Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Emergent BioSolutions Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised, today’s conference call maybe recorded. [Operator Instructions]. I would now like to hand the conference over to the company for opening remarks.

Thank you, Valerie, and good afternoon, everyone. My name is Bob Burrows. I'm Vice President of Investor Relations for Emergent, and thank you for joining us today as we discuss the operational and financial results for the first quarter of 2020. As is customary, today's call is open to all participants, and in addition, the call is being recorded and is copyrighted by Emergent BioSolutions. The agenda for today's call will be a slight modification to our normal approach. Participating on the call with prepared comments will be Bob Kramer, President and Chief Executive Officer, and Rich Lindahl, Chief Financial Officer. However, in acknowledgement to recent announcements from the company, in between Bob and Rich will be my colleagues, Syed Husain, Senior Vice President and Head of our CDMO Business Unit, and Dr. Laura Saward, Senior Vice President and Head of our Therapeutics Business Unit. Both will be providing comments on our response to the COVID-19 pandemic. Other members of the senior team are present and available during the Q&A session following our prepared comments. In addition, I will point out that there is a slide deck accompanying today's call. These slides are intended as a supplement to the prepared comments and include additional information pertinent to the topics discussed today. The slides are accessible from the Investors landing page of our website under the header Company Events. Before beginning, during today's call, either on our prepared comments or the Q&A session, management may make projections and other forward-looking statements related to our business, future events, our prospects, or future performance. These forward-looking statements are based on our current intentions, beliefs, and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties…

Thanks, Bob, and good afternoon, everyone. Thank you for joining the call today. Let me start by sending our thoughts and prayers to everyone impacted by the current COVID-19 pandemic, and by expressing a huge thank you to all those on the front line of this fight: The first responders, doctors, nurses, and medical staff who are taking care of the thousands of patients battling this disease. And especially, thanks to our employees, who continue to make sure that we deliver on our commitments to public health during this global emergency. But before I discuss our views going forward, I want to take a moment and share how excited I am about the recent addition of Dr. Karen Smith as our newly appointed chief medical officer. Karen's primary responsibility will be to lead Emergent's clinical development, medical affairs, and regulatory affairs functions, and we very much look forward to her contributions. Now turning to recent developments and our outlook. When we reported our fourth quarter results in late February, we discussed our goals for 2020 and noted the strong momentum we had coming into the year. As part of that discussion, we highlighted our expertise in vaccines, therapeutics, and in contract development and manufacturing. We stated that our strategy includes expanding our leadership position in current and new public health threat markets and continuing to make investments in capabilities, innovation, and operational excellence. As we will discuss in more detail in a few minutes, our company achieved strong results during the first quarter, and that trend continues into Q2. Our team remains focused on execution, and our core business remains strong, with the majority of our business units and product lines performing at or above our expectations. At the time, the emerging threat of the novel coronavirus was just beginning…

Thank you, Bob. I would also like to thank everyone for joining the call today. It is a great honor and privilege to provide an update with respect to our CDMO business. I would like to turn your attention to the CDMO overview slide in our presentation supplement. At our last Analyst and Investor Day, I shared the vision for the CDMO business to be the leader in molecule-to-market biologic services in three distinct areas in the development and manufacturing continuum, namely across development services, drug substance manufacturing, and drug product manufacturing. Emergent's state-of-the-art infrastructure, proven track record, and expertise in development and manufacturing, as well as commercialization of solutions that address public health threats, provide the foundation for a differentiated CDMO that allows us the ability to work with five technology platforms and deploy our network of nine development and manufacturing sites. We leverage these strengths to pave the way for fellow innovators to progress their clinical candidates to benefit patients. We have been, and continue to be, built for this. Through this foundational experience, Emergent has been able to rapidly respond and deploy capability, capacity, and expertise in response to the COVID-19 pandemic. On the next slide, let's review the recent CDMO COVID-19 partnerships that we have formed, first, Novavax. We secured an agreement to provide molecules and market services across development services, drug substance, and drug product manufacturing to support their clinical trial needs, which they anticipate to commence Phase 1 in May of 2020. Next, Vaxart. We secured an agreement to provide development services and drug substance manufacturing to support their clinical trial needs, which they anticipate to commence Phase I in the second half of 2020. And finally, Johnson & Johnson. We secured an agreement, valued at approximately $135 million, to provide drug substance manufacturing…

