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

Good morning, and welcome to the Emergent BioSolutions 2021 Annual Meeting of Stockholders. I would now like to introduce the first speaker, Mr. Bob Burrows.

Good morning, ladies and gentlemen. Welcome to the 2021 Annual Meeting of Stockholders of Emergent BioSolutions Inc. This meeting will be held in a virtual webcast format. Following the business portion of this meeting, Bob Kramer, Emergent BioSolutions Inc.'s President and Chief Executive Officer, will provide you with a brief presentation on the current state of the company, followed by a question-and-answer session. [Operator Instructions] At this time, I would like to introduce the Executive Chairman of Emergent BioSolutions, Fuad El-Hibri. Mr. El-Hibri, you may begin.

Thank you. Good morning, ladies and gentlemen. The 2021 Annual Meeting of Stockholders of Emergent BioSolutions is hereby called to order. I am Fuad El-Hibri, Executive Chairman of the Board of Emergent BioSolutions and Chair of the Strategic Operations Committee. I am pleased to welcome you to our 2021 Annual Meeting of Stockholders. This year, for the continued safety and well-being of our stockholders and employees, we are hosting this Annual Meeting of Stockholders in a virtual format with stockholders attending via the web portal. We will conduct the business portion of our meeting first, followed by a brief presentation on the current state of the company and a question-and-answer session before concluding this meeting. For purposes of the question-and-answer session, questions may be asked by typing the question in the designated field on the web portal. Only validated shareholders will be permitted to ask questions. Emergent's Vice President of Investor Relations, Bob Burrows, will moderate the questions. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible and will address any unanswered questions on our corporate website shortly after the meeting. Out of consideration for others, please limit yourself to one question. Please note that this meeting is being recorded. However, no one attending via the webcast is permitted to use any audio recording device. All participants who have logged in this morning should be able to view a meeting agenda and rules of conduct on the web portal. We will conduct this annual meeting in accordance with that agenda and those rules. Participating today in our virtual Annual Meeting of Stockholders are the following directors -- the following members of our Board of Directors: Bob Kramer, our President and Chief Executive Officer.

Here.

Ron Richard, our lead independent Director and Chair of our Nominating and Corporate Governance Committee.

Present.

Dr. Zsolt Harsanyi, Chair of our Audit Committee.

Present.

Dr. Jerry Hauer, Chair of our Scientific Review Committee.

Here.

General George Joulwan.

Here.

Dr. Lou Sullivan, Chair of our Compensation Committee.

Here.

Marvin White.

Here.

Dr. Kathy Zoon.

Here.

Dr. Sue Bailey.

Here.

Thank you to all our directors who are attending this meeting. Before I proceed to introducing our other executive officers in attendance, I would like to acknowledge Dr. Sue Bailey, who is stepping down from the Board of Directors today and thank her for her many years of dedicated service to our Board and the company. Dr. Bailey has provided invaluable insight and expertise gained from decades of experience in public service. Her passion for improving public health has always supported and aligned with Emergent's mission to protect and enhance life. Her many contributions to advance towards this goal are much appreciated. On behalf of the company, I wish her success in all her future endeavors. With Dr. Bailey's departure, I'd also like to take this opportunity to talk about our Board composition more generally. As we have grown as an organization, we have routinely benchmarked best practices for our company consistent with our strategic plan and did so again recently. Accordingly, our nominating and corporate governance committee is retaining an independent consulting firm to assess the skills and capabilities of current directors in light of corporate governance best practices and make recommendations for Board succession and replenishment consistent with the company's growth, particularly its 2020 to 2024 strategic plan. Following their initial review, we expect to be evaluating potential candidates to further broaden the experience and skill set available to us. I'd also like to highlight that we have had a strong and long-standing commitment to diversity throughout the company, including at the Board level, as described in our proxy. We continue to stand by that, and we'll be focusing on candidates who can continue to enhance the Board's perspective. We note in particular, with Dr. Bailey's departure, we're looking to add additional women to our Board. We will be factoring that into our recruiting and evaluation of new potential candidates. In addition to our directors, we have other officers of the company participating virtually. They include: Rich Lindahl, our Executive Vice President, Chief Financial Officer and Treasurer.

Here.

And Atul Saran, our Executive Vice President, Corporate Development, General Counsel and Corporate Secretary. Mr. Saran will serve as the secretary of this meeting.

Here.

Next, I would like to introduce Steve Canaras and [ Serene Kakus ], the representatives of Ernst & Young, our independent registered public accounting firm.

Here.

Here.

Mr. Canaras and Ms. [ Kakus ] will be available during the question-and-answer session to respond to appropriate questions. Last, I would like to introduce Brian Millard, Senior Vice President, Finance and Corporate Controller, who has been appointed inspector of election for this annual meeting.

Here.

As inspector of election, Mr. Millard is responsible for determining the number of votes represented in person or by proxy, the authenticity and validity of the proxies, the existence of a quorum and the number of votes cast on all matters. The inspector of election has taken the oath of office, which will be filed with the minutes of this meeting. As indicated in the notice of meeting and accompanying documents that were furnished to all stockholders of record as of March 25, 2021, this meeting is being held for the following purposes: One, to elect Dr. Jerry Hauer, Bob Kramer and Marvin White as Class III directors for their terms expiring at the 2024 Annual Meeting of Stockholders; two, to ratify the appointment by the Audit Committee of Ernst & Young as our independent registered public accounting firm for the fiscal year ending December 31, 2021; three, to cast an advisory vote to approve the compensation of our named executive officers; four, to approve an amendment to our stock incentive plan; and five, to transact such other business as may properly come before this meeting. The polls for each matter will open when such matter is called to a vote and will remain open until I announce that the polls are closed. No ballots or revocations of or changes to ballots or proxies will be accepted after the polls are closed. Each stockholder of record at the close of business on March 25, 2021, the record date, has the right to vote his or her shares on all matters today. For ease of administration, unless you desire to change your vote, we urge stockholders who have already voted by proxy to allow their proxies to stand. For those stockholders who have not voted or who wish to change their vote, you may do so by clicking on the Voting button on the web portal and following the instructions there. Stockholders who have sent in proxies or previously voted via telephone or internet and do not wish to change their vote, do not need to take any further action. Please note that if you had -- if you hold your shares through a broker or otherwise not in your name as a stockholder of record, you will need your unique control number that accompanied the instructions and proxy materials that the bank, broker or other nominee provided you with in order to vote virtually at this meeting. Before considering the business to come before the meeting, I would like to ask Mr. Saran to announce the notice of mailing and present the report of the inspector of election. Mr. Saran?

Thank you, Mr. Chairman. I've received an affidavit from Broadridge Financial Solutions, our mailing agent and vote tabulator, certifying that the notice of the annual meeting and proxy statement were first furnished on or about April 9, 2021 to all stockholders of record as of March 25, 2021. This affidavit is available for inspection by any stockholder and will be annexed to the minutes of this meeting. We have a complete list of stockholders entitled to vote at this meeting. The list has been kept at the offices of our transfer agent and at the offices of the company, subject to inspection by stockholders. The list is also available for inspection through the web portal during this meeting. I have been advised by Broadridge that as of the record date, there were 53,576,925 shares of common stock of the company outstanding and entitled to vote at the meeting. Holders of greater than 49,564,244 shares of the company's common stock are represented in person or by proxy. This represents more than a majority of the votes entitled to be cast at this meeting. Based upon this count, a quorum is present, and this annual meeting is lawfully convened and may proceed to transact business.

Thank you. The first order of business for this meeting is to consider and vote upon the election of Dr. Jerry Hauer, Bob Kramer and Marvin White as Class III directors for the terms expiring at the 2024 Annual Meeting of Stockholders, each to serve until their successors are duly elected and qualified or until their prior death, resignation or removal. Information about each of the nominees is set forth in the proxy statement. The Board of Directors recommends a vote for each nominee for the reasons set forth in the proxy statement. I will now entertain a motion for the election of the Board of Directors' proposed nominees.

I so move.

I second the motion.

You've heard the motion to elect the Board of Directors nominees. Voting will now take place on this matter. The polls for this matter are now open. [Voting]

The second item of business is the ratification of the appointment by the Audit Committee of Ernst & Young as our independent registered public accounting firm for the fiscal year ending December 31, 2021. Information about Ernst & Young can be found beginning on Page 31 of the proxy statement. The Board of Directors recommends a vote for the ratification of Ernst & Young as our independent registered public accounting firm for the reasons set forth in the proxy statement. I now ask for a motion on this matter.

I so move.

I second the motion.

You have heard the motion. Voting will now take place on this matter. The polls for this matter are now open. [Voting]

The third item of business is an advisory vote to approve the compensation of our named executive officers. Information regarding executive compensation can be found beginning on Page 35 of the proxy statement. The Board of Directors recommends a vote for the approval on an advisory basis of the compensation of our named executive officers for the reasons set forth in this proxy statement. I now ask for a motion to approve this matter.

I so move.

I second the motion.

You've heard the motion. Voting will now take place on this matter. The polls for this matter are now open. [Voting]

The fourth item of business is a vote to approve an amendment to our stock incentive plan. Information regarding the amendment can be found beginning on Page 70 of the proxy statement. The Board of Directors recommends a vote for the approval of an amendment to our stock incentive plan. I now ask for a motion on this matter.

I so move.

I second the motion.

You have heard the motion. Voting will now take place on this matter. The polls for this matter are now open. [Voting]

In accordance with our bylaws, these are the only matters of business which will be conducted at this meeting. We will be reporting the final vote results in the Form 8-K to be filed with the SEC within 4 business days. I now declare the polls closed. I will now ask the inspector of election to proceed with the canvassing of the votes. Mr. Saran, please present to us the preliminary report of the inspector of election on today's balloting.

