Q4 2022 Emergent BioSolutions Inc Earnings Call

February 27, 2023

Okay.

Good day, and thank you for standing by welcome to the emergent bio solutions fourth quarter and full year 2022 financial results Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one one on your telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star one again.

Please be advised 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 and thank you for joining us today as we discuss the operational and financial results for fourth quarter of 2022 as well as full year 2022.

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 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 invest.

Investors should consider this cautionary statement as well as the risk factors identified in our periodic reports filed with the SEC.

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 <unk> 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, which we'll also discuss our forecast for FY 'twenty, three including Q1 'twenty three revenue guidance.

This will be followed by Q&A session, where additional members of the Jacobs 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 are summary of my remarks begins on page six.

As you've read in our press release, our fourth quarter and fiscal year 2022 results are largely in line with the guidance that we provided at the end of last year and then reaffirmed again in our January 19th 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 <unk>.

Rate more consistent with pre Covid trends and rich will walk through those numbers with you in a minute.

Today I'd like to provide some context with respect to sharpening our focus on our core businesses and maximizing outcomes for all stakeholders patients customers employees equity investors and debt capital providers.

We last gave our long term view of the business at our Investor Day in November of 2019, much has changed since then and I think it's safe to say that that view no longer matches. This post pandemic environment.

By the end of this year, we'll share an updated view informed by the outcomes of several strategic initiatives already underway.

First we prioritized our foundational products business, which includes our portfolio of medical countermeasures, such as treatments and vaccines for anthrax and smallpox 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 and practice in January we announced a new contract to supply RSD L kits to the U S Department of Defense Underscoring our continued partnership with the government to address that standard trustee of identified.

Also earlier this month, we announced an agreement to sell our travel health business, two Bavarian Nordic, which accomplishes two goals.

It will help ensure the vacs Cora in vivo T remain available to international travelers and other patients who need them.

And upon closing will generate approximately $270 million in cash and includes the potential for another $110 million in sales based in development based milestones.

Also on February 15th we successfully presented our rationale for making <unk> available over the counter to an FDA Joint Advisory Committee I will touch upon that more in a minute.

The second strategic initiative is aimed at strengthening our culture of quality and compliance and enhancing our manufacturing capabilities to support both our internal products as well as services to our long term partners.

Third, we're making capital structure and expenditure decisions to build enterprise value for the benefit of all stakeholders and creditors. For example in January we announced organizational changes and other cost reduction initiatives expected to result in annualized savings of over <unk>.

$60 million when fully implemented.

And finally as rich will discuss we are managing our balance sheet to restructure and extend our debt obligations.

To be clear these decisions are not taking lightly and they have real consequences and impact on many of our emerging colleagues to those affected by these decisions I want to again express my gratitude for your commitment to our patients and customers into our mission to protect and enhance life.

Turning to our core businesses, we see continued strength in the medical countermeasure products. We successfully delivered the second shipment of Tim Baxter under the BARDA procurement contract at the end of 2022 and are planning for an additional contract modification to be exercise.

In late 2023 as.

As mentioned previously we announced a $380 million procurement contract to supply RSD L kits.

For use by all branches of the U S. Military we expect deliveries to be consistent with previous years, but this new contract does account for surge capacity should the department of defense require additional supplies.

With respect to <unk> 2000, our smallpox vaccine we continue to work with the U S government on terms for the next delivery into the strategic National stockpile. We have previously disclosed that these options are not always exercised on a consistent predictable timeline, yet we remain confident that.

We will reach agreement with the U S government emboldened by comments from the assistant Secretary of preparedness and response before the Senate Health Committee last September stayed in that <unk> 2000, and remains and I quote. The first line of defense to Vaccinate Americans in the event of an X.

Metal or intentional release of smallpox and quote.

We're also pleased with the progress toward making narcan nasal spray available over the counter.

Since announcing the Fda's priority review of our application and last December we continue working closely with the agency leading up to the expected approval by March 29th of this year.

We're encouraged by the unanimous vote of the FDA Advisory Committee on February 15th in support of over the counter and Narcan.

And assuming the timeline remains the same we anticipate narcan appearing on shelves by the end of the summer.

We're engaging with stakeholders, including retail pharmacy chains, the centers for Medicare and Medicaid services and congressional offices to ensure the switch to over the counter Narcan continues to expand access to this potentially life saving medicine.

Notably, we also expect consistent public interest demand for Narcan, regardless of the outcome of the FDA review, we are investing in relationships across this market and have a sophisticated and mature system in place that enables us to deliver product to these customers in a timely and.

Affordable manner.

Turning to see any mode with respect to this piece of the business. We're currently making investments in our existing network to both deliver our internal products and service external customers, including strengthening operational quality and compliance systems across the enterprise.

To provide reliable delivery of products and services as well as bringing online new assets across the manufacturing sites like the high speed fill finish drug product line and Rockville that will differentiate us in this growing market specifically in the amendment medallion sector.

As we've said before executing on these strategic investments will take time to complete.

And we're committed to getting it right as these investments come to fruition, we will continue to engage potential new customers and evaluate how best to deploy these assets across our network in order to deliver the fastest returns.

Turning now to our financial guidance, our sharpened focus on core areas of sustainable growth and other related actions. We're taking will have an impact on our business performance and rich will go into more detail, our 2023 guidance, but a range of total revenues of one one to one.

$1 2 billion and our adjusted EBITDA range of between 75 and $125 million and our adjusted gross margin performance of between 41%, 44% reflects the impacts of these actions in the short term.

As we look ahead to the rest of 2023, the management team and I are executing against the following priorities.

First improving overall profitability by focusing on our both our core products and existing services businesses.

Secondly, successfully closing on the sale of the travel health business that we announced earlier this year.

Next completing the transition of 87 909 from development to procurement and close partnership with the U S government.

Fourth gaining FDA approval for over the counter Narcan and launching that product later this year.

Next further delivering and strengthening on our quality and compliance culture and systems and finally, working with our creditors to restructure and extend our debt obligations.

The full benefit of these actions, we're taking will not be realized overnight and our actions demonstrate our belief in the importance and necessity of the work emergent does to help protect against ongoing and future threats to public health as well as economic and National security.

