Good day, and thank you for standing by. Welcome to the Emergent BioSolutions First Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to the company. Please go ahead.

Thank you, Jayda, and good afternoon, everyone. My name is Bob Burrows. I'm Vice President of Investor Relations for the company. Thank you for joining us today as we discuss the operational and financial results for the first quarter of 2023. As is customary, today's call is open to all participants in the call is being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, there is a series of slides accompanying this webcast available to all webcast participants. Turning to slides three and four. During today's call, we may make projections and other forward-looking statements related to our business, future events, our prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statement speaks only as of the date of this conference call, and as 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 repurchase 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 and in the slides regarding our use of adjusted net income and 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. Paul Williams, SVP and Head of the Products business, who will comment on the state of the Millican Nasal Spray franchise as we migrate to our nonprescription form of this key medical countermeasure; Eric Lindahl, EVP and Chief Financial Officer, who will speak to the financials for Q1 2023 and then pivot to our revised forecast for full year 2023 as well as Q2 2023 total revenues. This will be followed by a Q&A session where additional members of the ejective leadership team are present and available as needed. Finally, and for the benefit of those who may be listening to the replay of this webcast, this call was held and recorded on May 9, 2023. Since then, Emergent may have made announcements related to topics discussed during today's call. And with that, I would now like to turn the call over to Bob Kramer. Bob?

Thanks Bob and good afternoon to everybody. Thank you for joining the call. My comments this afternoon begin on slide six. Our first quarter performance was generally in line with expectations as revenues came in above our guidance range but were offset by higher-than-expected operating costs that had a bearing on our profitability for the period, and Rich will provide more detail in his prepared remarks. We continue to strengthen our core businesses and build the foundation for sustainable long-term growth. And today, I'd like to walk you through some of the progress since the beginning of the year and where we're going to go for the rest of 2023 and beyond. First, we expect the sale of our travel health business to Bavarian Nordic to close as planned in the second quarter of this year. Upon closing, the deal will provide an upfront cash payment of approximately $270 million and a potential additional $110 million in sales and development-based milestones. As I said, when we made this announcement earlier this year, this deal sees two significant outcomes. First, it allows us to further sharpen our focus on our core products and contract manufacturing services businesses. while allowing continued supply of these important vaccines to patients and customers. Second, and before discussing NARCAN nasal spray in more detail, I'd like to mention that today is Fentanyl Awareness Day. Every day, the opioid epidemic cut short innocent laws. This epidemic shows no signs of abating, and we remain committed to working with federal, state and local governments and advocacy groups across the nation to ensure more naloxone reaches communities, patients and those in need to help reverse the trend of increased opioid-related overdose deaths. That's one reason why we view the FDA's approval of our application to make NARCAN Nasal Spray,…

Thanks, Bob, and hello, everyone. My comments are summarized on slide nine and 10. As Bob noted, the ongoing coal of the opioid crisis remains top of mind for all of us at Emergent. We take seriously our responsibility to work with all stakeholders in developing solutions to help those who experience an opioid overdose get a second chance. That is why we see the approval of NARCAN nasal spray to be sold over the counter as a historic milestone in the fight against the opioid crisis. It allows Emergent to make NARCAN nasal spray available through pharmacies, convenience stores, vending machines, online retailers and anywhere else OTC products can be found. This is a significant opportunity to expand access and build on our continued commitment to our public interest partners across the country. With our FDA approval, we can now move forward confidently with our plans. First, we are meeting with retail partners to finalize contracts and distribution plans. While I'm not in a position to share specifics at this time, suffice it to say these are the partners you'd expect. As we announced in April, we are targeting a consumer out-of-pocket price of less than $50 a box of two, four milligram doses. This is significantly lower than the currently available prescription wholesale price of $125 per box of tea. Second, currently, our supply chain manufacturing efforts are focused on supporting the new OTC configuration with the goal of having product on shelves by late summer. We are confident we have the capacity to fulfill demand across all channels. And importantly, as we transition our existing packaging and manufacturing to support OTC use 4-milligram NARCAN nasal spray will remain in readily available supply through current channels. Third, we remain committed to working with our public interest partners, including…

