Emergent BioSolutions Inc. (EBS) Earnings Call Transcript & Summary

Great. Good morning, everyone. My name is Jess Fye. I'm one of the Biotech Analysts at JPMorgan. And we're continuing the 2020 healthcare conference with Emergent BioSolutions. We're going to do a Q&A session with the management team right after this. It's just down the hall in the Yorkshire room. But for the presentation, I'm going to turn it over to the company's President and CEO, Bob Kramer.

Thanks, Jess. Good morning, everybody. A special thank you to JPMorgan as well as to Jess who have supported our company for a long time, first going public in 2006, and I've appreciated and enjoyed Jess' coverages for the last several years. So this morning, I'm going to do a couple of things. I'm going to go through an overview of Emergent BioSolutions, who we are as a company, what we focus on, and hopefully give you a better appreciation for what differentiates us from most other companies that you'll see and hear about. I'll also talk about some of the assets and the profile of the business today before turning to what we expect of the business out of the next 5 years, which we announced and shared with shareholders back in November as part of our Annual Investor and Analyst Day. Before doing so, let me get this out of the way, which is simply to acknowledge that as part of my prepared remarks this morning, I will be making some forward-looking statements about our business, and actual results may vary from those forward-looking statements. And I'll simply refer you to our reports on file with the SEC for a full disclosure of the risks associated with the business. So let me start with our vision. Our vision is very simply to become a Fortune 500 global life sciences company, recognized for protecting and enhancing life, driving innovation and living our core values. And the way we do that, and I think one of the areas that differentiates us from most companies is we are solely and strictly focused on a growing, expanding public health threat market. And whether it's the products in that addressable market or the services associated with supporting that market, in the aggregate, we see that as a $50 billion market that I'll go into more detail here in a few minutes. Specifically, our areas of focus include the chemical, biological, radiological, nuclear and explosive threat space, or as we refer to it as the CBRNE space. It also includes emerging infectious diseases, travelers' health, emergency and health crises and acute/emergency care as well as a growing CDMO business unit. Apart from the fact that we strictly focus on the growing and expanding public health threat market, I think some of the other things that I'd ask you to listen for as I go through the prepared remarks today are differentiators for us in terms of the fact that over the last 21 years, we have built clear leadership positions in various segments of the growing public health threat market where we think we can compete effectively. We've been successful in building and scaling and adding to those leadership positions as a result of M&A as well as organic growth. And I think the final differentiator is that we have an incredibly seasoned and experienced management team, many of which are here with me today and will participate in the Q&A session that follows. So let's jump into, as a profile, what we have in the company today. We have 1,800 teammates or employees located in 19 locations, mostly in North America. We have 10 marketed products that I'll go through individually here in a minute, plus another 2 product candidates that are actively being procured. One is our second-generation anthrax vaccine, AV7909, and the other is a series of candidates that are stemming from our Trobigard auto-injector platform. We have 15 -- more than 15 products in various stages of development across all of our business units, vaccines, therapeutics, devices and then the CDMO service business. And speaking of that, this CDMO market for us is a growing opportunity. We first established a CDMO business in 2014 when we acquired the business from Cangene Corporation. It has been a significant growth driver for us in that it supports not only our internal candidates, but most importantly, a number of external partnerships and collaborations through which we provide these services. The products, I'm going to go through quickly, and I'll talk about them in more detail in a minute, but just to maybe jump to the conclusion here. On the left-hand side of the panel, we list the different business units that are product-driven that we have in the organization today, again, vaccines, therapeutics as well as medical devices. On the far right-hand side are the segments of the public health threat market that are product-driven that we think we have competitive advantage in and that we look to build upon and establish leadership positions in. So first, let me talk about the anthrax franchise. We have 4 different products in this franchise, 2 of which are therapeutic products, Anthrasil as well as raxibacumab, which we acquired from GSK in 2017. And in the middle, we have our 2 flagship products, BioThrax, which is the only FDA-licensed vaccine that protects against anthrax. It's why we bought the business 21 years ago. And then secondly, AV7909, which is our second-generation anthrax vaccine candidate that's being developed in collaboration with Health & Human Services and supported by a $1.5 billion development and procurement contract. The intent of HHS is to have AV7909 eventually replace BioThrax as the anthrax vaccine that is in our country's Strategic National Stockpile being used to protect civilians from the threat of anthrax. In the middle, at the top, we have our smallpox franchise, which includes ACAM2000, the smallpox vaccine. It's the only single-dose smallpox vaccine approved by the FDA in the world, and VIGIV, which is our smallpox therapeutic product. Both of these products are centerpieces of our country and many allied governments response and preparedness efforts when it comes to the threat of smallpox. At the bottom, in the middle, we have our travelers' health business, which we acquired from PaxVax last year -- rather in October of 2018, which brought 2 licensed product: a cholera vaccine, Vaxchora; and a typhoid vaccine, Vivotif. On the far right, under opioid or opioid treatments, we have NARCAN Nasal Spray. This is an asset that we acquired in October of 2018 also in an effort on our part to get in the middle of the opioid epidemic and do whatever we can to help curb deaths related to opioid overdoses. And I'll talk more about our expectations for that business going forward in a minute. In the chemical area, we have 2 assets: RSDL, which is a skin decontamination lotion under contract with the Department of Defense and also being provided to any number of allied governments around the world; and Trobigard is our auto-injector platform. And finally, to round this group out is our Botulism Antitoxin product, which is another unique one-of-a-kind products/therapies for the protection against botulism. I mentioned services a minute ago. The other element of our focus in this public health threat space is in various technological platforms, particularly mammalian cell, microbial, viral, plasma derivative and fractionation capability as well as advanced therapies, where we provide either development services, drug substance manufacturing and drug product and packaging services to a growing portfolio of third parties. As I said earlier, we use this CDMO platform and capability of ours, which includes 9 different locations around the world to support not only our internal portfolio of products I just reviewed but also third parties. Notable is the fact that one of these locations in Bayview outside of Baltimore is 1 of 3 sites designated by Health & Human Services as their center for advanced development and manufacturing, where we partner with HHS to develop and bring to market new medical countermeasures for threats for which nothing is available today. Again, we see this as a $20 billion addressable market in the services area. On the pipeline side, as I mentioned earlier, we have 15 -- at least 15 candidates in various stages of development across all 3 of our product business units: vaccines, therapeutics and devices. And let me start with the therapeutic space. In Phase I, we have our ZIKA-IG product. In Phase II, we have our FLU-IGIV product. Both of those, obviously, are in the therapeutic business unit and are built on a proven tech platform of plasma fractionation that we acquired from Cangene Corporation in 2014. In the vaccine space, you'll hear us talk a lot about our chikungunya vaccine, our CHIKV VLP product, which completed a Phase II in 2019. And as we press released yesterday through our discussions and ongoing dialogue with EMA, we are getting increasingly comfortable with the path forward with a Phase III set to begin in 2020 for that product. And we hope to have similar discussions and dialogue with the FDA to support that. Also in the vaccine space is our second-generation anthrax vaccine, AV7909. We show it as a development candidate even though, in fact, it is being actively procured by HHS today under Emergency Use Authorization to go into our country stockpile. The last vaccine candidate here in development is Vaxchora, which is seeking a pediatric indication for that currently licensed product. On the device side, down below, there are 7 candidates. I'm not going to go through all of them, but I'll try to group them by noting that 4 of them: the D4 candidate, the PC2A, the SIAN as well as the Trobigard are all connected with our auto-injector platform. And just a quick word about a couple of them. D4 is a dual-chamber, dual-needle auto-injector product under development in collaboration with the U.S. Department of Defense. Similarly, the PC2A for diazepam is under development with DoD and being supported by them. It's a single-chamber, single-needle auto-injector product. The other 3 are more connected with the opioid crisis and opioid either use disorder or opioid treatment. So first of all, on the far right-hand side, AP003 is a naloxone multidose nasal spray. So very similar to our current NARCAN Nasal Spray, which is a 4-milligram presentation for nasal delivery. We're looking to add a second dose to the current or a similar version of the current device. So you have 2, 4-milligram doses in a single device. Then we have AP004, which is a naloxone prefilled syringe, that's under development. Again, another form of ease of delivery of naloxone for the patients and customers who need that. And then finally, AP007 is a sustained-release formulation of nalmefene. One of the things that you'll hear us talk constantly about is our focus on diversified, profitable revenue growth. And we start this chart on the left-hand side with 2012, because in 2012, marked our decision to singularly focus on the growing public health threat market. We adopted a growth strategy at the end of 2012, which had us seeking leadership positions and growing leadership positions in the growing health -- public health threat market in all of those categories that I mentioned earlier. Over the last 7 years, we've been able to get to a $1.1 billion revenue for 2019, which is a pretty impressive compound annual growth rate for a revenue of more than 22% during that period. As important as the growth is, what the right-hand side of this picture tries to capture is how successful we've been at diversifying our revenue stream. Back 7 years ago, in 2012, BioThrax was still our only product and accounted for 80% of our revenue, with services being the other roughly 20%. Fast forward that to 2019, as depicted on the lifesaver chart, as I'll call it, on the right-hand side, we have a number of products that are significantly contributing to top line revenue. Those include our anthrax vaccine franchise, so BioThrax and AV7909 accounted for 21% of our revenue when you look at the trailing 12 months that ended Q3 of last year; ACAM2000, our smallpox vaccine, was contributing roughly 16% of revenue; NARCAN, 25%; the category of other product revenue, which includes the travelers' health business, plus Trobigard, plus a number of the other medical countermeasures included in that list of 10 accounted for 18%; and then in the services area, whether it's contract manufacturing or our grant and contract business, accounted for roughly 20% of the business. So at the end of 2019, through both organic growth as well as through M&A, we now have 3 different product franchise groups that are positioned to contribute more than $250 million of revenue on an annual basis going forward, and a fourth category, which is the CDMO business unit, that is well positioned to get to that level in the coming years, a far cry from where we were just 7 years ago. At the same time, the revenue growth and diversification, we've been doing so in a very profitable, respected way. The compound annual growth rate around adjusted net income during that same 7-year period was 15%. The CAGR around adjusted EBITDA was 20% during that same period of time. We also, during this period of time, made significant investments in enterprise-wide capability to further support the execution of the growth strategy for the 2020 through 2024 period. The growth admittedly has been the result of significant M&A activity over the last 7 years. And we put a chronology together, starting in 2013, after we adopted the growth strategy at the end of 2012, we started small with RSDL, the skin decontamination lotion product. It ramped up a bit in 2014 when we acquired Cangene Corporation. We added the auto-injector platform, Trobigard, and stood up from scratch to that business in 2015 and accelerated further in 2017 and 2018 with 4 significant transactions, which included the smallpox vaccine franchise from Sanofi, ACAM2000; the raxibacumab monoclonal antibody therapeutic for anthrax from GSK; and then in 2018, toward the end of the year, we completed both the PaxVax acquisition of the travelers' health products I mentioned as well as, importantly, the acquisition of NARCAN Nasal Spray. Down at the bottom, I think it's important to recognize that over the last 2.5 years, we've added $600 million of new revenue, annual revenue, through acquisitions, which obviously led to a significant accomplishment for us in 2019, as we reported earlier this week, the first year that we've been in excess of $1 billion in revenue on an annual basis in our company's history. It's really the second consecutive year that we've had a top line growth of more than 40%. At the same time, we remain mindful of profitability and shareholder return. We had adjusted net income and adjusted EBITDA margins in line with expectations. For adjusted net income, it was 14% of that revenue; and for adjusted EBITDA, in the 26% of the revenue range. As impressive and as important as the financial goal attainment was, I think for the management team and I, it was even more significant what we're able to do operationally. Going into 2019, we had 3 areas of focus we wanted to make significant traction on. The first was to either secure or renew additional government contracts for our key programs. The second was to continue to support and integrate fully the NARCAN Nasal Spray business, which we had acquired a year earlier. And finally, in the area of R&D, to advance 6 candidates to the next stage of development. So let me talk about each of those very quickly. In the first category, we put under contract, in 2019, over $3.3 billion of long-term procurement contracts for a number of our programs, including a $2 billion contract, 10 years in duration, for our smallpox vaccine product, ACAM2000; a $500 million-plus contract for the VIG therapeutic product, also a 10-year contract; the Botulism Antitoxin contract was put in place for up to $500 million over that same 10-year period; and then in 2019, BARDA, which is an agency within HHS with responsibility for the procurement of AV7909, exercised their first-year contract worth $260 million for the first year. So altogether, it was a significant year for us in 2019 in putting new business under contract. In the area of NARCAN Nasal Spray, we made significant advancements in terms of doubling capacity to over 10 million units during 2019. We support the implementation of additional co-prescription legislation in the states of California, New Mexico, Washington and Ohio. That brings to date the number of 9 states that have adopted co-prescription for procurement of NARCAN Nasal Spray. And finally, we are keenly focused on making sure that in addition to increasing awareness