Q4 2021 Emergent BioSolutions Inc Earnings Call

February 24, 2022

Yes.

Good day and thank you for standing by welcome to the Q4 2021 emergent Bio solutions incorporated earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session. Please before.

Today's conference is being recorded to ask a question during the session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Bob Burrows, Vice President of Investor Relations I will now turn the call over to the company. Please proceed.

Thank you Judy and good afternoon, everyone. Thank you for joining us today as we discuss the operational and financial results for fourth quarter 2021, as well as full year 2021.

As is customary today's call is open to all participants on the call is being recorded and is copyrighted by emergent bio solutions in.

In addition to today's press release, there was a series of slides accompanying this webcast available to Paul 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 statements speak only as of the date of this conference call and except as required by law, we do 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 our periodic reports filed with the SEC when evaluating our forward looking statements.

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During today's call. We may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding emergence operating performance.

Please refer to the tables found in today's press release regarding our use of adjusted net income adjusted EBITDA and adjusted gross margin and the reconciliations between our GAAP financial measures and these non-GAAP financial measures.

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.

And rich Lindahl, Chief Financial Officer, who will speak to the financials for <unk> 'twenty, one and FY 'twenty, one which will also discuss in detail the 'twenty two forecast, including <unk> 22 revenue guidance.

This will be followed by Q&A session, where additional members of the executive leadership leadership team are present and available.

Finally for the benefit of those who may be listening to the replay of the webcast. This call was held in the quarter on February 24 2022.

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 my colleague Bob Kramer Bob. Please proceed.

Thank you Bob and good afternoon, everyone. Thank you for joining the call. This afternoon.

Today I'd like to provide a brief recap of 2021 share some important highlights from each of our business lines as well as our R&D pipeline.

And then turning our attention to 2022 and beyond my comments are summarized across slides six through eight in the deck accompanying this call.

Before I go any further I want to thank our entire emergent team now more than 2500 strong for their continued focus and commitment to our mission of protecting and enhancing lives.

Today's results demonstrate our team's resilience and I couldnt be more grateful for their work delivering meaningful outcomes for patients while continuing to fight the COVID-19 pandemic.

I'd also like to acknowledge emergence founder and executive Chairman, Florida, El Hebrew, who has announced his retirement effective April one of this year.

On behalf of everyone at emerging both past and present I want to thank <unk> for his vision his dedication in building emergent into the company that it is today.

Turning to our results I first want to underscore a few key accomplishments for the year.

First we achieved record revenues in 2021 of $1 8 billion with more than $500 million and adjusted EBITDA and positive cash flow.

2021 continue to trend toward achieving our 2024 financial goals.

With the latest announcement regarding astrazeneca vaccine drug substance, we supplied more than $130 million dose equivalents of COVID-19 vaccine for use around the world.

Next we realized more than $600 million in government contract options being exercised in the second half of 2021 alone including for our smallpox vaccine <unk> 2000, and our next generation Anthrax vaccine <unk> seven nano nine.

Fourth we initiated the rolling BLA submission for <unk> in the pivotal phase III clinical trial for a single dose chikungunya virus DLP vaccine candidate.

Fifth we secured more than $400 million of new business for our CMO services business.

And finally emergent delivered more than 5 million units of Narcan, the equivalent of more than 10 million doses.

While continuing our support.

Of work for those at risk of an opioid overdose, including increased advocacy to expand access to naloxone and.

In addition in 2021, we reorganized our operating structure to focus on customers and markets, resulting in three distinct business lines first the medical countermeasure business.

Commercial and finally CD most services, we also aligned our research and development function to enhance the delivery of pipeline, which includes both clinical and preclinical stage programs.

Now, let's turn to our performance in the year ahead.

As mentioned, our medical countermeasure business secured more than $600 million in government contract options in the second half of last year, while COVID-19 has captured the headlines impacts from lesser known but potentially more significant public health threats remains a risk we continue to supply the U S. Gulf.

And allied governments around the globe with medical countermeasures for Anthrax, smallpox botulism and chemical agents and will continue to work with the U S government agencies like BARDA NIH NIAD and the U S Department of defense to advanced solutions in areas, where there was a <unk>.

Great unmet need.

In our <unk> business, it remains durable and sustainable with strong and stable base of clients across development services drug substance manufacturing and drug product manufacturing and packaging.

In 2021, the value of secured CD Moe contracts exceeded $400 million and spanned a variety of therapeutic areas. In addition to the ongoing COVID-19 pandemic response.

We also enhanced our drug product service capability by bringing online a new high speed fill finish line at our Camden facility and installing a high speed viral fill finish line at our Rockville facility, the latter of which we anticipate validating by Q1 of 2023.

As for our COVID-19 vaccine work our most recent discussions with J&J have indicated that they are evaluating their global supply chain as they assess the demand for their COVID-19 vaccine based on this information and in coordination with J&J, we're taking the opportunity to begin our normally scheduled.

Maintenance period for our Bayview facility earlier than anticipated and also to extend it in order to make improvements and modifications.

These enhancements will enable us to meet the needs of J&J, while planning for babies future return to non pandemic work as part of our CD mode network, a key step in enhancing and advancing the growth of our <unk> business.

As a result, we are updating our revenue guidance for 2022 to fall between one three and $1 4 billion in revenue importantly, our contract with J&J remains unchanged and rich will provide more details on the guidance in a few minutes.

Turning now to our commercial products business as opioid.

Overdoses and deaths rose to record levels in 2021, we maintain our commitment to focus on expanding awareness, maintaining affordability and increasing accessibility to narcan by working with federal and state governments health care providers first responders pharma.

CIS and insurers in the U S and Canada.

Our team continues to make meaningful contributions to combat the opioid crisis by helping millions prepare for an opioid overdose emergency.

Late last year, our team adapted as a generic intranasal naloxone entered the market concurrently we entered into a supply agreement with Sandoz, a global leader in generic and Biosimilar medicines to allow them to distribute an authorized generic of Narcan give.

Given the tremendous impact of the opioid epidemic, we remain committed to servicing distribution channels across North America to ensure narcan is readily available for those in need with regard to travel health. We've made the right decision to pause the business during the pandemic, while maintaining our commercial capability.

As we look forward to international travel beginning to resume we plan to restart the business with the relaunch of the boutiques and Vacs Cora in key markets later in 2022.

Staying within the product side of the business lets now turn to our research and development efforts emergence R&D pipeline saw strong progress in 2021 with the initiation of the phase III pivotal trial for a single dose chikungunya virus DLP vaccine candidate the phase one trial for <unk>.

<unk> flu vaccine candidate and the Rolling BLA submission for AB 799 in 2022.

