Emergent BioSolutions Inc.: Emergent BioSolutions Reports Fourth Quarter and Twelve Months 2014 Financial Results and Provides Update on 2015 Outlook

Tickers: EBS
Emergent BioSolutions Reports Fourth Quarter and Twelve Months 2014 Financial Results and Provides Update on 2015 Outlook
GAITHERSBURG, Md., March 5, 2015 (GLOBE NEWSWIRE) -- Emergent BioSolutions Inc. (NYSE:EBS) reported financial results for the quarter and twelve months ended December 31, 2014. Financial highlights included:

  • Total revenue: Q4 2014 of $148.0 million, up 51% from 2013; twelve months 2014 of $450.1 million, up 44% from 2013
  • GAAP net income: Q4 2014 of $30.1 million, up 98% from 2013; twelve months 2014 of $36.7 million, up 18% from 2013; on a diluted share basis, GAAP EPS for Q4 2014 was $0.66 per share and twelve months 2014 was $0.88 per share, up 61% and 4%, respectively, from 2013
  • Adjusted net income: Q4 2014 of $34.6 million, up 104% from 2013; twelve months 2014 of $54.2 million, up 44% from 2013; on a diluted share basis, Adjusted EPS for Q4 2014 was $0.75 per share and twelve months 2014 was $1.18 per share, up 64% and 15%, respectively, from 2013
  • EBITDA: Q4 2014 of $53.3 million, or $1.15 per diluted share, up 84% from 2013; twelve months 2014 of $92.2 million, or $2.01 per diluted share, up 46% from 2013
  • Adjusted EBITDA: Q4 2014 of $57.5 million, or $1.24 per diluted share, up 87% from 2013; twelve months 2014 of $105.9 million, or $2.31 per diluted share, up 50% from 2013
2015 FINANCIAL OUTLOOK

Top Company Interviews

Microsoft Corporation
Intel Corporation
Pfizer, Inc.
General Electric Company
International Business Machines Corporation
Ongoing Internal Manufacturing Investigation

Beginning on January 28, 2015, during standard quality inspections performed in accordance with customary procedures, the company discovered foreign particles in a limited number of vials in two manufactured lots of BioThrax. In order to determine the source of the foreign particles, the company has been investigating its operations as well as those of its suppliers and contract manufacturers. Under the company's quality standards, these two BioThrax lots will be rejected. Currently, there is no evidence that any other BioThrax lots have been affected, but as a precautionary measure, the company has quarantined 13 additional lots in inventory pending the findings of its investigation. It is the company's goal to complete this investigation within the next 60 days. Consequently, no BioThrax deliveries will be made in the first quarter. Based upon current information and depending on the disposition of the quarantined lots, the impact on previously forecasted 2015 BioThrax revenues is anticipated to be between $0 and $65 million. This ongoing investigation does not impact any of the company's other products or manufacturing operations, including the company's Building 55 operations and plans for licensure. Furthermore, there is no current evidence that product in distribution is impacted. Since the investigation is ongoing and the full scope of the issue has not been determined with certainty, the actual impact may be greater than anticipated. As the company is unable to definitively assess the impact to 2015 financial results, it is suspending previously issued 2015 guidance. Guidance will be forthcoming following completion of the ongoing investigation.

2014 FINANCIAL PERFORMANCE

(I) Quarter Ended December 31, 2014 (unaudited)

Revenues

Product Sales

For Q4 2014, product sales were $109.9 million, an increase of 28% as compared to 2013. The increase primarily reflects sales from Biodefense and Biosciences Division products which were acquired as part of the Cangene acquisition in Q1 2014.

(in millions)
Three Months Ended
December 31,
2014 2013 % Change
Product Sales
BioThrax® $87.9 $81.4 8%
Other biodefense 10.9 4.3 153%
Total Biodefense $98.8 $85.7 15%
Total Biosciences 11.0 NA NA
Total Product Sales $109.9 $85.7 28%

Contract Manufacturing

For Q4 2014, revenues from our contract manufacturing operations, which were acquired in Q1 2014, were $9.6 million. These operations comprise contract services including, among other things, biopharmaceutical product development, product filling, lyophilization and ongoing stability studies on behalf of commercial third parties.