Again, thank you for attending and participating on the call today and I'll now turn it over to rich.

Thank you Bob and good afternoon, everyone. We appreciate you joining the call.

I'll start on slide nine and begin my remarks by reinforcing the financial implications of sharpening our strategic focus and maximizing stakeholder outcomes as Bob has described for you today.

First we are committed to sustaining revenue growth and improving profitability.

We plan to leverage our capabilities in medical countermeasures, and Narcan nasal spray and develop the potential of our <unk> services business with the combined effect to establish a platform for solid future growth.

The position elimination and other actions, we announced earlier in the year in combination with the sale of our travel health business will better align our cost structure with our revenue trajectory as we continue to strengthen quality and compliance and operationalize the network investments made over the past three years.

Our 2023 guidance reflects our expectations for solid progress in a multi year journey towards these objectives.

Second we are addressing near term challenges to our credit profile.

<unk> 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 and 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 15 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 continued to be mixed in the fourth quarter.

On the positive side total revenues were in line with our guidance as the product segment continued to deliver solid contributions, including narcan nasal spray to backstop and other products.

These outcomes, partially offset the disappointing circumstances related to ATM 2000, which did not contribute any revenue in the period.

Similarly, the services segment was once again, a modest topline contributor as we continue to make steady progress in stabilizing and incrementally improving the performance of the <unk> services business across our core sites at Winnipeg, Camden, Rockville and debut.

At the same time, our profitability measures reflect underutilization of our CMO capacity as well as ongoing incremental costs to address the Camden warning letter and further strengthen our systems processes and culture of quality and compliance in our manufacturing plants and across the enterprise.

As indicated on slides 10, 11, and 12 financial highlights include total revenues of $331 million a decrease over the prior year driven by lower sales of our key franchise products substantially reduced CD amongst services revenue and lower contract and grant revenues and as expected our key profitability measure.

Declined versus the prior year with net loss of $88 million adjusted net loss of $15 million and adjusted EBITDA of positive $34 million.

Notable revenue elements in the quarter include anthrax vaccine sales of $51 million lower than the prior year due to timing of deliveries of 87 to 909 to the U S government strategic national stockpile.

Nasal naloxone product sales of $91 million.

Lower than the prior year, but demonstrating the continuing role of narcan in addressing the ongoing opioid epidemic, especially in the U S public interest segment.

<unk>, our newest acquired medical countermeasure products generated its first product sales during the quarter contributing $118 million under the 10 year contract to supply doses of the smallpox therapeutic to the SNS.

Other product sales were $46 million slightly lower year over year, but demonstrating the impact of our other MCM products and.

And combined CD amongst service and lease revenues were $18 million significantly lower than the prior year as we continue to support existing customers and re baseline of the business. Following our COVID-19 response.

Turning to operating expenses cost of product sales in the quarter was $167 million higher than the prior year, driven by <unk> and offset by lower sales of anthrax vaccines, <unk> 2000, and nasal naloxone products.

Note that cost of product sales includes $51 million of inventory step up related to the <unk> acquisition that has been adjusted out of our non-GAAP metrics.

Cost of <unk> was $52 million significantly lower than the prior year due to reduced production across the CD Mo network, partially offset by higher cost of the Camden site, resulting from additional investments in quality enhancement and improvement.

R&D expense of $58 million.

Lower than the prior year, reflecting a noncash write off in 2021 of a contract asset balance, resulting from the termination of the CIA IDM contract with the U S government.

This reduction was partially offset by higher costs associated with the <unk> phase III trials in.

In SG&A spend of $94 million in.

In line with the prior year.

With that let's move to slide 13, and review segment performance during the quarter.

In the product segment revenues were $306 million a decrease.

From the prior year as strong performance from the Anthrax franchise, Narcan and <unk> were offset by lower ATM 2000 sales and adjusted gross margin was $190 million or 62% both decreases over the prior year, reflecting lower sales volume and a less favorable product mix.

As for the services segment revenues were $18 million a significant decrease from the prior year and adjusted gross margin was negative $34 million a decrease.

The prior year, driven primarily by lower lease revenues as compared to 2021.

Next I will share key results related to the full year period, which are shown on slides 14 and 15.

Total revenues were $1 1 billion lower than the prior year, but in line with our previous guidance.

While revenues in the <unk> business were substantially lower than the prior year period due to all the same issues that impacted fourth quarter performance anthrax vaccines came in higher than prior year, Tim Baxter contributed significantly and other products were slightly higher offset by slightly lower nasal naloxone sales and significantly reduced AGM 2000 revenues.

As to profitability, we reported adjusted net loss of $112 million and adjusted EBITDA of $26 million, both substantially lower than the prior year.

Lastly, gross margin of 36% and adjusted gross margin of 41% were both lower year over year, reflecting the impact of less favorable product mix combined with negative services gross margins.

On slide six we present the segment performance for the full year periods.

In the products segment revenues were $966 million slightly lower from the prior year and adjusted gross margin was $596 million or 62%, both slight decreases over the prior year, reflecting lower sales volume and less favorable product mix.

As for the services segment revenues were $113 million a significant decrease from the prior year, primarily due to reduced production at Camden and necessitate <unk> of operations at Beijing, as we continued to reposition the site to initially support select internal products.

And adjusted gross margin was negative $156 million, a substantial decrease versus the prior year due principally to declining revenues related to the COVID-19 response, coupled with incremental costs associated with the Camden facility remediation efforts and investments in quality and compliance across our manufacturing network.

Moving on to slide 17, I'll touch on select balance sheet and cash flow highlights. We ended the fourth quarter was $643 million in cash as we took down the remaining approximately $360 million of available revolver capacity to further strengthen our liquidity position at year end.

As of 12, 31, 22, our net debt position was $771 million.

Turning to cash flows for the year, our operating cash flow was negative primarily influenced by the AGM 2000 order that did not materialize in 2022. In addition capital expenditures were $160 million over $100 million lower than the prior year.

Please turn to slides 18, and 19 for a review of our 2023 forecast and associated assumptions.

You will note that we are now guiding to sales by threat area instead of by individual product and therefore have introduced two new groupings.

