Emergent BioSolutions Reports Financial Results for Third Quarter and Nine Months Ended September 30, 2020 and Updates Full Year 2020 Guidance
- Reports strong third quarter and record year to date performance
- Updates full year guidance — refines revenue ranges and raises profitability ranges
“Over the last 22 years, Emergent has built a solid business founded on demonstrable strengths in partnering, manufacturing, and integrating value-added M&A,” said
FINANCIAL HIGHLIGHTS (unaudited)
| (in millions) | Q3 2020 | Q3 2019 | $ Change | % Change | |||
| Total Revenues | 24% | ||||||
| Net Income | ( |
(9)% | |||||
| Adjusted Net Income (1) | 84% | ||||||
| Adjusted EBITDA (1) | 58% | ||||||
| (in millions) | YTD 2020 | YTD 2019 | $ Change | % Change | |||
| Total Revenues | 30% | ||||||
| Net Income | * | ||||||
| Adjusted Net Income (1) | * | ||||||
| Adjusted EBITDA (1) | * | ||||||
| * % change is greater than 100% | |||||||
SELECT Q3 2020 BUSINESS ACCOMPLISHMENTS
- Completed an offering of
$450 million in aggregate principal amount 3.875% Senior Unsecured Notes due in 2028. The Company utilized the proceeds from the offering to repay$353 million outstanding under its revolving credit facility with the remainder to be utilized for general corporate purposes.
- Announced the initiation of a Phase 3 clinical trial sponsored by the
National Institutes of Health to evaluate the safety, tolerability, and efficacy of hyperimmune globulin products, including the Company's COVID-19 Human Immune Globulin (COVID-HIG), as a potential treatment in adult patients hospitalized with COVID-19.
Announced U.S. Food and Drug Administration (FDA) approval of the shelf life extension of NARCAN® (naloxone HCl) Nasal Spray from 24 months to 36 months.
- Secured approximately
$60 million in new business and existing project extensions across development services, drug substance manufacturing, and drug product manufacturing towards the Company's contract development and manufacturing (CDMO) portfolio.
2020 FINANCIAL PERFORMANCE (unaudited)
(I) Quarter Ended
Revenues
Total Revenues
For Q3 2020, total revenues were
Product Sales
For Q3 2020, product sales were
(in millions) |
Three Months Ended |
||
| 2020 | 2019 | % Change | |
| Product Sales | |||
| NARCAN® Nasal Spray | 18% | ||
| Anthrax vaccines | 83% | ||
| ACAM2000 | (99)% | ||
| Other | 34% | ||
| Total Product Sales | (21)% | ||
For Q3 2020, revenue from the Company’s contract development and manufacturing operations was
Contracts and Grants
For Q3 2020, revenue from the Company’s development-based contracts and grants was
Operating Expenses
Cost of Product Sales and
For Q3 2020, cost of product sales and contract development and manufacturing services was
Research and Development (Gross and Net)
For Q3 2020, gross R&D expenses were
For Q3 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 and is calculated as gross research and development expenses minus contracts and grants revenue and the impact of the IPR&D intangible asset impairment, was
(in millions) |
Three Months Ended |
||
| 2020 | 2019 | % Change | |
| Research and Development Expenses | 58% | ||
| Adjustments: | |||
| Less Contracts and Grants Revenue | (27)% | ||
| Less Impairment of IPR&D intangible asset | $— | NA | |
| 66% | |||
| Adjusted Revenue (Total Revenue less Contracts and Grants Revenue) |
30% | ||
| Net R&D as % of Adjusted Revenue (Net R&D Margin) | 8% | 6% | NA |
Selling, General and Administrative
For Q3 2020, selling, general and administrative expenses were
Amortization of Intangible Assets
For Q3 2020, amortization of intangible assets was
Income Taxes
For Q3 2020, the income tax provision was
Net Income & Adjusted Net Income
For Q3 2020, the Company recorded net income of
For Q3 2020, the Company recorded adjusted net income of
Adjusted EBITDA
For Q3 2020, the Company recorded adjusted EBITDA of
(II) Nine months ended
Revenues
Total Revenues
For the nine months ended
Product Sales
