EMERGENT BIOSOLUTIONS INC.
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Delaware | 14-1902018 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
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400 Professional Drive, Suite 400 | |
Gaithersburg, Maryland | 20879 |
(Address of Principal Executive Offices) | (Zip Code) |
(240) 631-3200
(Registrant's Telephone Number, Including Area Code) |
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Securities registered pursuant to Section 12(b) of the Act |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, Par Value $0.001 per share | EBS | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company ☐ Emerging growth company
(Do not check if a smaller reporting company)
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Large accelerated filer x | | Accelerated filer ☐ |
Non-accelerated filer ☐ | | Smaller reporting company ☐ |
Emerging growth company ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No Yes x No
As of April 27, 2018,26, 2019, the registrant had 49,823,29151.4 million shares of common stock outstanding.
Emergent BioSolutions Inc.
Index to Form 10-Q
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Part II. Other Information |
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BioThrax® (Anthrax Vaccine Adsorbed), RSDL® (Reactive Skin Decontamination Lotion Kit), BAT® [Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)], Anthrasil® (Anthrax Immune Globulin Intravenous [human]), NuThrax™ (anthrax vaccine adsorbed with CPG 7909 adjuvant), VIGIV [Vaccinia Immune Globulin Intravenous (Human)], Trobigard™ (atropine sulfate, obidoxime chloride), ACAM2000®, (Smallpox (Vaccinia) Vaccine, Live), Raxibacumab (Anthrax Monoclonal) and any and all Emergent BioSolutions Inc. brands, products, services and feature names, logos and slogans are trademarks or registered trademarks of Emergent BioSolutions Inc. or its subsidiaries in the United States or other countries. All other brands, products, services and feature names or trademarks are the property of their respective owners.
PART I.FINANCIAL INFORMATIONSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q and the documents we incorporate by reference include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding the future earnings and performance of Emergent BioSolutions Inc. or any of our businesses, our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. We generally identify forward-looking statements by using words like
"will","will," "believes," "expects," "anticipates," "intends," "plans," "forecasts," "estimates" and similar expressions in conjunction with, among other things, discussions of financial performance or financial condition, growth strategy, product sales, manufacturing capabilities, product development, regulatory approvals or expenditures. 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. You should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. You are, therefore, cautioned not to place undue reliance on any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, 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, among others:
appropriations for the procurement of BioThrax® (Anthrax Vaccine Adsorbed) and our other products addressing public health threats (PHTs);
our ability to perform under our contracts with the U.S. government (USG) related to BioThrax, our AV7909 product candidate, and our other public health threat products, including the timing of and specifications relating to deliveries;
our ability to commence deliveries based on BARDA’s procurement of AV7909 (anthrax vaccine adsorbed with CPG 7909 adjuvant) for the Strategic National Stockpile (SNS), to receive Emergency Use Authorization (EUA) and eventual licensure of AV7909 from the U.S. Food and Drug Administration (FDA);
the availability of funding for our U.S. government grants and contracts;
our ability to secure follow-on procurement contracts for our PHTs that are under procurement contracts that have expired or will be expiring;
our ability and the ability of our collaborators to defend underlying patents from infringement by generic naloxone entrants;
our ability to identify and acquire companies, businesses, products or product candidates that satisfy our selection criteria;
our ability to successfully integrate and realize the benefits of our acquisitions of PaxVax Holding Company Ltd. (PaxVax) and Adapt Pharma Limited (Adapt), both of which were acquired in October 2018;
our ability to successfully identify and respond to new development contracts with the USG, as well as successfully maintain, through achievement of development milestones, current development contracts with the USG;
our ability and the ability of our contractors and suppliers to maintain compliance with current good manufacturing practices and other regulatory obligations;
the results of regulatory inspections;
the operating and financial restrictions placed on us and our subsidiaries under our senior secured credit facilities;
our ability to obtain and maintain regulatory approvals for our product candidates and the timing of any such approvals;
| § | appropriations for the procurement of BioThrax® (Anthrax Vaccine Adsorbed) and our other products addressing public health threats;
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the procurement of products by USG entities under regulatory exemptions prior to approval by the FDA and corresponding procurement by government entities outside of the United States under regulatory exemptions prior to approval by the corresponding regulatory authorities in the applicable country; | § | our ability to perform under our contracts with the U.S. government related to BioThrax, our NuThrax product candidate,the success of our commercialization, marketing and manufacturing capabilities and strategy; and our other public health threat products, including the timing of and specifications relating to deliveries; |
| § | our ability to obtain Emergency Use Authorization pre-approval for NuThrax™ (anthrax vaccine adsorbed with CPG 7909 adjuvant) from the U.S. Food and Drug Administration, or FDA; |
| § | the availability of funding for our U.S. government grants and contracts; |
| § | our ability to secure follow-on procurement contracts for our public health threat products that are under procurement contracts that have expired or will be expiring; |
| § | our ability to successfully integrate and develop the products or product candidates, programs, operations and personnel of any entities, businesses or products that we acquire, including our recently completed acquisitions of the ACAM2000® (Smallpox (Vaccinia) Vaccine, Live) and Raxibacumab and the timing and receipt of required FDA approvals for actions contemplated in connection with our integration of these products; |
| § | our ability to identify and acquire companies, businesses, products or product candidates that satisfy our selection criteria; |
| § | our ability to successfully identify and respond to new development contracts with the U.S. government, as well as successfully maintain, through achievement of development milestones, current development contracts with the U.S. government; |
| § | our ability and the ability of our contractors and suppliers to maintain compliance with current good manufacturing practices and other regulatory obligations; |
| § | the results of regulatory inspections; |
| § | the operating and financial restrictions placed on us and our subsidiaries under our senior secured credit facility; |
| § | the outcome of the purported class action lawsuit;
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| § | our ability to obtain and maintain regulatory approvals for our product candidates and the timing of any such approvals; |
| § | the procurement of products by U.S. government entities under regulatory exemptions prior to approval by the FDA and corresponding procurement by government entities outside of the United States under regulatory exemptions prior to approval by the corresponding regulatory authorities in the applicable country; |
| § | the success of our commercialization, marketing and manufacturing capabilities and strategy; and |
| § | the accuracy of our estimates regarding future revenues, expenses, capital requirements and needs for additional financing. |
The foregoing sets forth many, but not all, of the factors that could cause actual results to differ from our expectations in any forward-looking statement. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. You should consider this cautionary statement, the risk factors identified in the section entitled "Risk Factors" in this quarterly report on Form 10-Q and the risk factors identified in our other periodic reports filed with the Securities and Exchange Commission (SEC) when evaluating our forward-looking statements.
NOTE REGARDING COMPANY REFERENCES
PART I. FINANCIAL INFORMATIONReferences in this report to “Emergent,” the “Company,” “we,” “us,” and “our” refer to Emergent BioSolutions Inc. and its consolidated subsidiaries.
NOTE REGARDING TRADENAMES
BioThrax® (Anthrax Vaccine Adsorbed), RSDL® (Reactive Skin Decontamination Lotion Kit), BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), Anthrasil® (Anthrax Immune Globulin Intravenous (Human)), VIGIV (Vaccinia Immune Globulin Intravenous (Human)), Trobigard® (atropine sulfate, obidoxime chloride), ACAM2000® (Smallpox (Vaccinia) Vaccine, Live), Vivotif® (Typhoid Vaccine Live Oral Ty21a), Vaxchora® (Cholera Vaccine, Live, Oral), NARCAN® (naloxone HCI) Nasal Spray and any and all Emergent BioSolutions Inc. brands, products, services and feature names, logos and slogans are trademarks or registered trademarks of Emergent BioSolutions Inc. or its subsidiaries in the United States or other countries. All other brands, products, services and feature names or trademarks are the property of their respective owners.
ITEM 1.FINANCIAL STATEMENTS
ITEM 1.FINANCIAL STATEMENTS
Emergent BioSolutions Inc.
Condensed Consolidated Balance Sheets
Emergent BioSolutions Inc. and Subsidiaries | |
Condensed Consolidated Balance Sheets | |
(in thousands, except share and per share data) | |
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| | March 31, 2018 | | | December 31, 2017 | |
ASSETS | | (unaudited) | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 163,606 | | | $ | 178,292 | |
Restricted cash | | | 1,043 | | | | 1,043 | |
Accounts receivable | | | 122,090 | | | | 143,653 | |
Inventories | | | 155,196 | | | | 142,812 | |
Income tax receivable, net | | | 7,044 | | | | 2,432 | |
Prepaid expenses and other current assets | | | 27,670 | | | | 17,157 | |
Total current assets | | | 476,649 | | | | 485,389 | |
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Property, plant and equipment, net | | | 411,269 | | | | 407,210 | |
Intangible assets, net | | | 115,685 | | | | 119,597 | |
Goodwill | | | 49,130 | | | | 49,130 | |
Deferred tax assets, net | | | 12,656 | | | | 2,834 | |
Other assets | | | 3,078 | | | | 6,046 | |
Total assets | | $ | 1,068,467 | | | $ | 1,070,206 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 46,216 | | | $ | 41,751 | |
Accrued expenses and other current liabilities | | | 6,840 | | | | 4,831 | |
Accrued compensation | | | 24,513 | | | | 37,882 | |
Contingent consideration, current portion | | | 2,337 | | | | 2,372 | |
Deferred revenue, current portion | | | 6,964 | | | | 13,232 | |
Total current liabilities | | | 86,870 | | | | 100,068 | |
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Contingent consideration, net of current portion | | | 10,133 | | | | 9,902 | |
Long-term indebtedness | | | 13,469 | | | | 13,457 | |
Income taxes payable, net of current | | | 12,500 | | | | 12,500 | |
Deferred revenue, net of current portion | | | 59,365 | | | | 17,259 | |
Other liabilities | | | 4,850 | | | | 4,675 | |
Total liabilities | | | 187,187 | | | | 157,861 | |
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Stockholders' equity: | | | | | | | | |
Preferred stock, $0.001 par value; 15,000,000 shares authorized, 0 shares issued and outstanding at both March 31, 2018 and December 31, 2017 | | | - | | | | - | |
Common stock, $0.001 par value; 200,000,000 shares authorized, 51,025,978 shares issued and 49,808,692 shares outstanding at March 31, 2018; 50,619,808 shares issued and 49,405,365 shares outstanding at December 31, 2017 | | | 50 | | | | 50 | |
Treasury stock, at cost, 1,217,286 and 1,214,443 common shares at March 31, 2018 and December 31, 2017, respectively | | | (39,642 | ) | | | (39,497 | ) |
Additional paid-in capital | | | 624,484 | | | | 618,416 | |
Accumulated other comprehensive loss | | | (3,251 | ) | | | (3,698 | ) |
Retained earnings | | | 299,639 | | | | 337,074 | |
Total stockholders' equity | | | 881,280 | | | | 912,345 | |
Total liabilities and stockholders' equity | | $ | 1,068,467 | | | $ | 1,070,206 | |
(unaudited, in millions, except per share amounts)
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| March 31, 2019 | | December 31, 2018 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 137.2 |
| | $ | 112.2 |
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Restricted cash | 0.2 |
| | 0.2 |
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Accounts receivable, net | 121.5 |
| | 262.5 |
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Inventories | 211.0 |
| | 205.8 |
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Prepaid expenses and other current assets | 58.6 |
| | 40.1 |
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Total current assets | 528.5 |
| | 620.8 |
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Property, plant and equipment, net | 513.4 |
| | 510.2 |
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Intangible assets, net | 757.1 |
| | 761.6 |
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In-process research and development | 41.0 |
| | 50.0 |
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Goodwill | 267.7 |
| | 259.7 |
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Other assets | 46.0 |
| | 27.1 |
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Total assets | $ | 2,153.7 |
| | $ | 2,229.4 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 78.6 |
| | $ | 80.7 |
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Accrued expenses | 49.6 |
| | 30.7 |
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Contingent consideration, current portion | 62.7 |
| | 5.6 |
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Accrued compensation | 36.9 |
| | 58.2 |
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Long-term indebtedness, current portion | 10.1 |
| | 10.1 |
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Other current liabilities | 10.5 |
| | 15.1 |
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Total current liabilities | 248.4 |
| | 200.4 |
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Contingent consideration | 10.0 |
| | 54.4 |
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Long-term indebtedness | 732.4 |
| | 784.5 |
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Deferred tax liability | 66.4 |
| | 67.5 |
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Deferred revenue, net of current portion | 64.7 |
| | 62.5 |
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Other liabilities | 44.3 |
| | 49.2 |
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Total liabilities | $ | 1,166.2 |
| | $ | 1,218.5 |
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Commitments and contingencies (Notes 8 & 14) |
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Stockholders' equity: | | | |
Preferred stock, $0.001 par value; 15.0 shares authorized, no shares issued or outstanding at both 2019 and 2018 | — |
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Common stock, $0.001 par value; 200.0 shares authorized, 52.6 shares issued and 51.4 shares outstanding at 2019; 52.4 shares issued and 51.2 shares outstanding at 2018 | 0.1 |
| | 0.1 |
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Treasury stock, at cost, 1.2 common shares at both 2019 and 2018 | (39.6 | ) | | (39.6 | ) |
Additional paid-in capital | 690.2 |
| | 688.6 |
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Accumulated other comprehensive loss | (4.5 | ) | | (5.5 | ) |
Retained earnings | 341.3 |
| | 367.3 |
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Total stockholders' equity | 987.5 |
| | 1,010.9 |
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Total liabilities and stockholders' equity | $ | 2,153.7 |
| | $ | 2,229.4 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Emergent BioSolutions Inc. and Subsidiaries | |
Condensed Consolidated Statements of Operations | |
(in thousands, except share and per share data) | |
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| | Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
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Revenues: | | | | | | |
Product sales | | $ | 75,771 | | | $ | 81,969 | |
Contract manufacturing | | | 26,178 | | | | 17,628 | |
Contracts and grants | | | 15,865 | | | | 17,261 | |
Total revenues | | | 117,814 | | | | 116,858 | |
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Operating expenses: | | | | | | | | |
Cost of product sales and contract manufacturing | | | 58,044 | | | | 46,322 | |
Research and development | | | 29,051 | | | | 20,476 | |
Selling, general and administrative | | | 40,204 | | | | 35,150 | |
Income (loss) from operations | | | (9,485 | ) | | | 14,910 | |
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Other income (expense): | | | | | | | | |
Interest income | | | 222 | | | | 373 | |
Interest expense | | | (234 | ) | | | (1,938 | ) |
Other income, net | | | 74 | | | | 300 | |
Total other income (expense), net | | | 62 | | | | (1,265 | ) |
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Income (loss) before provision for (benefit from) income taxes | | | (9,423 | ) | | | 13,645 | |
Provision for (benefit from) income taxes | | | (4,515 | ) | | | 3,160 | |
Net income (loss) | | $ | (4,908 | ) | | $ | 10,485 | |
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Net income (loss) per share - basic | | $ | (0.10 | ) | | $ | 0.26 | |
Net income (loss) per share - diluted (1) | | $ | (0.10 | ) | | $ | 0.23 | |
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Weighted-average number of shares - basic | | | 49,580,089 | | | | 40,727,755 | |
Weighted-average number of shares - diluted | | | 49,580,089 | | | | 49,718,426 | |
(1) See "EarningsEmergent BioSolutions Inc.