Thank you, Syed. As Bob outlined, we are focused on having a meaningful impact on the COVID outbreak and to reducing that overall burden on the healthcare systems by focusing on the rapid development of treatments. And to meet this need, and most important, to go fast and provide a treatment that can be used in patients, we look to leverage our proven manufacturing technologies and infrastructure for plasma-derived hyperimmune. So this foundational capability was outlined in our Analyst and Investor Day in November, is based on four decades of experience, and supports six existing FDA-licensed products. So, these hyperimmune platforms can be leveraged to expedite development of new COVID treatments, such as Emergent's human hyperimmune COVID-HIG, which has the aggressive target of starting clinical trials in patients by the end of the summer. As you can see on the slides that we've prepared, giving a pictorial representation, hyperimmune treatments are made from the antibodies from individuals who have recovered from exposure to a pathogen, like the novel coronavirus that causes COVID-19. Individuals that have fully recovered from COVID can have protective antibodies, and these antibodies can be isolated from the blood in the plasma fractions. Now, these specific antibodies combine to the virus to neutralize and clear it. To help patients recover more quickly and reduce the severity of the disease by binding at multiple parts of the virus, rather than a single isotope, the hyperimmune treatment is less impacted by strain variability or the emergence of resistance. To produce a well and licensable treatment, hyperimmunes can be made using the COVID antibodies that are pooled from multiple donors, then purified and concentrated through a validated manufacturing process, with additional steps to add safety to the product. The final product, then, is a concentrated dose with consistent amounts of…

Thanks, Laura. Good afternoon, everyone, and thank you for joining the call. Before I begin, let me reiterate the sentiments expressed earlier by Bob. These are extraordinary times, and all of us at Emergent BioSolutions are pulling together to maintain our existing commitments, while also embracing our role as a key contributor to the global response to the public health threat posed by COVID-19. To summarize our results from a financial perspective, our first quarter performance was solid overall, and consistent with the expectations we shared in February. The largest contributors to revenue were our NARCAN Nasal Spray and anthrax vaccines. We saw improved year-over-year profitability at the gross margin level, as well as increased levels of adjusted EBITDA and adjusted net income, and we exited the quarter in a very solid liquidity position. We also reaffirmed our full-year guidance, which considers a range of risks and opportunities to 2020 performance. As in any year, certain parts of our business are facing challenges, even while others are seeing new avenues of growth. Of course, the COVID-19 situation is unlike any in recent memory, and none of us knows exactly where this crisis is going, from either a public health or economic perspective. Nevertheless, we believe the overall demand for our solutions remains strong in this environment. We will continue monitoring the situation and evaluate appropriate actions as new facts emerge. But as we see the world today, we are feeling responsibly confident in our ability to sustain momentum in this uncertain environment. With that, let's dive a little deeper into the numbers. Our results for the quarter reflect the diversity, durability, and expanding nature of our business model, centered on specialty products and services addressing global public health threats. Key highlights of the quarter include total revenues of $193 million,…

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

Firstly, can you talk about the current capacity you have in your CDMO business, where you are in terms of the utilization currently, and how is that utilization in terms of your 2024 goals? And secondly, can you just elaborate a bit more on the visibility you have into delivery into the strategic national stockpile? Within the current situation we're in right now, are they accepting deliveries? Is it business as normal, or do you assume a change, maybe an opening up of the environment within your guidance for the strategic SNS delivery? Thank you.

