Emergent BioSolutions Reports First Quarter 2014 Financial Results

Emergent BioSolutions Inc. (NYSE: EBS) reported total revenue for Q1 2014 of $53.9 million as compared to $43.1 million in 2013. In addition, Q1 2014 net loss was $20.2 million, or $0.55 per share, as compared to a net loss of $8.1 million, or $0.22 per share, in 2013. The Q1 2014 adjusted net loss was $14.6 million as compared to an adjusted net loss of $6.7 million in 2013. Please see “Reconciliation of GAAP to Adjusted Net Income” for a definition of terms and explanation of these adjustments.

The company is reaffirming its full year 2014 financial forecast for total revenue of $415 to $445 million and net income of $30 to $40 million. The company is introducing a 2014 adjusted net income forecast of $40 to $50 million. The company also anticipates Q2 2014 total revenue of $95 to $110 million.

Daniel J. Abdun-Nabi, president and chief executive officer of Emergent BioSolutions, commented, “Our first quarter financial performance met expectations, with our reported revenue being at the upper end of our guidance. Operationally, we initiated manufacturing of BioThrax consistency lots in Building 55 after finalizing comparability protocols with FDA. Further, we completed the initial phase of the Cangene integration and are preparing for the potential launch of IXinity, a proprietary recombinant coagulation Factor IX product candidate included in the Cangene acquisition.”

Key Operational Accomplishments

Corporate

• Completed the acquisition of Cangene Corporation for $222 million in cash on February 21, 2014; and
• Completed an offering of $250 million of 2.875% Convertible Senior Notes on January 29, 2014.

Biodefense Division

• Finalized comparability protocols with the U.S. Food and Drug Administration for BioThrax, following which consistency lot manufacturing was initiated in Building 55;
• Successfully completed a pivotal clinical study to support a Post-Exposure Prophylaxis (PEP) indication for BioThrax; and
• Received orphan drug designation for BioThrax used for PEP, providing marketing exclusivity of up to seven years and waiving of sBLA filing fees.

Biosciences Division

• Completed the initial phase of Cangene integration; and
• Advanced preparations for the potential launch of IXinity™, a proprietary recombinant coagulation Factor IX product acquired from Cangene, upon FDA approval.

Q1 2014 Key Financial Results

REVENUES

Product Sales

For Q1 2014, product sales were $35.8 million as compared to $30.4 million for Q1 2013, up 18%. Total revenue from BioThrax sales was $24.5 million as compared to $30.4 million for Q1 2013. The 20% decrease in BioThrax sales is attributable to the timing of deliveries to the Strategic National Stockpile, and was offset by sales of RSDL^® (Decontamination Lotion), as well as WinRho^® SDF (Rh_o(D) Immune Globulin Intravenous (Human)) and HepaGam B^® (Hepatitis B Immune Globulin (Human) Injection), which were acquired from Cangene.

Contract Manufacturing

For Q1 2014, contract manufacturing revenue was $2.7 million. This revenue is a result of the Cangene acquisition.

Contracts and Grants

For Q1 2014, contracts and grants revenue was $15.4 million as compared to $12.7 million for Q1 2013, an increase of 21%. This increase is primarily due to development funding for BAT (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), which was acquired from Cangene.

OPERATING EXPENSES

Cost of Product Sales and Contract Manufacturing

For Q1 2014, cost of product sales and contract manufacturing was $19.0 million as compared to $5.7 million for Q1 2013. This increase of $13.3 million is composed primarily of the cost of sales for RSDL and the products and contract manufacturing operations acquired from Cangene.

Research and Development

For Q1 2014, gross research and development expenses were $30.3 million as compared to $30.7 million for Q1 2013 and net R&D expenses for Q1 2014 were $14.9 million as compared to $17.2 million year-over-year. Net R&D expenses are calculated as gross research and development expenses less development contract and grant reimbursements and the net loss attributable to non-controlling interests.

Selling, General and Administrative

For Q1 2014, selling, general and administrative expenses were $30.1 million as compared to $20.0 million for Q1 2013, an increase of $10.1 million or 50%. This increase was driven by increased spending for transaction and integration costs of $4.2 million associated with the acquisition of Cangene, and additional post-acquisition selling, general and administrative costs of $4.0 million associated with Cangene and HPPD.

