Emergent BioSolutions Inc.

Good day and thank you for standing by. Welcome to the Emergent BioSolutions fourth quarter and full year 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bob Burrows, Vice President of Investor Relations. Please go ahead.

Thank you, Michelle, and good afternoon, everyone. Thank you for joining us today as we discuss the operational and financial results for fourth quarter 2022 as well as full year 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's 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 emergency operating performance. Please refer to the tables found in today's press release regarding our use of adjusted income loss, net income loss, 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 Q4 2022 and FY 2022. which will also discuss our forecast for FY23, including Q123 revenue guidance. This will be followed by a Q&A session where additional members of the 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 February 27, 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 Bob. Bob?

Thank you, Bob, and good afternoon, and thank you for joining the call this afternoon. A summary of my remarks begins on page six. As you've read in our press release, our fourth quarter and fiscal year 2022 results are largely in line with the guidance that we provided at the end of last year and then reaffirmed again in our January 9th press release. Our 2022 results and the 2023 guidance we will share with you today should serve as a more realistic baseline from which we will grow at a rate more consistent with pre-COVID trends. And Rich will walk through those numbers with you in a minute. Today, I'd like to provide some context with respect to sharpening our focus on our core businesses and maximizing outcomes for all stakeholders, patients, customers, employees, equity investors, and debt capital providers. We last gave our long-term view of the business at our investor day in November of 2019. Much has changed since then, and I think it's safe to say that that view no longer matches this post-pandemic environment. By the end of this year, we'll share an updated view informed by the outcomes of several strategic initiatives already underway. First, we've prioritized our foundational products business which includes our portfolio of medical countermeasures such as treatments and vaccines for anthrax and smallpox, a business that has contributed on average $620 million of revenue in each of the last three years. This focus also includes making life-saving treatments like Narcan nasal spray more accessible to patients who need them. Let me give you three clear examples of this prioritization in practice. In January, we announced a new contract to supply RSDL kits to the U.S. Department of Defense, underscoring our continued partnership with the government to address threats they have identified. Also earlier this month, we announced an agreement to sell our travel health business to Bavaria Nordic, which accomplishes two goals. It will help ensure that Vaxcora and VivoTeeth remain available to international travelers and other patients who need them. And upon close, it will generate approximately $270 million in cash and includes the potential for another $110 million in sales-based and development-based milestones. Also, on February 15th, we successfully presented our rationale for making Narcan available over the counter to an FDA joint advisory committee. I'll touch upon that more in a minute. The second strategic initiative is aimed at strengthening our culture of quality and compliance and enhancing our manufacturing capabilities to support both our internal products as well as services to our long-term partners. Third, we're making capital structure and expenditure decisions to build enterprise value for the benefit of both stakeholders and creditors. For example, in January, we announced organizational changes and other cost reduction initiatives expected to result in annualized savings of over $60 million when fully implemented. And finally, as Rich will discuss, we're managing our balance sheet to restructure and extend our debt obligations. To be clear, these decisions are not taking lightly and they have real consequences and impact on many of our emergent colleagues. To those affected by these decisions, I want to again express my gratitude for your commitment to our patients and customers and to our mission to protect and enhance life. Turning to our core businesses, we see continued strength in the medical countermeasure products. We successfully delivered the second shipment of Timbexa under the barter procurement contract at the end of 2022 and are planning for an additional contract modification to be exercised in late 2023. As mentioned previously, we announced a $380 million procurement contract to supply RSDL kits for use by all branches of the U.S. military. We expect deliveries to be consistent with previous years, but this new contract does account for surge capacity should the Department of Defense require additional supplies. With respect to ACAM2000, our smallpox vaccine, we continue to work with the US government on terms for the next delivery into the Strategic National Stockpile. We have previously disclosed that these options are not always exercised on a consistent, predictable timeline, yet we remain confident that we will reach agreement with the US government emboldened by comments from the Assistant Secretary of Preparedness and Response before the Senate Health Committee last September, stating that ACAN 2000 remains, and I quote, the first line of defense to vaccinate Americans in the event of an accidental or intentional release of smallpox, end quote. We're also pleased with the progress toward making Narcan nasal spray available over the counter. Since announcing the FDA's priority review of our application last December, we continue working closely with the agency leading up to the expected approval by March 29th of this year. We're encouraged by the unanimous vote of the FDA Advisory Committee on February 15th in support of over-the-counter Narcan. And assuming the timeline remains the same, we anticipate Narcan appearing on shelves by the end of the summer. we're engaging with stakeholders, including retail pharmacy chains, the Centers for Medicare and Medicaid Services, and congressional offices to ensure the switch to over-the-counter Narcan continues to expand access to this potentially lifesaving medicine. Notably, we also expect consistent public interest demand for Narcan regardless of the outcome of the FDA review. We have invested in relationships across this market and have a sophisticated and mature system in place that enables us to deliver product to these customers in a timely and affordable manner. Turning to CDMO, with respect to this piece of the business, we're currently making investments on our existing network to both deliver our internal products and service external customers, including strengthening operational quality and compliance systems across the enterprise to provide reliable delivery of products and services, as well as bringing online new assets across the manufacturing sites like the high-speed fill-finish drug product line in Rockville that will differentiate us in this growing market, specifically in the mammalian sector. As we've said before, executing on these strategic investments will take time to complete, and we're committed to getting it right. As these investments come to fruition, we will continue to engage potential new customers and evaluate how best to deploy these assets across our network in order to deliver the fastest returns. Turning now to our financial guidance, our sharpened focus on core areas of sustainable growth and other related actions we're taking will have an impact on our business performance. And Rich will go into more detail our 2023 guidance. But our range of total revenues of 1.1 to 1.2 billion and our adjusted EBITDA range of between 75 and 125 million and our adjusted gross margin performance of between 41 and 44 percent reflects the impacts of these actions in the short term. As we look ahead to the rest of 2023, the management team and I are executing against the following priorities. First, improving overall profitability by focusing on both our core products and existing services businesses. Secondly, successfully closing on the sale of the tribal health business that we announced earlier this year. Next, completing the transition of AB 7909 from development to procurement in close partnership with the US government. Fourth, gaining FDA approval for over-the-counter Narcan and launching that product later this year. Next, further delivering and strengthening on our quality and compliance culture and systems. And finally, working with our creditors to restructure and extend our debt obligations. The full benefit of these actions we're taking will not be realized overnight, And our actions demonstrate our belief in the importance and necessity of the work Emergent does to help protect against ongoing and future threats to public health, as well as economic and national security. Again, thank you for attending and participating in the call today. And I'll now turn it over to Rich.