In 2022, we expect to share updates regarding the progress of these trials and other pipeline candidates, including additional clinical trials across our focus areas of infectious diseases substance use disorder and nerve agent antidote. We also expect to share news related to the advancement of our auto.

Injector platforms, which we anticipate becoming part of our medical countermeasure business following appropriate regulatory approvals.

We continue our ongoing efforts as well to evaluate M&A opportunities that will strengthen our leadership positions in targeted areas of public health and contribute to diversified sustainable revenue growth for the business.

I'd like to take this opportunity to congratulate a few members of the management team for their new and expanded roles as announced earlier this week on Tuesday, and taking effect on marks the first.

First Atul Saran, who currently serves as executive Vice President and General Counsel will assume the role of executive Vice President and Chief strategy and development Officer.

Global research product development activities, and M&A will now be consolidated under a tools leadership.

Secondly, Dr. Chris Cabell will be appointed as Chief Medical officer for emergent a role he held in enacting capacity for part of 2021. In addition to these concurrent role as senior Vice President clinical development in this role Chris will be reporting to a tool and.

And finally I'm pleased to announce the promotion of agenda for Fox to the position of executive Vice President of external Affairs General Counsel and corporate Secretary.

In this role Jennifer will be joining her colleagues.

Our executive management team.

In addition to the legal team Jennifer will now lead the global Communications and public affairs as well as the global Government Affairs teams.

Many of you know <unk> I'm sure you'll get to know both Jennifer and Chris on future calls.

Before I conclude I want to again, thank our team for their hard work and dedication emergence performance and resilience during the past year is a testament to our strategic focus and highly capable team looking forward I am encouraged by the stability and durability across our diversified portfolio supported by our improved <unk>.

Operating structure that better aligns us with patients and customers and more effectively positions us for success. So thanks again for joining the call and look forward to your questions and I will now turn to rich to review the financial results rich.

Thank you Bob Good afternoon, everyone and thank you for joining the call today.

I'll start on slide 10, and open my remarks, with some summary thoughts to put today's earnings report into context.

Our fourth quarter execution was solid and continues to illustrate the strength and durability of our diversified business model.

Our medical countermeasures platform remains a foundational element of our business with strong predictable contributions from anthrax vaccines, <unk> 2000, and our other medical countermeasure products.

Our nasal naloxone products showed another strong period of performance across both the public interest and retail channels.

As Bob commented earlier, we responded to the formation of a generic nasal naloxone market by activating our supply agreement with Sandoz for their distribution of an authorized generic.

We also continue to make steady progress in stabilizing and incrementally improving the performance of the <unk> services business across our core manufacturing sites at debut Camden and Winnipeg.

And finally, we further advanced our R&D programs, most notably with the initiation of the <unk> 70, 909, BLA rolling submission and the launch of the Chikungunya vaccine phase III trial.

With that let's turn to the numbers, which were especially strong in the fourth quarter, demonstrating the operating leverage and earnings potential inherent in our business model.

As indicated on slide 11 highlights include total revenues of $723 million, an increase over the prior year period and in line with our guidance principally due to increased sales of anthrax vaccines and nasal naloxone products.

Our key profitability measures also increased compared to the prior year period, including adjusted EBITDA of $348 million and adjusted net income of $243 million.

Other notable items in the quarter include anthrax vaccine sales of $138 million higher than the prior year due to timing of deliveries of 87 909 to the U S government strategic national stockpile.

<unk> 2000, and sales of $126 million slightly lower than the prior year, but reflecting ongoing deliveries to the U S government under the existing 10 year procurement contract.

Nasal naloxone product sales of $121 million higher than the prior year driven by strong unit sales of branded Narcan to the U S public interest in commercial retail markets as well as customer channels in Canada.

This line also includes revenues related to sales under our arrangement with Sandoz for their authorized generic naloxone nasal spray, which began late in the year.

Other product sales were $50 million significantly higher than the prior year driven by deliveries to the U S government of <unk> IV and other medical countermeasure products.

And combined CD amongst service and lease revenues of $218 million, which was higher than the prior year due primarily to final cash collections associated with the mutually agreed termination of the CIA ADM public private partnership with BARDA, which we announced in early November .

Turning to operating expenses as a reminder, we are now breaking out cost of product sales and cost of <unk> separately.

Product cost of goods sold in the quarter were $145 million higher than the prior year largely due to higher product sales.

Cost of <unk> were $68 million slight.

Slightly higher than the prior year due to additional spending at our Bayview facility to further support enhancements to quality systems and capabilities at the site.

R&D expense of $83 million higher than the prior year, primarily reflecting a nonrecurring write off of a $38 million contract asset that resulted from the <unk> termination.

SG&A spend of $94 million.

Higher than the prior year, reflecting growth in head count and professional services in support of our expanding operations.

And importantly, pursuant to our customary annual impairment testing, we recognized a $42 million noncash goodwill impairment charge related to the commercial business driven primarily by the near to medium term impact of the ongoing pandemic on our travel health business.

Turning to slide 12, let's look at the latest transfer our CMO business line performance metrics in.

In the fourth quarter, we secured new business of $54 million on continuing steady demand for our services.

As of December 31, the <unk> backlog was $837 million lower than the level as of September 30th reflecting the impact of the $218 million of CMO revenue recognized in the quarter offset by the new business secured a $54 million.

And for the first time, we are introducing a new metric number of customers in place of opportunity funnel as we believe customer count provides more valuable context on the performance of the business.

As of December 31, our customer counts stood at 70 importantly, we have retained more than 95% of our existing clients since 2019, reflecting the stability of our diversified customer base.

Next let me touch briefly on key results related to the full year period, which are shown on slides 13 and 14.

Total revenues were $1 8 billion higher than the prior year and in line with our previous guidance.

While revenues in our <unk> business did not meet our original expectations for 2021, we had positive outcomes in medical countermeasures and in the commercial business, where nasal naloxone product revenue significantly exceeded our initial guidance.

As to profitability due to operating expenses coming in higher for 2021, primarily as a result of higher cost up to <unk>, coupled with increased SG&A expense.

We reported adjusted EBITDA of $518 million and adjusted net income of $326 million, both lower than the prior year.

Lastly, gross margin was 54% and adjusted gross margin was 55% both lower year over year again, reflecting the higher operating costs in 2021.

Moving on to slide 15, I'll touch on select balance sheet and cash flow highlights.

We ended the fourth quarter in a strong liquidity position with $576 million in cash and just under $600 million of available revolver capacity.

Our net debt position was $274 million and our ratio of net debt to trailing 12 month adjusted EBITDA was less than one time.

Our solid balance sheet was supported by strong operating cash flow in 2021 of $321 million.

This result enabled continued investments and opportunistic buyback activities as follows full.