FINANCIAL CONDITION AND LIQUIDITY

Cash and cash equivalents at March 31, 2014 were $160 million as compared to $179 million at December 31, 2013. Additionally, at March 31, 2014, the accounts receivable balance was $62.9 million, which is comprised primarily of unpaid amounts due from the US government.

Reconciliation of GAAP to Adjusted Net Income

This press release contains a financial measure, adjusted net income, which is considered a “non-GAAP” financial measure under applicable Securities & Exchange Commission rules and regulations. This non-GAAP financial measure should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The company’s definition of this non-GAAP measure may differ from similarly titled measures used by others. The non-GAAP financial measure used in this press release adjusts for specified items that can be highly variable or difficult to predict, or reflect the non-cash impact of charges resulting from purchase accounting. The company views this non-GAAP financial measure as a means to facilitate management’s financial and operational decision-making, including evaluation of Emergent’s historical operating results and comparison to competitors’ operating results. This non-GAAP financial measure reflects an additional way of viewing aspects of the company’s operations that, when viewed with GAAP results and the reconciliations to the corresponding GAAP financial measure, may provide a more complete understanding of factors and trends affecting Emergent’s business.

The determination of the amounts that are excluded from this non-GAAP financial measure is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts. The company is likely to exclude the following items from its non-GAAP adjusted net income in the future, the effect of which is uncertain but may be significant in amount:

• Expenses related to completed and future acquisitions of other businesses, including amortization of acquired intangible and tangible assets, transaction costs and integration costs;
• Non-cash charges related to the impairment of intangible or tangible assets;
• Expenses associated with any potential restructuring activities, including but not limited to, accelerated depreciation, severance costs and lease abandonment charges; and
• Other non-recurring charges.

Because non-GAAP financial measures exclude the effect of items that will increase or decrease the company’s reported results of operations, management strongly encourages investors to review the company’s consolidated financial statements and publicly filed reports in their entirety.

Conference Call and Webcast

Company management will host a conference call at 5:00 pm (Eastern Time) on Thursday, May 8, 2014 to discuss these financial results. The conference call will be accessible by dialing 888-679-8034 or 617-213-4847 (international) and providing passcode 77573849. A webcast of the conference call will be accessible from the company’s website at www.emergentbiosolutions.com, under “Investors.”

A replay of the conference call will be accessible from 10:00 pm (Eastern Time) on May 8, 2014 through May 22, 2014 by dialing 888-286-8010 or 617-801-6888 and using the passcode 27031257. The webcast will be archived on the company’s website, www.emergentbiosolutions.com, under “Investors.”

About Emergent BioSolutions Inc.

Emergent BioSolutions is a specialty biopharmaceutical company seeking to protect and enhance life by offering specialized products to healthcare providers and governments to address medical needs and emerging health threats. Additional information about the company may be found at www.emergentbiosolutions.com.

Follow us on twitter: @emergentbiosolu

Safe Harbor Statement

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements, other than statements of historical fact, including our financial guidance, and any other statements containing the words “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 are forward-looking statements. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. Investors are, therefore, cautioned not to place undue reliance on any forward-looking statement. Any forward-looking statement speaks only as of the date of this press release, and, except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances.

There are a number of important factors that could cause the company’s actual results to differ materially from those indicated by such forward-looking statements, including appropriations for BioThrax procurement; our ability to successfully integrate Cangene Corporation and realize the potential benefits of this acquisition; our ability to successfully integrate the HPPD business and realize the benefits of this acquisition; our ability to obtain new BioThrax sales contracts or modifications to existing contracts; our plans to pursue label expansions and improvements for BioThrax; availability of funding for our US government grants and contracts; our ability to identify and acquire or in-license products or late-stage product candidates that satisfy our selection criteria; whether anticipated synergies and benefits from an acquisition or in-license are realized within expected time periods or at all; our ability to enter into selective collaboration arrangements; our ability to expand our manufacturing facilities and capabilities; our ability to meet operating and financial restrictions placed on us and our subsidiaries that are contained in our senior credit facility; the rate and degree of market acceptance and clinical utility of our products; the success of our ongoing and planned development programs; the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; and our commercialization, marketing and manufacturing capabilities and strategy. 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. Investors should consider this cautionary statement, as well as the risk factors identified in our periodic reports filed with the SEC, when evaluating our forward-looking statements.

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