Contracts, Grants and Collaborations

For Q4 2014, contracts, grants and collaborations revenue was $28.5 million, an increase of 129% as compared to 2013. The increase was primarily due to development funding for product development programs that were acquired in Q1 2014.

Contracts, grants and collaborations revenue consist primarily of reimbursements paid by the US government for research and development expenditures for the company's biodefense programs. This revenue also includes license fees and collaboration-related revenues associated with development partnerships the company has established with third parties.

Operating Expenses

Cost of Product Sales and Contract Manufacturing

For Q4 2014, cost of product sales and contract manufacturing was $32.5 million, an increase of 67% as compared to 2013. The increase was primarily attributable to product and contract manufacturing costs associated with additional operations acquired in Q1 2014.

Research and Development

For Q4 2014, gross research and development (R&D) expenses were $39.0 million, an increase of 30% as compared to 2013. The increase was primarily attributable to additional R&D expenditures associated with product development programs that were acquired in Q1 2014. Gross R&D expenses include contract service costs and development expenses related to product candidates, technology platforms and manufacturing capabilities in both the Biodefense and Biosciences divisions.

Net R&D expenses, which are more representative of the company's actual out-of-pocket investment in product development, are calculated as gross research and development expenses less contracts, grants and collaboration revenues and the net loss attributable to non-controlling interest. For Q4 2014, net R&D expenses were $10.5 million, a decrease of 40% as compared to 2013.

(in millions) Three Months Ended
December 31,
2014 2013 % Change
Research and Development Expenses (Gross) $39.0 $30.0 30%
Adjustments:
Contracts, grants and collaborations revenues 28.5 12.4 129%
Net loss attributable to non-controlling interest -- -- NA
Net Research and Development Expenses $10.5 $17.6 (40)%

Selling, General and Administrative

For Q4 2014, selling, general and administrative expenses were $31.9 million, an increase of 26% as compared to 2013. The increase was primarily attributable to additional post-acquisition selling, general and administrative costs that are largely associated with additional operations acquired in Q1 2014.

(II) Year Ended December 31, 2014

Revenues

Product Sales

For the twelve months of 2014, product sales were $308.3 million, an increase of 20% as compared to 2013. The increase primarily reflects sales from Biodefense and Biosciences Division products which were acquired in Q1 2014.

(in millions) Twelve Months Ended
December 31,
2014 2013 % Change
Product Sales
BioThrax® $245.9 $246.7 --
Other biodefense 32.3 11.2 188%
Total Biodefense $278.2 $257.9 8%
Total Biosciences $30.1 NA NA
Total Product Sales $308.3 $257.9 20%

Contract Manufacturing

For the twelve months of 2014, revenues from our contract manufacturing operations, which were acquired in Q1 2014, were $30.9 million.

Contracts, Grants and Collaborations

For the twelve months of 2014, contracts, grants and collaborations revenue was $110.8 million, an increase of 102% as compared to 2013. The increase was primarily due to development funding for the anthrax polyclonal therapeutic and botulinum polyclonal therapeutic programs, which were acquired in Q1 2014, as well as the recognition of license fee revenue associated with the MorphoSys collaboration, which was formed in Q3 2014.

Operating Expenses

Cost of Product Sales and Contract Manufacturing

For the twelve months of 2014, cost of product sales and contract manufacturing was $118.4 million, an increase of 91% as compared 2013. The increase was primarily attributable to product and contract manufacturing costs associated with products and services acquired in Q1 2014.

Research and Development

For the twelve months of 2014, gross R&D expenses were $150.8 million, an increase of 26% as compared to 2013. The increase was primarily attributable to additional R&D expenditures associated with product development programs acquired in Q1 2014.

