Emergent BioSolutions Inc.
Q1 2021 Earnings Call Transcript

Published: 30 Apr 2021

[Operator:]

Thank you for standing by, and welcome to the Emergent BioSolutions First Quarter 2021 Earnings Conference Call. . I would now like to hand the conference over to Bob Burrows. Please go ahead.

[Robert Burrows:]

Thank you, Cindy. Good afternoon, everyone. My name is Bob Burrows, Investor Relations Officer for Emergent BioSolutions. Thank you for joining us today as we discuss the operational and financial results for the first quarter of 2021. 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.

[Robert Kramer:]

Thank you, Bob, and good afternoon, everyone. Thank you for joining the call. As you know, we've been in the press and in the news lately, primarily related to our COVID-19 manufacturing activities. As a result and given that our core business continues to operate pretty much as planned, I'll focus my prepared remarks around the news and let the core business performance speak for itself. My comments are summarized on Slide 7 in the deck accompanying this call. The executive management team and I remain committed to providing you with accurate information and open communications. I'd like to start by addressing our ongoing role and the involvement in the urgent battle against COVID-19.

[Richard Lindahl:]

Thank you, Bob. Good afternoon, everyone, and thank you for joining the call. I'll start on Slide 9. As you can see from today's earnings press release, during the first quarter of 2021, we delivered solid financial performance, which was consistent with our expectations. Our team continued to execute across all aspects of the enterprise, despite continuous challenges caused by the COVID-19 pandemic.

[Robert Kramer:]

Thanks, Rich. Before we move to Q&A, I have a couple of personnel updates I want to announce. First of all, Dr. Mary Oates, our Senior Vice President of Global Quality, who joined us in November, will now report directly to me and become a member of my executive management team. Dr. Oates has 30 years of biopharmaceutical experience in quality, manufacturing operations and regulatory affairs. Prior to joining Emergent, she spent 25 years at Pfizer, holding multiple leadership roles in operations and quality. She's also held positions at Glaxo as well as Lachman Consulting Services. Since joining us, Mary has been able to build the talent of her team with experienced professionals who are improving the strength of our quality organization every day. Mary has also been leading our response to the Bayview 483 observations. Secondly, Sean Kirk, our EVP of Manufacturing and Technical Operations is taking a personal leave of absence. For nearly 18 years, Sean's proven track record across multiple functions in multiple roles has greatly contributed to our growth and success. Since the beginning of that pandemic, in his role at the helm of our manufacturing operations he has been laser-focused on fighting COVID-19 every hour of every day for more than a year. We all hoped and expected that by now, he begins to transition to a less rigorous schedule, but unfortunately, the opposite has happened. Given the great public need, Sean has set aside several important personal matters over the last 15 months, and we look forward to him using his leave to address those matters and return to a more balanced pace. Third, Adam Havey, our EVP of Business Operations, will assume full responsibility for manufacturing including working in coordination with Mary on our Bayview remediation plan. Many of you know and have interacted with Adam in the past. He's been a valuable member of my executive management team and has been part of Emergent for almost 18 years. Finally, I want to notify you that Syed Husain, the Head of our CDMO business unit will be leaving Emergent to pursue another opportunity. Syed has put in place a strong strategy and a strong group of talented leadership, and we thank him for his many contributions. We've asked Catherine Hanley on his team to serve as the Interim Head of the CDMO business unit, while we actively recruit Syed's replacement. With that, I'd now like to turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator:]

. Brandon Folkes. Your line is now open.

[Brandon Folkes:]

Bob, I appreciate the frankness and echo your comments about your work. I do have a number of questions. So maybe firstly, can you - what can you say in terms of the performance causes for the J&J and the HHS contract? Similar to that, what are you contemplating your guidance in terms of a return to production? And again, just rolling it all in. Any context in terms of the impact in April to the CMDO service opportunity funnel, how that may be impacted in April? Any customer losses there? And then the other side of it, it was great to see the $187 million, I think it was, in business win. So just any context around that those wins? Are they COVID related? Any color you can give us there as well.

