On February 23, 2017 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the quarter and twelve months ended December 31, 2016 (Filing, Q4/Annual, Emergent BioSolutions, 2016, FEB 23, 2017, View Source [SID1234517884]).
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2016 FINANCIAL HIGHLIGHTS (1) (2)
4Q 2016
CY 2016
(in millions)
Combined & Continuing Operations Basis
Combined
Basis
Continuing Operations
Basis
Total Revenues
$
151.7
$
510.2
$
488.8
Net Income
$
32.3
$
51.8
$
62.5
Adjusted Net Income (3)
$
36.6
$
73.1
$
77.5
EBITDA (3)
$
61.3
$
111.5
$
141.7
(1)
The presentation of Emergent’s financial performance using the "Combined Basis" method includes the impact of the operations associated with the Company’s former biosciences business which was spun-off into a separate publicly traded company, Aptevo Therapeutics Inc., on August 1, 2016. The presentation of Emergent’s financial performance using the "Continuing Operations Basis" method excludes the impact of the operations of Aptevo.
(2) See "Reconciliation of Statement of Operations" for a reconciliation of the Company’s Statement of Operations for the Three and Twelve Months Ended December 31, 2016 on a continuing operations basis to that on a combined basis.
(3) See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
2016 BUSINESS ACCOMPLISHMENTS
·
Signed a follow-on contract with the Centers for Disease Control and Prevention (CDC) to supply approximately 29.4 million doses of BioThrax (Anthrax Vaccine Adsorbed) to the Strategic National Stockpile (SNS) through September 2021, valued at up to $911 million
·
Signed a five-year contract with the Biomedical Advanced Research and Development Authority (BARDA) for advanced development and procurement of NuThrax (anthrax vaccine adsorbed with CPG 7909 adjuvant), the Company’s next generation anthrax vaccine candidate, valued at up to $1.6 billion
·
Received a Sole Source Notification issued by BARDA for the procurement of approximately $100 million of BioThrax for delivery into the SNS within 24 months from the date of contract award
·
Achieved U.S. Food and Drug Administration (FDA) licensure for large-scale manufacturing of BioThrax in Building 55
·
Completed the spin-off of Aptevo Therapeutics Inc.
2016 FINANCIAL PERFORMANCE
Note: The following discussion of Emergent’s year to date and quarter ended December 31, 2016 unaudited, financial performance is on a Continuing Operations Basis.
(I) Quarter Ended December 31, 2016
Revenues
Product Sales
For Q4 2016, product sales were $87.5 million, a decrease of 30% as compared to 2015. The decrease is principally attributable to lower BioThrax deliveries under the Company’s new contract with the CDC, signed in December 2016.
Three Months Ended
December 31,
(in millions)
2016
2015
% Change
Product Sales
BioThrax
$
43.8
$
111.9
(61
)%
Other
$
43.7
$
12.5
249
%
Total Product Sales
$
87.5
$
124.4
(30
)%
Contract Manufacturing
For Q4 2016, revenue from the Company’s contract manufacturing operations was $16.7 million, an increase of 59% as compared to 2015. The increase primarily reflects an increase in fill/finish services at the Company’s Camden facility in Baltimore.
Contracts and Grants
For Q4 2016, contracts and grants revenue was $47.5 million, an increase of 91% as compared to 2015. The increase primarily reflects an increase in development funding for the Company’s Bayview facility in Baltimore designated as a Center for Innovation in Advanced Development and Manufacturing (CIADM) and plasma collection for the Company’s VIGIV [Vaccinia Immune Globulin Intravenous (Human)] program.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For Q4 2016, cost of product sales and contract manufacturing was $38.3 million, an increase of 11% as compared to 2015. The increase reflects an increase in the BioThrax cost per dose sold associated with lower production yield in the period in which the doses sold were produced, along with increased costs associated with the increase in Other product sales volume, partially offset by a decrease in BioThrax sales to the CDC.
Research and Development
For Q4 2016, gross research and development (R&D) expenses were $27.1 million, an increase of 7% as compared to 2015.
For Q4 2016, net R&D was fully funded, resulting in a net contribution from funded development programs of $20.4 million, as compared to a net expense of $0.5 million in 2015. Net R&D, which is more representative of the Company’s actual out-of-pocket investment in product development, is calculated as gross research and development expenses less contracts and grants revenue.
