On November 7, 2016 Emergent BioSolutions Inc. (NYSE:EBS) reported financial results for the quarter and nine months ended September 30, 2016 (Press release, Emergent BioSolutions, NOV 7, 2016, View Source;p=RssLanding&cat=news&id=2220329 [SID1234516384]).
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FINANCIAL HIGHLIGHTS
The following financial highlights reflect Emergent’s financial performance from "Continuing Operations" and exclude the impact of the operations associated with the Company’s former biosciences business which was spun-off into a separate publicly traded company, Aptevo Therapeutics Inc., on August 1, 2016.
Total revenues from continuing operations: Q3 2016 of $142.9 million; nine months 2016 of $337.1 million
GAAP net income from continuing operations: Q3 2016 of $20.4 million, or $0.43 per diluted share; nine months 2016 of $30.2 million, or $0.68 per diluted share
Adjusted net income from continuing operations: Q3 2016 of $28.5 million, or $0.58 per diluted share; nine months 2016 of $44.0 million, or $0.90 per diluted share
EBITDA from continuing operations: Q3 2016 of $45.6 million, or $0.92 per diluted share; nine months 2016 of $82.2 million, or $1.68 per diluted share
Adjusted EBITDA from continuing operations: Q3 2016 of $50.2 million, or $1.02 per diluted share; nine months 2016 of $91.7 million, or $1.88 per diluted share
Note: For a reconciliation of the Company’s Statement of Operations for the Three and Nine Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations, see "Reconciliation of Statement of Operations."
Q3 2016 AND RECENT BUSINESS ACCOMPLISHMENTS
Signed a five-year contract with the Biomedical Advanced Research and Development Authority (BARDA) for advanced development and procurement of NuThrax (Anthrax Vaccine Adsorbed with CPG 7909 Adjuvant), the Company’s next generation anthrax vaccine candidate, valued at up to $1.6 billion
Department of Health and Human Services issued a Sole Source Notification indicating its intention to award the Company a follow-on procurement contract with the Centers for Disease Control and Prevention (CDC) for the purchase of 29.4 million doses of BioThrax (Anthrax Vaccine Adsorbed), the Company’s licensed anthrax vaccine, for delivery into the Strategic National Stockpile (SNS); Company anticipates finalizing the contract in the coming weeks
Completed delivery of the full 44.75 million doses of BioThrax under current 2011 procurement contract as CDC exercised option to purchase all remaining doses
Achieved Food and Drug Administration (FDA) licensure for Building 55, the Company’s large-scale BioThrax manufacturing facility
Completed the spin-off of Aptevo Therapeutics Inc.
2016 FINANCIAL GUIDANCE
The Company continues to postpone its financial guidance for 2016 until the CDC follow-on BioThrax procurement contract has been finalized.
2016 FINANCIAL PERFORMANCE
Note: As a result of the August 1, 2016 spin-off of the Company’s biosciences business into a separate publicly traded company, Aptevo Therapeutics Inc., the financial statements and related explanatory sections for Emergent, exclusive of Aptevo, presented herein have been revised accordingly and are referenced as "continuing operations."
The results of operations and financial position of Aptevo are reflected on one line of the Company’s Statements of Operations for the three and nine months ended September 30, 2016 and 2015 as "Income (loss) from discontinued operations, (net of tax)." Please refer to "Reconciliation of Statement of Operations" for a reconciliation of the Company’s Statement of Operations for the Three and Nine Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.
(I) Quarter Ended September 30, 2016 (unaudited)
Revenues
Product Sales
For Q3 2016, product sales were $96.7 million, a decrease of 18% as compared to 2015. The decrease in BioThrax sales was primarily due to fewer doses delivered to the SNS. The decrease in other sales was primarily due to the timing of BATTM [Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)] sales to the SNS.
(in millions) Three Months Ended
September 30,
2016 2015 % Change
Product Sales
BioThrax $ 94.1 $ 109.8 (14 )%
Other $ 2.6 $ 7.7 (67 )%
Total Product Sales $ 96.7 $ 117.5 (18 )%
Contract Manufacturing
For Q3 2016, revenue from the Company’s contract manufacturing operations was $14.7 million, an increase of 30% as compared to 2015. The increase primarily reflects the timing of fill/finish services.
