Emergent BioSolutions Inc. - 10-Q Summary (Period Ended Sept 30, 2009)
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Emergent BioSolutions Inc. for the period ended September 30, 2009. The company operates in two primary segments: Biodefense (focused on anthrax and botulism countermeasures, primarily the FDA-approved BioThrax vaccine) and Commercial (focused on vaccines for infectious diseases like tuberculosis and typhoid). The company is an accelerated filer incorporated in Delaware.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sept 30, 2009 | Nine Months Ended Sept 30, 2009 | Nine Months Ended Sept 30, 2008 |
|---|---|---|---|
| Total Revenues | $43,272 | $180,982 | $142,804 |
| Net Income (Loss) | $(539) | $22,884 | $18,799 |
| Net Income Attributable to Emergent | $949 | $26,910 | $19,227 |
| Diluted EPS | $0.03 | $0.86 | $0.64 |
| Operating Cash Flow (9mo) | $53,798 | ||
| Cash and Equivalents (Sept 30, 2009) | $118,777 | ||
| Total Debt Outstanding | $39,600 |
Note: Net income includes a noncontrolling interest loss of $1.5 million (3 months) and $4.0 million (9 months) related to the Oxford-Emergent Tuberculosis Consortium joint venture.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues for the nine months ended Sept 30, 2009, increased 27% to $181.0 million compared to $142.8 million in the prior year period. This was driven by a 22% increase in product sales ($170.0 million vs. $139.3 million), primarily due to a $34 million price increase for BioThrax doses resulting from FDA approval of a four-year expiry date.
- Quarterly Decline: Conversely, for the three months ended Sept 30, 2009, product sales decreased 30% to $39.0 million from $55.5 million in the prior year quarter due to a 31% reduction in the number of BioThrax doses delivered.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses increased significantly (40% for the quarter, 34% for the nine months). This included approximately $5.5 million in increased litigation services and a $3.8 million impairment charge related to two buildings in Frederick, Maryland, classified as assets held for sale.
- Profitability: Despite the quarterly revenue dip, the company reported a net income attributable to Emergent of $26.9 million for the nine-month period, compared to $19.2 million in the prior year.
Guidance, Outlook, and Risks
- Government Contracts: The company relies heavily on U.S. government contracts for BioThrax. It has completed delivery under a 2007 contract and commenced deliveries under a 2008 contract for up to 14.5 million doses. Future revenue is contingent on government appropriations and contract awards.
- Manufacturing: A new 50,000 sq. ft. facility in Lansing, Michigan, is being converted to manufacture a recombinant protective antigen (rPA) anthrax vaccine candidate. The company is also seeking to sell two buildings in Frederick, MD, and has entered into agreements to purchase facilities in Baltimore and Gaithersburg, MD.
- Joint Venture: The Oxford-Emergent Tuberculosis Consortium (OETC) incurred significant losses ($8.2 million for the nine months), impacting consolidated net income. The company holds a 51% interest.
- Legal Proceedings: The company is pursuing foreclosure and litigation against Protein Sciences Corporation (PSC) regarding a $10 million loan. The bankruptcy court has validated the debt, but recovery depends on foreclosure proceedings. The company has not recorded an impairment reserve on the note receivable.
- Risks: Key risks include dependence on U.S. government funding, potential delays in regulatory approvals for new products, manufacturing complexities, and the outcome of ongoing litigation.
Investor Verification Checklist
- BioThrax Contract Status: Verify the timing and volume of future BioThrax deliveries under the 2008 HHS contract and the status of the rPA vaccine procurement proposal.
- Frederick Facility Sale: Confirm the status of the sale of the two Frederick, MD buildings, as the $3.8 million impairment charge was based on a terminated sale agreement.
- PSC Litigation Recovery: Monitor the progress of the foreclosure proceedings against Protein Sciences Corporation to assess the recoverability of the $10 million note receivable.
- Joint Venture Impact: Review the financial performance and funding requirements of the Oxford-Emergent Tuberculosis Consortium, which continues to generate significant losses.
- Manufacturing Capacity: Assess the timeline for FDA qualification of the new Lansing facility for rPA production and the impact on BioThrax manufacturing capacity.