Anthrax medical countermeasures or MCM, which comprises 87 909 final fracs and for sale and Raxibacumab.

In smallpox medical countermeasures, which includes <unk> 2000, <unk> and <unk>.

And the financial forecast section of our press release for comparison, you will see the 2020 to actual revenue for each grouping next to the 2023 forecast.

For the full year 2023, we are guiding to the following total revenues of one 1% to $1 2 billion.

Anthrax MCM sales of $260 million to $280 million Mark.

Narcan nasal spray sales of $290 to $310 million, taking into account our assumptions regarding impact of over the counter narcan across all customer channels.

Smallpox MCM sales of $235 to $255 million.

Other product sales of $165 million to $185 million.

CD, most services revenues of $115 million to $135 million.

Adjusted net loss of $30 million to $80 million.

Adjusted EBITDA of $75 million to $125 million and adjusted gross margin of 41% to 44%.

This full year 2023 forecast reflects the following key considerations it excludes.

The potential impact of the sale of our travel health business, we will update our guidance accordingly, after the transaction closes which is anticipated in the second quarter.

It assumes the over the counter launch of Narcan by the end of the summer with continued strong demand in the U S public interest channel as well as continuing demand in Canada.

Continued procurement and delivery of anthrax smallpox and other medical countermeasure products to the U S and allied governments.

And continued rebase lining of the CD amongst services business overall, and the impact of reduced production output from the Camden facility.

Note that we expect revenues and profits in 2023 will be more heavily weighted towards the second half of the year and as a result, we have provided a revenue outlook for the first quarter of $130 from $150 million.

To conclude please turn to slide 20 for some summary comments a.

Our results in the fourth quarter reflect a mix of strong performance in certain core areas of our products business offset by ongoing challenges in other aspects of our products business and our services business.

We are committed to sustaining revenue growth and improving profitability and.

And we are addressing near term challenges to our credit profile.

Finally, as always we remain confident in the impact we're having on patients and customers focused on health security and pandemic preparedness.

That completes my prepared remarks, and I'll now turn the call over to the operator, so that we can start the question and answer session operator.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced can withdraw. Your question. Please press star one again, one moment, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Jessica Fye with Jpmorgan. Your line is open. Please go ahead.

Hi, This is Nick on for Jeff. Thanks for taking our questions from US first one is for your 2023, Dr. Ken guidance can you just help quantify how much of that 290 $310 million revenue range is associated with potential to Tcs.

Yes, Nick.

I think you mentioned 2022 guidance I think you probably mentioned.

And then 2023, sorry about that.

Yes.

Problems so.

Rich.

<unk> indicated in his script and prepared remarks.

We are assuming that FDA grants approval for OTC treatment of Narcan and.

We will be launching this product into the LC OTC market and in the summer so it's.

It's really difficult to breakout.

How much of the revenue guidance of $2 90 to 310 is attributable to OTC market versus continuing in the prescription market. So again, we can tell you our assumptions and again, it's kind of based on the timing of when that product will likely be launched.

The other 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 that guidance.

Yes, that's right rich.

Great. Thank you and just a quick follow up.

For the Anthrax and smallpox guide includes the potential contributions.

But the same potential quantify is not there for the other products such as <unk> kind of how have you heard any have you heard commitments from the U S government on taking into 2023 options today for <unk> 2019.

Thanks.

Yes, so let's start with.

With the smallpox threat category and specifically on <unk> I think as I remarked in my comments, Nick we continue to be in active dialogue with HHS around the next procurement of <unk> 2000.

So we've actually factored that into the guidance that we've given around the smallpox threat category and as rich indicated we've pivoted to more of a threat based guidance format as opposed to an individual product.

As it relates to anthrax.

<unk>.

Clearly we're in the.

Kind of nearing the end of the transition in terms of almost a five and a half year development slash procurement.

And our relationship with the U S government BARDA in particular.

Got the Paducah date later this year for 87 909.

We've assumed continued procurement of AB 799 into the stockpile as we kind of position that product from a development stage product to a license to state later this year early next year. So those are just some of the assumptions that we put into our guidance for those two threat category.

Yes.

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.

Alright, Thanks for taking my question I appreciate all the guidance and congrats on all the work done.

And maybe just following on from that first question.

High level can you just elaborate maybe on how you see the narcan OTC market evolving.

That 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, all that sort of steady state from here.

I know you haven't announced pricing yet.

On Narcan OTC, but how could the narcan OTC opportunity affect that gross margin going forward.

Yes, thanks, Brandon So I'll take the first.

<unk>.

A 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.

As it relates to kind of the general market dynamic.

Brendan when assuming the timing sticks with FDA approval.

At the end of March there'll be a bit of a transition period.

So we can complete our supply chain solution preparation and prepare for a launch as we've said in the maybe the summer timeframe to see product on shelves.

Clearly it gives us the opportunity to be.

<unk> back into and compete in the retail space, Brendan, which we lost significant market share as a result of the generic products coming in in December of 2021.

We've always been able to maintain a good healthy market share of the public interest market, even with the introduction of the generic products, we expect that to hold and the OTC setting. So I think OTC for Narcan means that we can.

Perhaps feel a bit more competitive or regain some competitive advantage in the retail space.

As well as hold onto the public interest market, where we've always had strong traction in relationships with those customers, but rich you want to comment on the 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 margins and services gross margins.

And we do anticipate that services gross margins, while we would expect some improvement this year.

We're going to remain lower than where we ultimately expect them to be so I do think over time. The services gross margins can be a positive influence on the blended gross margins.

As it relates to.

Product margins I think generally speaking, we expect there to be stability in product gross margins.

The Narcan experience will certainly weigh into that I think at this point.

We've made some assumptions about where we expect pricing to be and also other costs related to marketing or other costs associated with that with Narcan, we're not prepared to provide specificity on those assumptions at this point.

But it does reflect our current assumptions.

Thanks very much.

One more if I may just very high level.

Yes.

Bob you talked about the <unk>.

Sort of the long term guidance <unk> put out in 2019, but a lot has gone on this year.

Continued to narrow our focus.

We're through a lot but how.

How should we think about how different.

Yes.

