On November 6, 2019 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the third quarter and nine months ended September 30, 2019 (Press release, Emergent BioSolutions, NOV 6, 2019, View Source [SID1234550458]).

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Q3 2019 AND RECENT BUSINESS ACCOMPLISHMENTS

Procurement

Announced the contract award by the Office of the Assistant Secretary for Preparedness and Response (ASPR) in the U.S. Department of Health and Human Services (HHS) valued at approximately $2 billion over 10 years for the continued supply of ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) into the U.S. Strategic National Stockpile (SNS) in support of smallpox preparedness.

Announced the exercise by the Biomedical Advanced Research and Development Authority (BARDA) of the first contract option, valued at $261 million, to procure doses of the next generation anthrax vaccine candidate AV7909 (anthrax vaccine adsorbed with adjuvant) for delivery into the SNS over 12 months.

Awarded a contract by the ASPR in HHS valued at up to $490 million over 10 years ($90 million agreed to now and the remaining $400 million to be negotiated and finalized over the next 6 months) for the continued

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supply of BAT [Botulism Antitoxin Heptavalent (A, B, C, D, E, F, G) – (Equine)] into the SNS in support of botulism preparedness and response capability.

Product Development

Granted PRIority MEdicines, or PRIME, designation by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for the company’s chikungunya virus (CHIKV) virus-like particle (VLP) vaccine candidate, CHIKV VLP.

Awarded a research grant by the National Institute on Drug Abuse (NIDA), a component of the National Institutes of Health (NIH), in HHS, valued at approximately $6.3 million over two years, for the continued development of AP007, the company’s sustained-release nalmefene formulation for the treatment of opioid use disorder (OUD).

Awarded approximately $20 million to develop and manufacture an auto-injector containing diazepam (5 mg/mL) to treat nerve agent-induced seizures. Emergent’s device is being designed for intramuscular buddy-administration for use in military environments and for civilian emergencies.

2019 FINANCIAL PERFORMANCE (unaudited)

(I) Quarter Ended September 30, 2019 (Q3)

Revenues

Total Revenues
For Q3 2019, total revenues were $311.8 million, an increase of 80% over 2018. Total revenues reflect the contribution of recently acquired products as well as increased contracts and grants revenue.
Product Sales
For Q3 2019, product sales were $256.2 million, an increase of $122.9 million or 92% as compared to 2018. The increase primarily reflects sales of both NARCAN (naloxone HCl) Nasal Spray, which was acquired in October 2018, and increased sales of ACAM2000, (Smallpox (Vaccinia) Vaccine, Live), offset by decreased sales of Anthrax vaccines (BioThrax (Anthrax Vaccine Adsorbed) and AV7909) and other product sales.
(in millions)
Three Months Ended September 30,

Contract Manufacturing
For Q3 2019, revenue from the Company’s contract manufacturing operations was $20.0 million, a decrease of $2.1 million or 10% as compared to 2018. The decrease primarily reflects contracted service work in Q3 2018 that did not recur in Q3 2019.

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Contracts and Grants
For Q3 2019, revenue from the Company’s development-based contracts and grants was $35.6 million, an increase of $17.4 million as compared to 2018. The increase primarily reflects increased R&D activities related to certain ongoing funded development programs, most notably AV7909.

Operating Expenses

Cost of Product Sales and Contract Manufacturing
For Q3 2019, cost of product sales and contract manufacturing was $108.0 million, an increase of $38.7 million or 56% as compared to 2018. The increase is attributable to the increase in product sales.

Research and Development (Gross and Net)

For Q3 2019, gross R&D expenses were $53.4 million, an increase of $16.4 million or 44% as compared to 2018. The increase primarily reflects costs associated with incremental development programs from the recent acquisitions of PaxVax and Adapt Pharma in October 2018, as well as timing of manufacturing development activities related to the AV7909 program.

For Q3 2019, net R&D expense, which reflects investments made in development programs that are not currently funded in whole or in part by third-party partners and is calculated as gross research and development expenses minus contracts and grants revenue, was $17.8 million, a decrease of $1.0 million or 5% as compared to 2018. The decrease primarily reflects a reduction in raxibacumab technology transfer costs, partially offset by increases related to the development of the CHIKVVLP vaccine and various programs related to opioid overdose response. The Q3 2019 net R&D expense was 6% of adjusted revenue (total revenue less contracts & grants) compared to 12% of adjusted revenue in Q3 2018.

Selling, General and Administrative

For Q3 2019, selling, general and administrative expenses were $65.0 million, an increase of $22.9 million or 54% as compared to 2018. The increase primarily reflects the addition of the operations and integration costs associated with the PaxVax and Adapt Pharma acquisitions.

Amortization of Intangible Assets

For Q3 2019, amortization of intangible assets was $14.7 million versus $3.9 million as compared to 2018. The increase entirely reflects higher non-cash intangible asset amortization costs associated with the PaxVax and Adapt Pharma acquisitions.

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Income Taxes

For Q3 2019, the income taxes expense in the amount of $15.7 million includes the impact of permanent items.

Net Income & Adjusted Net Income

For Q3 2019, the Company recorded net income of $43.2 million, or $0.83 per diluted share, versus net income of $20.9 million, or $0.41 per diluted share, in 2018.

