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

Well, welcome, everybody, and thank you for joining our discussion with Emergent BioSolutions. Let's just dive right in since we only have 0.5 hour here.

There's been a lot of interest in your CDMO business certainly over the last year. And so maybe start with Bob. Can you talk a little bit about the history of the CDMO business, how it came to be the folks of organization? How should investors be thinking about it? Maybe talk a little about some of the backlog and some of the new metrics you've provided for investors to better understand the business. And how should we be thinking about it several years in the future?

Sure. So first of all, Boris, thanks for the opportunity to participate in the conference. Good to see you again. So I'm joined today by Dr. Laura Saward, who runs our Therapeutics business unit and by Bob Burrows, who heads up our Investor Relations functions. So it's where I'd say, Boris, about the CDMO business is that this has been core to what Emergent has been doing since we really formed the business 22 years ago in 1998 in one way or another. And by that, I mean biologics manufacturing and controlling and owning our supply chain for our own portfolio of products across vaccines, therapeutics and devices has always been kind of a core principle of our strategy. Roughly 9 years ago, in 2012, Emergent's facility outside of Baltimore was selected by the U.S. Department of Health and Human Services as one of 3 centers for the innovation in the advanced development and manufacturing of medical countermeasures for pandemic threats like Zika and Ebola and now COVID-19. So in 2012, I would say that we, in a more material purposeful way, established a CDMO business unit with a designation of one of our facilities as being that pandemic response facility that would partner with the U.S. government as well as collaborators -- third-party collaborators to quickly be able to tech transfer, scale up the manufacturing process and bring to the market potentially hundreds of millions of doses of different vaccine products. So what began in 2012 was further complemented through a series of acquisitions that we've made, including in 2014 with our acquisition of Cangene Corporation that brought us a dedicated fill/finish site also in Baltimore. And what we decided a couple of years after, Boris, was to take all of our 9 manufacturing and development sites and really look for opportunities to leverage the fact that from time to time, we may have underutilized capacity that we could sell to third parties to do for them what we're doing for our own portfolio of, again, vaccines and therapeutic products and really turn it into a dedicated CDMO business unit. So what started out a number of years ago as maybe a tiptoeing into the water of CDMO has suddenly created with last year our foray into COVID-19 vaccine development work with partners like J&J, AstraZeneca, Novavax, Vaxart, a real opportunity to leverage 9 manufacturing and development sites across 5 different platform technologies to provide drug substance, drug product and development services to a wide array of customers, both in the clinical setting as well as in the commercial setting. So let's start it out from rather kind of humble beginnings of really revenue in the $25 million a year range back in 2014, 2015, progressed, where in 2019, our CDMO revenue was around $100 million. And then in 2020, things really exploded with our support across the board of a number of COVID-19 activities to revenue in the $450 million range. And then for 2021, we see a doubling of that revenue to roughly $950 million, primarily driven by COVID-19 activities. So it's been arguably a very COVID-19-weighted growth. But at the same time, we're looking for opportunities, hence, your reference to the opportunity funnel that we began providing information on a couple of quarters ago as well as the backlog of contracted revenue that is yet to be realized by the CDMO business for the next 1 to 3 years. So we're starting to, again, pivot to providing more traditional information to investors on the growth opportunities and prospects for that business unit and see great opportunities. I guess the other thing I'd say and acknowledge is that we are making material investments in our 9 manufacturing sites and have committed to date $200 million of new capital going into a number of the manufacturing facilities where we do both drug substance as well as final drug product work. So maybe I'll pause there and welcome additional questions, Boris.

Sure. First, actually, real quickly, can you maybe define for our audience the difference between drug substance, drug product and any other defined manufacturing steps?

It's a great point. So when I talk or when we talk about drug substance, it's doing for third parties essentially what we're doing for Astrazeneca and J&J in the COVID-19 space, which is where we are manufacturing the initial material that will then be transferred to another party for final filling and finishing work. So we're manufacturing at either a 500-liter scale, sometimes a 2,000-liter scale, the bulk material, and then transferring that to yet another contractor or relationship of the choosing of our collaborator to do the final either vial or sometimes prefilled syringe presentation that patients are used to seeing either in the doctor's office or in the hospital.

Got you. I guess one natural question that's very timely is, obviously, over the weekend, the FDA approved J&J's single-dose vaccine. How does that translate to revenue or change anything in terms of your J&J relationship?

