On July 29, 2021 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the second quarter ended June 30, 2021 (Press release, Emergent BioSolutions, JUL 29, 2021, View Source [SID1234585365]).
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"Our second quarter performance demonstrates the strength of our strategy and diversified business model," said Robert G. Kramer, president and chief executive officer of Emergent BioSolutions. "Through continued investment and innovation, we will play an important role in helping deliver solutions to the public health threats we face. We are proud to be resuming production of COVID-19 vaccine batches following additional reviews and collaboration with the Food and Drug Administration and our manufacturing partner."
Kramer added, "I am thankful for the relentless determination of our Emergent team across the globe to deliver for our patients, customers and partners."
Q2 2021 AND OTHER RECENT BUSINESS ACCOMPLISHMENTS
Announced that the U.S. Food and Drug Administration (FDA) has informed the Company that it can resume production of Johnson & Johnson’s COVID-19 vaccine bulk drug substance at the Company’s Bayview manufacturing facility.
Supporting the U.S. government’s smallpox preparedness efforts under contract options exercised by the Department of Health and Human Services (HHS) valued at approximately $182 million and $56 million to deliver ACAM2000 (Smallpox (Vaccinia) Vaccine, Live) and VIGIV [Vaccinia Immune Globulin Intravenous (Human)] (VIGIV), respectively.
Supporting the Canadian government’s anthrax preparedness efforts under a new contract with the Public Health Agency Canada (PHAC) to deliver Anthrasil (Anthrax Immune Globulin Intravenous [human]) through March 2023.
Received approval from the Federal Agency for Medicines and Health Products (FAMHP) of Belgium for Trobigard Auto-injector (atropine sulfate 2mg/obidoxime chloride 220mg; solution for injection), an emergency treatment product for known or suspected exposure to nerve agents or toxic organophosphates in adults over 18 years of age.
2021 FINANCIAL PERFORMANCE (1)
Product Sales, net
NARCAN Nasal Spray
For Q2 2021, revenues from NARCAN (naloxone HCI) Nasal Spray increased $33.4 million as compared to Q2 2020. The increase is largely driven by a growth in sales to the U.S. public interest and commercial retail markets as well as an increase in sales to customer channels in Canada.
Anthrax vaccines
For Q2 2021, revenues from Anthrax vaccines decreased $80.8 million as compared to Q2 2020. The decrease is largely driven by timing of deliveries to the U.S. government.
ACAM2000
For Q2 2021, revenues from ACAM2000 decreased $70.0 million as compared to Q2 2020. The decrease is largely driven by the timing of deliveries to the U.S. government; the most recent option exercise was received in July 2021 valued at approximately $182 million, the entire amount of which is expected to be delivered in fiscal year 2021.
Other (4)
For Q2 2021, revenues from other product sales were consistent as compared to Q2 2020.
Contract Development and Manufacturing (CDMO) Services
For Q2 2021, revenue from contract development and manufacturing services increased $118.3 million, as compared to Q2 2020. The increase is due to the public-private partnership with the Biomedical Advanced Research and Development Authority (BARDA) and arrangements with pharma/biotech innovators to address the COVID-19 pandemic. These arrangements were entered into during the second and third quarters of 2020.
Contracts and Grants
For Q2 2021, revenues from contracts and grants were consistent as compared to Q2 2020.
Operating Expenses
Cost of Product Sales and CDMO Services
For Q2 2021, cost of product sales and contract development and manufacturing services increased $98.0 million as compared to Q2 2020. The increase primarily consists of an increase in costs associated with the Company’s contract development and manufacturing services due to higher volume of CDMO services, a majority of which were in support of the Company’s arrangements to address the COVID-19 pandemic. Additionally, during the quarter the Company had inventory write-offs of $41.5 million associated with raw materials and in-process batches manufactured at the Company’s Bayview facility that it plans to discard as they were deemed unusable. These increases were partially offset by decreases in the cost of product sales due to less volume.
Research and Development
For Q2 2021, research and development expenses were consistent as compared to Q2 2020.
Selling, General and Administrative
For Q2 2021, selling, general and administrative expenses increased $15.2 million as compared to Q2 2020. The increase is primarily due to an increase in costs related to defending and supporting the Company’s corporate reputation.