For Q3 2019, the Company recorded adjusted net income of $63.3 million, or $1.21 per diluted share, versus adjusted net income of $28.4 million, or $0.55 per diluted share, in 2018. (1)

EBITDA & Adjusted EBITDA

For Q3 2019, the Company recorded EBITDA of $96.3 million versus $33.7 million in 2018. (1)

For Q3 2019, the Company recorded adjusted EBITDA of $106.4 million versus $39.1 million in 2018. (1)

(II) Nine months ended September 30, 2019 (unaudited)

Revenues

Total Revenues
For the nine months ended September 30, 2019, total revenues were $745.7 million, an increase of 46% over 2018. Total revenues reflect the contribution of recently acquired products as well as increased contracts and grants revenue.

Product Sales
For the nine months ended September 30, 2019, product sales were $592.7 million, an increase of $203.6 million or 52% as compared to 2018. The increase primarily reflects sales of NARCAN Nasal Spray, which was acquired in October 2018, and ACAM2000, offset by decreased sales of Anthrax vaccines (BioThrax and AV7909).
(in millions)
Nine Months Ended September 30,

Contract Manufacturing
For the nine months ended September 30, 2019, revenue from the Company’s contract manufacturing operations was $54.6 million, a decrease of $17.4 million or 24% as compared to 2018. The decrease primarily reflects contracted service work in the nine months of 2018 that did not recur in the nine months of 2019.

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Contracts and Grants
For the nine months ended September 30, 2019, revenue from the Company’s development-based contracts and grants was $98.4 million, an increase of $47.8 million or 94% as compared to 2018. The increase primarily reflects increased R&D activities related to certain ongoing funded development programs, most notably AV7909.

Operating Expenses

Cost of Product Sales and Contract Manufacturing
For the nine months ended September 30, 2019, cost of product sales and contract manufacturing was $300.7 million, an increase of $91.9 million or 44% as compared to 2018. The increase is attributable to the increase in product sales.

Research and Development (Gross and Net)
For the nine months ended September 30, 2019, gross R&D expenses were $163.4 million, an increase of $72.6 million compared to 2018. The increase primarily reflects costs associated with incremental development programs from the recent acquisitions of PaxVax and Adapt Pharma in October 2018, as well as timing of manufacturing development activities related to the AV7909 program.

For the nine months ended September 30, 2019, net R&D expense, which reflects investments made in development programs that are not currently funded in whole or in part by third-party partners and is calculated as gross research and development expenses minus contracts and grants revenue, was $65.0 million, an increase of $24.8 million or 62% as compared to 2018. The increase primarily reflects investments in the development of the CHIKV-VLP vaccine and various programs related to opioid overdose response. The nine months of 2019 net R&D expense was 10% of adjusted revenue (total revenue less contracts & grants) compared to 9% of adjusted revenue in the nine months of 2018.

Selling, General and Administrative
For the nine months ended September 30, 2019, selling, general and administrative expenses were $201.3 million, an increase of $79.5 million or 65% as compared to 2018. The increase primarily reflects the addition of the operations and integration costs associated with the PaxVax and Adapt Pharma acquisitions.

Amortization of Intangible Assets
For the nine months ended September 30, 2019, amortization of intangible assets was $43.9 million versus $11.7 million as compared to 2018. The increase entirely reflects higher non-cash intangible asset amortization costs associated with the PaxVax and Adapt Pharma acquisitions.

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Income Taxes
For the nine months ended September 30, 2019, income tax benefit was $1.7 million, which includes the impact of permanent items.

Net Income & Adjusted Net Income
For the nine months ended September 30, 2019, the Company recorded net income of $7.6 million, or $0.15 per diluted share, versus net income of $66.2 million, or $1.29 per diluted share, in 2018.

For the nine months ended September 30, 2019, the Company recorded adjusted net income of $67.0 million, or $1.28 per diluted share, versus adjusted net income of $83.3 million, or $1.63 per diluted share, in 2018. (1)

EBITDA & Adjusted EBITDA
For the nine months ended September 30, 2019, the Company recorded EBITDA of $116.3 million versus $115.5 million in 2018. (1)

For the nine months ended September 30, 2019, the Company recorded adjusted EBITDA of $145.4 million versus $124.6 million in 2018. (1)

2019 FINANCIAL FORECAST (Reaffirmed)

* Reflects revision from previous guidance ($255-$285) due to the inclusion of changes in fair value of contingent consideration as an additional item for reconciliation in the calculation of Adjusted EBITDA; management has determined Adjusted EBITDA is more reflective of the Company’s true operations than EBITDA alone and the guidance range for EBITDA has been revised based on current expectations.

The Company’s financial forecast for 2019 includes the anticipated impact of full year product sales, continued contract manufacturing and contracts & grants revenue as well as continued investment in internally funded development projects. The outlook for 2019 does not include estimates for potential new corporate development or other M&A transactions.

FOOTNOTES

(1) See "Reconciliation of Net Income to Adjusted Net Income, EBITDA and Adjusted EBITDA" for a definition of terms and a reconciliation table.

CONFERENCE CALL AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, November 6, 2019, to discuss these financial results. This conference call can be accessed live by telephone or through the Company’s website.

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Live Teleconference Information:
Dial in: [US] (855) 766-6521; [International] (262) 912-6157
Conference ID: 1169597

Live Webcast Information:
Visit View Source for the live webcast.