For the nine months ended
(in millions) |
Nine Months Ended |
||
| 2020 | 2019 | % Change | |
| Product Sales | |||
| Anthrax vaccines | NM | ||
| NARCAN® Nasal Spray | 10% | ||
| ACAM2000 | (57)% | ||
| Other | (36)% | ||
| Total Product Sales | 9% | ||
For the nine months ended
Contracts and Grants
For the nine months ended
Operating Expenses
Cost of Product Sales and
For the nine months ended
Research and Development (Gross and Net)
For the nine months ended
For the nine months ended
(in millions) |
Nine Months Ended |
||
| 2020 | 2019 | % Change | |
| Research and Development Expenses | 7% | ||
| Adjustments: | |||
| Less Contracts and Grants Revenue | (27)% | ||
| Less Impairment of IPR&D intangible asset | $— | NA | |
| 14% | |||
| Adjusted Revenue (Total Revenue less Contracts and Grants Revenue) |
39% | ||
| Net R&D as % of Adjusted Revenue (Net R&D Margin) | 8% | 10% | NA |
Selling, General and Administrative
For the nine months ended
Amortization of Intangible Assets
For the nine months ended
Income Taxes
For the nine months ended
Net Income & Adjusted Net Income
For the nine months ended
For the nine months ended
Adjusted EBITDA
For the nine months ended
2020 FINANCIAL FORECAST
Based upon the Company's financial performance year to date as well as expectations for the remainder of the year, the Company has updated its full year 2020 financial forecast reflected by the following financial metrics and accompanying operational considerations:
Financial Metrics
| (in millions) | Updated 2020 FORECAST (As of 11/5/2020) | Previous 2020 forecast (As of 7/30/2020) |
| Total Revenues | ||
| • NARCAN® Nasal Spray | ||
| • Anthrax vaccines | ||
| • ACAM2000 | ||
| • CDMO | ||
| Adjusted Net Income (1) | ||
| Adjusted EBITDA (1) |
The following operational considerations are incorporated in the Company's forecast and remain consistent with the previous forecast:
- Year over year improvement in gross margin of 400 - 600 basis points driven by improved product mix and increased contribution from the Company's CDMO business;
- The previously announced delay into 2021 of the launch of the Phase 3 clinical study for CHIKV-VLP, the Company's chikungunya virus virus-like particle vaccine, due to the timing of certain operational factors;
- The continued deferral into 2021 of a follow-on procurement contract with the
U.S. government for raxibacumab, the Company's FDA-approved anthrax monoclonal antibody therapeutic, due to the impact of the prioritization of Operation Warp Speed on the Company's technology transfer activities for the product; - Continued challenges through the end of 2020 in the Company's travel health business and revenues associated with Vaxchora® (Cholera Vaccine, Live, Oral) and Vivotif® (Typhoid Vaccine Live Oral Ty21a);
- No generic competition in 2020 for NARCAN® Nasal Spray.
The Company has assessed the risks to its business associated with the COVID-19 pandemic and has adopted measures to mitigate those risks as they are understood today and accordingly is providing this outlook for 2020. Despite the lack of expected material disruption to the business, the Company's executive management continues to assess the business and operational implications associated with the pandemic and market conditions on its employees, patients, and customers.
The outlook for 2020 does not include estimates for potential new corporate development or other M&A transactions.
FOOTNOTES
(1) See "Reconciliation of Net Income to Adjusted Net Income and Adjusted EBITDA and Gross Margin and Adjusted Gross Margin" for a definition of terms and the reconciliation tables.
CONFERENCE CALL, PRESENTATION SUPPLEMENT, AND WEBCAST INFORMATION
Company management will host a conference call at
Live Teleconference Information:
Dial in: [US] (855) 766-6521; [International] (262) 912-6157
Conference ID: 3549944
Live Webcast Information:
Visit https://edge.media-server.com/mmc/p/7c8i4shm for the live webcast feed.
