Hello, everyone. Thank you for joining us today as we continue the 42nd annual JP Morgan Healthcare Conference. I'm pleased to be joined by Emergent BioSolutions today, by Interim CEO Haywood Miller and CFO Rich Lindahl. They'll be giving a short presentation, followed by a Q&A session. If you have any questions, please just raise your hand and someone will bring you a mic. If not, you can submit it to the portal, and I'll be able to read it out loud for you. With that, I'll turn it over to Haywood.
Thank you. Let's see. Hello, I'm Haywood Miller. I'm the Interim CEO of Emergent BioSolutions. I've been with the company since July and really have enjoyed my time with the management team. This is a company that really is mission-focused. The management team reflects that. The employees have reflected that. Morale has remained strong, even though I suspect if you're in this room, everyone knows the challenges we've faced. So that part of the business has been very gratifying. So today, we just want to—I'll just go through a couple of slides about the background of the business, I mean, or the, you know, what the business is, and then Rich will take over and provide details. Our General Counsel is also in the audience. She'll be available to answer questions as well.
So we're going to. I'm just going to share our background of our work in public health and also share some of the significant milestones that we've had over the last year, which I find remarkable under the circumstances. Then, of course, we have the obligatory safe harbor comments. So always refer to our SEC documents for full discussion of the things we're talking about today. So our mission, as I stated, is very important to the company. It's to protect and enhance life. Our employees have embraced this mission. I think for the last 25 years, we've worked very closely with the government, on various levels, to develop products that enhance our preparedness substantially.
We have a relationship and expertise in working with the government that we feel is a significant asset to this business. There are a lot of companies out there that are looking to the government for contracts, and it is a non-trivial exercise to manage government contracts. We provide solutions for complex and public health threats through our portfolio of vaccines, treatments, therapeutics. We develop, we manufacture, we distribute to governments and customers worldwide. We also have a targeted contract development and manufacturing business that we have significant capabilities, and we'll talk a little bit more about that as we go through the presentation. So this is Emergent at a glance.
You know, over the past few months, there has been a lot going on at the company. We've had a strategic shift in the business, de-emphasizing services business, focusing on the products business. There have been operational adjustments that we've experienced, but most for the good, and it makes the business much more financially viable. So you can see from the left side of the page, we have a government business. We call it the medical countermeasure business, and we're addressing the top threats that this company faces. And they are anthrax, smallpox, botulism, and we provide, like we said, vaccines, treatments, and therapeutics. Also, we're addressing various chemical issues and various nerve agents, et cetera. And then, of course, the headliner is NARCAN.
We bought NARCAN a few years ago. This has been a very exciting year for us. We launched it over the counter. We find that very exciting because this is a dramatically growing market, and this enables NARCAN to get in the hands of more and more people that are gonna need it. We're finding if you just read the papers, we're seeing more and more exposure to harrowing stories about how NARCAN has saved people, et cetera, et cetera. So we're particularly excited about NARCAN. As you go over to the right side of the page, over the course of the year, this is part of the strategic shift.
We have a significant capabilities in the CDMO business. We have a lot of customers. We will continue working with those customers, and the investments required in that business, we are de-emphasizing that for now, focusing more on the products and NARCAN. So the next page is something that we're very excited about. I think that under the circumstances, having a list as substantial as this at the end of the year is very gratifying. The management team and employees should be very proud of themselves, and they are. I've had the privilege of being able to go around the company and talk to the employees, and there's a remarkable morale in the company, despite some of the things that you all have read about. We've had...
Some significant changes in the business. So just go down the key milestones. I don't wanna belabor this, but obviously, the headliner is NARCAN Nasal Spray, the over-the-counter opioid reversal treatment. That has gotten a tremendous amount of press. We are helping the press capture this, but there's a lot of organic stories about NARCAN, and everyone has heard about some of the amazing saves that NARCAN has participated in. We've also recently, and maybe some of you have seen this, is the DOD gave us a $380 million contract for RSDL, one of our treatments. We've also received FDA approval after many, many years.
