On February 21, 2019 Emergent BioSolutions Inc. (NYSE: EBS) reported financial results for the quarter and year ended December 31, 2018 (Press release, Emergent BioSolutions, FEB 21, 2019, View Source [SID1234533538]).
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2018 FINANCIAL PERFORMANCE
(I) Quarter Ended December 31, 2018 (Unaudited)
Revenues
Total Revenues
For Q4 2018, total revenues were $270.7 million, an increase of 40% over 2017. Total revenues reflect a significant increase in product sales due to the contribution of recently acquired products.
Product Sales
For Q4 2018, product sales were $217.4 million, an increase of $55.7 million or 34% as compared to 2017. The increase primarily reflects sales of NARCAN (naloxone HCl) Nasal Spray, Vivotif (Typhoid Vaccine Live Oral Ty21a) and Vaxchora (Cholera Vaccine, Live, Oral), all acquired in October 2018.
Contract Manufacturing
For Q4 2018, revenue from the Company’s contract manufacturing operations was $26.9 million, an increase of $10.7 million or 66% as compared to 2017. The increase primarily reflects increased manufacturing services for existing commercial customers at the Company’s Camden site.
Contracts and Grants
For Q4 2018, revenue from the Company’s development-based contracts and grants was $26.4 million, an increase of $10.5 million or 66% as compared to 2017. The increase primarily reflects increased R&D activities related to certain ongoing funded development programs, most notably NuThrax (anthrax vaccine adsorbed with CPG 7909 adjuvant).
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For Q4 2018, cost of product sales and contract manufacturing was $113.2 million, an increase of $46.7 million or 70% as compared to 2017. The increase primarily reflects the impact of an increase in sales of NARCAN (naloxone HCl) Nasal Spray, which was acquired in the fourth quarter of 2018, and raxibacumab, which was acquired in the fourth quarter of 2017.
Research and Development (Gross and Net)
For Q4 2018, gross R&D expenses were $52.0 million, an increase of $23.5 million or 82% as compared to 2017. The increase primarily reflects an increase in costs associated with contract development services associated with NuThrax (anthrax vaccine adsorbed with CPG 7909 adjuvant).
For Q4 2018, 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 and is calculated as gross research and development expenses minus contracts and grants revenue, was $25.6 million, an increase of $13.0 million or 103% as compared to 2017. The increase primarily reflects investment in process improvements related to ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) at the Canton site and increased costs associated with the Phase 2 clinical trial for the FLU-IGIV program. The Q4 2018 net R&D expense was 10% of net revenue (total revenue less contracts & grants) compared to 7% of net revenue in Q4 2017.
Selling, General and Administrative
For Q4 2018, selling, general and administrative expenses were $81.0 million, an increase of $39.2 million or 94% as compared to 2017. The increase primarily reflects higher transaction and integration related costs associated with the PaxVax and Adapt Pharma acquisitions.
Amortization of Intangible Assets
The Company has elected to reclassify amortization of intangible assets for Q4 2018 from cost of product sales and contract manufacturing to amortization of intangible assets, and therefore the Q4 2017 amounts have also been reclassified to conform to the current period presentation on the Company’s consolidated statements of operations.
For Q4 2018, amortization of intangible assets was $13.3 million versus $3.9 million as compared to 2017. The increase entirely reflects higher non-cash intangible asset amortization costs associated with the PaxVax and Adapt Pharma acquisitions, which both closed in the fourth quarter of 2018.
Income Taxes
For Q4 2018, the provision for income tax expense in the amount of $7.0 million includes the impact of non-deductible acquisition transaction costs and other permanent items. The effective tax rate for Q4 2018 is not meaningful given the low level of pre-tax income for the quarter.
Net Income (Loss) & Adjusted Net Income
For Q4 2018, the Company recorded a net loss of $3.4 million, or $0.07 per diluted share, versus net income of $33.9 million, or $0.67 per diluted share, in 2017. (2)
For Q4 2018, the Company recorded adjusted net income of $38.3 million, or $0.75 per diluted share, versus adjusted net income of $37.8 million, or $0.74 per diluted share, in 2017. (1) (2)
EBITDA & Adjusted EBITDA
For Q4 2018, the Company recorded EBITDA of $36.1 million versus $65.2 million in 2017. (1)
For Q4 2018, the Company recorded adjusted EBITDA of $75.0 million versus $67.1 million in 2017. (1)
(II) Year Ended December 31, 2018 (Unaudited)
Revenues
Total Revenues
For full year 2018, total revenues were $782.4 million, an increase of $221.5 million or 39% over 2017. Total revenues reflect significant increases in both product sales due to the contribution of recently acquired products and contract development and manufacturing services revenue.
Product Sales
For full year 2018, product sales were $606.5 million, an increase of $185.0 million or 44% as compared to 2017. The increase primarily reflects a full year of sales of ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) and raxibacumab, both acquired in the fourth quarter of 2017, and NARCAN (naloxone HCl) Nasal Spray, which was acquired in the fourth quarter of 2018.
Contract Manufacturing
For full year 2018, revenue from the Company’s contract manufacturing operations was $98.9 million, an increase of $30.0 million or 44% 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, fill/finish services provided to third parties, and increased manufacturing services for commercial customers at the Company’s Canton site.
Contracts and Grants
For full year 2018, revenue from the Company’s development-based contracts and grants was $77.0 million, an increase of $6.5 million or 9% as compared to 2017. The increase primarily reflects an increase in R&D activities related to SIAN, the Company’s drug-device combination product candidate (antidote spray device) for the treatment of known or suspected acute cyanide poisoning as well as work related to ACAM2000, (Smallpox (Vaccinia) Vaccine, Live), which was acquired in the fourth quarter of 2017.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For full year 2018, cost of product sales and contract manufacturing was $322.3 million, an increase of $134.6 million or 72% as compared to 2017. The increase primarily reflects the impact of an increase in Other product sales associated principally with a full year of sales of both ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) and raxibacumab, which were acquired in the fourth quarter of 2017, and NARCAN (naloxone HCl) Nasal Spray, which was acquired in the fourth quarter of 2018.
Research and Development (Gross and Net)
For full year 2018, gross R&D expenses were $142.8 million, an increase of $45.4 million or 47% as compared to 2017. The increase primarily reflects an increase in costs associated with development programs related to the Company’s recently acquired product candidates.
For full year 2018, net R&D expense was $65.8 million, an increase of $38.9 million or 145% as compared to 2017. The increase primarily reflects investment in manufacturing development activities related to ACAM2000, (Smallpox (Vaccinia) Vaccine, Live) and the FLU-IGIV program. The full year 2018 net R&D expense was 9% of net revenue (total revenue less contracts & grants) compared to 5% of net revenue in 2017.
Selling, General and Administrative
For full year 2018, selling, general and administrative expenses were $202.5 million, an increase of $59.6 million or 42% as compared to 2017. The increase primarily reflects an increase in acquisition-related costs (transaction and integration) associated with the PaxVax and Adapt acquisitions, compensation related costs from increased headcount and share-based compensation expense, and infrastructure improvement initiatives primarily related to IT systems.
Amortization of Intangible Assets
The Company has elected to reclassify amortization of intangible assets for full year 2018 from cost of product sales and contract manufacturing to amortization of intangible assets, and therefore the 2017 amounts have been reclassified to conform to the current period presentation on the Company’s consolidated statements of operations.
For full year 2018, amortization of intangible assets was $25.0 million versus $8.6 million as compared to 2017. The increase entirely reflects higher non-cash intangible asset amortization costs associated with the PaxVax and Adapt Pharma acquisitions, which both closed in the fourth quarter of 2018.
Income Taxes
For full year 2018, the provision for income tax expense in the amount of $18.8 million includes the impact of state taxes, GILTI (Global Intangible Low Income Tax), acquisition transaction costs and other non-deductible items. These are partially offset by the benefit relating to finalizing the impact of Tax Reform and the stock option deduction, resulting in an effective tax rate of 23%.
Net Income & Adjusted Net Income
For full year 2018, the Company recorded net income of $62.7 million, or $1.22 per diluted share, versus net income of $82.6 million, or $1.71 per diluted share, in 2017. (2)
For full year 2018, the Company recorded adjusted net income of $119.6 million, or $2.33 per diluted share, versus adjusted net income of $95.7 million, or $1.90 per diluted share, in 2017. (1) (2)
EBITDA & Adjusted EBITDA
For full year 2018, the Company recorded EBITDA of $152.7 million versus $166.0 million in 2017. (1)
For full year 2018, the Company recorded adjusted EBITDA of $198.8 million versus $175.7 million in 2017. (1)
The company’s financial forecast for 2019 includes the impact of the following items:
continued deliveries of BioThrax to the Strategic National Stockpile (SNS) under the current procurement contract with the Centers for Disease Control and Prevention (CDC), (the contract and the SNS are now managed by the Office of the Assistant Secretary for Preparedness and Response (ASPR));
initial deliveries of NuThrax (anthrax vaccine adsorbed with CPG 7909 adjuvant) to the SNS following expected Emergency Use Authorization pre-approval by the U.S. Food and Drug Administration (FDA) under the company’s current development and procurement contract with the Biomedical Advanced Research and Development Authority (BARDA);
full year sales of NARCAN Nasal Spray, Vaxchora (Cholera Vaccine, Live, Oral), and Vivotif (Typhoid Vaccine Live Oral Ty21a), all of which were acquired in the fourth quarter of 2018;
completion of deliveries of ACAM2000 to the SNS under the prior contract as well as initiation of new deliveries to the SNS under the anticipated follow-on procurement contract with the ASPR;
deliveries of raxibacumab to the SNS under the current procurement contract with BARDA;
domestic and international sales of the other medical countermeasures that comprise Other Product sales;
continued CDMO services revenue;
increased Contract & Grant revenue due to anticipated increased work related to development projects funded by third parties; and
continued investment in discretionary development projects funded by the company targeting opportunities in medical countermeasures for existing and emerging infectious diseases, opioid overdose and other public health threats.
The outlook for 2019 does not include estimates for potential new corporate development or other M&A transactions.
Q1 2019 REVENUE FORECAST (Reaffirmed)
For Q1 2019, the company reaffirms its expectation of total revenues of $185 to $205 million.
FOOTNOTES
See "Reconciliation of Net Income (Loss) to Adjusted Net Income, EBITDA and Adjusted EBITDA" for a definition of terms and a reconciliation table.
See "Calculation of Diluted Earnings Per Share."
CONFERENCE CALL AND WEBCAST INFORMATION
Company management will host a conference call at 5:00 pm (Eastern Time) today, February 21, 2019, 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: 2299983
Live Webcast Information:
Visit View Source for the live webcast feed.