Contracts and Grants
For Q3 2016, contracts and grants revenue was $31.5 million, an increase of 7% as compared to 2015.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For Q3 2016, cost of product sales and contract manufacturing was $39.6 million, an increase of 12% as compared to 2015. The increase primarily reflects an increase in costs associated with underutilized manufacturing capacity at the Company’s Winnipeg site and an increase in the BioThrax cost per dose sold associated with lower production yield in the period in which the doses sold were produced.
Research and Development
For Q3 2016, gross research and development (R&D) expenses were $27.2 million, a decrease of 20% as compared to 2015. The decrease primarily reflects lower contract service costs.
For Q3 2016, net R&D was fully funded, or a positive $4.3 million, versus an expense of $4.7 million in Q3 2015. Net R&D, which is more representative of the Company’s actual out-of-pocket investment in product development, is calculated as gross research and development expenses less contracts and grants revenue.
(in millions) Three Months Ended
September 30,
2016 2015 % Change
Research and Development Expenses [Gross] $ 27.2 $ 34.2 (20 )%
Adjustments:
– Contracts and grants revenue $ 31.5 $ 29.5 7 %
Net Research and Development Expenses (Income) $ (4.3 ) $ 4.7 –
Selling, General and Administrative
For Q3 2016, selling, general and administrative expenses were $40.7 million, an increase of 58% as compared to 2015. This increase includes costs associated with the Aptevo spin-off, restructuring activities at the Company’s Lansing, Michigan site, along with increased professional services to support the Company’s strategic growth initiatives.
Net Income from Continuing Operations
For Q3 2016, GAAP net income from continuing operations was $20.4 million, or $0.43 per diluted share, versus $42.1 million, or $0.90 per diluted share, in 2015.
For Q3 2016 and 2015, GAAP net income from continuing operations per diluted share is computed using the "if-converted" method. This method requires GAAP net income to be adjusted to reflect the impact of interest expense and amortization of debt issuance cost, both net of tax, associated with the Company’s 2.875% Convertible Senior Notes due 2021. As a result, GAAP net income from continuing operations per diluted share for Q3 2016 is adjusted in the amount of $1.1 million, from $20.4 million to $21.5 million, and diluted shares outstanding were 49.4 million. GAAP net income per diluted share for Q3 2015 is adjusted in the amount of $1.0 million, from $42.1 million to $43.1 million, and diluted shares outstanding were 47.8 million.
(II) Nine Months Ended September 30, 2016 (unaudited)
Revenues
Product Sales
For the nine months of 2016, product sales were $208.8 million, an increase of 2% as compared to 2015. The increase in BioThrax sales was primarily due to the timing of deliveries to the SNS. The decrease in other sales was primarily due to the timing of sales of BAT to the SNS and a one-time payment for AnthrasilTM [Anthrax Immune Globulin Intravenous (Human)] that occurred in the prior comparative period.
(in millions) Nine Months Ended
September 30,
2016 2015 % Change
Product Sales
BioThrax $ 193.3 $ 182.0 6 %
Other $ 15.5 $ 22.5 (31 )%
Total Product Sales $ 208.8 $ 204.6 2 %
Contract Manufacturing
For the nine months of 2016, revenue from contract manufacturing operations was $32.5 million, level with that in 2015.
Contracts and Grants
For the nine months of 2016, contracts and grants revenue was $95.9 million, an increase of 4% as compared to 2015.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For the nine months of 2016, cost of product sales and contract manufacturing was $93.0 million, an increase of 27% as compared to 2015. The increase primarily reflects an increase in the BioThrax cost per dose sold associated with lower production yield in the period in which the doses sold were produced along with increased costs associated with underutilized manufacturing capacity at the Company’s Winnipeg facility.
Research and Development
For the nine months of 2016, gross research and development (R&D) expenses were $81.2 million, a decrease of 13% as compared to 2015. The decrease primarily reflects lower contract service costs.
For the nine months of 2016, net R&D was fully funded, or a positive $14.7 million, versus an expense of $1.3 million in the comparable period in 2015.