Brian Millard, the inspector of election, has notified me of the following. As to the first item of business, the election of Dr. Jerry Hauer, Bob Kramer and Marvin White as Class III directors, each nominee has received a plurality of the votes cast and, therefore, has been elected as a Director of Emergent BioSolutions in accordance with the proposal. As to the second item of business, the proposal to ratify the selection by the Audit Committee of Ernst & Young as our independent registered public accounting firm for the year ending December 31, 2021, this proposal has received a majority of the votes cast and, therefore, has been passed. As to the third item of business, the advisory vote to approve the compensation of our named executive officers, this proposal has received a majority of the votes cast and, therefore, has been passed. As to the fourth item of business, the vote to approve an amendment to our stock incentive plan, this proposal has received a majority of the votes cast and, therefore, has been passed.

Mr. Millard, please file your final voting report with Mr. Saran to be annexed to the minutes of this meeting. Thank you. This completes the business to come before you -- before this annual meeting. I will now entertain a motion to adjourn. May I have a motion from the floor?

I so move.

I second the motion.

Thank you. This Annual Meeting of Stockholders is now adjourned. At this time, I would like to have our President and Chief Executive Officer, Bob Kramer, provide a brief presentation on the current state of the company. Following this presentation, we will then entertain stockholder questions.

Thank you, Mr. Chairman, and good morning, everyone. I'm going to take a few minutes before we get into the Q&A session and provide comments on the current state of the company, the key elements of which are summarized on Slide 4 within the deck accompanying this annual meeting. As I highlighted on our last quarterly call, the executive management team and I are committed to providing you with accurate information and open communications. So let me begin by saying right up front that the state of the company today is strong and resilient, just as it's always been. We anticipate continued need for core medical countermeasures that support preparedness and response. The broad array of biologics-based CDMO services we provide are in high demand across the pharma and biotech sector. Our pipeline of development initiatives focused on vaccines, therapeutics and drug-device combination products continues to be an important driver of future growth. Our current strategic growth is on track, and all of us are as committed as ever to our mission of protecting and enhancing life. As we reported on April 29, we delivered solid financial performance in the first quarter consistent with our expectations. Our team executed across all aspects of the enterprise despite challenges caused by the COVID-19 pandemic. Our financial outcomes in the quarter clearly reflect the strength and durability of our diversified business, evidenced by significant growth and corresponding profitability. Moreover, our balance sheet remains strong with the liquidity and financial flexibility to fund our operations and pursue strategic investments. Despite the more recent headwinds, we remain steadfast in supporting global preparedness and responding to public health threats. We also provided an updated outlook for 2021, incorporating the anticipated impact of recent events on our expected financial performance for the full year. As to the recent headwinds, let me say the following. We understand the critical role the company is playing in the fight against COVID-19 and take the FDA's observations very seriously. We know that Emergent is uniquely situated to supply critical drug substance for COVID-19 vaccine. At full capacity, the Bayview facility is capable of supporting production of greater than 1 billion dose equivalents of COVID-19 vaccines per year. Accordingly, we've been working closely with FDA, other government agencies and our pharmaceutical clients to deliver on a common goal of ensuring the manufacture of safe and effective products of the highest quality. The recent events at the Bayview facility have given the company a renewed focus. We understand our responsibility to public health and have openly and transparently collaborated with FDA and J&J to ensure that we implement appropriate corrective actions so we can swiftly resume manufacturing. In collaboration with J&J, we have developed and are implementing a quality enhancement plan which includes immediate actions and interim controls that will assure the safety and quality of drug substance manufactured at the Bayview facility. In addition, consistent with our commitment to continuous improvement, the quality enhancement plan also includes a sustainable compliance plan detailing ongoing actions to maintain a robust culture of quality at the Bayview site. Our principal objective here remains to strengthen and stabilize the supply chain of J&J's COVID-19 vaccine and to fulfilling our commitments in response to the pandemic. In summary, let me reaffirm what we said on April 29. We've built a robust and resilient business with the capabilities, capacity and financial strength needed to deliver preparedness and response solutions to a wide range of public health threats. Our dedicated employees have put their hearts and souls into confronting the crisis brought on by the COVID-19 pandemic. Our business plays a critically important role in protecting and enhancing lives around the globe. And while we face challenges, we remain confident in our future growth. With that, we can now move to the Q&A session of the meeting. Mr. Chairman?

I now welcome your questions. We will begin with any questions that we received in advance of today's meeting, followed by any additional stockholder questions that have been asked today on the web portal. Please note that only questions that are germane to the meeting will be addressed. Mr. Burrows will read the questions and Mr. Kramer and members of the executive management team will respond to the answers accordingly. Any appropriate questions that do not get answered during this virtual meeting will be addressed on our company website.

Thank you, Mr. Chairman. This is Mr. Burrows. I'm going to allow just a few moments to enable those that wish to submit questions, may do so at this time. Please hold on. Not seeing any questions submitted, Mr. Chairman, I return the meeting to you. Thank you.

Seeing no questions, I would like to thank you for participating in the 2021 Annual Meeting of Stockholders of Emergent BioSolutions. Have a great day. Goodbye.

Thank you. The Emergent BioSolutions 2021 Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now disconnect.