On February 22, 2018 Emergent BioSolutions Inc. (NYSE:EBS) reported financial results for the quarter and twelve months ended December 31, 2017 (Press release, Emergent BioSolutions, FEB 22, 2018, View Source;p=RssLanding&cat=news&id=2334205 [SID1234524127]).
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2017 FINANCIAL HIGHLIGHTS
(in millions) 4Q 2017
(unaudited) 4Q 2016 (1)
(unaudited)
Total Revenues $ 193.8 $ 151.7
Net Income $ 33.9 $ 32.3
Adjusted Net Income (2) $ 37.8 $ 36.6
EBITDA (1) $ 65.2 $ 61.3
(in millions) Full Year 2017
(unaudited) Full Year 2016 (1)
Total Revenues $ 560.9 $ 488.8
Net Income $ 82.6 $ 62.5
Adjusted Net Income (2) $ 95.7 $ 77.5
EBITDA (1) $ 166.0 $ 141.7
(1) Financial results for 4Q 2016 and Full Year 2016 are presented on a continuing operations basis.
(2) See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
4Q 2017 BUSINESS ACCOMPLISHMENTS
Acquisitions
Completed the acquisition of Sanofi’s ACAM2000 business, including ACAM2000 (Smallpox (Vaccinia) Vaccine, Live), the only smallpox vaccine licensed by the U.S. Food and Drug Administration (FDA), related manufacturing facilities and employees, and an existing 10-year, $425 million contract with the Centers for Disease Control and Prevention (CDC) with a remaining value at acquisition of up to approximately $160 million for deliveries of ACAM2000 to the Strategic National Stockpile (SNS)
Completed the acquisition of Raxibacumab, an FDA-approved anthrax monoclonal antibody, from GSK and assumed responsibility for a multi-year contract with the Biomedical Advanced Research and Development Authority (BARDA), with a remaining value at acquisition of up to approximately $130 million, to supply Raxibacumab to the SNS
Procurement Contracts
Awarded a contract valued at up to approximately $25 million by the U.S. Department of State to supply Trobigard(3) (Atropine Sulfate [2mg]/Obidoxime Chloride [220mg]) auto-injector, a drug and device combination product for emergency use outside of the U.S. in the event of nerve agent or organophosphate poisoning
Awarded a contract by the Department of National Defence, valued at approximately $8 million, to deliver Anthrasil (Anthrax Immune Globulin Intravenous [human]) to the Canadian government
Capital Structure
Converted approximately $239.4 million, or 95.8%, of the $250 million 2.875% Convertible Senior Notes due 2021 (the Notes) for approximately 8.5 million shares of the company’s common stock by holders of the Notes.
Repurchased 788,894 shares of its common stock in the fourth quarter of 2017 under a board-approved share repurchase program
(3) Trobigard is not currently approved or cleared by the U.S. Food and Drug Administration or any similar regulatory body, and is only distributed to authorized government buyers for use outside the U.S. This product is not distributed in the U.S.
2017 FINANCIAL PERFORMANCE
(I) Quarter Ended December 31, 2017 (Unaudited)
Revenues
Total Revenues
For Q4 2017, total revenues were $193.8 million, an increase of 28% as compared to 2016. The increase is primarily driven by increased product sales of $74.1 million mainly due to a $63.2 million increase in BioThrax sales as well as sales of products acquired in Q4 2017, partially offset by a $31.6 million reduction in contracts and grants revenue.
Product Sales
For Q4 2017, product sales were $161.6 million, an increase of 85% as compared to 2016. The increase is principally attributable to a $63.2 million increase in BioThrax (Anthrax Vaccine Adsorbed) sales as well as a $10.9 million increase primarily due to sales of products acquired in Q4 2017.
(in millions)
(unaudited) Three Months Ended
December 31,
2017 2016 % Change
Product Sales
BioThrax $ 107.0 $ 43.8 145 %
Other 54.6 43.7 25 %
Total Product Sales $ 161.6 $ 87.5 85 %
Contract Manufacturing
For Q4 2017, revenue from the Company’s contract manufacturing operations was $16.2 million, a decrease of 3% as compared to 2016.