[Robert Kramer:]

Sure, Brandon, thanks for the question. You covered a lot of territory there. So let me focus on a couple. First of all, as we've said over and over, our number one priority right now is to make sure that we do everything we can to respond fully to the 483 observations of the FDA, get our response in and do everything we can to support their review of that document and resume production as quickly as the FDA feels comfortable that we can. So that's our number one goal. It's J&J's number one goal, all in furtherance of stabilizing and strengthening the supply chain for this much needed vaccine. In terms of the CDMO services impact and losses, I'll say a couple of things. First of all, to my knowledge, we've not experienced any losses in the current customer base. I think people understand that we jumped into this pandemic response in a big way, unusual way, but that's what we do. I mean that's how we built this business over 22 years. I think we still see strength in the core business. And as we've talked about, the network itself includes 9 manufacturing sites. Those 9 manufacturing and development sites are capable of supporting 5 different platform technologies across a very broad service offering of development services, drug product, as well as drug substance. So the bones of that business are very strong, and they are very high in demand in terms of the diversity of the customer base that we're going after. So I'm pleased to see the continued strength in that business with the new contracts that we're able to put in place in Q1, and we'll be able to comment on Q2 in time.

[Operator:]

Dana Flanders. Your line is now open.

[Dana Flanders:]

Great. Thank you very much for the questions. Bob, how would you just characterize your working kind of relationship and dialogue right now with your U.S. government counterparts. I know the anthrax vaccine needs a new contract soon, and you've been in the news a lot lately, which you've discussed and have a congressional hearing coming up. So just wondering how you give kind of investors comfort that, that kind of relationship is still strong? And then my second kind of related question. I'm wondering if there's any color you can give on the raxi contract and why that's being delayed and then if there's any read-through to the kind of upcoming anthrax contract negotiations later this year or early next year.

[Robert Kramer:]

Thanks, Dana. I'll take a couple of those and then perhaps turn it over to Rich to talk about the discussions regarding the upcoming contract renewals. So first of all, on the U.S. government relationship, we've been at this for 22 years as a company. We pride ourselves on open, transparent relationships, and we found that to be the case in the last 22 years as well as the current circumstances. So we are working in a very transparent way with all factions of the government, those within HHS and BARDA and others. So those relationships remain intact and strong. And maybe, Rich, you can turn to exactly kind of where we are assumption wise for the - both the ACAM and the AV7909 options that are up for renewal.

[Richard Lindahl:]

Sure. Happy to do that. And thanks, Dana, for your question. So as it relates to ACAM2000, what we are assuming is that the option will be exercised in time for us to begin making deliveries in the second quarter of this year. So we expect to see some amount of ACAM revenue in the second quarter and that the full amount of the full year guidance comes through as a result of that option being exercised. Secondly, as it relates to ACAM - I'm sorry, AV7909, we also anticipate that the next option exercise will occur in time for deliveries to begin against that next option in the third quarter of this year. And that's contemplated by our guidance and approximately half of our guidance relates to deliveries that would come in the third and the fourth quarter of the year. And then as it relates to raxi, basically, when we came into the year, we assumed that the RFP and bidding process would occur much earlier in the year than it looks like it's going to happen at this point in time. So based on where we are, our expectation is that it's likely that, that's going to happen later, and that, that revenue can push into 2022.

[Operator:]

Jessica Fye. Your line is now open.

[Jessica Fye:]

Just following up on Dana's question, can you elaborate for us just where we stand with the AV7909 contract. I think the base period might be coming to an end in the coming months. So I guess, can you explain what the end of the base period means and what it doesn't mean? For example, should we expect you to start negotiating the next contract soon? And how many doses are possible for the government to buy with the remaining options on the current contract? Is there any time limit by which those options must be exercised?

[Robert Kramer:]

Yes, Jess, thanks for the question. So I think Rich has covered part of your answer, but just to go back at it a bit, the current contract for AV7909, we expect to be discussing with the government, the renewed option and the exercise of that option for the next annual period. I believe that the current period of performance goes through the middle of this year. So we're looking at what's going to happen for the back half of 2021 and the first half of 2022. And we have certainly built some expectations of what the outcome of those negotiations will be in our guidance for 2021. I think right now, that's all we can say other than that we are in discussions already with the government around the outcome of that.

[Adam Havey:]

Hi Jess, it's Adam Havey here. I just might add one other piece. When we established that contract, it had 2 kind of major pieces to it, the first was the development and licensure, essentially the BLA approval of the product and the second was procurement. And so I think you could assume that as we work through that regulatory process, that the period of performance on that contract will expand. And once we get approval, then we'll talk about with the government, how to transition. Once we get - or if we get approval, we'll talk about the government about how to transition like we did with BioThrax in the earlier years. But remember, the core work on that is the development work, and that's still active. We're on target, on plan, and that will move into 2022.

[Jessica Fye:]

Okay. Great. Can I just ask a couple about Bayview, you talked about getting back to the FDA regarding the 483 within the coming days? Will a reinspection be needed following that remediation before EUA?