Three Months Ended
December 31,
(in millions)
2016
2015
% Change
Research and Development Expenses [Gross]
$
27.1
$
25.3
(7
)%
Adjustments:
– Contracts and grants revenue
$
47.5
$
24.8
91
%
Net Research and Development Expenses (Income)
$
(20.4
)
$
0.5
—
Selling, General and Administrative
For Q4 2016, selling, general and administrative expenses were $35.4 million, an increase of 1% as compared to 2015.
Net Income
For Q4 2016, net income was $32.3 million, or $0.67 per diluted share, versus $42.5 million, or $0.90 per diluted share, in 2015.
For Q4 2016 and 2015, net income per diluted share is computed using the "if-converted" method. 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 Company’s 2.875% Convertible Senior Notes due 2021. As a result, net income per diluted share for Q4 2016 is adjusted in the amount of $1.1 million, from $32.3 million to $33.4 million, and diluted shares outstanding were 49.6 million. Net income per diluted share for Q4 2015 is adjusted in the amount of $0.9 million, from $42.5 million to $43.4 million, and diluted shares outstanding were 48.1 million.
(II) Twelve Months Ended December 31, 2016
Revenues
Product Sales
For the twelve months of 2016, product sales were $296.3 million, a decrease of 10% as compared to 2015. The decrease is principally attributable to a 19% reduction in BioThrax sales, including reduced deliveries in 4Q 2016 related to the timing of signing the Company’s follow-on contract with CDC in December 2016.
Twelve Months Ended
December 31,
(in millions)
2016
2015
% Change
Product Sales
BioThrax
$
237.0
$
293.9
(19
)%
Other
$
59.3
$
35.1
69
%
Total Product Sales
$
296.3
$
329.0
(10
)%
Contract Manufacturing
For the twelve months of 2016, revenue from contract manufacturing operations was $49.1 million, an increase of 14% as compared to 2015. The increase reflects an increase in fill/finish services from the Company’s Camden facility and an increase in bulk manufacturing services from the Company’s facility in Winnipeg, partially offset by a decrease in contract manufacturing revenue related to the production of an MVA Ebola vaccine candidate in 2015.
Contracts and Grants
For the twelve months of 2016, contracts and grants revenue was $143.4 million, an increase of 22% as compared to 2015. The increase reflects an increase in development funding for the Company’s CIADM program, VIGIV program related to plasma collection, and the NuThrax program related to preparations for a Phase III clinical trial. These increases were offset by lower development funding for the Company’s Anthrasil [Anthrax Immune Globulin Intravenous (Human)] program related to timing of plasma collection, PreviThrax (recombinant protective antigen anthrax vaccine, purified) candidate related to reduced interest by the U.S. government to fund such a program, and Building 55 related to FDA licensure of the facility in August 2016.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For the twelve months of 2016, cost of product sales and contract manufacturing was $131.3 million, an increase of 22% as compared to 2015. The increase primarily reflects an increase in the BioThrax cost per dose sold associated with lower production yield, along with increased costs associated with the increase in Other product sales volume, partially offset by a decrease in BioThrax sales to the SNS.
Research and Development
For the twelve months of 2016, gross R&D expenses were $108.3 million, a decrease of 9% as compared to 2015. The decrease primarily reflects lower contract service costs.
For the twelve months of 2016, net R&D was fully funded, resulting in a net contribution from funded development programs of $35.1 million, as compared to a net expense of $1.8 million in 2015.
Twelve Months Ended
December 31,
(in millions)
2016
2015
% Change
Research and Development Expenses [Gross]
$
108.3
$
119.2
(9
)%
Adjustments:
– Contracts and grants revenue
$
143.4
$
117.4
22
%
Net Research and Development Expenses (Income)
$
(35.1
)
$
1.8
—
Selling, General and Administrative
For the twelve months of 2016, selling, general and administrative expenses were $143.7 million, an increase of 19% as compared to 2015. This increase includes costs associated with restructuring activities at the Company’s Lansing, Michigan site, along with increased professional services to support the Company’s strategic growth initiatives and increased information technology investments.
Net Income
For the twelve months of 2016, net income was $62.5 million, or $1.35 per diluted share, versus $107.6 million, or $2.36 per diluted share, in 2015.
