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Emergent BioSolutions Gets its Deals Done (and Expect More to Come)

By Brian Orelli, PhD - Feb 26, 2018 at 1:51PM

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Newly acquired products and contracts will help revenue growth accelerate in 2018.

Emergent BioSolutions (EBS 1.30%) announced preliminary fourth-quarter revenue and earnings as well as 2018 guidance in January, so the official release didn't come with any big surprises. Nevertheless, the release of fourth-quarter results gives investors a chance to check in with management and hear plans for the year ahead.

Emergent BioSolutions results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$193.8 million

$151.7 million

27.8%

Income from operations

$53.1 million

$50.9 million

4.2%

Earnings per share

$0.67

$0.67

0%

Data source: Emergent BioSolutions.

What happened with Emergent BioSolutions this quarter?

  • Revenue jumped because of an increase in sales of its anthrax vaccine BioThrax, which was up 145% year over year. Recall that during the fourth quarter of 2016, Emergent was waiting on the government to renew the previous BioThrax contract, so it was a low bar to jump over.
  • Emergent completed its acquisitions of Sanofi's ACAM2000 smallpox vaccine and GlaxoSmithKline's anthrax treatment Raxibacumab during the quarter, which added a combined $10.9 million in revenue.
  • Like in previous quarters, revenue from contracts and grants was down substantially as the company has completed those projects.
  • Contract manufacturing was down slightly, contracting 3% compared to the year-ago quarter.
  • Emergent was awarded two new government contracts during the quarter: a $25 million contract for its Trobigard auto injector to the U.S. Department of State and an $8 million contract for anthrax treatment Anthrasil to the Canadian Government.
  • The revenue growth didn't translate into increased income because Emergent is spending more on research and development, which should pay off in the long term.
Definition of anthrax written on paper with vial and syringe

Image source: Getty Images.

What management had to say

Emergent BioSolutions has set a 2018 goal that it plans to "complete an acquisition that generates revenue within 12 months of closing." That's a goal most companies tend not to say publicly since they only have control over their half of the transaction -- another company has to actually want to be purchased at a reasonable price to complete the goal -- but Daniel Abdun-Nabi, Emergent's president and CEO, sounded confident that Emergent could get a deal done:

"On the M&A front, yes, I am really pleased with the pipeline of potential acquisition candidates that we have out there both from a business standpoint, as well as product opportunities across the [chemical, biological, radiological, and nuclear] exclusives as while as emerging infectious diseases. The number of revenue generators that are out there are, are meaningful. And I think, given that pipeline, we remain confident that we should be able to accomplish the goal we've laid out for the organization."

All things being equal, Abdun-Nabi would like to see Emergent acquire dual-market products. "I clearly see in my mind an opportunity to have robust government participation as a customer, but also an opportunity for those products to be sold in a more traditional patient market," Abdun-Nabi said.

Looking forward

In 2018, the newly acquired products and contracts will start to pay off with management looking for revenue of $715 million to $755 million, a 31% increase at the midpoint over 2017's $560.9 million in revenue. On the bottom line, adjusted earnings are expected to be in the $110 million to $125 million range, a 25% increase at the midpoint.

The ACAM2000 contract is up for renewal, so investors should be watching for a follow-on contract this year. Management clearly seems confident it'll be renewed -- otherwise it wouldn't have bought the product -- but it's still a risk.

On the pipeline front, Emergent expects to apply for FDA emergency use authorization designation for NuThrax, its next-generation anthrax vaccine, this year, which lines up potential delivery of the product to the strategic national stockpile in 2019. Investors can also expect clinical trial data for its Zika vaccine and FLU-IGIV, a treatment for people hospitalized with the flu, later this year or in early 2019.

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