On November 8, 2022 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the third quarter ended September 30, 2022 (Press release, Emergent BioSolutions, NOV 8, 2022, View Source [SID1234623415]).
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"For more than 20 years, Emergent has been a dependable partner to customers, including the U.S. and allied governments, in helping prepare for public health threats through our products, services, and development programs," said Robert G. Kramer, president and CEO. "As we continue to strengthen our operations, be guided by financial discipline, and evaluate opportunities for growth, we remain confident in our ability to deliver results for our patients, customers, and shareholders."
SELECT Q3 2022 AND OTHER RECENT BUSINESS UPDATES
Completed the acquisition from Chimerix of its worldwide rights to TEMBEXA(R) (brincidofovir), the first U.S. Food and Drug Administration (FDA) approved smallpox oral antiviral for all ages, following the award by the Biomedical Advanced Research and Development Authority (BARDA) of a 10-year procurement contract valued at up to $680 million to deliver 1.7 million doses of TEMBEXA to the U.S. government.
Initiated a Phase 1 study to evaluate the safety and immunogenicity of EBS-LASV, a recombinant VSV-vectored Lassa virus vaccine candidate being developed for prevention of disease caused by Lassa virus infection.
Completed enrollment of participants in the pivotal Phase 3 study evaluating safety and immunogenicity of the Company’s single-dose CHIKV VLP vaccine candidate in adults aged 12 to 64; recruitment continues for the second Phase 3 study focused on adults 65 and older.
Announced data from a Phase 2 study evaluating the CHIKV VLP vaccine candidate in prior recipients of other investigational alphavirus vaccines. The study demonstrated that CHIKV VLP was well-tolerated and immunogenic in both alphavirus vaccine-naïve participants and participants previously vaccinated against the Venezuelan equine encephalitis virus.
Published in early October the 2021 ESG Report (available at View Source).
Q3 2022 FINANCIAL PERFORMANCE (1)
Product Sales, net
Anthrax vaccines
For Q3 2022, revenues from Anthrax vaccines increased $8.6 million as compared to Q3 2021. The increase is largely driven by timing of deliveries to the U.S. government (USG), specifically the Strategic National Stockpile (SNS). The Company received an AV7909 (Anthrax Vaccine Adsorbed, Adjuvanted) contract modification in September 2021 valued at approximately $399.0 million to deliver additional AV7909 doses through March 2023.
Nasal naloxone products
For Q3 2022, revenues from nasal naloxone products decreased $45.4 million as compared to Q3 2021. The decrease was driven by a reduction in commercial retail sales following the launch of a generic in December 2021. This decrease was partially offset by strong growth in unit sales of branded NARCAN(naloxone HCl) Nasal Spray to public interest customers in the U.S., as well as from sales of the authorized generic product licensed to Sandoz, which launched in December 2021.
ACAM2000
For Q3 2022, revenues from ACAM2000 decreased $31.7 million as compared to Q3 2021. The decrease was due to a lower number of doses sold to the USG, partially offset by an increased number of doses sold to non-U.S. customers at a higher price per dose.
Other (4)
For Q3 2022, revenues from other product sales decreased $15.8 million as compared to Q3 2021. The decrease was primarily due to sales of two of the Company’s Government/Medical Countermeasure (MCM) products: i) VIGIV [Vaccinia Immune Globulin Intravenous (Human)], driven by timing of deliveries to the SNS; and ii) BAT [Botulism Antitoxin Heptavalent (A, B, C, D, E, F, G) – (Equine)], driven by timing of deliveries to international customers, partially offset by an increase in sales of Anthrasil [Anthrax Immune Globulin Intravenous (human)], RSDL (Reactive Skin Decontamination Lotion Kit) and Vivotif (Typhoid Vaccine Live Oral Ty21a).
Contract Development and Manufacturing (CDMO)
CDMO Services
For Q3 2022, revenues from CDMO services decreased $76.4 million as compared to Q3 2021. This decrease is largely due to lower combined revenues of $59.1 million from AstraZeneca and Janssen reflecting the impact of reduced production activities at the Bayview facility as a result of a cessation of manufacturing activities under the AstraZeneca contract which occurred in 2021, and a pause and eventual cessation of manufacturing activities under the Janssen contract which began in Q1 2022. The decrease also reflects reduced production at the Camden facility in the quarter driven by additional investments in strengthening quality and compliance that restricted the Company’s ability to optimally utilize the existing capacity at the site. These declines in revenues were partially offset by an increase in services revenues earned at the Company’s Winnipeg facility.
CDMO Leases
For Q3 2022, revenues from CDMO leases increased $71.2 million as compared to Q3 2021. The increase was primarily due to the reversal of $86.0 million of revenue in Q3 2021 related to the Company’s public-private COVID-19 development partnership with BARDA in November 2021, partially offset by a $15.1 million decrease in lease revenues related to the Janssen contract.
Contracts and Grants
For Q3 2022, revenues from contracts and grants were consistent with Q3 2021.
Cost of Product Sales
For Q3 2022, cost of product sales decreased $17.7 million as compared to Q3 2021. The decrease is primarily due to a change in volume of product sales.