Many of you know the anthrax vaccine as AV7909, and even when I got to the company, it was called AV7909. And so one of the privileges I had was to celebrate a 25-year process, and I got to be a part of that celebration, so that was a lot of fun, and we call that CYFENDUS, a two-dose anthrax post-exposure product. We also were awarded a $75 million contract towards the end of the year for CYFENDUS. It's an option on a contract. We were also awarded a 10-year contract with BARDA for Ebanga, which is a treatment for Ebola. We're very excited about that. We're still in the earlier stages of that. For the money, the contract is for the development, manufacture, and scale-up, and procurement of Ebanga. The...
And then we've also submitted a supplemental biologics license application to the FDA for ACAM2000 to expand its use to, for, the Mpox virus, formerly known as monkeypox. And then we've also gotten some approvals in Canada for ACAM2000, our smallpox vaccine, and TEMBEXA. So that's a long list. In addition to those things, management has been working hard on a lot of things that have made this year very, very tough. We did some significant organizational changes. This happened before I got here, of $60 million in annual savings. We shifted our resources, achieving $100 million in annual savings, from shifting the resources, de-emphasizing CDMO. Obviously, there were some personnel changes for that, in that process.
We also negotiated an amend and extend with the secured lenders to extend the secured facility to May of 2025. And then also before I got here was the travel health business divestiture, which is valued at up to $380 million. So we're very proud of achieving these milestones during this time of challenge, and I believe that we're achieving some stability in the government business over time. We're excited about the possibilities of the NARCAN business, which it's a world-class brand, and we really believe that good things are in front of us. So with that short summary, I'd like to introduce the CFO to go through details and answer any questions at the end of the presentation. Thank you.
Thank you, Haywood, and good morning, everyone. Thanks for joining us today. Appreciate your time. As Haywood said, I'm Rich Lindahl. I'm the CFO of Emergent, and I'm gonna dive a little deeper into our products and services, and what, as well as our financials. So, on this slide, you can see our product portfolio. The company has grown from a single product, BioThrax, 25 years ago, to this multiple product set that you see on the page here. It's been a combination of acquisitions as well as some organic development. And you can see we've got the products organized by threat area. So with anthrax, I'll start there. That single product that we started with, the original product, is BioThrax.
It is the only FDA-licensed vaccine for anthrax that is approved for both pre-exposure prophylaxis as well as post-exposure prophylaxis, and it's a three-dose regimen. You may have seen we announced this morning that we just received a new contract from the Department of Defense for BioThrax. It's a 10-year contract valued at up to $236 million. So we're very excited about that, and is a clear indication that there is a bright future still for BioThrax in our portfolio. As Haywood touched on, the next-generation anthrax vaccine that we developed is called CYFENDUS. That is a two-dose regimen, and it is licensed only for post-exposure prophylaxis. CYFENDUS is the...
is the vaccine that is now representing the vast majority of the Strategic National Stockpile inventory for anthrax. And has been. We've been developing that under a contract with the government. They've been procuring it since 2019, and now that it's fully licensed, we're going through a process. The contract was with BARDA. We're now going through a process of transitioning the responsibility for procurement from BARDA to the Strategic National Stockpile. We also have two therapeutics in the portfolio. One, Anthrasil, which is a hyperimmune product, plasma-based, and then we also have Raxibacumab, which is a monoclonal antibody. On the smallpox side, our smallpox vaccine, ACAM2000, is our licensed product for protection against smallpox.
It is a single-dose regimen. We have a 10-year contract for ACAM2000, and that was also put in place in 2019. More recently, we also have a plasma-based therapeutic called VIGIV, which treats those who suffer any complications from receipt of the ACAM2000 vaccine. And then, recently in 2022, we acquired TEMBEXA, which is an oral therapeutic to treat symptoms of smallpox. With botulism, we have our botulism antitoxin therapeutic, which is also a plasma-based hyperimmune product. And the government continues to procure that under a long-term contract as well. Ebanga is an Ebola treatment.
We received a 10-year contract from BARDA last year, for both the commercial scale-up and then ultimate procurement of that product. That contract is valued at up to $700 million over that period of time. RSDL, Haywood touched on. We received a contract at the very beginning of 2023, valued at $380 million. RSDL is a treatment against chemical exposure. It's basically a sponge that has a formula in it that you can use to clean yourself off if you are exposed to a chemical agent. And then we have the Trobigard auto-injector, a nerve agent antidote, and then I'm gonna dive deeper into Narcan in just a moment, but Haywood touched on that.
