Ladies and gentlemen thank you for standing by and welcome to the Emergent BioSolutions Incorporated Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference to your company to begin. Please go ahead.

Thank you, Joelle, 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 fourth quarter and 12 months of 2019. 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. Participating on the call with prepared comments will be Bob Kramer, President and Chief Executive Officer; and Rich Lindahl, Chief Financial Officer. Other members of the senior team are present and available during the Q&A session that will follow 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 are uncertainties materialize actual results could differ materially from our expectations. Any forward-looking statements speaks only as of the date of this conference call and accept 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 on our public 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 Emergent's operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net income, EBITDA and adjusted EBITDA, and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. For the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on February 20, 2020 since then Emergent may have made announcements related to topics discussed during today's call. You are once encouraged to refer to our most recent press releases and SEC filings all of which may be found on Investor's homepage of our website. And with that introduction, I would now like to turn the call over to Bob Kramer, Emergent BioSolutions President and CEO. Bob?

Thank you, Bob, and good afternoon everyone. Thank you for joining the call today. In my comments this afternoon, I’ll provide a brief recap of what was accomplished during 2019 and then turn to our strategic plans and expectations for 2020 and beyond. As we look back at the year just completed, I think there are three key takeaways. First, we effectively executed on our strategy of building and strengthening our leadership positions in the public health markets we compete in. Secondly, we continue to progress strategic R&D investments, which we will expect to contribute to longer-term revenue growth. And third, we may prudent investments to build scale in key functions to better leverage our core competencies for sustainable competitive advantage. Let me take a few minutes and expand on each of these three points, starting with strategy execution. In 2019, we initiated deliveries of our next generation Anthrax Vaccine candidate AV7909 beginning the transition from BioThrax to AV7909 as the corner stone of the U.S. government’s preparedness efforts against the threat of Anthrax. Related to this, BARDA exercised its first contract option for 10 million doses of AV7909 to be delivered over 12 month period valid at approximately $261 million. Next, we made great strides with our smallpox franchise. We secured a $2 billion 10-year procurement contract for the continued supply of ACAM2000 the only single dose FDA approved smallpox vaccine and the U.S. government’s principle response tool against the threat of smallpox. We also secured a $535 million tenure contract for the continued supply of VIGIV, our FDA approved therapeutic for smallpox vaccine complications. Next, we secured a $19 million commitment as part of an anticipated 490 million 10-year commitment from the U.S. government, the continued supply of BAT, our FDA approved Botulism Antitoxin. And finally, we completed…

Thank you, Bob. Good afternoon, everyone, and thank you for joining the call. As you heard from Bob, 2019 was a year of significant accomplishment for Emergent on multiple fronts as we achieved our operational objectives and set out an ambitious growth strategy for the next five years. From a financial perspective, we exited the year with positive momentum built upon a solid platform for continued growth. Specifically, we delivered strong annual top-line growth, increasing total revenue by approximately 40% for the second consecutive year, of which 7% was organic; improved our blended product and CDMO gross margin by 160 basis points; funded key programs to advance our research and development pipeline; generated strong cash flow from operations; strengthened our balance sheet by increasing liquidity and lowering our ratio of net debt-to-adjusted EBITDA; and provided a 2020 financial outlook that keeps us solidly on track to achieve our long-term strategic growth objectives. For the rest of my prepared comments today, I will provide additional detail on these themes by walking through our performance for the fourth quarter and full-year periods, discussing balance sheet highlights, and reviewing the elements of our guidance for 2020. With that, let's first look at our fourth quarter performance. As we discussed throughout the year, our 2019 annual results were back-end weighted, consistent with historical trends. As such, our fourth quarter results were particularly strong, compared to prior quarters and reflect our ongoing efforts to increase the scale of our operations, while further diversifying our sources of revenue. These points are evidenced by the following key fourth quarter highlights. Total revenues of $360 million, a 33% increase versus the prior year, largely due to deliveries of ACAM2000 under our recently awarded contract and a full quarter's worth of sales of NARCAN Nasal Spray, which was acquired…

Thank you. [Operator Instructions] Our first question comes from Brandon Folkes with Cantor Fitzgerald. Your line is now open.

Alright. Thank you for taking my questions, and congratulations on a great quarter and year. Firstly, can you elaborate on your assumptions around the market dynamics for NARCAN and the opioid overdose market win and now that branded competitors comes to market, as you mentioned in your prepared remarks? And then maybe, I'm not sure if you're going to answer this, but I'll ask it anyway. At this stage, is the Teva settlement off the table or is this still possible on NARCAN as well? Thank you.