Full year capital expenditures of $225 million, reflecting our continuing commitment to investment in expanded capabilities and capacities to support our diversified product and services business.

Net of reimbursements capital expenditures for the year were $140 million or 8% of total revenues.

And in the fourth quarter, we used approximately $113 million to repurchase approximately two 6 million shares pursuant to the $250 million repurchase authorization approved by our board of directors in November .

Timing of any additional repurchases will be determined by management based on its evaluation of market conditions and other factors and we will report such activity on a quarterly basis going forward.

Please turn to slide 16 for a review of our 2022 forecast.

As outlined in today's press release, we are updating our 2022 outlook principally the expectations for <unk> revenues.

As Bob said earlier, our most recent discussions with Johnson <unk> Johnson have indicated that they are evaluating their global supply chain as they assess the demand for their COVID-19 vaccine.

Based on this information and in coordination with J&J, we're taking the opportunity to initiate and maintenance period that we would normally plan for our bayview facility earlier than anticipated and also extend it in order to make additional improvements and modifications that will better position <unk> for future non pandemic work.

Accordingly, we are adjusting our 2022, CMO and total revenue guidance downward by $100 million to reflect the expected impact of these activities, which also affects certain profitability metrics. However, it is important to note that our contract with J&J has not been changed.

Our updated guidance ranges are now as follows for total revenue, we now anticipate a range of one three to $1 4 billion.

For <unk> revenues, we anticipate a range of $330 million to $380 million.

For adjusted EBITDA, we expect a range of $240 million to $300 million and for adjusted net income, we now anticipate a range of $95 million to $140 million.

All of our other 2022 forecast metrics are unaffected by the update and therefore reaffirmed.

Finally, we are also providing our forecast for first quarter 2022, total revenues of 280 million to $310 million.

As we stated in January we view 2022 as of year to re baseline the business importantly, our 2022 outlook takes into account a number of key considerations, including first continued stability in the government medical countermeasures products business line, driven by the high visibility of our long term contracts second.

Stable performance of our key commercial products business line.

Specifically nasal naloxone products and our expectations of a full year's impact of the shift to a generic market.

Third despite the updated outlook for revenue specific to the J&J agreement. We expect continued consistent performance for the rest of our <unk> services business line as we pursue opportunities to serve existing and new customers at our other revenue generating sites.

And fourth continued investments in the business, specifically R&D and Capex as we pursue opportunities to drive growth improve operating efficiency and optimize capacity utilization across our manufacturing network.

To conclude please turn to slide 17 for some summary comments.

In the fourth quarter of 2021, we delivered solid performance in our core medical countermeasures business and nasal naloxone products, while also generating new business wins and CMO services.

We also continued to make progress at stabilizing the baby's site in support of J&J.

And we realized important pipeline milestones with the initiation of the rolling BLA submission for AB seven 909, and the launch of the <unk> vaccine phase III trial.

Looking forward in 2022, we anticipate continued solid contributions from our government medical countermeasure and commercial products businesses.

More normalized performance from our <unk> services business and.

And achievement of important milestones in our R&D portfolio.

We look forward to keeping you informed as we execute on these plans and deliver further proof points that demonstrate the long term growth potential of our strong diversified business.

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.

A reminder to ask a question you will need to press star one on your telephone.

Your question press the pound key please standby, while we compile the Q&A roster one moment.

Our first question comes from Brandon Folkes of Cantor Fitzgerald. Please proceed.

Yes.

Hi, Thanks for taking my questions and congratulations on the.

Maybe just.

Digging into the guidance revision on the CMO business it wasn't too long ago.

Got it so I guess, just given what we saw with the.

The other contract last year.

Anyway, two trials whether you.

The contract dispute with J&J I Hope I did hear you talk.

Talk about the contract hasn't changed.

The decision to.

Undertake maintenance was to a discussion but.

Any way you can characterize the J&J still paying you does that 100 million.

Pushed to 2023, how do we sort of look at that contract and characterize that relationship tactic.

And then maybe secondly, <unk> base business.

A couple of years ago.

The goal of 10%.

Of the business being international.

We've had.

A very different world.

While there, but how do you look at that international opportunity going forward, maybe especially in light of recent international events. Thank you.

Yes, Brendan thanks for the question and thanks for joining the call.

A couple comments about.

Our decision in Bayview.

As both rich and I commented.

Taking this opportunity to make some facility improvements.

In bayview to those improve and strengthen the supply chain for J&J.

It is critically important to us and our number one commitment that we've made but also looking forward to.

Eventually having additional non pandemic work being done in Bayview down.

On the road, we want to make sure that it's the best position to be able to capitalize on those opportunities and have a bit of.

And optionality to how we use maybe longer term so that's really what's behind.

As we both have said that.

Contract is in place there is.

Nothing in dispute just to be clear and we're taking this opportunity to lean forward look forward a bit.

Make those modifications that we have long wanted to make.

In terms of your second question on the international markets I think that is one.

The growth opportunity that we've commented on over the last couple of years and the MCM business those markets continue to develop.

There are a little longer in terms of how long it takes two to create an opportunity, but we think there is.

Some growth opportunity there historically.

International revenues have been kind of in the neighborhood of 10% of our product revenue.

And we expect that to continue going forward, so we see pockets of opportunity.

Clearly given the macro environment that we're in today.

World is.

Not as stable as it was a year or two ago. So those are opportunities that will continue to pursue.

Thank you I appreciate all the color.

Thank you. Our next question comes from Jessica Fye of Jpmorgan. Please proceed.

Hey, guys. Thanks for taking my questions I got a few.

Following up on Brandon's question can you maybe elaborate on that J&J communication, you alluded to about evaluating their COVID-19 vaccine supply chain okay.

What does that mean any of your contracts are in place, but what's the implication there.

Yes, yes.

I think it's.

As simple as we described wishes we were recently made aware that.

They are looking at there and evaluating there.

Global demand for their vaccine and the supply chain.

That is supporting it.

Sure when we will hear the results of that I expect probably in the second quarter.

But it's.

It's as simple as that were just made aware recently that they are doing this evaluation and assessment and as a result.

And merchant.

Coordination with J&J has decided to go ahead and make these facility improvements and modifications that we talked about.

Okay got it.

Maybe on a couple of other topics.

You need to validate the Camden fill finish line as well or just Rockville.

And then in the <unk>.

Is a naloxone public interest market what are you seeing in terms of uptake for hikma as clock that out and what about the generics are you seeing any uptake in the public interest segment there.

Sandoz trying to get uptake there or just kept that.

Yes, great questions. So.

Trying to take them in order so for Camden.

That was an investment in a new high speed line that we.

Executed installed.

<unk>.

Couple of years ago, and brought online last year I believe so that work is essentially complete it's more about.