That's our opioid overdose reversal treatment that we acquired when we acquired Adapt Pharma back in 2018. So let's talk a little bit about NARCAN, but first about the state of the opioid crisis and how we've responded to that over time. The opioid crisis, I'm sure you are all aware, is still a major critical problem in this country. The number of overdose deaths have reached record levels. We don't have the 2023 data yet, but in 2022, that was 109,000 people who unfortunately died from drug overdose. And in fact, that has translated into one life lost approximately every seven minutes. It's just a staggering statistic, and it's the leading cause of accidental death in the U.S.
It's a crisis that kind of started with prescription opioids and then historically with illegal drugs like heroin, but more recently, it has accelerated and accentuated in potency due to the introduction and prevalence of fentanyl, which I'm sure many of you have heard of. But the number of overdoses caused by fentanyl has really just been skyrocketing in recent years. So, over the time since 2016, when NARCAN was first introduced and approved by the FDA, over 64 million doses have been distributed in the United States and Canada.
And that demand, again, is expected to continue to increase as the epidemic continues and as the increases in funding become available, not only from the federal government, but at the state and local level, and also from the settlement of many of these opioid litigation cases, which are providing significant amounts of money to the states as compensation for those, you know, for that history. And that money has begun flowing into the states and is providing a source of funding for purchase of NARCAN, among other elements to treat the crisis. Our response, as I indicated earlier, was that we added NARCAN into our portfolio back in 2018.
We've built a one-of-a-kind and unique distribution network based on our NARCANDirect website portal that serves public interest markets and facilitates not only ordering but distribution of the product to the many thousands of endpoints where the public interest segment needs it. We also more recently launched, received approval for and launched NARCAN as an over-the-counter product, and that approval was received earlier in 2023, and then at the end of August, early September, we began shipping that over-the-counter product to multiple retailers. And in 2023, we distribute over 10 million boxes, which each box contains two doses. Talking a little bit more about NARCAN and the over-the-counter designation.
Again, we began shipping hundreds of thousands of these two-dose cartons in August. It is listed with an MSRP of just under $45. We also have set the reset the public interest price to $41 for a two-dose carton, so it's a very affordable product, which is something that we've been very focused on. And it's increasingly available across 32,000 locations, not only with major retailers, but also on e-commerce platforms. And we're continuing to explore, you know, other channels of distribution for the product that would increase access in places like businesses, workplaces, you know, transportation systems, et cetera.
So, and then we also, in support of the over-the-counter launch, we introduced a major public awareness campaign that featured as a spokesperson former NFL running back, Emmitt Smith. We called it the Ready to Rescue campaign, which was really focused initially on increasing awareness, especially on college campuses, with that demographic being at a high risk of these events occurring, just given the way things have evolved. So, so we're—we, we've historically been focused on maintaining affordability of the product, making sure there's greater awareness and also increasing access. And I think you can see that all of the actions that we've taken, over time, and in particular, in the second half of 2023, have supported those efforts.
So I'll talk a little bit about the bioservices business, or our CDMO business. As Haywood said, we did make a strategic decision, in 2023 to de-emphasize this business as a source of growth going forward. However, we do have a number of customers that we continue to serve and we'll, and we'll continue to honor the commitments that we have there. So, but we offer a range of services, from development through to drug substance production and then to drug product and packaging, sometimes known as fill-finish services, across multiple platforms: mammalian, plasma, and viral. So this has been a part of our business, historically, that we've leveraged, with our capacity.
And again, we're gonna carefully manage that part of our business as we move forward from here. So, I'll dive a little deeper into some of our more recent financial results. It's early in the year. We have not closed the books on 2023, so we have not provided any kind of, you know, pre-release or other update on 2023. And we also haven't provided 2024 guidance yet. We plan to release our financial results later in the quarter. You know, our filing deadline is mid-March, but we'll put out an announcement announcing an earnings date as we get closer to the date that we're going to announce those results.