Thanks, Brandon, for the question, and thanks for joining the call. I'll take the second question, and then I'm going to ask Syed to talk a little bit about the capacity that we have in our CDMO network. So first of all, on the SNS deliveries, we don't see any change or interruption, if you will. It's pretty much business as usual in terms of scheduled shipments and our execution against outstanding and current contracts that we have for the various medical countermeasures that we have under contract. So we don't see, again, any interruption in that, hence our comfort, as Rich described, with both the overall revenue guidance that we provided, as well as the categories of the different products. So, Syed, you want to weigh in on the CDMO capacity?

Absolutely. Thank you for the question. So, our capacities, capabilities, and expertise as a part of our CDMO business offering is predicated on being able to serve a broad and diversified customer and project base. We continue to evaluate, onboard, and execute multiple projects across our entire offering. We are actively in discussion on multiple additional opportunities across our service offering. What's important to note is that the agreements that we've referenced within this call occupy appropriate portions of our capacity, based on their scope and timing. I referenced Novavax and Vaxart, our agreements to provide clinical supply material in 2020, and J&J is to enable large-scale manufacturing in 2021. Our drug substance site in Baltimore, as an example, is designed with four independent suites to support rapid clinical material as well as large-scale manufacturing. Additionally, we have a $50 million capital expansion at our Baltimore Camden drug product facility.

Thank you. Our next question comes from Jacob Hughes from Wells Fargo. Your line is open.

Congrats on the partnership with J&J. I just had a question on the $135 million value. You know, is there how are you getting there, and is there any incremental details you can provide on that, as well as the long-term commercial agreement? And then, secondly, just on NARCAN, I mean, I appreciate your comments on the short-term reductions in demand. Can you quantify that and then frame that within the puts and takes to your full-year guidance?

Sure, Jacob, thanks. So on the J&J agreement, the $135 million, you know, I think Syed summarized it well in terms of the $135 million essentially is an enabling investment for us to get to large-scale readiness for their product and to have a validated manufacturing process in place to potentially manufacture a product for them. That second piece, as Syed described, will be part of a separate negotiation that's ongoing now in terms of the overall supply agreement for their product. On the NARCAN Nasal Spray, you know, I think again, just as a reminder, even though we see a bit of softness on the retail side of things, that's being pretty much offset by continued strength on the public interest market, such that our expectations, again, are to continue in that range of $285 million to $315 million in terms of total revenue for the year.

And, Bob, I might just chip in that we do expect it's likely there will be a sequential decline in NARCAN for the second quarter, but it won't be material. But we do expect that to be made up, more than made up, by second-half performance.

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

I'd just love to get your perspective on maybe just a bigger-picture question and I realize things are changing so rapidly, but just, you know, how do you think the COVID-19 pandemic will just shape kind of the government response and level of preparedness going forward, whether from a, you know, stockpiling or supply chain-related perspective? And maybe if you can comment on that just internationally as well, if you're seeing any changes on that front? Thank you.

So on the broader question of the COVID-19 challenges and the government response, I mean, clearly, the work that we've been doing for now over 20 years I think is reinforcing of the fact that preparedness and response is critically important. I mean, the work that we've done for years and years and years, in partnership with the government, is critical. You hear a lot of talk about the importance today about public-private partnerships and all the good work that industry is doing, again, whether it's in the testing area or the medical supply area or PPE area. And now, with many, many companies getting into the vaccine and therapeutic development space, I mean, I think that's all a testament to the fact that the U.S. government has been on this for quite some time. And we are obviously proud to be in a position of being able to help any way we can, whether it's directly with the therapeutic products that Laura went through, or through the good work that Syed and his team are doing on the CDMO front, to be able to lend our experience and capabilities and infrastructure to help other innovators and other partners do the work, I think that's great. So, I think there will be clearly some kind of postmortem done when this whole COVID-19 issue gets to the other side about what we can do differently, what we can do better as a country. But I think it will be all around and supportive of this public-private partnership around preparedness and response.

Our next question comes from Keay Nakae from Chardan. Your line is open.

A question about your hyperimmune product: great that you're able to go directly into Phase 2. Since you're working with NIAID, can we expect that this will be a randomized clinical study, given that the outcome you're hoping for is to be able to get EUA? Thanks.

