Emergent BioSolutions Inc.

Thank you for standing by and welcome to the Emergent BioSolutions second quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. 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 File Solutions. In addition to today's press release, there is a series of slides accompanying this webcast available to all webcast participants. Turning to slides three and four, 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 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 emergence 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 five, the agenda for today's call will include Bob Cramer, 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 QQ 2022, which 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 would 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 year-to-date progress. My comments are summarized on slide seven 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 in 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 of 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 remains 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 things 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 IBANGA 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 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 shaping up as a re-baselining year for our CDMO business and a return to our pre-COVID focus on our molecule to 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 87909 and our ongoing chikungunya vaccine candidate phase three trials. You may note in particular that our phase two 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 one trials of our universal influenza vaccine candidate, as well as our therapeutic product candidate for side-night poisoning. And finally, quality and 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 we're 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 submissions. 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 AKM 2000 this quarter, the latest component under our 10-year, $2 billion procurement contract. The HSR Act review period for the Timbexa 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 Ibonga, an FDA-approved monoclonal antibody treatment for infection caused by Ebola virus, to our portfolio of medical countermeasures. Our collaboration with Ridgeback Biotherapeutics makes Immersion responsible for the manufacturing, sales, and distribution of Ibanga 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 US 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, the 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 VivoTeef in North America and in Europe and are in the process of relaunching VaxCora in the United States and launching Vaxcora 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 planned 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 the 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 of our other sites during 2020 and 2021. And finally, stepping up our longstanding 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 provided 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 that 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 Timbexa and begin fulfilling the contract with the U.S. government as planned. We've initiated a second phase three study to evaluate safety and immunogenicity of CHIC-V VLP vaccine candidate in adults 65 and above. This is in addition to the ongoing pivotal phase three 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 and 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 Dehal to the Emergent Board of Directors. She was appointed as our director effective July 15th We will benefit greatly from her decades of experience, particularly her expertise in healthcare compliance and legal and regulatory oversight. Importantly, I also want to thank the entire eMERGEd 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?