Considering that Emergent BioSolutions (NYSE:EBS) has regular government contracts and other manufacturing contracts -- so regular that it's willing to give quarterly guidance, which many companies wouldn't dream of -- it was a little surprising to see by how much the biotech beat the guidance it gave three months earlier. Third-quarter revenue came in at $138 million, substantially higher than the guidance of $110 million to $125 million it gave three months ago.
But, as it turns out, this is just an accounting issue. In the third quarter, Emergent BioSolutions set up a collaboration with MorphoSys to develop its prostate cancer drug candidate ES414. Under the terms of the agreement, Emergent BioSolutions got a $20 million upfront payment -- the biotech recognized $15.3 million of this in the third quarter. Back out the payment, and Emergent BioSolutions' revenue falls within its previous guidance, fortunately at the upper-end.
The deal with MorphoSys is part of Emergent's long-term plan to partner drugs developed on its ADAPTIR bispecific protein platform. By sharing the expenses, Emergent BioSolutions can move net R&D levels from 20% to 25% of revenue, where it has been into the "high teens."
Total revenue for the year is expected to come in between $440 million and $460 million, substantially higher than the $313 million in revenue from last year, thanks to the acquisition of Cangene. To get to its goal of $500 million in revenue in 2015, Emergent BioSolutions may need to make another acquisition.
It could also get a bump in revenue from Biomedical Advanced Research and Development Authority, or BARDA, to manufacture drugs for the Ebola outbreak. It plans to submit an application for funding next week.
President Obama has asked Congress for $6 billion to help fight the outbreak. It's believed that BARDA might get an additional $155 million to $160 million as part of the request, but that would be on top of money BARDA has on hand to support research efforts. Given the immediate need, a contract could be awarded shortly.
Next year, there's also potential for sales of its hemophilia B drug, Ixinity. The drug was rejected by the Food and Drug Administration in July, but the additional requirements apparently weren't too cumbersome, because Emergent BioSolutions has already resubmitted the application with the additional data, and expects to hear back from the FDA next year.
Further down the line, Emergent BioSolutions should be able to generate more revenue for its flagship product BioThrax, a vaccine against anthrax. The company is moving to a new, larger manufacturing facility, dubbed "building 55," which could be approved for use in early 2016. The large facility would allow Emergent BioSolutions to increase its sales to governments outside the U.S. that it can't currently supply because of manufacturing constraints.
Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Emergent BioSolutions. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.