Cost of CDMO
For Q3 2022, cost of CDMO decreased $51.2 million as compared to Q3 2021. The decrease is primarily due to reduced production activities across our CDMO network in Q3 2022 compared to Q3 2021 resulting in decreased raw materials consumption. These decreases were partially offset by increased costs at the Company’s Camden facility due to additional investments in quality enhancement and improvement initiatives.
Research and Development
For Q3 2022, research and development expenses decreased $10.4 million as compared to Q3 2021. The decrease is primarily due to a decline in costs for the Company’s COVID-19 therapeutic and other product candidates.
Selling, General and Administrative
For Q3 2022, selling, general and administrative expenses decreased $1.9 million due to reduced professional services and marketing costs partially offset by higher travel costs.
Additional Financial Information
Segment Information
During Q1 2022, the Company began assessing its operating performance by focusing on two reportable segments: 1) a products segment (Products) consisting of the MCM and Commercial products business lines; and 2) a services segment (Services) consisting of the CDMO business line. The Company evaluates the performance of these reportable segments based on revenue and adjusted gross margin. Segment revenue includes external customer sales but does not include inter-segment services. The Company does not allocate contracts and grants, R&D, SG&A, amortization of intangible assets, interest and other income (expense) or taxes to its evaluation of the performance of these segments.
For the three months ended September 30, 2022, Product gross margin and Product adjusted gross margin decreased $66.6 million and $66.9 million, respectively, as compared to the three months ended September 30, 2021. The decreases in Product gross margin and Product adjusted gross margin are primarily due to decreased volumes and changes in mix.
For the nine months ended September 30, 2022, Product gross margin and Product adjusted gross margin increased $51.1 million and $50.9 million, respectively as compared to the nine months ended September 30, 2021. The increases in Product gross margin and Product adjusted gross margin are primarily due to a favorable mix weighted more heavily to higher margin products.
For the three months ended September 30, 2022, Services gross margin and Services adjusted gross margin each increased $46.0 million, as compared to the three months ended September 30, 2021. The increases in Services gross margin and Services adjusted gross margin are primarily due to the impact of the Q3-21 lease revenue reversal for $86.0 million, as a result of the completion of the Company’s arrangement with BARDA in November 2021, partially offset by the cessation of manufacturing activities related to the AstraZeneca and Janssen contracts and a decrease in margins at the Camden facility due to additional investments in quality enhancement and improvement initiatives.
For the nine months ended September 30, 2022, Services gross margin and Services adjusted gross margin each decreased $230.8 million as compared to the nine months ended September 30, 2021. The decreases in 2022 are primarily due to the decline in revenue at the Bayview facility as a result of the completion of the Company’s arrangement with BARDA, the cessation of manufacturing activities related to the AstraZeneca and Janssen contracts, and the decrease in margins at the Camden facility due to additional investments in quality enhancement and improvement initiatives, including an increase in professional services costs.
For Q3 2022, capital expenditures decreased largely due to less spending associated with the expansion project at the Company’s Rockville facility, which has progressed to a less capital intensive phase. The Company anticipates completing this expansion project by year end 2022.
2022 FINANCIAL FORECAST(1)
The Company has updated its full year 2022 financial forecast to reflect management’s expectations based on the most current information available.
The following key assumptions are incorporated into the revised forecast.
Anthrax Vaccines: Reflects anticipated deliveries of AV7909 and BioThrax (Anthrax Vaccine Adsorbed) and the impact of the FDA Warning Letter on certain batches filled/finished at the Camden site.
ACAM2000: Reflects the removal of revenues associated with the next option exercise under the existing 10-year BARDA procurement contract, as the timing is now uncertain.
TEMBEXA: Reflects the initial revenues related to deliveries under the existing 10-year HHS procurement contract and following the September 2022 acquisition from Chimerix of its worldwide rights to this product.
Nasal Naloxone Products: Primarily reflects continued strong demand in the public interest (PIP) channel in the U.S. as well as continuing demand in Canada.
CDMO: Reflects the continued rebaselining of the services business overall and, specifically, the impact of reduced production output from the Camden facility following the FDA’s issuance of a Warning Letter for this site earlier in 2022.
FOOTNOTES
(1) All financial information incorporated within this release is unaudited.
(2) See "Reconciliation of Non-GAAP measures" and the reconciliation tables for reconciliations of these non-GAAP metrics to the most closely related GAAP metrics.
(3) Product sales, net are reported net of variable consideration including returns, rebates, wholesaler fees and prompt pay discounts in accordance with U.S. generally accepted accounting principles.
(4) Other can include a combination of sales of any of the following products: BAT, VIGIV, Anthrasil, raxibacumab, RSDL, Trobigard, Vivotif, and Vaxchora.
(5) Other income (expense), net item adjustments to reconcile Net Income (Loss) to Adjusted EBITDA are related to the expense of the release of an indemnified uncertain tax position, which was recorded to other income (expense), net during the three and nine months ended September 30, 2022.
(6) Includes the reversal of the impact of a $58 million inventory step up related to the TEMBEXA asset acquisition which closed during Q3 2022.
CONFERENCE CALL, PRESENTATION SUPPLEMENT AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, November 8, 2022, to discuss these financial results. The conference call and presentation supplement can be accessed from the Company’s website or through the following