Thanks, Brandon. I didn't understand. Can you repeat the second question?

Is settlements still possible?

So, thoughts on branded competition. As we described or have talked a couple of times, we fully expect some competition in the market in 2020. We're not going to predict or estimate who might be doing that. Again, our guidance for 2020 is in that $285 million to $315 million range. Two additional Co-Rx states coming in, a branded competitor, so depending on when and if, it's really difficult to predict the impact on the $285 million to $315 million. So, I will not guesstimate, Brandon. I think on the Teva question, I think we've said openly that – the settlement question has not come up. We fully – we have all the confidence in the world and the strength of the patents that we have in place. And our focus remains on those areas that we have been describing for settlement since we bought the brand, which is around awareness, accessibility and affordability, and doing everything we can to make that product available when it needs to be available to the patients and customers who need it. So that remains our core focus.

Great. Thanks very much. And one more if I may. Just on the BioThrax work down in 2020 in your guidance, how should we think about that? Are we at a steady state BioThrax sales in 2020 and looking forward into 2021? And AV7909 is going to drive the growth or should we continue to model or workout of BioThrax in 2021 and beyond? Thank you.

Yes. Thanks, Brandon. So, I think with the way that we look at the anthrax vaccine franchise is, we expect fully that both BioThrax and AV7909 will continue to be procured by the government, obviously, for different reasons. BioThrax is currently supporting both the HHS requirement for a stockpile of license anthrax vaccine, while the Department of Defense is using it to immunize military personnel who are going into high threat areas. We fully expect that that dynamic will continue. As we stated, 2019 kind of began the transition period, Brandon. As the government started to slow down their procurement of BioThrax, while they began to accelerate their procurement of AV7909, we expect that transition to continue in 2020 as we execute against the contracts that are in place. So, that's the dynamic. We're not going to speculate on the mix of those two vaccines, but in the aggregate, reinforce our belief that going forward, that number of $270 million to $300 million in total revenue between the two will hold.

Great. Thank you very much.

Thank you. Our next question comes from Jessica Fye with JPMorgan. Your line is now open.

Hi, guys. Good afternoon. Thanks for taking my questions. A couple more on NARCAN, for the sales in the fourth quarter, it looks like revenue was down about 11% sequentially and I noticed that the IQVIA script data that we can see is down 7% sequentially. So, recognizing that that data doesn't even fully capture the retail business let alone the public interest side, I'm wondering what led to the sequential revenue decline beyond what would be predicted by the script volume decline, was that timing of public interest orders or maybe something else?

Yes. Jess, thanks for joining and thanks for the question. I think that you're read on that is right. When folks look at that IQVIA data, they're getting a partial view of the overall performance of the business. So, as we stated, we think that there has been a bit of a trend or shift to that public interest market being in that 60% of the market area versus the retail in that 40% space, but, as we've said, this market continues to develop. It's dynamic, it's being influenced by any number of programs where the government, both at the local level, as well as the state and federal level, continue to implement programs and get traction on those programs to make this product more accessible to the patients and customers who need it that could be taken in the form of programs like NARCAN – NARCAN days in different states. So, there are any number of programs that are impacting those quarter-over-quarter number. So, I think, folks need to just be a little cautious about looking at a quarter-by-quarter versus on a more macro level.

Okay. And next one on NARCAN is just – has the judge in that litigation with Teva given any indication of how long it might take to turnaround a ruling?

No. No, they haven't, Jess.

Okay. And maybe switching to raxi, I realize you have revenue from the follow-on contract in the guidance. Is the old contract there completed? And should we not expect any raxi revenue until a new contract is in place? Or is there still kind of any more deliveries that could occur in the meantime?

Yes. So those deliveries under the contract that was acquired back in Q4 of 2017, we've pretty much completed that. So, we expect that the RFP will come out for raxi near-term. And we have some revenue in 2020 under a new contract, but we clearly don't break that out separately.

Okay. Got it. Any chance that you could quantify the contribution in your ACAM guidance from that international contract with an allied government that you alluded to?

Well, I think, if you look at the [$180 million to $200 million] range that we provided for ACAM and you look at what was put under contract and delivered last year, which was that 18 million $170 million number, and you take into consideration that the next option period will include 3% to 3.5% price increase for a dose as in the contract, you can start to triangulate what that might look like from a U.S. GP piece. And that $180 million to $200 million range, the delta is going to be ex-U.S.

