Thank you for standing by, and welcome to the Emergent BioSolutions Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Bob Burrows, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Jonathan, and good afternoon, everyone. Thank you for joining us today as we discuss the operational and financial results for second quarter 2022. As is customary, today's call is open to all participants, and the call is being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, there is a series of slides accompanying this webcast available to all webcast participants. Turning to Slides 3 and 4. During today's call, we may make projections and other forward-looking statements related to our business, future events, our prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statement speaks only as of the date of this conference call, and except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances. Investors should consider this cautionary statement as well as the risk factors identified in our periodic reports filed with the SEC when evaluating our forward-looking statements. During today's call, we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net income, adjusted EBITDA and adjusted gross margin and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. Turning to Slide 5. 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 Q2 2022. Rich will also discuss the updated 2022 guidance. This will be followed by a Q&A session where additional members of the executive leadership team are present and available as needed. Finally, for the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on August 1, 2022. Since then, Emergent may have made announcements related to topics discussed during today's call. With that introduction, I will now turn the call over to Bob. Please proceed, Bob.

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call. I want to provide you with a recap of our accomplishments last quarter and update you as well on our progress to year-to-date progress. My comments are summarized on Slide 7 of the deck. The evolving COVID-19 pandemic, the war in Ukraine, the declaration of monkeypox as a public health emergency and the ongoing opioid overdose epidemic further highlight the crucial need for an all-hazards approach and preparedness and response. These events underscore the importance of early and consistent investments in developing, manufacturing and stockpiling medical countermeasures before a crisis occurs. They also serve as a reminder with the critical role that public-private partnerships play in protecting public health. This is core to what Emergent has done over the past 24 years, and our commitment to supporting preparedness efforts remain steadfast. This commitment is reflected in our strategic vision focused on public health threats and where we can make a positive impact for patients and for our customers. As we reflect on the second quarter and the first half of 2022, a few themes we highlighted last February have become more clear. First, our medical countermeasures business remains a cornerstone of our strategy and a steady proven contributor to revenue and profitability. Our relationship with the U.S. government is strong and growing as we explore and pursue additional opportunities through strategic partnering, M&A and grants and contracts as evidenced by our TEMBEXA and Ebanga announcements earlier this year. We also continue to see growing interest and demand from allied governments and organizations outside the United States. Secondly, the ongoing opioid overdose epidemic remains a very serious public health threat. As such, market demand for our nasal naloxone products primarily driven by NARCAN nasal spray continues to increase,…

Thank you, Bob. Good afternoon, everyone, and thank you for joining the call. I'll start on Slide 9 with some summary thoughts. As you heard just now from Bob, while the business continues to make good progress towards our long-range strategic plan, our financial results for the second quarter were mixed. The core medical countermeasures, or MCM products, continue to perform well, are on track through the first half of the year and remain a strong foundational component of the Company. Importantly, our portfolio of medical countermeasure offerings is poised to expand with the anticipated closing of the acquisition of TEMBEXA, the oral antiviral smallpox treatment, and the collaboration with Ridgeback on Ebanga, the monoclonal antibody treatment for Ebola. Of note, our updated guidance for 2022 does not yet include the impact of either of these products. For the commercial products, we also delivered solid outcomes in the quarter driven principally by continued market demand for NARCAN nasal spray in the public interest, or PIP channel. Importantly, we expect the recent entrance of another generic product to increase competition in the PIP market, starting in the second half of this year, and our updated full year forecast reflects the anticipated impact. As for CDMO, it is important to keep in mind that we are still rebaselining this business as we transition back to a pre-COVID growth trajectory in line with our strategic plan. The second quarter's results as well as the updated 2022 full year CDMO forecast are informed by three primary factors. First, the wind down of our relationship with Janssen. As disclosed in our 8-K filings in June, we believe the contract entitles us to significant payment upon termination. While we continue to pursue resolution of this matter, given the uncertain timing of any potential future payment, our…

[Operator Instructions] And our first question comes from the line of Brandon Folkes from Cantor. Your question please.

Can you just elaborate a little bit on the price actions you are seeing in the public interest market for NARCAN? Just any color there in terms of sort of the magnitude of that headwind? And maybe just could you provide some color? Does this go state-by-state basis? And maybe if that price does come down in one state, how long does it take to sort of flow through to the other states? And then maybe just staying on NARCAN, how do you think about potential implications for the proposed Teva settlement that was put out there, which included that portion of NARCAN over 10 years.