Two to three years from now maybe especially the manufacturing footprint I know you don't.

Got it.

What are you envisioning in terms of how.

To take this focus.

Yes, Brian So really good question I think when you look back at <unk>.

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.

<unk> continued 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.

Going to continue to focus on the priorities that I mentioned in my prepared remarks, meaning.

Driving and improving profitability margin in 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 Varian Nordic as we said there are a couple of product initiatives rig.

Regarding securing the next.

Procurement contract for <unk>.

As well as executing on the Narcan nasal spray OTC switch later this year and then finally, completing this 87 909 transition.

During 2023, I think all of those will be really important.

In terms of kind of post 2023. Once these borrowers have landed I think we'll be in a better positioned brand into comment with more certainty about what the financial profile of the business looks like.

<unk> 2023, and kind of going into 2024, and 2025, but I think the.

Potential profitability and earnings profile of the business is not too dissimilar to what we saw in 2019, it's just that we're pivoting now coming out of the pandemic.

And it will be really important as rich described to operationalize. These investments that we've made in our manufacturing network and make sure that any underutilized facilities or more fully utilized going forward that alone will potentially improve gross margin and adjusted EBITDA going forward.

Alright. Thank you very much 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 <unk> with Cowen. Your line is open. Please go ahead.

Great. Thank you very much for taking my question.

Couple of questions here first on Narcan you.

You mentioned that you will be competitive in the retail space.

Approval later this year just curious what the generic pressure you're in the OTC space and also why haven't we seen significant generic pressure in the public interest market.

Yeah.

Yes, Boris thanks for joining the call so.

We'll see what happens and what develops.

When and if Narcan is approved to go OTC our belief is that.

The brand awareness.

And recognition and the brand value of Narcan is very strong.

<unk> had really positive.

Conversations with a number of the nationwide pharmacy retailers, they're anxious to get the product into their stores. So we think theres a real opportunity to compete for some of that retail space that we lost when the generics were actively introduced.

18, 15 to 18 months ago.

With respect to the public interest market I think there is strong.

Stickiness factor with Narcan.

Including.

And in part due to the fact that as you probably know that market had already had a fairly heavily discounted price per carton of about 40%. So the economics were a bit different already in the public interest market versus the retail space.

I guess secondly, we've had five or six year head start and establishing really strong relationships with a rather fragmented public interest market than.

That allows us to respond and to deliver on service commitments and a very meaningful way that has allowed us to kind of keep that customer base in tax. So I think it's the combination of those two for us and allowed us to be really competitive in the public interest market.

Got it and I just had a question on my last question on 70 909 can you just discuss how this trend.

And may occur. The reason I ask is 70 909 is only two doses for patients for <unk> three.

You anticipate either the government to buy more 70, 990, <unk> or maybe price it at significant premium on a per mile basis versus <unk>.

Is this too.

Two from three doses impact revenue going forward.

Yes, it's a really good question as we've talked about for us the transition.

That were I'll say in the fourth quarter of executing in that transition.

Started a number of years ago.

The U S government has been procuring and placing into the strategic national stockpile.

AB 799, all along the way the transition will include that as the product goes from basically <unk>.

The development stage product to an FDA licensed product that requires within the government a shift from BARDA to the strategic national stockpile in terms of who.

Manages the overall procurement in terms of the logistics of it as we've talked about the government's strategy all along for many many years has been to have enough anthrax vaccine and our country's strategic national stockpile to protect 25 million lives with bio attracts us.

As you correctly say, which is a three dose primary series that implied in inventory or a stockpile of 75 million doses.

<unk> <unk> seven nano nine given its two dose nature.

<unk> reduces the overall stockpile rolled climate down to roughly 50 million doses.

As far as we know the government is not.

Has not fully sourced either of the 75 or the 50 million dose level. So what we expect going forward as a in annual procurement level to get them to.

Get get to and maintain that.

That 25 million lives protected level for AVP 789 would be roughly 50 million doses.

Okay. Thanks.

Thanks for taking my question.

Sure.

Thank you and again if you have a question at this time. Please press star one on your telephone.

And our next question comes from the line of Christopher Ferris.

Hi, thank.

Thank you Laura Research. Your line is open. Please go ahead.

Hi, this is <unk>.

Yes.

Bob.

One thing about Narcan nasal spray doing strong you can share a little bit about the pricing strategy.

The potential cannibalization.

Thank you you are expecting this to be contributing revenues.

The second half of the year.

Yes, Chris Thanks for joining the call. Thanks for the question. So as we've talked about our focus right now.

Coming out of the AD comm meeting with the FDA and given the <unk> 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.

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 launched the product in the summer there'll be a bit of a transition period, where you will likely see both the prescription branded product narcan as well as the OTC distributed branded product in the market for a very short period of time and then when that's over.

It will be the OTC version of Narcan.

And distributions. 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 re enter a reestablished narcan in.

In the retail space, where it was.

<unk> out because of the generics, while continuing to maintain a pretty healthy competitive position in the public interest market.

And in terms of the channel.

You will be focusing on that depends on the Lobo.

Our backlog a little bit.

Planned at this point.

So we're in active discussions with a number of the.

The nationwide pharmacy changed about distributing narcan.

In the in the retail space as well as continuing to support.

The public interest market so.

My comment around the label Chris was really.

One of the areas.

Continued interest by the FDA.

Is on the label and the packaging for Narcan in the OTC setting.

Got good feedback coming out of the AD comm meeting with regard to that so we'd like to finalize that soon so we can finalize our supply chain solutions for planning for a launch in the summer.

Let's close with some comments.

Based on your discussions.

Paul.

Ball investcorp.

I would like to.

Rob.

And part of the whole of the counter.

Maybe not immediately but long term.

I think thats, our expectation of what will happen, Chris, but I'm not going to speculate on.

What actions or preferences.

The FDA would like but that's that's our expectation is it will be OTC only after some transition period later this year.

Okay on the <unk>.

<unk> holds for next fall.

Give us some color.

Given that all of our financials.

I disclosed.

Bob <unk>.

We'll see.

That's all.

Last month.

So as we included in our press release, when we announced.

The signing of the transaction.

The total consideration that's been agreed with the other party is $380 million of value Chris.

