** Gross margin is calculated as revenues less cost of sales. Gross margin % is calculated as gross margin divided by revenues.
**** Adjusted gross margin, which is a non-GAAP financial measure, is calculated as revenues less Adjusted cost of sales. Adjusted gross margin %, which is a non-GAAP financial measure, is calculated as Adjusted gross margin divided by revenues.
NM – Not Meaningful

For Q4 2022, Product gross margin and Product adjusted gross margin decreased $150.9 million and $99.6 million, respectively, as compared with Q4 2021. The decrease in Product gross margin and Product adjusted gross margin was primarily due to decreased sales volumes and inventory write-offs combined with a less favorable mix weighted more heavily to lower margin products.
For Q4 2022, Services gross margin and Services adjusted gross margin each decreased $184.6 million, as compared with Q4 2021. The decreases are primarily due to the decline in revenue at the Company’s Bayview facility as a result of the completion of the Company’s arrangement with BARDA, the cessation of manufacturing activities related to the AstraZeneca and Janssen contracts, and the decrease in margins at the Company’s Camden facility due to additional investments in quality enhancement and improvement initiatives, including an increase in professional services costs.
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SELECT FULL YEAR 2022 FINANCIAL INFORMATION
Revenues
($ in millions)
Full Year 2022
Full Year 2021
% Change
Product sales, net (3):
•Nasal naloxone products
$373.7 $434.3 (14)%
•ACAM2000
$63.4 $206.5 (69)%
•Anthrax vaccines
$274.3 $259.8 6%
•TEMBEXA
$117.6 $— NM
•Other (4)
$137.2 $123.3 11%
Total product sales, net $966.2 $1,023.9 (6)%
CDMO:
•Services
$108.4 $334.9 (68)%
•Leases
$4.9 $299.7 (98)%
Total CDMO $113.3 $634.6 (82)%
Contracts and grants $41.4 $134.2 (69)%
Total revenues $1,120.9 $1,792.7 (37)%
NM – Not Meaningful

Operating Expenses
($ in millions)
Full Year 2022
Full Year 2021
% Change
Cost of product sales $424.1 $382.0 11%
Cost of CDMO $269.6 $375.5 (28)%
Research and development $193.0 $234.0 (18)%
Selling, general and administrative $340.3 $348.4 (2)%
Goodwill impairment $6.7 $41.7 (84)%
Amortization of intangible assets $59.9 $58.5 2%
Total operating expenses $1,293.6 $1,440.1 (10)%

Net of contracts and grants revenue, which consists primarily of reimbursements against development investments, adjusted research and development expenses were $151.6 million for full year 2022. (2)
Capital Expenditures
($ in millions)
Full Year 2022
Full Year 2021
% Change
Gross capital expenditures $115.8 $225.0 (49)%
Less: capital expenditures reimbursed $2.5 $84.8 (97)%
Net capital expenditures $113.3 $140.2 (19)%
Gross capital expenditures as a % of total revenues 10% 13% (300) bps
Net capital expenditures as a % of total revenues 10% 8% 200 bps

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Segment Information
Full Year 2022 Segment Information
($ in millions) Products Services
Year Ended December 31, Year Ended December 31,
2022 2021 % Change 2022 2021 % Change
Revenues $966.2 $1,023.9 (6)% $113.3 $634.6 (82)%
Cost of sales $424.1 $382.0 11% $269.6 $375.5 (28)%
Less: Changes in fair value of contingent consideration $2.6 $2.9 (10)% $— $— NM
Less: Inventory step-up provision $51.4 $— NM $— $— NM
Adjusted cost of sales** $370.1 $379.1 (2)% $269.6 $375.5 (28)%
Gross margin *** $542.1 $641.9 (16)% $(156.3) $259.1 *
Gross margin % *** 56% 63% -700 (138)% 41% NM
Adjusted gross margin **** $596.1 $644.8 (8)% $(156.3) $259.1 *
Adjusted gross margin % **** 62% 63% -100 (138)% 41% NM
* % change is greater than +/- 100%
** Adjusted cost of sales, which is a non-GAAP financial measure, is calculated as cost of sales less changes in fair value of contingent consideration and inventory step-up provision, both of which are non-cash items.
*** Gross margin is calculated as revenues less cost of sales. Gross margin % is calculated as gross margin divided by revenues.
**** Adjusted gross margin, which is a non-GAAP financial measure, is calculated as revenues less Adjusted cost of sales. Adjusted gross margin %, which is a non-GAAP financial measure, is calculated as Adjusted gross margin divided by revenues.
NM – Not Meaningful