Yes. Brandon, and thanks for joining the call. So a couple of comments. First, as we've commented on prior calls, what we expected to see in terms of pricing pressure in the market has materialized with the entrance of the two generic products, both at the retail level, which we expected, as well as now in the public interest market. I can't give you specifics on the magnitude of the pricing because it's still forming, but we are competing head-to-head with the generics for both market share as well as through pricing strategies. We were prepared for kind of what we're going through right now. Having said that, we're quite encouraged by the fact that NARCAN continues to perform exceptionally well in the public interest market as we expected, given the name recognition and the years long history that we have with supporting the supply chain needs of many, many customers in that very diverse state and local government market. So we're pleased with that. And quite frankly, kudos to the team for, again, sticking to our guns in terms of putting our emphasis on awareness as well as improving access to NARCAN in those very important markets. I'm not sure I understand the second question. And maybe I'll...

Just your thoughts...

Go ahead.

Just your thoughts on the potential implication for the public interest market of that proposed settlements that Teva put out on its earnings of, I think it was $1.2 billion NARCAN at WACC, fair enough, over 10 years. Just how do you think -- I mean, in the past, you talked about sort of logistics and ability to supply that PIP market. So just any color on how we should think about if that settlement does actually come into effect?

Yes, I understand. Thanks. So I mean clearly, we are kind of on top of monitoring, evaluating these market dynamics, including the potential settlement proposals that are being floated out there. I think it's a bit too early to say with any degree of certainty how that will all shake out. I think it's also important to note that for the first time that I can recall, this proposed settlement includes an option for the states to receive cash payment as opposed to product offerings by the Company. So I think it's likely that a number of states will, in fact, opt out for cash so they can use the proceeds as they see fit in their states with their constituents. But we'll have to wait, Brandon, and see how all that shakes out. But even with those headwinds, again, back to our expectations for the business in 2022, we're quite encouraged with the year-to-date performance, which gives us the conviction and the confidence to increase our guidance by almost $45 million in revenue for 2022.

[Operator Instructions] And our next question comes from the line of Jessica Fye from JPMorgan. Your question please.

On Camden, what was the FDA feedback you got? Was there any 483 issued? And then on your comments about CDMO rebaselining, can you talk about what exactly you expect the new baseline to be and when you expect to hit the baseline? Is that like by the beginning of '23, middle of '23?

Yes. Thanks, Jess. So first on Camden. As I commented in my prepared remarks, we've had significant interaction with the FDA over the last year or so. In February of this year, they came for an inspection. There was a 43 issued. There were a handful of observations. We have not yet received the establishment inspection report. That's one of the outstanding components of feedback that we're waiting to hear from the FDA. While we await that additional feedback, as I said, we're being proactive in terms of taking additional measures in Camden and throughout all of our sites to significantly ramp up our quality and compliance profile and whether that's through process improvements or training. Again, we're being pretty aggressive, but we'll await the additional feedback from the FDA, which we expect in the next probably 30 days. As it relates to CDMO, I think we see the growth opportunities for the business today, much the same way we did when we generated our 2020 through 2024 strategic plan at the end of 2019 when the revenue for that business was about $80 million overall. And by that, I mean, we continue to think that the molecule-to-market service offering with both development services, drug product as well as drug substance services is a really effective and unique way for us to pursue opportunities. We've talked a little bit about Bayview and the transition we're going there. We expect that work by unwinding or winding down the Janssen work to be done by the end of Q3, which kind of frees us up to look for opportunities to more fully utilize that facility going forward later this year and into 2023. I think what's a little different about today versus a couple of years ago when we put the strategic plan together was the fact that we've made considerable investments throughout our CDMO network, both in terms of capital, in terms of new capacity and new capability, with new fill finish lines, with process improvements, but importantly, with our quality and compliance profile, with training, process improvements and any number of initiatives that we're undertaking. So to get to your point about future growth, we expect the growth to be a bit measured over the coming years. Again, it will take us probably 12 to 18 months to fully kind of get the network back up and running effectively, leveraging the assets that we have, but we're going to be doing so with a considerable amount of tailwind given the investments that we've made over the last couple of years.

Great. And then forgive me if I missed it, sorry, is there more?

Rich is going to comment.