Net R&D expenses for the twelve months of 2014 were $40.0 million, a decrease of 38% as compared to 2013.


(in millions)
Twelve Months Ended
December 31,
2014 2013 % Change
Research and Development Expenses (Gross) $150.8 $119.9 26%
Adjustments:
Contracts, grants and collaboration revenues 110.8 54.8 102%
Net loss attributable to non-controlling interest -- 0.9 --
Net Research and Development Expenses $40.0 $64.2 (38)%

Selling, General and Administrative

For the twelve months of 2014, selling, general and administrative expenses were $122.8 million, an increase of 40% as compared to 2013. The increase was primarily attributable to additional post-acquisition selling, general and administrative costs largely associated with the operations of Cangene, which were acquired in Q1 2014.

(III) Reconciliation of GAAP Net Income to Adjusted Net Income, EBITDA and Adjusted EBITDA

This press release contains three financial measures (Adjusted Net Income, EBITDA or earnings before interest, taxes, depreciation and amortization, and adjusted EBITDA) that are considered "non-GAAP" financial measures under applicable Securities & Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The company's definition of these non-GAAP measures may differ from similarly titled measures used by others. Adjusted Net Income adjusts for specified items that can be highly variable or difficult to predict, or reflect the non-cash impact of charges resulting from purchase accounting. EBITDA reflects net income excluding the impact of depreciation, amortization, interest expense and provision for income taxes. Adjusted EBITDA also excludes specified items that can be highly variable and the non-cash impact of certain purchase accounting adjustments. The company views these non-GAAP financial measures as a means to facilitate management's financial and operational decision-making, including evaluation of the company's historical operating results and comparison to competitors' operating results. These non-GAAP financial measures reflect an additional way of viewing aspects of the company's operations that, when viewed with GAAP results and the reconciliations to the corresponding GAAP financial measure, may provide a more complete understanding of factors and trends affecting the company's business.

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.

The following table provides a reconciliation of GAAP Net Income to Adjusted Net Income for the three month periods as indicated.

(in millions, except per share price) Three Months Ended
December 31,
2014 2013 Source
GAAP Net Income $30.1 $15.2 NA
Adjustments:
Acquisition-related costs (transaction & integration) 0.6 1.8 SG&A
Non-cash amortization charges 2.3 0.8 COGS, SG&A,
Other Income
Impact of purchase accounting on inventory step-up 1.0 -- COGS
Restructuring activities 2.6 -- SG&A
Tax effect (2.0) (0.8) NA
Total Adjustments 4.5 1.8 NA
Adjusted Net Income $34.6 $17.0 NA
Adjusted Net Income Per Diluted Share $0.75 $0.45 NA

The following table provides a reconciliation of GAAP Net Income to Adjusted Net Income for the twelve month periods as indicated.

(in millions, except per share price) Twelve Months Ended
December 31,
2014 2013 Source
GAAP Net Income $36.7 $31.1 NA
Adjustments:
Acquisition-related costs (transaction & integration) 8.1 4.6 SG&A
Non-cash amortization charges 9.5 2.0 COGS, SG&A,
Other Income
Write-off of syndicated loans 1.8 -- Other Income
Impact of purchase accounting on inventory step-up 3.0 -- COGS
Restructuring activities 2.6 2.8 SG&A
Tax effect (7.5) (2.8) NA
Total Adjustments 17.5 6.6 NA
Adjusted Net Income $54.2 $37.7 NA
Adjusted Net Income Per Diluted Share $1.18 $1.03 NA

The following table provides a reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA for the three month periods as indicated.

(in millions, except per share price) Three Months Ended
December 31
2014 2013
GAAP Net Income $30.1 $15.2
Adjustments:
+ Depreciation & Amortization 7.8 5.4
+ Provision For Income Taxes 14.2 8.4
-- Total Other (Income) Expense (1.2) --
Total Adjustments 23.2 13.8
EBITDA $53.3 $29.0
Additional Adjustments: