Thank you for standing by, and welcome to the Emergent BioSolutions Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Bob Burrows, Vice President of Investor Relations. Please go ahead, sir..

Thank you, Jonathan, and good afternoon, everyone. Thank you for joining us today as we discuss the operational and financial results for second quarter 2022. As is customary, today's call is open to all participants, and the call is being recorded and is copyrighted by Emergent BioSolutions.

In addition to today's press release, there is a series of slides accompanying this webcast available to all webcast participants. Turning to Slides 3 and 4. During today's call, we may make projections and other forward-looking statements related to our business, future events, our prospects or future performance.

These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statement speaks only as of the date of this conference call, and except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances.

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.

During today's call, we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance.

Please refer to the tables found in today's press release regarding our use of adjusted net income, adjusted EBITDA and adjusted gross margin and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. Turning to Slide 5.

The agenda for today's call will include Bob Kramer, President and Chief Executive Officer, who will comment on the current state of the Company; and Rich Lindahl, Chief Financial Officer, who will speak to the financials for Q2 2022. Rich will also discuss the updated 2022 guidance.

This will be followed by a Q&A session where additional members of the executive leadership team are present and available as needed. Finally, for the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on August 1, 2022.

Since then, Emergent may have made announcements related to topics discussed during today's call. With that introduction, I will now turn the call over to Bob. Please proceed, Bob..

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call. I want to provide you with a recap of our accomplishments last quarter and update you as well on our progress to year-to-date progress. My comments are summarized on Slide 7 of the deck.

The evolving COVID-19 pandemic, the war in Ukraine, the declaration of monkeypox as a public health emergency and the ongoing opioid overdose epidemic further highlight the crucial need for an all-hazards approach and preparedness and response.

These events underscore the importance of early and consistent investments in developing, manufacturing and stockpiling medical countermeasures before a crisis occurs. They also serve as a reminder with the critical role that public-private partnerships play in protecting public health.

This is core to what Emergent has done over the past 24 years, and our commitment to supporting preparedness efforts remain steadfast. This commitment is reflected in our strategic vision focused on public health threats and where we can make a positive impact for patients and for our customers.

As we reflect on the second quarter and the first half of 2022, a few themes we highlighted last February have become more clear. First, our medical countermeasures business remains a cornerstone of our strategy and a steady proven contributor to revenue and profitability. Our relationship with the U.S.

government is strong and growing as we explore and pursue additional opportunities through strategic partnering, M&A and grants and contracts as evidenced by our TEMBEXA and Ebanga announcements earlier this year. We also continue to see growing interest and demand from allied governments and organizations outside the United States.

Secondly, the ongoing opioid overdose epidemic remains a very serious public health threat. As such, market demand for our nasal naloxone products primarily driven by NARCAN nasal spray continues to increase, resulting in performance at or beyond our expectations even as generics continue to enter the market.

Third, 2022 is shaping up as a re-baseline year for our CDMO business and a return to our pre-COVID focus on our molecules and market offerings namely through leveraging our expertise in development services to drive drug substance and drug product manufacturing.

Fourth, we're making considerable progress in our product pipeline, including the acceptance for review of our BLA for AV7909 and our ongoing chikungunya vaccine candidate Phase 3 trials. You may note in particular that our Phase 2 persistence data for this chikungunya candidate was published in the Lancet recently.

We also continue to make good progress around advancing our earlier stage programs, including the initiation of Phase 1 trials of our universal influenza vaccine candidate as well as our therapeutic product candidate for cyanide poisoning. And finally, quality compliance are critical to our operations at Emergent.

We're doubling down on strengthening our culture of quality and compliance with ongoing programs to ensure meeting both our regulatory requirements and our own high standards. Taking a closer look at each of the business lines. First, across our medical countermeasure and government products business, we see continued momentum.

We continue to supply anthrax vaccine to the U.S. government under the existing 18-month option exercise valued at approximately $400 million, thereby ensuring product availability while the FDA reviews our BLA submission. We've been given a PDUFA date of April of 2023.

So assuming everything goes as planned, we expect their review to be completed by then. Turning to smallpox. We anticipate the U.S. government to exercise the next contract option for ACAM2000 this quarter, the latest component under our 10-year $2 billion procurement contract.