Additional Financial Information
Gross Margin (2)
For Q2 2021, gross margin decreased $97.0 million as compared to Q2 2020. The decrease is primarily due to the increase in the cost of product sales and CDMO services, specifically $41.5 million associated with the inventory write-offs, $43.1 million associated with product and service revenue mix which was weighted more heavily to lower margin products and services, and $12.4 million associated with costs incurred to remediate and strengthen manufacturing processes at the Company’s Bayview facility, many of which are considered temporary in nature.
For Q2 2021, CDMO services backlog decreased $245.8 million as compared to Q1 2021. The decrease is primarily due to revenue realized in the quarter of $190.9 million, $108.1 million of negative contract modifications and other adjustments offset by $53.2 million of positive new business generation during the quarter.
For Q2 2021, CDMO services opportunity funnel decreased $135.1 million as compared to Q1 2021. The decrease is primarily due to the exclusion of opportunities at the Company’s Bayview facility as all manufacturing activities at that facility are currently prioritized to support the Johnson & Johnson COVID-19 vaccine.
For Q2 2021, capital expenditures increased largely due to the Company’s continued investments associated with increased capacity and capabilities at the Company’s Rockville and Bayview facilities. The increase in gross capital expenditures was offset by reimbursements of $11.4 million related to arrangements funded by the U.S. government.
2021 FINANCIAL FORECAST
For full year 2021, the Company’s forecast includes the following financial metrics:
The Company’s financial forecast for 2021 includes the following additional considerations:
Revised Considerations
Gross margin reflects the impact of the Q2 2021 performance as well as expectations for the remainder of the year.
Unchanged Considerations
Narcan Nasal Spray revenues assume the naloxone market remains competitive and incorporates the impact of at least one new branded entrant into the market by year end, as well as that no generic entrant will enter the market prior to the anticipated appellate decision related to the pending patent litigation, which is expected in the second half of 2021.
Anthrax vaccines revenues are expected to continue to primarily reflect procurement of AV7909 (Anthrax Vaccine Adsorbed, Adjuvanted) under the terms of the Company’s existing contract with BARDA at a more normalized annual level.
ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) vaccine revenues incorporate the expected full delivery of product under the $182 million option exercise received in July 2021 as well as other international sales.
CDMO services revenue reflects the successful manufacturing of Johnson & Johnson’s COVID-19 vaccine bulk drug substance. On July 29, the Company announced that it was informed by the FDA that it can resume production at its Bayview manufacturing facility.
Total revenues, specifically other product sales, are expected to be impacted due to the Company’s assumption that a new raxibacumab contract will be awarded later than previously planned.
R&D expenses are expected to reflect continued pipeline progress across the vaccines, therapeutics, and devices portfolios, including the assumption of at least one Phase 3 launch and one Biologics License Application (BLA)/Emergency Use Authorization (EUA) filing.
Capital expenditures, net of reimbursement, are expected to be in a range of 8% to 9% of total revenues, reflecting ongoing investments in capacity and capability expansions in support of the Company’s CDMO services business and product portfolio.
Q3 2021 REVENUE FORECAST
For Q3 2021, the Company expects total revenues of $400 million to $500 million.
FOOTNOTES
(1) All financial information incorporated within this release is unaudited.
(2) See "Reconciliation of Net Income to Adjusted Net Income," "Reconciliation of Net Income to Adjusted EBITDA," "Reconciliation of Gross Margin" and "Reconciliation of Net Research and Development Expenses" 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.
(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 backlog is defined as estimated remaining contract value as of the indicated period pursuant to signed contracts, the majority of which is expected to be recognized over the next 24 months.
(6) CDMO new business is defined as initial value of contracts secured as well as incremental value of existing contracts modified within the indicated period and is incorporated into Backlog.
(7) CDMO opportunity funnel is defined as proposal values from new work with new customers, new work with existing customers and extensions/expansions of existing contracts with existing customers that, if converted to new business, the majority of which is expected to be realized over the next 24 months. This excludes any value associated with an extension of the commercial supply agreement (CSA) with Johnson & Johnson.
CONFERENCE CALL, PRESENTATION SUPPLEMENT AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, July 29, 2021, to discuss these financial results. The conference call and presentation supplement can be accessed from the Company’s website or through the following: