RedHill Biopharma Provides Fourth Quarter and Full-Year 2017 Investor Update

On February 22, 2018 RedHill Biopharma Ltd. (NASDAQ:RDHL) (Tel-Aviv Stock Exchange:RDHL) ("RedHill" or the "Company"), a specialty biopharmaceutical company primarily focused on late clinical-stage development and commercialization of proprietary drugs for gastrointestinal diseases and cancer, reported an investor update on its fourth quarter and full-year 2017 financial results (Press release, RedHill Biopharma, FEB 22, 2018, View Source [SID1234524154]).

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The Company will host a conference call today, February 22, 2018 at 9:00 am EST to review the financial results and business highlights. Dial-in details are included below.

Micha Ben Chorin, RedHill’s CFO, said: "Following a highly productive 2017, we enter 2018 with confidence and are committed to pursue top-line growth with financial discipline, including gradual reduction in cash to be used in operating activities to a quarterly average of approximately $8.5 million during the year. Our cash position was approximately $46 million at the end of 2017 and net revenues in the fourth quarter of 2017 were $2 million, up 31% over the prior quarter. We are looking forward to top-line results from the first Phase III study with RHB-104 for Crohn’s disease, expected in mid-2018, and from the confirmatory Phase III study with TALICIA for H. pylori infection, expected in the second half of 2018."

Fourth Quarter 2017 Results1

Net Revenues for the fourth quarter of 2017 were $2.0 million, an increase of 31% from the third quarter of 2017. Net Revenues for the fourth quarter of 2016 were $0.1 million. The increase from the fourth quarter of 2016 was due to the initiation of U.S. commercial operations in mid-2017.

Cost of Revenues for the fourth quarter of 2017 was $0.9 million, due to cost of goods sold and royalties relating to commercialization activities. Cost of Revenues for the third quarter of 2017 was $0.9 million. There was no Cost of Revenues for the fourth quarter of 2016.

Gross Profit for the fourth quarter of 2017 was $1.1 million, an increase of 84% from the third quarter of 2017, primarily due to the increase in Net Revenues, as detailed above. Gross Profit for the fourth quarter of 2016 was $0.1 million.

Research and Development Expenses for the fourth quarter of 2017 were $8.3 million, an increase of 2% from the third quarter of 2017. Research and Development Expenses for the fourth quarter of 2016 were $7.5 million. The increase from the fourth quarter of 2016 was mainly due to the ongoing confirmatory Phase III study with TALICIA2 for H. pylori infection.

Selling, Marketing and Business DevelopmentExpenses for the fourth quarter of 2017 were $3.8 million, a decrease of 8% from the third quarter of 2017. The decrease was primarily due to a decrease in marketing material expenses. Selling, Marketing and Business Development Expenses for the fourth quarter of 2016 were $0.4 million. The Company recognized selling and marketing expenses for the first time in 2017 due to the establishment and advancement of the Company’s U.S. commercial operations.

General and Administrative Expenses for the fourth quarter of 2017 were $2.5 million, an increase of 11% from the third quarter of 2017. General and Administrative Expenses for the fourth quarter of 2016 were $1.2 million. The increase from the comparable periods was mainly due to the establishment and advancement of the Company’s U.S. commercial operations.

Operating Loss for the fourth quarter of 2017 was $14.4 million, compared to $9.0 million in the fourth quarter of 2016. The increase was mainly due to the establishment of the Company’s U.S. commercial operations.

Financial Income, net for the fourth quarter of 2017 was $4.0 million, compared to $0.6 million for the fourth quarter of 2016. The increase was mainly due to a fair value gain on derivative financial instruments resulting from a decrease in valuation of non-tradeable warrants, accounted as non-current liabilities.

Net Cash Used in Operating Activities for the fourth quarter of 2017 was $14.2 million, up 39%, compared to $10.2 million in the fourth quarter of 2016. The increase was a direct result of the increase in Operating Loss, as detailed above.

Net Cash Used in Investing Activities for the fourth quarter of 2017 was $9.0 million, compared to Net Cash Provided by Investing Activities of $21.3 million for the fourth quarter of 2016. The change from the comparable period was mainly due to bank deposits.

Net Cash Provided by Financing Activities for the fourth quarter of 2017 was $20.9 million compared to $35.9 million for the fourth quarter of 2016, both resulting from public offerings.

Full-Year 2017 Results3

Net Revenues for 2017 were $4.0 million, compared to $0.1 million for 2016. The increase was due to the initiation of the Company’s U.S. commercial operations in mid-2017.

Cost of Revenues for 2017 was $2.1 million, due to cost of goods sold and royalties relating to commercialization activities. There was no Cost of Revenues for 2016.

Gross Profit for 2017 was $1.9 million, compared to $0.1 million for 2016. The increase was due to the initiation of the Company’s U.S. commercial activities in mid-2017.

Research and Development Expenses for 2017 were $33.0 million, compared to $25.2 million for 2016. The increase was mainly due to the ongoing confirmatory Phase III study with TALICIA and from the Phase I/II studies with YELIVA.

Selling, Marketing and Business Development Expenses for 2017 were $12.0 million, compared to $1.6 million for 2016, which was comprised of business development expenses only. The Company recognized selling and marketing expenses for the first time in 2017 due to the establishment and advancement of the Company’s U.S. commercial operations.

General and Administrative Expenses for 2017 were approximately $8.0 million, compared to $3.8 million for 2016. The increase was mainly due to the establishment and advancement of the Company’s U.S. commercial operations in 2017.

Operating Loss for 2017 was $52.0 million, compared to $30.5 million for 2016. The increase was due to an increase in the Company’s research and development activities, as well as the establishment and advancement of the Company’s U.S commercial operations in 2017, as detailed above.

Financial Income, net for 2017 was $6.4 million, compared to $1.2 million for 2016. The increase was mainly related to a fair value gain on derivative financial instruments.

Net Cash Used in Operating Activities for 2017 was $44.8 million, compared to $28.3 million for 2016. The increase was a direct result of the increase in Operating Loss, as detailed above.

Net Cash Used in Investing Activities for 2017 was $18.6 million, compared to Net Cash Provided by Investing Activities of $24.5 million for 2016. The change from the comparable period was mainly due to withdrawal and deposit activities in bank deposits and financial assets at fair value through profit or loss.

Net Cash Provided by Financing Activities for 2017 was $25.7 million, compared to $36.0 million for 2016. For 2017, the Net Cash Provided by Financing Activities was mainly due to the November 2017 underwritten public offering and an exercise of warrants and options in the first quarter of 2017. For 2016, the Net Cash Provided by Financing Activities was mainly due to the December 2016 underwritten public offering and the concurrent registered direct offering.

Cash Balance4 as of December 31, 2017 was $46.2 million, a decrease of $20 million, compared to $66.2 million as of December 31, 2016, and an increase of $6.8 million, compared to $39.4 million as of September 30, 2017. The changes in the Cash Balance resulted mainly from Net Cash Provided by Financing Activities and Net Cash Used in Operating Activities.

Conference Call and Webcast Information:

The Company will host a conference call today,Thursday, February 22, 2018 at 9:00 am EDT to review the financial results and business highlights.

To participate in the conference call, please dial one of the following numbers 15 minutes prior to the start of the call: United States: +1-800-281-7829; International: +1-646-828-8143; and Israel: +972-3-721-9463. The access code for the call is: 2134987.

The conference call will be broadcasted live and will be available for replay on the Company’s website, View Source, for 30 days. Please access the Company’s website at least 15 minutes ahead of the conference call to register, download and install any necessary audio software.

Availability of RedHill Annual Report on Form 20-F Through Its Website

RedHill’s Annual Report on Form 20-F, containing audited financial statements for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on February 22, 2018, is available on its website (View Source). Shareholders may receive a hard copy of the annual report free of charge upon request.

Select 2017 R&D highlights:

TALICIA (RHB-105)- H. pylori infection (confirmatory Phase III) (FDA Fast-Track QIDP status)

In June 2017, RedHill initiated the confirmatory Phase III study with TALICIA (RHB-105) for H. pylori infection (ERADICATE Hp2 study). To date, approximately 50% of the planned 444 patients have been enrolled in the study. Top-line results are expected in the second half of 2018.

RHB-104 – Crohn’s disease (Phase III)

In November 2017, RedHill completed enrollment of its first Phase III study with RHB-104 for Crohn’s disease (MAP US study). Top-line results are expected in mid-2018.

In October 2017, RedHill announced that it had curtailed the target sample size in the MAP US study from 410 to approximately 331 subjects, while maintaining statistical power of over 80% to detect the expected treatment effect.

In July 2017, RedHill reported, following a second pre-planned meeting by an independent Data and Safety Monitoring Board (DSMB) to assess safety and efficacy data from the MAP US study, that it had received a unanimous recommendation from the DSMB to continue the study as planned.

In March 2017, RedHill initiated an open-label extension Phase III study to the MAP US study (MAP US2 study).

RHB-104 – nontuberculous mycobacteria (NTM) infections (planned pivotal Phase III) (FDA Fast-Track QIDP status)

RedHill plans, subject to further input from the U.S. Food & Drug Administration (FDA), to initiate in mid-2018 a pivotal Phase III study to assess the safety and efficacy of RHB-104 as potential first-line treatment for nontuberculous mycobacteria (NTM) infections caused by mycobacterium avium complex (MAC) infection.

BEKINDA (RHB-102) 24 mg – acute gastroenteritis and gastritis (Phase III)

In June 2017, RedHill announced positive results from the first Phase III study with BEKINDA 24 mg for acute gastroenteritis and gastritis (GUARD study). The randomized, double-blind, placebo-controlled study successfully met its primary endpoint of efficacy and BEKINDA 24 mg was found to be safe and well tolerated in this indication. Top-line results indicated that the study successfully met its primary endpoint in the Intent to Treat (ITT) population (p = 0.04), despite high positive outcome rate in the placebo arm. BEKINDA 24 mg improved the efficacy outcome by 21%; 65.6% of BEKINDA-treated patients, as compared to 54.3% of placebo patients (p = 0.04; n=192 in the BEKINDA group and n=129 in the placebo group). In per-protocol (PP) analysis of patients who met all protocol entry criteria and for which the diagnosis of gastroenteritis was confirmed (n=177 in the BEKINDA group and n=122 in the placebo group), BEKINDA 24 mg improved the efficacy outcome by 27%; 69.5% of patients in the BEKINDA group vs. 54.9% in the placebo group (p = 0.01). RedHill met with the FDA to discuss the study results and the clinical and regulatory path towards potential marketing approval of BEKINDA 24 mg in the U.S. Following the guidance provided at the meeting, RedHill is currently working with the FDA to design a confirmatory Phase III study to support a potential New Drug Application (NDA) with BEKINDA 24 mg for acute gastroenteritis and gastritis.

BEKINDA(RHB-102) 12 mg – IBS-D (Phase II)

In January 2018, RedHill announced positive final results5 from the Phase II study with BEKINDA 12 mg for the treatment of diarrhea-predominant irritable bowel syndrome (IBS-D). The randomized, double-blind, placebo-controlled Phase II study successfully met its primary endpoint, improving the primary efficacy outcome of stool consistency (per FDA guidance definition) by an absolute difference of 20.7% vs. placebo (p-value=0.036). RedHill plans to meet with the FDA in the first half of 2018 to discuss plans for one or two pivotal Phase III studies with BEKINDA 12 mg for IBS-D to support a potential NDA.

YELIVA (ABC294640) – cholangiocarcinoma (Phase IIa) (FDA Orphan Drug designation)

In December 2017, RedHill initiated a Phase IIa study with YELIVA (ABC294640) for the treatment of cholangiocarcinoma (bile duct cancer). The single-arm Phase IIa study is evaluating YELIVA as a single agent in patients suffering from advanced, unresectable intrahepatic, perihilar and extrahepatic cholangiocarcinoma. The study is planned to enroll up to 39 patients at Mayo Clinic major campuses in Arizona and Minnesota and The University of Texas MD Anderson Cancer Center.

RHB-107 (MESUPRON) – gastrointestinal and other solid tumor cancers (Orphan Drug designation for pancreatic cancer)

In October 2017, RHB-107 (MESUPRON) (INN: upamostat) was granted FDA Orphan Drug designation for the treatment of pancreatic cancer. The Orphan Drug designation allows RedHill to benefit from various incentives to develop RHB-107 for this indication, including a seven-year marketing exclusivity period for the indication, if approved. Following the recent identification of a new mechanism of action for RHB-107, inhibition of trypsin-3, RedHill is currently evaluating potential utilization of RHB-107 in several gastrointestinal indications.

U.S. Commercial Highlights

As part of RedHill’s strategy to set the stage for the potential launch of its proprietary, late-clinical stage gastrointestinal products, if approved by the FDA, the Company established U.S. commercial operations in early 2017. RedHill’s U.S. commercial operations, with offices in Raleigh, NC, include a gastrointestinal-focused sales force of approximately 40 sales representatives.

As part of this initiative, RedHill entered into commercial agreements granting the Company certain rights to promote Donnatal (Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide)6 and Esomeprazole Strontium DR Capsules 49.3 mg7 and to commercialize EnteraGam (serum-derived bovine immunoglobulin/protein isolate, SBI)8. RedHill launched Donnatal and EnteraGam in June 2017, and Esomeprazole Strontium DR Capsules 49.3 mg in September 2017. The Company continues to pursue the acquisition of additional commercial gastrointestinal products in the U.S.

Financial Highlights

In November 2017, RedHill issued in a public offering 4,090,909 American Depositary Shares (ADSs), each representing ten of its ordinary shares, at a price of $5.50 per ADS, raising net proceeds of approximately $21 million.

A cost reduction plan was initiated at the end of 2017 to gradually reduce the average quarterly cash to be used in operating activities in 2018 to approximately $8.5 million.

Expanded Access Program (EAP)

RedHill adopted an Expanded Access Program (EAP), allowing patients with life-threatening diseases potential access to RedHill’s investigational new drugs that have not yet received regulatory marketing approval. Expanded access (sometimes referred to as "compassionate use") is possible outside RedHill’s clinical trials, under certain eligibility criteria, when a certain investigational new drug is needed to treat life-threatening condition and there is some clinical evidence suggesting that the drug might be effective in that condition. Following the adoption of the program, RedHill continues to receive patient requests to obtain access to investigational drugs. Subject to evaluation of eligibility and all the necessary regulatory and other approvals, RedHill is likely to provide certain patients with an investigational new drug under the EAP. Further information about RedHill’s EAP can be found on the Company’s website at: View Source/expandedaccess.

Pacira Pharmaceuticals Announces Timing for 2017 Financial Results Webcast and Conference Call

On February 22, 2018 Pacira Pharmaceuticals, Inc. (NASDAQ:PCRX) reported that it will report its fourth quarter and year ended December 31, 2017 financial results before the open of the U.S. markets on Wednesday February 28, 2018 (Press release, Pacira Pharmaceuticals, FEB 22, 2018, View Source;p=RssLanding&cat=news&id=2334116 [SID1234524143]). The announcement will be followed by a conference call at 8:30 a.m. ET. Participating in the call from Pacira will be Dave Stack, chairman and chief executive officer, and other members of the company’s senior management team.

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The call can be accessed by dialing 1-877-845-0779 (domestic) or 1-720-545-0035 (international) ten minutes prior to the start of the call and providing the Conference ID 5198726. A replay of the call will be available approximately two hours after the completion of the call and can be accessed by dialing 1-855-859-2056 (domestic) or 1-404-537-3406 (international) and providing the Conference ID 5198726. The replay of the call will be available for one week from the date of the live call.

The live, listen-only webcast of the conference call can also be accessed by visiting the "Investors & Media" section of the company’s website at investor.pacira.com. A replay of the webcast will be archived on the Pacira website for two weeks following the call.

OncoMed Pharmaceuticals to Report Fourth Quarter and Full Year 2017 Financial Results and Operational Highlights on March 8th, 2018

On February 22, 2018 OncoMed Pharmaceuticals, Inc. (Nasdaq:OMED), a clinical-stage biopharmaceutical company focused on discovering and developing novel anti-cancer therapeutics, reported that the Company will report fourth quarter and full year 2017 financial results and operational highlights on Thursday, March 8th, 2018 (Press release, OncoMed, FEB 22, 2018, View Source [SID1234524142]). OncoMed management will host a conference call and webcast at 4:30 p.m. Eastern Time (ET) / 1:30 p.m. Pacific Time (PT).

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Analysts and investors can participate in the conference call by dialing (855) 420-0692 (domestic) and (484) 756-4194 (international) using the conference ID# 4997704. The webcast of the conference call can be accessed live on the Investor Relations section of the OncoMed website, View Source, and will be available for replay through June 30th, 2018.

An audio replay of the conference call can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) utilizing the conference ID number listed above.

Geron Announces Conference Call to Discuss Fourth Quarter and Annual 2017 Financial Results

On February 22, 2018 Geron Corporation (Nasdaq:GERN) reported its financial results for the fourth quarter and year ended December 31, 2017, on Friday, March 16, 2018, after the market close (Press release, Geron, FEB 22, 2018, View Source;p=RssLanding&cat=news&id=2334148 [SID1234524134]). Geron’s management will also host a conference call for analysts and investors on Monday, March 19, 2018, at 8:30 a.m. Eastern Time to discuss the company’s fourth quarter and annual results as well as recent events.

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Participants can access the conference call live via telephone by dialing 877-303-9139 (U.S.); 760-536-5195 (international). The conference ID is 3564078. If accessing the conference call by telephone, please dial in at least 10 minutes early to minimize any delay in joining the call. A live audio-only webcast is also available through the Investors section of our website at www.geron.com or at View Source The audio webcast of the conference call will be available for replay approximately one hour following the live broadcast through April 20, 2018.

Emergent BioSolutions Reports Fourth Quarter and Twelve Months 2017 Financial Results

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."