The HSR Act review period for the TEMBEXA acquisition has expired, and Chimerix is anticipating a procurement contract from BARDA in Q3 of this year. Once the contract is awarded, we expect to close on the deal shortly thereafter.

Relatedly, we are also closely following the monkeypox public health emergency and public comments by government and health officials about the distribution and use of ACAM2000 as part of vaccination plans, though it is not indicated for use against monkeypox. As we have for more than 20 years, we're working with the U.S.

and allied governments and organizations to support their public health preparedness needs across a wide array of threats. As we announced in July, we're excited to add Ebanga, an FDA-approved monoclonal antibody treatment for infection caused by Ebola virus to our portfolio of medical countermeasures.

Our collaboration with Ridgeback Biotherapeutics makes Emergent responsible for the manufacturing, sales and distribution of Ebanga in the U.S. and Canada. Ridgeback Bio will remain the global access partner.

In our Commercial Products business, the opioid overdose epidemic continues to be a serious issue, and our focus remains on increasing awareness of and access to nasal naloxone. As mentioned earlier, NARCAN and our nasal naloxone sales are on track through the first half of this year, led by increased market demand and resilience in the U.S.

public interest and Canadian markets but offset, in part, by the continued decline in market share in the United States retail market with the introduction of generic competition. As expected, a second generic entrant is adding pressure to market share and pricing, including in the public interest market.

Our revenue guidance takes into consideration the maturing impact of generic competition and the anticipated increase in naloxone market demand given the continuing dynamics of the opioid crisis.

As we're now seeing a return to global travel, we've restarted sales of Vivotif in North America and in Europe, and are in the process of relaunching Vaxchora in the United States and launching Vaxchora in Europe. Turning to Contract Development and Manufacturing Services.

We're in the early innings of transitioning this part of our business from a very heavy focus on COVID response during 2020 and 2021 to where we originally plan to take the business when we established our 2020 through 2024 strategy late in 2019. This transition includes the following key elements.

Number one, winding down the majority of our COVID response work, including activities previously performed in support of Janssen at one of our drug substance facilities; secondly, operationalizing the significant capital investments in drug substance and drug product capability and capacity expansion at several other sites during 2020 and 2021; and finally, stepping up our long-standing commitment to quality and compliance across our enterprise network.

Let me say a few words on each of these important initiatives. With respect to winding down our COVID work, our expectation is to have a significant portion of the Janssen wind-down work completed by the end of Q3 and are hopeful for a timely contract resolution.

Following the end of that work, we'll turn our attention toward resuming our internal product development and manufacturing at Bayview. A decision on which product may go first into the facility following the conclusion of the Janssen activities has not yet been finalized.

Over the past 36 months, we've expanded and upgraded our capabilities, including installing and working to qualify state-of-the-art, high-speed fill finish lines and improving drug substance manufacturing flexibility. Few of these investments were contemplated when we established our 2020 through 2024 strategic plan at the end of 2019.

While these new investments will take time to fully operationalize, they give us reason to be bullish on the future of the CDMO business and our molecule-to-market service offering we adopted pre-COVID.

Third and building on my earlier comments regarding our commitment to quality and taking lessons learned from the pandemic response, we're investing in strengthening quality and compliance across all of our sites. This includes our previously discussed work at Bayview as well as planned maintenance and upgrades at our Winnipeg and Camden sites.

In addition to enhancements driven by our own quality standards, the FDA last inspected our Camden site in February of this year. They provide some comments that we have incorporated into our investment plans and have indicated that additional feedback will be forthcoming.

While we await that feedback, we're performing additional reviews of the facility with a third-party to provide further oversight of manufacturing and product release processes. This is a proactive step to ensure compliance and delivery of medically necessary products to patients.

We anticipated the CDMO business to return to its pre-COVID growth trajectory, as evidenced by our updated 2022 forecast of $115 million in revenue at the midpoint of our updated range. While lower than the performance we experienced during the pandemic, it is up from approximately $80 million in 2019.

This and future growth will be driven by executing on the three initiatives I mentioned earlier.

As Rich will detail in his remarks, our second quarter financial performance and updated full year 2022 guidance reflect the themes I shared, namely the strength of our core medical countermeasure and commercial products businesses and the reality of the post-COVID environment for our CDMO offerings.