Fully utilizing that line. So it's different just in the Rockville scenario, where we installed the new viral.

Fill finish line in Rockville in 2021, and we look to quantify qualify and validate that in.

In 2022, and then kind of bring it online and operationalize it early next year.

In terms of the.

The Norwalk soon the nasal naloxone market.

I think the.

First of all in the public interest market.

We see some penetration of that market the generic product.

As we talked about.

The prior call we expected in the retail side of the market, which historically accounts for about 30% to 35% of the.

Narcan nasal spray revenues that you will see that typical branded versus generic.

Competition in the generics will claim $80 to 90% of the market and Thats every indication that we see two months into this thats whats happening.

On the public interest market side. However, it is a little more fragmented and harder to penetrate plus as we've talked about the economics are a little different where they already discounted norco.

Narcan nasal spray product at 40% of the retail space. So we do see some generic.

Competition, there to be clear the sandoz authorized generic product.

Not competing in the public interest market is just the other day.

Generic product that's in there.

Versus the branded product nor can I.

I don't have much to say about the subtle product.

Yes.

Opening a little too early to tell what that.

Market impact might be.

And Bob I might just jump in there and just Jess I think one thing we are seeing is that while it's very early in the game things are playing out as we would have anticipated at this stage. So we're not surprised by the way things are developing in the markets either on the retail side or on the public interest side.

Okay. So the public interest side is kind of.

Playing out as you expected.

At this point, although again, it's early in the game.

Okay.

We're two months two months into adjust so again I think were overall not surprised.

But what we see on either the retail side or the public interest market side. So.

It's behaving as we expected.

Great. Thanks.

Sure.

Thank you our next question from.

Jacob Hughes of Wells Fargo. Please proceed.

Hey, guys good afternoon.

With respect to C D Mow 'n'.

Dave you got an update on.

EUA approval.

And does your comments here imply that this could potentially be opened up to beyond J&J sooner.

Yes, Jay Thanks for the questions. Thanks for joining the call. So.

The regulatory status.

Is really.

Something that it's best directed to J&J, they control the regulatory filings, whether it's EUA or eventually the BLA filing that's really up to them.

In terms of the future use of Bayview.

All we're seeing Jake as we know that there are some facility improvements and modifications that would both benefit short term our ability to stabilize and strengthen the J&J.

<unk> chain as well serve emergence.

Use longer term in terms of doing that non pandemic work that we had counted on several years ago. So we get the benefit of both.

Take holders with that investment.

Okay and then.

And then just with respect to your capital allocation.

<unk>.

Generally.

$100 for you guys loose here in the year.

Using using that to buy back your stock you also had this too.

$2 billion revenue target that you reaffirmed in January so the.

Question is.

What what are the buckets you you think you need to have to hit the $2 billion and given where valuations today.

Is M&A going to be a bigger part of that goal and how do you balance that with.

Maybe.

Using.

Using your cash buying back your own stock.

Yes, great question, So couple of things.

I'll ask rich to weigh in as well.

M&A has always been.

And important.

Priority for emergent, particularly when we look to build.

Build our various areas of the business and get them to scale quickly as well as build and establish leadership positions in segments of the public health threat market, where we think we can compete most effectively so M&A continue to be important exactly how much M&A.

As to getting to that $2 billion in revenue by 2020 for Jake is hard to say, what we said two years ago was with.

The organic business, we saw high single digit growth rate in the organic business.

About half of the way there.

We were at $1 1 billion back in 2019, and M&A would most likely make up the balance and I don't think we see it too differently kind of two years into this other than there are lots of different paths to getting to that $2 billion number by 2024, it could be substantially.

Organic with the growth opportunities that we see in the MCM business as well as the CMO business and commercial.

So we'll have to wait and see in terms of your comment about valuation.

Obviously, we are hypersensitive to.

Finding good assets to add that are strategically aligned with what we're trying to do.

But also offer a good value going forward, so we're not going to overpay for assets.

Assets, maybe what that rich you can talk a little bit about capital allocation and how.

We look at potential uses of the capital to support programs like the buyback program that we're in the middle of now as well as M&A.

Yeah, Thanks, Bob and thanks, Jake So our capital allocation priorities still remain as they have been which is we're very focused on.

Investing in the business to drive growth, whether that be through organic growth opportunities in R&D or in capital expenditures to expand the capabilities and capacity of the network.

Or to pursue M&A that fits with our strategy and.

And thats going to be accretive to our value over time.

At the same time.

Articulated we.

We believe that.

We can judiciously use some of our capital too.

To buy back stock and.

In times, when we feel that it's at an attractive level and also to use some of that capital to manage.

The dilution from employee equity compensation I think our balance sheet is that a place you heard me talk about both the liquidity position as well as the net leverage position are both very favorable.

And with the continued cash flow generation potential of the business. We can continue to manage our balance sheet to a place where.

We can incur additional leverage as necessary in my necessary to pursue additional acquisition opportunities if needed.

We're very comfortable operating in a net leverage ratio of two to three times, which compares to the well under one times place we are today.

And so I think that I think that we have flexibility to balance these priorities and again.

Make decisions and allocate capital in productive ways to create value for the company.

That's helpful. Maybe just last one for me.

The CDC panels already to adapt our recommendation for Kala vaccination in children and adolescents. Prior it was over 18 years old are related to <unk> I was just wondering.

Is that a talent and we should be thinking about for you guys or are you thinking about that thanks.

Yes, maybe.

Thanks for the question, maybe I'll ask Adam to re engineer in terms of.

That CDC recommendation and whether we think that we will have a meaningful impact on our.

Our plans for travel health <unk> Adam.

Sure.

Thanks for the question I think at a macro level, we've been evaluating when the right time to relaunch travel health is and Thats really been the focus I think the.

CACI PD recommendation is.

I think.

More.

I'll save some some positive momentum that's going to return and those products are going to be needed and so.

Just came through and it was just announced I don't think we've had.

Kind of a new take on the market sizing, especially in the U S traveler, but.

I think the take home message right now is we're excited to relaunch that travel health business once.

Once we get past this past this pandemic.

Okay. Thanks, Kevin.

Thank you.

Our next question comes from Kay Mackay of Chardan. Please proceed.

Yes. Thank you.

Bob just back to the guidance on CMO revenue what are you taking.

The downtime to do the.

Maintenance and upgrades and which quarters out of the year or do we take the $100 million of CDN revenue out.

Yeah. Good afternoon, thanks for joining.

So I'm not going to tell you which quarter to adjust your model.

I will say is we're all.

We're already beginning to transition.

To be able to make the facility enhancements and modifications that I've talked about.

Spect that.

We will be back into production.

In late Q2.