A replay of the call can be accessed at www.emergentbiosolutions.com under “Investors.”
ABOUT
SAFE HARBOR STATEMENT
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements, other than statements of historical fact, including, without limitation, our financial guidance and related projections and statements regarding our ability to meet such projections in the anticipated timeframe, if at all; statements regarding executing our strategy; delivering on our commitments to our partners and customers; creating value for our shareholders; our ability to develop safe and effective vaccines against the novel strain of coronavirus (SARS-CoV-2) causing COVID-19 and implement measures to mitigate the risks to our business posed by COVID-19; total contract and related option value; annual improvement in gross margin driven by improved product and services mix; the lack of generic competition for NARCAN® Nasal Spray for the remainder of 2020; the expectation that the Company will meet its final sales milestone for NARCAN® Nasal Spray; the entry into a follow-on procurement contract for raxibacumab in 2021; the launch of a Phase 3 clinical study for CHIKV-VLP; the annual impact on our revenues from declines in sales of our vaccine products that target travelers due to the reduction of international travel caused by the COVID-19 pandemic and any other statements containing the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “targets,” “forecasts,” “estimates” and similar expressions in conjunction with, among other things, discussions of the Company’s outlook, financial performance or financial condition, financial and operation goals, strategic goals, growth strategy, product sales, government development or procurement contracts or awards, government appropriations, manufacturing capabilities, and the timing of certain regulatory approvals or expenditures are forward-looking statements. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate.
Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. Investors are, therefore, cautioned not to place undue reliance on any forward-looking statement. Any forward-looking statements speak only as of the date of this press release, and, except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances. There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements, including the impact of global economic conditions and public health crises and epidemics, such as the impact from the global pandemic that arose from COVID-19, on the markets, our operations, and employees as well as those of our customers and suppliers; our ability to obtain or maintain FDA approval or authorization for emergency or broader patient use of our COVID-19 treatments and their actual safety and effectiveness; availability of
| Investor Contact | Media Contact |
| Robert Burrows | |
| Vice President, Investor Relations | Senior Director, |
| (o) 240/631-3280; (m) 240/413-1917 | (o) 240/631-3392 |
| burrowsr@ebsi.com | nerim@ebsi.com |
Condensed Consolidated Balance Sheets
(unaudited, in millions, except per share data)
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | 415.0 | $ | 167.8 | |
| Restricted cash | 0.2 | 0.2 | |||
| Accounts receivable, net | 196.1 | 270.7 | |||
| Inventories, net | 270.1 | 222.5 | |||
| Prepaid expenses and other current assets | 77.4 | 25.0 | |||
| Total current assets | 958.8 | 686.2 | |||
| Property, plant and equipment, net | 606.5 | 542.3 | |||
| Intangible assets, net | 678.1 | 712.9 | |||
| In-process research and development | — | 29.0 | |||
| 266.5 | 266.6 | ||||