I remain optimistic about Emergent's long-term success driven by the continued strength of our core business, our commitment to improving quality and compliance across the enterprise and the future potential of expanding product offerings both through partnering and M&A as well as our internal development pipeline.

Looking ahead to the second half of 2022 and beyond, we expect to close the deal with Chimerix for TEMBEXA and begin fulfilling the contract with the U.S. government as planned. We've initiated the second Phase 3 study to evaluate safety and immunogenicity of CHIKV VLP vaccine candidate in adults 65 and above.

This is in addition to the ongoing pivotal Phase 3 clinical trial for individuals aged 12 through 64. We expect to have data from both trials in 2023. We will actively seek to qualify and operationalize our enhanced CDMO capabilities in support of internal products in new business from new and existing customers.

And finally, we are continuously evaluating potential M&A and partnering opportunities that complement our core areas of focus and leverage our key capabilities. Before turning over to Rich, I want to formally welcome Sujata Dayal to the Emergent Board of Directors. She was appointed as our director effective July 15.

We will benefit greatly from our decades of experience, particularly her expertise in health care compliance, and legal and regulatory oversight. Importantly, I also want to thank the entire Emergent team for their relentless focus on our patients and customers in a rapidly changing world.

And with that, I'll turn it over to Rich before taking your questions.

Rich?.

Medical countermeasure product revenues are consistent with our previous assumptions related to deliveries under existing U.S. government procurement contracts, including the assumed exercise of the ACAM2000 option.

Nasal naloxone revenues reflect our most current assessment of the competitive dynamics, given our experience in the first half of the year, combined with the additional generic entrant in the second half of the year. CDMO revenues exclude any further contribution from Janssen.

As discussed earlier, our forecast also assumes certain short-term limitations on production capacity at Camden as we focus on quality and compliance upgrades as well as the continued transition to non-COVID work across the network.

Importantly, at the midpoint of $115 million, this updated level is a significant increase over 2019's CDMO revenue of $80 million, as we are benefiting from the operationalization of expanded capacity and capabilities at the Camden and Winnipeg sites.

And as a reminder, the forecast does not include the impact of the pending acquisition of TEMBEXA or our collaboration with Ridgeback on Ebanga. Finally, we are forecasting total revenues for the third quarter of $230 million to $270 million. To conclude, please turn to Slide 17 for some summary comments.

Our performance in the second quarter once again highlights the strength and durability of our diversified products and services business.

We continue to see significant opportunity in our core medical countermeasure and growing commercial products segment, addressing the preparedness and response needs of governments, patients and other customers against a growing array of critical public health threats.

We also see long-term potential for our CDMO offering, given our capacity and capabilities, coupled with the pace of innovation by our small- to medium-sized biopharma customers in this post-COVID era. Additionally, our R&D programs continue to progress. We are investing to strengthen quality and compliance across our entire site network.

And we will continue to prudently allocate our capital in a combination of M&A and partnering transactions as well as focused capital investments while maintaining a strong financial position.

We look forward to keeping you informed as we execute on these plans and deliver further proof points that demonstrate the long-term growth potential of our business. That completes my prepared remarks, and I'll now turn the call over to the operator so that we can start the question-and-answer session. Operator.

[Operator Instructions] And our first question comes from the line of Brandon Folkes from Cantor. Your question please..

Can you just elaborate a little bit on the price actions you are seeing in the public interest market for NARCAN? Just any color there in terms of sort of the magnitude of that headwind? And maybe just could you provide some color? Does this go state-by-state basis? And maybe if that price does come down in one state, how long does it take to sort of flow through to the other states? And then maybe just staying on NARCAN, how do you think about potential implications for the proposed Teva settlement that was put out there, which included that portion of NARCAN over 10 years..

Yes. Brandon, and thanks for joining the call. So a couple of comments. First, as we've commented on prior calls, what we expected to see in terms of pricing pressure in the market has materialized with the entrance of the two generic products, both at the retail level, which we expected, as well as now in the public interest market.

I can't give you specifics on the magnitude of the pricing because it's still forming, but we are competing head-to-head with the generics for both market share as well as through pricing strategies. We were prepared for kind of what we're going through right now.

Having said that, we're quite encouraged by the fact that NARCAN continues to perform exceptionally well in the public interest market as we expected, given the name recognition and the years long history that we have with supporting the supply chain needs of many, many customers in that very diverse state and local government market.

So we're pleased with that. And quite frankly, kudos to the team for, again, sticking to our guns in terms of putting our emphasis on awareness as well as improving access to NARCAN in those very important markets. I'm not sure I understand the second question. And maybe I'll....

Just your thoughts....

Go ahead..

Just your thoughts on the potential implication for the public interest market of that proposed settlements that Teva put out on its earnings of, I think it was $1.2 billion NARCAN at WACC, fair enough, over 10 years. Just how do you think -- I mean, in the past, you talked about sort of logistics and ability to supply that PIP market.

So just any color on how we should think about if that settlement does actually come into effect?.

Yes, I understand. Thanks. So I mean clearly, we are kind of on top of monitoring, evaluating these market dynamics, including the potential settlement proposals that are being floated out there. I think it's a bit too early to say with any degree of certainty how that will all shake out.

I think it's also important to note that for the first time that I can recall, this proposed settlement includes an option for the states to receive cash payment as opposed to product offerings by the Company.

So I think it's likely that a number of states will, in fact, opt out for cash so they can use the proceeds as they see fit in their states with their constituents. But we'll have to wait, Brandon, and see how all that shakes out.

But even with those headwinds, again, back to our expectations for the business in 2022, we're quite encouraged with the year-to-date performance, which gives us the conviction and the confidence to increase our guidance by almost $45 million in revenue for 2022..

[Operator Instructions] And our next question comes from the line of Jessica Fye from JPMorgan. Your question please..

On Camden, what was the FDA feedback you got? Was there any 483 issued? And then on your comments about CDMO rebaselining, can you talk about what exactly you expect the new baseline to be and when you expect to hit the baseline? Is that like by the beginning of '23, middle of '23?.

Yes. Thanks, Jess. So first on Camden. As I commented in my prepared remarks, we've had significant interaction with the FDA over the last year or so. In February of this year, they came for an inspection. There was a 43 issued. There were a handful of observations. We have not yet received the establishment inspection report.

That's one of the outstanding components of feedback that we're waiting to hear from the FDA.

While we await that additional feedback, as I said, we're being proactive in terms of taking additional measures in Camden and throughout all of our sites to significantly ramp up our quality and compliance profile and whether that's through process improvements or training.

Again, we're being pretty aggressive, but we'll await the additional feedback from the FDA, which we expect in the next probably 30 days.

As it relates to CDMO, I think we see the growth opportunities for the business today, much the same way we did when we generated our 2020 through 2024 strategic plan at the end of 2019 when the revenue for that business was about $80 million overall.

And by that, I mean, we continue to think that the molecule-to-market service offering with both development services, drug product as well as drug substance services is a really effective and unique way for us to pursue opportunities. We've talked a little bit about Bayview and the transition we're going there.

We expect that work by unwinding or winding down the Janssen work to be done by the end of Q3, which kind of frees us up to look for opportunities to more fully utilize that facility going forward later this year and into 2023.

I think what's a little different about today versus a couple of years ago when we put the strategic plan together was the fact that we've made considerable investments throughout our CDMO network, both in terms of capital, in terms of new capacity and new capability, with new fill finish lines, with process improvements, but importantly, with our quality and compliance profile, with training, process improvements and any number of initiatives that we're undertaking.

So to get to your point about future growth, we expect the growth to be a bit measured over the coming years.

Again, it will take us probably 12 to 18 months to fully kind of get the network back up and running effectively, leveraging the assets that we have, but we're going to be doing so with a considerable amount of tailwind given the investments that we've made over the last couple of years..

Great.

And then forgive me if I missed it, sorry, is there more?.

Rich is going to comment..

Yes. I just want to add to -- yes, I'm just going to add that you see that we've updated our CDMO guidance, a range of $105 million to $125 million. It certainly is a move towards that baselining effort -- so that is -- we're already moving in that direction..

Okay.

And then forgive me if I missed this, but the ACAM guidance bump, can you explain what that's related to?.

