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 speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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 BioSolutions. In addition to today’s press release, there is a series of slides accompanying this webcast available to all webcast participants. Turning to slides three and four. During today’s call, we may make projections and other forward-looking statements related to our business, future events, our prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statement speaks only as of the date of this conference call and except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances. Investors should consider this cautionary statement, as well as the risk factors identified in our periodic reports filed with the SEC when evaluating our forward-looking statements. During 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 Emergent’s 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 Kramer, 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, Rich will also discuss our forecast for FY 2023, including Q1 2023 revenue guidance. This will be followed by a Q&A session where additional members of the executive leadership team are present and available as needed. Finally, for the benefit of those who may be listening to 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 have 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 more -- 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 will share an updated view informed by the outcomes of several strategic initiatives already underway. First, we have 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…

Thank you, Bob, and good afternoon, everyone. We appreciate you joining the call. I will 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 multiyear 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 8-K 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…

Thank you. [Operator Instructions] And our first question comes from the line of Jessica Fye with JPMorgan.

Hey. This is Nick on for Jess. Thanks for taking our question. Two from us. First one is, for your 2023 NARCAN guidance, can you just help quantify how much of that $290 million to $310 million revenue range is associated with potential OTC use?

Yeah. Nick, I think you mentioned 2022 guidance. I think you probably mentioned…

Yeah.

…or that 2023.

2023, sorry, about that.

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 million to $310 million 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.

Okay. 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 CDMO. Kind of how -- have you heard any -- have you heard commitments from the U.S. Government on taking the 2023 options there for ACAM2000 or anthrax?

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 ACAM2000. So we have actually factored that into the guidance that we have given around the smallpox threat category. And as Rich indicated, we have pivoted to more of a threat-based guidance format as opposed to an individual product. As it relates to anthrax vaccines, clearly, we are in the kind of nearing the end of the transition in terms of almost a five and a half-year development/procurement relationship with the U.S. Government, BARDA, in particular. We have got the PDUFA date later this year for AV7909. We have assumed continued procurement of AV7909 into the stockpile as we kind of position that product from a development stage product to a licensed state later of 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 Folkes 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? 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 it -- on NARCAN OTC, but how could the NARCAN OTC opportunity affect that gross margin going forward?

Yeah. Thanks, Brandon. So I will take the first question and 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 at the end of March, there will be a bit of a transition period, so we can complete our supply chain solution preparation and prepare for a launch, as we have 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, Brandon, which we lost significant market share as a result of the generic products coming in, in December of 2021. We have always been able to maintain 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 have always had strong traction and relationships with those customers. But Rich, do 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 have made some assumptions about where we expect pricing to be and also other costs related to marketing or other costs associated with NARCAN. We are 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 the last guide on this year and you have continued to narrow your flow through and work through a lot. But how should we think about how different EBS looks in two years to three years from now. Maybe especially the manufacturing footprint, I know…

Yeah

… you don’t want to give that, but just what are you envisioning in terms of how narrow to take this focus.

Yeah. Brandon, 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 expect it 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 are 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 travel 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. I think all of those will be really important. In terms of kind of post 2023, once these balls have landed, I think we will be in a better position, Brandon, to 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 are pivoting now coming out of the pandemic and it will be really important, as Rich described, to operationalize these investments that we have 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 Peaker with Cowen. Your line is open. Please go ahead.

Great. Thank you very much for taking my questions. A couple of questions here. First on NARCAN, you mentioned that you will be competitive in the retail space, assuming approval late 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 we will 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 have had really positive conversations with a number of the nation-wide pharmacy retailers that are anxious to get the product into their stores. So we think there’s a real opportunity to compete for some of the retail space that we lost when the generics was so actively introduced 18 months or 15 months 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. And I guess, secondly, we have had a five-year 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 the public interest market.

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

Yeah. So it’s a really good question. As we have talked about, Boris, the transition that were, I will 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, AV7909 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 to shift from BARDA to the strategic national stockpile in terms of who manages the overall procurement. In terms of the logistics, as we have 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 BioThrax, as you correctly say, which is a three-dose primary series that implied an inventory or a stockpile of 75 million doses for AV7909 given its two-dose nature that reduces the overall stockpile will come down to roughly 50 million doses. As far as we know, the government is not -- has not fully sourced either the 75 million 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 AV7909 would be roughly 50 million doses.

Okay. Thank you for taking my questions.

Sure.

Thank you. [Operator Instructions] And our next question comes from the line of Christopher Sakai with Singular Research. Your line is open. Please go ahead.

Hi. This is Asim [ph] 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 are expecting this to be contributing revenues in the second half of the year?

Yeah. Chris, thanks for joining the call. Thanks for the question. So as we have 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 will 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 the 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 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 are in active discussions with a number of the nation-wide 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, it 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 have gotten good feedback coming out of the AdCom meeting with regard to that. So we would like to finalize that soon so we can finalize our supply chain solutions for planning for a launch in the summer.

We are expecting [ph] some 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 am not going to speculate on what actions or preferences the FDA would like. But 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 now 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 million of which is up upfront payment with another $110 million 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 Vaxchora and the Vivotif product. So $270 million upfront, plus another $110 million potentially in development and sales-based milestones down the road.

I am sorry I meant of any valuation metrics your can provide in sales or EBITDA or any color?

Yeah. We obviously went through the normal and traditional valuation metrics based on multiples of revenue and EBITDA and looked at kind of competing products in the market, Chris. We think that the -- where we landed with Bavarian Nordic represents fair value. But more importantly, it’s -- I think Bavarian Nordic is a great partner to transition these assets to -- they are 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 going from like $306 million revenues fourth quarter to around $130 million to $150 million, if you can kind of provide a little bit more color, what are the pushes and pulls, that will 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 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 is 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 -- being sequentially lower and that’s a similar trend we are 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 Peaker with Cowen. Your line is open. Please go ahead.

Hi. Well, thanks for taking my follow-up. I guess one question that is in mind of a lot of investors in terms of your debt maturity. Can you talk about maybe the time line 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, do 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 is evidence that they are being constructive in those conversations. We are certainly working towards a time line to get this done as quickly as possible and we will keep you posted when we have more specific information to provide.

Great. Thanks. And then I will squeeze another one, ACAM2000. 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 2023 and to be kind of a run rate historically as we have seen or should we kind of expect a bolus of catch-up for 2022 and 2023?

Yeah. Boris, great question. Our immediate interest is ensuring and finalizing the 2023 procurement decision by the U.S. Government. At the same time, we are 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 are in active dialogue about both of those, both short-term and long-term. And I 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.

Sure. Glad too. Thanks.

Thank you. [Operator Instructions] I am 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.