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

Good day, everybody, and thank you for joining us at the Bank of America Virtual Healthcare Conference. My name is Jason Gerberry. I cover pharma and biotech at BofA, and I am pleased to be introducing our next company presenter, Emergent BioSolutions Richard Lindahl, Executive Vice President and Chief Financial Officer of Emergent. Emergent is a specialty biopharma company focused on the development of vaccines and therapeutics for infectious diseases and opioid overdoses and much more. But Rich, thank you so much for joining us at the conference. I believe you have a presentation that you're going to walk investors through, and I'll hand it over to you.

All right. Thank you very much, Jason, and good morning, everyone. Thank you very much for joining our presentation today. I look forward to sharing the highlights of the Emergent BioSolutions story with you this morning. I am -- I have the presentation up, and hopefully, you have access to that. I will cue you to the slide that I'd like you to go to as we go through the presentation. What I will let you know is that our conversation today is going to be focused on 4 topics or 4 sections. The first is I'm going to give you an overview of what we do and who we are today, then I'll move to a discussion of our strategy that we unveiled back in the fall of 2019 for driving growth over the next 5 years and positioning ourselves for future growth beyond that. Third, I'll touch on Emergent's response to the COVID-19 pandemic situation. And then finally, I'll give a recap and update on our first quarter performance. So pausing briefly on Slide 2, just the -- our safe harbor statement and just remind you that my remarks are subject to the disclaimers and safe harbor statements that are on this page. So moving to Slide 3 briefly. This is the section where we talk about who we are and what we do. And then I'll take you to Slide 4. And just note that Emergent has always been a unique company with distinctive capabilities, particularly in high-quality manufacturing and in the unique private/public partnerships that we have forged over time in working closely with the United States government in particular as well as other governments around the world. We are the leading provider of innovative, life-saving medical countermeasure and preparedness solutions that address critical public health threats. And at the end of the day, Emergent delivers peace of mind in an uncertain world. There's never been a time that illustrated the need for a company like Emergent than the environment we find ourselves in today with the pandemic, and quite simply, we were built for times like this. So I'll take you to Slide 5 and just kind of walk you through some of the key stats that illustrate the dimensions of our business today. We have been in business for 22 years. We have about 2,000 employees today. We have 10 marketed products as well as 2 products that are procured subject to special arrangements but that have not been licensed by the FDA. We're over $4 billion market cap. We did over $1 billion of revenue in 2019 and close to $300 million in adjusted EBITDA. I'll talk about our 2020 guidance in a little bit. We work out of 19 global locations, most of which are in North America, but also we have locations in Canada and Europe. We have a robust R&D pipeline that has over 15 products in development, and we have a growing business in CDMO services, what we refer to as our molecules and market offerings. I'll talk more specifically about that. And in particular, that's been the focus of -- at least one of the focus areas of our response to COVID in recent weeks. So I'll turn you to Page 6, and this gives an overview of the products that we have today. On the left side, you can see the types of products. As Jason mentioned, we have vaccines and therapeutics. We also have a medical device business. You can see in the middle of the page how we're organized towards addressing specific risk areas or public health threats. We talk about these as being sort of our franchises, in particular, the biggest ones being anthrax where we have BioThrax as the original product that we put on the market and really was our only product for a long period of time really up until about the 2012, 2013 time frame. It's the only FDA-licensed product to provide both preexposure and postexposure protection against exposure to anthrax. The next generation of that, AV7909, is in development. It is being procured by the U.S. government for the strategic national stockpile under emergency use authorization. That process began last year. And between those 2, we refer to those as our anthrax vaccines that we report on our P&L. We also have 2 therapeutics, Anthrasil and raxibacumab, that fills out the rest of our anthrax franchise. In terms of protecting against smallpox, we have ACAM2000, which we negotiated a new 10-year, $2 billion contract with the U.S. government last year. In addition, we have a VIGIV, which is a therapeutic to address complications in some individuals who received the smallpox vaccine. We also have the travel health business. 2 products there, Vaxchora and Vivotif. Vaxchora addresses cholera. Vivotif protects against typhoid. These products came along with our acquisition of PaxVax in late 2018. Our opioid business is really focused on opioid rescue or overdose rescue with the NARCAN Nasal Spray. And that business was acquired from Adapt Pharma also in late 2018. In addition, we have other products that address chemical threats. And Botulism, as you can see on the page here, other chemical threats, RSDL, a skin lotion that helps address exposure to nerve agents and Trobigard, also an auto-injector that also protects against nerve agents as well. And then our BAT product, Botulism. You will have noticed an 8-K that we filed late last week confirming that we have finalized a long-term contract with the United States government to continue providing that product to the government and with an indicated value of up to $540-some-odd million. All in all, these products are addressing a robust market opportunity that we see being over $30 billion across these dimensions that you see on the right side of the page, not only [indiscernible], but emerging infectious diseases, travel health, emerging health crises and then acute and emergency care. So I'll take you now to Slide 7 and touch on our CDMO business. Again, this is a set of services to address the whole spectrum of molecule-to-market offerings, leveraging our capabilities that we've developed over time in our state-of-the-art manufacturing facilities. We start with development services to partner with innovators to help them prepare their products to come to the market. But we also have manufacturing of drug substance as well as manufacturing of drug product and packaging. We have a number of competitive advantages on this front as you can see in the middle of the page. We offer these services out of our 9 global development and manufacturing sites. And in particular, we have one of those sites has been designated as a center for innovation and advanced development and manufacturing. That's what we refer to as our Bayview site in Baltimore. And that has been the locus of a number of the contracts that we've announced in recent weeks. And again, I'll dive a little more deeply into those in a little bit. Overall, we see a very attractive market opportunity for CDMO services of $20 billion across a variety of technology platforms, you can see from mammalian through microbial, viral plasma and other advanced therapies. So turning to Slide 8. This provides a view of the track record that we have in consistent and intelligent M&A that has supported a large portion of our historical growth. In fact, just since 2017, we have acquired 4 different product sets, done 4 different acquisitions that collectively are accounting for $600 million in annualized revenue in what we have in the base today. ACAM2000 was acquired from Sanofi in 2017. Raxibacumab was acquired from GSK. And then as I mentioned earlier, in 2018, we acquired Vivotif and Vaxchora as well as a manufacturing facility in Bern, Switzerland from PaxVax and then the NARCAN Nasal Spray from Adapt. Turning to Slide 12 -- I'm sorry, to Slide 9. I'll just point out that we have a history of consistent and diversified revenue growth. You can see on the left-hand side of the page that from 2012 through last year, we grew revenue at a compound annual growth rate of 22%, going from about $300 million to over $1.1 billion. On the right-hand side of the page, you can see that, that occurred as we took the product set from 1 marketed product being BioThrax, which represents the 77% of revenue in 2012 through today where we have 10 marketed products that are representing $1.1 billion of growth and a much more diversified revenue stream that we have in place today. On Slide 10, you can see that we've achieved that growth at the same time that we were delivering strong growth and profitability as well. You can see that we've been able to maintain very attractive compound growth rates in both adjusted EBITDA and adjusted net income over this time period, and we've done that even as we've diversified the revenue base and incorporated some lower-margin products and services revenue as well. And so you can tell that we are focused on driving profitable growth in the business. So now let's turn to our growth strategy going forward, again, that we unveiled in November 2019, and I'm on Page 12 right now. And we're very confident based on the business we have today and the strategy we put in place that we can double our revenue yet again to be over $2 billion mark by 2024, and that is a primary goal. But we're also seeking to maintain our focus on profitability and discipline in terms of how we grow that business. So we are looking to achieve adjusted EBITDA margin in the 27% to 30% range over that time. We will do that by building -- continuing to build and scale leadership positions across a range of public health threat markets, and we will also be investing in capabilities to support that growth. So if I turn you to Slide 13, let me just touch on the highlights of how we're going to -- of that strategy itself. It really has 5 components or pillars to the business. First is to execute on the core business. We continue to see an expanding and growing public health threat market that we can address through our product sets and also our CDMO services. We see both domestic opportunities, which is certainly the lion's share of our business today and will remain a primary portion of our growth going forward, but also with select international opportunities. We're going to continue to focus on intelligent M&A to add to that growth, and we expect to continue to add to established leadership positions to continue scaling the business by using M&A to complement our organic growth. We also have a priority to continuing to mature and build out our R&D capabilities. This will help drive growth not only through the 2024 period, but then establish us with a strong platform for growth even beyond 2024. And we, as I mentioned, are going to continue to build scalable capabilities. We've always proactively invested in these type of capabilities. We invested a significant amount of capital in a new manufacturing facility that we referred to as Building 55 in Lansing, back in the 2005 time frame beginning then. We also executed a significant upgrade to our SAP system capabilities in the last 5 years, and we're continuing to build and scale commercial capabilities to support the business. And then finally, we're going to continue to build and evolve the culture that we have. It's a strong culture, but we want to make sure that it evolves along with the rest of the business to support these growth objectives. So turning to Slide 14. We're very excited about the opportunities that our strategy provides. And I touched on both of these already, but you can see we see a lot of room to run, a lot of surface area to continue exploring in terms of untapped market opportunity that our platform can address, both on the -- a pure public -- product, public health threat side, where we see, again, over a $30 billion opportunity, to now on the molecule-to-market services, another $20 billion of opportunity there as well. So turning to Slide 15. I would just emphasize that for those who have known and followed us for some years, you may have thought of us as only a government contractor or a biodefense contractor. And certainly, our relationship with the government have been very important. You can see in the orange slice of the slide, some of our key relationships there with BARDA, with the Assistant Secretary for Preparedness and Response, the Department of Defense, Department of State and NIH. But we've really expanded our customer base significantly over the last several years, working in coordination with a number of NGOs as well as, in particular with the acquisitions that we completed in 2018, entry into retail markets and clinics and distributors such as the Walmarts of the world, CBS of the world, Passport Health as well. So diversification not only on the product side, but also on the customer and partner side as well. And then, finally, on the right side, with our molecule-to-market business, you can see we are doing business with over 50 companies there as that business continues to grow. So I'd like to spend a little bit of time talking about our pipeline. First, I'll touch on the vaccine business. And you can see there's a variety of opportunities in various stages of development, two that I'll highlight in particular. I talked a little bit about the AV7909 product. And again, that one is being procured already by the U.S. government under Emergency Use Authorization. We are in process of a Phase III trial right now, and looking to bring that to full licensure in the next several years. The other one that I want to highlight is our chikungunya vaccine candidate, and that is one that came along with the acquisition of PaxVax. It's an exciting opportunity. It could be, we think, a $300 million to $500 million market for this vaccine. It also has been designated as eligible for a priority review voucher, and we are working hard to advance that candidate through the pipeline. I'll turn next to Page 17, and talk a little bit about our therapeutics pipeline. Certainly, our flu product has been a focus as we came out of Phase II and are preparing for -- and taking it into Phase III, and we see a real acute care market that has an unmet need there. And so that's an attractive opportunity for us as well. We also have 2 candidates that we've recently introduced to address COVID, one is a human hyperimmune product and then the other is an equine hyperimmune products. So I'll talk a little bit about -- more about those in just a few minutes. But those we're looking to get in the clinical Phase II sometime this summer. Then the last pipeline that I want to touch on is as it relates to the Devices business. And here, you can see that we have considerable effort on the -- with medical countermeasures, particularly with the auto-injector business. Trobigard is another candidate that's being procured under special authorization. And then we have these other candidates in development for -- with the DoD, in particular. And then as it relates to our opioid crisis franchise, we're also evolving our product line there, in particular, working on a multi-dose device for NARCAN Nasal Spray as well as a prefilled syringe candidate. So turning to Slide 19. I mentioned that M&A is going to remain a key part of the strategy going forward. I think this just kind of touches on some of the key criteria that we apply when thinking about M&A candidates. First, they need to fit strategically within the umbrella of the public health threats that you see on the left side of the page, that is core to our strategy and our objectives going forward. We definitely have a preference for products that are revenue-generating and can be accretive in less than 24 months. We do have some interest in additional pipeline candidates, but the key is that the business needs to be able to generate risk-adjusted returns in a reasonable time frame for us going forward. So we continue to scan the horizon for candidates, and expect that we will continue to engage in intelligent and accretive M&A going forward as part of the strategy. So now let's turn to our response to the COVID pandemic crisis, and I'll take you first to Slide 21. And this just illustrates that, clearly, this -- the response -- the global response to COVID has many dimensions to it. Certainly, in addition to the frontline health care providers and then the testing and detection elements, the areas where we're really focusing our efforts is in our -- where we have distinct capabilities and expertise, and that's really in -- across vaccines, therapeutics and development and manufacturing. So if I take you to Slide 22, this just highlights how we've been active in molecule-to-market and the partners that we have joined with in the last several weeks. So again, our state-of-the-art infrastructure and our improving track record has really positioned us to provide a differentiated CDMO offering and a way for us to partner with fellow innovators to help them progress their candidates, with the goal of getting to patients as quickly as possible. You can see here that we have 3 key partnerships across all 3 elements of our capabilities. So first, Novavax. We secured an agreement to provide molecule-to-market services across all 3 elements: development services, drug substance and drug product manufacturing, to support their Phase I clinical trial, which they anticipate is going to commence in the very near term. Next is Vaxart, where we have an agreement with them to provide both development services and drug substance manufacturing to support their Phase I clinical trial, which they are hoping to commence in the second half of the year. And then finally, Johnson & Johnson, which we announced more recently. We secured an agreement there, valued at $135 million, to provide drug substance manufacturing services and reserve some capacity to enable large-scale manufacturing, which they anticipate to begin in 2021. And so we are currently