and availability of NARCAN, we also do that in a way that makes it affordable to the very patients and customers who need it. We put this metric down there because we think it's important. The average copay for NARCAN for any individual who has health insurance and goes into a retail pharmacy to buy NARCAN was $19 per 2-unit carton or less than $10 per device. Finally, in the area of R&D, I'm not going to read all of these, but we made significant progress in advancing a number of our R&D candidates to the next stage of development. Those included our next-generation anthrax vaccine, Vaxchora; importantly, chikungunya, again, completed the Phase II and is Phase III ready in 2020. And we'll be talking, going forward, in the coming days and weeks about what that development plan and time line looks like. Our FLU-IGIV product made it through a Phase II in 2019. And we've done some things with the naloxone prefilled syringe as well as the auto-injector Trobigard platform. So where do we go from here? In late 2019, the management team and I put together our views and thoughts on what we wanted to deal with the business for the next 5 years. And we developed a strategy for 2020 through 2024, which we shared with investors last November. I'm going to review with you the highlights of that plan. Not surprisingly, it includes a doubling, again, of the revenue to over $2 billion by the end of 2024. This will be the third consecutive strategic plan of ours that has executed in a doubling of the revenue. The first, we executed in 3 years. The second, we executed doubling in 4 years. And now we look to double it yet again in 5 years. We're going to continue to be disciplined about the way that we increase revenue, again, being attentive to profitable diversification of the revenue growth and ensuring that, that EBITDA margin as a percent of revenue stays within that 27% to 30% margin range. Again, you'll hear us talk over and over about the importance of building and scaling leadership positions in this $50 billion public health threat market where we choose to compete. And at the same time, we're going to continue to invest in capabilities across the enterprise to ensure continued growth of the business. As part of the strategy, we adopted 5 core initiatives or strategies to focus on during the next 5 years. These include executing on the core business, which I just described; it includes growth through M&A; third, strengthening the R&D portfolio and capability in the organization, such that many of the products that you saw on the pipeline page as well as new candidates will actually contribute to top line revenue growth during the end of this current 2020 through '24 era as well as position us well going forward for the next 5 years; finally, to build scalable capabilities across the enterprise that are critically important to that -- supporting that growth and always important is continuing to pay attention to talent and our employees and evolving our culture. So in the executing of the core business, just a minute or 2 about that. When we started the business in 1998, our focus was only on this CBRNE space, this chemical biologic space. We established leadership positions quickly. The public health threat market grew by adding emerging infectious diseases, travelers' disease into this space. And again, as I mentioned before, we now see this as a $30 billion market opportunity across the 5 segments of the soccer ball on the right that we see as addressable opportunities for the company. At the same time, the growing CDMO services business unit is an attractive market for us. We have a vast degree of manufacturing and platform technology capabilities to support not only our products but third-party products. When you used to think about Emergent probably 5 or 10 years ago, you probably focused on this middle government or business-to-government column, where we are -- significantly have reputation as well as relationships with DoD, with HHS, with NIAID, with the ASPR office. Part of the diversification play is not just on a product basis, but it's also on the relationships we have with third parties, it's the channels, the distribution for our products and it's the partners and collaborators for which we're performing services through our CDMO business unit. Quickly running out of time. M&A, I think you get the picture in terms of what we're looking at. We're going to continue to focus on revenue generating and accretive assets that will help us build upon, if not develop new leadership positions in this growing public health threat market. The portfolio focus from an R&D perspective is important, again, because we want to be sure that candidates that we have in development are going to contribute to top line revenue in the near term. Building these capabilities, scalable capabilities is a theme that I've already talked about. Again, whether it's operational excellence, innovation, looking for better ways to do things, we'll protect margin and help grow the business going forward. And then, obviously, always paying attention to our employee base and our culture. Very quickly, I know we've got to cut. The 2020 guidance was included in our press release. The numbers kind of speak for themselves. So key takeaways: you heard me talk about track record, scalable leadership positions, established leader and a strong financial discipline and foundation for growth. So I apologize for rushing to the end. Thank you for your attention. And the management team and I will meet you in the Q&A room for additional discussion. Thank you.