That's a good question, Boris. So we have a relationship with both J&J as well as AstraZeneca. That is kind of a 2-part relationship. First of all, starting last year, [indiscernible] contract by both organizations to essentially stand up a dedicated manufacturing system in our facility outside of Baltimore to manufacture at a large scale and be able to manufacture hundreds of millions of doses of each of their candidates. We also put in place a commercial supply agreement, a multiyear commercial supply agreement with each of AZ and J&J, which calls for us to provide a certain number of production slots, which will turn into a number of doses for each of those parties over, in the case of J&J, it was a 5-year agreement, and in the case of AstraZeneca, it was a 3-year agreement. So congratulations, first of all, to J&J. We're getting over the emergency use authorization hurdle over the weekend. It's been a tremendous success for them as well as for Emergent to be able to support their EUA approval process. And now we are in the process, if you will, of manufacturing according to a production schedule that is of a contractual nature for J&J to supply them with a number of doses over the next year or so.

So does this approval, in some way, change that funnel that we talked about?

Yes. So it's another good clarification, Boris. So we did not and currently have not included in either the opportunity funnel or the backlog any potential for current contracts to be extended. So whether it's the current set of contracts with AstraZeneca or with J&J or with HHS and BARDA, any potential extensions beyond the current durations of those contracts are not included in either the opportunity funnel or in the backlog.

Got you. So how do these approvals -- I just want to clarify, do they translate to a significant revenue or not? I mean if J&J would -- let's say, would be turned down by the FDA, how would that impact revenue versus what -- obviously, the approval they got over the weekend?

So if they were not approved by EUA really wouldn't have changed our revenue projections for CDMO for 2021. The nature of the contracts that we sign with all of our collaborators, including HHS and BARDA, are [indiscernible] and not really impacted by kind of a pass or fail metric. I think the opportunity now with J&J is to enter into a dialogue about the remaining years of the commercial supply agreement that we have in place. So just to be clear, we are, I think, a key element of their global supply chain solution for their COVID-19 vaccine. We've been focused on making sure that we meet the demands of the U.S. government of J&J's vaccine, but we also see opportunities to make sure that our facility is fully leveraged and can play a part in their global supply chain solutions as well. So we'll be having ongoing dialogue with them over the course of the next probably 3 to 6 months.

Now I don't believe J&J commented exactly how many doses they tend to make. I'm just curious, hypothetically, let's say, they announced that they want to make 100 million doses. Let's keep the number very simple. Is there any way you could translate to us what that would be in terms of revenue to EBS?

Yes. So what I'll say about that, Boris, is our agreement with J&J is really production slot driven, meaning we have committed a fixed number of production starts and sweet time utilization for both J&J and Astrazeneca, and that really what -- is what drives our revenue from those commercial supply agreements for 2020 and 2021. I'm sure we'll be having conversations with our collaborators about what they see as their long-term global supply needs and how we fit into that supply chain solution for them in the coming months. It's just a little premature to talk about that right now.

Great. So maybe let's zoom away from just the J&J agreement. And can you talk more broadly about at least 2021 revenue or maybe part of the funnel, what is COVID, what is non-COVID? And how do you anticipate the non-COVID part of the backlog and funnel to grow over the years?

Yes. So we've been pretty clear about what makes up the opportunity funnel, but more importantly, the backlog since we first published that number roughly 6 months ago. So early on, we said that last year, we put in place $1.5 billion worth of COVID-19-related CDMO work. We've been working off of that backlog as we've recognized revenue and delivered on our commitments to our collaborators that's contained in those agreements. I think for 2021, the majority of our CDMO revenue will be COVID-19 related, either with AZ, with J&J, with HHS and with BARDA. But there will be a healthy dose of commercial collaboration and contract value in that number as well. And obviously, when we started providing the opportunity funnel 6 months ago, it started out at a relatively modest number. It grew to a little over $680 million of opportunity that was in the funnel, if you will, by the end of the year. We've converted to date a little over $110 million of that opportunity funnel since we first started providing that number. So we'll expect to get continued traction on that. We see great opportunities across our 9 different development and manufacturing sites in the 5 platform technologies that we can support, again, in the area of those 3 service pillars of drug substance, drug product as well as development services. So I know everyone wants to know what the composition of our CDMO revenue will look like post 2021. It's a little too early to give specific color on that until we work through with our current COVID-19 collaborators, namely AZ and J&J and the U.S. government over the next 6 months. But we feel very confident that, again, we have a diverse service offering, a niche service offering and roughly 22 years worth of experience that collaborators should feel comfortable partnering with Emergent long term to meet their service needs.

Great. So in the interest of time, let's maybe move on to NARCAN. There's obviously a lot of interest in the ongoing litigation. Can you comment on the timing? And what should we expect out of this ongoing, I guess, hopefully, decision soon and how that translates to the ultimate evolution of the NARCAN market that you see maybe over the next several years?

Sure. So we obviously continue to track the progress that the appellate court is making in terms of its decision that we expect in the second half of this year, all the while remain focused on meeting the needs of literally millions of patients when it comes to opioid overdose treatments. Since acquiring this asset in 2018, as we've talked about on literally every investor call, we remain hyper-focused on educating the millions of patients who are at risk of an opioid overdose. Many don't even recognize that, Boris. We also remain focused on educating individuals who may not be aware of the importance and the opportunity to have ready access to any form of naloxone, whether it's our NARCAN Nasal Spray, a prefilled syringe or even an auto-injector delivery, that the need for individuals to have immediate access to some form of naloxone if they are at risk of an opioid overdose really can't be understated. So I know everyone wants to look forward to the appellate court decision. That will run its course, but in the meantime, we remain hyper-focused on meeting the needs of patients in the education and the awareness area and, importantly, driving additional access either through the retail channel or through the public interest channel to make sure that the very patients who need this product have ready access and, importantly, affordable access to products like NARCAN Nasal spray.

There's also a lot of interest in nalmefene products these days. Can you comment and contrast nalmefene? How do you think that would play into the opioid reversal market?

Yes. So nalmefene is typically being evaluated for longer-acting and longer protection. So we have a product that we are also developing that would be a longer-acting injectable form of nalmefene for opioid overdose treatment. It's simply a longer-acting form of naloxone. It has some upside, some real value.

Got you. Okay. Well, in the interest of time, I'd like to move on. I'd like to include Laura at some point as well in the discussion. Let's maybe stick with BioThrax and 7909. Can you narrow down the timing of the 7909 BLA? And if approved, how will this affect procurement or pricing or just in general, the future outlook for this franchise?

Yes. So on AV7909, just for the benefit of the folks listening, that is our second-generation anthrax vaccine that was selected by HHS in Q3 of 2016 as being their choice for second-generation anthrax vaccine to eventually replace our current product, BioThrax, in our country's Strategic National Stockpile in order to protect civilians as well as military personnel from being exposed to the biologic agent, anthrax. So we expect the final study report, Boris, to be issued probably in the first half of this year. And then we'll seek for BLA approval sometime in 2022. And right now, as you know, AV7909 is [indiscernible] longer term, both development and procurement contract with BARDA. And when I say that, what I mean is part is funding all of the development work to bring AV 7909 through a state of licensure with the FDA, and all the while, BARDA is actively procuring AV7909 today and have been since 2019 to go into our country's stockpile to protect, again, civilians and military personnel from the threat of anthrax. Pricing-wise or economic-wise, we've had those early discussions with BARDA. That was the subject of the procurement contract that we put in place with BARDA back in 2016. So sometime in either late 2021, early 2022, we'll be having discussions with them about a follow-on procurement contract to continue to support the use of AV7909 as the centerpiece for the Strategic National Stockpile.

So maybe, Laura, to you now, I believe you're involved with the hyperimmune products in IVIG. Can you just talk about -- I mean you guys have a product against flu and you have COVID and you even have equine-derived COVID drug. Can you comment about all those programs? And on the COVID side, we'd like to understand what the opportunity there is. On the flu side, I just want to understand how do you develop that forward and what development strategy is because I believe flu rates were almost 0 this year due to all the social distancing and mask wearing and so forth. So where does that leave the flu program? I guess you could start with either one that you'd like.

No, maybe I'll start in general on the hyperimmune platforms and how we sort of put our first focus on addressing COVID. So looking at the 2 platforms that we have the most experience on and the number of FDA approved products, we have the human hyperimmune platform, which really relies on antibodies derived from humans who have recovered from COVID. The equine platform is one where we can vaccinate horses to develop antibodies that would target COVID. And we did advance both quickly. Certainly, our human platform is further along, so maybe I'll spend most of the time on that, but glad to address where we took our equine platform too, which showed a lot of promise. On the human side, our hyperimmunoglobulin just completed its Phase III trial. So we just finished recruitment, and we're in the data analysis phase. So over the next 2 months, we're expecting to have data available. And assuming that it's positive, our intent is to go very quickly to emergency use authorization. And that trial was focused on the hospitalized patient population. So this is one where there have not been many treatments available to date for hospitalized patients. And so we still believe that there's a high unmet need in this space, especially for an antibody product. And when we think about the potential of it then going forward, I mean, right now, we're very focused on the public health emergency, making sure product makes it through to patients as quickly as possible. With an EUA approval, we'll certainly continue our discussions on procurement with the government. But there's also -- sorry, I think I have some noise in the background. Also, we have a number of other patient populations indications for that product that we're exploring. So we have a earlier in the treatment paradigm population, so the outpatients, mild to moderate. This is one where there has been some studies done to date with the monoclonal antibodies, looking at preventing progression of high-risk individuals. And then we have another patient population indication looking at prevention, so postexposure prophylaxis, which we've already initiated. And both of those programs will be looking to generate data this year. So all in all, I think the COVID-HIG product certainly has a number of opportunities to have an impact on the outbreak. As we think about the conversion of this from more of a public health emergency to the endemic disease, it starts to take on a lot of characteristics similar to the influenza, seasonal influenza. So this is where our focus on these acute respiratory diseases, like influenza and COVID that have a seasonal burden, and patients in hospitals that we're looking at leveraging the same platform for an influenza immunoglobulin. This completed its Phase II in 2019. In 2020, we were doing our data analysis and have planned for an end of Phase II meeting that will occur this year. As you point out, there has been some interruption in the seasonal influenza dynamics. And so as we think about the timing of that trial, we'll go forward with our stage-gate and end of Phase II meeting with the FDA and be in a ready position, and then we'll evaluate the dynamics of the flu season because certainly, COVID is having some impact on that with the isolation. But assuming things go back to a more normal disease dynamics once the lockdowns are eased up, we're anticipating flu will continue to be a seasonal burden. And certainly, on both sides, because of the strain variance we see come into either COVID or flu, I think the polyclonal certainly have an important role to play to address some of these variance and strain shifts that occur. So hopefully, I covered many of your points, Boris, but glad to talk specifically to any part there to go into more detail.

Well, as much as I'd love to do that, in the interest of time, we have 3 minutes left. So maybe I'll give it back to Bob. Can you summarize the key milestone, obviously, besides the earnings calls that investors should be following maybe over the next 12 to 18 months?

Thanks, Boris. I mean, clearly, we're coming off an incredibly successful 2020. I mean, during 2020, our revenues were up 40%. Our adjusted EBITDA numbers were off the chart successful. We had a 41% adjusted EBITDA margin that we generated during 2020. So we take those tailwinds going into 2021. Clearly are focused on making sure we meet our commitments to our collaborators around COVID-19, both on the vaccine side and, as Laura articulated, on the therapeutic side. We obviously are tending very carefully to our medical countermeasure business in terms of all the other products that we're delivering to the U.S. government and to allied governments to maintain and replenish their stockpile floor vaccines and therapeutics. We talked a bit about the NARCAN nasal spray business. We didn't talk much about the products that we have in development. But clearly, our -- in the travel health space, while that's been impacted in a negative way by the pandemic, we are pushing ahead with our chikungunya VLP vaccine candidate that we plan to start a Phase III clinical trial later this year. So that pushes forward. And we continue to look for opportunities of a business development nature to add to the leadership positions we have across vaccines, therapeutics, devices and the CDMO market and see a lot of positive momentum across literally all 4 areas of the business. But the first half of the year, we'll be focused on making sure that we execute successfully as we have already in the COVID-19 space. Again, couldn't thank enough, Boris, our 2,300 colleagues with the work that they are doing in 2020 and 2021, operating under incredibly challenging circumstances. They're doing just fantastic work and wouldn't be here without them.

Well, with that, thank you very much for the discussion. We're just out of time. I'd like to thank everyone for joining us, and enjoy the rest of the conference.

Great.

Thank you.

Thank you.

Thank you, Laura.