Yes. So that's both a combination of assumed deliveries under the typical option exercise as we've had in the past couple of years. And then we've also had some international sales on top of that..

[Operator Instructions] And our next question comes from the line of Boris Peaker from Cowen. Your question please..

This is Nick on for Boris. So I just have a quick question about Chimerix and TEMBEXA. So previously, the -- right pretty much right after you guys announced this acquisition of TEMBEXA, they said that the BARDA contract was likely to take place within the next couple of weeks or months, and now it's pushed back.

And I just wanted to know if you guys had any reasoning behind this or any information as to why it's been pushed back, especially with monkeypox and now being declared a public health emergency, you kind of think that it may be pushed forward, but it seems to be just pushed back a little bit more..

Yes. Thanks, Nick, for the question. Thanks for joining the call. So a couple of comments. As I commented on my prepared remarks, the HSR process and the waiting period for this expired last Friday.

So now that, I think, gives BARDA and Chimerix kind of the green light to finalize the BARDA procurement agreement, which then gives us the clear path to closing the transaction and moving forward. I wouldn't read anything into the perhaps perceived delay in getting the contract awarded.

Obviously, BARDA is looking at this very carefully and they are aware that our interest in acquiring the product from Chimerix. So I think, again, there's momentum to get this done, and we're anxious to get done as well..

Great. And then just quickly on the -- you mentioned just a second ago that you had some international sales for ACAM2000. Is that just like onetime sales? Or are those more subcontracts? I don't think I've seen any press releases on that recently..

Yes, Nick. So, we've had a number of ongoing communications with allied governments and public health threat organizations regarding their interest in our entire portfolio of medical countermeasures.

As Rich indicated, we are forecasting a bit of an uptick with respect to ACAM, but we've also seen interest in any number of our other products in the portfolio. So, this is part of the ongoing processes that we've been talking about for a number of years in terms of allied government interest in the entire portfolio, so nothing new here.

Just obviously, in today's environment, there's a heightened sense of understanding and appreciation for having ready access to these critically needed countermeasures..

[Operator Instructions] And our next question comes from the line of Chris Sakai from Singular Research. Your question please..

Yes, I'm calling in for Lisa Springer here.

Can you provide some color on the generic share you are seeing in -- for the public interest and the nasal spray segment? Is it growing?.

Yes, Chris, thanks for the question, and thanks for joining the call. So clearly, as we expected, the generic products are and have claimed the majority of the retail market.

And now with the introduction of the second generic product recently, they're making some inroads into the public interest market, but we remain quite optimistic about our ability to hold our fair share of that market.

I think our team is doing an extraordinary job of interfacing with literally the thousands of customers in that public interest market. And our commitment in our investments and establishing relationships with those customers, taking care of their supply chain needs, meeting their requirements is paying benefits.

And there is a significant value to the brand name and brand recognition of NARCAN and the reputation that we have for being reliable supply chain providers for that countermeasure. So, we're quite bullish on our ability to hold market share in that public interest market..

Okay. And it looks like there's some updated guidance here on the nasal product....

We're quite bullish on our ability to hold market share in that public interest market..

Okay. And it looks like, what, there's some updated guidance here on the nasal products, how should we think about this -- the cadence of these sales for....

Yes. So, I think you're referring to our updated guidance for NARCAN naloxone products. We've upped the range from $240 million to $310 million to $300 million to $340 million. So midpoint to midpoint, it's about a $45 million in revenue increase. So I think, again, that reflects a couple of dynamics.

Most importantly, the continued emphasis and demand at the state and federal level by any number of customers for NARCAN. In terms of the cadence of the remaining year, we don't go into the details about what's -- what amount of that is in Q3 or Q4.

But as Rich indicated, we've given the total revenue projections for Q3, and that's as much detail as we're kind of prepared to provide right now..

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bob Burrows for any further remarks..

Thank you, Jonathan. And with that, ladies and gentlemen, we now conclude the call, and thank you for your participation. Please note an archived version of today's webcast as well as the PDF version of the slides used during today's call will be available later today and accessible through the Investors landing page on the Company's website.

Once again, thank you, and we look -- sorry, once again, thank you, and we look -- bye..

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..