Pursuant to the "if-converted" method, net income per diluted share for the twelve months of 2016 is adjusted in the amount of $4.0 million, from $62.5 million to $66.5 million, and diluted shares outstanding were 49.1 million. Net income from continuing operations per diluted share for the twelve months of 2015 is adjusted in the amount of $3.9 million, from $107.6 million to $111.5 million, and diluted shares outstanding were 47.3 million.
2017 FORECAST & OPERATIONAL GOALS
Full Year 2017 Forecast:
·
Total revenue of $500 to $530 million, including BioThrax sales of $265 to $280 million
·
GAAP net income of $60 to $70 million
·
Adjusted net income of $70 to $80 million (3)
·
EBITDA of $135 to $145 million (3)
(3)
See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
Revised 1Q 2017 Forecast:
·
Total revenue of $110 to $125 million
2017 Operational Goals:
·
Initiate three Phase I or II clinical studies for EID therapeutics
·
Advance NuThrax development to enable initiating a Phase III study in 2018
·
Initiate two human factor studies for a nerve agent antidote auto-injector
·
Complete an acquisition that generates revenue within 12 months of closing
2020 FINANCIAL & OPERATIONAL GOALS
The Company is targeting the following 2020 financial and operational goals:
·
Total Revenue: $1 billion
·
Revenue Mix: >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: 13% of total revenue
·
Product Development Pipeline: Six products in clinical or advanced development (three dual market)
(4) Computed as Total Revenue less Contracts & Grants Revenue.
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND EBITDA
This press release contains two financial measures (Adjusted Net Income and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)) that are considered "non-GAAP" financial measures under applicable Securities and Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The Company’s definition of these non-GAAP measures may differ from similarly titled measures used by others. Adjusted Net Income adjusts for specified items that can be highly variable or difficult to predict, or reflect the non-cash impact of charges resulting from purchase accounting. EBITDA reflects net income excluding the impact of depreciation, amortization, interest expense and provision for income taxes. The Company views these non-GAAP financial measures as a means to facilitate management’s financial and operational decision-making, including evaluation of the Company’s historical operating results and comparison to competitors’ operating results. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when viewed with GAAP results and the reconciliations to the corresponding GAAP financial measure, may provide a more complete understanding of factors and trends affecting the Company’s business.
The determination of the amounts that are excluded from these non-GAAP financial measures are a matter of management judgment and depend upon, among other factors, the nature of the underlying expense or income amounts. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company’s reported results of operations, management strongly encourages investors to review the Company’s consolidated financial statements and publicly filed reports in their entirety.
(I)
Reconciliation of Net Income to Adjusted Net Income
COMBINED BASIS
(in millions, except per share value)
Three Months Ended December 31,
2016
2015
Source
Net Income
$
32.3
$
33.3
NA
Adjustments:
+ Acquisition-related costs (transaction & integration)
1.0
2.0
SG&A
+ Non-cash amortization charges
1.9
2.7
COGS, SG&A,
Other Income
+ Exit and disposal costs
2.6
1.2
SG&A
+ Impact of purchase accounting on inventory step-up
1.1
—
COGS
Tax effect
(2.3
)
(2.1
)
NA
Total Adjustments
4.3
3.8
NA
Adjusted Net Income
Adjusted Net Income per Diluted Share
$
36.6
$0.74
$
37.1
$0.77
NA
CONTINUING OPERATIONS BASIS
(in millions, except per share value)
Three Months Ended December 31,
2016
2015
Source
Net Income
$
32.3
$
42.5
NA
Adjustments:
+ Acquisition-related costs (transaction & integration)
1.0
0.1
SG&A
+ Non-cash amortization charges