[Robert Kramer:]

Yes. So Jess, we're not expecting that outcome. It's certainly a possibility. But we - again, we expect to deliver a very wholesome durable set of corrective actions in response to the observations. And look forward to working with the FDA if they have any questions as a follow-up once they get that document.

[Jessica Fye:]

Okay. And then going back to the shift in timing on the new raxi contract, what's the reason there? Is it because the product is made at Bayview? Or is the timing shift due to something else?

[Robert Kramer:]

Yes. It's not due to - no association with Bayview, Jess. I think it's simply a priority issue. And again, we expected, as Rich described, that the RFP would have been issued by now, and we would be working through with the government what that longer-term solution looks like. We're ready to do that when they're ready to have those discussions.

[Jessica Fye:]

Okay. Great. And I just have a couple of just clarifying guidance. You talked about the timing of expected revenue being the reason behind the cut to the CDMO guidance. Does that mean we should just think of it as shifting into 2022? Or is the contract written such that delayed timing means a lower revenue opportunity overall? That's the first part. And then second, should we still expect you to collect revenue from AstraZeneca this year?

[Richard Lindahl:]

So in terms of the shift, we are anticipating that revenue would shift into 2022 to the degree that it's not recognized this year. I should say the key variable right now relates to next steps at Bayview. And we obviously, as Bob referenced, we can't really comment on what the FDA's timing would be, but we've developed a range of scenarios, which are contemplated by the wider range of CDMO guidance that we have put out there. So that's really kind of how we're thinking about that going forward. And then as far as AZ is concerned, we do anticipate recognizing incremental revenue from AZ this year. That's contemplated in our guidance. We're working through the ramp down process and determining the next steps with them.

[Operator:]

Keay Nakae.

[Keay Nakae:]

First, appreciate the transparency and publicizing the 483 findings. With your proposed corrective actions, what kind of time frame are you anticipating it will take you to implement those corrective actions?

[Robert Kramer:]

Okay, thanks for joining. Thanks for the question. I'm not going to get into the nitty-gritty of the response, only to say that we commit to do whatever we have to do to partner with J&J, respond in a very thorough, robust way and be able to get back into production as quickly as possible. So it's really inappropriate to speculate on anything other than that. But again, reinforcing our #1 priority is to get back into production soon, but obviously, only after completely responding and committing to corrective actions necessary and appropriate as identified by the FDA.

[Keay Nakae:]

All right. Well, let me ask you another question, Bob. While appreciating the rapid changes that you had to accommodate, given everything that's happened, what would you say are the key things you've learned from the experience?

[Robert Kramer:]

Yes, it's a great question. We've kind of internally debated that for a while. I think the lessons learned, quite frankly, are again, the importance of transparent open communications. I mean, clearly, we were in this situation this time last year, where we readily raised our hand. We stepped forward. We ran at this opportunity in pandemic in a way that few, if any other organizations did. So I'm proud of the fact that we have stepped up and stepped into this in an aggressive way. No one could have anticipated, just to be clear, what the outcome of the work was. And again, I think the lessons learned are the importance on preparedness and how critically important that is when it comes to emerging infectious diseases or chemical and biologic threats for that matter. So preparedness counts, response counts. And again, I'm proud of the fact that we jumped into this and did everything we could, everything we can right now to stand up and stabilize the supply chain. And we would absolutely do it again.

[Operator:]

. And for your last speaker that's Lisa Springer.

[Lisa Springer:]

Certainly, you've covered a lot on the call, and I just have a quick question regarding the travel vaccines. With some of the European cruise line starting back, are you seeing any pickup in demand for your travel vaccines? And what's the outlook for that for the year, do you think?

[Robert Kramer:]

Yes, Lisa, thanks for joining the call. Thanks for the question. As we commented earlier in the year and late last year because of the COVID pandemic, we're not anticipating a huge revenue contribution from the travel health business. We remain interested in doing everything we can in that space. And as you know, we have both commercial products as well as other candidates in development. We don't know quite yet what to read into your specific question about cruise lines opening up, we'll see how that plays out. But again, we don't expect that to be a huge contributor in 2021.

[Operator:]

And there are no further questions from the public at this time. I'd now like to turn the call back over to the company for closing comments at this time.

[Robert Burrows:]

Great. Okay. Then thanks, Cindy. 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 the 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. Once again, thank you, everybody, and we look forward to speaking with all of you in the future. Goodbye.