Condensed Consolidated Statements of Operations
(unaudited, in millions, except per share" footnote for details on calculation.share amounts)
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| Three Months Ended March 31, |
| 2019 | | 2018 |
Revenues: | |
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Product sales, net | $ | 153.0 |
| | $ | 75.8 |
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Contract manufacturing | 15.9 |
| | 26.1 |
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Contracts and grants | 21.7 |
| | 15.9 |
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Total revenues | 190.6 |
| | 117.8 |
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Operating expenses: | | | |
Cost of product sales and contract manufacturing | 91.8 |
| | 54.3 |
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Research and development | 46.1 |
| | 29.1 |
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Selling, general and administrative | 65.4 |
| | 40.0 |
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Amortization of intangible assets | 14.5 |
| | 3.9 |
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Total operating expenses | 217.8 |
| | 127.3 |
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Loss from operations | (27.2 | ) | | (9.5 | ) |
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Other income (expense): | | | |
Interest expense | (9.6 | ) | | (0.2 | ) |
Other income (expense), net | (1.0 | ) | | 0.3 |
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Total other income (expense), net | (10.6 | ) | | 0.1 |
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Loss before benefit from income taxes | (37.8 | ) | | (9.4 | ) |
Income tax benefit | (11.8 | ) | | (4.5 | ) |
Net loss | $ | (26.0 | ) | | $ | (4.9 | ) |
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Net loss per common share | | | |
Basic | $ | (0.51 | ) | | $ | (0.10 | ) |
Diluted | $ | (0.51 | ) | | $ | (0.10 | ) |
Shares used in computing loss per share | | | |
Basic | 51.2 |
| | 49.6 |
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Diluted | 51.2 |
| | 49.6 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Emergent BioSolutions Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive
Income (Loss)Loss(unaudited, in thousands)millions)
| Three Months Ended March 31, | |
| 2018 | | 2017 | |
| (Unaudited) | |
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Net income (loss) | | $ | (4,908 | ) | | $ | 10,485 | |
Foreign currency translations, net of tax | | | 447 | | | | 584 | |
Comprehensive income (loss) | | $ | (4,461 | ) | | $ | 11,069 | |
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| Three Months Ended March 31, |
| 2019 | | 2018 |
Net loss | $ | (26.0 | ) | | $ | (4.9 | ) |
Other comprehensive income (loss), net of tax: |
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Foreign currency translations, net of tax | 1.2 |
| | 0.4 |
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Unrealized losses on pension benefit obligation | (0.2 | ) | | — |
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Total other comprehensive income, net of tax | 1.0 |
| | 0.4 |
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Comprehensive loss | $ | (25.0 | ) | | $ | (4.5 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Emergent BioSolutions Inc. and Subsidiaries | |
Condensed Consolidated Statements of Cash Flows | |
(in thousands) | |
| | Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
Cash flows from operating activities: | | (Unaudited) | |
Net income (loss) | | $ | (4,908 | ) | | $ | 10,485 | |
Adjustments to reconcile to net cash provided by (used in) operating activities: | | | | | | | | |
Stock-based compensation expense | | | 7,255 | | | | 4,284 | |
Depreciation and amortization | | | 12,373 | | | | 10,166 | |
Income taxes | | | (4,468 | ) | | | 4,299 | |
Change in fair value of contingent consideration | | | 989 | | | | 200 | |
Impairment of long-lived assets | | | 34 | | | | - | |
Other | | | 102 | | | | 87 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | 21,825 | | | | 10,561 | |
Inventories | | | (12,384 | ) | | | 3,270 | |
Income taxes | | | (113 | ) | | | - | |
Prepaid expenses and other assets | | | (7,605 | ) | | | 2,338 | |
Accounts payable | | | 3,576 | | | | 81 | |
Accrued expenses and other liabilities | | | 2,240 | | | | (1,962 | ) |
Accrued compensation | | | (13,365 | ) | | | (11,203 | ) |
Deferred revenue | | | (6,542 | ) | | | 9,065 | |
Net cash (used in) provided by operating activities | | | (991 | ) | | | 41,671 | |
Cash flows from investing activities: | | | | | | | | |
Purchases of property, plant and equipment and other | | | (11,615 | ) | | | (20,304 | ) |
Net cash used in investing activities | | | (11,615 | ) | | | (20,304 | ) |
Cash flows from financing activities: | | | | | | | | |
Issuance of common stock upon exercise of stock options | | | 4,693 | | | | 2,957 | |
Taxes paid on behalf of employees for equity activity | | | (5,880 | ) | | | (4,015 | ) |
Payments of notes payable to Aptevo | | | - | | | | (20,000 | ) |
Contingent consideration payments | | | (793 | ) | | | (1,568 | ) |
Purchase of treasury stock | | | (145 | ) | | | (81 | ) |
Net cash used in financing activities | | | (2,125 | ) | | | (22,707 | ) |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | 45 | | | | (3 | ) |
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Net decrease in cash, cash equivalents and restricted cash | | | (14,686 | ) | | | (1,343 | ) |
Cash, cash equivalents and restricted cash at beginning of period (1) | | | 179,335 | | | | 271,513 | |
Cash, cash equivalents and restricted cash at end of period (1) | | $ | 164,649 | | | $ | 270,170 | |
(1) AsEmergent BioSolutions Inc.
Condensed Consolidated Statements of December 31, 2017 and March 31, 2018, the balance includes $1,043 of restricted cash.Cash Flows
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| Three Months Ended March 31, |
| 2019 | | 2018 |
Cash flows from operating activities: | | | |
Net Loss | $ | (26.0 | ) | | $ | (4.9 | ) |
Adjustments to reconcile to net cash provided by (used in) operating activities: | | | |
Share-based compensation expense | 6.8 |
| | 7.3 |
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Depreciation and amortization | 26.6 |
| | 12.3 |
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Amortization of deferred financing costs | 0.7 |
| | 0.1 |
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Deferred income taxes | (11.4 | ) | | (4.5 | ) |
Change in fair value of contingent consideration | 1.7 |
| | 1.0 |
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Other | (0.1 | ) | | 0.1 |
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Changes in operating assets and liabilities: | | | |
Accounts receivable | 141.6 |
| | 21.8 |
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Inventories | (5.2 | ) | | (12.4 | ) |
Prepaid expenses and other assets | (16.6 | ) | | (7.7 | ) |
Accounts payable | 4.2 |
| | 3.6 |
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Accrued expenses | 1.7 |
| | 2.2 |
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Accrued compensation | (21.3 | ) | | (13.4 | ) |
Deferred revenue | 2.1 |
| | (6.5 | ) |
Net cash provided by (used in) operating activities: | 104.8 |
| | (1.0 | ) |
Cash flows from investing activities: | | | |
Purchases of property, plant and equipment and other | (21.4 | ) | | (11.6 | ) |
Net cash used in investing activities: | (21.4 | ) | | (11.6 | ) |
Cash flows from financing activities: | | | |
Proceeds from revolving credit facility | 30.0 |
| | — |
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Principal payments on revolving credit facility | (80.0 | ) | | — |
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Principal payments on term loan facility | (2.8 | ) | | — |
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Issuances of stock under share-based benefit plans | 0.9 |
| | 4.7 |
|
Taxes paid on behalf of employees for equity activity | (6.0 | ) | | (5.9 | ) |
Contingent consideration payments | (0.5 | ) | | (0.8 | ) |
Purchase of treasury stock | — |
| | (0.1 | ) |
Net cash used in financing activities: | (58.4 | ) | | (2.1 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | 25.0 |
| | (14.7 | ) |
Cash, cash equivalents and restricted cash at beginning of period | 112.4 |
| | 179.3 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 137.4 |
| | $ | 164.6 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Emergent BioSolutions Inc. and Subsidiaries
Condensed Consolidated
StatementStatements of Changes in Stockholders' Equity
(unaudited, in thousands, except share and per share data)millions)
| | $0.001 Par Value Common Stock | | | Additional Paid-In | | | Treasury Stock | | | Accumulated Other Comprehensive | | | Retained | | | Total Stockholders' | |
| | Shares | | | Amount | | | Capital | | | Shares | | | Amount | | | Loss | | | Earnings | | | Equity | |
Balance at December 31, 2017 | | | 50,619,808 | | | $ | 50 | | | $ | 618,416 | | | | (1,214,443 | ) | | $ | (39,497 | ) | | $ | (3,698 | ) | | $ | 337,074 | | | $ | 912,345 | |
Adoption of new accounting standard (ASC 606), net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (32,527 | ) | | | (32,527 | ) |
Balance at January 1, 2018 | | | 50,619,808 | | | | 50 | | | | 618,416 | | | | (1,214,443 | ) | | | (39,497,000 | ) | | | (3,698 | ) | | | 304,547 | | | | 879,818 | |
Employee equity plans activity | | | 406,170 | | | | - | | | | 6,068 | | | | - | | | | - | | | | - | | | | - | | | | 6,068 | |
Treasury stock | | | - | | | | - | | | | - | | | | (2,843 | ) | | | (145 | ) | | | - | | | | - | | | | (145 | ) |
Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (4,908 | ) | | | (4,908 | ) |
Foreign currency translation, net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | 447 | | | | - | | | | 447 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2018 | | | 51,025,978 | | | $ | 50 | | | $ | 624,484 | | | | (1,217,286 | ) | | $ | (39,642 | ) | | $ | (3,251 | ) | | $ | 299,639 | | | $ | 881,280 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $0.001 Par Value Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | | Shares | | Amount | | | |
Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | | 52.4 |
| | $ | 0.1 |
| | $ | 688.6 |
| | (1.2 | ) | | $ | (39.6 | ) | | $ | (5.5 | ) | | $ | 367.3 |
| | $ | 1,010.9 |
|
Employee equity plans activity | | 0.2 |
| | — |
| | 1.6 |
| | — |
| | — |
| | — |
| | — |
| | 1.6 |
|
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26.0 | ) | | (26.0 | ) |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
|
Balance at March 31, 2019 | | 52.6 |
| | $ | 0.1 |
| | $ | 690.2 |
| | (1.2 | ) | | $ | (39.6 | ) | | $ | (4.5 | ) | | $ | 341.3 |
| | $ | 987.5 |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2018 | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | 50.6 |
| | $ | 0.1 |
| | $ | 618.3 |
| | (1.2 | ) | | $ | (39.5 | ) | | $ | (3.7 | ) | | $ | 337.1 |
| | $ | 912.3 |
|
Adoption of new revenue accounting standard (ASC 606), net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (32.5 | ) | | (32.5 | ) |
Balance at January 1, 2018 | | 50.6 |
| | 0.1 |
| | 618.3 |
| | (1.2 | ) | | (39.5 | ) | | (3.7 | ) | | 304.6 |
| | 879.8 |
|
Employee equity plans activity | | 0.4 |
| | — |
| | 6.1 |
| | — |
| | — |
| | — |
| | — |
| | 6.1 |
|
Treasury stock | | — |
| | — |
| | — |
| | — |
| | (0.1 | ) | | — |
| | — |
| | (0.1 | ) |
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4.9 | ) | | (4.9 | ) |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
| | | | | | | | | | | | | | | | |
Balance at March 31, 2018 | | 51.0 |
| | $ | 0.1 |
| | $ | 624.4 |
| | (1.2 | ) | | $ | (39.6 | ) | | $ | (3.3 | ) | | $ | 299.7 |
| | $ | 881.3 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
EMERGENT BIOSOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(unaudited, in millions, except share and per share amounts)
1. Business
Emergent BioSolutions Inc. is a global life sciences company focused on providing specialty products for civilian and military populations that address accidental, deliberate and naturally occurring PHTs.
The Company is focused on innovative preparedness and response products and solutions addressing the following four distinct PHT categories: Chemical, Biological, Radiological, Nuclear and Explosives (CBRNE); emerging infectious diseases (EID); travelers’ diseases; and opioids. The U.S. Government (USG) is the Company's largest customer and provides the Company with substantial funding for the development of a number of the Company's product candidates.
The majority of the Company's revenue comes from a product portfolio that includes:
1.Vaccines and Anti-Infectives - BioThrax® (Anthrax Vaccine Adsorbed), ACAM2000® (Smallpox (Vaccinia) Vaccine, Live), Vaxchora® (Cholera Vaccine, Live, Oral), and Vivotif® (Typhoid Vaccine, Live, Oral Ty21a).