Yes. I just want to add to -- yes, I'm just going to add that you see that we've updated our CDMO guidance, a range of $105 million to $125 million. It certainly is a move towards that baselining effort -- so that is -- we're already moving in that direction.

Okay. And then forgive me if I missed this, but the ACAM guidance bump, can you explain what that's related to?

Yes. So that's both a combination of assumed deliveries under the typical option exercise as we've had in the past couple of years. And then we've also had some international sales on top of that.

[Operator Instructions] And our next question comes from the line of Boris Peaker from Cowen. Your question please.

This is Nick on for Boris. So I just have a quick question about Chimerix and TEMBEXA. So previously, the -- right pretty much right after you guys announced this acquisition of TEMBEXA, they said that the BARDA contract was likely to take place within the next couple of weeks or months, and now it's pushed back. And I just wanted to know if you guys had any reasoning behind this or any information as to why it's been pushed back, especially with monkeypox and now being declared a public health emergency, you kind of think that it may be pushed forward, but it seems to be just pushed back a little bit more.

Yes. Thanks, Nick, for the question. Thanks for joining the call. So a couple of comments. As I commented on my prepared remarks, the HSR process and the waiting period for this expired last Friday. So now that, I think, gives BARDA and Chimerix kind of the green light to finalize the BARDA procurement agreement, which then gives us the clear path to closing the transaction and moving forward. I wouldn't read anything into the perhaps perceived delay in getting the contract awarded. Obviously, BARDA is looking at this very carefully and they are aware that our interest in acquiring the product from Chimerix. So I think, again, there's momentum to get this done, and we're anxious to get done as well.

Great. And then just quickly on the -- you mentioned just a second ago that you had some international sales for ACAM2000. Is that just like onetime sales? Or are those more subcontracts? I don't think I've seen any press releases on that recently.

Yes, Nick. So, we've had a number of ongoing communications with allied governments and public health threat organizations regarding their interest in our entire portfolio of medical countermeasures. As Rich indicated, we are forecasting a bit of an uptick with respect to ACAM, but we've also seen interest in any number of our other products in the portfolio. So, this is part of the ongoing processes that we've been talking about for a number of years in terms of allied government interest in the entire portfolio, so nothing new here. Just obviously, in today's environment, there's a heightened sense of understanding and appreciation for having ready access to these critically needed countermeasures.

[Operator Instructions] And our next question comes from the line of Chris Sakai from Singular Research. Your question please.

Yes, I'm calling in for Lisa Springer here. Can you provide some color on the generic share you are seeing in -- for the public interest and the nasal spray segment? Is it growing?

Yes, Chris, thanks for the question, and thanks for joining the call. So clearly, as we expected, the generic products are and have claimed the majority of the retail market. And now with the introduction of the second generic product recently, they're making some inroads into the public interest market, but we remain quite optimistic about our ability to hold our fair share of that market. I think our team is doing an extraordinary job of interfacing with literally the thousands of customers in that public interest market. And our commitment in our investments and establishing relationships with those customers, taking care of their supply chain needs, meeting their requirements is paying benefits. And there is a significant value to the brand name and brand recognition of NARCAN and the reputation that we have for being reliable supply chain providers for that countermeasure. So, we're quite bullish on our ability to hold market share in that public interest market.

Okay. And it looks like there's some updated guidance here on the nasal product...

We're quite bullish on our ability to hold market share in that public interest market.

Okay. And it looks like, what, there's some updated guidance here on the nasal products, how should we think about this -- the cadence of these sales for...

Yes. So, I think you're referring to our updated guidance for NARCAN naloxone products. We've upped the range from $240 million to $310 million to $300 million to $340 million. So midpoint to midpoint, it's about a $45 million in revenue increase. So I think, again, that reflects a couple of dynamics. Most importantly, the continued emphasis and demand at the state and federal level by any number of customers for NARCAN. In terms of the cadence of the remaining year, we don't go into the details about what's -- what amount of that is in Q3 or Q4. But as Rich indicated, we've given the total revenue projections for Q3, and that's as much detail as we're kind of prepared to provide right now.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bob Burrows for any further remarks.

Thank you, Jonathan. And with that, ladies and gentlemen, we now conclude the call, and thank you for your participation. Please note an archived version of today's webcast as well as the PDF version of the slides used during today's call will be available later today and accessible through the Investors landing page on the Company's website. Once again, thank you, and we look -- sorry, once again, thank you, and we look -- bye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.