Emergent BioSolutions Inc 10-Q for FY2019 Q2

Emergent BioSolutions Inc. (EBS)

10-Q 2019-08-02 For: 2019-06-30

Added on April 03, 2026

About this 10-Q

Emergent BioSolutions Inc filed this 10-Q on August 2, 2019, covering the quarter ended June 30, 2019 (FY2019 Q2).

Headline figures

Quarter ended June 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $243.2M; up 10.4% from $220.2M a year earlier
Net loss: $9.5M; compared with net income of $50.1M a year earlier
Diluted EPS: -$0.18; compared with $0.98 a year earlier

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(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended	June 30, 2019

OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to



Delaware		14-1902018
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
400 Professional Drive
Suite 400
Gaithersburg	Maryland	20879
(Address of Principal Executive Offices)		(Zip Code)



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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



Part I. Financial Information		Page No.
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive (Loss) Income	7
	Condensed Consolidated Statements of Cash Flows	8
	Condensed Consolidated Statements of Changes in Stockholders' Equity	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

Part II. Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	68

	Signatures	70


•	appropriations for the procurement of BioThrax® (Anthrax Vaccine Adsorbed) and our other products addressing public health threats (PHTs);


•	the exercise of discretion by the Biomedical Advanced Research and Development Authority (BARDA) to procure AV7909 (anthrax vaccine adsorbed with CPG 7909 adjuvant) in reliance on the U.S. Food and Drug Administration (FDA) review and acceptance of the company’s pre-Emergency Use Authorization (pre-EUA) submission;


•	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), and to receive eventual licensure of AV7909 from the FDA;


•	the availability of funding for our USG 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;


•	the results of regulatory inspections;


•	the operating and financial restrictions placed on us and our subsidiaries under our senior secured credit facilities;


•	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;


•	the success of our commercialization, marketing and manufacturing capabilities and strategy; and


•	our ability and the ability of our contractors and suppliers to maintain compliance with current good manufacturing practices and other regulatory obligations;


•	our ability to obtain and maintain regulatory approvals for our product candidates and the timing of any such approvals;


•	the accuracy of our estimates regarding future revenues, expenses, capital requirements and needs for additional financing.



	June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	177.4		$	112.2
Restricted cash	0.2			0.2
Accounts receivable, net	218.1			262.5
Inventories	232.0			205.8
Prepaid expenses and other current assets	65.0			40.1
Total current assets	692.7			620.8

Property, plant and equipment, net	520.5			510.2
Intangible assets, net	742.4			761.6
In-process research and development	41.0			50.0
Goodwill	268.3			259.7
Other assets	56.4			27.1
Total assets	$	2,321.3		$	2,229.4

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	124.5		$	80.7
Accrued expenses	54.8			30.7
Contingent consideration, current portion	54.6			5.6
Accrued compensation	44.7			58.2
Debt, current portion	10.1			10.1
Other current liabilities	12.5			15.1
Total current liabilities	301.2			200.4
Contingent consideration	10.4			54.4
Debt	830.4			784.5
Deferred tax liability	65.6			67.5
Deferred revenue	77.0			62.5
Other liabilities	47.8			49.2
Total liabilities	$	1,332.4		$	1,218.5
Commitments and contingencies (Notes 8 & 16)
Stockholders' equity:
Preferred stock, $0.001 par value; 15.0 shares authorized, no shares issued or outstanding at both 2019 and 2018	—			—
Common stock, $0.001 par value; 200.0 shares authorized, 52.7 shares issued and 51.6 shares outstanding at 2019; 52.4 shares issued and 51.2 shares outstanding at 2018	0.1			0.1
Treasury stock, at cost, 1.2 common shares at both 2019 and 2018	(39.7		)	(39.6		)
Additional paid-in capital	701.8			688.6
Accumulated other comprehensive loss	(5.0		)	(5.5		)
Retained earnings	331.7			367.3
Total stockholders' equity	988.9			1,010.9
Total liabilities and stockholders' equity	$	2,321.3		$	2,229.4



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Product sales, net	$	183.5		$	180.1		$	336.5		$	255.8
Contract manufacturing	18.7			23.6			34.6			49.8
Contracts and grants	41.0			16.5			62.8			32.4
Total revenues	243.2			220.2			433.9			338.0

Operating expenses:
Cost of product sales and contract manufacturing	100.8			85.3			192.7			139.4
Research and development	63.9			24.7			110.0			53.8
Selling, general and administrative	70.8			39.5			136.4			79.7
Amortization of acquisition-related intangible assets	14.7			3.9			29.2			7.8
Total operating expenses	250.2			153.4			468.3			280.7

(Loss) income from operations	(7.0		)	66.8			(34.4		)	57.3

Other income (expense):
Interest expense	(9.5		)	(1.0		)	(19.0		)	(1.2		)
Other income, net	1.4			—			0.4			0.3
Total other expense, net	(8.1		)	(1.0		)	(18.6		)	(0.9		)

(Loss) income before income taxes	(15.1		)	65.8			(53.0		)	56.4
Income tax (benefit) expense	(5.6		)	15.7			(17.4		)	11.2
Net (loss) income	$	(9.5	)	$	50.1		$	(35.6	)	$	45.2

Net (loss) income per common share
Basic	$	(0.18	)	$	1.00		$	(0.69	)	$	0.91
Diluted	$	(0.18	)	$	0.98		$	(0.69	)	$	0.89
Shares used in computing (loss) income per share
Basic	51.5			49.9			51.3			49.7
Diluted	51.5			51.2			51.3			51.0



