On August 2, 2018 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the quarter and six months ended June 30, 2018 (Press release, Emergent BioSolutions, AUG 2, 2018, View Source [SID1234528439]).
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Q2 2018 AND RECENT BUSINESS ACCOMPLISHMENTS
Completed Mutual Recognition Procedure for market authorization of BioThrax (Anthrax Vaccine Adsorbed) in five Concerned Member States within the European Union – Italy, the Netherlands, Poland, the U.K. and France; to date, BioThrax has received market authorization in four of the five countries.
Initiated an investment of up to $50 million over the next three years in the Camden fill/finish facility located in Baltimore, an expansion project that will significantly enhance the capabilities of this key site within the Company’s CDMO Business Unit.
Announced Framework Partnering Agreement under which the Company will provide technical and manufacturing support for the development and manufacture of a vaccine against Nipah virus in collaboration with Profectus BioSciences, Inc. and CEPI (Coalition for Epidemic Preparedness Innovations); under a separate agreement with Profectus, Emergent will retain the exclusive option to license and assume control of development activities for the Nipah virus vaccine from Profectus.
Initiated a Phase 1 clinical study of ZIKV-IG, the Company’s anti-Zika virus immune globulin being developed as a therapeutic intervention against Zika virus disease; the candidate was granted Fast Track designation by the U.S. Food and Drug Administration in December 2017.
2018 FINANCIAL PERFORMANCE
(I) Quarter Ended June 30, 2018 (Unaudited)
Revenues
Total Revenues
For Q2 2018, total revenues were $220.2 million, an increase of 118% over 2017. Total revenues reflect a significant increase in product sales.
Product Sales
For Q2 2018, product sales were $180.1 million, an increase of 183% as compared to 2017. The increase is principally attributable to sales of BioThrax and ACAM2000, (Smallpox (Vaccinia) Vaccine Live) previously expected in the first quarter as well as continued sales of both products in the second quarter.
Contract Manufacturing
For Q2 2018, revenue from the Company’s contract manufacturing operations was $23.6 million, an increase of 46% as compared to 2017. The increase primarily reflects manufacturing services at the Company’s Canton site.
Contracts and Grants
For Q2 2018, revenue from the Company’s development-based contracts and grants was $16.5 million, a decrease of 21% as compared to 2017. The decrease primarily reflects a reduction in R&D activities related to certain ongoing funded development programs.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For Q2 2018, cost of product sales and contract manufacturing was $89.2 million, an increase of 158% as compared to 2017. The increase was primarily attributable to the increase in product sales and contract manufacturing activities at the Company’s Bayview and Canton facilities.
Research and Development (Gross and Net)
For Q2 2018, gross R&D expenses were $24.7 million, a decrease of 4% as compared to 2017. The decrease primarily reflects lower costs associated with contract development services.
For Q2 2018, net R&D expense (calculated as gross research and development expenses minus contracts and grants revenue) was $8.2 million, an increase of $3.4 million as compared to 2017, reflecting increased investment in development-stage programs not currently funded in whole or in part by third-party partners. These include costs associated with the Raxibacumab (Anthrax Monoclonal Antibody) technology transfer and the SIAN device, an intranasal antidote spray device for the treatment of known or suspected acute cyanide poisoning.
Selling, General and Administrative
For Q2 2018, selling, general and administrative expenses were $39.5 million, an increase of 24% as compared to 2017, attributable primarily to increased professional services and compensation-related costs.
Income Taxes
For Q2 2018, the provision for income tax expense in the amount of $15.7 million includes a discrete benefit of $0.9 million primarily related to stock compensation activity resulting in an effective tax rate of 24%. Excluding the discrete benefit, the Q2 2018 effective tax rate was 25%.
Net Income & Adjusted Net Income
For Q2 2018, the Company recorded net income of $50.1 million, or $0.98 per diluted share, versus net income of $4.6 million, or $0.11 per diluted share, in 2017. (1).