Devices - NARCAN® (naloxone HCl) Nasal Spray for opioid overdose, RSDL® (Reactive Skin Decontamination Lotion Kit), and the Trobigard® (atropine sulfate, obidoxime chloride a nerve agent countermeasure) auto-injector.
Antibody Therapeutics - raxibacumab (Anthrax Monoclonal antibody therapeutic for anthrax), SummaryAnthrasil®( Anthrax Immune Globulin Intravenous (Human)), BAT®(Botulism Antitoxin Heptavalent), and VIGIV (Vaccinia Immune Globulin Intravenous (Human) therapeutic) for complications from smallpox vaccinations.
The Company also generates revenue from contract development and manufacturing services including pharmaceutical product process development, manufacturing and filling services for injectable and other sterile products, inclusive of significant accounting policiesprocess design, technical transfer, manufacturing validations, laboratory analytical development support, aseptic filling, lyophilization, final packaging and accelerated and ongoing stability studies, as well as manufacturing of vial and pre-filled syringe formats, bulk drug products and finished units of clinical and commercial drugs.
We operate as one operating segment.
2. Basis of Presentation and Principles of Consolidation
Basis of presentation and consolidation
Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Emergent BioSolutions Inc. ("Emergent" or the "Company") and its wholly owned and majority ownedwholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission ("SEC").SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principlesGAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2017,2018, as filed with the SEC.
In the opinion of the Company's management, anyAll adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of March 31, 2018.2019. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.
Significant accounting policies
Accounting Policies
During the three months ended March 31, 2018,2019, there have been no significant changes to the Company's summary of significant accounting policies contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2017,2018, as filed with the SEC, except for recently adopted accounting standards.
Fair Value Measurements
Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. The Company has contingent consideration liabilities that are measured at fair value on a recurring basis (Note 8). The Company also records the new revenue recognition standardassets and liabilities of acquitions at fair value (Note 3). As of March 31, 2019 and 2018, the Company adopted effective January 1, 2018. See Note 2. "Revenue recognition" for further details.
had no other significant assets or liabilities that were measured at fair value on a non-recurring basis.
Recently issued accounting standardsAdopted Accounting Pronouncements
Leases
ASU 2016-02, Leases (Topic 842)
In February 2016, the Financial Accounting Standards Board ("FASB")(FASB) issued Accounting Standard Update ("ASU") (ASU) 2016-02 Leases (Topic 842) ("ASU No. 2016-02"). ASU No. 2016-02, which increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements for both lessees and lessors. The standard will be effective January 1, 2019 for the Company, with early adoption permitted. The standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements. The Company is currently evaluating the expected impact to its condensed consolidated financial statements and related disclosures.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU No. 2016-15"). ASU No. 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayments or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU No. 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The Company adopted the new standard effective January 1, 2018, and has determined2019 using the impact of ASU No. 2016-15 on its condensed consolidated financial statements will be related tomodified retrospective approach. As a result, the settlement of contingent liabilities arising from a business combination.
ASU 2016-18, Restricted Cash (Topic 230): Statement of Cash Flows
In November 2016,Company recorded the FASB issued ASU No. 2016-18, Restricted Cash (Topic 230): Statement of Cash Flows ("ASU No. 2016-18"). ASU No. 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconcilingtransition provisions at the beginning of the period of adoption. Total right of use assets increased $13.4 million, while total operating lease liabilities increased 14.0 million as of January 1, 2019. There was no adjustment to the opening balance of retained earnings as of January 1, 2019. The standard will not materially affect the Company's consolidated net earnings. The Company continues to apply the legacy guidance from the old lease accounting standard, including its disclosure requirements, in the comparative periods presented. The Company did not reassess existing contracts for lease classification or the classification of existing leases or associated costs. The Company will not reflect leases with an initial term of 12 months or less as a right of use asset or liability, but it will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. In addition, the Company will account for non-lease components of the arrangement separate from lease components.
SEC Simplification
In August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and endSimplification, which makes a number of period balances onchanges meant to simplify interim disclosures. The new rule requires a presentation of changes in stockholders’ equity and noncontrolling interest in the statementform of cash flows upon adoption of this standard.a reconciliation, for the current and comparative year-to-date interim periods. The Company adopted the new standard effective January 1, 2018. Restricted cash primarily consistdisclosure requirements in its Form 10-Q for the period ended March 31, 2019 and included these disclosures in the condensed consolidated statements of collateralized cash for a standby letterchanges in stockholders equity. The additional elements of credit and guarantee arrangement with a bank.
ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):Scope of Modification Accounting
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU No. 2017-09"). ASU No. 2017-09 clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted the new standard effective January 1, 2018, whichthis release did not have a material impact on the Company's overall condensed Consolidated Financial Statements.
Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02 provides the option to reclassify certain income tax effects related to the Tax Cuts and Jobs Act passed in December of 2017 between accumulated other comprehensive income and retained earnings and also requires additional disclosures. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. There was no impact for the adoption of ASU 2018-02 on the Company's condensed consolidated financial statements.
New Accounting Pronouncements
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 provides guidance on measurement of credit losses on financial instruments that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and that requires entities to use a new, forward-looking “expected loss” model that is expected to result in the earlier recognition of allowances for losses. The guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those years, but early adoption is permitted. The Company is currently evaluating the effect that the pronouncement will have on the Company's consolidated financial statements.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. ASU 2017-04 is effective for annual and interim goodwill tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. The Company is currently evaluating the impact that the adoption of this standard will have on its condensed consolidated financial statements.
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Fair Value Measurements
In August 2018 the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This new standard modifies certain disclosure requirements on fair value measurements. This new standard will be effective for the Company on January 1, 2020. The Company does not expect that the adoption of this new standard will have a material impact on the Company's disclosures.
Compensation - Retirement Benefits - Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14. ASU 2018-14 modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for all entities for fiscal years ending after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2018-14 on its consolidated financial statements.
There are no other recently issued accounting pronouncements that are expected to have a material impact on the Company's financial position, results of operations or cash flows.
3. Acquisitions
Adapt
2.Revenue recognition
In May 2014,On October 15, 2018, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU No. 2014-09"). ASU No. 2014-09 (known as ASC606) supersedesCompany acquired Adapt, a company focused on developing new treatment options and commercializing products addressing opioid overdose and addiction. Adapt's NARCAN® (naloxone HCl) Nasal Spray marketed product is the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance,first needle-free formulation of naloxone approved by the FDA and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchangeHealth Canada for the promised goodsemergency treatment of known or services, the provider should apply the following five steps: (1) identify the contract with a customer(s); (2) identify the performance obligationssuspected opioid overdose as manifested by respiratory and/or central nervous system depression. This acquisition includes approximately 50 employees, located in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract;U.S., Canada, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 also specifies the accountingIreland, including those responsible for some costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. The Company adopted the requirements of the new standard during the first quarter of 2018 using the modified retrospective method. The modified retrospective method requires companies to recognize the cumulative effect of initially applying the new standard as an adjustment to opening retained earnings.
A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606. For contracts with multiple performance obligations, the Company allocates the contract's transaction price to each performance obligation on a relative standalone selling price basis using the Company's best estimate of the standalone selling price of each distinct product or service in the contract. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers, however when prices in standalone sales are not available the Company may use third-party pricing for similar products or services or estimate the standalone selling price. Allocation of the transaction price is determined at the contracts' inception.
Once the performance obligations in the contract have been identified, the Company estimates the transaction price of the contract. The estimate includes amounts that are fixed as well as those that can vary based on expected outcomes of the activities or contractual terms. The Company's variable consideration primarily includes consideration transferred under its development contracts with the U.S. government as consideration received can vary based on developmental progression of the product candidate(s). When a contract's transaction price includes variable consideration, the Company evaluates the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, the Company includes the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at each reporting date. There were no constraints or material changes to the Company's variable consideration estimates as of or during the three months ended March 31, 2018.
To indicate the transfer of control for the Company's product sales and contract manufacturing services, it must have a present right to payment, legal title must have passed to the customer, and the customer must have the significant risks and rewards of ownership. Revenue for long-term development contracts is generally recognized based upon the cost-to-cost measure of progress, provided that the Company meets the criteria associated with transferring control of the good or service over time.
The Company derives revenues primarily from the sale of its marketed medical countermeasures ("MCMs") products and contract revenues associated with development of its MCMs. The primary customer for the Company's MCM products and the development of the Company's MCM product candidate portfolio is the U.S. government. The Company's contracts for the sale of its MCM products generally have single performance obligation. Certain product sales contracts with the U.S. government include multiple performance obligations, which generally include the marketed product, stability testing associated with that product, expiry extensions and plasma collection. The Company's development contracts for its MCM product candidates generally are cost plus fixed fee arrangements which the Company treats a single performance obligation with variable consideration. The U.S. government contracts for the salesupply chain management, research and development, of the Company's MCMgovernment affairs, and commercial operations. The products and product candidates within Adapt's portfolio are normally multi-year contracts.
In addition, the Company performs contract manufacturing services for third parties which includes pharmaceutical product process development, manufacturing and filling services for injectable and other sterile products, inclusive of process design, technical transfer, manufacturing validations, laboratory analytical development support, aseptic filling, lyophilization, final packaging and accelerated and ongoing stability studies. These contracts generally include a single performance obligationconsistent with a duration that is less than one-year.
The Company has finalized the review of its portfolio of revenue contracts that were not complete as of the adoption date and made its determination of its revenue streams as well as completed extensive contract specific reviews to determine the impact of the new standard on its historical and prospective revenue recognition. Because many of the Company's contracts with customers have unique contract terms, the Company reviewed all of its non-standard agreements in order to determine the effect of adoption.
The Company has determined its Centers for Innovation in Advanced Developmentmission and Manufacturing ("CIADM") contract with the Biomedical Advanced Research and Development Authority ("BARDA") will have a material change in revenue recognition under the new guidance. Under ASC 606, the Company determined that there is one performance obligation which is a stand-ready obligation and will recognize the consideration received in the base period on a straight-line basis over a 24-year period as the capability being created during the base period of the contract is being provided to the customer over both the base period contract term as well as 17 additional option periods. In addition, the Company determined the CIADM contract includes a significant financing component which is included in the transaction price. The Company calculated the financing component using an interest rate the Company had on its other debt obligations at inception of the contract. Prior to the adoption of ASC 606, the Company recognized revenue under the CIADM contract on a straight-line basis, based upon its estimate of the total payments to be received under the contract. The Company analyzed the estimated payments to be received on a quarterly basis to determine if an adjustment to revenue was required. As a result of the adoption of ASC 606 as of January 1, 2018, there was an increase in the deferred revenue liability of $42.4 million and an increase in deferred tax assets of $9.9 million with an offsetting reduction to retained earnings of $32.5 million.
The Company considers accounts receivables and deferred costs associated with revenue generating contracts, that are not included in inventory or property, plant and equipment, as contract assets. As of March 31, 2018 and December 31, 2017, the Company had $122.1 million and $143.7 million, respectively, in contract assets associated with accounts receivable which is included in accounts receivable on the company's condensed consolidated balance sheets. As of March 31, 2018 and December 31, 2017, the Company had contract assets associated with deferred costs of $3.3 million and $2.9 million, respectively, which is included in prepaid and other current assets onexpands the Company's
condensed consolidated balance sheets.
When performance obligations are not transferred to a customer at the end of a reporting period, the amount allocated to those performance obligations are deferred until control of these performance obligations is transferred to the customer. The following table presents the rollforward of the contract liabilities, which is included in the Company's current and long-term deferred revenue line items in the condensed consolidated balance sheets:
(in thousands) | | | |
Balance at December 31, 2017 | | $ | 30,491 | |
Adoption of new accounting standard (ASC 606) | | | 42,379 | |
Balance at January 1, 2018 | | | 72,870 | |
Deferral of revenue | | | 5,761 | |
Recognition of revenue included in beginning of year contract liability | | | (12,302 | ) |
Balance at March 31, 2018 | | $ | 66,329 | |
We operate in one business segment. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. For the three months ended March 31, 2018, there was a nominal difference between revenues recognized under ASC 606 and revenues recognized based on the prior revenue recognition guidance for the same period. For the three months ended March 31, 2018, the Company's revenues disaggregated by the major sources was as follows:
(in thousands) | | Three Months Ended March 31, 2018 | |
| | U.S. Government | | | Non-U.S. Government | | | Total | |
Product sales | | $ | 66,025 | | | $ | 9,746 | | | $ | 75,771 | |
Contract manufacturing | | | - | | | | 26,178 | | | | 26,178 | |
Contracts and grants | | | 14,806 | | | | 1,059 | | | | 15,865 | |
Total revenues | | $ | 80,831 | | | $ | 36,983 | | | $ | 117,814 | |
As of March 31, 2018, for contracts with a remaining term of greater than one year, the Company had expected future revenues associated with performance obligations that have not been satisfied of approximately $615 million. The Company expects to recognize a majority of its revenues within the next 24 months with the remainder recognized thereafter. However, the amount and timing of recognition of revenue for unsatisfied performance obligations can materially change due to timing of funding appropriations from the U.S. government and the overall success of the Company's development activities associated with its MCM product candidates. In addition, the amount of future revenues associated with unsatisfied performance obligations excludes the value associated with unexercised option periods in the Company's contracts (which are not performance obligations as of March 31, 2018).
3. Acquisitions
Acquisition of ACAM2000 business
On October 6, 2017, the Company completed the acquisition of the ACAM2000® (Smallpox (Vaccinia) Vaccine, Live)core business of Sanofi Pasteur Biologics, LLC ("Sanofi")addressing public health threats. This acquisition included ACAM2000, the only smallpox vaccine licensed by the FDA, a current good manufacturing practices ("cGMP") live viral manufacturing facility and office and warehouse space, both in Canton, Massachusetts, and a cGMP viral fill/finish facility in Rockville, Maryland. With this acquisition, the Company also acquired an existing 10-year contract with the Centers for Disease Control and Prevention ("CDC"), which under the terms expired in March 2018. This contract had a stated value up to $425 million, with a remaining contract value of up to approximately $160 million as of the acquisition date, for the delivery of ACAM2000 to the SNS and the establishment of U.S.-based manufacturing of ACAM2000. This acquisition added to the Company's product portfolio and expanded the Company's manufacturing capabilities.