Contracts and Grants
For Q4 2017, contracts and grants revenue was $15.9 million, a decrease of 66% as compared to 2016. The decrease primarily reflects a reduction in revenue associated with the successful completion of multiple U.S. government contracts as well as reduced R&D activities related to certain ongoing funded development programs.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For Q4 2017, cost of product sales and contract manufacturing was $70.3 million, an increase of 84% as compared to 2016. The increase primarily reflects the impact of higher product sales.
Research and Development (Gross and Net)
For Q4 2017, gross R&D expenses were $28.5 million, an increase of 5% as compared to 2016. The increase primarily reflects increased contract development services performed for NuThraxTM and the EV-035 series of molecules, offset by reduced services related to the task orders performed by the Center for Innovation in Advanced Development and Manufacturing (CIADM).
For Q4 2017, net R&D expense (calculated as gross research and development expenses less contracts and grants revenue) was $12.6 million. For Q4 2016, contracts and grants revenue exceeded gross R&D expense, resulting in a net contribution from funded development programs of $20.4 million.
(in millions)
(unaudited) Three Months Ended
December 31,
2017 2016 % Change
Research and Development Expenses $ 28.5 $ 27.1 5 %
Adjustments:
– Contracts and grants revenue $ 15.9 $ 47.5 (66 %)
Net Research and Development Expenses (Income) $ 12.6 $ (20.4 ) –
Selling, General and Administrative
For Q4 2017, selling, general and administrative expenses were $42.0 million, an increase of 19% as compared to 2016. The increase is attributable to higher compensation expense and professional services fees during the period.
Net Income & Adjusted Net Income
For Q4 2017, net income was $33.9 million, or $0.67 per diluted share, versus $32.3 million, or $0.67 per diluted share, in 2016.
Net income per diluted share is computed using the "if-converted" method prior to November 14, 2017, the date the company terminated conversion rights associated with the company’s 2.875% Convertible Senior Notes due 2021 (the Notes). This method requires net income to be adjusted to add back interest expense and amortization of debt issuance cost, both net of tax, associated with the Notes. The following table details the adjustments made in this calculation.
(in millions, except per share value)
(unaudited) Three Months Ended
December 31,
2017 2016
Net Income $ 33.9 $ 32.3
Adjustments:
+ Interest expense, net of tax 0.2 0.9
+ Amortization of debt issuance costs, net of tax 0.1 0.2
Net Income, adjusted ("if converted") $ 34.2 $ 33.4
Net Income Per Diluted Share, adjusted ("if converted") $ 0.67 $ 0.67
Weighted Average Diluted Shares 51.0 49.6
For Q4 2017, adjusted net income, a non-GAAP measure, was $37.8 million, or $0.74 per diluted share, versus $36.6 million, or $0.74 per diluted share, in 2016. See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
(II) Year Ended December 31, 2017 (Unaudited)
Revenues
Total Revenues
For the twelve months of 2017, total revenues were $560.9 million, an increase of 15% as compared to 2016. The increase is attributable to significantly increased product sales, notably Other product sales, and contract manufacturing services revenue offset by a decrease in contracts and grants revenue.
Product Sales
For the twelve months of 2017, product sales were $421.5 million, an increase of 42% as compared to 2016. The increase is principally attributable to higher BioThrax sales to the SNS and higher Other product sales, specifically timing of BAT [Botulism Antitoxin Heptavalent (A, B, C, D, E, F, G) – (Equine)] deliveries to the SNS, international sales of VIGIV and Trobigard and sales of ACAM2000 to the CDC and Raxibacumab to BARDA.
(in millions) Twelve Months Ended
December 31,
2017
(unaudited) 2016 % Change
Product Sales
BioThrax $ 286.6 $ 237.0 21 %
Other $ 134.9 $ 59.3 128 %
Total Product Sales $ 421.5 $ 296.3 42 %
Contract Manufacturing
For the twelve months of 2017, revenue from the Company’s contract manufacturing operations was $68.9 million, an increase of 40% as compared to 2016. The increase primarily reflects an increase in fill/finish and manufacturing services to commercial entities.
Contracts and Grants
For the twelve months of 2017, contracts and grants revenue was $70.4 million, a decrease of 51% as compared to 2016. The decrease primarily reflects a reduction in revenue associated with the successful completion of multiple U.S. government contracts as well as reduced R&D activities related to certain ongoing funded development programs.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For the twelve months of 2017, cost of product sales and contract manufacturing was $195.7 million, an increase of 49% as compared to 2016. The increase primarily reflects the impact of higher product sales and increased costs associated with the expansion of our contract manufacturing business.