There may be some additional enhancements that we want to make later in the year, but.

But that's our current thinking K on timing.

Okay.

At what point during the year would you expect J&J to come back to you with the decision on exercising options for 'twenty three and beyond.

Yes, I think that.

Based on what they shared with us that are going through their assessment right now.

May be another 30 to 45 days before they have that complete and give us some feedback so sometime in Q2, I think we will have a better idea.

What.

Overall long term demand for that product is.

Our bayview facility kind of plays into their global supply chain solution going forward.

We'll have some updates probably Q2.

Okay, and then just just for the.

The chip clinical trial.

Can you give us any guidelines for either completing enrollment or when you think you might have top line data.

Sure Adam you want to take that one.

Yes, sure. So I think as we've said I think previously but.

I think the trial the way enrolling we expect to complete that here in the first half of the year.

And then there is some some follow up periods. So I don't think we'll see any topline data until maybe the middle middle of 'twenty three so.

This year is mostly about executing the trial and next year it'll be kind of analyzing the data and sharing some topline recommendations.

Okay very good thanks.

Thank you as a reminder to ask a question.

We will need to press star one on your telephone and to withdraw your question. Please press the pound key.

Our next question comes from Lisa Springer of singular research. Please proceed.

I was just wondering if you have any updates you can share with us regarding negotiating a new contract for rux at that unit.

Yes, Lisa Thanks for joining thanks for the question so.

I think we're waiting Lisa to see when the request for proposal may come out from the government that is really the first step.

In terms of.

Following through so we're not actively involved to be clear.

Any negotiations with them right now we're waiting for that RFP to come out and then we will respond accordingly.

Okay. Thank you.

Sure.

Thank you I would now like to turn the conference back to Bob Burrows for final remark.

Thank you Didi 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 todays call will be available later today and accessible through the investors landing page on the company's website. Thank.

Thank you again, and we look forward to speaking with all of you in the future Goodbye.

Okay.

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

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Okay.

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Okay.

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Good day and thank you for standing by welcome to the Q4 2021 emergent bio solutions incorporated earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session. Please before.

Today's conference is being recorded to ask a question during the session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Bob Burrows, Vice President of Investor Relations I will now turn the call over to the company. Please proceed.

Thank you Judy and good afternoon, everyone and thank you for joining us today as we discuss the operational and financial results for fourth quarter 2021, as well as full year 2021.

As is customary today's call is open to all participants on the call is being recorded and is copyrighted by emergent bio solutions in.

In addition to today's press release, there was 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 statements speak only as of the date of this conference call and except as required by law, we do not undertake to update any forward looking statements to reflect new information events or circumstances investors should consider this cautionary statements.

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 enbridge its operating performance.

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.

This will be followed by Q&A session, where additional members of the executive leadership 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 24 2022.

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 my colleague Bob Kramer Bob. Please proceed.

Thank you Bob and good afternoon, everyone. Thank you for joining the call. This afternoon.

Today I'd like to provide a brief recap of 2021 share some important highlights from each of our business lines as well as our R&D pipeline.

And then turn our attention to 2022 and beyond my comments are summarized across slides six through eight in the deck accompanying this call.

Before I go any further I want to thank our entire emergent team now more than 2500 strong for their continued focus and commitment to our mission of protecting and enhancing lives.

Today's results demonstrate our team's resilience and I couldnt be more grateful for their work delivering meaningful outcomes for patients while continuing to fight the COVID-19 pandemic.

I'd also like to acknowledge emergence founder and executive Chairman, Florida, It'll heat rate, who has announced his retirement effective April one of this year.

On behalf of everyone at emerging both past and present I want to thank Florida for his vision his dedication in building emergent into the company that it is today.

Turning to our results I first want to underscore a few key accomplishments for the year.

First we achieved record revenues in 2021 of $1 8 billion with more than $500 million and adjusted EBITDA and positive cash flow.

<unk> thousand 21 continue to trend toward achieving our 2024 financial goals.

With the latest announcement regarding astrazeneca vaccine drug substance, we supplied more than $130 million dose equivalents of COVID-19 vaccine for use around the world.

Next we realized more than $600 million in government contract options being exercised in the second half of 2021 alone including for our smallpox vaccine <unk> 2000, and a next generation anthrax vaccine <unk> seven nano <unk>.

Fourth we initiated the rolling BLA submission for <unk> 799 in the pivotal phase III clinical trial for a single dose chikungunya virus DLP vaccine candidate.

Fifth we secured more than $400 million of new business for our <unk> services business.

And finally emergent delivered more than 5 million units of Narcan, the equivalent of more than 10 million doses.

While continuing our support.

Of work for those at risk of an opioid overdose, including increased advocacy to expand access to naloxone and.

In addition in 2021, we reorganized our operating structure to focus on customers and markets, resulting in three distinct business lines first the medical countermeasure business second commercial and finally see the most services. We also aligned our research and development function.

<unk> to enhance the delivery of pipeline, which includes both clinical and preclinical stage programs.

Now, let's turn to our performance in the year ahead.

And allied governments around the globe with medical countermeasures for Anthrax, smallpox botulism and chemical agents and will continue to work with the U S government agencies like BARDA NIH not yet in the U S Department of defense to advanced solutions in areas, where there is a <unk>.

Great unmet need.

In our <unk> business, it remains durable and sustainable with strong and stable base of clients across development services drug substance manufacturing and drug product manufacturing and packaging.

In 2021, the value of secured CMO contracts exceeded $400 million and spanned a variety of therapeutic areas. In addition to the ongoing COVID-19 pandemic response.

Maintenance period for our Bayview facility earlier than anticipated and also to extend it in order to make improvements and modifications. These enhancements will enable us to meet the needs of J&J, while planning for babies future return to non pandemic work as part of our <unk> network.

Step in enhancing and advancing the growth of our <unk> business.

As a result, we are updating our revenue guidance for 2022 to fall between one three and one 4 billion in revenue importantly, our contract with J&J remains unchanged and rich will provide more details on the guidance in a few minutes.

Turning now to our commercial products business as opioid.

This and insurers in the U S and Canada.

Our team continues to make meaningful contributions to combat the opioid crisis by helping millions prepare for an opioid overdose emergency.

As we look forward to international travel beginning to resume we plan to restart the business with the relaunch of the boutiques and <unk> in key markets later in 2022.

Staying within the product side of the business lets now turn to our research and development efforts.

Emergence R&D pipeline saw strong progress in 2021 with the initiation of the phase III pivotal trial for a single dose chikungunya virus DLP vaccine candidate the phase one trial for Universal flu vaccine candidate and the Rolling BLA submission for AB 799.

In 2022.