| Other assets | 106.4 | 90.3 | |||
| Total assets | $ | 2,616.3 | $ | 2,327.3 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 102.8 | $ | 94.8 | |||
| Accrued expenses | 34.9 | 39.5 | |||||
| Accrued compensation | 76.9 | 62.4 | |||||
| Debt, current portion | 30.9 | 12.9 | |||||
| Other current liabilities | 53.8 | 6.7 | |||||
| Total current liabilities | 299.3 | 216.3 | |||||
| Contingent consideration, net of current portion | 35.2 | 26.0 | |||||
| Debt, net of current portion | 848.5 | 798.4 | |||||
| Deferred tax liability | 64.0 | 63.9 | |||||
| Contract liabilities, net of current portion | 60.4 | 85.6 | |||||
| Other liabilities | 57.4 | 48.6 | |||||
| Total liabilities | $ | 1,364.8 | $ | 1,238.8 | |||
| Stockholders' equity: | |||||||
| Preferred stock, |
— | — | |||||
| Common stock, |
0.1 | 0.1 | |||||
| (39.6 | ) | (39.6 | ) | ||||
| Additional paid-in capital | 770.9 | 716.1 | |||||
| Accumulated other comprehensive loss, net | (21.4 | ) | (9.9 | ) | |||
| Retained earnings | 541.5 | 421.8 | |||||
| Total stockholders' equity | 1,251.5 | 1,088.5 | |||||
| Total liabilities and stockholders' equity | $ | 2,616.3 | $ | 2,327.3 |
Condensed Consolidated Statements of Operations
(unaudited, in millions, except per share data)
| Three Months Ended |
Nine Months Ended |
|||||||||||
| Revenues: | 2020 | 2019 | 2020 | 2019 | ||||||||
| Product sales, net | $ | 202.2 | $ | 256.2 | $ | 648.9 | $ | 592.7 | ||||
| Contract development and manufacturing | ||||||||||||
| services | 157.1 | 20.0 | 251.4 | 54.6 | ||||||||
| Contracts and grants | 25.9 | 35.6 | 72.1 | 98.4 | ||||||||
| Total revenues | 385.2 | 311.8 | 972.4 | 745.7 | ||||||||
| Operating expenses: | ||||||||||||
| Cost of product sales and contract development and manufacturing services | 149.0 |
108.0 |
355.7 |
300.7 |
||||||||
| Research and development | 84.4 | 53.4 | 175.0 | 163.4 | ||||||||
| Selling, general and administrative | 75.5 | 65.0 | 221.2 | 201.3 | ||||||||
| Amortization of intangible assets | 15.0 | 14.7 | 44.8 | 43.9 | ||||||||
| Total operating expenses | 323.9 | 241.1 | 796.7 | 709.3 | ||||||||
| Income from operations | 61.3 | 70.7 | 175.7 | 36.4 | ||||||||
| Other income (expense): | ||||||||||||
| Interest expense | (7.6 | ) | (10.3 | ) | (22.6 | ) | (29.3 | ) | ||||
| Other, net | 1.3 | (1.5 | ) | 1.3 | (1.2 | ) | ||||||
| Total other income (expense), net | (6.3 | ) | (11.8 | ) | (21.3 | ) | (30.5 | ) | ||||
| Income before provision (benefit) for income taxes | 55.0 | 58.9 | 154.4 | 5.9 | ||||||||
| Income tax provision (benefit) | 15.5 | 15.7 | 34.7 | (1.7 | ) | |||||||
| Net income | $ | 39.5 | $ | 43.2 | $ | 119.7 | $ | 7.6 | ||||
| Net income per common share | ||||||||||||
| Basic | $ | 0.75 | $ | 0.84 | $ | 2.28 | $ | 0.15 | ||||
| Diluted | $ | 0.73 | $ | 0.83 | $ | 2.23 | $ | 0.15 | ||||
| Shares used in computing income per share | ||||||||||||
| Basic | 53.0 | 51.6 | 52.5 | 51.4 | ||||||||
| Diluted | 54.3 | 52.3 | 53.6 | 52.3 | ||||||||
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)
| Nine Months Ended |
||||||
| 2020 | 2019 | |||||
| Cash flows provided by operating activities: | ||||||
| Net income | $ | 119.7 | $ | 7.6 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Stock-based compensation expense | 41.0 | 21.0 | ||||
| Depreciation and amortization | 85.6 | 82.8 | ||||
| Impairment of IPR&D intangible asset | 29.0 | — | ||||
| Change in fair value of contingent consideration, net | 31.3 | 12.4 | ||||
| Amortization of deferred financing costs | 2.4 | 2.2 | ||||
| Deferred income taxes | (4.4 | ) | (5.7 | ) | ||