At the closing, the Company paid $97.5 million in an upfront payment and $20 million in milestone payments earned as of the closing date tied to the achievement of certain regulatory and manufacturing-related milestones, for a total payment in cash of $117.5 million. The agreement includes an additional milestone payment of up to $7.5 million upon achievement of a regulatory milestone, which was achieved in November 2017. The $7.5 million milestone payment was made during the fourth quarter of 2017. This transaction was accounted for by the Company under the acquisition method of accounting, with the Company as the acquirer. Under the acquisition method of accounting, the assets and liabilities of the ACAM2000 business were preliminarilyAdapt have been recorded as of October 6, 2017,15, 2018, the acquisition date, at their respective fair values, and combined with those of the Company.
As the Company continues to finalize the fair value of assets acquired and liabilities assumed, purchase price adjustments have been recorded and additional purchase price adjustments may be recorded during the measurement period. The Company reflects measurement period adjustments in the period in which the adjustments occur. The adjustments for the three months ended March 31, 2019 resulted from the receipt of additional financial information associated with certain acquired contract assets and the value of associated contingent purchase consideration obligation. These adjustments did not impact the Company's statements of operations. As of March 31, 2019, certain fair value estimates relating to intangible assets (including acquired in-process research and development (IPR&D)) acquired and income taxes are subject to further adjustment.
The total purchase price, revised for adjustments is summarized below:
|
| | | | |
| | October 15, 2018 |
Cash | | $ | 581.5 |
|
Equity | | 37.7 |
|
Fair value of contingent purchase consideration | | 48.0 |
|
Preliminary purchase consideration | | 667.2 |
|
Adjustments | | 1.5 |
|
Updated purchase consideration | | $ | 668.7 |
|
The Company issued 733,309 shares of common stock at $60.44 per share, the closing price of Emergent's common stock on October 15, 2018, with a total value of $44.3 million. The $44.3 million value of the common shares issued has been adjusted to a fair value of $37.7 million considering a discount for lack of marketability due to a two-year lock-up period beginning on October 15, 2018. The remaining contingent consideration payable for the acquisition consists of up to $100 million in cash based on the achievement of certain sales milestones through 2022, which the Company has determined had a regulatory milestone. At October 6, 2017,fair value of $48.0 million as of March 31, 2019 and for the payment of additional consideration based on the collectibility of identified acquired contract assets. The fair value of the contingent purchase consideration obligation related to the regulatory milestone was recorded at a fair value of $2.2 million. The fair value of this obligation is based on a present value model of management'smanagement’s assessment of the probability of achievementpotential future realization of the regulatory milestone as of the acquisition date.contingent purchase consideration
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
payments. This assessment is based on inputs that have no observable market (Level 3).
The total purchase priceobligation is summarized below:
(in thousands) | | | |
Amount of cash paid to Sanofi | | $ | 117,500 | |
Fair value of contingent purchase consideration | | | 2,200 | |
Total purchase price | | $ | 119,700 | |
measured using a discounted cash flow model.
The table below summarizes the preliminary allocation of the purchase price based upon estimated fair values of assets acquired and liabilities assumed at October 6, 2017. 15, 2018 updated for measurement period adjustments recorded through March 31, 2019.
|
| | | | | | | | | | | |
| October 15, 2018 | | Measurement Period Adjustments | | Updated October 15, 2018 |
Estimated fair value of tangible assets acquired and liabilities assumed: | | | | | |
Cash | $ | 17.7 |
| | $ | — |
| | $ | 17.7 |
|
Accounts receivable | 21.3 |
| | — |
| | 21.3 |
|
Inventory | 41.4 |
| | — |
| | 41.4 |
|
Prepaid expenses and other assets | 7.8 |
| | 3.0 |
| | 10.8 |
|
Accounts payable | (32.2 | ) | | — |
| | (32.2 | ) |
Accrued expenses and other liabilities | (50.4 | ) | | — |
| | (50.4 | ) |
Deferred tax liability, net | (62.4 | ) | | (0.5 | ) | | (62.9 | ) |
Total estimated fair value of tangible assets acquired and liabilities assumed | (56.8 | ) | | 2.5 |
| | (54.3 | ) |
| | | | | |
Acquired in-process research and development | 41.0 |
| | — |
| | 41.0 |
|
Acquired intangible assets | 534.0 |
| | — |
| | 534.0 |
|
Goodwill | 149.0 |
| | (1.0 | ) | | 148.0 |
|
Total purchase price | $ | 667.2 |
| | $ | 1.5 |
| | $ | 668.7 |
|
The allocationCompany determined the estimated fair value of the intangible asset using the income approach. The preliminary estimated fair value of the intangible asset acquired for Adapt's marketed product NARCAN® Nasal Spray is preliminaryvalued at $534.0 million. The Company has determined the useful life of the NARCAN® Nasal Spray intangible asset to be 15 years. The Company estimated the fair value of the NARCAN® Nasal Spray intangible asset using the income approach which is based upon the finalization of valuation reports and as management gathers additional information on the present value of future cash flows with a present value discount rate of 10.5%, which is based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of Adapt. This is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value these intangible assets. The projected cash flows from the NARCAN® Nasal Spray intangible asset were based on key assumptions including: estimates of revenues and operating profits, and risks related to the viability of and potential alternative treatments in any future target markets. The fair value measurements are based on significant unobservable inputs that are developed by the Company using estimates and assumptions of the respective market and market penetration of the acquired assets.company's products.
The intangible asset associated with the IPR&D acquired from Adapt is related to a product candidate. Management determined that the estimated acquisition-date fair value of intangible assets related to IPR&D was $41.0 million. The estimated fair value was determined using the income approach, which discounts expected future cash flows to present value. The Company estimated the fair value using a present value discount rate of 11.0%, which is based on the estimated weighted-average cost of capital for companies with profiles substantially similar to that of Adapt and IPR&D assets at a similar stage of development as the product candidate. This is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value the IPR&D. The projected cash flows for the product candidate were based on key assumptions including: estimates of revenues and operating profits, the stage of development of pipeline programs on the acquisition date; the time and resources needed to complete the development and approval of the product candidate; the life of the potential commercialized product and associated risks, including the inherent difficulties and uncertainties in developing a product candidate, such as obtaining marketing approval from the FDA and other regulatory agencies; and risks related to the viability of and potential for alternative treatments in any future target markets. IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts (see Note 7).
(in thousands) | | | |
Fair value of tangible assets acquired and liabilities assumed: | | | |
Inventory | | $ | 74,876 | |
Property, plant and equipment | | | 19,995 | |
Total fair value of tangible assets acquired and liabilities assumed | | | 94,871 | |
| | | | |
Acquired intangible asset | | | 16,700 | |
Goodwill | | | 8,129 | |
Total purchase price | | $ | 119,700 | |
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
The Company determined the fair value of inventory using the comparative sales method, which estimates the expected sales price reduced for all costs expected to be incurred to complete/dispose of the inventory with a profit on those costs.
The Company has recorded $148.0 million in goodwill related to the Adapt acquisition, which is calculated as the purchase price paid in excess of the fair value of the tangible and intangible assets acquired representing the future economic benefits the Company expects to receive as a result of the acquisition. The goodwill created from the Adapt acquisition is associated with early stage pipeline products. Substantially all of the goodwill generated from the Adapt acquisition is not expected to be deductible for tax purposes due to the legal structure of the transaction.
PaxVax
On October 4, 2018, the Company completed the acquisition of PaxVax, a company focused on developing, manufacturing, and commercializing specialty vaccines that protect against existing and emerging infectious diseases. This acquisition includes Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever, Vaxchora® (Cholera Vaccine, Live, Oral), the only FDA-licensed vaccine for the prevention of cholera, and clinical-stage vaccine candidates targeting chikungunya and other emerging infectious diseases, European-based current good manufacturing practices (cGMP) biologics manufacturing facilities, and approximately 250 employees including those in research and development, manufacturing, and commercial operations with a specialty vaccines salesforce in the U.S. and in select European countries. The products and product candidates within PaxVax's portfolio are consistent with the Company’s mission and will expand the Company’s core business of addressing PHTs. In addition, the acquisition expands the Company's manufacturing infrastructure and related capabilities.
The Company paid cash consideration of $273.1 million for PaxVax. As of the date of this filing, the accounting for the PaxVax acquisition is preliminary due to the Company's need to gather data to assess the fair value of property, plant and equipment, intangible assets and accounting for taxes. The table below summarizes the preliminary allocation of the purchase price based upon estimated fair values of assets acquired and liabilities assumed at October 4, 2018 updated for measurement period adjustments recorded through March 31, 2019.
|
| | | | | | | | | | | |
| October 4, 2018 | | Measurement Period Adjustments | | Updated October 4, 2018 |
Estimated fair value of tangible assets acquired and liabilities assumed: | | | | | |
Cash | $ | 9.0 |
| | $ | — |
| | $ | 9.0 |
|
Accounts receivable | 4.1 |
| | — |
| | 4.1 |
|
Inventory | 19.7 |
| | — |
| | 19.7 |
|
Prepaid expenses and other assets | 12.2 |
| | — |
| | 12.2 |
|
Property, plant and equipment | 57.8 |
| | — |
| | 57.8 |
|
Deferred tax assets | 3.8 |
| | — |
| | 3.8 |
|
Accounts payable | (3.5 | ) | | — |
| | (3.5 | ) |
Accrued expenses and other liabilities | (33.6 | ) | | — |
| | (33.6 | ) |
Total estimated fair value of tangible assets acquired and liabilities assumed | 69.5 |
| | — |
| | 69.5 |
|
| | | | | |
Acquired in-process research and development | 9.0 |
| | (9.0 | ) | | — |
|
Acquired intangible assets | 133.0 |
| | — |
| | 133.0 |
|
Goodwill | 61.6 |
| | 9.0 |
| | 70.6 |
|
Total purchase price | $ | 273.1 |
| | $ | — |
| | $ | 273.1 |
|
The preliminary estimated fair value of the intangible assetassets acquired for PaxVax's marketed products is a total of $133.0 million. The Company determined the estimated fair value of the intangible assets using the income approach, which is based on the present value of future cash flows. The fair value measurements are based on significant unobservable inputs that are developed by the Company using estimates and assumptions of the respective market and market penetration of the acquired Company's products. The Company has determined that the weighted average useful lives of the intangible assets to be 19 years. The Company estimated the fair value of the ACAM2000Vivotif and Vaxchora intangible asset
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
assets using the income approach with a present value discount rate of 15.5%; this discount rate14.5% and 15.0%, respectively, which is derived frombased on the estimated weighted-average cost of capital for companies with profiles substantially similar companies and assets.to that of PaxVax. This is comparable to the estimated internal rate of return for the acquisition and represents the rate that market participants would use to value these intangible assets. The projected cash flows from the ACAM2000these intangible assetassets were based on key assumptions, including: estimates of revenues and operating profits, the life of the potential commercialized product and associated risks, and risks related to the viability of and potential alternative treatments in any future target markets.
The intangible asset associated with the IPR&D acquired from PaxVax is related to a product candidate. The Company has determinedadjusted the ACAM2000 intangible asset will be amortized over 10 years.
provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The Company estimates the fair value based on the income approach.
The Company determined the fair value of the inventory using the probability adjusted comparative sales method, which estimates the expected sales price reduced for all costs expected to be incurred to complete/dispose of the inventory with a profit on those costs.
The Company determined the fair value of the property, plant and equipment utilizing eitherboth the cost approach orand the sales comparison approach. The cost approach is deriveddetermined by determiningestablishing replacement cost of the asset and then subtracting any value that has been lost due to economic obsolescence, functional obsolescence, or physical deterioration. The sales comparison approach is derived by the determination thatdetermines an asset is equal to the market price of an asset of comparable features such as design, location, size, construction, materials, use, capacity, specification, operational characteristics and other features or descriptions.
The Company recorded approximately $8.1$70.6 million in goodwill related to the ACAM2000PaxVax acquisition, representingcalculated as the purchase price paid in the acquisition that was in excess of the fair value of the tangible and intangible assets acquired. Thereacquired representing the future economic benefits the Company expects to receive as a result of the acquisition. The goodwill created from the PaxVax acquisition is noassociated with early stage pipeline products along with potential contract manufacturing services. The majority of the goodwill generated from the PaxVax acquisition is expected to be deductible for tax purposes.purposes based upon the structure used in the acquisition.
Impact of Business Acquisitions
The operations of each of the two business acquisitions discussed above were included in the consolidated financial statements as of each of their respective acquisition dates. The following table presents their revenue and earnings as reported within the consolidated financial statements.
|
| | | |
| March 31, 2019 |
Revenue | $ | 74.9 |
|
Operating loss | (3.8 | ) |
4. Inventories
The components of inventory are as follows:
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
Raw materials and supplies | | $ | 57.3 |
| | $ | 51.8 |
|
Work-in-process | | 112.7 |
| | 103.2 |
|
Finished goods | | 41.0 |
| | 50.8 |
|
Total inventories | | $ | 211.0 |
| | $ | 205.8 |
|
5. Property, plant and equipment
Property, plant and equipment consisted of the following:
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
Land and improvements | | $ | 44.3 |
| | $ | 44.6 |
|
Buildings, building improvements and leasehold improvements | | 223.4 |
| | 216.2 |
|
Furniture and equipment | | 316.8 |
| | 293.9 |
|
Software | | 55.5 |
| | 55.2 |
|
Construction-in-progress | | 57.2 |
| | 71.8 |
|
Property, plant and equipment, gross | | 697.2 |
| | 681.7 |
|
Less: Accumulated depreciation and amortization | | (183.8 | ) | | (171.5 | ) |
Total property, plant and equipment, net | | $ | 513.4 |
| | $ | 510.2 |
|
In the table presented above, construction-in-progress includes costs related to construction and equipment purchases.