negotiating a long-term commercial supply agreement with Johnson & Johnson today. So that covers on the CDMO side. I'll turn next to Slide 23, and touch briefly on our products, our hyperimmunes. We're really focused on having a meaningful impact in this COVID-19 outbreak to help reduce the overall burden on the health care system by providing therapeutics and treatments to the market. And so, to meet this need, and importantly, to be able to go fast, we've leveraged the platform that we've had in place, which we call our hyperimmune platform. It's based on plasma-derived solutions. This is a platform that has been in place for 4 decades. It actually predates our company. We acquired a company called Cangene that had this technology back in 2014. So 4 decades of experience, has supported 6 FDA licensed products, bringing those to the market, and they can be leveraged to expedite the development of new treatments. Briefly, a hyperimmune treatment basically is made from the antibodies of individuals who've recovered from exposure to a pathogen like COVID-19, and those who fully recovered have these valuable antibodies that can be isolated from blood in the plasma fraction process. And so we collect the plasma. We can then, from multiple donors, create a purified and concentrated product through a validated manufacturing process, and then ultimately produce something that is targeted for severely hospitalized patients that may speed up their recovery, and also has the potential to be evaluated to protect at-risk individuals such as health care workers. So this just gives a quick overview of hyperimmunes, in general. If you look then at Slide 24, we talked a little bit more specifically about how we can move the product through to get to patients as quickly as possible, leveraging our cGMP manufacturing capabilities, getting to clinical studies. In this case, we are hoping to get to Phase II studies, again, during the summer, and then pursuing Emergency Use Authorization to get product out into the patient community as quickly as possible. We have partnered with both NIAID as well as BARDA, who has provided $14.5 million of development funding to us back in April. So I will now turn just briefly to highlight our first quarter performance. On Slide 26, the summary is that it was very solid. We left the quarter in a very solid and strong liquidity position as well. Kind of the high-level view is that we have been seeing some softness in our travel health business, but that's been offset by growth in the CDMO business, in particular, from those contracts that I just talked about. And as a result, we were able to reaffirm our full year guidance. And we feel responsibly confident in our ability to sustain momentum in this environment, which, obviously, remains highly uncertain. No one really knows where the pandemic is going, on either economic terms or from a public health perspective, but based on where we sit today, based on the visibility we have in our business, with over $3 billion of long-term contracts in place and some of the other developments that we've seen recently, we felt comfortable reaffirming the guidance for the full year. So turning to Page 27. This just shows you kind of a several-year trends on revenue, adjusted EBITDA and adjusted net income. The first quarter tends to be seasonally our lightest quarter of the year. We tend to have roughly a 40-60 -- excuse me, 40%, 60% split of revenue between the first half of the year and the second half of the year. With -- you saw last year that revenue grew sequentially as we came through the year. We'd expect a similar pattern this year. If you look at Slide 28, you can see here just a little more detail on our liquidity position. We had $182 million of cash on the balance sheet plus another $163 million of accounts receivable, which gave us a very strong liquid asset position as well as additional undrawn capacity under our existing revolver of another $245 million. So combined with a very solid credit profile, we're in good shape not only to execute against our objectives for this year, but to take advantage of M&A and other investment opportunities should they present themselves as we go through the year. And then on Slide 29, this just highlights our full year guidance. Total revenue in the $1.175 billion to $1.275 billion range. The -- you can see here that we've highlighted the specific guidance at a product level for anthrax vaccines, for ACAM2000 and for NARCAN Nasal Spray. And then we recently provided guidance for the first time on our CDMO service line of $125 million to $145 million, which would represent very significant growth of 55% to 80% over the $80 million of revenue that we produced in 2019 in our CDMO business. We also provide guidance on adjusted net income and adjusted EBITDA, which are looking for additional growth over 2019 as well. And then we provided second quarter revenue guidance of $270 million to $300 million as well. So just to wrap up on Slide 30. You can see that, hopefully, I've illustrated for you that we have a proven track record of building and executing profitable and diversified revenue growth. This comes from a scalable and sustainable business model, which is really unique and focused on driving global preparedness and response solutions. We're an established leader, and we're going to continue to build and scale on those leadership positions where we have competitive advantages, and we have a very strong financial foundation that drives from a disciplined approach to capital deployment and a focus on driving shareholder value. So with that, it looks like I don't have time to take questions. I've taken the full 30 minutes. I hope you found this useful. And thank you for your interest in Emergent. So I'll wrap up there. Jason, I don't know if you have anything you want to close off with?

No. We're up against our time. That was very, very helpful. Thank you so much for joining the conference. And best of luck through the remainder the year, and stay healthy.

Okay. Thanks. Same to all of you.

All right. With that, we can conclude the session. Thanks, everybody.