Thank you, Bob. And good afternoon, everyone. We appreciate you joining the call. I'll start on slide nine and begin my remarks by reinforcing the financial implications of sharpening our strategic focus and maximizing stakeholder outcomes as Bob has described for you today. First, we are committed to sustaining revenue growth and improving profitability. We plan to leverage our capabilities in medical countermeasures and Narcan nasal spray and develop the potential of our CDMO services business with the combined effect to establish a platform for solid future growth. The position elimination and other actions we announced earlier in the year, in combination with the sale of our travel health business, will better align our cost structure with our revenue trajectory as we continue to strengthen quality and compliance and operationalize the network investments made over the past three years. Our 2023 guidance reflects our expectations for solid progress in a multi-year journey towards these objectives. Second, we are addressing near-term challenges to our credit profile. Improved profitability, stronger cash flow, and disciplined resource allocation are important short-term objectives that are reflected in our recent actions. The sale of the travel health business will provide enhanced liquidity as we work with our lenders to replace the current credit facility and extend the October 2023 maturity. To that end, our lender group has been constructive in these efforts, as evidenced by their consent to the travel health sale and a limited waiver of covenant compliance described in our 8K filing on February 15th related to the announced divestiture. We are working diligently with the lender group to extend the debt maturity and resolve these concerns as soon as possible. With that, let's now turn to a review of financial results, which continue to be mixed in the fourth quarter. On the positive side, total revenues were in line with our guidance as the product segment continued to deliver solid contributions, including Narcan nasal spray Tembexa, and other products. These outcomes partially offset the disappointing circumstances related to ACAM 2000, which did not contribute any revenue in the period. Similarly, the services segment was once again a modest top line contributor as we continue to make steady progress in stabilizing and incrementally improving the performance of the CDMO services business across our core sites at Winnipeg, Camden, Rockville, and Bayview. At the same time, Our profitability measures reflect underutilization of our CDMO capacity, as well as ongoing incremental costs to address the Camden Warning Letter and further strengthen our systems, processes, and culture of quality and compliance in our manufacturing plants and across the enterprise. As indicated on slides 10, 11, and 12, financial highlights include total revenues of $331 million, a decrease over the prior year driven by lower sales of our key franchise products, substantially reduced CDMO services revenue, and lower contract and grant revenues. And as expected, our key profitability measures declined versus the prior year, with net loss of $88 million, adjusted net loss of $15 million, and adjusted EBITDA of positive $34 million. Notable revenue elements in the quarter include anthrax vaccine sales of $51 million, lower than the prior year due to timing of deliveries of AB7909 to the U.S. government's strategic national stockpile. Nasal naloxone product sales of $91 million, lower than the prior year but demonstrating the continuing role of Narcan in addressing the ongoing opioid epidemic, especially in the U.S. public interest segment. Pembexa, our newest acquired medical countermeasure product, generated its first product sales during the quarter, contributing $118 million under the 10-year contract to supply doses of this smallpox therapeutic to the SNS. Other product sales were $46 million, slightly lower year over year, but demonstrating the impact of our other MCM products. And combined CDMO service and lease revenues were $18 million, significantly lower than the prior year as we continue to support existing customers and re-baseline the business following our COVID-19 response. Turning to operating expenses, cost of product sales in the quarter was $167 million, higher than the prior year driven by Tembexa and offset by lower sales of anthrax vaccines, ACAM2000, and nasal naloxone products. Note that cost of product sales includes $51 million of inventory step-up related to the Tembexa acquisition that has been adjusted out of our non-GAAP metrics. Cost of CDMO was $52 million, significantly lower than the prior year due to reduced production across the CDMO network, partially offset by higher costs at the Camden site resulting from additional investments in quality enhancement and improvement. R&D expense of $58 million, lower than the prior year, reflecting a non-cash write-off in 2021 of a contract asset balance resulting from the termination of the CIADM contract with the U.S. government. This reduction was partially offset by higher costs associated with the CHIC-B Phase III trials. An SG&A spend of $94 million, in line with the prior year. With that, let's move to slide 13 and review segment performance during the quarter. In the product segment, revenues were $306 million, a decrease from the prior year as strong performance from the Anthrax franchise, Narcan, and Tembexa were offset by lower ACAM 2000 sales. An adjusted gross margin was $190 million, or 62%, both decreases over the prior year, reflecting lower sales volume and a less favorable product mix. As for the services segment, Revenues were $18 million, a significant decrease from the prior year, and adjusted gross margin was negative $34 million, a decrease versus the prior year driven primarily by lower lease revenues as compared to 2021. Next, I will share key results related to the full year period, which are shown on slides 14 and 15. Total revenues were $1.1 billion, lower than the prior year, but in line with our previous guidance. While revenues in the CDMO business were substantially lower than the prior year, period due to all the same issues that impacted fourth quarter performance. Anthrax vaccines came in higher than prior year, Tembexa contributed significantly, and other products were slightly higher, offset by slightly lower nasal naloxone sales and significantly reduced ACAM 2000 revenues. As to profitability, we reported adjusted net loss of $112 million and adjusted EBITDA of $26 million, both substantially lower than the prior year. Lastly, Gross margin of 36% and adjusted gross margin of 41% were both lower year-over-year, reflecting the impact of less favorable product mix combined with negative services gross margins. On slide 16, we present the segment performance for the full-year periods. In the product segment, revenues were $966 million, slightly lower from the prior year, and adjusted gross margin was $596 million, or 62%. both slight decreases over the prior year reflecting lower sales volume and less favorable product mix. As for the services segment, revenues were $113 million, a significant decrease from the prior year primarily due to reduced production at Camden and the cessation of operations at Bayview as we continue to reposition the site to initially support select internal products. An adjusted gross margin was negative $156 million, a substantial decrease versus the prior year due principally to declining revenues related to the COVID-19 response, coupled with incremental costs associated with the Camden facility remediation efforts and investments in quality and compliance across our manufacturing network. Moving on to slide 17, I'll touch on select balance sheet and cash flow highlights. We ended the fourth quarter with $643 million in cash as we took down the remaining approximately $360 million of available revolver capacity to further strengthen our liquidity position at year end. As of 12-31-22, our net debt position was $771 million. Turning to cash flows, for the year, our operating cash flow was negative, primarily influenced by the ACAM 2000 order that did not materialize in 2022. In addition, capital expenditures were $116 million, over $100 million lower than the prior year. Please turn to slides 18 and 19 for a review of our 2023 forecast and associated assumptions. You will note that we are now guiding to sales by threat area instead of by individual product, and therefore have introduced two new groupings. Anthrax Medical Countermeasures, or MCM, which comprises AB7909, BioThrax, Anthroxyl, and Raxivacumab, and Smallpox Medical Countermeasures, which includes ACAM2000, Kembexa, and VIGIV. the financial forecast section of our press release for comparison you will see the 2022 actual revenue for each grouping next to the 2023 forecast for the full year 2023 we are guiding to the following total revenues of 1.1 to 1.2 billion dollars anthrax mcm sales of 260 to 280 million dollars narcan nasal spray sales of 290 to 310 million dollars taking into account our assumptions regarding impact of over-the-counter Narcan across all customer channels, smallpox MCM sales of $235 to $255 million, other product sales of $165 to $185 million, CDMO services revenues of $115 to $135 million, adjusted net loss of $30 to $80 million, adjusted EBITDA of $75 to $125 million, and adjusted gross margin 41 to 44 percent this full year 2023 forecast reflects the following key considerations it excludes the potential impact of the sale of our travel health business we will update our guidance accordingly after the transaction closes which is anticipated in the second quarter it assumes the over-the-counter launch of Narcan by the end of the summer with continued strong demand in the US public interest channel as well as continuing demand in Canada continued procurement and delivery of anthrax, smallpox, and other medical countermeasure products to the U.S. and allied governments, and continued rebaselining of the CDMO services business overall and the impact of reduced production output from the Camden facility. Note that we expect revenues and profits in 2023 will be more heavily weighted towards the second half of the year, and as a result, we have provided a revenue outlook for the first quarter of $130 to $150 million. To conclude, please turn to slide 20 for some summary comments. Our results in the fourth quarter reflect a mix of strong performance in certain core areas of our products business, offset by ongoing challenges in other aspects of our products business and our services business. We are committed to sustaining revenue growth and improving profitability, and we are addressing near-term challenges to our credit profile. Finally, as always, we remain confident in the impact we are having on patients and customers focused on health security and pandemic preparedness. 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?

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster. And our first question comes from the line of Jessica Fye with JPMorgan. Your line is open. Please go ahead.

Hey, this is Nick on for Jess. Thanks for taking your questions. Two from us. The first one is for your 2023 Narcan guidance, can you just help quantify how much of that $290 to $310 million revenue range is associated with potential OTC use?

Yeah, Nick, I think you mentioned 2022 guidance. I think you probably... Yeah, no problem. So as Rich indicated in his script and prepared remarks, we are assuming that FDA grants approval for OTC treatment of Narcan and they will be launching this product into the OTC market in the summer. So it's really difficult to break out how much of the revenue guidance of 290 to 310 is attributable to OTC market versus continuing in the prescription market. So again, we can tell you our assumptions. And again, it's kind of based on the timing of when that product will likely be launched.

The only thing I might add there, Bob, is I do think it's fair to say that we do expect the public interest market to remain the majority of sales, and that's factored into the guidance.

Yeah, that's right, Rich. Thanks. Great. Thank you. And just a quick follow-up. For the anthrax and smallpox guide, it includes potential contributions, but the same potential quantifier is not there for the other products, such as Narcan or CDML. Have you heard commitments from the U.S. government on taking the 2023 option, say, for ACAM 2000 for naranthrax?

Yeah, so let's start with the smallpox threat category and specifically on ACAM. I think as I remarked in my comments, Nick, we continue to be in active dialogue with HHS around the next procurement of ACAM 2000. So we've actually factored that into the guidance that we've given around the smallpox threat category, and as Rich indicated, we've pivoted to more of a threat-based guidance format as opposed to an individual product. As it relates to anthrax vaccines, clearly we're in the kind of nearing the end of the transition in terms of almost a five and a half year development slash procurement relationship with the U.S. government, BARDA in particular. We've got the PDUFA date later this year for AB 7909. We've assumed continued procurement of AB 7909 into the stockpile as we kind of position that product from a development stage product to a licensed state later this year, early next year. So those are just some of the assumptions that we put into our guidance for those two threat categories. Great. Thanks so much.

Sure.

Thank you. And one moment for our next question. Our next question comes from the line of Brandon Foulkes with Cantor. Your line is open. Please go ahead.

Hi, thanks for taking my questions. I appreciate all the guidance and congrats on all the work done this year. Maybe just following on from that first question, just high level, can you just elaborate maybe on how you see the Narcan OTC market evolving? You know, is this something that you think takes time? Do you think it could move quite quickly? And then how would you contemplate the 2023 gross margin guidance for the company going forward? Are we at sort of steady state from here? I know you haven't announced pricing on Narcan OTC, but how could the Narcan OTC opportunity affect that gross margin going forward?

Yep. Thanks, Brendan. So I'll take the first question, then ask Rich to comment on the gross margin guidance and potential impact throughout the year as we potentially pivot to Narcan being distributed OTC. So I think as it relates to kind of the general market dynamic, Brandon, when assuming the timing sticks with FDA approval, you know, at the end of March, there'll be a bit of a transition period so we can complete our supply chain solution preparation and prepare for a launch, as we said, in maybe the summer timeframe to see product on shelves. I mean, clearly it gives us the opportunity to be back into and compete in the retail space, Brendan, which we lost significant market share as a result of the generic products coming in in December of 2021. We've always been able to maintain, you know, a good healthy market share of the public interest market, even with the introduction of the generic products. We expect that to hold. in the OTC setting. So I think OTC for Narcan means that we can perhaps be a little bit more competitive or regain some competitive advantage in the retail space, as well as hold on to the public interest market where we've always had strong attraction and relationships with those customers. But Rich, you want to comment on the gross margin guidance?

Sure. So I guess two parts to the question, one being the overall gross margin guidance is a blend of product gross margin and services gross margins. And we do anticipate that services gross margins, while we would expect some improvement this year, are going to remain lower than where we ultimately expect them to be. So I do think over time, the services gross margins can be a positive influence on the blended gross margins. As it relates to product margins, I think generally speaking, we expect there to be stability in product gross margins. The Narcan experience will certainly weigh into that. I think at this point, we've made some assumptions about where we expect pricing to be and also other costs related to marketing or other costs associated with Narcan. We're not prepared to provide specificity on those assumptions at this point, but it does reflect our current assumptions.

Thanks very much.

And one more, if I may, just sort of very high level. Bob, you talked about the sort of the long-term guidance you last put out in 2019. But, you know, a lot's gone on this year and you've continued to narrow your focus and, you know, worked through a lot. But how should we think about how different EBS looks in two to three years from now? Maybe especially the manufacturing footprint. I know, you know, you don't want to get started, but just What are you envisioning in terms of how narrow to take this focus?

Yeah, Brian, it's a really good question. I think when you look back at November of 2019 prior to COVID, as we shared during that investor day, we expected that the organic portion of our business would kind of be able to grow in that mid to high single digit growth rate. going forward, and we expected to be able to continue to do potential M&A transactions that would continue to contribute on a revenue basis to us gaining leadership positions in key niche markets of this public health threat space that we continue to operate in. I think for the next couple of years, we're going to continue to focus on the priorities that I mentioned in my prepared remarks, meaning driving and improving profitability margin both at the gross margin level, as Rich described, as well as the adjusted EBITDA level. We need to complete this sale of the tribal health business to Bavarian Nordic. As we said, there are a couple of product initiatives regarding securing the next procurement contract for ACAM. as well as executing on the Narcan nasal spray OTC switch later this year, and then finally completing this AV7909 transition during 2023. All those will be really important. In terms of kind of post 2023, once these balls have landed, I think we'll be in a better position, Brandon, comment with more certainty about what the financial profile of the business looks like post 2023 and kind of going into 2024 and 2025. But I think the potential profitability and earnings profile of the business is not too dissimilar to what we saw in 2019. It's just that we're pivoting now coming out of the pandemic and it will be really important as Rich described to operationalize these investments that we've made in our manufacturing network and make sure that any underutilized facilities are more fully utilized going forward. That alone will potentially improve gross margin and adjusted EBITDA going forward.

Great. Thank you very much. I appreciate you taking all my questions. Sure.

Thank you. And one moment for our next question. Our next question comes from the line of Boris Peeker with Cowen. Your line is open. Please go ahead.

Great. Thank you very much for taking my question. A couple of questions here. First, on Narcan, you mentioned that you will be competitive in the retail space, assuming approval later this year. Just curious, why won't the generic pressure you in the OTC space? And also, why haven't we seen significant generic pressure in the public interest market?

Yeah, Boris, thanks for joining the call. So, you know, we'll see what happens and what develops when and if Narcan is approved to go OTC. Our belief is that the brand awareness and the brand recognition and the brand value of Narcan is very strong. We've had really positive conversations with a number of the nationwide pharmacy retailers they're anxious to get the product into their stores so we think there's a real opportunity to compete for some retail space that we lost when the generics were so actively introduced you know 18 or 15 to 18 months ago with respect to the public interest market I think there's strong stickiness factor with Narcan, including in part due to the fact that, as you probably know, that market had already had a fairly heavily discounted price per carton of about 40%. So the economics were a bit different already in the public interest market versus the retail space. I guess secondly, we've had a five or six year head start in establishing really strong relationships with a rather fragmented public interest market that allows us to respond and to deliver on service commitments in a very meaningful way that has allowed us to kind of keep that customer base intact. So I think it's the combination of those two, Boris, that allowed us to be really competitive in that public interest market.

Got it. I just have a question on my last question on 7909. Can you just discuss how this transition may occur? The reason I ask is 7909 is only two doses per patient, while BioThrax was three. So, I mean, do you anticipate either the government to buy more of 7909 than BioThrax or maybe price it at a significant premium on a per vial basis versus BioThrax? Just how does this two from three doses impact revenue going forward?

Yeah, it's a really good question. As we've talked about, Boris, the transition that we're, I'll say, in the fourth quarter of the executing in this transition started a number of years ago. The U.S. government has been procuring and placing into the strategic national stockpile AB 799 all along the way. The transition will include as the product goes from basically a development stage product to an FDA licensed product that requires within the government a shift from BARDA to the Strategic National Stockpile in terms of who manages the overall procurement. In terms of the logistics, as we've talked about, the government's strategy all along for many, many years has been to have enough anthrax vaccine in our country's Strategic National Stockpile to protect 25 million lives with Biotrax, as you correctly say, which is a three dose primary series that implied an inventory or a stockpile of 75 million doses for AB 7909, given its two dose nature that reduces the overall stockpile requirement down to roughly 50 million doses. As far as we know, the government is not has not fully sourced either the 75 or the 50 million dose level. So what we expect going forward is an annual procurement level to get them to get to and maintain that 25 million lives protected level, which for AB 799 would be roughly 50 million doses.

Okay. Thanks for taking my question.

Sure.

Thank you. And again, if you have a question at this time, please press star 11 on your telephone. And our next question comes from the line of Christopher Sakai with Singular Research. Your line is open. Please go ahead.

Hi. This is for Chris. Firstly, I was wondering about Narcan nasal spray to an extent. You can share a little bit about the pricing strategy and potential cannibalization, considering that you're expecting this to be contributing revenues in the second half of the year.

Yeah, Chris, thanks for joining the call. Thanks for the question. As we've talked about, our focus right now, kind of coming out of the ADCOM meeting with the FDA and given the PDUFA date of March 29th, is to finalize discussions with the FDA regarding packaging and labeling, number one, as well as prepare our supply chain for launching the product in the summer of this year. It's a little too early to really say with certainty what the pricing is going to be. Your question about cannibalization is interesting because what we expect is that when FDA approves and when we launch the product in the summer, there'll be a bit of a transition period where you will likely see both the prescription branded product Narcan as well as the OTC distributed branded product in the market for a very short period of time. And then when that's over, it will be the OTC version of Narcan in distribution. So we don't really, cannibalization may not be what we expect going forward. Rather, as I said earlier, we expect to be able to kind of reenter or reestablish Narcan in the retail space where it was edged out because of the generics. while continuing to maintain a pretty healthy competitive position in the public interest market.

And in terms of the channels you will be focusing on, that depends on the label you will get or that is a little bit planned at this point.

So we're in active discussions with a number of the the nationwide pharmacy chains about distributing Narcan in the retail space, as well as continuing to support the public interest market. So my comment around the label, Chris, was really one of the areas of continued interest by the FDA is on the label and the packaging for Narcan in the OTC setting. We've gotten good feedback coming out of the ADCOM meeting with regard to that. So we'd like to finalize that soon so we can finalize our supply chain solutions for planning for a launch in the summer.

To an extent, you can comment based on your discussions. Is FDA interested in or would like to have this product entirely over the counter, maybe not immediately, but long term?

I think that's our expectation of what will happen, Chris, but I'm not going to speculate on what actions or preferences the FDA would like, but that's That's our expectation is it would be OTC only after some transition period later this year.

Okay. On the travel health sale, to an extent, you can give us some color given that all the financials were not disclosed. What kind of valuation you received on that sale or divestment?

So as we included in our press release when we announced the signing of the transaction, the total consideration that's been agreed with the other party is $380 million of value, Chris, 270 of which is upfront payment with another 110 being potentially in the form of either development-based milestones for the Chikungunya product as it goes through its development stages, as well as some milestone payments based on future sales of both the Vaxcora and the VivoTeeth product. So 270 up front, plus another 110 potentially in development and sales-based milestones down the road.

I'm sorry, I meant of any valuation metrics you can provide in sales or the beta or any color.

Yeah, we obviously went through the normal and traditional valuation metrics based on multiples of revenue and EBITDA and looked at competing products in the market, Chris. We think that where we landed with Bavaria Nordic represents fair value. But more importantly, I think Bavaria Nordic is a great partner to transition these assets to. They're committed to this space. They have experience in other products in this space and will serve well the very patients and customers who need these products going forward.

Okay, and finally, to an extent, you can provide us a little bit more color on, you know, going from like a 306 million revenues fourth quarter to around 130 to 150 million. If you can kind of provide a little bit more color, you know, what are the pushes and pulls, that'll be helpful.

Yeah, I think historically, Chris, our business, has had revenues that are lower in the first quarter and certainly the first half of the year versus the second half of the year. I think if you go back and look quarter by quarter and first half versus second half, historically roughly 40% of our revenues have occurred in the first half of the year with 60, sometimes 60 plus percent in the second half. So this is not out of the ordinary for us, and it's really the nature of our deliveries for the medical countermeasure products that we have under contract with the U.S. government. I don't know if Rich, if you want to add anything to that.

No, I think that's right. It's really just there's an inherently lumpy nature to those deliveries. And it's very common that the fourth quarter ends up being our strongest quarter of the year and the first quarter being our, you know, being sequentially lower. And that's a similar trend we're expecting this year.

Perfect. Thank you.

Thank you. And one moment for our next question. We have a follow-up question from the line of Boris Peeker with Cowan. Your line is open. Please go ahead.

Oh, well, thanks for taking the follow-up. I guess one question that is in the mind of a lot of investors is in terms of your debt maturity. Can you talk about maybe the timeline or what we should be expecting in terms of your strategy or communication with the debtors in terms of this process?

Sure, Boris. Thanks. Rich, you want to take that one?

Sure. Yeah, as I commented in my remarks, we are engaged in an active dialogue with our lender group on extending the maturity of the credit facility, the October maturity. I think I pointed to the consent to the travel health sale and the waiver that they provided as evidence that they're being constructive in those conversations. We're certainly working towards a timeline to get this done as quickly as possible, and we will keep you posted when we have more specific information to provide.

Great, thanks. Another question, another on ACAM 2000. Do you have a timeframe of when we should hear about a new contract? And also if a new contract is awarded, should we expect it to just cover 23 and to be kind of a run rate historically as we've seen? Or should we expect a bolus of catch up for 22 and 23?

Yeah, Boris, great question. You know, our immediate interest is ensuring and finalizing the 2023 procurement decision by the US government. At the same time, we're actively in discussions with them about their longer term plans for continuing to procure ACAM as part of the strategic national stockpile requirements. So I think the answer to your question is we're in active dialogue about both of those, both short term and long-term, and really can't speculate, Boris, on when we expect those discussions to be finalized or to result in a procurement commitment or contract with the government.

Great. Thanks for taking my follow-up question.

Glad to. Thanks.

Thank you. And again, if you would like to ask a question, please press star 11 on your telephone. Showing no further questions, I would like to hand the conference back over to Bob Burrows for any further remarks.

Thank you, Michelle. 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 made available later today and accessible through the Investors Landing page on the company's website. Thank you again, and we look forward to speaking with all of you in the future. Have a good night.

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