1.9
2.2
COGS, SG&A,
Other Income
+ Exit and disposal costs
2.6
—
SG&A
+ Impact of purchase accounting on inventory step-up
1.1
—
COGS
Tax effect
(2.3
)
(0.8
)
NA
Total Adjustments
4.3
1.5
NA
Adjusted Net Income
Adjusted Net Income per Diluted Share
$
36.6
$0.74
$
44.0
$0.91
NA
COMBINED BASIS
(in millions, except per share value)
Twelve Months Ended December 31,
2016
2015
Source
Net Income
$
51.8
$
62.9
NA
Adjustments:
+ Spin-off and acquisition-related costs (transaction & integration)
10.4
5.5
SG&A
+ Non-cash amortization charges
9.6
10.8
COGS, SG&A,
Other Income
+ Exit and disposal costs
11.7
1.2
SG&A
+ Impact of purchase accounting on inventory step-up
1.1
0.6
COGS
Tax effect
(11.5
)
(6.3
)
NA
Total Adjustments
21.3
11.8
NA
Adjusted Net Income
Adjusted Net Income per Diluted Share
$
73.1
$1.48
$
74.7
$1.58
NA
CONTINUING OPERATIONS BASIS
(in millions, except per share value)
Twelve Months Ended December 31,
2016
2015
Source
Net Income From Continuing Operations
$
62.5
$
91.4
NA
Adjustments:
+ Acquisition-related costs (transaction & integration)
1.7
2.1
SG&A
+ Non-cash amortization charges
8.4
8.9
COGS, SG&A,
Other Income
+ Exit and disposal costs
11.7
—
SG&A
+ Impact of purchase accounting on inventory step-up
1.1
0.3
COGS
Tax effect
(8.0
)
(4.0
)
NA
Total Adjustments
15.0
7.4
NA
Adjusted Net Income From Continuing Operations
Adjusted Net Income per Diluted Share
$
77.5
$1.57
$
98.8
$2.09
NA
(II)
Reconciliation of Net Income to EBITDA
COMBINED BASIS
(in millions, except per share value)
Three Months Ended December 31,
2016
2015
Net Income
$
32.3
$
33.3
Adjustments:
+ Depreciation & Amortization
9.7
9.1
+ Provision For Income Taxes
16.8
14.5
+ Total Interest Expense
2.5
1.6
Total Adjustments
29.0
25.2
EBITDA
EBITDA per Diluted Share
$
61.3
$1.24
$
58.5
$1.22
CONTINUING OPERATIONS BASIS
(in millions, except per share value)
Three Months Ended December 31,
2016
2015
Net Income From Continuing Operations
$
32.3
$
42.5
Adjustments:
+ Depreciation & Amortization
9.7
8.3
+ Provision For Income Taxes
16.8
20.7
+ Total Interest Expense
2.5
1.6
Total Adjustments
29.0
30.6
EBITDA From Continuing Operations
EBITDA per Diluted Share
$
61.3
$1.24
$
73.1
$1.52
COMBINED BASIS
(in millions, except per share value)
Twelve Months Ended December 31,
2016
2015
Net Income
$
51.8
$
62.9
Adjustments:
+ Depreciation & Amortization
36.7
33.8
+ Provision For Income Taxes
15.4
26.9
+ Total Interest Expense
7.6
6.5
Total Adjustments
59.7
67.2
EBITDA
EBITDA per Diluted Share
$
111.5
$2.26
$
130.1
$2.75
CONTINUING OPERATIONS BASIS
(in millions, except per share value)
Twelve Months Ended December 31,
2016
2015
Net Income From Continuing Operations
$
62.5
$
91.4
Adjustments:
+ Depreciation & Amortization
34.9
31.2
+ Provision For Income Taxes
36.7
44.3
+ Total Interest Expense
7.6
6.5
Total Adjustments
79.2
82.0
EBITDA From Continuing Operations
EBITDA per Diluted Share
$
141.7
$2.87
$
173.4
$3.67
RECONCILIATION OF STATEMENT OF OPERATIONS
The following table provides a reconciliation of the Company’s Statement of Operations for the Twelve Months Ended December 31, 2016 on a continuing operations basis to that on a combined basis, which takes into account the impact of the Aptevo-related discontinued operations.
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31, 2016
Continuing Operations
Discontinuing Operations
Combined
Revenues:
(Unaudited)
Product sales
$
296.3
$
21.2
317.5
Contract manufacturing
49.1
–
49.1
Contracts and grants
143.4
0.2
143.6
Total revenues
488.8
21.4
510.2
Operating expenses:
Cost of product sales and contract manufacturing
131.3
11.6
142.9
Research and development
108.3
18.0
126.3
Selling, general and administrative
143.7
23.8
167.5
Income from operations
105.5
(32.0
)
73.5
Other income (expense):
Interest income
1.1
–
1.1
Interest expense
(7.6
)
–
(7.6
)
Other income, net
0.2
–
0.2
Total other expense, net
(6.3
)
(0.0
)
(6.3
)
Income (loss) before provision for (benefit) from income taxes
99.2
(32.0
)
67.2
Provision for (benefit from) income taxes
36.7
(21.3
)
15.4
Net income
$
62.5
$
(10.7
)
$
51.8