(in millions) Nine Months Ended
September 30,
2016 2015 % Change
Research and Development Expenses [Gross] $ 81.2 $ 93.8 (13 )%
Adjustments:
– Contracts and grants revenue $ 95.9 $ 92.5 4 %
Net Research and Development Expenses (Income) $ (14.7 ) $ 1.3 –
Selling, General and Administrative
For the nine months of 2016, selling, general and administrative expenses were $108.3 million, an increase of 25% as compared to 2015. This increase includes costs associated with the Aptevo spin-off, restructuring activities at the Company’s Lansing, Michigan site, along with increased professional services to support the Company’s strategic growth initiatives.
Net Income from Continuing Operations
For the nine months of 2016, GAAP net income from continuing operations was $30.2 million, or $0.68 per diluted share, versus $48.9 million, or $1.11 per diluted share, in 2015.
Pursuant to the "if-converted" method, GAAP net income from continuing operations per diluted share for the nine months of 2016 is adjusted in the amount of $2.8 million, from $30.2 million to $33.0 million, and diluted shares outstanding were 48.8 million. GAAP net income from continuing operations per diluted share for the nine months of 2015 is adjusted in the amount of $3.1 million, from $48.9 million to $52.0 million, and diluted shares outstanding were 47.0 million.
(III) RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME, EBITDA AND ADJUSTED EBITDA ALL RELATED TO CONTINUING OPERATIONS
This press release contains three financial measures (Adjusted Net Income, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Adjusted EBITDA) that are considered "non-GAAP" financial measures under applicable Securities and Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The Company’s definition of these non-GAAP measures may differ from similarly titled measures used by others. Adjusted Net Income adjusts for specified items that can be highly variable or difficult to predict, or reflect the non-cash impact of charges resulting from purchase accounting. EBITDA reflects net income excluding the impact of depreciation, amortization, interest expense and provision for income taxes. Adjusted EBITDA also excludes specified items that can be highly variable and the non-cash impact of certain purchase accounting adjustments. The Company views these non-GAAP financial measures as a means to facilitate management’s financial and operational decision-making, including evaluation of the Company’s historical operating results and comparison to competitors’ operating results. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when viewed with GAAP results and the reconciliations to the corresponding GAAP financial measure, may provide a more complete understanding of factors and trends affecting the Company’s business.
The determination of the amounts that are excluded from these non-GAAP financial measures are a matter of management judgment and depend upon, among other factors, the nature of the underlying expense or income amounts. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company’s reported results of operations, management strongly encourages investors to review the Company’s consolidated financial statements and publicly filed reports in their entirety.
Reconciliation of GAAP Net Income to Adjusted Net Income
The following table provides a reconciliation of GAAP Net Income to Adjusted Net Income for the three month periods as indicated.
(in millions, except per share value) Three Months Ended September 30,
2016 2015 Source
GAAP Net Income From Continuing Operations $ 20.4 $ 42.1 NA
Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 4.6 1.0 SG&A
+ Non-cash amortization charges 2.0 2.2 COGS, SG&A,
Other Income
+ Exit and disposal costs 7.9 – SG&A
+ Impact of purchase accounting on inventory step-up – 0.3 COGS
Tax effect (6.4 ) (1.1 ) NA
Total Adjustments 8.1 2.5 NA
Adjusted Net Income From Continuing Operations
Adjusted Net Income per Diluted Share $28.5
$0.58
$44.6
$0.93
NA
The following table provides a reconciliation of GAAP Net Income to Adjusted Net Income for the nine month periods as indicated.
(in millions, except per share value) Nine Months Ended September 30,
2016 2015 Source
GAAP Net Income From Continuing Operations $ 30.2 $ 48.9 NA
Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 9.5 3.5 SG&A
+ Non-cash amortization charges 6.5 6.7 COGS, SG&A,
Other Income
+ Exit and disposal costs 8.7 – SG&A
+ Impact of purchase accounting on inventory step-up – 0.3 COGS
Tax effect (10.9 ) (3.2 ) NA
Total Adjustments 13.8 7.3 NA
Adjusted Net Income From Continuing Operations
Adjusted Net Income per Diluted Share $44.0
$0.90
$56.2
$1.20
NA
Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA
The following table provides a reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA for the three month periods as indicated.