So in the third quarter, you can see, we had very strong results on the revenue side, double-digit revenue growth year-over-year, with total revenues at $271 million. That was led by strong growth in NARCAN. As you can see, 62% growth year-over-year, to $142 million of that total revenue figure. And that growth was really driven primarily by the public interest segment, as well as the market in Canada. While we had launched the NARCAN over-the-counter product, that was a relatively small part of the revenue in the third quarter. As you can see in CDMO, CDMO services, the revenue is down year-over-year.
Again, as we talked about, we're de-emphasizing that as a source of growth going forward. And then we had the contract and grants revenue. Taking a look at some of the other statistics here, on R&D, you can see that has come down significantly year-over-year. Haywood did reference that we divested our travel health business. There was a product candidate that was in development called for the Chikungunya disease. That was part of the portfolio that got divested when we completed that transaction. And so, so that's a major reason why the R&D spend has come down year-over-year, because that was in a phase III trial.
There's also some of the other actions that we took early in the year to kind of, you know, refocus our strategy and our resources also had an impact on R&D, which contributed to this as well. With SG&A, that's up modestly year-over-year. The primary driver of that increase is really the sales and marketing efforts in support of the over-the-counter launch, offset by some initial savings from some of the cost actions we've taken. But more of those cost actions will be present in 2024.
You can see on the gross margin side, you know, significant lift there, driven by revenue and the product mix overall, up to a corporate gross margin of 34% in the quarter and an adjusted gross margin of 38%. We report two segments. One is our product segment, and the other is our services or CDMO segment. So, on the product side, you can see the strong growth here, again led by NARCAN in the quarter, which also contributed to very solid year-over-year growth and adjusted gross margin. But these numbers on the services side are really just repeats of what you saw on the prior slide.
In terms of our balance sheet and cash flow, we ended the quarter in a very solid cash position with about $88 million of cash. You can see the stats on AR and inventories, and our total debt of $866 million, with net debt of $778 million. On the cash flow side, these are year-to-date numbers. You know, we had more cash usage earlier in the year. In the quarter itself, we actually had a positive operating cash flow of $60 million in the third quarter, as our revenues and cash flows are more heavily weighted towards the second half of the year this year.
The cash provided by investing activities reflects the proceeds, the initial proceeds from the Travel Health divestiture. You can see the relatively modest year-to-date capital expenditures, and then the cash used in financing activities reflect some pay down on our outstanding debt that came in connection with our amend and extend that was completed in May of this year of 2023. So these are those statistics. Just kind of taking a step back and looking at kind of the, a little bit of the history of the company from 2017 through to 2023. You can see there's significant growth over that period in revenue, again, led by some significant acquisitions that were made, you know, NARCAN being the leader across those.
In the 2020 and 2021 period, there was significant CDMO revenue that was really driven by our participation in the Operation Warp Speed effort, where we were, you know, working in collaboration with the United States government, making capacity available to that effort. And then we also were manufacturing, for a time, the COVID vaccines for Janssen and for AstraZeneca. Those all went away as of 2022, and so you can see that the CDMO revenue piece is much more consistent in 2022 and 2023 with where it has historically been. And the product revenues are back to a level from which we can stabilize and grow from here.
So again, as you go forward, our focus is really on our product segment being our medical countermeasure products, which I talked about earlier, as well as NARCAN. We're de-emphasizing the CDMO bioservices business, but honoring our existing customer commitments, and really focusing on improving our overall financial position. Focusing on improved profitability, improved stability of the balance sheet. That's really where our focus is as we move into 2024 and beyond. This just provides the guidance that we had provided at our earnings call back in early November.
What we do is we show, in that first column, what the guidance is as of that point, and then compares it to where it had been at the prior earnings call in early August. So, I'm not gonna read all of these, but you know, you can see, you know, total revenues in the $1-$1.1 billion area, Adjusted EBITDA ranging from -$25 million to +$75 million. And then, we provide some additional breakouts of some of the key product areas across anthrax, N ARCAN , and smallpox. And you can see, N ARCAN representing a significant portion of the overall revenue stream in 2023. And that's a product that, you know, performed actually better than we expected.