270 of which is upfront.

Upfront payment with another 110.

Being potentially in the form of either development based milestones for the chikungunya product.

As it goes through its development stages.

As well as <unk>.

Some milestone payments based on future sales of both the <unk> and the vivo <unk> product. So $2 70 upfront plus another 110 potentially in development and sales based milestones down the road.

I'm, sorry, and then alright and evaluation metrics you can provide.

I'll now and sales cycles are.

Any color.

Yes.

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 Varian Nordic represents fair value.

But more importantly, it's I think the very Nordic is a great partner to transition. These assets too 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 some extent you can provide us a little bit more color on going.

Going from like cleaning.

Another 6 million revenues fourth quarter to around 130% to $1 50.

If you can kind of provide a little bit more color.

What are the pushes on pulse.

That would be helpful.

Yes, 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.

60 plus percent in the second half. So this is not.

Out of the ordinary for us and it's really the the nature of our deliveries for the medical countermeasure products that we have under contract with the U S government and our French if you want to add anything to that.

I think thats right, it's really just.

Inherently lumpy nature to those deliveries and it's very common that the fourth quarter ends up being our strongest quarter of the year in the first quarter being our.

Being being sequentially lower and that's that's a similar trend we're expecting this year.

Perfect. Thank you.

Hi.

Thank you and one moment for our next question.

We have a follow up question from the line of Boris <unk> with Cowen. Your line is open. Please go ahead.

Oh, thanks for taking a follow up.

I guess one question that is in the minds of a lot of investors in terms of your debt maturity can you talk about maybe the timeline or what we should be expecting in terms of your strategy or communication with the debtors.

In terms of this process.

Sure. Thanks, Rich you want to take that one sure yeah as I commented in my remarks, we are engaged in an active dialogue with our lender group on extending the maturity of the credit facility the October maturity.

I think I pointed to the the consent to the travel health sale and the waiver that they provided is evidenced that theyre being constructive in those conversations.

We're certainly working towards the timeline to get this done as quickly as possible and we will keep you posted when we have more specific information to provide.

Great. Thanks, Chris.

And then another 2000 do you have a timeframe of when we should hear about a new contract and also for new contract is awarded should we expect to just cover 23 and to be kind of a run rate historically as we've seen or should we see expect a bolus of catch up for 'twenty, two and 'twenty three.

Great question.

Our immediate interest is insuring and finalizing that 2023 procurement.

A decision by the U S government.

At the same time, we're actively in discussions with them about their longer term plans for continuing to procure canvas part of the strategic national stockpile requirement. 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.

To be finalized over to result in a procurement.

The commitment of our contract with the government.

Thanks for taking my follow up question.

Okay.

Glad to thanks.

Thank you and again, if you would like to ask a question. Please press star one on your telephone.

Showing no further questions I would like to hand, the conference back over to Bob Burrows for any further remarks.

Thank you, Michelle and with that ladies and gentlemen, we now conclude the call. Thank you for your participation. Please note an archived version of today's webcast as well as a PDF version of the slides used during todays 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 you in the future have a good night.

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

Thanks Michelle.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Good day, and thank you for standing by welcome to the emergent bio solutions fourth quarter and full year 2022 financial results Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star one again.

Please be advised 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 and thank you for joining us today as we discuss the operational and financial results for fourth quarter of 2022 as well as full year 2022.

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 addition to today's press release, there is a series of slides accompanying this webcast available to all webcast participants.

You 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 <unk> 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.

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

Finally for the benefit of those who may be listening to the replay of the webcast. This call was held and recorded on February 27, 2020 through 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 are summary of my remarks begins on page six.

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.

At a rate more consistent with pre COVID-19 trends and rich will walk through those numbers with you in a minute.

By the end of this year, we'll 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.

Yes.

This focus also includes making life saving treatments like narcan nasal spray more accessible to patients who need them.

Also earlier this month, we announced an agreement to sell our travel health business, two Bavarian Nordic, which accomplishes two goals. It will help ensure that vacs Cora in vivo T remain available to international travelers and other patients who need them.

And upon close it will generate approximately $270 million in cash and includes the potential for another $110 million in sales based in development based milestones.

Also on February 15th we successfully presented our rationale for making narcan available over the counter to an FDA Joint Advisory Committee and I'll touch upon that more in a minute.

Third, we're making capital structure and expenditure decisions to build enterprise value for the benefit of both stakeholders and creditors. For example in January we announced organizational changes and other cost reduction initiatives expected to result in annualized savings of <unk>.

Over $60 million when fully implemented.

And finally as rich will discuss we are managing our balance sheet to restructure and extend our debt obligations.

<unk> in late 2023 as.

As mentioned previously we announced a $380 million procurement contract to supply RSD L kits.

For use by all branches of the U S. Military we expect deliveries to be consistent with previous years, but this new contract does account for surge capacity shed the department of defense require additional supplies.

We will reach agreement with the U S government emboldened by comments from the assistant Secretary of preparedness and response before the Senate Health Committee last September , stating that <unk> remains and I quote the first line of defense to Vaccinate Americans in the event of an accident.

That will or intentional release of smallpox and quote.

We're also pleased with the progress toward making narcan nasal spray available over the counter.

Since announcing the Fda's priority review of our application and last December we continue working closely with the agency leading up to the expected approval by March 29th of this year.

We're encouraged by the unanimous vote of the FDA Advisory Committee on February 15th in support of over the counter and Narcan.

And assuming the timeline remains the same we anticipate narcan appearing on shelves by the end of the summer.

And affordable manner.

As we've said before executing on these strategic investments will take time to complete.

$1 2 billion and our adjusted EBITDA range of between 75 and $125 million and our adjusted gross margin performance of between 41% and 44% reflects the impacts of these actions in the short term.

As we look ahead to the rest of 2023, the management team and I are executing against the following priorities.

First improving overall profitability by focusing on our both our core products and existing services businesses.

Secondly, successfully closing on the sale of the travel health business that we announced earlier this year.

Next completing the transition of 87 909 from development to procurement and close partnership with the U S government.

Fourth gaining FDA approval for over the counter Narcan and launching that product later this year.

