On February 18, 2021 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the quarter and year ended December 31, 2020 (Press release, Emergent BioSolutions, FEB 18, 2021, View Source [SID1234575270]). The Company also reaffirmed its full year 2021 forecast.
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"Emergent’s financial and operational performance in 2020 reflects the impact we are making in addressing the growing public health threat landscape and meeting our mission to protect and enhance the lives of patients," said Robert G. Kramer, president and CEO of Emergent BioSolutions. "We look forward to continuing to execute on our strategy with vaccines, therapeutics, devices, and contract development and manufacturing services. Our strong core business, robust development pipeline, and innovator and public-private partnership opportunities position us to remain leaders in the market and create long-term shareholder value."
SELECT Q4 2020 AND RECENT BUSINESS ACCOMPLISHMENTS
Completed three-year, $50 million expansion at the Company’s Baltimore Camden drug product facility, including a new state-of-the-art fill/finish line that became operational in January 2021, intended to significantly increase contract development and manufacturing (CDMO) capacity and capability.
Signed a CDMO services agreement with Providence Therapeutics to provide drug product manufacturing services for their mRNA PTX-COVID19-B vaccine candidate at the Company’s Winnipeg, Manitoba facility.
Signed a CDMO services agreement for drug product manufacturing of Humanigen’s COVID-19 therapeutic candidate, lenzilumab, at the Company’s Baltimore Camden facility.
Initiated a Phase 3 clinical trial with the National Institutes of Health to evaluate hyperimmune globulins, including the Company’s COVID-19 human hyperimmune globulin (COVID-HIG) product candidate, as a potential treatment in adult patients hospitalized with COVID-19.
Initiated a clinical program to evaluate COVID-HIG to support its use for potential post-exposure prophylaxis in individuals at high risk of exposure to SARS-CoV-2 such as front-line health care workers and military personnel.
2020 FINANCIAL PERFORMANCE (1)
(I) Quarter Ended December 31, 2020
Revenues
Total Revenues
For Q4 2020, total revenues were $583.0 million, an increase of 62% over the same period in Q4 2019, primarily driven by increased contract development and manufacturing (CDMO) services revenues.
Product Sales
For Q4 2020, total product sales were $340.9 million, an increase of $30.1 million or 10% as compared to Q4 2019. Other product sales decreased due to a decline in sales of raxibacumab, VIGIV [Vaccinia Immune Globulin Intravenous (Human)] and the Company’s travel health vaccines, partially offset by increased sales of BAT[Botulism Antitoxin Heptavalent (A, B, C, D, E, F, G) – (Equine)].
Contract Development and Manufacturing (CDMO) Services
For Q4 2020, revenue from CDMO services was $199.1 million, an increase of $173.6 million as compared to Q4 2019. The increase is largely due to the contribution for services performed to address the COVID-19 pandemic provided to pharmaceutical and biotechnology innovators and government/non-government organization (NGO) customers across Development Services, Drug Substance manufacturing, and Drug Product manufacturing and Packaging.
Contracts and Grants
For Q4 2020, revenue from development-based contracts and grants was $43.0 million, an increase of $18.9 million or 78% as compared to Q4 2019. The increase primarily reflects the contribution from development awards related to the Company’s COVID-HIG product candidate, partially offset by a decrease in contribution associated with development activities from the Company’s AV7909 (Anthrax Vaccine Adsorbed, adjuvanted) product candidate, reflecting the advanced stage of development for the program.
Operating Expenses
Cost of Product Sales and Contract Development and Manufacturing (CDMO) Services
For Q4 2020, cost of product sales and CDMO services was $168.3 million, an increase of $35.5 million or 27% as compared to Q4 2019. Cost of product sales and CDMO services includes the impact of contingent consideration charges, which declined $12 million in Q4 2020 compared to Q4 2019. Excluding the impacts of the contingent consideration charges between periods, the cost of product sales and CDMO services increased $47.5 million. This increase is primarily due to an increase in CDMO services and product sale activities in Q4 2020 as compared to Q4 2019.