6. Lease liabilities
The Company has operating leases for corporate offices, research and development facilities and manufacturing facilities. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) reflected as a component of other current liabilities and other liabilities in our condensed consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses an implicit rate when readily determinable. At the beginning of a lease, the operating lease ROU asset also includes any concentrated lease payments expected to be paid and excludes lease incentives. The Company's lease ROU asset may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. The Company's leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
|
| | | | |
| | March 31, 2019 |
Operating lease cost: | | |
Amortization of right-of-use assets | | $ | 0.6 |
|
Interest on lease liabilities | | 0.1 |
|
Total operating lease cost | | $ | 0.7 |
|
Supplemental balance sheet information related to leases was as follows:
|
| | | | |
(In millions, except lease term and discount rate) | | March 31, 2019 |
Operating lease right-of-use assets | | $ | 12.9 |
|
| | |
Other current liabilities | | 2.0 |
|
Operating lease liabilities | | 11.6 |
|
Total operating lease liabilities | | $ | 13.6 |
|
| | |
Operating leases: | |
|
|
Weighted Average Remaining Lease Term | | 9.3 |
|
Weighted Average Discount Rate | | 4.27 | % |
7. Intangible assets
The Company's intangible assets consist of CBRNE, travelers' and opioid products acquired via business combinations or asset acquisitions. The following table summarizes the carrying amount of the Company's intangible assets and goodwill, net of accumulated amortization:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 |
| Estimated Life (years) | Cost | | Measurement Period Adjustment | | Additions | | Gross Total | | Accumulated Amortization | | Net |
Intangible assets, net | 5-22 | $ | 818.4 |
| | — |
| | $ | 10.0 |
| | $ | 828.4 |
| | $ | (71.3 | ) | | $ | 757.1 |
|
IPR&D | indefinite | 50.0 |
| | (9.0 | ) | | — |
| | 41.0 |
| | — |
| | 41.0 |
|
Goodwill | indefinite | 259.7 |
| | 8.0 |
| | — |
| | 267.7 |
| | — |
| | 267.7 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Estimated Life (years) | Cost | | Measurement Period Adjustment | | Additions | | Gross Total | | Accumulated Amortization | | Net |
Intangible assets, net | 5-22 | $ | 151.4 |
| | — |
| | 667.0 |
| | $ | 818.4 |
| | $ | (56.8 | ) | | $ | 761.6 |
|
IPR&D | indefinite | 50.0 |
| | — |
| | — |
| | 50.0 |
| | — |
| | 50.0 |
|
Goodwill | indefinite | 49.1 |
| | — |
| | 210.6 |
| | 259.7 |
| | — |
| | 259.7 |
|
4.Fair value measurements
Contingent consideration consists of liabilities measured at fair value on a recurring basis. For the three months ended March 31, 2018, the contingent consideration obligation associated with the EV-035 series of molecules increased by a nominal amount. For the three months ended March 31, 2017, the contingent consideration obligation associated with the EV-035 series of molecules and the broad spectrum antiviral platform program decreased by $0.2 million. The changes are primarily due to the estimated timing and probability of success for certain development and regulatory milestones of the program, which are inputs that have no observable market (Level 3). These changes are classified in the Company's statement of operations as both selling, general and administrative expense and research and development expense.
During the three months ended March 31, 2019 and 2018, the Company recorded amortization expense for intangible assets of $14.5 million and 2017,$3.9 million, respectively. As of March 31, 2019, the contingent purchaseweighted average amortization period remaining for intangible assets was 14.3 years. IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.
8. Contingent consideration obligations
Contingent consideration liabilities associated with RSDL increased by $1.0 millionbusiness combinations are fair value measurement items. These liabilities represent an obligation of the Company to transfer additional assets to the selling shareholders if future events occur or conditions are met. These liabilities are measured at fair value at inception and $0.4 million, respectively.at each subsequent reporting date. The changes in the fair value of the RSDL contingent consideration obligations are primarily due to the expected amount and timing of future net sales and achieving regulatory milestones, which are inputs that have no observable market (Level 3). The Company also has contingent consideration associated with its asset acquisitions. These changesliabilities are classified in the Company's statement of operations as cost of product sales and contract manufacturing.
accrued when milestones have been achieved. The following table is a reconciliation of the beginning and ending balance of the liabilities, consisting only of contingent consideration, measured at fair value, usingconsiderations and is based on level 3 significant unobservable inputs (Level 3) duringfor the three months ended March 31, 2018.
(in thousands) | | | |
Balance at December 31, 2017 | | $ | 12,274 | |
Expense included in earnings | | | 989 | |
Settlements | | | (793 | ) |
Balance at March 31, 2018 | | $ | 12,470 | |
Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. As of March 31, 2018 and 2017 and for the quarters then ended, the Company had no significant assets or liabilities that were measured at fair value on a non-recurring basis.2019.
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Inventories consisted of the following:
| | March 31, | | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Raw materials and supplies | | $ | 36,080 | | | $ | 36,069 | |
Work-in-process | | | 82,089 | | | | 76,610 | |
Finished goods | | | 37,027 | | | | 30,133 | |
Total inventories | | $ | 155,196 | | | $ | 142,812 | |
6. Property, plant and equipment
Property, plant and equipment consisted of the following:
| | March 31, | | | December 31, | |
(in thousands) | | 2018 | | | 2017 | |
Land and improvements | | $ | 21,848 | | | $ | 21,843 | |
Buildings, building improvements and leasehold improvements | | | 159,267 | | | | 160,005 | |
Furniture and equipment | | | 210,979 | | | | 206,819 | |
Software | | | 51,562 | | | | 50,829 | |
Construction-in-progress | | | 112,354 | | | | 100,088 | |
Property, plant and equipment, gross | | | 556,010 | | | | 539,584 | |
Less: Accumulated depreciation and amortization | | | (144,741 | ) | | | (132,374 | ) |
Total property, plant and equipment, net | | $ | 411,269 | | | $ | 407,210 | |
In the table presented above, as of March 31, 2018 and December 31, 2017, construction-in-progress primarily includes costs related to the build out of the Company's Center for Innovation in Advanced Development and Manufacturing ("CIADM") facility.
7.Intangible assets
During the three months ended March 31, 2018 and 2017, the Company recorded amortization expense of $3.9 million and $1.6 million, respectively, for intangible assets, which has been recorded in operating expenses, specifically selling, general and administrative and cost of product sales and contract manufacturing. As of March 31, 2018, the weighted average amortization period remaining for intangible assets was 8.6 years.
8. Equity
|
| | | |
| |
Balance at December 31, 2018 | $ | 60.0 |
|
Milestone achievement - asset acquisition | 10.0 |
|
Measurement period adjustment | 1.5 |
|
Change in fair value | 1.7 |
|
Settlements | (0.5 | ) |
Balance at March 31, 2019 | $ | 72.7 |
|
During the three months ended March 31, 2018,2019, a contingent milestone was achieved related to the Company's acquisition of raxibacumab in October 2017. The acquisition of raxibacumab was accounted for as an asset acquisition and therefore the achievement of the $10.0 million milestone resulted in an increase to the contingent consideration liability with a corresponding increase in intangible assets.
9. Revenue recognition
The Company operates as one operating segment. Therefore, results of its operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. The Company's revenues disaggregated by the major sources were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 |
| | U.S Government | | Non-U.S. Government | | Total | | U.S Government | | Non-U.S. Government | | Total |
Product sales | | $ | 73.3 |
| | $ | 79.7 |
| | $ | 153.0 |
| | $ | 66.0 |
| | $ | 9.8 |
| | $ | 75.8 |
|
Contract manufacturing | | — |
| | 15.9 |
| | 15.9 |
| | — |
| | 26.1 |
| | 26.1 |
|
Contracts and grants | | 20.4 |
| | 1.3 |
| | 21.7 |
| | 14.8 |
| | 1.1 |
| | 15.9 |
|
Total revenues | | $ | 93.7 |
| | $ | 96.9 |
| | $ | 190.6 |
| | $ | 80.8 |
| | $ | 37.0 |
| | $ | 117.8 |
|
Contract liabilities
When performance obligations are not transferred to a customer at the end of a reporting period, the amount allocated to those performance obligations is reflected as deferred revenue on the consolidated balance sheets and is deferred until control of these performance obligations is transferred to the customer. The following table presents the rollforward of deferred revenue contract liability balances:
|
| | | | |
| | |
December 31, 2018 | | $ | 73.1 |
|
Deferral of revenue | | 4.9 |
|
Revenue recognized | | (2.8 | ) |
March 31, 2019 | | $ | 75.2 |
|
Transaction price allocated to remaining performance obligations
As of March 31, 2019, the Company granted 0.3 million shareshad expected future revenues associated with performance obligations that have not been satisfied of stock optionsapproximately $510.8 million. The Company expects to recognize a majority of these revenues within the next 24 months, with the remainder recognized thereafter. However, the amount and 0.3 million sharestiming of restricted stock unitsrevenue recognition for unsatisfied performance obligations can materially change due to timing of funding appropriations from the USG and the overall success of the Company's development activities associated with its PHT product candidates that are then receiving development funding support from the government under development contracts. In addition, the Fourth Amended and Restated Emergent BioSolutions Inc. 2006 Stock Incentive Plan. The grant price was $49.64amount of future revenues associated with unsatisfied performance obligations excludes the value associated with unexercised option periods in the Company's contracts (which are not performance obligations as of March 31, 2018. The grants vest over three equal annual installments beginning on the day prior to the anniversary of the grant date.2019).
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Contract assets
The Company considers unbilled accounts receivables and deferred costs associated with revenue generating contracts, which are not included in inventory or property, plant and equipment, as contract assets. As of March 31, 2019 and December 31, 2018, the Company had contract assets associated with deferred costs of $1.3 million and $1.2 million, respectively, which is included in prepaid expenses and other current assets on the Company's consolidated balance sheets.
Accounts receivable
Accounts receivable including unbilled accounts receivable contract assets consist of the following:
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
Billed, net | | $ | 89.6 |
|
| $ | 234.0 |
|
Unbilled | | 31.9 |
|
| 28.5 |
|
Total, net | | $ | 121.5 |
|
| $ | 262.5 |
|
As of March 31, 2019 and December 31, 2018, allowance for doubtful accounts were de minimis.
10. Income taxes
The estimated effective annual tax rate for the Company, which excludes discrete adjustments, was 24%27% and 31%26% for the three months ended March 31, 20182019 and 2017,2018, respectively. The decreaseincrease in the estimated effective annual tax rate is primarily due to the impact of the Tax Reform Act enactedacquisitions of Adapt and PaxVax on December 22, 2017 which reduced the U.S. federal corporate income tax rate from 35% to 21%, offset by state taxes non-deductible expenses, international provisions fromand changes in fair value of the U.S. tax reform and the impact of a change in the Company's jurisdictional mix of earnings. Apapt contingent consideration which is non-deductible. For the three months ended March 31, 20182019 and 2017,2018, the Company recorded a discrete tax benefit of $1.8 million and $2.3 million, respectively, primarily associated with equity awards activity of $2.3 million and $1.1 million, respectively.during the quarters.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. For the three months ended March 31, 2018, the Company did not change the provisional estimates recognized in 2017. Additional work is necessary for a more detailed analysis of the Company's deferred tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.
10. Purchase commitments
During the first quarter of 2018, the Company entered into a contract with Norwood Laboratories Inc. ("Norwood") to purchase approximately $12.0 million of raw materials related to the Company's RSDL product. As of March 31, 2018, the Company has not purchased any materials under this commitment.
11. Earnings per share
The following table presents the calculation of basic and diluted net income (loss) per share:
| | Three Months Ended March 31, | |
(in thousands, except share and per share data) | | 2018 | | | 2017 | |
Numerator: | | | | | | |
Net income (loss) | | $ | (4,908 | ) | | $ | 10,485 | |
Interest expense, net of tax | | | - | | | | 907 | |
Amortization of debt issuance costs, net of tax | | | - | | | | 195 | |
Net income (loss), adjusted | | $ | (4,908 | ) | | $ | 11,587 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted-average number of shares—basic | | | 49,580,089 | | | | 40,727,755 | |
Dilutive securities—equity awards | | | - | | | | 894,171 | |
Dilutive securities—convertible debt | | | - | | | | 8,096,500 | |
Weighted-average number of shares—diluted | | | 49,580,089 | | | | 49,718,426 | |
| | | | | | | | |
Net income (loss) per share - basic | | $ | (0.10 | ) | | $ | 0.26 | |
Net income (loss) per share - diluted | | $ | (0.10 | ) | | $ | 0.23 | |
|
| | | | | | | | |
(in millions, except share and per share data) | | Three Months Ended March 31, |
| 2019 | | 2018 |
Numerator: | | | | |
Net loss | | $ | (26.0 | ) | | $ | (4.9 | ) |
| | | | |
Denominator: | | | | |
Weighted-average number of shares—basic | | 51.2 |
| | 49.6 |
|
Dilutive securities—equity awards | | — |
| | — |
|
Weighted-average number of shares—diluted | | 51.2 |
| | 49.6 |
|
| | | | |
Net loss per share - basic | | $ | (0.51 | ) | | $ | (0.10 | ) |
Net loss per share - diluted | | $ | (0.51 | ) | | $ | (0.10 | ) |
For the three months ended March 31, 20182019 and 2017,2018, basic earnings per share is computed by dividing net income (loss)loss by the weighted average number of shares of common stock outstanding during the period.