Okay. Perfect. Thank you.

Thank you. Our next question comes from Dana Flanders with Guggenheim. Your line is now open.

Hi, thanks for taking my questions. My first one, just following up on the raxi contract, how should we just think about the complexity of negotiations? I know ACAM was a complex contract to negotiate and was delayed a little bit. Should we think of raxi a similar complexity or possibly an easier and more straightforward contract to negotiate? And then my second question. I think, I heard that you're assuming two additional states adopt Co-Rx legislation this year. Can you help us understand kind of what goes behind those assumptions? Do you have good line of sight into that? Or is that just there are so many states considering this, you felt that was appropriate to put in the guidance? Thank you.

Thanks, Dana. So, on the first question, raxi, remind me, what exactly about that?

Is it a complex contract?

Yes. So, they're all unique contract negotiations, Dana, whether it's related to Anthrax vaccine or smallpox. Again, we've been doing this for 21 years, so we've dealt with all varieties of that. We don't expect prolonged delay, but again, we're waiting for the RFP to come out, and then when it comes out, we'll respond and we'll enter into the normal contract negotiation process. On the question about NARCAN and the two Co-Rx states, we obviously are working hand in glove with numerous states on their efforts to – and interest in and potentially putting in co-prescription legislation. So, there are probably a half dozen states that are probably more advanced than others and we thought it was appropriate to, without guessing or predicting which one, simply assume that two will get it across the finish line in 2020.

Okay. Thank you.

Thank you. Our next question comes from Keay Nakae with Chardan. Your line is now open.

Thanks. Bob, maybe shifting gears to potential M&A as you will need to meet your 2024 aspirational goals. You talked about the progress in integrating your two most recent acquisitions PaxVax and Adapt. So, where do you think the organization stands now if you were to acquire another company as opposed to just the product line? And how prepared are you at this state today to take on a task like that to manage that type of integration, which is never easy?

Yes. Keay, thanks for the question and for joining the call. As we've talked about pretty openly over the last three years to five years, we have proactively made investments in our infrastructure and our capability in order to handle additional M&A transactions. And as an example that we referred to in the past, we made a pretty substantial investment in 2015 and 2016 in our SAP enterprise system such that it is capable to handle multiple acquisitions going forward, which made both the Adapt, as well as the PaxVax acquisitions much smoother than we would have been able to do without that investment. So, we are ready for additional M&A transactions. You're correct to point out that the – they all are a bit challenging. No one is easy. And we've done single product acquisitions that have included staff and manufacturing facilities. We've done carve-outs, such as the ACAM2000, which came out of Sanofi, which was very complex, and we've been able to handle them seamlessly in order to protect the integrity of the revenue base, while doing important things, including making sure that the talent that we acquire is protected, as well as ensuring a smooth transition of things that are important to us around culture, as well as facility. So, we're ready and experienced, and we'd like to do it again soon.

Okay. And then – and just maybe a follow-on question to the comment about your plans for some discretionary investment this year. I assume that was maybe more capital investment as opposed to R&D. Can you expand on that and maybe a little more color on what type of amount we're talking about?

So, I think, in general, without giving specific to a line item or category, we continue to look opportunistically at making investments that support our ability to grow and scale the business over the long haul and throughout the example where we committed to spend $50 million in our Baltimore facility to support the growth of the CDMO business unit. As we look at M&A opportunities, there are clearly opportunities across all four business units. And as we talked about during the annual Investor Day, R&D continues to be a focus of ours, especially during this 2020 through 2024 period as we need and want revenue to come through that pipeline so they can meaningfully contribute to our revenue growth over – at the end of this cycle, but, more importantly, throughout the next five-year period. So, we're going to continue to be, as Rich indicated, a bit prudent about how we use our capital, but again, the growth will require investments across the board in a number of areas, but we'll do that in a very careful, prudent way.

Okay, thanks. That's all I had.

Thank you. Our next question comes from Boris Peaker with Cowen. Your line is now open.

Good evening. This is John Scott on for Boris. My first question is, given the recent slowdown in global travel and restrictions that are in place, have you seen an impact on Vaxchora or Vivotif, either in terms of sales or in the investments that you've been making in those franchises?

