Emergent BioSolutions Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone quarterly report; selected fourth-quarter figures are noted below. Emergent is a life-sciences company with vaccine, therapeutics and device products, plus contract development and manufacturing (CDMO) services. The U.S. government (USG) is its largest customer.
Financial performance
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $1,555.4 million | $1,106.0 million |
| Product sales | $989.8 million | $903.5 million |
| CDMO services revenue | $450.5 million | $80.0 million |
| Contracts and grants revenue | $115.1 million | $122.5 million |
| Operating income | $433.8 million | $114.1 million |
| Net income | $305.1 million | $54.5 million |
| Diluted earnings per share | $5.67 | $1.04 |
| Operating cash flow | $536.0 million | $188.0 million |
- Revenue increased 41%; the large rise in CDMO services, primarily COVID-19-related work with BARDA, Johnson & Johnson and AstraZeneca, was the main driver. Product sales increased 10%.
- Operating margin was approximately 27.9%, compared with 10.3% in 2019. The filing does not present a single consolidated gross-margin figure.
- Fourth-quarter revenue was $583.0 million and net income was $185.4 million, versus $360.4 million and $46.9 million, respectively, in Q4 2019.
- Cash and cash equivalents were $621.3 million at year-end; working capital was $811.4 million. Total debt was $885.5 million before unamortized issuance costs, including $421.9 million on the term loan and $450 million of 3.875% notes due 2028. The $600 million revolver had no borrowings and $597.2 million of unused capacity, net of letters of credit.
- Capital spending and other property, plant and equipment purchases were $141.0 million. Net cash increased $453.5 million during the year.
Changes, outlook and notable items
- Anthrax vaccine sales rose to $373.8 million from $172.8 million, reflecting a steadier cadence of AV7909 deliveries as USG procurement shifted from BioThrax. AV7909 is not FDA-approved; the company anticipated submitting a biologics license application in 2021.
- NARCAN sales rose 11% to $311.2 million. ACAM2000 sales fell 17% to $200.3 million, largely due to delivery timing. Other product sales fell 50% to $104.5 million, including lower raxibacumab and travel-vaccine sales.
- Travel restrictions reduced Vaxchora and Vivotif demand; management expected limited travel-vaccine sales in 2021. The pandemic also increased supply-chain and manufacturing pressures, including competition for COVID-19-related raw materials.
- COVID-19 CDMO contracts included a BARDA task order valued at up to $628 million, a J&J arrangement with the first two years valued at approximately $480 million, and an AstraZeneca arrangement valued at approximately $174 million through 2021. Contract values and options are not equivalent to recognized revenue, and certain future capacity commitments are optional.
- Management’s 2020–2024 strategic plan targets at least $2 billion in annual revenue and a 27%–30% adjusted EBITDA margin by 2024. The filing does not provide specific 2021 revenue or earnings guidance.
- Unusual charges included a $17.3 million write-down of travel-health inventory and a $29.0 million impairment of the AP004 in-process R&D asset, which was reduced to zero. A broad-based immediately vested equity award generated $14.7 million of stock compensation expense.
- Emergent issued $450 million of 2028 notes and used most proceeds to repay revolver borrowings. The $10.6 million convertible notes due 2021 were repaid on January 15, 2021. The company reported compliance with credit-facility covenants and said liquidity was sufficient for the next 12 months.
- Key risks include dependence on government procurement and annual appropriations, AV7909 regulatory and delivery execution, COVID-19 program manufacturing capacity and supply, and single-source suppliers. Teva’s NARCAN patent litigation remained active after an adverse district-court decision; Emergent appealed, and an at-risk generic launch remained possible. Perrigo settled with a license generally effective in 2033, subject to earlier-trigger conditions.
Most important facts for investors to verify
- Whether AV7909’s regulatory filing, licensure and government procurement proceed as expected, and how anthrax-vaccine deliveries and revenue develop.
- How much of announced COVID-19 CDMO contract value converts into performed work, recognized revenue, cash collection and profitable capacity utilization.
- Whether manufacturing capacity, quality controls and raw-material supply support customer commitments without delays or added costs.
- Progress and outcome of Teva’s NARCAN litigation and the timing of any generic competition.
- Debt service, covenant headroom and cash conversion, including the effect of capital investment and contractual purchase commitments.
- Quarterly volatility and exposure to the USG, which accounted for approximately 64% of FY 2020 revenue; U.S. customers overall represented 93%.