For the three months ended March 31, 2019 and 2018, diluted earnings per share is computed using the treasury method by dividing net loss by the weighted average number of shares of common stock outstanding during the period, adjusted for the potential dilutive effect of other securities if such securities were converted or exercised.exercised and are not anti-dilutive. No adjustment to the dilutive number of shares for the potential dilutive effect of otherdilutive securities was computed under the treasury methodis reported as the effect would have been anti-dilutive for the three months ended March 31, 2019 and 2018 due to the Company's net loss. For the three months ended March 31, 2019 and 2018, approximately 3.1 million and 3.2 million, respectively, of equity awards were excluded from the calculation of diluted earnings per share.
12. Equity
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
During the three months ended March 31, 2017, diluted earnings per share is computed using2019, the "if-converted" method by dividing the net income adjusted for interest expense and amortization of debt issuance cost, both net of tax, associated with the 2.875% Convertible Senior Notes due 2021 (the "Notes") by the weighted average number ofCompany granted stock options to purchase 0.3 million shares of common stock outstanding during the period. The weighted average number of shares is adjusted for the potential dilutive effect of the exercise of stock options and the vesting of0.3 million restricted stock units along withunder the assumptionEmergent BioSolutions Inc. Stock Incentive Plan (the Plan). The grants vest over three equal annual installments beginning on the day prior to the anniversary of the conversiongrant date.
13. Defined benefit plan
The Company sponsors a defined benefit pension plan covering eligible employees in Switzerland (the Swiss Plan). Under the Swiss Plan, the Company and certain of its employees with annual earnings in excess of government determined amounts are required to make contributions into a fund managed by an independent investment fiduciary. Employer contributions must be in an amount at least equal to the Notes, atemployee’s contribution. The Swiss Plan assets are comprised of an insurance contract that has a fair value consistent with its contract value based on the beginningpracticability exception using level 3 inputs. The entire liability is listed as non-current, because plan assets are greater than the expected benefit payments over the next year. The Company recognized pension expense related to the Swiss Plan of the period. The "if-converted" method was not utilized$$0.3 million, reflected as a component of selling, general and administrative for the three months ended March 31, 2019.
The measurement date used for the Swiss Plan is December 31, annually. The expense components of the Swiss Plan consisted of the following:
|
| | | | |
| | Three Months Ended March 31, 2019 |
Net service cost | | $ | 0.3 |
|
Expected return on plan assets, net of expenses | | (0.1 | ) |
Total | | $ | 0.2 |
|
14. Commitments and Contingencies
ANDA Litigation - Perrigo 4mg
On September 14, 2018, as the conversion rights associatedAdapt Pharma Inc., Adapt Pharma Operations Limited and Adapt Pharma Ltd. (collectively, Adapt Pharma), and Opiant Pharmaceuticals, Inc. (Opiant), received notice from Perrigo UK FINCO Limited Partnership (Perrigo) that Perrigo had filed an Abbreviated New Drug Application (ANDA) with the Notes were terminated duringFDA, seeking regulatory approval to market a generic version of NARCAN® (naloxone hydrochloride) Nasal Spray 4mg/spray before the fourth quarterexpiration of 2017. ForU.S. Patent Nos. 9,211,253 (the ‘253 Patent), 9,468,747 (the ‘747 Patent), 9,561,177 (the ‘177 Patent), 9,629,965 (the ‘965 Patent), and 9,775,838 (the ‘838 Patent). On or about October 25, 2018, Perrigo sent a subsequent notice letter relating to U.S. Patent No. 10,085,937 (the ‘937 Patent). Perrigo’s notice letters assert that its generic product will not infringe any valid and enforceable claim of these patents.
On October 25, 2018, Emergent BioSolutions’ Adapt Pharma subsidiaries and Opiant (collectively, Plaintiffs), filed a complaint for patent infringement of the three months ended‘253, ‘747, ‘177, ‘965, and the ‘838 Patents against Perrigo in the United States District Court for the District of New Jersey arising from Perrigo’s ANDA filing with the FDA. Plaintiffs filed a second complaint against Perrigo on December 7, 2018, for the infringement of the ‘937 Patent. As a result of timely filing the first lawsuit in accordance with the Hatch-Waxman Act, a 30-month stay of approval will be imposed by the FDA on Perrigo’s ANDA, which is expected to remain in effect until March 31, 2017, approximately 0.8 million stock options were excluded2021 absent an earlier judgment, unfavorable to the Plaintiffs, by the Court.
ANDA Litigation - Teva 2mg
On or about February 27, 2018, Adapt Pharma Inc. and Adapt Pharma Operations Limited and Opiant received notice from Teva Pharmaceuticals Industries Ltd. and Teva Pharmaceuticals USA, Inc. (collectively Teva), that Teva had filed an ANDA with the calculationFDA seeking regulatory approval to market a generic version of diluted earningsNARCAN® (naloxone hydrochloride) Nasal Spray 2 mg/spray before the expiration of U.S. Patent No. 9,480,644 (the ‘644 Patent), and U.S. Patent No. 9,707,226 (the '226 Patent). Teva's notice letter asserts that the commercial manufacture, use or sale of its generic drug product described in its ANDA will not infringe the '644 Patent or the '226 Patent, or that the '644 Patent and '226 Patent are invalid or unenforceable. Adapt Pharma Inc. and Adapt Pharma Operations Limited and Opiant filed a complaint for patent infringement against Teva in the United States District Court for the District of New Jersey.
ANDA Litigation - Teva 4mg
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share dueamounts)
On or about September 13, 2016, Adapt Pharma Inc. and Adapt Pharma Operations Limited and Opiant received notice from Teva that Teva had filed an ANDA with the FDA seeking regulatory approval to market a generic version of NARCAN® (naloxone hydrochloride) Nasal Spray 4 mg/spray before the expiration of the '253 Patent. Adapt Pharma Inc. and Adapt Pharma Operations Limited and Opiant received additional notices from Teva relating to the fact'747, the '177, the '965, the '838, and the ‘937 Patents. Teva's notice letters assert that the exercise prices werecommercial manufacture, use or sale of its generic drug product described in excessits ANDA will not infringe the '253, the '747, the '177, the '965, the '838, or the ‘937 Patent, or that the '253, the '747, the '177, the '965, the '838, and the ‘937 Patents are invalid or unenforceable. Adapt Pharma Inc. and Adapt Pharma Operations Limited and Opiant filed a complaint for patent infringement against Teva in the United States District Court for the District of New Jersey with respect to the '253 Patent. Adapt Pharma Inc. and Adapt Pharma Operations Limited and Opiant also filed complaints for patent infringement against Teva in the United States District Court for the District of New Jersey with respect to the '747, the '177, the '965, and the '838 Patents. All five proceedings have been consolidated. As of the average per share closing price duringdate of this filing, Adapt Pharma Inc., Adapt Pharma Operations Limited, and Opiant, have not filed a complaint related to the period.‘937 Patent.
In the complaints described in the paragraphs above, the Plaintiffs seek, among other relief, orders that the effective date of FDA approvals of the Teva ANDA products and the Perrigo ANDA product be a date not earlier than the expiration of the patents listed for each product, equitable relief enjoining Teva and Perrigo from making, using, offering to sell, selling, or importing the products that are the subject of Teva and Perrigo’s respective ANDAs, until after the expiration of the patents listed for each product, and monetary relief or other relief as deemed just and proper by the court.
12. LitigationShareholder Class Action Lawsuit filed July 19, 2016
On July 19, 2016, Plaintiff William Sponn ("Sponn")(Sponn), filed a putative class action complaint in the United States District Court for the District of Maryland on behalf of purchasers of the Company'sCompany’s common stock between January 11, 2016 and June 21, 2016, inclusive (the "Class Period")Class Period), seeking to pursue remedies under the Securities Exchange Act of 1934 against the Company and certain of its senior officers and directors collectively,(collectively, the Defendants.Defendants). The complaint alleges,alleged, among other things, that the CompanyDefendants made materially false and misleading statements about the government'sgovernment’s demand for BioThrax and expectations that the Company'sCompany’s five-year exclusive procurement contract with HHSthe U.S. Department of Health and Human Services (HHS) would be renewed, and omitted certain material facts. Sponn is seekingsought unspecified damages, including legal costs. On October 25, 2016, the Courtcourt added City of Cape Coral Municipal Firefighters'Firefighters’ Retirement Plan and City of Sunrise Police Officers'Officers’ Retirement Plan as plaintiffs and appointed them Lead Plaintiffs and RobinsRobbins Geller Rudman & Dowd LLP as Lead Counsel. On December 27, 2016, the Plaintiffs filed an amended complaint that citescited the same class period, namesnamed the same defendants and makesmade similar allegations to the original complaint. The CompanyDefendants filed a Motion to Dismiss on February 27, 2017. The Plaintiffs filed an opposition brief on April 28, 2017. The Company'sDefendants’ Motion to Dismiss was heard and denied on July 6, 2017. The CompanyDefendants filed itsan answer on July 28, 2017. The parties are currentlythen engaged in the process of exchanging discovery.discovery process. The Plaintiffs filed an amended motion for class certification and appointment of Lead Plaintiffs, Sponn, and Geoffrey L. Flagstad (Flagstad) as lead plaintiffsClass Representatives on December 20, 2017. A hearing on that motion was heard on May 2, 2018. On June 8, 2018 the Court granted class certification with a shortened class period, from May 5, 2016 to June 21, 2016. In that same order, the court appointed Flagstad as Class Representative and Robbins Geller Rudman & Dowd LLP as Class Counsel. The Defendants have denied, and continue to deny, any and all allegations of fault, liability, wrongdoing, or damages. However, recognizing the risk, time, and expense of litigating any case to trial, on August 27, 2018, the Defendants reached an agreement in principle with Plaintiffs to settle all of the related claims of any individual plaintiff that purchased or acquired Company stock from January 11, 2016 to June 21, 2016, for $6.5 million, an amount that was paid by the Company’s insurance carrier. The settlement required no payment by any of the Defendants. The Defendants continue to deny any and all liability. The parties executed the settlement agreement on October 16, 2018 and filed the agreement with the court on October 17, 2018. The court granted preliminary approval of the settlement on October 18, 2018, issued an amended preliminary approval of the settlement on October 25, 2018, and scheduled a hearing regarding final approval for January 22, 2019. At the time of the final approval hearing on January 22, 2019, there were no objections to the settlement, but there were two shareholders who had submitted opt-outs so that they could be excluded from the settlement. On January 25, 2019, the court issued an order and final judgment approving the settlement. The time to file a notice of appeal has passed.Defendants continue to believe that the allegations in the complaint are without merit and intend to defend themselves vigorously against those claims. As of the date of this filing, the range of potential loss cannot be determined or estimated.merit.
EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
15. Supplemental Information
The following table provides a reconciliation of cash, cash equivalents and restricted cash:
|
| | | | | | | | |
| | March 31, 2019 | | December 31, 2018 |
Cash and cash equivalents | | $ | 137.2 |
| | $ | 112.2 |
|
Restricted cash | | 0.2 |
| | 0.2 |
|
Total cash, cash equivalents and restricted cash | | $ | 137.4 |
| | $ | 112.4 |
|
EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in millions, except share and per share amounts)
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report on Form 10-Q, includingincludes information with respect to our plans and strategy for our business and financing, includesas well as forward-looking statements that involve risks and uncertainties. You should carefully review the "Special Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this quarterly report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a global life sciences company focused on providing specialty products forto civilian and military populations a portfolio of innovative preparedness and response products and solutions that address accidental, intentionaldeliberate and naturally occurring public health threats, or PHTs. Within the category of our specialty products, wePHTs.
We are focused on developing, manufacturingthe following four distinct PHT categories: CBRNE; EID; travelers’ diseases; and commercializing medical countermeasures, or MCMs, that address PHTs. The PHTs that we address fall into two categories: Chemical, Biological, Radiological, Nuclear and Explosives or CBRNE; and emerging infectious diseases, or EID.opioids. We have a product portfolio of eighteleven products through which we(vaccines, antibody therapeutics, and drug-device combination products) that generate our product sales revenue, which accounts for a majority of our total revenue,revenue. We also have a fully-integrated portfolio of contract manufacturing services, and a research and development pipeline of various investigational stage product candidates. The U.S. government is the primary purchaser of our products and provides us with substantial funding for the development of many of our product candidates. Our development pipeline consistsconsisting of a diversified mix of both pre-clinical-pre-clinical and clinical-stage candidates.clinical stage product candidates (vaccines, antibody therapeutics, and drug-device combination products). Finally, we have a fully-integrated portfolio of contract development and manufacturing services. We continue to pursue acquiring and developing products and solutions that provide an opportunity to serve both government and commercial (non-government) customers.
Our MCM products are:product portfolio includes:
Vaccines and Anti-Infectives
BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
ACAM2000® (Smallpox (Vaccinia) Vaccine, Live), the only smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;
Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever; and
Vaxchora® (Cholera Vaccine, Live, Oral), the only FDA-licensed vaccine for the prevention of cholera.
