Earnings Labs

Emergent BioSolutions Inc. (EBS)

Q2 2023 Earnings Call· Tue, Aug 8, 2023

$8.17

+1.68%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.

Same-Day

-17.78%

1 Week

-27.92%

1 Month

-36.53%

vs S&P

-35.81%

Transcript

Operator

Operator

Good day and thank you for standing by. Welcome to the Q2 2023 Emergent BioSolutions Inc. Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Matt Hartwig.

Matt Hartwig

Analyst

Thank you, Karen, and good afternoon, everyone. My name is Matt Hartwig, Senior Director of Media Relations for the company. And it is my pleasure to welcome you to today's call, where we will be discussing the operational and financial results for second quarter 2023. 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 table found in today's press release 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 5. The agenda for today's call will include Haywood Miller, our newly appointed Interim Chief Executive Officer; and Rich Lindahl, EVP and Chief Financial Officer. Following prepared comments from both Haywood and Rich, we will conduct 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 8, 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 Haywood. Haywood?

Haywood Miller

Analyst

Good afternoon, and thank you for joining. A summary of my comments begin on Slide 7. A. In a moment, Rich will detail our Q2 performance and provide updated guidance for 2023. I have also asked Paul Williams, our Senior Vice President, Products; to join us to answer questions related to our MCM and NARCAN Nasal Spray franchises. First, I want to begin by sharing my enthusiasm and optimism about the future of Emergent as I step into the interim CEO role. During the first half of the year, Emergent has achieved a number of strategic milestones across its products business that will help America be better prepared to face future public health threats. So far in 2023, the U.S. government has awarded contracts to Emergent for ACAM2000, VIGIV, BAT, RSDL as well as a new contract for Ebanga for the treatment of Ebola. These contract awards reinforce the value of Emergent's business and products. Likewise, Emergent has stepped forward to meet the demand for NARCAN Nasal Spray in the midst of the ongoing devastation caused by America's opioid crisis. We will continue to fulfill the growing needs of our public interest customers while also preparing for the launch of NARCAN Nasal Spray as an over-the-counter opioid reversal treatment. The launch remains on track for later this summer. This will be an important step in expanding access to this potentially life-saving medicine for millions of Americans. While these achievements have helped strengthen Emergent's financial position, the Board and management team have taken an in-depth review of the company's business and a strategic direction to ensure the sustainability of Emergent and its future growth. After careful review, the Board and management team determined that a strategic shift in how Emergent deploys its resources is necessary. As we announced this morning, moving…

Richard Lindahl

Analyst

Thank you, Haywood. Good afternoon, everyone. We appreciate you joining the call. Starting on Slide 10, I'll open my remarks with the key messages I'd like you to take away from our call today. First, there were several clear positives in the quarter. We followed through on the critical initiatives we discussed on our last call, by closing the sale of our Travel Health business to Bavarian Nordic securing a $120 million order from the U.S. government for ACAM2000 and successfully completing an amendment to our secured credit facility that extends its maturity to May 2025. We also saw accelerating momentum in sales of NARCAN Nasal Spray, driven by continued strength in the U.S. public interest market and in Canada. These trends provide a favorable tailwind as we prepare for the near-term launch of our over-the-counter product. And we delivered strong revenue, which exceeded our prior guidance as well as strong adjusted EBITDA. Second, our decision to deemphasize growth in CDMO is both immediate and near-term implications. While we are committed to serving our existing customers, the change in growth expectations is the principal driver behind the CDMO asset impairment charge reported in the second quarter. Additionally, we are significantly reducing the operational footprint of our Bayview facility, which is a major contributor to the over $100 million of annualized savings we announced earlier today. Third, while we remain confident in the long-term prospects for our medical countermeasures business, based on recent dialogue with the U.S. government, we have lowered expectations for 2023 revenue in our anthrax and smallpox franchises. The approval of CYFENDUS is a clear positive and sets the stage for continued procurement by the U.S. government for this product. Given this transition, procurement in 2023 is expected to be reduced, and we anticipate the funding for increased…

Operator

Operator

[Operator Instructions]. Our first question comes from Boris Peaker of TD Cowen.

Nicholas Lorusso

Analyst

This is Nick on for Boris. Few for me. First on NARCAN. Can you go into some more detail about the NARCAN revenue that was recognized in Q2 '23? And what makes that up, mainly because when you look at the guidance and the increased guidance, which is great, you see that at the high end of guidance, that would lead to about $105 million per quarter for the next 2 quarters. So I just want to see what like that changes, the differences and why 2Q '23 will be higher than 3Q or 4Q.

Richard Lindahl

Analyst

Sure. Yes. So part of the phenomenon we saw in second quarter was a combination of some fiscal year-end in some of the states. And also some of the settlement money from the opioid litigations finding their way into the states, which drove increased purchasing. That certainly can continue as we move forward, but we feel like this is an appropriate forecast as we go forward from here.

Nicholas Lorusso

Analyst

Got it. That makes sense. And then on CDMO, with the restructuring plan that you guys announced earlier today, and the focus on the products, do you anticipate like around a similar yearly run rate to guidance over the next several years than what you have now? And once like contracts for CDMO customers are completed, will you renew those contracts or search for new contracts? Or how will that work?

Richard Lindahl

Analyst

So we're focused on serving our existing customers and honoring the commitments that we've made to them. And we're not prepared to provide future year guidance for CDMO at this point in time, but we will certainly do that as we come out of this year and into next year.

Operator

Operator

Our next question comes from Chris Sakai of Singular Research.

Joichi Sakai

Analyst

Yes. I'm in for [indiscernible] Can you please update us on your travel health business divestment and the status of accruing synergies from that divestment.

Richard Lindahl

Analyst

Sure. So the divestiture was completed in mid-May just after our last earnings call. And we are in the process of working through the transition. We have a transition services agreement with Bavarian Nordic that will run through the end of this year. And those activities that were planned are on track. You did notice that in the quarter, we had lower R&D expense year-over-year. That's one of the elements of a reduced cost structure that came about as part of that transaction. But otherwise, we're on track with the plan.

Joichi Sakai

Analyst

Okay. And then can you update us on your debt restructuring? And if it is fully accomplished or are there further components that need to be negotiated?

Richard Lindahl

Analyst

So we completed the amendment and maturity extension to our secured credit facility in mid-May. That provided us an extension until May 2025. So we will continue to evaluate our capital structure and make appropriate modifications before that maturity comes to fruition. But at this point, we've completed that amendment, and we are moving forward under that capital structure.

Joichi Sakai

Analyst

Okay. And last one from me. How has been the NARCAN Nasal Spray reception been so far? Do you expect to provide further [indiscernible] the current pricing in the near future?

Paul Williams

Analyst

Yes, Chris, thanks for the question. I'm Paul Williams, Head of the Products business. Look, I think we're seeing a couple of things happening today with NARCAN. One is, obviously, the opioid crisis continues to worsen. I think this has really led primarily to the increase in demand at the state and the local level through our public interest segment as well as Canada. At the same time, we're excited and continue to be on track for the launch of our over-the-counter put up later this summer. The work has begun and with our retail and distribution partners, and we're looking forward to having product on the shelves and available online as soon as possible. Stay tuned.

Operator

Operator

I'm showing no more further questions at this time. I would now like to turn the conference back to Matt Hartwig for closing remarks.

Matt Hartwig

Analyst

Thanks, Chris. 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 today's call will be available later today and accessible through the Investors landing page on the company website. Thank you, again. We look forward to speaking with you all in the future. Goodbye.

Operator

Operator

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