Next further delivering and strengthening on our quality and compliance culture and systems and finally, working with our creditors to restructure and extend our debt obligations.

Again, thank you for attending and participating on the call today and I'll now turn it over to rich.

Thank you Bob and good afternoon, everyone. We appreciate you joining the call I'll start on slide nine and begin my remarks by reinforcing the financial implications of sharpening our strategic focus and maximizing stakeholder outcomes as Bob has described for you today.

First we are committed to sustaining revenue growth and improving profitability.

We plan to leverage our capabilities in medical countermeasures, and Narcan nasal spray and develop the potential of our <unk> services business with a combined effect to establish a platform for solid future growth.

Our 2023 guidance reflects our expectations for solid progress in a multi year journey towards these objectives.

Second we are addressing near term challenges to our credit profile.

<unk> 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.

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 continued to be mixed in the fourth quarter.

On the positive side total revenues were in line with our guidance as the products segment continued to deliver solid contributions, including narcan nasal spray to backstop and other products.

These outcomes, partially offset the disappointing circumstances related to ATM 2000, which did not contribute any revenue in the period.

Similarly, the services segment was once again, a modest top line contributor as we continue to make steady progress in stabilizing and incrementally improving the performance of the <unk> services business across our core sites at Winnipeg, Camden, Rockville and baby.

Climb versus the prior year with net loss of $88 million adjusted net loss of $15 million and adjusted EBITDA of positive $34 million.

Notable revenue elements in the quarter include anthrax vaccine sales of $51 million lower than the prior year due to timing of deliveries of 87 909 to the U S government strategic national stockpile.

Nasal naloxone product sales of $91 million lower than the prior year, but demonstrating the continuing rollout narcan in addressing the ongoing opioid epidemic, especially in the U S public interest segment.

Other product sales were $46 million slightly lower year over year, but demonstrating the impact of our other MCM products and.

And combined <unk> service and lease revenues were $18 million significantly lower than the prior year as we continue to support existing customers and re baseline the business. Following our COVID-19 response.

Note that cost of product sales includes $51 million of inventory step up related to the <unk> acquisition that has been adjusted out of our non-GAAP metrics.

Cost of <unk> was $52 million significantly lower than the prior year due to reduced production across the CMO network, partially offset by higher cost of the Camden site, resulting from additional investments in quality enhancement and improvement.

R&D expense of $58 million lower than the prior year, reflecting a noncash write off in 2021 of a contract asset balance, resulting from the termination of the CIA IDM contract with the U S government.

This reduction was partially offset by higher costs associated with the <unk> phase III trials.

SG&A spend of $94 million in line with the prior year.

With that let's move to slide 13, and review segment performance during the quarter.

In the product segment revenues were $306 million a decrease from the prior year as strong performance from the Anthrax franchise, Narcan and <unk> were offset by lower ATM 2000 sales and adjusted gross margin was $190 million or 62% both decreases over the prior year, reflecting lower sales volume.

And a less favorable product mix.

As for the services segment revenues were $80 million a significant decrease from the prior year and adjusted gross margin was negative $34 million a.

The decrease versus.

Versus the prior year, driven primarily by lower lease revenues as compared to 2021.

Next I will share key results related to the full year period, which are shown on slides 14 and 15.

Total revenues were $1 1 billion lower than the prior year, but in line with our previous guidance while.

As to profitability, we reported adjusted net loss of $112 million and adjusted EBITDA of $26 million, both substantially lower than the prior year.

Lastly, gross margin of 36% and adjusted gross margin of 41% were both lower year over year, reflecting the impact of less favorable product mix combined with negative services gross margins.

On slide six.

We present the segment performance for the full year periods.

In the products segment revenues were $966 million slightly lower from the prior year and adjusted gross margin was $596 million were 62% both slight decreases over the prior year, reflecting lower sales volume and less favorable product mix.

As for the services segment revenues were $113 million a significant decrease from the prior year, primarily due to reduced production at Camden and the cessation of operations at Beijing as we continued to reposition the site to initially support select internal products and.

And adjusted gross margin was negative $156 million a.

<unk> decreased versus the prior year due principally to declining revenues related to the COVID-19 response, coupled with incremental costs associated with the Camden facility remediation efforts and investments in quality and compliance across our manufacturing network.

As of 12, 31, 22, our net debt position was $771 million.

Please turn to slides 18, and 19 for a review of our 2023 forecast and associated assumptions.

You will note that we are now guiding to sales by threat area instead of by individual product and therefore have introduced two new groupings.

Anthrax medical countermeasures or MCM, which comprises 87 909 final fracs and for sale and Raxibacumab.

In smallpox medical countermeasures, which includes <unk> 2000, <unk> and <unk>.

And the financial forecast section of our press release for comparison, you will see the 2020 to actual revenue for each grouping next to the 2023 forecast.

For the full year 2023, we are guiding to the following total revenues of one 1% to $1 2 billion.

Anthrax MCM sales of $260 million to $280 million.

Narcan nasal spray sales of $290 to $310 million, taking into account our assumptions regarding impact of over the counter narcan across all customer channels.

Smallpox MCM sales of 235 million to $255 million.

Other product sales of $165 million to $185 million.

<unk> services revenues of $115 million to $135 million.

Adjusted net loss of $30 million to $80 million.

Adjusted EBITDA for $75 million to $125 million and adjusted gross margin of 41% to 44%.

This full year 2023 forecast reflects the following key considerations it.

It excludes the potential impact of the sale of our travel health business, we will update our guidance accordingly, after the transaction closes which is anticipated in the second quarter.

It assumes the over the counter launch of Narcan by the end of the summer with continued strong demand in the U S public interest channel as well as continuing demand in Canada.

Continued procurement and delivery of anthrax smallpox and other medical countermeasure products to the U S and allied governments.

And continued rebase lining of the CD amongst services business overall, and the impact of reduced production output from the Camden facility.

To conclude please turn to slide 20 for some summary comments our.

We are committed to sustaining revenue growth and improving profitability and.

And we are addressing near term challenges to our credit profile.

Finally, as always we remain confident in the impact we're having on patients and customers focused on health security and pandemic preparedness.

