On February 24, 2022 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the fourth quarter and year ended December 31, 2021 (Press release, Emergent BioSolutions, FEB 24, 2022, View Source [SID1234608961]).
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"Emergent’s performance in 2021 is a testament to our strategic focus and highly capable team," said Robert G. Kramer, president and CEO of Emergent BioSolutions. "Looking forward, I am encouraged by the stability and durability of our diversified business lines and exciting R&D portfolio, supported by our improved operational structure that better aligns us with patients and customers, and more effectively positions us for success."
FINANCIAL HIGHLIGHTS (1)
SELECT Q4 2021 AND OTHER RECENT BUSINESS UPDATES
Announced a supply agreement with Sandoz for them to distribute an authorized generic of NARCAN (naloxone HCl) Nasal Spray 4 mg, which is available in the U.S. via retail pharmacies and institutions, including hospitals
Initiated the rolling submission to the U.S. Food and Drug Administration (FDA) of the Biologics License Application (BLA) for AV7909 (Anthrax Vaccine Adsorbed, Adjuvanted), the Company’s investigational anthrax vaccine candidate
Initiated a pivotal Phase 3 safety and immunogenicity study to evaluate CHIKV VLP, the Company’s single-dose chikungunya virus virus-like particle (VLP) vaccine candidate
Initiated a Phase 1 safety, tolerability, and immunogenicity study to evaluate UniFlu, the Company’s universal influenza vaccine candidate comprised of multiple components intended to induce broad and supra-seasonal immunity against influenza A viruses
Announced the Company’s Board of Directors authorization to management to repurchase up to $250 million of the Company’s common stock through November 11, 2022; as of December 31, 2021, the Company repurchased approximately 2.6 million shares for $112.6 million, an average price per share of $42.67
Announced the retirement of the Company’s founder and executive chairman, Fuad El-Hibri, effective April 1, 2022
Q4 2021 FINANCIAL PERFORMANCE (1)
Product Sales, net
Anthrax vaccines
For Q4 2021, revenues from anthrax vaccines increased $22.0 million as compared to Q4 2020. The increase is largely driven by an increase in deliveries of AV7909 to the U.S. government (USG), specifically the Strategic National Stockpile (SNS). The Company received an AV7909 contract modification in September 2021 and began delivering additional doses of AV7909 under that modification, which covers a period of 18 months and is valued at approximately $399 million.
ACAM2000
For Q4 2021, revenues from ACAM2000 (Smallpox (Vaccinia) Vaccine, Live) decreased $3.5 million as compared to Q4 2020. The decrease is largely driven by the timing of deliveries to the USG. The revenues recognized in Q4 2021 reflect delivery of doses into the SNS resulting from the July 2021 exercise by the USG of the second of nine annual contract term extension options pursuant to the Company’s 10-year supply agreement with the USG. This latest option is valued at approximately $182 million.
Nasal naloxone products
For Q4 2021, revenues from nasal naloxone products increased $43.2 million as compared to Q4 2020. The increase is driven by continued demand for NARCAN (naloxone HCI) Nasal Spray across customer channels in the U.S. and Canada. The increase also reflects the impact of revenues related to the authorized generic of NARCAN (naloxone HCI) Nasal Spray 4mg, a product licensed to Sandoz and launched in late 2021 and one in which the Company retains a financial interest.
Other (4)
For Q4 2021, revenues from other product sales increased $31.7 million as compared to Q4 2020. The increase is largely due to sales of VIGIV [Vaccinia Immune Globulin Intravenous (Human)], driven by timing of deliveries to the USG and based on the June 2021 exercise by the USG of the second of nine annual contract term extension options pursuant to the Company’s 10-year supply agreement with the USG. This latest option is valued at approximately $56 million.
Contract Development and Manufacturing (CDMO)
CDMO Services
For Q4 2021, revenue from contract development and manufacturing services decreased $12.8 million as compared to Q4 2020. This decrease is largely due to the discontinuation of manufacturing activities related to the Company’s arrangement with AstraZeneca as was previously announced in the second quarter of 2021. Additionally, there was less activity as compared to Q4 2020 due to routine maintenance in the Company’s manufacturing network.
CDMO Leases
For Q4 2021, revenue from contract development and manufacturing leases increased $32.0 million as compared to Q4 2020. This increase is largely due to the timing of $155.7 million in final cash collections associated with the Center for Innovation in Advanced Development and Manufacturing (CIADM) public-private partnership with the Biomedical Advanced Research and Development Authority (BARDA), an arrangement that was mutually terminated by both parties in the fourth quarter. The Company anticipates ongoing CDMO lease revenues in subsequent periods related primarily to its existing CDMO manufacturing agreement with Johnson & Johnson, a portion of which is considered a lease.
Contracts and Grants
For Q4 2021, revenues from contracts and grants increased $27.6 million as compared to Q4 2020. The increase is a result of $59.7 million being recognized in Q4 2021, primarily deferred revenue, as a result of the CIADM base contract termination offset by a decrease in third party development activities.
Cost of Product Sales
For Q4 2021, cost of product sales increased $40.6 million as compared to Q4 2020. The increase is primarily due to a higher volume of product sales, specifically nasal naloxone products, AV7909 and VIGIV.
Cost of CDMO
For Q4 2021, cost of CDMO increased $4.0 million as compared to Q4 2020. The increase is primarily due to additional costs at the Company’s Bayview facility to further support enhancements to quality systems and capabilities at the site.
Research and Development
For Q4 2021, research and development expenses increased $23.5 million as compared to Q4 2020. The increase is primarily due to the non-cash write-off of $38.0 million associated with a contract asset balance resulting from the CIADM contract termination.
Selling, General and Administrative
For Q4 2021, selling, general and administrative expenses increased $12.1 million as compared to Q4 2020. The increase is primarily due to professional services costs.
Goodwill Impairment
During Q4 2021, the Company performed its annual impairment testing reflecting its revised reporting unit structure. Pursuant to this analysis, the Company recognized a $41.7 million non-cash impairment of goodwill in the Commercial reporting unit.
ADDITIONAL FINANCIAL INFORMATION
For Q4 2021, product gross margin increased $52.8 million as compared to Q4 2020. The increase is primarily due to the increase in product sales. Product gross margin percent decreased primarily due to changes in product mix.
For Q4 2021, CDMO gross margin decreased $16.8 million as compared to Q4 2020. Adjusted CDMO gross margin decreased $17.7 million as compared to Q4 2020. The decline in CDMO gross margin and adjusted CDMO gross margin is primarily due to routine maintenance activity that occurred in the Company’s manufacturing network in Q4 2021 that did not occur in Q4 2020 as well as increased costs to support remediation efforts for the Company’s manufacturing activities at its Bayview facility.
For Q4 2021, the Company has revised the metrics it provides related to specific aspects of the CDMO business. The Company will continue to provide the CDMO New Business Secured and Backlog metrics. The Company is introducing CDMO Customers as a new metric, and is discontinuing reporting of the CDMO Opportunity Funnel. The Company believes this set of supplemental information provides more valuable and relevant context on the performance and stability of the CDMO business.
For Q4 2021, capital expenditures increased largely due to the Company’s continued investments in expanded capacity and capabilities at the Company’s Rockville manufacturing facility. The increase in gross capital expenditures was offset by the timing of reimbursements of $60.5 million related to arrangements funded by the USG. The capital expenditures related to this reimbursement were incurred in a prior period.
Full Year 2022
For full year 2022, the Company provides the following update to its forecast of key financial metrics, which were originally announced on January 9, 2022.
The Company’s 2022 financial forecast includes the following considerations:
Revised Considerations
The revision to total revenues, CDMO services revenue, Adjusted EBITDA and adjusted net income reflect the impact of the Company’s decision to take the opportunity to initiate a maintenance period that it would normally plan for the Bayview facility earlier than anticipated and also extend it in order to make additional improvements and modifications that will better position Bayview for future non-pandemic work.
Unchanged Considerations
2022 Product/Service Level Revenues – Select Assumptions
Anthrax vaccines revenues are expected to continue at similar levels to 2021 under the terms of the Company’s existing contract with BARDA.
ACAM2000 (Smallpox (Vaccinia) Vaccine, Live) vaccine deliveries are expected to continue under the terms of the Company’s existing contract with the U.S. Department of Health and Human Services (HHS) at unit volume levels consistent with 2021 deliveries.
Nasal naloxone products revenues reflect the formation of a generic market and comprise revenues from a combination of NARCAN(naloxone HCl) Nasal Spray and the authorized generic of NARCAN Nasal Spray, a product licensed to Sandoz and launched in late 2021 and one in which the Company retains a financial interest.
Other Products + Contracts and Grants revenues: 1) other products revenues reflect continued procurement of other products not highlighted on a standalone basis from various government customers under existing multi-year contracts; 2) contracts and grants revenues reflect continued funding of select development programs from various government and other non-dilutive sources.
Other 2022 Assumptions
Gross margin primarily reflects the influence of the mix of product and services revenues.
Pipeline progress is expected across the R&D portfolio with the ongoing advancement of the CHIKV VLP Phase 3 clinical trial, the completion of the BLA filing for AV7909, and anticipated advancements of a number of early-stage programs.
Capital expenditures, net of reimbursement, are expected to be approximately 10% of total revenues at the midpoint, reflecting ongoing investments in capacity and capability expansions related to the CDMO business and the Company’s R&D programs, and aligned with the average over the previous five-year period.
Q1 2022
For Q1 2022, the Company expects total revenues of $280 million to $310 million.
FOOTNOTES
(1) All financial information incorporated within this release is unaudited.
(2) See "Reconciliation of Net Income to Adjusted Net Income," "Reconciliation of Net Income to Adjusted EBITDA," "Reconciliation of Product Gross Margin and Adjusted Product Gross Margin," "Reconciliation of CDMO Gross Margin and Adjusted CDMO Gross Margin" and "Adjusted Revenues" for a definition of terms and the reconciliation tables.
(3) Product sales, net are reported net of variable consideration including returns, rebates, wholesaler fees and prompt pay discounts.
(4) Other can include a combination of sales of any of the following products: BAT, VIGIV, Anthrasil, raxibacumab, RSDL, Trobigard, Vivotif, and Vaxchora.
(5) CDMO New Business Secured is defined as initial value of contracts secured as well as incremental value of existing contracts modified within the indicated period and is incorporated into Backlog.
(6) CDMO Backlog is defined as estimated remaining contract value as of the indicated period pursuant to signed contracts, the majority of which is expected to be recognized over the next 24 months. This excludes any value associated with an extension of the commercial supply agreement (CSA) with Johnson & Johnson.
(7) CDMO Customers is defined as a client (commercial, government, NGO) for whom the Company has performed CDMO services where there is evidence of meeting all of the following criteria: i) completion of any invoiceable project milestones in the preceding 24-month period, indicating ongoing work; ii) secured project work planned in the future, which has not yet been invoiced, capturing future work not yet indicated in the invoice record; and, iii) neither the Company nor the client having yet to formally terminate the last remaining project, thereby removing any client for whom work has fully concluded.
CONFERENCE CALL, PRESENTATION SUPPLEMENT AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, February 24, 2022, to discuss these financial results. The conference call and presentation supplement can be accessed from the Company’s website or through the following: