Emergent BioSolutions Inc.

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 the session, you will need to press star, one, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star, one, one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Frank Vargo, Vice President, Assistant Treasurer. Please go ahead.

Good afternoon, everyone. Thank you for joining today as Emergent discusses their operational and financial results for the first quarter of 2025. As is customary, today's call is open to all participants. The call is being recorded and is copyrighted by Emergent Biosolutions. In addition to today's press release, there are a number of slides accompanying this webcast available to all webcast participants. Turning to slide two. During today's call, Emergent may make projections and other forward-looking statements related to their business, future events, their prospects, or future performance. These forward-looking statements are based on their 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, Emergent does not undertake to update any forward-looking statements to reflect new information, events, or circumstances. Investors should consider this cautionary statement as well as the risk factors identified in Emergent's periodic reports filed with the SEC when evaluating their forward-looking statements. During today's call, Emergent may also discuss 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. Turning to slide three. The agenda for today's call will include Joe Papa, President and Chief Executive Officer, who will comment on our turnaround progress and a high-level summary of Q1 2025 performance, and Richland Dahl, EVP and Chief Financial Officer, who will provide further details on the first quarter 2025 financials, as well as provide full year guidance for 2025. Joe Papa will conclude by discussing the 2025 business outlook and key catalysts for growth, followed by Q&A. Finally, for the benefit of those who may be listening to the replay of this webcast, this call was held and recorded on May 7th, 2025. Since then, Emergent may have made announcements related to topics discussed during today's call. And with that, I would now like to turn the call over to Joe Papa for opening remarks. Joe?

Good afternoon, and thank you for joining us to review our first quarter 2025 earnings. This is Joe Papa, CEO of Emergent, and I'm joined today by Richland Dahl, our Chief Financial Officer. I hope to provide brief comments on our progress with our multi-year turnaround plan in the first quarter results. Then I'll hand it over to Rich to review the financials, and then I'll return to provide some additional commentary on our business and our 2025 priorities, and then as Frank mentioned, we'll close with a Q&A. Turning to slide five, we continue to make great progress executing on our multi-year plan to stabilize the company, streamline our operations to improve profitability, and transform the company to achieve long-term sustainable growth built on emerging strengths. Throughout the quarter, Emergent colleagues executed on our strategic plan with a laser focus on improving operational efficiency and driving profitable growth. I'm gonna call it three great Q1 achievements, all while keeping the emergent mission statement to protect and save lives at the center of our work. We delivered on our revenue and adjusted EBITDA targets, while we further improved our cash and liquidity position. We partnered with the US government and allied nations to ensure preparedness with medical countermeasures, and we delivered life-saving Markian nasal sprays across the US and Canada to patients, customers, and communities. And third, we completed two strategic business development transactions that align with and enhance Emergent's core capabilities. Let's turn to slide six for a more detailed review of the great work of the Emergent team in the first quarter. Based on a great team effort, we are reaffirming revenue and adjusted EBITDA guidance for 2025. We improved our cash position in the quarter. At the end of the first quarter, we have cash of $149 million on the balance sheet, which includes approximately $36.5 million from the sale of the Bayview site in Baltimore. Additionally, we have 50 million from Bavarian Nordic milestone payments. 30 million was received in the first quarter, and 20 million addition has already been received in the second quarter. We also expect to benefit from strong receivable cash collections in the second quarter. Our net leverage is now 2.8 times adjusted EBITDA, which is a remarkable achievement, since it was around 5.7 times back in the first quarter of 2024. With our improved cash position and $100 million of the fully undrawn revolver, we have a total of $250 million in liquidity available to us for strategic growth initiatives, both internally and for external business development. We have focused Emergent's business today to concentrate on our core strengths of medical countermeasures and opioid overdose reversal treatments. We are committed to combat the opioid overdose epidemic and help save lives. We continue to meet the demand for Nalaxone with Narcan nasal spray, which is by far the category leader. In the first quarter, we managed through two one-time events with Narcan, a third party distributor selling short-dated, generic Nalaxone inventory at a reduced price, and states proceeding with caution as it relates to federal funding process for Nalaxone. We now have greater clarity in our encourage the Narcan revenue progress we are seeing in the first six weeks of the second quarter. At NCM, we had a very favorable quarter with a significant amount of international revenue while maintaining our strong relationship with the US and allied government partners. Through extensive meetings with US government stakeholders, we have a better transparency on expectation for 2025 deliveries, which supports our 2025 guidance ranges. From an R&D perspective, our new chief medical officer, Simon Lowry, has created and is implementing a strategy to evaluate several of our current product line extensions. Two examples of that are a better understanding of the utility of Tembexa in M-Pox treatment through the Africa CDC MOSA trial, and our efforts to facilitate the availability of ACAM2000 for the ongoing M-Pox epidemic in Africa with the World Health Organization. Let's shift to slide seven to look at our North America-centric manufacturing model in more detail. Two key points related to our emergent model. All of our MCM products are manufactured in the US or Canada and are US MCA compliant, which means they are currently not subject to tariffs between US, Canada, and Mexico. We are actively managing our future inventory orders to mitigate any material tariffs associated with components sourced from the European Union. Based on the US manufacturing focus and the existing information, we believe our business is relatively shield from tariff impacts. Now I'd like to turn the call over to Rich to walk through the Q1 financial results.

Thank you, Joe, and good afternoon, everyone. We appreciate you joining the call. As Joe has just highlighted, we are off to a strong start in 2025 as we continue to make progress on our multi-year transformation plan. We delivered first quarter revenue in line with our guidance, enhanced our cash position, and reduced our net leverage ratio. Net income in the first quarter was $68 million, a 656% increase versus the first quarter of 2024. In addition, we saw significant margin expansion, both on the gross margin and adjusted EBITDA margin lines versus the prior year. These metrics support our turnaround objective of focusing on highly profitable components of our business while divesting non-core low-profit assets. Both our medical countermeasure and opioid overdose reversal products deliver sustainable revenue over time and garner bipartisan support at the US government level. During the quarter, our portfolio of unique medical countermeasure and opioid overdose reversal products also continue to provide life-saving capabilities to people around the world. In the first quarter, we had $91 million of sales outside of the United States for our MCM products. As part of our multi-year transformation plan, we expect to remain focused on international expansion efforts and strengthening health preparedness at home and abroad. With that, let's move to the first quarter financials. As highlighted on slide nine, our key financial metrics are total revenues of $222 million, down versus the prior year as lower Narcan and BAC sales as well as the divestiture of RSDL and Camden were partially offset by higher international smallpox sales. Adjusted EBITDA of $78 million, an increase of $11 million versus the prior year. Adjusted EBITDA margin of 35%, an increase of 1,300 basis points versus the prior year. Adjusted gross margin of 58%, an improved 700 basis points year over year as a result of product mix as well as the improved cost structure stemming from our previously announced restructuring efforts. Note that beginning with this report, we are no longer reporting services as a separate segment given the divestitures of our Camden and Bayview sites and the emphasis of our CDMO business as a driver of growth. You will still find breakouts of our commercial product segment and MCM product segment results in our press release. And finally, operating expenses were down $32 million or 32% versus the prior year across R&D and SG&A. Transitioning to slide 10, our first quarter revenue highlights were total product sales of $202 million. A decline versus the prior year as increased smallpox revenue from both the US government and international customers was offset by lower Narcan and BAC sales. All other revenue comprised of our services and contracts and grants revenue was $20 million. The year over year decline is due to the sale of our Camden CDMO facility, which is partially offset by a higher level of CNG revenue year over year from the continued US government funding of the Ibanga program for treatment of Ebola. And finally, a few notes on Narcan. We continue to remain competitive on price and focus on our competitive advantages, including our brand recognition, market leading distribution capabilities and customer service. We attribute the year over year decline in Narcan revenue to several factors. First, the full impact of reduced pricing in the public interest space that began to take effect in late 2Q24. Second, volume was impacted by what we believe was a one-time sale of short-dated inventory to the market by a third-party distributor of generic product. And finally, the federal administration transition caused some purchasing delays as states sought to access funding programs. Having said that, as we exited the first quarter and thus far in the second quarter, we are seeing improved trends in unit volumes, which gives us confidence that a good portion of the first quarter decline was temporary in nature. On slide 11, you can see the continued improvements in our financial metrics. As of the first quarter of 2025, we had total liquidity of $249 million, comprised of $149 million of cash and $100 million of undrawn revolver capacity. Both liquidity and cash were significantly improved year over year and versus year-end 2024. Our improved cash position in Q1 2025 was aided by the receipt of the $30 million Bavarian Nordic milestone payment, as well as the sale of our Bayview manufacturing site for $36.5 million. We also collected the $20 million Bavarian Nordic milestone and a significant amount of our accounts receivable so far in Q2, further improving our overall cash position. Our net debt in Q1 2025 was $551 million, a $280 million reduction, or 34% since Q1 2024. And this outcome, coupled with our strong performance in the business, allowed us to cut our net leverage in half as we ended the first quarter at 2.8 times adjusted EBITDA. We believe that a net leverage ratio of two to three times adjusted EBITDA represents an appropriate capital structure target for the business, providing the ability to actively invest in strategic growth opportunities and ultimately drive further value to our shareholders. Please turn to slide 12 and I'll touch on our key capital allocation priorities in support of our multi-year transformation plan. First, we seek to maintain sufficient cash and liquidity to operate the business and manage the variability of working capital cash flows driven by the timing of MCM order deliveries. Next, the top priority is to deploy capital in an effective manner to drive growth. This is a critical component of our multi-year plan and as Joe has highlighted, we'll focus on both organic and inorganic opportunities to drive near-term and long-term growth. Finally, we'll also consider debt repayments to strengthen our balance sheet and share repurchases to create incremental shareholder value. On March 31st, 2025, we announced a $50 million share repurchase program which will expire in March of 2026. Accordingly, there were no purchases made in the first quarter and we will provide further updates with our earnings releases going forward. Transitioning to slide 13, we are reaffirming our full year 2025 guidance as follows. Total revenues of $750 million to $850 million. Adjusted EBITDA of $150 to $200 million reflecting improved year over year profit margins driven by lower costs in the business. Adjusted gross margin of 48% to 51%, roughly a 500 basis point expansion at the midpoint versus 2024 results, aided by our leaner and more focused manufacturing footprint. Moving to segment level revenue guidance, MCM product sales of $435 to $485 million across US government and international orders and commercial products including CluxAuto in the range of $265 to $315 million. As part of this guidance, we expect Narcan to continue to maintain a leading market share of the growing total addressable naloxone nasal spray market. And for the second quarter of 2025, we are forecasting a total revenue range of 95 to $120 million as we anticipate that our full year revenue will be weighted more to the second half of 2025 than to the first half. Accordingly, given this implied second quarter sequential revenue decline, you should also expect second quarter profitability to decline significantly versus the first quarter and then improve meaningfully beginning in the third quarter. In closing on slide 14, we continue to progress on the turnaround phase of our multi-year plan with strong execution through the first quarter of 2025. We are anticipating strong profit follow through from 2024 even with lower top line revenue. Our guidance therefore implies a very strong margin improvement story. And when combined with our expectations for continued positive operating cash flow, Bavarian Nordic milestone payments and the Bayview manufacturing site sale, our performance positions us to capitalize on growth opportunities for the business and value creation for our shareholders. Finally, I would also like to mention that we have published our annual ESG report for 2024, which you can find under the impact tab of our website, emergent biosolutions.com. As a company, we continue to prioritize quality and sustainability across multiple environmental, social and governance pillars. We hope that you will review our ESG report and take note of our progress. I'll now turn the call back over to Joe to discuss our business outlook and growth catalysts. Joe.

Thank you, Rich. Turning to slide 16, I'd like to provide more detailed outlook on our business and the growth catalyst. Following rates of OVN over due steps as reported by the CDC is welcome news. At Emergent, we believe expanded OVC access to Narcan is an important factor in the reduced opioid overdose deaths. We are making progress. However, there still is a significant public health threat and we wanna make sure we continue to work with stakeholders to bring the opioid overdose death rates in the US and Canada to zero. We believe the Naloxone market will continue to experience mid single digit unit volume growth in the near future and the value of Narcan as a trusted category leader will provide us with a differentiated and competitive pricing position. Three examples demonstrate Narcan's leadership value. Number one, we continue to add new public interest customers and regain and retain important state customers further demonstrating our ability to address competition. Second, we are currently in discussions with several major large employers including one major e-commerce giant to supply thousands of boxes of Narcan nasal spray to their location. Third, our Narcan direct distribution platform is strong relationships with leading distributors represents significant growth potential for the product and an opportunity to help save more lives. The wall units pictured here on the page show our team has created and several employers have installed them in offices across the US and Canada. These can be purchased through our distributor partners so anyone can reach for Narcan to help respond in a time of crisis. We believe every business should have Naloxone available in the same manner as the Februaryers. Growth in the business to business and retail channels will make Narcan more widely available. However, the additional funding from the opioid litigation settlement is a large and impactful way to ensure Narcan get into the hands of those most in need. Also, just last week we announced a three year agreement valued at approximately $65 million with the province of Ontario to supply our life-saving Narcan treatment. In March, Health Canada approved our recently licensed product Cloxidol nasal spray. This expands the merchant ability to distribute multiple life-saving opioid overdose emergency treatments to patients, customers, and communities. Moving to slide 17, we have good visibility in the delivery timing of our MCM product in 2025. During the first quarter of 2025, our MCM portfolio, continued to deliver strong domestic and international sales. As expected during the first quarter, we recently completed our first shipment of Tembexa for the strategic national stockpile under our previously announced contract modification, as well as our first shipment of Tembexa outside of the US. Between these shipments, the ongoing M-Pox trial led by the African CDC, and our continued R&D work, we believe that Tembexa represents a significant opportunity for potential organic growth. In addition, we successfully delivered multiple international orders for five MCM products across smallpox and anthrax. Notably, as we consider our footprint in key areas where public health threats are on the rise, such as in Africa with the ongoing M-Pox outgrowth, we continue to engage the World Health Organization on an emergency use listing for ATM2000 vaccine, as well as key African country leaders to offer our assistance. Moving to slide 18, we've already begun deploying strategic capital for opportunistic growth through business development. First, our investment agreement to support the research, infrastructure development, and expansion of SwissRocket, the parent company of our RocketVax venture. Additionally, as part of this endeavor, we intend to form a strategic partnership where Emergent will lead the US manufacturing and commercialization of four of RocketVax's pipeline candidates. Second, our acquisition of exclusive commercial rights to Clostrata nasal spray eight milligrams is an added tool to fight the opioid crisis. We are also continuously unlocking opportunities to create line extensions, kits, and other solutions. Third, with our growth in the MCM and the metal-axone market, we have signed or in the process of negotiating contracts related to our MCM product with allies in the European Union, Middle East, Africa, and Asia Pacific. Our expectation is significant cash generation through 2025, which is expected to fund future growth investments. On slide 19, we further illustrate the potential reach and validation of our plans for geographic expansion in an increasingly dangerous world. In closing, on slide 20, our Emergent team has delivered strong financial performance in the first quarter, and we reaffirm our full year revenue guidance of $750 million to $850 million, and our adjusted EBITDA of $150 to $200 million. We remain on track to execute our multi-year turnaround plan. While we strive for the highest standards of quality, ethics, and compliance across the entire Emergent enterprise. And with that, I look forward to taking your questions. Operator, please open up the lines for questions.