For 2022, Product gross margin and Product adjusted gross margin decreased $99.8 million and $48.7 million, respectively as compared with 2021. The decrease in Product gross margin and Product adjusted gross margin are primarily due to decreased sales volumes and inventory write-offs combined with a less favorable mix weighted more heavily to lower margin products.
For 2022, Services gross margin and Services adjusted gross margin each decreased $415.4 million as compared with 2021. The decrease was primarily due to the decline in revenue at the Company’s Bayview facility as a result of the completion of the Company’s arrangement with BARDA, the cessation of manufacturing activities related to the AstraZeneca and Janssen contracts, and the decrease in margins at the Company’s Camden facility due to additional investments in quality enhancement and improvement initiatives, including an increase in professional services costs.
2023 FINANCIAL FORECAST
The Company provides the following financial forecast for full year 2023 and Q1 2023, in both instances reflecting management’s expectations based on the most current information available.
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Full Year 2023
Beginning in 2023, the Company is revising the categories used in discussing product/service level revenues. The new categories will be as follows:
•Anthrax Medical Countermeasures (Anthrax MCM) — comprises potential contributions from AV7909, BioThrax, Anthrasil and raxibacumab
•NARCAN — comprises contributions from NARCAN Nasal Spray
•Smallpox Medical Countermeasures (Smallpox MCM) — comprises potential contributions from ACAM2000, VIGIV and TEMBEXA
•CDMO — comprises service and lease revenues from the contract development and manufacturing business
•Other Products — includes potential contributions from BAT, RSDL, Trobigard, Vaxchora and Vivotif
($ in millions) Full Year 2022 Actual
Full Year 2023 Forecast
Total Revenues $1,120.9 $1,100 – $1,200
Net Loss $(223.8) $(180) – $(130)
Adjusted Net Loss (2)
$(111.9) $(80) – $(30)
Adjusted EBITDA (2)
$26.1 $75 – $125
Adjusted Gross Margin % (2)
36% 41% – 44%
Product/Service Level Revenue
•Anthrax MCM
$290.1 $260 – $280
•NARCAN
$373.7 $290 – $310
•Smallpox MCM
$234.4 $235 – $255
•CDMO
$113.3 $115 – $135
•Other Products
$137.2 $165 – $185

The full year 2023 financial forecast reflects the following key considerations.
•Excludes the potential impact of the sale of the travel health business to Bavarian Nordic first announced on 02/15/2023; the Company will update the full year 2023 forecast to reflect the impact of this transaction once it has closed, which is anticipated in Q2 2023.
•Reflects an assumed approval for over-the-counter NARCAN Nasal Spray, subsequent launch by the end of the summer 2023 and continued strong demand in the U.S. public interest (PIP) channel and Canada.
•Reflects continued procurement and delivery of the Company’s anthrax, smallpox and other related medical countermeasures (MCM) products to the U.S. and allied governments.
•Reflects the continued re-baselining of the CDMO services business overall as well as the impact of reduced production output from the Camden facility.

Q1 2023
The Q1 2023 total revenue forecast reflects management’s expectation for revenues and profitability in 2023 to be weighted towards the second half of the year.
($ in millions)
Q1 2023 Forecast
Total Revenues $130 – $150

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FOOTNOTES
(1) All financial information incorporated within this release is unaudited.
(2) See "Reconciliation of Non-GAAP Measures" and the reconciliation tables for the definitions and reconciliations of these non-GAAP financial measures to the most closely related GAAP financial measures.
(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) Other income (expense), net item adjustments to reconcile Net Income (Loss) to Adjusted EBITDA are related to the expense of the release of an indemnified uncertain tax position, which was recorded to other income (expense), net during the year ended December 31, 2022.

CONFERENCE CALL, PRESENTATION SUPPLEMENT AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm eastern time today, February 27, 2023, to discuss these financial results. The conference call and presentation supplement can be accessed from the Company’s website or through the following:
By phone
Advance registration is required. Visit https://register.vevent.com/register/BIf83fa739007e4d0fa961e56cb781b14f to register and receive an email with the dial-in number, passcode and registrant ID.
By webcast
Visit View Source
A replay of the call can be accessed from the Emergent website.