Research and Development (Gross and Net)
For the twelve months of 2017, gross R&D expenses were $97.4 million, a decrease of 10% as compared to 2016. The decrease primarily reflects lower contract development services costs associated with reduced contract development services performed during the period.
For the twelve months of 2017, net R&D expense (calculated as gross research and development expenses less contracts and grants revenue) was $27.0 million. For the twelve months of 2016, contracts and grants revenue exceeded gross R&D expense, resulting in a net contribution from funded development programs of $35.1 million.
(in millions) Twelve Months Ended
December 31,
2017
(unaudited) 2016 % Change
Research and Development Expenses $ 97.4 $ 108.3 (10 %)
Adjustments:
– Contracts and grants revenue $ 70.4 $ 143.4 (51 %)
Net Research and Development Expenses (Income) $ 27.0 $ (35.1 ) –
Selling, General and Administrative
For the twelve months of 2017, selling, general and administrative expenses were $143.5 million, unchanged as compared to 2016.
Net Income & Adjusted Net Income
For the twelve months of 2017, net income was $82.6 million, or $1.71 per diluted share, versus $62.5 million, or $1.35 per diluted share, in 2016.
Net income per diluted share is computed using the "if-converted" method prior to November 14, 2017, the date the company terminated conversion rights associated with the company’s 2.875% Convertible Senior Notes due 2021 (the Notes). This method requires net income to be adjusted to add back interest expense and amortization of debt issuance cost, both net of tax, associated with the Notes. The following table details the adjustments made in this calculation.
(in millions, except per share value) Twelve Months Ended
December 31,
2017
(unaudited) 2016
Net Income $ 82.6 $ 62.5
Adjustments:
+ Interest expense, net of tax 2.6 3.3
+ Amortization of debt issuance costs, net of tax 0.7 0.8
Net Income, adjusted ("if converted") $ 85.9 $ 66.6
Net Income Per Diluted Share, adjusted ("if converted") $ 1.71 $ 1.35
Weighted Average Diluted Shares 50.3 49.3
For the twelve months of 2017, adjusted net income, a non-GAAP measure, was $95.7 million, or $1.90 per diluted share, versus $77.5 million, or $1.57 per diluted share, in 2016. See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
2018 FINANCIAL & OPERATIONAL GOALS
2018 Financial Forecast:
Total revenue of $715 to $755 million
Pre-Tax income of $120 to $140 million
Net income of $95 to $110 million
Adjusted net income of $110 to $125 million (2)
EBITDA of $175 to $190 million (2)
(2) See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
2018 Operational Goals:
Advance NuThrax development to enable Emergency Use Authorization filing with the FDA in 2018
Complete ACAM2000 deliveries; establish a multi-year follow-on contract with the U.S. government
Deliver Raxibacumab doses under current contract; advance tech transfer to the company’s CIADM Bayview facility in Baltimore, Maryland
Progress pipeline to have at least four product candidates in advanced development
Complete an acquisition that generates revenue within 12 months of closing
1Q 2018 Financial Forecast (Revised):
Total revenue of $125 to $150 million; previous forecast was $145 to $160 million; the revision primarily reflects the timing of deliveries of BioThrax
2020 FINANCIAL & OPERATIONAL GOALS
The Company is targeting the following 2020 financial and operational goals:
Total Revenue: $1 billion
Revenue Mix: at least 10% of total revenue from ex-US customers
Expense Discipline: Net R&D <15% of net revenue (4); SG&A <25% of total revenue
Net Income: at least 14% of total revenue
Product Development Pipeline: Six products in clinical or advanced development (with at least three dual-market opportunities)
(4) Computed as Total Revenue less Contracts & Grants Revenue.
CONFERENCE CALL AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, February 22, 2018, to discuss these financial results. This conference call can be accessed live by telephone or through Emergent’s website:
Live Teleconference Information:
Dial in number: (855) 766-6521
International dial in: (262) 912-6157
Conference ID: 93325042
Live Webcast Information:
Visit edge.media-server.com/m6/p/qhvnyd93 for the live webcast feed.
A replay of the call can be accessed on Emergent’s website emergentbiosolutions.com under "Investors."