In 2022, we expect to share updates regarding the progress of these trials and other pipeline candidates, including additional clinical trials across our focus areas of infectious diseases substance use disorder and nerve agent antidotes. We also expect to share news related to the advancement of our auto.

Injector platforms, which we anticipate becoming part of our medical countermeasure business following appropriate regulatory approvals.

First Atul Saran, who currently serves as executive Vice President and General Counsel will assume the role of executive Vice President and Chief strategy and development Officer.

Global research product development activities, and M&A will now be consolidated under a tools leadership.

Lead Dr. Chris Cabell will be appointed as Chief Medical officer for emergent a role he held in enacting capacity for part of 2021. In addition to these concurrent role as senior Vice President clinical development in this role Chris.

The reporting to a tool.

And finally, I am pleased to announce the promotion of agenda for Fox to the position of executive Vice President of external Affairs General Counsel and corporate Secretary.

In this role Jennifer will be joining her colleagues.

Our executive management team.

In addition to the legal team Jennifer will now lead the global Communications and public affairs as well as the global Government Affairs teams.

Many of you know <unk> I'm sure you'll get to know both Jennifer and Chris on future calls.

Before I conclude I want to again, thank our team for their hard work and dedication emergence performance and resilience during the past year is a testament to our strategic focus and highly capable team looking forward I'm encouraged by the stability and durability across our diversified portfolio supported by our.

<unk> operating structure that better aligns us with patients and customers and more effectively positions us for success. So thanks again for joining the call and look forward to your questions and I will now turn to rich to review the financial results rich.

Thank you Bob Good afternoon, everyone and thank you for joining the call today.

I'll start on slide 10, and open my remarks, with some summary thoughts to put today's earnings report into context.

Our fourth quarter execution was solid and continues to illustrate the strength and durability of our diversified business model our.

Our nasal naloxone products showed another strong period of performance across both the public interest and retail channels at.

As Bob commented earlier, we responded to the formation of a generic nasal naloxone market by activating our supply agreement with Sandoz for their distribution of an authorized generic.

We also continue to make steady progress in stabilizing and incrementally improving the performance of the <unk> services business across our core manufacturing sites at Bayview, Camden and Winnipeg.

And finally, we further advanced our R&D programs, most notably with the initiation of the Avi seven 909, BLA rolling submission and the launch of the Chikungunya vaccine phase III trial.

With that let's turn to the numbers, which were especially strong in the fourth quarter, demonstrating the operating leverage and earnings potential inherent in our business model.

Our key profitability measures also increased compared to the prior year period, including adjusted EBITDA of $348 million and adjusted net income of $243 million.

Other notable items in the quarter include anthrax vaccine sales of $138 million higher than the prior year due to timing of deliveries of 87 909 to the U S government strategic national stockpile.

<unk> 2000, and sales of $126 million slightly lower than the prior year, but reflecting ongoing deliveries to the U S government under the existing 10 year procurement contract.

This line also includes revenues related to sales under our arrangement with Sandoz for their authorized generic naloxone nasal spray, which began late in the year.

Other product sales were $50 million significantly higher than the prior year driven by deliveries to the U S government <unk> and other medical countermeasure products.

And combined CD amongst service and lease revenues of $218 million, which was higher than the prior year due primarily to final cash collections associated with the mutually agreed termination of the CIA AVM public private partnership with BARDA, which we announced in early November .

Turning to operating expenses as a reminder, we are now breaking out cost of product sales and cost of CMO separately.

Product cost of goods sold in the quarter were $145 million.

Higher than the prior year, largely due to higher product sales.

Cost of <unk> were $68 million slightly higher than the prior year due to additional spending at our bayview facility to further support enhancements to quality systems and capabilities at the site.

R&D expense of $83 million higher than the prior year, primarily reflecting a nonrecurring write off of a $38 million contract asset that resulted from the CIA ADM termination.

SG&A spend of $94 million higher.

Higher than the prior year, reflecting growth in head count and professional services in support of our expanding operations.

And importantly, pursuant to our customary annual impairment testing, we recognized a $42 million non cash goodwill impairment charge related to the commercial business driven primarily by the near to medium term impact of the ongoing pandemic on our travel health business.

Turning to slide 12, let's look at the latest trends for our <unk> business line performance metrics in.

In the fourth quarter, we secured new business of $54 million on continuing steady demand for our services.

As of December 31, the <unk> backlog was $837 million.

Lower than the level as of September 30th, reflecting the impact of the $218 million of <unk> revenue is recognized in the quarter offset by the new business secured a $54 million.

As of December 31, our customer counts stood at 70 importantly, we retained more than 95% of our existing clients since 2019, reflecting the stability of our diversified customer base.

Next let me touch briefly on key results related to the full year period, which are shown on slides 13 and 14.

Total revenues were $1 8 billion.

Higher than the prior year and in line with our previous guidance.

While revenues in the <unk> business did not meet our original expectations for 2021, we had positive outcomes in medical countermeasures and in the commercial business, where nasal naloxone product revenue significantly exceeded our initial guidance.

As to profitability due to operating expenses coming in higher for 2021, primarily as a result of higher cost of <unk>, coupled with increased SG&A expense.

We reported adjusted EBITDA of $518 million and adjusted net income of $326 million, both lower than the prior year.

Lastly, gross margin was 54% and adjusted gross margin was 55% both lower year over year again, reflecting the higher operating costs in 2021.

Moving on to slide 15, I'll touch on select balance sheet and cash flow highlights.

We ended the fourth quarter in a strong liquidity position with $576 million in cash and just under $600 million of available revolver capacity.

Our net debt position was $274 million and our ratio of net debt to trailing 12 month adjusted EBITDA was less than one time.

Our solid balance sheet was supported by strong operating cash flow in 2021 of $321 million.

This result enabled continued investments and opportunistic buyback activities as follows full.

Full year capital expenditures of $225 million, reflecting.

Reflecting our continuing commitment to investment in expanded capabilities and capacities to support our diversified product and services business.

Net of reimbursements capital expenditures for the year were $140 million or 8% of total revenues.

The timing of any additional repurchases will be determined by management based on its evaluation of market conditions and other factors and we will report such activity on a quarterly basis going forward.

Please turn to slide 16 for a review of our 2022 forecast.

As outlined in today's press release, we are updating our 2022 outlook principally the expectations for <unk> revenues.

As Bob said earlier, our most recent discussions with Johnson <unk> Johnson have indicated that they are evaluating their global supply chain as they assess the demand for their COVID-19 vaccine.

Based on this information and in coordination with J&J, we're taking the opportunity to initiate a maintenance period that we would normally plan for our bayview facility earlier than anticipated and also extend it in order to make additional improvements and modifications that will better position <unk> for future non pandemic work.