Devices
NARCAN® (naloxone HCl) Nasal Spray, the first needle-free formulation of naloxone approved by the FDA and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression;
RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin; and
Trobigard® (atropine sulfate, obidoxime chloride), an auto-injector device designed for intramuscular self-injection of atropine sulfate and obidoxime chloride, as a nerve agent countermeasure. This product is not currently approved or cleared by the FDA or any similar regulatory body, and is only distributed to authorized government buyers for use outside the United States. This product is not distributed in the United States.
| § | BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the U.S. Food and Drug Administration, or FDA, for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
|
21
EMERGENT BIOSOLUTIONS INC.
| § | ACAM2000® (Smallpox (Vaccinia) Vaccine, Live), the only smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection (acquired from Sanofi Pasteur Biologics, LLC in October 2017);
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | § | Raxibacumab(amounts in millions, except share and per share amounts)
Antibody Therapeutics raxibacumab (Anthrax Monoclonal), the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax (acquired from GlaxoSmithKline LLC in October 2017); |
| § | Anthrasil® [Anthrax Immune Globulin Intravenous (Human)], the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax;
|
| § | BAT® [Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)], the only heptavalent antibody therapeutic licensed by the FDA and Health Canada for the treatment of botulism; |
| § | VIGIV [Vaccinia Immune Globulin Intravenous (Human)], the only antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination; |
| § | RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin; and
|
| § | Trobigard™ (atropine sulfate, obidoxime chloride), an auto-injector device designed for intramuscular self-injection of atropine sulfate and obidoxime chloride, as a nerve agent countermeasure. This product is not currently approved or cleared by the FDA or any similar regulatory body, and is only distributed to authorized government buyers for use outside the United States. This product is not distributed in the United States.
|
Our lead investigational stage MCM candidates, many of which are under an active development contract with significant funding from the U.S. government, are:
| § | NuThrax™ (anthrax vaccine adsorbed with CPG 7909 adjuvant), a next generation anthrax vaccine; |
| § | FLU-IGIV (NP025), a human polyclonal antibody therapeutic being developed for the treatment of serious influenza A infection in hospitalized patients; |
| § | ZIKV-IG (NP024), a human polyclonal antibody therapeutic being developed as a prophylaxis for Zika infections in at risk populations; |
| § | FILOV (NP026), an equine polyclonal antibody therapeutic being developed to treat hemorrhagic fever caused by Filoviruses (Ebola, Marburg and Sudan); |
| § | VLA1601, a highly purified inactivated vaccine against the Zika virus; |
| § | UNI-FLU, a universal influenza vaccine; |
| § | EBX-205, an oral therapeutic to treat acute bacterial skin and skin structure infection, including those caused by methicillin-resistant Staphylococcus aureus, or MRSA, as well as to treat other serious bacterial infections caused by biothreat pathogens;
|
| § | EBI-001, a pan respiratory antiviral from our iminosugar-based discovery program; |
| § | GC-072, an oral and intravenous treatment for Burkholderia pseudomallei infection (GC-072 is the lead compound in the EV-035 series of broad-spectrum antibiotics);
|
| § | D4, a multi-drug delivery device being developed for nerve agent antidote delivery (atropine and pralidoxime chloride in combination); and |
| § | SIAN (stabilized isoamyl nitrite), a stabilized form of isoamyl nitrite in an intra-nasal spray device being developed as a treatment for known or suspected acute cyanide poisoning. |
Highlightsand Business Accomplishments for 2018
On April 12, 2018, we announced the successful completion of the Mutual Recognition Procedure, or MRP, for market authorization of BioThrax® in five Concerned Member States, or CMS, within the European Union, or EU, consisting of Italy, the Netherlands, Poland, the U.K., and France (where it will be marketed as BaciThrax™). We filed the mutual recognition application based on the existing Marketing Authorization of BioThrax in Germany granted by the PaulEhrlich-Institut. Following the positive MRP outcome, national licenses are due to be issued shortly by the five CMS countries.
On February 28, 2018, we announced a contract award by the Centers for Disease Control and Prevention, or CDC, valued at $26 million over 12 months, for the continued supply of VIGIV into the U.S. Strategic National Stockpile, or SNS. VIGIV is the only therapeutic licensed by the FDA for the treatment and prophylaxis of complications due to smallpox vaccination. Underinhalational anthrax;
Anthrasil® (Anthrax Immune Globulin Intravenous (Human)), the contract, we will conduct manufacturing runs, collect plasma for future manufacturing, and undertake additional activities in support of maintaining FDA licensure of VIGIV. VIGIV was developed on our hyperimmune platform, on which several marketedonly polyclonal antibody therapeutics have beentherapeutic licensed including Anthrasil®. This contract will continue the CDC's commitment to VIGIV, which was licensed in the U.S. by the FDA in 2005 and in Canada by Health Canada in 2007.for the treatment of inhalational anthrax;
BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), the only heptavalent antibody therapeutic licensed by the FDA and Health Canada for the treatment of botulism; and
VIGIV (Vaccinia Immune Globulin Intravenous (Human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination.
Highlights and Business Accomplishments for 2019
On February 26, 2018,April 16, 2019, we together with Valneva SE, or Valneva, announced the initiationresults from an interim analysis of aour Phase 12 clinical trial in the U.S. to evaluatestudy evaluating the safety and immunogenicity of VLA1601, Valneva'sthe Company’s chikungunya virus virus-like particle vaccine candidate across a series of dosing regimens. The interim analysis has shown that with a single dose administered, up to 98% of study participants produced a neutralizing antibody response against Zika virus. The Phase 1 clinical trial is a randomized, observer-blinded, placebo-controlled, single center study. This study, in approximately 65 healthy adults, will investigate two dose levels of VLA1601 when administered using two different vaccination schedules. Initial data from the trial are expectedchikungunya virus by day 7. Further, the immune response was shown to be available in late 2018 or early 2019. Underpersistent through the terms of the agreement signed in July 2017, the parties will share all costs until the availability of Phase 1 datasix-month visit, including in the U.S. Valneva will be responsible for the program's execution until completion of the Phase 1 trial through a joint governance structure. Upon availability of Phase 1 data, we will have the option to continue the development and commercialization of a Zika vaccine under its worldwide exclusive license agreement with Valneva for a milestone payment of €5 million. The agreement provides Valneva potential additional milestone payments of up to €44 million related to product development, approval, commercialization, and product sales, future royalties on annual net sales, and the right, prior to a Phase 3 clinical trial, to negotiate with our exclusive commercialization rights in Europe. We are expected to enter into a technology transfer agreement at a later time to enable transfer of Valneva's technology to our Bayview manufacturing facility in Baltimore, Maryland.
one-dose regimen.
On January 4, 2018,March 19, 2019, we announced the initiation of a Phase 2 dose ranging study3 trial to evaluate the lot consistency, immunogenicity, and safety pharmacokinetics, and clinical benefit of FLU-IGIV, our anti-influenza immune globulinAV7909 (anthrax vaccine adsorbed with CPG 7909 adjuvant) following a two-dose schedule administered intramuscularly in healthy adults. AV7909 is being developed asfor post-exposure prophylaxis of disease resulting from suspected or confirmed Bacillus anthracis exposure.
On February 28, 2019, we announced that we have signed an intravenous treatment for serious illness caused by influenza A infection in hospitalized patients. This Phase 2 clinical study will enroll approximately 75 adult patients hospitalizedindefinite-delivery, indefinite-quantity contract with serious illness caused by influenza A infection in up to 50 sites within the U.S. Department of State to establish a long-term, reliable, and stable supply chain for medical countermeasures that address the treatment prosed by chemical warfare agents. The study will evaluate FLU-IGIV in conjunctioncontract is comprised of a five-year base period of performance along with standardfive one-year option periods with a total contract value of care, including a minimum five-day course of an anti-viral drug. FLU-IGIV isapproximately $7 million to a purified immunoglobulin containing a standardized amountmaximum of antibody to influenza A virus. It is developed on
$100 million over the contract’s period of performance. We will be supplying two of our hyperimmune platform, on which several marketed antibody therapeutics have been licensed, including Anthrasil®current medical countermeasures addressing chemical threats; Trobigard® auto-injector and VIGIV.RSDL®kit.
Financial Operations Overview
Revenues
We have derivedgenerate revenues from the sale of our eleven marketed products, the performance of contract development and manufacturing services, and our performance of research and development services under contracts and grants that we receive from the USG and others. The USG is the largest purchaser of our CBRNE products and primarily purchases our products for the U.S. Strategic National Stockpile (SNS), a national repository of medical countermeasures including critical antibiotics, vaccines, chemical antidotes, antitoxins, and other critical medical supplies. The USG primarily purchases our products under long-term firm fixed price procurement contracts. The majority of our historical product sales revenueswere derived from BioThrax sales topurchases by the U.S. government. We are a party to a contract with the CDC, an operating division of the U.S. Department of Health and Human Services,USG.
Our opioid overdose treatment, NARCAN® Nasal Spray, is sold commercially through physician-directed or HHS, valuedstanding order prescriptions at up to $911 million, to supply approximately 29.4 million doses of BioThrax to the SNS through September 2021. For at least the next two to three years, we expect to continue to derive a substantial portion of our product sales revenues from sales of BioThrax to the U.S. government. We are focused on increasing the sales of our marketed MCMs to U.S. government customers,retail pharmacies, as well as expandingto state health departments, local law enforcement agencies, community-based organizations, substance abuse centers, and federal agencies. Our travelers’ disease products, comprising Vivotif and Vaxchora, are sold to wholesalers and distributors, as well as directly to healthcare practitioners. We sell Vivotif and Vaxchora to private travel clinics, retail pharmacies and integrated hospital networks.
We also generate revenue from the marketperformance of contract development and manufacturing services for our MCM product portfolio to other customers domestically and internationally.
For at leastthird-parties. Our services include fill/finish activities as well as the next two to three years, we expect to continue to derive a substantial portionproduction of bulk drug substances on behalf of our product sales revenues from sales of BioThrax to the U.S. government.customers.
We have received contractcontracts and grantgrants funding from the Biomedical Advanced ResearchUSG and Development Authority, or BARDA, Department of Defense, or DoD, CDC, the Defense Threat Reduction Agency, or DTRA,other non-governmental organizations to perform research and the National Institute of Allergydevelopment activities related to programs addressing certain CBRNE threats and Infectious Diseases, or NIAID, for the following development programs:
Development Programs | Funding Source | Award Date | Performance Period |
Anthrasil | BARDA | 09/2005 | 9/2005 — 4/2021 |
| BARDA | 09/2013 | 9/2013 — 9/2018 |
Auto-injector platform | DoD | 07/2017 | 7/2017 — 6/2022 |
BAT | BARDA | 05/2006 | 5/2006 — 12/2027 |
CIADM | BARDA | 06/2012 | 6/2012 — 6/2037 |
GC-072 | DTRA | 08/2014 | 8/2014 — 8/2019 |
NuThrax | NIAID | 08/2014 | 8/2014 — 1/2020 |
| BARDA | 03/2015 | 3/2015 — 10/2018 |
| BARDA | 09/2016 | 9/2016 — 9/2021 |
SIAN | BARDA | 09/2017 | 9/2017 — 9/2022 |
UV-4B | NIAID | 09/2011 | 9/2011 — 9/2018 |
VIGIV | CDC | 02/2018 | 2/2018 — 2/2019 |
emerging infectious disease.
Our revenue, operating results and profitability have varied, and we expect that they will continue to vary on a quarterly basis, primarily due to the timing of our fulfilling orders for BioThrax and work done under new and existing grants and development contracts.basis.
EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in millions, except share and per share amounts)
Critical Accounting Policies and Estimates
During the three months ended March 31, 2018,2019, there have been no significant changes to our Critical Accounting Policiescritical accounting policies and Estimatesestimates contained in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, as filed with the Securities and Exchange Commission,SEC, except for the adoption of the new revenue recognition standard.lease standard (see Note 2 to the accompanying condensed consolidated financial statements).
EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in millions, except share and per share amounts)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | |
| | 2019 | | 2018 | | Change | | % Change |
Product sales net: | | | | | | | | |
NARCAN Nasal Spray | | $ | 65.5 |
|
| $ | — |
|
| $ | 65.5 |
| | NM |
|
ACAM2000 | | 45.6 |
| | 21.8 |
| | 23.8 |
| | 109 | % |
BioThrax | | 11.7 |
| | 20.2 |
| | (8.5 | ) | | (42 | %) |
Other | | 30.2 |
| | 33.8 |
| | (3.6 | ) | | (11 | )% |
Total product sales, net | | 153.0 |
| | 75.8 |
| | 77.2 |
| | 102 | % |
Contract manufacturing | | 15.9 |
| | 26.1 |
| | (10.2 | ) | | (39 | )% |
Contracts and grants | | 21.7 |
| | 15.9 |
| | 5.8 |
| | 36 | % |
Total revenues | | 190.6 |
| | 117.8 |
| | 72.8 |
| | 62 | % |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Cost of product sales and contract manufacturing | | 91.8 |
| | 54.3 |
| | 37.5 |
| | 69 | % |
Research and development | | 46.1 |
| | 29.1 |
| | 17.0 |
| | 58 | % |
Selling, general and administrative | | 65.4 |
| | 40.0 |
| | 25.4 |
| | 64 | % |
Amortization of intangible assets | | 14.5 |
| | 3.9 |
| | 10.6 |
| | NM |
|
Total operating expenses | | 217.8 |
| | 127.3 |
| | 90.5 |
| | 71 | % |
| | | | | | | | |
Loss from operations | | (27.2 | ) | | (9.5 | ) | | (17.7 | ) | | NM |
|
| | | | | | | | |
Other income (expense): | | | | | | | | |
Interest expense | | (9.6 | ) | | (0.2 | ) | | (9.4 | ) | | NM |
|
Other income (expense), net | | (1.0 | ) | | 0.3 |
| | (1.3 | ) | | NM |
|
Total other income (expense), net | | (10.6 | ) | | 0.1 |
| | (10.7 | ) | | NM |
|
| | | | | | | | |
Loss before benefit from income taxes | | (37.8 | ) | | (9.4 | ) | | (28.4 | ) | | NM |
|
Income tax benefit | | (11.8 | ) | | (4.5 | ) | | (7.3 | ) | | NM |
|
Net loss | | $ | (26.0 | ) | | $ | (4.9 | ) | | $ | (21.1 | ) | | NM |
|
EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in millions, except share and per share amounts)
Product Sales, net
|
| | | |
| NARCAN Nasal Spray | | Other Product Sales |
| ACAM2000 | | Contract Manufacturing |
| BioThrax | | Contracts and Grants |
NARCAN Nasal Spray
NARCAN Nasal Spray was acquired in October 2018 in connection with the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU No. 2014-09. ASU No. 2014-09 supersedesCompany's acquisition of Adapt resulting in an increase in product sales in the revenue recognition requirementscurrent period.