Research and Development (Gross and Net) (2)
For Q4 2020, gross R&D expenses were $59.5 million, a decrease of $3.3 million or 5% as compared to Q4 2019. The decrease primarily reflects the impact of the impairment of the IPR&D intangible asset in Q4 2019 that did not recur in Q4 2020, offset by increased costs associated with the Company’s COVID-19 product candidates.
For Q4 2020, net R&D expense, which reflects investments made in development programs that are not currently funded in whole or in part by third-party partners, was $16.5 million, a decrease of $10.2 million or 38% as compared to Q4 2019. The decrease is attributable to a reduction in R&D activities at the Company’s Bayview facility in 2020 compared to 2019 as the facility was principally used for CDMO services in 2020. The Q4 2020 and Q4 2019 net R&D expense was 3% and 8% of adjusted revenue, respectively.
Selling, General and Administrative
For Q4 2020, selling, general and administrative expenses were $82.1 million, an increase of $9.9 million or 14% as compared to Q4 2019. The increase primarily reflects an increase in staffing costs to support the Company’s growth.
Additional Financial Information
Gross Margin (2)
For Q4 2020, gross margin was $371.7 million or 69% of adjusted revenue, an increase of $168.2 million or 8% as compared to Q4 2019. For Q4 2020, adjusted gross margin was $370.6 million or 69% of adjusted revenue, an increase of $154.7 million or 4% as compared to Q4 2019. The improvement reflects the impact of product mix as well as improved contribution from CDMO services.
CDMO Backlog and Opportunity Funnel
CDMO backlog, defined as estimated future services revenues for 2021 and beyond under signed contracts, was $1.34 billion at December 31, 2020, reflecting the impact of additional services on existing contracts and newly awarded contracts of $53.3 million during the quarter offset by revenue recognized to date on contracted amounts.
The CDMO opportunity funnel, defined as the initial contract value to potentially be realized in 2021 and beyond based on issued proposals as well as the value of extensions associated with existing contracts, was approximately $689 million as of December 31, 2020. This amount reflects the increased traction resulting from ongoing sales and business development and marketing efforts domestically and internationally to existing and new pharmaceutical and biotechnology innovators as well as government/NGO customers, and excludes the potential value of extensions of contracts with Johnson & Johnson and AstraZeneca.
(II) Full Year 2020
Revenues
Total Revenues
For the full year 2020, total revenues were $1,555.4 million, an increase of 41% over 2019. Total revenues largely reflect an increase in contract development and manufacturing services revenues as well as product sales.
Product Sales
For the full year 2020, product sales were $989.8 million, an increase of $86.3 million or 10% as compared to 2019. Other product sales decreased due to a decline in sales of raxibacumab and travel health vaccines.
Contract Development and Manufacturing (CDMO) Services
For the full year 2020, revenue from CDMO services was $450.5 million, an increase of $370.5 million as compared to 2019. The increase is largely due to the contribution for services performed to address the COVID-19 pandemic provided to pharmaceutical and biotechnology innovators and government/NGO customers across Development Services, Drug Substance manufacturing, and Drug Product manufacturing and Packaging.
Contracts and Grants
For the full year 2020, revenue from development-based contracts and grants was $115.1 million, a decrease of $7.4 million or 6% as compared to 2019. The decrease primarily reflects the completion of development activities associated with the AV7909 product candidate in 2019, offset by recent new development awards related to the Company’s COVID-19 product candidates and other product candidates.
Operating Expenses
Cost of Product Sales and Contract Development and Manufacturing Services
For the full year 2020, cost of product sales and CDMO services was $524.0 million, an increase of $90.5 million or 21% as compared to 2019. The increase is due primarily to an increase in volume of product sales and CDMO services, charges related to the Company’s contingent consideration liabilities, and a write-down of inventory for the Company’s travel health vaccines.
Research and Development (Gross and Net) (2)
For the full year 2020, gross R&D expenses were $234.5 million, an increase of $8.3 million or 4% compared to 2019. The increase primarily reflects the impact of impairment of the Company’s IPR&D intangible asset of $29.0 million in 2020 as compared to $12.0 million in 2019. Excluding these items, gross R&D expense decreased $8.7 million compared to 2019. The decrease primarily reflects lower costs associated with the Company’s AV7909 product candidate, reflecting the advanced-stage of its development, offset by increased costs associated with the Company’s COVID-19 product candidates.