This was the second guidance raise on NARCAN that happened during the year. So, again, an important product for us as we move forward. So just to kind of summarize some of the key takeaways here, again, as Haywood went through at the beginning, we've continued to achieve many important milestones across the business. We have a very solid business at its core. NARCAN is certainly an important part, but we also have continued to drive the medical countermeasure business and continue to maintain a very positive relationship with the United States government, as well as providing solutions to certain foreign allied governments as well, as they look to prepare for some of these threats.
Then on the financial side, you know, we've had really focused on de-risking and reducing volatility of the business by strengthening our financial position. Certainly, the Tribal Health divestiture was an important part of that. The focus on CDMO is important. The amend and extend of our secured credit facility was also important. Then, of course, the cost actions that we took, valued at over $160 million, which we anticipate realizing the full run rate of those as we come into 2024. So with that, that concludes our remarks, and I think we can move to Q&A.
As a reminder, if you have any questions, feel free to raise your hand, and we will start with the first one in the.
Arthur Allen from Kaiser Health News. You were created as a company that was intended to provide countermeasures and biodefense. It seems like now you've become a NARCAN company. I just was wondering, is this a temporary thing, or has your fundamental mission changed?
Well, again, our fundamental mission is to provide solutions to public health threats. That is what we're really addressing. And that is something that has been consistent, whether it's medical countermeasures, whether it is NARCAN now, as part of it. So, no, we are not just going to be a NARCAN company, but clearly, the opioid crisis is a public health threat. And having, offering a diversified portfolio of solutions to the key threats that are facing this country is a core component of our strategy.
... I am not for NARCAN, I'm not familiar with the label, but do you see any changes in the, in the use from natural opioids versus synthetic opioids for fentanyl? Are they requiring more doses for a natural opiate, is it normally one or two dose, and then for fentanyl, is it two or three, or what's the kind of trend with that?
No, I don't think there's any data that would support that kind of conclusion. The N ARCAN , which is a four milligram dose of naloxone, is widely accepted as the standard of care for an opioid overdose. You know, on occasion, it does require a second dose, which is why it's sold in a box of two. But there's no data that would support that there's a different dosing regimen for those.
There was some news over the past two days in terms of a recent DoD contract-
Mm-hmm
... for BioThrax. Can you just give some background, some specifics around that contract and the optionality, and why BioThrax over CYFENDUS?
Sure. So, that contract, which we announced this morning with a press release, I think the Department of Defense put it on their website yesterday. But that is—this is the next contract with the Department of Defense, so we have been supplying them for many years. And BioThrax is, as I mentioned, it's the only one that is licensed for both pre-exposure and post-exposure prophylaxis. So, if you have someone who is going into a high-threat area, where the possibility of being exposed to anthrax is considered to be a key risk, you would consider inoculating them before they entered that area. And so the Department of Defense does administer these doses to their soldiers who are in various areas.
It's also of interest to a number of our foreign allied governments as well, who also procure the product. So as a result, because CYFENDUS is not indicated for pre-exposure prophylaxis, but rather post, we think there's a long-term role for BioThrax as part of the overall preparedness solution against a potential anthrax attack.
Kind of looking out, how should we then expect the mix between BioThrax and CYFENDUS, either in the strategic-
Mm-hmm
... National Stockpile or for revenue recognition?
Yeah. So I think, you know, CYFENDUS, we would expect, is gonna remain the primary, you know, kind of anthrax solution in the stockpile itself. And I would say it would be the, certainly the majority, of revenue is what we would anticipate at this point, for anthrax vaccines would be represented by CYFENDUS. But again, I think we do think there's a long-term role for BioThrax for the reasons that I just discussed.
Mm-hmm. Maybe could you just comment on the option that we saw last year for CYFENDUS?
Mm-hmm.
How would you think about that being recognized in 4Q versus 1Q?
Mm-hmm
... this year? And maybe add some color around how much is left in the BARDA contract for CYFENDUS.
Sure. So, as far as the timing of recognition of that, you know, clearly it's related to delivery of the product. You know, I'm not gonna comment specifically on how much was delivered in the fourth quarter at this point in time. But that's really based on, you know, kind of the working and coordinating with the government on those deliveries. As far as the existing contract, that's a contract that was set up. It has a number of doses that are baked into the contract. There are still, you know, a good percentage of doses available under that contract.
