Emergent BioSolutions Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Emergent BioSolutions Q2 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. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference to Emergent BioSolutions. Please go ahead.

Thank you, Joel, and good afternoon, everyone. My name is Bob Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today as we discuss the operational and financial results for the second quarter and six months ended June 30, 2020. As is customary, today's call is open to all participants, and in addition, the call is being recorded and is copyrighted by Emergent Biosolutions. The agenda for today's call will follow a traditional path with prepared comments from Bob Kramer, President and Chief Executive Officer, and Emirates Lindahl, Chief Financial Officer. Other members of the senior team are present and available during the Q&A session following our prepared comments. Before beginning during today's call, either on our prepared comments or the Q&A session, management 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. We cannot guarantee that any forward-looking statement will be accurate. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. 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 our prepared comments as well as during the Q&A session, we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding emergence operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net income and adjusted EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. One final housekeeping item. During the Q&A session, because of the fact that we are all in separate locations and practicing the necessary social distancing per CDC guidelines, we will have CEO Bob Cramer fielding all questions to begin with, and then he will verbally hand off to other members of the team for additional answers as warranted. Finally, for the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on July 30, 2020. Since then, Emergent may have made announcements related to topics discussed during today's call. You are once again encouraged to refer to our most recent press releases and SEC filings, all of which may be found on the investor's homepage of our website. And with that introduction, I would now like to turn the call over to my colleague, Bob Kramer.

Bob? Bob Kramer Thank you, Bob, and good afternoon to everyone. Thank you for joining the call. Let me start by acknowledging the extraordinary contributions of my 2,000 plus teammates at Emergent who have worked tirelessly to enable the company to meet its commitments to public health and, importantly, take on a significant amount of new additional work related to our COVID-19 initiatives, both in the therapeutic area as well as the CDMO business unit area. They are achieving extraordinary results in one of the most challenging environments we've ever encountered. For more than 20 years, Emergent has prepared for threats like the one posed by COVID-19. Our experience addressing previous public health crises, our expertise in vaccine and drug development, and our ability to manufacture on a large scale has positioned us to contribute to the COVID-19 pandemic response like no other organization. The demand for our services, both from industry and government, both in the immediate term and over the next several years, has substantially increased in the last few months. Many of you will recall that at our most recent investor day this past November, we outlined our strategy to expand and build scalable leadership positions in current and new public health threat markets as well as to invest in capabilities, innovation, and operational excellence. What we didn't anticipate at the time was just how soon an unprecedented public health threat would emerge and how broadly we would have an opportunity to play a meaningful role as a result. Over the past six months, we've shown how our mix of expertise, capabilities, and readiness have positioned us to respond in a way that few others can. We continue to focus on strong customer centricity, including our ability to meet the needs of the U.S. government and other government customers, as well as deliver solutions for fellow innovators and other commercial customers, and most importantly, for our patients. These principles underpin the durability of our core business and the potential of our long-term strategy. We've put the strategy outlined at our investor day into action, and today we're experiencing a step change in both the size of our organization as well as the pace of our growth. The financial results for the second quarter and year-to-date periods demonstrate the strength of our core business and an acceleration of our 2024 strategy. As a result, we're announcing today an increase in our financial forecast for 2020. In addition, we now believe that this acceleration meaningfully increases the contribution of our organic revenue toward our goal of $2 billion in revenue by 2024 versus what we assumed just nine months ago when we first unveiled our 2020 through 2024 strategic plan. With that said, there continue to be multiple paths to achieving our 2024 strategic objectives. Before we discuss the longer-term expectations, let me first review recent business developments, starting with the pandemic response. At the outset of the crisis, we were able to quickly begin development of our own COVID-19 therapeutic treatment candidates, while at the same time deploy our contract development and manufacturing expertise for customers. from the US government to some of the world's leading pharmaceutical and biotechnology innovators, including Johnson & Johnson and AstraZeneca. As a follow-on to the $135 million tech transfer and capacity reservation agreement signed with J&J in April, we signed the industry's first COVID-19 commercial supply agreement, a five-year agreement for large-scale drug substance manufacturing for J&J's lead COVID-19 vaccine candidate beginning in 2021. The contract is valued at approximately $480 million over the first two years with commitments for the remaining three-year period of 2023 through 2025 to be determined next year. In June, in an award valued at approximately $628 million, Emergent joined the U.S. government in a landmark public-private CDMO partnership as part of Operation Warp Speed, committing our development and manufacturing services for production of COVID-19 vaccine candidates for commercial innovators through 2021 at a minimum. This agreement secures capacity for drug substance manufacturing, and drug product manufacturing at our three Maryland-based facilities. It also includes an incremental investment of $85 million for the rapid expansion of our viral and non-viral CDMO drug product fill finish capacity at our Baltimore, Camden, and Rockville facilities. As a result of this expansion in Camden and Rockville, Emergent is now the only multi-location CIADM offering broad services including drug product drug substance and development and manufacturing services the expansion also extends our ciadm designation by the u.s government to drug product making emergent the only such facility also in june we announced a partnership to manufacture astrazeneca's leading vaccine candidate under that agreement valued approximately 87 million Emergent will provide development services, technology transfer, analytical testing, drug substance process and performance qualification, and will reserve certain large-scale manufacturing capacity through 2020. Earlier this week, we announced an additional agreement with AstraZeneca to manufacture a drug substance at large scale for commercial supply. The contract is valued at approximately $174 million, through 2021 and it brings the total AstraZeneca commitment to just over $260 million. The agreement leaves open the option to enter into additional commercial manufacturing commitments as the candidate progresses over the next three years. Given the scale and the ongoing nature of the threat, as well as our diverse offering across development services, drug substance, drug product, and our leading development and manufacturing expertise, We anticipate significant demand for our CDMO business for the next several years across small, mid, and large pharma and biotech, as well as the U.S. government and NGOs. To be clear, we have three capital investment projects ongoing in support of this growth and scale of the CDMO business unit. First, we're nearing completion of the $50 million expansion at our Camden facility in Baltimore, where drug product site that we announced in 2018. Secondly, we'll be investing approximately $80 million in our Rockville, Maryland location to broaden our drug product capabilities. And third, we'll be investing $75 million in our Canton, Massachusetts facility to expand our viral-based service offering to include viral vector and gene therapy capabilities. Together, this represents a $200 million expansion of our manufacturing capability and capacity, adding strength, diversity, and durability to our network. Turning to the pandemic response within our therapeutics business unit, we're currently developing two potential hyperimmune treatments for COVID-19. First is our COVID-HIG using our validated human hyperimmune platform, and second is our COVID EIG using our validated equine hyperimmune platform. The target patient populations for each of these programs are the severe hospitalized COVID-19 patients as well as individuals whose occupation places them at higher risk. In partnership with BARDA and NIAID, we have quickly advanced the evaluation of COVID HIG for treatment of hospitalized patients with a Phase III clinical trial to start in August. Earlier this month, we announced a collaboration with Mount Sinai Health Systems, as well as Immunotech Biocenters, and the U.S. Department of Defense, which is providing approximately $35 million of funding to facilitate the development of our COVID-HIV candidate. This collaboration includes the establishment of new plasma collection capabilities at Mount Sinai, an organization at the epicenter of the COVID-19 crisis in the United States, as well as the development and manufacturing of the product candidate. The collaboration also includes a clinical trial to be conducted at Mount Sinai to evaluate COVID-HIG for the use as a prophylactic treatment for populations at high risk of potential exposure, such as healthcare workers and military personnel. Our other therapeutic treatment program is the COVID EIG product candidate. This candidate uses the validated platform and infrastructure from our botulism antitoxin therapeutic program. We're currently vaccinating the horses and will complete proof of concept studies to determine the potential to advance this program to the clinic to evaluate it as a treatment for COVID-19. We expect having data this summer and we'll provide updates as events warrant. Also during the quarter, the therapeutics business unit continued to make progress on additional pipeline programs to strengthen our leadership position in antibiotic therapeutics and focus on the acute care hospital space. There remains a high unmet need for treatments to reduce the overall burden of severe influenza that results in ICU hospitalizations, respiratory support, and mortality each year. Our lead clinical candidate, flu IGIV, is in late stage clinical development for patients hospitalized with severe influenza A. We're currently in the process of reviewing the Phase II clinical data and will be determining the next steps and timelines as part of that review. Turning next to the vaccine business unit, our core medical countermeasure business, inclusive of our anthrax and smallpox franchises, continue to proceed on plan for the year. as what Rich will discuss in more detail in a few minutes. We have continued to make deliveries of our anthrax vaccine candidate, AV7909, to the Strategic National Stockpile, and earlier this month in July, we secured an option to provide additional doses to the US government over the next 12 months. With respect to their smallpox vaccine, ACAM2000, in May, we secured the first annual option exercise under last year's contract for additional doses to be delivered over a 12 month period that started in June of this year. We also have a number of other updates related to the vaccine business unit since last quarter's earnings call. First, the initiation of our phase three clinical trial for our single dose vaccine for chikungunya will likely push into 2021, primarily driven by the timing of certain operational matters namely the manufacturing prep out of our Bern, Switzerland site, where we plan to manufacture our clinical material. Secondly, in April this year, Immersion was notified that we will receive a $15 million in funding from CEPI to support the advanced development of our Lassa vaccine program, supporting non-clinical and phase one studies. And lastly, a note about our tribal health business. While a small contributor to our overall total revenue, the tribal health business has been impacted by the halt in global travel. This negative impact will likely continue until the pandemic impact lessens. Nonetheless, we continue to believe this global pandemic may serve as a catalyst to raise awareness of the risks and opportunities to protect against vaccine-preventable travel-related illnesses. Turning finally to the devices business unit, let me start by taking a minute to comment on the devastating impact COVID-19 is having around the world and in the United States regarding the ongoing opioid crisis. For some, the COVID-19 pandemic and resulted in social distancing and isolation has resulted in an increase of stress, depression, anxiety, and fear. Unfortunately, in many instances, these mental and emotional stressors have led to increased substance abuse and subsequently opioid emergencies. We were therefore very pleased to see that the FDA in their recent announcement requiring all labels for opioid pain medication and medicine to treat opioid use disorder be updated to include information about naloxone. As the number of opioid overdose deaths continue to rise during the pandemic, increased access, awareness, and availability of naloxone is more important than ever right now. The FDA's new labeling requirement is an important step in the nationwide effort to more widely distribute and improve the availability of naloxone for at-risk individuals. We will continue to focus on expanding awareness of the risks of opioids. increasing the public's accessibility to naloxone, and making affordability of Narcan nasal spray a priority. And we remain committed to supporting federal, state, and local organizations in their efforts to combat the opioid crisis. During the quarter, retail pharmacy sales of Narcan nasal spray were stronger than anticipated, and there was a significant rebound in May and June from the decline in April caused by the initial impact of the pandemic. Sales are currently trending above pre-COVID-19 levels in states with co-prescription requirements in place, as well as in states where no current requirements for co-prescribing exist. In addition, standing order volume has increased approximately 27% since the middle of May. These increases are in part due to growing awareness and concerns about the rise in opioid overdoses compounded by the pandemic, as well as the concerted efforts by state public health organizations, community organizations, retail pharmacies, and physicians to expand awareness of the need for naloxone. Now to briefly touch upon the TEVA litigation. On June 5th of this year, the U.S. District Court of New Jersey entered a decision in the patent litigation regarding Narcan nasal spray in favor of the defendants, Teva Pharmaceuticals. We are appealing this decision to the Court of Appeals for the Federal Circuit. Despite the decision, we remain focused and committed to expanding awareness and affordable access and continue to build partnerships with state and local governments and community organizations as we focus on getting Narcan nasal spray to vulnerable communities and individuals. Taking all of this into consideration, we continue to expect meaningful contributions from this franchise over the near, medium, and long term. As we've shared with you all in the past, we factored in the potential generic competition into our planning and continue to believe that we provide differentiated value in raising awareness of the need for naloxone and getting it to the patients who need it. Now, before I turn the call over to Rich, let me conclude with a few summary thoughts. Immersion is uniquely prepared to answer the call for COVID-19 pandemic. We have proven manufacturing capabilities in place, and we're working with the U.S. government and leading innovative pharmaceutical and biotech companies in support of their efforts to develop vaccines while simultaneously advancing two potential therapeutic treatments of our own. The strength and durability of our business model is clear, and the pace at which we're driving our strategy has materially accelerated. As a result, we are significantly increasing our financial guidance for 2020, as Rich will discuss in detail in a few minutes. Finally, I'd like to once again thank our talented team here at Immersion that has stepped up to the challenge throughout this global pandemic. They've remained committed to our mission to protect and enhance life. I couldn't be more proud of the great strides they and we are making it emergent, and I look forward to keeping you apprised of our progress as we execute on our strategy. With that, that concludes my prepared remarks, and I'll now turn the call over to our Chief Financial Officer, Rich Lindahl. Rich?