Accordingly, we are adjusting our 2022, CMO and total revenue guidance downward by $100 million.

To reflect the expected impact of these activities, which also affects certain profitability metrics.

However, it is important to note that our contract with J&J has not been changed.

Our updated guidance ranges are now as follows for total revenue, we now anticipate a range of one three to $1 4 billion.

For <unk> revenues, we anticipate a range of $330 million to $380 million.

For adjusted EBITDA, we expect a range of $240 million to $300 million and for adjusted net income, we now anticipate a range of $95 million to $140 million.

All of our other 2022 forecast metrics are unaffected by the update and therefore reaffirmed.

Finally, we are also providing our forecast for first quarter 2022, total revenues of 280 million to $310 million.

Stable performance of our key commercial products business line, specifically nasal naloxone products and our expectations of a full year's impact of the shift to a generic market.

To conclude please turn to slide 17 for some summary comments.

In the fourth quarter of 2021, we delivered solid performance in our core medical countermeasures business and nasal naloxone products, while also generating new business wins in <unk> services.

We also continued to make progress at stabilizing the baby's site in support of J&J.

And we realized important pipeline milestones with the initiation of the rolling BLA submission for AB seven 909, and the launch of the chicken <unk> vaccine phase III trial.

Looking forward in 2022, we anticipate continued solid contributions from our government medical countermeasure and commercial products businesses.

More normalized performance from our <unk> services business and.

And achievement of important milestones in our R&D portfolio.

We look forward to keeping you informed as we execute on these plans and deliver further proof points that demonstrate the long term growth potential of our strong diversified business.

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.

Reminder, to ask a question you will need to press star one on your telephone.

Draw your question press the pound key please standby, while we compile the Q&A roster one moment.

Our first question comes from Brandon Folkes of Cantor Fitzgerald. Please proceed.

Yes.

Hi, Thanks for taking my questions and congratulations on the.

Let me just.

Digging into the guidance revision.

On the <unk> business, you know it wasn't too long ago that you issued guidance. So I guess, just given what we saw with the.

The other contract last year, yes is there any way to Charles whether you the contract that's in dispute with J&J.

Can you talk about the contract hasn't changed.

The decision to.

Undertake maintenance was through a discussion but is there any way you can characterize the J&J still paying you does that $100 million.

Pushed to 2023, how do we sort of look at that contract and characterize that relationship tactic.

And then maybe secondly, going back to your base business.

A couple of years ago, I think you had.

Set the goal of 10%.

Of the business being international.

We've had.

A very different world.

While there, but how do you look at that international opportunity going forward, maybe especially in light of recent international events. Thank you.

Yes, Brendan thanks for the question and thanks for joining the call.

A couple comments about.

Our decision in Bayview.

As both rich and I commented.

Taking this opportunity to make some facility improvements.

And Dave you to both improve and strengthen the supply chain for J&J.

It is critically important to us and our number one commitment that we've made but also looking forward to.

Eventually having additional non pandemic work being done in Bayview down.

The road want to make sure that it's the best position to be able to capitalize on those opportunities in a bit of a.

And optionality to how we use maybe longer term so that's really what's behind us.

We both have said the contract is in place there is nothing in dispute just to be clear and we're taking this opportunity to lean forward look forward a bit and make those modifications that we have long wanted to make.

In terms of your second question on the international markets I think that is one.

The growth opportunity that we've commented on over the last couple of years and the MCM business those markets continue to develop.

There are a little longer in terms of how long it takes two to create an opportunity, but we think there is.

Some growth opportunity there historically.

International revenues have been kind of in the neighborhood of 10% of our product revenue.

And we expect that to continue going forward, so we see pockets of opportunity.

Clearly given the macro environment that we're in today.

The World is.

Not as stable as it was a year or two ago. So those are opportunities that will continue to pursue.

Thank you I appreciate all the color.

Thank you.

Next question comes from Jessica Fye of Jpmorgan. Please proceed.

Hey, guys. Thanks for taking my questions I got a few.

Following up on Brandon's question can you just maybe elaborate on that J&J communication, you alluded to about evaluating their COVID-19 vaccine supply chain.

Okay. What does that mean I know your contracts are in place, but lets the implication there.

Yes, yes.

I think it's.

As simple as we described wishes we were recently made aware that.

They are looking at there and evaluating their global demand for their vaccine and the supply chain.

That is supporting it.

I'm not sure when we will hear the results of that I expect probably in the second quarter.

But it's.

It's as simple as that were just made aware recently that they are doing this evaluation and assessment and as a result.

Emerging.

Coordination with J&J has decided to go ahead and make these facility improvements and modifications that we talked about.

Okay got it.

Maybe on a couple of other topics.

You need to validate the Camden fill finish line as well or just Rockville.

And then in the <unk>.

<unk> public interest market what are you seeing in terms of uptake for hecla's clocks auto and what about the generics are you seeing any uptake in the public interest segment there.

Sandoz trying to get uptake there or just cover.

Yes.

Yes, great questions. So.

Trying to take them in order so for Camden.

That was an investment in a new high speed line that we.

Executing.

<unk>.

A couple of years ago and brought online last year I believe so that work is essentially complete it's more about.

Fully utilizing that line. So it's different just in the Rockville scenario, where we installed the new viral.

Fill finish line in Rockville in 2021, and we look to qualify qualify and validate that.

In 2022, and then going to bring it online and operationalize it early next year.

In terms of the Norwalk soon the nasal naloxone market.

I think the.

First of all in the public interest market.

We see some penetration of that market by the generic product.

As we talked about.

Prior call, we expected in the retail side of the market, which historically accounts for about 30% to 35% of the.

Narcan nasal spray revenues that you will see that typical branded versus generic competition in the generics will claim 80% to 90% of the market.

Every indication that we see two months into this thats whats happening.

The public interest market side. However, it is a little more fragmented and harder to penetrate plus as we've talked about the economics are a little different with they already discounted.

Narcan nasal spray product at 40% of the retail space. So we do see some generic.

Competition, there to be clear the sandoz authorized generic product is not competing in the public interest market is just the other the.

The other generic product that's in there.

The branded product nor can.

I don't know much to say about the subtle product.

Opening a little too early to tell what that.

Market impact might be.

And Bob I might just jump in there and just Jeff I think one thing we are seeing is that while it's very early in the game things are playing out as we would have anticipated at this stage. So there is we're not surprised by the way things are developing in the markets either on the retail side or on the public interest side.

Okay, so sort of the public interest side is kind of.

Playing out as you expected.

At this point, although again, it's early in the game.

Okay.

We're two months two months into adjust so again I think were overall not surprised.

But what we see on either the retail side or the public interest market side. So.

It's behaving as we expected.

Great. Thanks.

Sure.