	$0.001 Par Value Common Stock			Additional Paid-In Capital		Treasury Stock					Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity
	Shares	Amount		Additional Paid-In Capital		Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity

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	0.3	—		13.2		—		(0.1		)	—			—			13.1
Net loss	—	—		—		—		—			—			(35.6		)	(35.6		)
Other comprehensive income	—	—		—		—		—			0.5			—			0.5
Balance at June 30, 2019	52.7	$	0.1	$	701.8	(1.2	)	$	(39.7	)	$	(5.0	)	$	331.7		$	988.9

Balance at March 31, 2019	52.6	$	0.1	$	690.1	(1.2	)	$	(39.6	)	$	(4.5	)	$	341.2		$	987.3
Employee equity plans activity	0.1	—		11.7		—		(0.1		)	—						11.6
Net loss	—	—		—		—		—			—			(9.5		)	(9.5		)
Other comprehensive loss	—	—		—		—		—			(0.5		)	—			(0.5		)
Balance at June 30, 2019	52.7	$	0.1	$	701.8	(1.2	)	$	(39.7	)	$	(5.0	)	$	331.7		$	988.9

Balance at December 31, 2017	50.6	$	0.1	$	618.4	(1.2	)	$	(39.5	)	$	(3.8	)	$	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		618.4		(1.2	)	(39.5		)	(3.8		)	304.6			879.8
Employee equity plans activity	0.6	—		14.1		—		(0.1		)	—			—			14.0
Net income	—	—		—		—		—			—			45.2			45.2
Other comprehensive loss	—	—		—		—		—			(0.7		)	—			(0.7		)
Balance at June 30, 2018	51.2	$	0.1	$	632.5	(1.2	)	$	(39.6	)	$	(4.5	)	$	349.8		$	938.3

Balance at March 31, 2018	51.0	$	0.1	$	624.4	(1.2	)	$	(39.6	)	$	(3.3	)	$	299.7		$	881.3
Employee equity plans activity	0.2	—		8.1		—		—			—			—			8.1
Net income	—	—		—		—		—			—			50.1			50.1
Other comprehensive loss	—	—		—		—		—			(1.2		)	—			(1.2		)
Balance at June 30, 2018	51.2	$	0.1	$	632.5	(1.2	)	$	(39.6	)	$	(4.5	)	$	349.8		$	938.3


•	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), Anthrasil®( Anthrax Immune Globulin Intravenous (Human)), BAT®(Botulism Antitoxin Heptavalent), and VIGIV (Vaccinia Immune Globulin Intravenous (Human) therapeutic) for complications from smallpox vaccinations.



	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



	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



	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		)	(0.4		)	(34.0		)
Total estimated fair value of tangible assets acquired and liabilities assumed	69.5			(0.4		)	69.1

Acquired in-process research and development	9.0			(9.0		)	—
Acquired intangible assets	133.0			—			133.0
Goodwill	61.6			9.4			71.0
Total purchase price	$	273.1		$	—		$	273.1



	June 30, 2019		December 31, 2018
Raw materials and supplies	$	66.3	$	51.8
Work-in-process	119.1		103.2
Finished goods	46.6		50.8
Total inventories	$	232.0	$	205.8



	June 30, 2019			December 31, 2018
Land and improvements	$	46.7		$	44.6
Buildings, building improvements and leasehold improvements	228.0			216.2
Furniture and equipment	318.8			293.9
Software	56.3			55.2
Construction-in-progress	59.9			71.8
Property, plant and equipment, gross	709.7			681.7
Accumulated depreciation and amortization	(189.2		)	(171.5		)
Total property, plant and equipment, net	$	520.5		$	510.2



(In millions, except lease term and discount rate)	Balance Sheet Location	June 30, 2019
Operating lease right-of-use assets	Other assets	$	15.7

Operating lease liabilities, current portion	Other current liabilities	1.9
Operating lease liabilities	Other liabilities	14.6
Total operating lease liabilities		$	16.5

Operating leases:
Weighted Average Remaining Lease Term (years)		10.3
Weighted Average Discount Rate		4.62		%



	June 30, 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	$	(86.0	)	$	742.4
IPR&D	indefinite	50.0		(9.0		)	—		41.0		—			41.0
Goodwill	indefinite	259.7		8.6			—		268.3		—			268.3




Balance at December 31, 2018	$	60.0
Milestone achievement - asset acquisition	10.0
Measurement period adjustment	1.5
Change in fair value	5.5
Settlements	(12.0		)
Balance at June 30, 2019	$	65.0



Hedging derivatives	Amount of Gain/(Loss) Recognized in OCI on Derivative			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Interest Rate Swaps	$	1.2	—	Interest expense	$	—	$	—



	June 30, 2019			December 31, 2018
Senior secured credit agreement - Term loan due 2023	$	441.6		$	447.2
Senior secured credit agreement - Revolver loan due 2023	398.0			348.0
2.875% Convertible Senior Notes due 2021	10.6			10.6
Other	3.0			3.0
Total debt	853.2			808.8
Current portion of long-term debt, net of debt issuance costs	(10.1		)	(10.1		)
Unamortized debt issuance costs	(12.7		)	(14.2		)
Non-current portion of debt	$	830.4		$	784.5



	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
	U.S. Government		Non-U.S. Government		Total		U.S. Government		Non-U.S. Government		Total
Product sales	$	94.6	$	88.9	$	183.5	$	169.9	$	10.2	$	180.1
Contract manufacturing	—		18.7		18.7		—		23.6		23.6
Contracts and grants	38.3		2.7		41.0		15.3		1.2		16.5
Total revenues	$	132.9	$	110.3	$	243.2	$	185.2	$	35.0	$	220.2