Hi, John. Thanks for the call. Thanks for the question. We haven't seen much of a slowdown. I mean our traveler health footprint is, as you know, it's focused on typhoid and cholera. While we will opportunistically are looking at additional assets to add to that travel health business, we haven't seen much of an impact. So – and I think if we were to, it would be pretty short-term in nature.

Okay. Thanks. And then moving on to NARCAN with the new co-prescribing states, can you comment on which states those would be? Or whether there are any states you would want to flag there at an advanced stage with that type of regulation? And do you anticipate that the regulation would be focused on patients getting a high dose of opioids? Or would it be more expansive along the lines of what new Mexico did last year?

Yes. So, we're not going to speculate on which states kind of bring this over the finish line in 2020. As I commented earlier, there are a handful of states that are more advanced than others and we're working with any number of them. So, again, we're not going to guess, both in terms of timing or which individual states, but we expect them to be very consistent with the previously adopted nine states that have in place today.

Okay. Thank you very much for taking my questions.

Thank you. Our next question comes from Lisa Springer with Singular Research. Your line is now open.

Hello. This is Robert Maltbie covering for Lisa. She couldn't be here today. So, thank you for taking my call. Don't know if I'm the last, but as you – as I like to say, sometimes you save the best for last. And I want to congratulate you for your long-term performance. I believe we launch coverage four years ago at much lower levels at $30 and obviously, want to welcome our new – newer friends covering, and the more the better from Barclays, Morgan Stanley, I think I heard JPMorgan, Guggenheim and Chardan and Cowen. So, congratulations on also, gentlemen, the garnering that type of broad interest. It only comes from building and executing. So, congratulations on that long term, and we hope the next four years or five can be equally profitable. My question relates again to that longer-term focus. You mentioned some targets out four years or five years in terms of a – some pretty good targets, doubling of your revenue. And my first question relates to what – as far as you can tell, what do you expect the revenue mixture between governments and say non-government sources to look like during that ramp?

Yes. Robert, thanks for the question and for the kind comments about the team. It is clearly the result of our 1,800 employees working in a very diligent committed way that we've had the success that we've had over our 21-year history, but, more notably, the significant progress we've made over the last three years to five years. So, appreciate the kind words. As we look at and as we announced last year in terms of our 2020 through 2024 goal of yet again doubling revenue during that five-year period, as we in 2013, 2014, 2015 and again 2016 through 2019, it will be a combination of both organic growth, as well as strategically aligned M&A transactions. So, we – again, we are structuring with four very distinct business units, each operating and having developed their own strategy, but collectively, we're committed as an organization to make a meaningful difference in terms of protecting and enhancing life, that's part of the core strategy. Operating in this growing attractive public health threat market, which we anticipate or expect to be in that $50 billion addressable market range. So, there is ample room for us to leverage our competencies and our historical success in a growing attractive market.

Terrific. And hopefully, all the employees are participating in the way we have. We don't do investment banking. We leverage our IP with proprietary private funds, and we've been very happy. And so my second question relates to the AV7909 and the BioThrax. And looking at that crossover in the initial procurement options of the BARDA contract and your enrollment in the Phase 3 studies, how should we think about the path forward for the product outside of the U.S.? And that's all I have.

Yes. Sure. So, again, thanks for the question and the kind words. As I commented before, we see opportunities for continued procurement of both vaccines, BioThrax and the second-generation candidate, AV7909, both domestically and internationally. As we have in the recent years gotten traction around our growing portfolio of medical countermeasure products outside the U.S., we see ample opportunity for both the vaccine – the Anthrax vaccine candidates to do likewise. So, that growth will be slower and a bit lumpier. As we've commented in the past, government's outside the U.S. are not, in many cases, as mature or developed in terms of their strategies, but we see progress being made, particularly in the European Union adopting procurement strategies and objectives that are more aligned with what the U.S. government is doing. So, for us, that all means more opportunity across the broad portfolio of 10 products that we have today. So, again, we have a – we had a goal in the last strategy of having 10% of our revenue being generated from customers and patients outside the U.S. We hit that goal a little bit early, almost a year early and have every expectation of keeping at that level going forward.

Thank you.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Bob Burrows for closing remarks.

Thank you, Joelle. With that, ladies and gentlemen, we'll now conclude the call. Thank you for your participation. Please note an archived version of the webcast of today's call will be available later today and accessible through the company website. Thank you again, and we look forward to speaking with all of you in the future. Goodbye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.