For the full year 2020, net R&D expense was $90.4 million, a decrease of $1.3 million or 1% as compared to 2019. The decrease primarily reflects a decline in spending associated with the Company’s FLU-IGIV and CHIKV VLP product candidates and the change in the nature of operations from primarily R&D to commercial CDMO manufacturing at the Company’s Bayview facility, offset by an increase in costs associated with the Company’s COVID-19 and other product candidates. The 2020 and 2019 net R&D expense as a percentage of adjusted revenues was 6% and 9%, respectively.
Selling, General and Administrative
For the full year 2020, selling, general and administrative expenses were $303.3 million, an increase of $29.8 million or 11% as compared to 2019. The increase primarily reflects an increase in staffing costs to support the Company’s growth as well as an increase in share-based compensation due to a special broad-based, immediately vested equity award to employees.
Additional Financial Information
Gross Margin (2)
For the full year 2020, gross margin was $916.3 million or 64% of adjusted revenue, an increase of $366.3 million or 8% as compared to 2019. For the full year 2020, adjusted gross margin was $960.6 million or 67% of adjusted revenue, an increase of $385.8 million or 8% as compared to 2019. The improvement reflects the impact of product mix as well as improved contribution from CDMO services.
Operating Cash Flow
For the full year 2020, operating cash flow was $536.0 million, an increase of $348.0 million as compared to 2019. The increase reflects the cash generating strength of the Company’s current diversified mix of product sales and CDMO services.
Capital Expenditures
For the full year 2020, capital expenditures were $141.0 million, an increase of $54.1 million or 62% as compared to 2019. Expressed as a percentage of total revenues, capital expenditures for the full year 2020 was 9%, versus 8% in 2019. The 2020 figure reflects investments in key areas of the Company’s operations, including technology, and capacity and capability expansions in service of the CDMO business. In 2020, the company was reimbursed for $41.8 million of capital expenditures pursuant to third-party funding arrangements, resulting in capital expenditures net of reimbursement of $99.2 million.
2021 FINANCIAL FORECAST
For full year 2021, the Company reaffirms its forecast of the following financial metrics, originally announced on January 10, 2021:
The Company’s financial forecast for 2021 includes the following additional considerations:
Anthrax vaccine revenues are expected at a more normalized annual level and continue to primarily reflect procurement of AV7909 (Anthrax Vaccine Adsorbed, adjuvanted) under the Company’s existing contract with the Biomedical Advanced Research and Development Authority (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 2020 deliveries.
Narcan (naloxone HCl) Nasal Spray revenues assume an appellate decision related to its pending patent litigation in the second half of 2021 followed by the entry of at least one competitor.
CDMO Services assume continued performance of contracted services for Development Services (DVS), Drug Substance (DS) manufacturing, and Drug Product (DP) manufacturing and Packaging for both clinical- and commercial-stage projects on behalf of a growing list of pharmaceutical and biotechnology innovators and government/NGO customers.
Pipeline progress is expected across the vaccines, therapeutics, and devices portfolios, anticipating at least one Phase 3 launch and one Biologics License Application (BLA)/Emergency Use Authorization (EUA) filing.
Capital expenditures, net of reimbursement, are expected to be in a range of 8% to 9% of total revenues, reflecting ongoing investments in capacity and capability expansions in support of the Company’s CDMO services business and product portfolio.
Q1 2021 REVENUE FORECAST
For Q1 2021, the Company expects total revenues of $330 million to $370 million.
FOOTNOTES
(1) All financial information incorporated within this release is unaudited
(2) See "Reconciliation of Net Income to Adjusted Net Income and Adjusted EBITDA, Gross Margin and Adjusted Gross Margin and Net Research and Development Expenses" for a definition of terms and reconciliation tables.
CONFERENCE CALL AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, February 18, 2021, to discuss these financial results. The conference call can be accessed from the Company’s website or through the following:
Live Teleconference Information:
Dial in: [US] (855) 766-6521; [International] (262) 912-6157
Conference ID: 3948196
Live Webcast Information:
Visit View Source for the webcast.
A replay of the call can be accessed at www.emergentbiosolutions.com under "Investors."