That completes my prepared remarks, and I'll now turn the call over to the operator, so that we can start the question and answer session operator.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Jessica Fye with JP Morgan. Your line is open. Please go ahead.

Hi, This is Nick on for Jeff. Thanks for taking our questions. Two for me first one is for your 2023 Narcan guidance can you just help quantify how much of that 290 $310 million revenue range is associated with potential OTC is.

Yes, Nick.

Thank you mentioned 2022 guidance I think you probably mentioned.

2023.

Yes.

Problem so.

Rich.

<unk> indicated in his script and prepared remarks.

We are assuming that FDA grants approval for OTC treatment of Narcan and.

We will be launching this product into the LC OTC market in in the summer so it's.

It's really difficult to break out.

How much of the revenue guidance.

$290 to 310 is attributable to OTC market versus continuing in the prescription market. So again, we can tell you our assumptions and again, it's kind of based on the timing of when that product will likely be launched.

The other 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 thats factored into that guidance.

Yes, that's right rich.

Great. Thank you and just a quick follow up.

For the Anthrax and smallpox guide includes the potential contributions.

But the same potential quantify is not there for the other products such as <unk> CEO .

Have you heard any have you heard commitments from the U S government on taking into 2023 options today for <unk> 2000.

Alright. Thanks.

Yes, so let's start with.

The smallpox threat category and specifically on ATM I think as I remarked in my comments, Nick we continue to be in active dialogue with HHS around the next procurement of <unk> 2000.

So we've actually.

Factor that into the guidance that we've given around the smallpox threat category and as rich indicated we've pivoted to more of a threat based guidance format as opposed to an individual product.

As it relates to anthrax.

Vaccines.

Clearly we're in the.

Nearing the end of the transition in terms of almost a five and a half year development slash procurement.

Our relationship with the U S government BARDA in particular.

We've got the Paducah date later this year for AVP 700, 909, we've assumed continued procurement of AB 799 into the stockpile as we kind of position that product from a development stage product to a license to state later this year early next year.

So those are just some of the assumptions that we put into our guidance for those two threat categories.

Great. Thanks, so much.

Sure. Thank you and one moment for our next question.

Our next question comes from the line of Brandon Folkes with Cantor. Your line is open. Please go ahead.

Alright, Thanks for taking my question.

All the guidance and congrats on clinic or the work done.

And 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.

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 yet.

<unk> knockdown OTC, but how could the narcan OTC opportunity affect that gross margin going forward.

Yes, thanks, Brandon So I'll take the first.

A question and then ask rich to comment on the gross margin guidance and potential impact throughout the year as we potentially.

To narcan being distributed OTC, So I think as it relates to kind of the general market dynamic.

Brendan when assuming the timing sticks with FDA approval.

At the end of March there'll be a bit of a transition period.

So we can complete our supply chain solution preparation and prepare for a launch as we've said in the maybe the summer timeframe to see product on shelves.

Clearly it gives us the opportunity to be.

<unk> back into and compete in the retail space, Brendan, which we lost significant market share as a result of the generic products coming in in December of 2021, we've always been able to maintain a good healthy market share of the public interest market even.

With the introduction of the generic products, we expect that to hold and 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 onto the public interest market, where we've always had strong attraction in relationships with those customers, but rich you want to comment on the 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 margins and services gross margins.

And we do anticipate that services gross margins, while we would expect some improvement this year.

We're 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.

But it does reflect our current assumptions.

Thanks, very much and one more if I may just very high level.

Yes.

Bob you talked about the <unk>.

Sort of the long term guidance the last put out in 2019, but a lot has gone on this year.

Continue to narrow our focus.

We're through a lot but.

How should we think about how different.

<unk> looks in two to three years from now maybe especially the manufacturing footprint I know you don't.

Got it.

What are you envisioning in terms of how.

Zero to take this focus.

Yes, Brian So 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.

<unk> continued to contribute.

On a revenue basis to us.

Gaining leadership positions in key niche markets of this public health threat space that we continue to operate in I think for the next couple of years, we're going to continue to focus on the priorities that I mentioned in my prepared remarks, meaning.

Driving and improving profitability margin in 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 two Bavarian Nordic as we said there are a couple of product initiatives rigs.

Regarding securing the next.

Procurement contract for <unk>.

As well as executing on the Narcan nasal spray OTC switch later this year and then finally, completing this 80 799 transition.

During 2023, all of those will be really important.

In terms of kind of post 2023. Once these balls have landed I think we'll be in a better position branded 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.

The potential profitability and earnings profile of the business is not too dissimilar to what we saw in 2019, it's just that we're pivoting now coming out of the pandemic.

It will be really important as rich described to operationalize. These investments that we've made in our manufacturing network and make sure that any underutilized facilities or more fully utilized going forward that alone will potentially improve gross margin and adjusted EBITDA going forward.

Alright. Thank you very much I appreciate you taking all my questions.

Sure.

Thank you.

Our next question.

Our next question comes from the line of Boris <unk> with Cowen. Your line is open. Please go ahead.

Great. Thank you very much for taking my question.

Couple of questions here first on Narcan.

You mentioned that you will be competitive in the retail space.

Hoping approval later this year I'm, just curious why along with the generic pressure you're in the OTC space and also why haven't we seen significant generic pressure in the public interest market.

Yes.

Yes, Boris thanks for joining the call so.

We'll see what happens and what develops.

When and if Narcan is approved to go OTC our belief is that.

The brand awareness.

Recognition and the brand value of Narcan is very strong we've.

We've had really positive comp.

Conversations with a number of the nationwide pharmacy retailers that are anxious to get the product into their stores.

We think theres, a real opportunity to compete for some of that retail space that we lost when the generics were actively introduced.

18, 15 to 18 months ago.

With respect to the public interest market I think there is strong.

Stickiness factor with Narcan.

Including.

I guess secondly, we've had five or six year head start and establishing really strong relationships with a rather fragmented public interest market than.

And that allows us to respond and to deliver on service.

<unk> in a very meaningful way that has allowed us to kind of keep that customer base in tax. So I think it's the combination of those two for us and allowed us to be really competitive in the public interest market.

Got it and I think that question on my last question on 70 909 can you just discuss how this transition may occur.