Thank you our next question.

Jacob Hughes of Wells Fargo. Please proceed.

Okay.

Hey, guys good afternoon.

With respect to see the MAU in Bayview provide an update on <unk>.

<unk> approval.

Does your comments here imply that this could potentially be opened up to beyond J&J sooner.

Yes, Jay Thanks for the questions. Thanks for joining the call. So really the regulatory status is really <unk>.

Something that it's best directed to J&J, they control the regulatory filing whether it's EUA or eventually the BLA filing that's really up to them.

In terms of the future use of the view I think all we're seeing Jake is that we know that there are some facility improvements and modifications that would both benefit short term our ability to stabilize and strengthen the J&J.

Supply chain as well as serve emergence.

Use longer term in terms of doing that non pandemic work that we had counted on several years ago. So we get that.

The benefit of both stakeholders with that investment.

Okay and then.

And then just with respect to your capital allocation.

<unk> generated 109 for your calculus here.

Sure.

Using using it to buy back your stock you also had this.

$2 billion revenue target that you reaffirmed in January so.

Question is.

What are the buckets you.

Thank you need to have to hit the $2 billion and given where valuations today.

Is M&A can be a bigger part of that goal and how do you balance that with.

Maybe.

Using.

Using your cash to buyback your own stock.

Yeah, Great question, So couple of things.

As risk rich to weigh in as well.

M&A has always been.

And important.

Priority for emergent, particularly when we look to.

As to getting to that $2 billion in revenue by 2020 for Jake is hard to say, what we said two years ago was with the organic business. We saw high single digit growth rate in the organic business.

Get us not have some delay there.

And we were at $1 1 billion back in 2019, and M&A would most likely make up the balance and I don't think we see it too differently kind of two years into this other than there are lots of different paths to getting to that $2 billion number by 2024, it could be substantially.

Organic.

With the growth opportunities that we see in the MCM business as well as the CMO business and commercial.

So we'll have to wait and see in terms of your comment about valuation.

We are hyper sensitive to.

Finding good assets to add that are strategically aligned with what we're trying to do.

But also offer a good value going forward, so we're not going to overpay for assets.

Assets, maybe with that rich you can talk a little bit about capital allocation and how.

We look at potential uses of the capital to support programs like the buyback program that we're in the middle of now as well as M&A.

Yes, Thanks, Bob and thanks, Jake So our capital allocation priorities still remain as they have been which is we're very focused on.

Investing in the business to drive growth, whether that be through organic growth opportunities in R&D or.

Or in capital expenditures to expand the capabilities and capacity of the network.

Or to pursue M&A that fits with our strategy.

And thats going to be accretive to our value over time.

At the same time.

As we've articulated.

We believe that.

We can judiciously use some of our capital to buy back stock.

In times, when we feel that it's at an attractive level and also to use some of that capital to manage dilution from employee equity compensation I think our balance sheet is that a place you heard me talk about both the liquidity position as well as the the net leverage position are both very favorable.

And with the continued cash flow generation potential of the business.

We can continue to manage our balance sheet to a place where.

We can.

Additional leverage as necessary and when necessary to pursue additional acquisition opportunities.

If needed.

We're very comfortable operating in a net leverage ratio of two to three times, which compares to the well under one times place we are today.

And so I think that I think that we have flexibility to balance these priorities and again make decisions and allocate capital in productive ways to create value for the company.

That's helpful. Maybe just last one for me is.

The CDC panels already to adapt our recommendation for Kala vaccination in children and adolescents. Prior it was over 18 years old.

Related to <unk> I was just wondering.

Is that a towel and we should be thinking about for you guys or how are you thinking about that thanks.

Yes, maybe.

Jay Thanks for the question, maybe I'll ask Adam to weigh in here in terms of.

That CDC recommendation and whether we think that will have a meaningful impact on our plans for travel health <unk> Adam.

Sure.

Thanks for the question I think at a macro level, we've been evaluating when the right time to relaunch travel health is and Thats really been the focus I think.

CIP recommendation.

I think.

More.

I will say some some positive momentum that's going to return those products are going to be needed and so it just came through and it was just announced I don't think we've had a.

Kind of a new take on the market sizing, especially in the U S traveler, but.

I think the take home message right now is we're excited to relaunch that travel health business once.

Once we get past this past this pandemic.

Okay. Thanks, Kevin.

Thank you.

Our next question comes from Kay Mackay of Chardan. Please proceed.

Yes. Thank you.

Bob just back to the guidance on CMO revenue what are you taking.

The downtime to do the.

Maintenance and upgrades and which quarters out of the year do we take $400 million of CDN revenue out.

<unk>.

Yes afternoon, Kate Thanks for joining so.

Not going to tell you which quarter to adjust your model.

What I will say is were.

We're already beginning to transition.

To be able to make this facility enhancements and modifications that that I've talked about.

We expect that that we will be back into production.

In late Q2.

There may be some additional enhancements that we want to make later in the year.

But thats our current thinking.

On timing.

Okay.

At what point during the year would you expect J&J to come back to you with the decision not exercising options for 'twenty three and beyond.

Yes, I think that.

Based on what they shared with us theyre going through their assessment right now.

May be another 30 to 45 days before they have that complete.

And give us some feedback so sometime in Q2, I think we'll have a better idea of what the overall long term demand for that product is.

Our bayview facility kind of plays into their global supply chain solution going forward.

We'll have some updates probably Q2.

Okay, and then just just for the.

The chip clinical trial.

Can you give us any guidelines for either completing enrollment or when you think you might have top line data.

Sure Adam you want to take that one.

Yeah sure. So I think as we said I think previously but.

I think the trial the way enrolling we expect to complete that here in the first half of the year.

And then there is some some follow up periods. So I don't think well see any topline data until maybe the middle middle of 'twenty three so.

This year is mostly about executing the trial and next year it'll be kind of analyzing the data and sharing some topline recommendations.

Okay very good thanks.

Thank you as a reminder to ask a question.

We'll need to press star one on your telephone.

Your question. Please press the pound key.

Our next question comes from Lisa Springer of singular research. Please proceed.

I was just wondering if you have any updates you can share with us regarding negotiating a new contract for Roxy backing that.

Yes, Lisa Thanks for joining thanks for the question so.

I think we're waiting Lisa to see when the request for proposal may come out from the government that is really the first step.

In terms of.

Following through so we're not actively involved to be clear.

The negotiations with them right now we're waiting for that RFP to come out and then we will respond accordingly.

Okay. Thank you.

Sure.

Thank you I would now like to turn the conference back to Bob Burrows for final remark.

Thank you again, and we look forward to speaking with all of you in the future Goodbye.

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

Q4 2021 Emergent BioSolutions Inc Earnings Call

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