Thank you, Paul. Good afternoon, everyone. We appreciate you joining the call. I'll start on slide 12 and touch on a few key financial highlights before walking through the first quarter details. First, as Bob noted, we anticipate closing on the divestiture of the Travel Health business in the second quarter, which will provide an infusion of upfront cash while furthering our stated objective of sharpening our strategic focus. The impact of the sale is now incorporated into our updated guidance for 2023 and enables us to better align our cost structure with our current revenue trajectory. Second, as you heard from both Bob and Paul, we continue to see robust demand for NARCAN nasal spray in both the US public interest and Canadian markets, and that is reflected in our first quarter results. These trends are leading us to significantly increase our NARCAN revenue guidance for this year. In addition, our NARCAN guidance also continues to reflect our assumptions regarding the impact of over-the-counter sales, which we are planning to initiate beginning in late summer. Third, the US government has recently provided us with notices of intent to procure quantities of ACAM, bat and BIG that all align with our prior expectations. Fourth, we are adjusting down our CDMO revenue guidance driven principally by recent changes to customer requirements for COVID-related products we were manufacturing. These impacts, along with continued remediation costs and other investments to improve quality and compliance across our entire manufacturing network negatively affected first quarter adjusted gross margin and have a corresponding ripple effect on our updated full year adjusted gross margin forecast. Calendar 2023 will continue the process of rebuilding this business, readying our manufacturing capacity and positioning it for growth in the future. Lastly, we are in the final stages of reaching agreement…

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Jessica Fye of JPMorgan. Your line is now open.

Hey guys. This is Nick on for Jess. Thanks for taking our questions. I had a clarification question on the NARCAN guidance. You guys talked about the increase in that guidance from $290 million, $310 million to $360 million, 380. Is that -- I know you talked about some of the push and pulls there and what drove that increase. But can we talk a little bit about how -- if it's primarily due to an increase in demand from the public interest market of Canadian markets? Or is there also kind of more upside when thinking about OTC as well? Just thinking about those three together, kind of what drove that increase?

Yes, Nick, this is Bob. Thanks for the question, and thanks for joining the call. I invite in a minute here, Paul, to weigh in. But when -- as we announced our guidance initially for 2023, we made it clear that our plans included an OTC switch sometime in Q3 of this year. So, the guidance that we initially provided at $290 million to $310 million number already had kind of consideration for OTC switch in it. I think what you see in our upgraded guidance now of $3.60 to $3.80 is primarily driven by what we see as increased demand in the two channels that we're distributing product today, primarily driven by, again, the public interest market in the United States as well as Canada, but Paul weigh in the -- to additional color.

Yes. Thanks, Bob. And the increase in guidance is directly attributable to both the US pit segment as well as the Canadian segment. I think for the public interest segment in the US, obviously, given they serve just the many vulnerable at-risk populations with the obviously continued increase of the opioid crisis, the demand flowing through that channel continues to grow and expand. And similarly, in Canada, we're seeing expanded access to meet the demand in Canada as well. So obviously, the update in the guidance, I think, reflects the trends that we are seeing as we start the year this year.

Great. Thank you. And just maybe a quick follow-up. Can you provide a bit of color on some of the conversations you've been having regarding potential insurance coverage for Medicare and Medicaid patients for OTC NARCAN?

Yes. Paul, do you want to take that one?

Right. So, I think for us, access is critical. I think that's what moving NARCAN over the counter is I think, will really help and assist. But I think our conversations and working with, whether that's CMS or private payers to understand how they're going to think about potential coverage for NARCAN OTC continues. I don't think we've landed anywhere with any one particular payer CMS yet, but we know that this is top of mind for them. We continue to work with them and other stakeholders to ensure that we're able to balance the access with the affordability as we bring NARCAN OTC to market.

Great. Thanks so much.

Thank you. [Operator Instructions] Our next question comes from Brandon Folkes of Cantor Fitzgerald. Your line is now open.

Hi thanks for taking my question and for the update. Maybe just firstly say on NARCAN. How do you think about the potential for a nonprofit far come into the OTC market there, both from perhaps the price ability to supply at factors? And if they do come to market, do you think it's a big to become a bigger player in the retail first responder market there? And then along the line -- stay on that line of questioning. What can you say about four milligram oxo intranasal compared to perhaps a three milligram? Any data out there suggesting there are different absorptions or perhaps efficacy of the two products?

Yes. Thanks Brandon. So again, I'll start and then invite others to join in there as well. So, as it relates to your question about a potential nonprofit player in the nasal naloxone mix. I'm not going to speculate, Brandon, on who might be out there and what they might be doing. Again, our focus continues to be, as it has for the last five years, continue to look for opportunities to expand awareness, expand access and as Paul indicated, continue to work with both public and private insurance companies to make this as affordable as possible. So, I think the moves that we're making will make a big dent in that. In terms of the nonprofit, again, I think we won't speculate on what they might do. In terms of the 4-milligram formulation, I don't know that there are any exact studies comparing three versus four milligram. I think it's pretty widely accepted that again, given the work that the FDA did on this product to approve it back in February of 2016, the 4-milligram presentation is widely accepted as a very safe and effective dose. So, Paul, if you want to add some more additional color, please do so--

I think you got that and Bob.