If 70 909 is only two doses for patients with <unk> three so I mean do you anticipate either the government to buy more 70, 990, <unk> or maybe price it at significant premium on a per mile basis versus biofact. So how does this too.

Two from three doses impact revenue going forward.

Yes.

Really good question as we've talked about the transition.

That were I'll say in the fourth quarter of the executing in that transition.

Started a number of years ago. The U S government has been procuring and placing into the strategic national stockpile.

799, all along the way the transition will include that as the product goes from basically <unk>.

The development stage product to an FDA licensed product that requires within the government a shift from BARDA to the strategic national stockpile in terms of who manages the overall procurement in terms of the logistics of it as we've talked about the government's strategy all along for many many years has been.

To have enough anthrax vaccine and our country's strategic national stockpile to protect $25 million wise with <unk> as you correctly say, which is a three dose primary series that imply the inventory or a stockpile of 75 million doses.

For AVP seven nano nine, giving us two dose nature that reduces the overall stockpile rolled comment down to roughly 50 million doses.

As far as we know the government is not.

Has not fully sourced.

Neither of the 75 or the 50 million dose level. So what we expect going forward as a in annual procurement level to get them to.

Get get to and maintain that.

That 25 million lives protected level for AB 799 would be roughly 50 million doses.

Okay.

Thanks for taking my question.

Sure.

Thank you and again if you have a question at this time. Please press star one on your telephone.

And our next question comes from the line of Christopher Ferris.

Hi, with.

Thank you Lord Research. Your line is open. Please go ahead.

Hi, This is assumed close.

Bob.

I was wondering about narcan nasal spray doing strong you can share a little bit about the pricing strategy.

Potential cannibalization.

But you are expecting this to be contributing revenues.

Second half of the year.

Yes, Chris Thanks for joining the call. Thanks for the question. So as we've talked about our focus right now.

Coming out of the AD comm meeting with the FDA and given the <unk> 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.

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.

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 re enter a reestablished narcan in.

In the retail space, where it was.

Edged out because of the generics, while continuing to maintain a pretty healthy competitive position in the public interest market.

And in terms of the channel.

You will be focusing on that depends on the Lobo little gap our backlog.

A little bit.

And our plan at this point.

So we're in active discussions with a number of the the nationwide pharmacy changed about distributing narcan.

In the retail space as well as continuing to support.

The public interest market so.

My comment around the label Chris was really.

One of the areas.

Continued interest by the FDA.

Is on the label and the packaging for Narcan in the OTC setting.

Got good feedback coming out of the AD comm meeting with regard to that so we'd like to finalize that soon so we can finalize our supply chain solutions for planning for a launch in the summer.

Well, let's start with some comments.

Both of those questions.

Paul.

Ball infested.

<unk> would like to.

Both product and quality over the counter.

Maybe not immediately but long term.

I think thats, our expectation of what will happen, Chris, but I'm not going to speculate on.

What actions or preferences.

The FDA would like but that's that's our expectation is it will be OTC only after some transition period later this year.

Okay.

<unk>.

Give us some color.

Given that all of our financials will now disclose.

Bob <unk>.

You'll receive.

On that sale.

Last month.

So as we included in our press release, when we announced.

The signing of the transaction.

The total consideration that's been agreed with the other party is $380 million of value Chris.

270 of which is upfront.

Front payment with another 110.

Being potentially in the form of either development based milestones for the chikungunya product.

As it goes through its development stages.

Well as <unk>.

Some milestone payments based on future sales of both <unk> and <unk> product, so $2 70 upfront plus another 110 potentially in development and sales based milestones down the road.

I'm sorry.

Alright, and evaluation metrics you can provide.

All in sales cycle.

<unk>.

Any color.

Yes.

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, I think the Varian Nordic is a great partner to transition these assets too they are committed to this space they have.

Experienced in other products in this space and will serve well the very patients and customers who need these products going forward.

Okay and finally the next thank you can provide us a little bit more color on.

Going from like cleaning.

<unk>, another 6 million revenues fourth quarter, two at around 130% to $1 50.

If you can kind of provide a little bit more color.

You know what.

The pushes and pulls.

That would be helpful.

Yes, 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.

60 plus percent in the second half. So this is not a.

Out of the ordinary for us and Thats really the.

The nature of our deliveries for the medical countermeasure products that we have under contract with the U S government and our French if you want to add anything to that.

I think thats right, it's really just.

And inherently lumpy nature of those deliveries and it's very common that the fourth quarter ends up being our strongest quarter of the year in the first quarter being our.

Being being sequentially lower and that's that's a similar trend we're expecting this year.

Perfect. Thank you.

Hi.

Thank you and one moment for our next question.

We have a follow up question from the line of Boris <unk> with Cowen. Your line is open. Please go ahead.

Oh, thanks for taking a follow up.

In terms of this process.

Sure Bob Thanks, Rich you want to take that one sure yeah. As I commented in my remarks, we are engaged in an active dialogue with our lender group on extending the maturity of the credit facility the October maturity.

I think I pointed to the the consent to the travel health sale and the waiver that they provided is evidence that they are being constructive and those conversations we're certainly working towards the timeline to get this done as quickly as possible and we will keep you posted when we have more specific information to provide.

Great. Thanks.

And then another 2000 do you have a timeframe of when we should hear about a new contract and also for new contract is awarded should we expect it to just cover 23 and to be kind of a run rate historically as we're seeing or should we see expect a bolus of catch up for 'twenty, two and 'twenty three.

<unk> great question.

No.

Sure.

Interest is insuring and finalizing that 2023 procurement.

A 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 canvas part of the strategic national stockpile requirement. 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.

<unk> finalized over to result in a procurement.

Commitment of our contract with the government.

Thanks for taking my follow up question.

Yes.

Glad to thanks.

Thank you and again, if you would like to ask a question. Please press star one on your telephone.

Showing no further questions I would like to hand, the conference back over to Bob Burrows for any further remarks.

Will be made available later today and accessible through the investors landing page on the Companys website.

Thank you again, and we look forward to speaking with all you view in the future have a good night.

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

Q4 2022 Emergent BioSolutions Inc Earnings Call

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