ACAM2000
The increase in Topic 605, Revenue Recognition, as well as most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that we expect to receive in exchangeACAM2000 sales for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction pricethree months ended March 31, 2019 was primarily due to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 also specifies the accounting for some costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements.
We first identify whether a legally enforceable contract with a customer exists. A legally enforceable contract creates enforceable rights and obligations on both parties. We evaluate the following criteria in our evaluation and if all criteria are not met, a contract does not exist and any revenue that otherwise would be recorded because a good or service had been transferred to a customer is deferred until such time that a contract exists: (1) both we and the customer have approved the contract and are committed to perform, (2) we can identify each party's rights regarding the goods or services to be transferred, (3) we can identify the payment terms for the goods or services to be delivered, (4) the contract has commercial substance, and (5) it is probable that we will collect substantially allnumber of the consideration to which we will be entitled in exchange for the goods or services that will be transferredACAM2000 deliveries to the customer.
OnceSNS during the contract has been identified, we evaluate the promises in the contractthree months ended March 31, 2019 as compared to identify performance obligations. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606. Many of the contracts include more than one performance obligation – for example the sale of BAT to the U.S. government includes the performance of stability testing and storage of the product. Promises in contracts which do not result in the transfer of a good or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial in the context of the contract.
Once the performance obligations in the contract have been identified, we estimate the transaction price of the contract. The estimate includes amounts that are fixed as well as those that can vary based on expected outcomes of the activities or contractual terms. Our variable consideration primarily includes consideration transferred under our development contracts with the U.S. government as the development efforts can vary based on successful or unsuccessful progression of the product candidate. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at each reporting date. There were no material changes to our variable consideration estimates during the three months ended March 31, 2018.
In determining the transaction price, we adjust the promised amount of consideration for the effects Substantially all of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides we with a significant benefit of financing the transfer of goods or services to the customer, which is called a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract. We do not adjust transaction price for the effects of a significant financing component when the period between the transfer of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less.
For contracts with multiple performance obligations, we allocate the contract's transaction price to each performance obligation on a relative standalone selling price basis using our best estimate of the standalone selling price of each distinct product or service in the contract. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers, however when prices in standalone sales are not available we may use third-party pricing for similar products or services or estimate the standalone selling price. Allocation of the transaction price is determined at the contracts' inception.
Finally, we record the amount allocated to each performance obligation as revenue when control of that good or service has transferred to the customer. We first evaluate whether a good or service is transferred "over time", and if it is not, then it is recorded at a "point in time". For our development contracts, we recognize revenue "over time" based upon the cost-to-cost measure of progress, provided that we meet the criteria associated with transferring control of the good or service "over time". For our product sales and contract manufacturing activities, we recognize revenue at a "point in time" We evaluates the following indicators to determine the "point in time" at which control transfers to the customer, and may apply judgment in this evaluation: (1) whether we has a present right to payment, (2) whether the customer has legal title, (3) whether the customer has physical possession, (4) whether the customer has significant risks and rewards of ownership, and (5) whether customer acceptance is a formality (i.e., whether customer acceptance of the tool is reasonably assured). In almost all other situations, there is little or no significant judgment applied by the Company in determining if control of a good or service has transferred to a customer. The timing of satisfaction of the performance obligation to payment is dependent upon the negotiated payment terms but generally occurs within 30 to 60 days.
Results of Operations
Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
Revenues
| | Three Months Ended March 31, | | | | | | | |
(in millions) | | 2018 | | | 2017 | | | Change | | | % Change | |
| | | | | | | | | | | | |
Product sales: | | | | | | | | | | | | |
BioThrax | | $ | 20.2 | | | $ | 43.8 | | | $ | (23.6 | ) | | | (54 | %) |
Other | | | 55.6 | | | | 38.2 | | | | 17.4 | | | | 46 | % |
Total Product sales | | | 75.8 | | | | 82.0 | | | | (6.2 | ) | | | (8 | %) |
Contract manufacturing | | | 26.1 | | | | 17.6 | | | | 8.5 | | | | 48 | % |
Contracts and grants | | | 15.9 | | | | 17.3 | | | | (1.4 | ) | | | (8 | %) |
Total revenues | | $ | 117.8 | | | $ | 116.9 | | | $ | 0.9 | | | | 1 | % |
Product sales:
The decrease in BioThrax sales was primarily due to the timing of BioThrax deliveries to the SNS. BioThraxACAM2000 product sales revenues during the three months ended March 31, 2019 and 2018 and 2017 primarily consisted of saleswere made to the CDCUSG under a long-term procurement contract at a consistent value per dose. The fluctuations in ACAM2000 revenue are related to changes in volume depending on when the product qualifies for release. Delivery obligations under this long-term procurement contract were fully satisfied during the three months ended March 31, 2019.
BioThrax
The decrease in BioThrax sales for the three months ended March 31, 2019 was primarily due to the number of $18.8 millionBioThrax deliveries to the SNS during the period as compared to the three months ended March 31, 2018. These decreases were slightly offset by inflationary increases in per unit pricing. Substantially all of the BioThrax product sales revenues are made to the USG under a long-term procurement contract. The fluctuations in BioThrax revenue are largely related to changes in volume depending on when the USG requests delivery. The USG delivery schedule varies based on funding and $41.1 million, respectively.management of the SNS inventory.
Contract Manufacturing
The decrease in contract manufacturing revenue for the three months ended March 31, 2019 was primarily due to a contract to perform design, construction and validation of manufacturing capability for a third party at our Lansing, Michigan site during the first quarter of 2018 for which no similar services were provided during the three months ended March 31, 2019.
Contracts and Grants
The increase in Other product sales relatescontracts and grants revenue for the three months ended March 31, 2019 primarily to:
| § | sales of ACAM2000 to the CDC and Raxibacumab to BARDA; both products were acquired in October 2017; |
| § | sales of Trobigard to the U.S. Department of State; and |
| § | international sales of VIGIV. |
reflects research and development activities related to development funding for AV7909 for clinical trial activities and manufacturing. These increases in Other product sales were partially offset by a decreasereduction in development funding for ACAM2000 for stability testing which were recorded during the sales of BAT and RSDL primarily due to the timing of BAT deliveries to the SNS and RSDL shipments to the DoD.three months ended March 31, 2018 for which no similar services were provided in current period.
Contract manufacturing:25
EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(amounts in millions, except share and per share amounts)
The increase in Contract manufacturing revenue is primarily due to:
| § | the design, construction and validation of manufacturing capability for a third party at our Lansing, Michigan site; and |
| § | manufacturing services for Aptevo Therapeutics Inc. ("Aptevo"). |
These increases in Contract manufacturing revenue were partially offset by a decrease in manufacturing services performed for third party development stage product candidates.
Contracts and grants:
The decrease in Contracts and grants revenue primarily reflects a reduction in revenue associated with the successful completion of multiple U.S. Government contracts as well as reduced R&D activities related to certain ongoing funded development programs, including:
| § | decreased development funding of $3.2 million related to our CIADM program, which includes a decrease of $0.9 million for CIADM task orders primarily related to Ebola and Zika which occurred in the first quarter of 2017 with no activity in 2018; |
| § | decreased revenue for our BAT program related to the timing of stability testing; and |
| § | decreased development funding for our UV-4B program due to the determination that the program is no longer viable. |
These decreases in Contracts and grants revenue were partially offset by an increase in the following R&D development programs:
| § | development funding of $3.2 million for ACAM2000 (acquired October 2017) primarily related to stability testing; and |
| § | increased development funding of $1.2 million for SIAN related to a non-clinical pharmacokinetics study and manufacturing development. |
Cost of Product Sales and Contract Manufacturing
|
| |
| Cost of Product Sales and Contract Manufacturing |
l | Cost of Sales as a Percentage of Product Sales and Contract Manufacturing Revenue |
Cost of product sales and contract manufacturing increased by $11.7$37.5 million, or 25%,69% primarily due to $58.0the acquisition of Adapt and PaxVax, both acquired in October 2018, along with increased sales of ACAM 2000.
Research and Development Expenses (Gross and Net) |
| |
| Research and Development expense |
l | Research and Development expense, net of contracts and grants revenue |
Research and development expenses increased $17.0 million, or 58%, for the three months ended March 31, 20182019, primarily due to the acquisitions of Adapt and PaxVax, both acquired in October 2018. Increases also resulted from $46.3the timing of manufacturing development activities for our AV7909 product candidate. These increases were offset by decreases in technology transfer expenses for raxibacumab. While spending for the technology transfer has been consistent, these costs have been capitalized as a contract asset following the modification of the Center for Innovation Advanced Development and Manufacturing (CIADM) contract during the third quarter of 2018. Prior to the contract modification, technology transfer costs were expensed.
Selling, General and Administrative Expenses
|
| |
| Selling, General and Administrative |
l | SG&A as a percentage of total revenue |
Selling, general and administrative expenses increase by $25.4 million, or 64%, for the three months ended March 31, 2017. The increase was2019, primarily attributabledue to the sales of the newly acquired ACAM2000$20.5 million in expenses related to Adapt and Raxibacumab products (bothPaxVax, both acquired in October 2017). These increases were partially offset by a decrease in BAT and BioThrax sales to the SNS2018. The remaining increase is due to timing.
Research and Development Expenses
Research and development expenses increased by $8.6 million, or 42%, to $29.1 million for the three months ended March 31, 2018 from $20.5 million for the three months ended March 31, 2017. This increase primarily reflects higher contract service costs. Net of contracts and grants revenues, during the three months ended March 31, 2018 and 2017, we incurred net research and development expenses of $13.2 million and $3.2 million, respectively.
Our principal research and development expenses for the three months ended March 31, 2018 and 2017 are shown in the following table:
| | Three Months Ended | | | | | | | |
| | March 31, | | | | | | | |
(in millions) | | 2018 | | | 2017 | | | Change | | | % Change | |
| | | | | | | | | | | | |
NuThrax | | $ | 7.5 | | | $ | 6.0 | | | $ | 1.5 | | | | 25 | % |
Raxibacumab | | | 4.5 | | | | - | | | | 4.5 | | | | N/A | |
FLU-IGIV (NP025) | | | 2.6 | | | | 1.0 | | | | 1.6 | | | | 160 | % |
Auto-injector program | | | 1.8 | | | | 0.9 | | | | 0.9 | | | | 100 | % |
UNI-FLU | | | 1.4 | | | | 0.2 | | | | 1.2 | | | | 600 | % |
EV-035 series of molecules | | | 1.2 | | | | 0.8 | | | | 0.4 | | | | 50 | % |
ZIKV-IG | | | 1.2 | | | | 0.3 | | | | 0.9 | | | | 300 | % |
SIAN | | | 1.1 | | | | - | | | | 1.1 | | | | N/A | |
BAT | | | 0.6 | | | | 0.9 | | | | (0.3 | ) | | | 33 | % |
BioThrax related programs | | | 0.6 | | | | 0.4 | | | | 0.2 | | | | 50 | % |
UV-4B | | | 0.2 | | | | 1.9 | | | | (1.7 | ) | | | (89 | %) |
VIGIV | | | 0.2 | | | | 0.6 | | | | (0.4 | ) | | | (67 | %) |
Anthrasil | | | 0.1 | | | | 0.2 | | | | (0.1 | ) | | | 50 | % |
Large-scale manufacturing for BioThrax | | | 0.1 | | | | 0.5 | | | | (0.4 | ) | | | (80 | %) |
CIADM task orders | | | - | | | | 1.1 | | | | (1.1 | ) | | | (100 | %) |
Other | | | 6.0 | | | | 5.7 | | | | 0.3 | | | | 5 | % |
Total | | $ | 29.1 | | | $ | 20.5 | | | $ | 8.6 | | | | 42 | % |
The increase in research and development expense was primarily attributable to:
| § | manufacturing development activities associated with the preparation to produce process performance qualification (PPQ) lots for our NuThrax product candidate; |
| § | technology transfer activities for Raxibacumab (acquired in October 2017), moving the manufacturing from GlaxoSmithKline's facility to our Bayview facility; |
| § | the timing of the Phase 2 clinical study related to our FLU-IGIV (NP025) program; |
| § | the timing of device and cartridge supply development work related to our Auto-injector program; |
| § | proof of concept activities for our UNI-FLU program; |
| § | preparation activities for the Phase 1 clinical study for our ZIKV-IG product candidate; |
| § | manufacturing and pharmakinetic activities for our SIAN product candidate; and |
| § | increased expenses related to our funded pre-clinical product candidates and manufacturing development activities within our other development activities. |
These increases were partially offset by decreased research and development activity primarily attributable to the timing of:
| § | clinical trial activity to evaluate safety and tolerability related to our UV-4B product candidate; we anticipate a reduction in funding by the U.S. government for this product candidate and, as a result, we will cease further development work on UV-4B and expect the spending to be minimal in the future; and |
| § | the successful completion of manufacturing development in 2017 for Ebola monoclonal antibodies and a virion inactivated Zika vaccine under current CIADM-related task order awards. |
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $5.0 million, or 14%, to $40.2 million for the three months ended March 31, 2018 from $35.2 million for the three months ended March 31, 2017. The increase was primarily attributable to an increase in professional services to support our strategic growth initiatives, along with an increaseinitiatives.
Amortization of intangible Assets
The increased in compensation related costs.amortization of intangible assets for the three months ended March 31, 2019 was primarily due to the acquisitions of Adapt and PaxVax.
The following table provides information regarding our cash flows for the three months ended March 31, 20182019 and 2017:2018:
(i) Includes the effect of exchange rates on cash and cash equivalents.