| Other | 0.6 | 0.7 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 74.6 | (18.6 | ) | |||
| Inventories | (47.6 | ) | (24.4 | ) | ||
| Prepaid expenses and other assets | (61.8 | ) | (36.5 | ) | ||
| Accounts payable | 10.6 | 2.5 | ||||
| Accrued expenses | 4.4 | 5.2 | ||||
| Accrued compensation | 14.5 | (2.4 | ) | |||
| Contract liabilities | (9.0 | ) | 19.1 | |||
| Net cash provided by operating activities: | 290.9 | 65.9 | ||||
| Cash flows used in investing activities: | ||||||
| Purchases of property, plant and equipment and other | (105.0 | ) | (50.8 | ) | ||
| Milestone payment from prior asset acquisition | (10.0 | ) | (10.0 | ) | ||
| Net cash used in investing activities: | (115.0 | ) | (60.8 | ) | ||
| Cash flows provided by financing activities: | ||||||
| Proceeds from revolving credit facility | — | 130.0 | ||||
| Principal payments on revolving credit facility | (373.0 | ) | (95.0 | ) | ||
| Proceeds from senior unsecured notes | 450.0 | — | ||||
| Principal payments on term loan facility | (8.4 | ) | (8.4 | ) | ||
| Debt issuance costs | (8.4 | ) | — | |||
| Proceeds from exercise of stock options | 26.6 | 5.7 | ||||
| Taxes paid for share-based compensation activity | (12.8 | ) | (6.6 | ) | ||
| Contingent consideration payments | (2.2 | ) | (3.7 | ) | ||
| Net cash provided by financing activities: | 71.8 | 22.0 | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (0.5 | ) | (0.1 | ) | ||
| Net increase in cash, cash equivalents and restricted cash | 247.2 | 27.0 | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 168.0 | 112.4 | ||||
| Cash, cash equivalents and restricted cash at end of period | $ | 415.2 | $ | 139.4 | ||
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND ADJUSTED EBITDA and GROSS MARGIN AND ADJUSTED GROSS MARGIN (unaudited)
This press release contains four financial measures (Adjusted Net Income, Adjusted EBITDA (Earnings Before Depreciation and Amortization, Interest and Taxes, Gross Margin and Adjusted Gross Margin)) that are considered “non-GAAP” financial measures under applicable
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.
Reconciliation of Net Income to Adjusted Net Income (Unaudited)
(in millions, except per share value) |
Three Months Ended |
||||||
| 2020 | 2019 | Source | |||||
| Net income | |||||||
| Adjustments: | |||||||
| + Changes in fair value of contingent consideration | 30.2 | 6.9 | COGS | ||||
| + Impairment of IPR&D intangible asset | 29.0 | — | R&D | ||||
| + Exit and disposal costs* | 17.1 | — | COGS, SG&A, Other Income | ||||
| + Non-cash amortization charges | 15.9 | 15.4 | Intangible Asset Amortization, Other Income | ||||
| + Acquisition-related costs (transaction & integration) | 0.5 | 3.2 | SG&A | ||||
| Tax effect | (13.2) | (3.9) | |||||
| Total adjustments: | |||||||
| Adjusted net income | |||||||
| Adjusted net income per diluted share | |||||||
* Amount incorporates
(in millions, except per share value) |
Nine Months Ended |
||||||
| 2020 | 2019 | Source | |||||
| Net income | |||||||
| Adjustments: | |||||||
| + Non-cash amortization charges | 47.2 | 46.1 | Intangible Asset Amortization, Other Income | ||||
| + Changes in fair value of contingent consideration | 31.3 | 12.4 | COGS | ||||
| + Impairment of IPR&D intangible asset | 29.0 | — | R&D | ||||
| + Exit and disposal costs* | 17.1 | — | COGS, SG&A, Other Income | ||||
| + Acquisition-related costs (transaction & integration) | 0.5 | 10.6 | SG&A | ||||
| + Impact of purchase accounting on inventory step-up | — | 6.1 | COGS | ||||
| Tax effect | (19.7) | (13.2) | |||||
| Total adjustments: | |||||||
| Adjusted net income | |||||||
| Adjusted net income per diluted share | |||||||
* Amount incorporates
(in millions) |
Updated 2020 Full Year Forecast | |
| 2020F | Source | |
| Net income | ||
| Adjustments: | ||
| + Non-cash amortization charges | 63 | Intangible Asset Amortization, Other Income |
| + Changes in fair value of contingent consideration | 32 | COGS |
| + Impairment of IPR&D intangible asset | 29 | R&D |
| + Exit and disposal costs | 17 | COGS, SG&A, Other Income |
| + Acquisition-related costs (transaction & integration) | 1 | SG&A |
| Tax effect | (22) | |
| Total adjustments: | ||
| Adjusted net income | ||
Reconciliation of Net Income to Adjusted EBITDA (Unaudited)
(in millions) |
Three Months Ended |
|||
| 2020 | 2019 | |||
| Net income | ||||
| Adjustments: | ||||
| + Depreciation & amortization | 28.8 | 27.7 | ||
| + Provision for income taxes | 15.5 | 15.7 | ||
| + Total interest expense, net* | 7.5 | 9.7 | ||
| + Changes in fair value of contingent consideration | 30.2 | 6.9 | ||
| + Impairment of IPR&D intangible asset | 29.0 | — | ||
| + Exit and disposal costs** | 17.1 | — | ||
| + Acquisition-related costs (transaction & integration) | 0.5 | 3.2 | ||
| Total adjustments | ||||
| Adjusted EBITDA | $168.1 | $106.4 | ||
| * Includes interest income of ** Amount incorporates |
||||
(in millions) |
Nine Months Ended |
||||
| 2020 | 2019 | ||||
| Net income | |||||
| Adjustments: | |||||
| + Depreciation & amortization | 85.6 | 82.8 | |||
| + Provision (benefit) for (from) income taxes | 34.7 | (1.7) | |||
| + Total interest expense, net* | 21.6 | 27.6 | |||
| + Changes in fair value of contingent consideration | 31.3 | 12.4 | |||
| + Impairment of IPR&D intangible asset | 29.0 | — | |||
| + Exit and disposal costs** | 17.1 | — | |||
| + Acquisition-related costs (transaction & integration) | 0.5 | 10.6 | |||
| + Impact of purchase accounting on inventory step-up | — | 6.1 | |||
| Total adjustments | $ | 219.8 | $ | 137.8 | |
| Adjusted EBITDA | |||||
| * Includes interest income of ** Amount incorporates |
|||||
(in millions) |
Updated 2020 Full Year Forecast |
| 2020F | |
| Net income | |
| Adjustments: | |
| + Depreciation & amortization | 115 |
| + Provision for income taxes | 96 - 106 |
| + Total interest expense | 30 |
| + Change in fair value of contingent consideration | 32 |
| + Impairment of IPR&D intangible asset | 29 |
| + Exit and disposal costs | 17 |
| + Acquisition-related costs (transaction and integration) | 1 |
| Total adjustments | |
| Adjusted EBITDA |
Reconciliation of Gross Margin and Adjusted Gross Margin (Unaudited)
(in millions) |
Three Months Ended |
Nine Months Ended |
||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Total revenues | ||||||||||||
| Less: Contract and grants revenues | (25.9) | (35.6) | (72.1) | (98.4) | ||||||||
| Adjusted revenues | ||||||||||||
| Cost of product sales and contract development and manufacturing services ("COGS") | ||||||||||||
| - Changes in fair value of contingent consideration | (30.2) | (6.9) | (31.3) | (12.4) | ||||||||
| - Inventory reserves related to |
(13.8) | — | (13.8) | — | ||||||||
| Adjusted COGS | ||||||||||||
| Gross margin (adjusted revenues minus COGS) | ||||||||||||
| Gross margin % (gross margin divided by adjusted revenues) | 59% | 61% | 60% | 54% | ||||||||
| Adjusted gross margin (adjusted revenues minus adjusted COGS) | ||||||||||||
| Adjusted gross margin % (adjusted gross margin divided by adjusted revenues) | 71% | 63% | 66% | 55% | ||||||||
Source: Emergent BioSolutions