Laura, do you want to weigh in on the on some comments on what the clinical trial looks like?

Sure, absolutely. So the clinical trials that are sort of at the protocol stage right now and about to get started are going to be random controlled clinical trials, and certainly, the data coming out of those are anticipated to support the applications for emergency use authorization.

Okay, and then, since you'll be treating hospitalized patients initially, what do you need to do to make the leap to be able to provide it to healthcare providers who are at greater risk?

Sure, I'll answer that question, Bob, if that's fine.

Yes, please.

Okay. So I think initially, we're very focused on trying to reduce that impact of the people already infected with COVID, and certainly looking at the sever hospitalized as being one of the greatest needs. But as well, the people who are early in their COVID infections that haven't yet been hospitalized, or early in their hospitalization but at high risk of the severe impact of the disease, so both of those, we feel, will really reduce the overall burden on the healthcare system. In parallel, though and we're in discussions with a number of clinical sites on the possibility of also setting up separate clinical trials to evaluate the ability to use the hyperimmune prophylactically to protect the healthcare workers, so it will be a separate stream of clinical effort. Certainly, looking at the numbers of how this outbreak has impacted the healthcare community, you know, there does seem to be also a very high unmet need there.

Just a final question on this topic. Once you start the Phase 2, how long do you think it will take to get an answer? Thanks, that's it for me.

At this time, I think our timelines are really dependent on getting the product into the clinic quickly, and then we'll look at the recruitment timelines in order to give a better estimate. Obviously, we're focused on trying to go as fast as possible.

Next question, operator?

Jessica Fye, Your line is open.

Maybe just following up on the J&J agreement, can you quantify how much of the $135 million for the kind of first stage of the deal contributes to 2020 revenues versus 2021 or something thereafter?

Sure, Jess. Thanks for the question, thanks for joining. So, I hope you can appreciate we're still sorting through the revenue recognition potential for the $135 million. But our best estimate today, Jess, is that around 25% of that $135 million contract value will be recognized in 2020.

And then, as we think about the potential contribution from the subsequent commercial supply deal you're negotiating with J&J, is there any kind of framework you can provide to help us think about that revenue contribution going forward, obviously if the vaccine is successful?

Yes, it really depends, Jess, on how much of a commitment our partner wants to make to manufacture doses. I think you've heard J&J say that they would like the ability to have a U.S.-based manufacturing capacity of up to 300 million doses annually for their product. So, until we get really through the next phase of the agreement discussions with them, it's really inappropriate to speculate on what that might look like on the revenue side. And just to talk a little bit about the, perhaps the gross margin contribution on that, as we said before, our CDMO gross margin percentages are less than the product revenue, but in the aggregate, we expect the consolidated gross margin to still be at that 60% range. I think as we talked about last year and as Rich commented on his script today, we expect a 200 to 400 basis point gross margin improvement in 2020 versus 2019. I think even if we significantly expand that CDMO revenue in 2020, we would expect that gross margin range to fall in that same area.

Maybe if I could just sneak one last one in, should we anticipate ACAM deliveries restarting in the second quarter, or could that skew into the back half of the year?

Yes, our guidance that Rich described, both for the year as well as Q2, that $270 million to $300 million, assumes that we will resume shipments of ACAM2000 in Q2.

Our next question is from Boris Peaker of Cowen. Your line is open.

I have one on the hyperimmune plasma and the other one on NARCAN. Maybe we'll start with the hyperimmune. I'm just curious, how hard is it to actually get blood plasma from these prior-exposed COVID patients, and how much of it can you actually get in terms of generating, you know, quantities of a drug product?

Yes, Boris, thanks for the question, and thanks for joining. I think you put your finger on the bit of the long pole in the tent here, and I'll ask Laura to weigh in as well, but that is a key issue for us to resolve. And as Laura commented, we're working with our government partners, as well as with our corporate partners that are experts in this space, to get access to plasma sufficient to manufacture an initial clinical trial batch of material so we can start the Phase 2 clinical trial in the summer. And then, obviously, we're working and planning for greater and broader access to that plasma to support the potential needs of the program going forward. But, Laura, do you want to weigh in on additional color here?