Great. Thanks. And if we can count that as one question. just one follow-up. So just take intend to procure on ACAM2000. Can you just -- and I apologize if you did explain it on the call point a few here. What does that mean versus the actual excise of the contract option? Are there any additional steps between to secure and the excise of the contract option? And that’s it from me. Thank you very much.

Yes, thanks Brandon. So, the notice of intent to procure is what the government typically uses as the next logical step after they do a request for information and after they do a request for a proposal and a contractor response to that RFP, then negotiations in Sue. And after those negotiations are pretty much done, Brandon, you would typically see a notice of intent to procure. So, while the exact details of the potential procurement that we referred to under the notice of intent to procure -- we're not detailing now. They have been pretty much heavily negotiated, and we expect that the contract modification to be executed in a fairly reasonable time period. And as such, it's now baked into our smallpox franchise guidance for 2023, which is unchanged from earlier this year. Can you go on to the next question, Jayda?

Yes, of course. Thank you. Our next question comes from Boris Peaker of TD Cowen.

Hi. Thanks for taking my question. This is Nick on for Boris. Just a quick one for me. But how does the closing of the deal with ovarian affect the income statement? Because I know that you guys raised EBITDA guidance without really changing too much else directly affecting it. So, I was just wondering how this deal with the variant will affect that.

Yes. Thanks for the question, Nick. Rich, do you want to take that one?

Sure. Happy to. So, we have -- we've incorporated the impact into our guidance, assuming again a Q2 closing. The main impacts are that the other products revenue will decrease because the existing Vaxchora, Vivotif products will come out of our sales channel and move to Bavarian Nordic. In addition, there will be a positive impact on adjusted EBITDA, driven primarily by lower R&D expense as the chick program spend will also transition over to Bavarian Nordic as well. So those are the contours of what the impacts are going to be. We do not disclose the components of adjusted EBITDA below the total company level or the components of other product revenue, but those are the categories that are impacted.

Got it. Thanks. And then just a quick follow-up on that. So once the -- assuming the deal closes in 2Q, will then everything related to Chic PVP be sent over to them, there will be no more R&D costs from you guys on that? Or will you still have to finish out the Phase III trial on your expense and then Bavarian takes up from there?

They'll assume responsibility for the trial going forward.

Got it. Thanks very much.

Thank you. Our next question comes from Christopher Sakai from Singular Research. Your line is now open.

Thanks. This is Chris. I see that you have increased the guidance on NARCAN 293 10,360, 380. And maybe coincidentally, there is also a decrease in gross margins of 41%, 44% to 39% 42%. And obviously, to understand you can give us color how much of the decrease in gross margin is due to NARCAN because I also see that another major development is Travel Health divestment.

Yes. Thanks for the question. Rich, do you want to field that one?

Sure. Yes. And you're right, there's several moving parts. I would say the biggest influence on gross margin guidance change is the change in CDMO revenue guidance and the impact there as well as, as I referred to on the call, just the impact in the first quarter itself of some of the activities there. So those are really the things that are driving the change to full year adjusted gross margin guidance.

And as a follow-up, between now and the quarterly coal fourth quarter. Depending on your conversations with the different channel partners and the pricing and volume variables -- it looks like -- and correct me if I am wrong, that your expectations in terms of what you would be able to charge for NARCAN retail price versus what would be at your end has probably not changed. Do you think that the assumption is correct?

So, Paul, do you want to weigh in on that one?

Sure. So, I think -- and thanks for the question, by the way. I think as we've communicated, we've targeted a consumer out-of-pocket price for OTC to be slightly less than $50. And I would say that is consistent with the price in the public interest segment as we go forward. So again, we are in the process of finalizing our retail -- our contracts with our retail partners. I would say stakeholders in this, there is committed to affordability as we are. And once those contracts are finalized, we can provide specific clarity on where the actual consumer out-of-pocket price will end up. But I think our goals are aligned in terms of affordability.

Thank you.

Thank you. We see no further questions at this time, and I will now turn it back over to the company.

Thank you, Jayda. 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 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 website. Once again, thank you, and we look forward to speaking to all of you in the future. Have a good night.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.