(in millions, except per share value) Three Months Ended September 30,
2016 2015
GAAP Net Income From Continuing Operations $ 20.4 $ 42.1
Adjustments:
+ Depreciation & Amortization 9.7 7.5
+ Provision For Income Taxes 13.2 20.1
+ Total Interest Expense 2.0 1.6
Total Adjustments 24.9 29.2
EBITDA From Continuing Operations
EBITDA per Diluted Share $45.3
$0.92
$71.3
$1.49
Additional Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 4.6 1.0
+ Impact of purchase accounting on inventory step-up – 0.3
Total Additional Adjustments 4.6 1.3
Adjusted EBITDA From Continuing Operations
Adjusted EBITDA per Diluted Share $49.9
$1.01
$72.6
$1.52
The following table provides a reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA for the nine month periods as indicated.
(in millions, except per share value) Nine Months Ended September 30,
2016 2015
GAAP Net Income From Continuing Operations $ 30.2 $ 48.9
Adjustments:
+ Depreciation & Amortization 27.0 24.7
+ Provision For Income Taxes 19.9 23.6
+ Total Interest Expense 5.1 4.9
Total Adjustments 52.0 53.2
EBITDA From Continuing Operations
EBITDA per Diluted Share $82.2
$1.68
$102.1
$2.17
Additional Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration) 9.5 3.5
+ Impact of purchase accounting on inventory step-up – 0.3
Total Additional Adjustments 9.5 3.8
Adjusted EBITDA From Continuing Operations
Adjusted EBITDA per Diluted Share $91.7
$1.88
$105.9
$2.26
(IV) RECONCILIATION OF STATEMENT OF OPERATIONS
The following table provides a reconciliation of the Company’s Statement of Operations for the Three Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
Three Months Ended September 30, 2016
Continuing Operations Discontinued Operations Combined
Revenues: (Unaudited)
Product sales $ 96.7 $ 3.0 $ 99.7
Contract manufacturing 14.7 - 14.7
Contracts and grants 31.5 0.1 31.6
Total revenues 142.9 3.1 146.0
Operating expenses:
Cost of product sales and contract manufacturing 39.6 0.9 40.5
Research and development 27.2 2.5 29.7
Selling, general and administrative 40.7 7.5 48.2
Income from operations 35.5 (7.8 ) 27.7
Other income (expense):
Interest income 0.4 - 0.4
Interest expense (2.0 ) - (2.0 )
Other income, net (0.2 ) (0.1 ) (0.3 )
Total other expense, net (1.9 ) (0.1 ) (2.0 )
Income (loss) before provision for (benefit) from income taxes 33.6 (7.9 ) 25.6
Provision for (benefit from) income taxes 13.2 (8.9 ) 4.3
Net income $ 20.4 $ 1.0 $ 21.3
The following table provides a reconciliation of the Company’s Statement of Operations for the Nine Months Ended September 30, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
Nine Months Ended September 30, 2016
Continuing Operations Discontinued Operations Combined
Revenues: (Unaudited)
Product sales $ 208.8 $ 21.2 $ 230.0
Contract manufacturing 32.5 - 32.5
Contracts and grants 95.9 0.2 96.1
Total revenues 337.1 21.4 358.5
Operating expenses:
Cost of product sales and contract manufacturing 93.0 11.6 104.6
Research and development 81.2 18.0 99.2
Selling, general and administrative 108.3 23.8 132.1
Income from operations 54.6 (32.0 ) 22.6
Other income (expense):
Interest income 0.8 - 0.8
Interest expense (5.1 ) - (5.1 )
Other income, net (0.2 ) (0.0 ) (0.2 )
Total other expense, net (4.5 ) (0.0 ) (4.5 )
Income (loss) before provision for (benefit) from income taxes 50.1 (32.0 ) 18.1
Provision for (benefit from) income taxes 19.9 (16.2 ) 3.7
Net income $ 30.2 $ (15.9 ) $ 14.4