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Jessica Five with JP Morgan. Your line is open.

Hey guys, good afternoon. Thanks for taking your questions. I kind of have a handful. First on tariffs, I think you mentioned that you're not sort of subject to the existing tariffs. Can you just talk a little bit about your manufacturing footprint, including sources of API? Does any product cross a border to pass into the US for sale? Second, can you elaborate on what drove the gross margin improvement this quarter and how to think about that gross margin trajectory from this level that we saw in the first quarter? Third, when you provided the one queue forecasted revenue range, I think it was 200 to 240, were some of those Narcan dynamics in motion, including that competitor selling short dated product, like is that already contemplated? And then lastly, I think in the past, you had expected the Naloxone market to grow mid to high single digits year over year. And I think on the call, you said mid single digits. If I heard you correctly, what changed? And can you talk about how you see the various market segments contributing to that mid single digit growth? Thank you.

Sure, we had quite a few. So we'll try to make sure we get them all. But let me start with the tariffs. And then I think, Rich, you can take the gross margin and then I'll come back on the Narcan, Naloxone, mid single digit group. So let me start with the tariffs. The majority of our product is manufactured and or sourced, the active ingredients by ourselves here in the United States. So as I said, they're very limited tariffs exposure. It is true we do obtain at this time, one of the devices for Narcan comes from Europe. However, we are working to get that straightened out and get more of it from the US going forward. But that's something we are working on. So there is some exposure, but the far away, the majority of our products are manufactured in the US through our US major factory network or in Canada. But in both cases, they are what we refer to as US MCA compliant. So at the current time, we don't expect a significant impact on the tariffs from our product portfolio. As I said, there is a device that Narcan comes from overseas, but we're in good shape relative to the inventory we have on hand of that device today. So that's probably the best way I can answer the first question on tariffs in terms of importantly, we've been out front of this and making sure that, especially because of the medical countermeasures, much of our infrastructure was US based prior to this, based on just important bio-defense type reasons. On the second one, the gross margin, you wanna add to that?

Yeah, so there's a couple of factors at play here, Jess. First is that, as you know, as you're well aware, we've taken a lot of costs out of the business over the last year and a half to two years. And by selling Camden, by selling Bayview, we have a lot less unutilized capacity. And so that certainly has helped the gross margin side in and of itself. Secondly, the product mix in the first quarter was favorable on that front. In particular, the large amount of international orders, which tend to be higher margin, was also a factor that contributed to that improvement.

And the third question, my recollection, it was do we contemplate some of the impacts on Narcan as we were doing the first quarter? The answer is yes, we clearly used some of this as to exactly the magnitude and things like that. I think obviously we got smarter as time went on in the quarter relative to the magnitude of what the third party distributor had on hand from a short-dated product. We didn't know the exact extent of it. We obviously know much more today about what it was, et cetera. So had we contemplated some of it? Yes, but certainly we got more clarity and transparency on the magnitude as time went on. And then as relative to the actual question, the second part of it in terms of the federal funding, we clearly knew that there was going to be federal funding for Narcan in the continuing resolution CR, for the government. So we certainly know some pieces of information, but time brings you greater certainty and understanding as time went on. So we contemplated some of it, but clearly we got smarter as time went on. And then on the fourth question, I believe it was the Nalaxone market in terms of unit volume. And we always felt pretty similar that it was gonna be somewhere in that mid-single digit type of growth rate. At some point, maybe a slightly more, slightly less, but always contemplated somewhere around that mid-single digit growth rate for our belief on the overall Narcan and Nalaxone total market growth. So we think the total pie will continue to grow by that mid-single digit type growth rate.

And then within the market, can you talk about the growth for the different segments?

Sure, thank you for reminding me of that. Far and away, the largest segment is the public interest. However, as a growth driver, we do expect the business to business activities as exemplified by some of the things I mentioned in the call, what we're doing with the Narcan wall units and making sure we have those available and putting together programs like that, working with a very large e-commerce partner and making Narcan available at their facilities and also being able to sell these Narcan wall units to other businesses across the board. All those we think are gonna drive and make the business to business segment a factor growing segment, but as far and away the majority of the units still will go through public interest.

Yeah, I might just add in, I think there's also opportunity in Canada. And you saw that we announced that large contract just last week with the province of Ontario. So I think that's an example of ways we can grow in Canada. And then there are also some provinces that have much less procurement of Narcan today. And so we're actively looking at opportunities there as well to expand our footprint.

And as I mentioned, we do have that 65 million of incremental three year contracts. So that's gonna certainly help us as Rich put it point out. Thanks for bringing that forward, Rich. Okay, operator time for another question,

please. Again, to ask a question, please press star one one. Our next question comes from Yi Chen from HC Wainwright. Your line is open.

Thank you for taking the question. This is Yi for ROM server, HC Wainwright. I have a couple of questions. The first one is, are the international customer reference in the March, 2025 press release pertaining to the 27 million in medical countermeasure incremental sales likely to place more orders before the end of this year? And if so, how much additional revenue could potentially accrue from these orders? And how might the 27 million come in? Will the sales be primarily recognized in the first half or second half of 2025? And I have two follow up, thank you.

Sure, so great question. Maybe I'm just gonna back up a little bit before I answer the question. I say, I remind you that a year ago, as we were thinking about the future of our business, we certainly focused on the international growth opportunity as an opportunity for us to continue to diversify our business. And fortunately, we're seeing exactly that happen. All told in the first quarter, we achieved about $91 million of international revenue. If you do the math on that, that's about 40% of our overall revenue came from outside of the US and about 60% of our medical countermeasures revenue coming from outside of the US. So we do think that diversification is important. Second point I'd make certainly is that, as I mentioned in the call, we view this as an increasingly dangerous world out there. And I think many of the countries are looking at their needs for medical countermeasures and trying to make sure that they are prepared in the event something would happen. I do think that some of the outbreaks of the M-PACS that we're seeing in Africa just illustrate the point that you need to be prepared for any eventuality. And I think that's why we're seeing greater international revenue for us. And we're certainly gonna do more to try to work on that. We have a specific team that's been identified. They've been working on this probably for the past like six months, thinking about what can we do to continue to expand. I'm probably not gonna make any specific comments about the exact magnitude of the 27 million plus opportunity, but do I think there's more opportunity beyond the 27 million? And there's absolutely yes.

Thank you. And my second question is, how will the 65 million total revenue from the Ontario Ministry of Health be allocated over the next three years?

Yeah, so it's a three-year contract. We'll see exactly how it comes in, but I think it's reasonable to assume that it could come in fairly evenly over those three years. So for modeling purposes, I'd be comfortable with that.

Okay. And is Emergent likely to benefit at all from pharmaceutical and biotechnology manufacturing onshore over the next course of coming quarters or does Emergent plan to sell or divest any of your manufacturing infrastructure?

Sure, great question. Probably the way I would answer is that Emergent, today, we are well positioned with our manufacturing network, and it is, as I mentioned previously, predominantly US manufacturing, or Canadian, but that is USMCA compliant. Do we have additional capacity for drug substance and fail finish for product? The answer to that is absolutely yes. So we do have capacity. Well, I have previously said the bioservices or the contract manufacturing is not a focus. We certainly will look at that opportunistically if companies need help as they're transitioning back to the US. We certainly will look to help them, especially because, as I mentioned, we do have some capacity in those sites for both drug substance or API and also for fail finish. So we'll look to try to help. Relative to selling any additional facilities, I think, at this point, we like our footprint, but as a public company, if somebody puts a good price on the table for one of our facilities, of course, we'd consider it, but we feel very good about what we've done so far. I think all told, we've divested sites in products that represent approximately $150 million of value, so that is the big, important part of reducing our total debt, and importantly, putting us in a stronger position from a cash point of view today. We don't feel the need to make any more divestments, but we certainly will look at them opportunistically if we can help others.

Thank you. If I may ask, really, a last one, last question. Has the company been actively repurchasing stock lately? Is there any chance that repurchase program being enlarged? Thank you.

Yeah, we will comment on progress against the repurchase program each quarter, and we'll just have to leave it at that at this point.

All right, thank you very much.

Thank you. We are very pleased, the only thing I'd ask, we're very pleased with the cash generation we have, and we'll have to make decisions as to how best to utilize that cash for the multiple objectives that Rich talked about in the presentation. Operator, any other questions?

I'm showing no further questions at this time. I would now like to turn it back to Joe Papa for closing remarks.

Well, thank you, everyone, for joining us. With that, ladies and gentlemen, we now conclude the call. Thank you for your participation. Please note there will be 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 for joining us. We look forward to speaking with you all in the future. Goodbye, everyone.

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