For Q2 2018, the Company recorded adjusted net income of $54.7 million, or $1.07 per diluted share, versus adjusted net income of $6.6 million, or $0.13 per diluted share, in 2017. (1) (2)
(I) Six Months Ended June 30, 2018 (Unaudited)
Revenues
Total Revenues
For the six months of 2018, total revenues were $338.0 million, an increase of 55% over 2017. Total revenues reflect a significant increase in product sales.
Product Sales
For the six months of 2018, product sales were $255.8 million, an increase of 76% as compared to 2017. The increase is principally attributable to sales of ACAM2000 and Raxibacumab, both of which were acquired in Q4 2017.
Contract Manufacturing
For the six months of 2018, revenue from the Company’s contract manufacturing operations was $49.8 million, an increase of 47% as compared to 2017. The increase primarily reflects the completion of a milestone related to the expansion of certain contract manufacturing capabilities at the Company’s Lansing site and manufacturing services at the Company’s Canton site.
Contracts and Grants
For the six months of 2018, revenue from the Company’s development-based contracts and grants was $32.4 million, a decrease of 15% as compared to 2017. The decrease primarily reflects a reduction in revenue associated with the successful completion of multiple U.S. government development 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 six months of 2018, cost of product sales and contract manufacturing was $147.2 million, an increase of 82% as compared to 2017. The increase was primarily attributable to the increase in product sales and contract manufacturing activities at the Company’s Bayview and Canton facilities.
Research and Development (Gross and Net)
For the six months of 2018, gross R&D expenses were $53.8 million, an increase of 16% as compared to 2017. The increase primarily reflects costs associated with contract development services, including the cost associated with the technology transfer of the Raxibacumab manufacturing process to the Company’s Bayview manufacturing site in Baltimore.
For the six months of 2018, net R&D expense was $21.4 million, an increase of $13.5 million as compared to 2017, reflecting increased investment in countermeasure development programs not currently funded in whole or in part by third-party partners, notably costs associated with the Raxibacumab technology transfer and the SIAN device, an intranasal antidote spray device for the treatment of known or suspected acute cyanide poisoning.
Selling, General and Administrative
For the six months of 2018, selling, general and administrative expenses were $79.7 million, an increase of 19% as compared to 2017, attributable primarily to increased professional services and compensation-related costs.
Income Taxes
For the six months of 2018, the provision for income tax expense in the amount of $11.2 million includes a discrete benefit of $3.2 million primarily related to stock compensation activity resulting in an effective tax rate of 20%. Excluding the discrete benefit, the six months of 2018 effective tax rate was 25%.
Net Income & Adjusted Net Income
For the six months of 2018, the Company recorded net income of $45.2 million, or $0.89 per diluted share, versus net income of $15.1 million, or $0.35 per diluted share, in 2017. (1)
For the six months of 2018, the Company recorded adjusted net income of $53.1 million, or $1.04 per diluted share, versus adjusted net income of $20.8 million, or $0.42 per diluted share, in 2017. (1) (2)
2018 FINANCIAL FORECAST & OPERATIONAL GOALS
The Company is reaffirming its full year 2018 financial performance forecast:
· Total Revenue
$715 million to $755 million
· Pre-Tax Income
$120 million to $140 million
· Net Income (3)
$95 million to $110 million
· Adjusted Net Income (2) (3)
$110 million to $125 million
· EBITDA (2) (3)
$175 million to $190 million
The Company is also reaffirming its full year 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 technology transfer to the Company’s 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
Q3 2018 FINANCIAL FORECAST
The Company forecast for Q3 2018 total revenue is $165 million to $190 million.
FOOTNOTES
(1)
See "Calculation of Diluted Earnings Per Share."
(2)
See "Reconciliation of Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table.
(3)
Reflects an estimated tax rate that includes the expected effects of the United States Tax Cuts and Jobs Act of 2017 on the Company’s 2018 income tax provision.
CONFERENCE CALL AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, August 2, 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: [US] (855) 766-6521; [International] (262) 912-6157
Conference ID: 93342423
Live Webcast Information:
Visit View Source for the live webcast feed.
A replay of the call can be accessed at www.emergentbiosolutions.com under "Investors."