Good day and thank you for standing by. Welcome to the Q2 2023 Emergent BioSolutions Inc. Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Matt Hartwig..

Thank you, Karen, and good afternoon, everyone. My name is Matt Hartwig, Senior Director of Media Relations for the company. And it is my pleasure to welcome you to today's call, where we will be discussing the operational and financial results for second quarter 2023.

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 table found in today's press release regarding our use of adjusted net income and loss, 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 Haywood Miller, our newly appointed Interim Chief Executive Officer; and Rich Lindahl, EVP and Chief Financial Officer. Following prepared comments from both Haywood and Rich, we will conduct 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 8, 2023. Since then, Emergent may have made announcements related to topics discussed during today's call. And with that introduction, I would now like to turn the call over to Haywood.

Haywood?.

first, continuing to take decisive actions to strengthen Emergent's financial position and operations as we meet current demands for our products, including the OTC launch of NARCAN Nasal Spray and take advantage of future opportunities in our products business.

Second, delivering quality products for our current customer base and maintaining the manufacturing standards necessary to remain a leader in the MCM market. Finally, to position Emergent for strategic future growth by preserving its unique capabilities to help and protect life.

Before turning it over to Rich, I want to acknowledge and thank Bob Kramer for his contributions and leadership. Bob embodies Emergent's mission to protect and enhance life and help instill a culture unafraid to do big things. Emergent has never lost focus on its mission or its people, and that is one reason I am confident in its future.

As Emergent prepares to celebrate its 25th anniversary in September, I am honored to serve in this role to help shape Emergent's impact on patients and public health for the next 25 years. Again, thank you for your participation. Now I'll turn it over to Rich..

Total revenues of $1 billion to $1.1 billion, a decrease of $100 million at the midpoint from prior guidance as the ongoing strength in NARCAN is being offset by reduced expectations across our other products and services. We're forecasting Anthrax MCM sales of $200 million to $220 million, a decrease of $60 million at the midpoint.

With the recent FDA approval of CYFENDUS secured, we anticipate continued procurement by the U.S. government for this product. We expect smallpox MCM sales of $180 million to $200 million, a reduction of $55 million at the midpoint. Based on our latest discussions with HHS, we expect the U.S.

government will defer additional purchases of TEMBEXA for now as the U.S. government determines the appropriate volume and cadence of purchases going forward. We're forecasting NARCAN Nasal Spray sales of $425 million to $445 million, an increase of $65 million at the midpoint over the prior guidance, primarily reflecting robust demand from the U.S.

public interest channel and from Canada. As well as taking into account our expectations regarding the launch of NARCAN OTC. We expect other product sales of $100 million to $120 million, a reduction of $20 million at the midpoint, primarily reflecting the reduction of revenue expectations for Trobigard, our auto-injector product.

We're forecasting CDMO services revenue of $60 million to $80 million, a reduction of $30 million at the midpoint, primarily reflecting lower anticipated sales as the Camden site continues to focus on quality and remediation efforts to scale back up operationally. Shifting to profitability metrics.

We're forecasting adjusted EBITDA of $50 million to $100 million, a decrease of $50 million at the midpoint from the prior guidance range, primarily reflecting the impact of lower total revenues, partially offset by the impact of the facility and other cost actions discussed earlier.

We anticipate adjusted net loss of $195 million to $145 million, a reduction of $110 million at the midpoint. And finally, we're forecasting adjusted gross margin of 36% to 39%, a reduction of 300 basis points at the midpoint from the prior guidance range, primarily reflecting the impact of lower revenue, volume and mix.

As to the quarter, we're guiding to revenues of $210 million to $250 million in the third quarter, further emphasizing our anticipation that revenues and profits in 2023 will be more heavily weighted towards the second half of the year. To conclude, please turn to Slide 18 for summary comments.

Our results in the second quarter were strong, and we delivered on a variety of important milestones. We are adapting our business to focus on products while continuing to serve our existing customers. We will continue to strengthen our quality and compliance across the organization.

And we are taking decisive action to better align our costs with our customer needs while continuing to solidify our financial position. 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]. Our first question comes from Boris Peaker of TD Cowen..

This is Nick on for Boris. Few for me. First on NARCAN.

Can you go into some more detail about the NARCAN revenue that was recognized in Q2 '23? And what makes that up, mainly because when you look at the guidance and the increased guidance, which is great, you see that at the high end of guidance, that would lead to about $105 million per quarter for the next 2 quarters.

So I just want to see what like that changes, the differences and why 2Q '23 will be higher than 3Q or 4Q..

Sure. Yes. So part of the phenomenon we saw in second quarter was a combination of some fiscal year-end in some of the states. And also some of the settlement money from the opioid litigations finding their way into the states, which drove increased purchasing.

That certainly can continue as we move forward, but we feel like this is an appropriate forecast as we go forward from here..

Got it. That makes sense.

And then on CDMO, with the restructuring plan that you guys announced earlier today, and the focus on the products, do you anticipate like around a similar yearly run rate to guidance over the next several years than what you have now? And once like contracts for CDMO customers are completed, will you renew those contracts or search for new contracts? Or how will that work?.

So we're focused on serving our existing customers and honoring the commitments that we've made to them. And we're not prepared to provide future year guidance for CDMO at this point in time, but we will certainly do that as we come out of this year and into next year..

Our next question comes from Chris Sakai of Singular Research..

Yes. I'm in for [indiscernible] Can you please update us on your travel health business divestment and the status of accruing synergies from that divestment. .

Sure. So the divestiture was completed in mid-May just after our last earnings call. And we are in the process of working through the transition. We have a transition services agreement with Bavarian Nordic that will run through the end of this year. And those activities that were planned are on track.

You did notice that in the quarter, we had lower R&D expense year-over-year. That's one of the elements of a reduced cost structure that came about as part of that transaction. But otherwise, we're on track with the plan..

Okay.

And then can you update us on your debt restructuring? And if it is fully accomplished or are there further components that need to be negotiated?.

So we completed the amendment and maturity extension to our secured credit facility in mid-May. That provided us an extension until May 2025. So we will continue to evaluate our capital structure and make appropriate modifications before that maturity comes to fruition.

But at this point, we've completed that amendment, and we are moving forward under that capital structure..

Okay. And last one from me.

How has been the NARCAN Nasal Spray reception been so far? Do you expect to provide further [indiscernible] the current pricing in the near future?.

Yes, Chris, thanks for the question. I'm Paul Williams, Head of the Products business. Look, I think we're seeing a couple of things happening today with NARCAN. One is, obviously, the opioid crisis continues to worsen.

I think this has really led primarily to the increase in demand at the state and the local level through our public interest segment as well as Canada. At the same time, we're excited and continue to be on track for the launch of our over-the-counter put up later this summer.

The work has begun and with our retail and distribution partners, and we're looking forward to having product on the shelves and available online as soon as possible. Stay tuned..

I'm showing no more further questions at this time. I would now like to turn the conference back to Matt Hartwig for closing remarks..

Thanks, Chris. And with that, ladies and gentlemen, we now conclude the call. Thank you for your participation. Please note an archived version of today's webcast as well as a 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 website. Thank you, again.

We look forward to speaking with you all in the future. Goodbye..

This concludes today's conference call. Thank you all for participating. You may now disconnect..