Sure. Maybe I can just add to your comments, Bob. I think you highlighted the right parts. I think the medical community very quickly organized around getting convalescent plasma collection going and looking at this as a treatment that can be used in the short term. I think the way we've approached the partnerships in this area is really, as we start to transition from those programs to the hyperimmune, the supply of that convalescent plasma will be key to getting further hyperimmune manufacturing going. And I think overall, the idea is that as we start with the treatment's success on the convalescent plasma side, the hyperimmunes provide a much more uniform and licensable way of coming at treatment for the disease. So right now, there's a lot of efforts around convalescent plasma collection, and certainly, our partnerships with BARDA and NIAID put us very well positioned to partner in these areas, and we're continuing to expand a lot of our network on the clinical side.

I just want to get a sense, like do you guys have right now enough plasma to even make enough drug product for the clinical studies, or is that going to be a limiting factor in some way?

Yes, so we're accumulating plasma today, Boris, to support that initial manufacture of the clinical trial material, and don't see any risk in being able to meet the timeline for that clinical trial initiation that Laura laid out.

And my last question is on NARCAN. You mentioned expanding shelf life from 24 to 36 months. I'm just curious, just want to understand, how is that going to benefit you? And just trying to understand, how much NARCAN is actually used? How much of it is disposed due to just expiration date? And, you know, just trying to think how extending the expiration date is of any benefit to you guys.

Sure, so as we have spoken since we acquired the NARCAN Nasal Spray product in October of 2018, our focus continues to be on increasing the access to and the availability, as well as the affordability for naloxone products to the patients and customers who need it. So, we see the shelf life extension from 24 to 36 months as being entirely consistent with making sure that and this will mostly impact retail patients and customers, Boris, not the public interest market, where there is strong and constant pull-through from a procurement perspective. So, for us, this is another value-added element to our accessibility, availability, and affordability themes for the retail patients.

But in the public interest market, do I'm curious, what fraction of their NARCAN do they actually throw out because it expires within two years versus how much do they actually end up utilizing?

Yes, so our best guess is that the vast majority of the public interest customers are reordering within six months. It could be upwards of 90% or greater of those customers are reordering within six months. So I think to some of your earlier questions on prior calls, there isn't much of a stockpiling exercise in that public health or public interest market. That product is pulled through and used pretty quickly.

[Operate Instructions]. Our next question comes from Lisa Springer of Singular Research. Your line is open.

Thank you. My question concerns the plasma-derived therapeutics. Is the funding you got, the $14.5 million of funding, is that only to support the HIG product, or will that also support the EIG product?

Yes, Lisa, thanks for joining the call. The BARDA funding for the human IG product is limited to that product. We have decided on our own to go ahead and invest in parallel on the equine program, again, as a way to get a couple shots on goal here and potentially bring yet another product to the market and to the patients who need it quickly.

Okay. And are they roughly at the same stage of development right now?

Yes, I'd say pretty much. Laura, you want to weigh in here?

Yes, I would say they're tracking pretty much in parallel at this time. You know, we're in the same stage as the plasma generation as we are human and equine, and we are targeting getting into the manufacturing phase in the summer.

Okay. And with the equine product, would that give you an advantage in terms of cost and ability to scale?

Laura, you want to comment on the benefits?

As Bob said, we were sort of focused on taking our platforms and seeing what solutions we could pull forward. They obviously have different sort of benefits on each side. As you highlight, on the equine hyperimmune product, some of the advantages there is you've got sort of a rapidly scalable plasma supply, much more controllable from a cost perspective, so that certainly would be the advantages when we look at how this could impact the need for doses.

Thank you. I'm showing no further questions at this time. I'd now like to turn the call back over to the company for closing remarks.

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

Ladies and gentlemen, this does conclude today’s conference. You may all disconnect. Have a great day.