So that contract can still be used to support procurement, at least in 2024, as we work to put a new contract in place ultimately with the Strategic National Stockpile.
You talked about last year, how there's a transition going on from the contract from BARDA to the SNS.
Mm-hmm.
Can you talk about that process a little bit? And if anything can change during that transfer process in terms of the nature of the contract.
Yeah. So, so there, we are in the process of, of, kind of, beginning that series of conversations to kind of get that contract in place. As I mentioned, just now, we have the existing vehicle with the BARDA contract, that can support, you know, deliveries of continued deliveries of doses and continuity of supply for the stockpile, during that time period. And certainly, as we get to a point where we've got a new contract in place, we'll be happy to provide more details at that time.
And obviously, you're not providing guidance today, but just thinking about a potential option for CYFENDUS or BioThrax-
Mm-hmm
... in 2024, should we think about that being similar to last year, more or less than last year? And how should we think about any potential timing there?
Mm-hmm.
Can you provide any guidance or?
Mm-hmm
... qualitative color?
Yeah. So, you know, certainly, what I'll say is this: the requirement to be prepared for anthrax is still in place. It has not materially changed. It is a product that has a four-year shelf life, so there is a replenishment that needs to occur at regular intervals. And, you know, we anticipate that there will be continued procurement in 2024. And that in order to, again, to maintain the right level of preparedness, considering, you know, the shelf life and doses that would expire this year, you know, I think that would be a significant amount of revenue that we would anticipate in 2024.
Maybe switching to NARCAN, how should we think about the, you know, growth of that product going forward, and thinking about... Maybe provide a little background of the dynamics, the-
Mm-hmm
... specific dynamics of the PIC market versus, say, the retail market.
Mm-hmm. Sure. So, historically, the market was structured, when we first acquired the product, there were basically two main segments. There was the public interest market, which is, think about first responders, you know, state and local entities or agencies, and such. And then there was also the prescription retail pharmacy market. So, at that point, it was the majority was still in the public interest market and in Canada. But there was a not insignificant portion through the retail pharmacy channel. That did change once there was a generic entrant into the market, in early 2022.
And so that generic competitor then took the majority of the share in that part of the segment. With the introduction of OTC, that provides a window for us, and we're first to market, by the way, there. That provides a window for us to recapture a significant amount of that retail share. For the near term, we definitely believe that public interest in Canada will remain the dominant part of our overall revenue for N ARCAN . But we do think that there is significant demand and interest in the product in the over-the-counter space, as additional awareness continues and as people realize it actually expands the addressable market in a very meaningful way.
So historically, you know, the addressable market was really people who were receiving a high-dose opioid prescription in the retail pharmacy, and they were recommended to pick up a prescription for N ARCAN . You know, now it's really it's not just people who are receiving those prescriptions, but it's really anyone who can walk in to one of these entities. So it's, you think about instead of just the roughly 50 million people who were receiving opioid prescriptions at that point in time, now it's basically the 250 million adults in the United States as a you know, kinda one benchmark data point. So, so I think it's gonna be very meaningful for us. We'll see how it develops.
It's still very early days, so we'll watch that, but we do think it's a very attractive opportunity.
Have you seen any generics make any meaningful headway into penetrating the public interest market of recent?
To date, it has not been, you know, overly meaningful. I mean, I think we actually anticipated, and were prepared for, a stronger impact, which was reflected in our initial guidance last year. But the combination of the opioid crisis momentum continuing to accelerate, and a little bit less competition than we anticipated, both contributed to the overperformance of N ARCAN for us in 2023.
Maybe just stepping back and looking out a few years from now, where do you see the--how do you see the company evolving, and should we expect... In the past, you've given longer-term-
Mm-hmm
... maybe financial goals-
Mm-hmm
... or business, business goals. Should we think about you putting that out now, given the most recent de-emphasis of-
Mm-hmm
... CDMO as a growth factor and really refocusing on NARCAN and the MCM products?
Yeah. So, again, we're focused on public health threats. We're focused in the near term on our product business and de-emphasizing CDMO and improving the financial position of the company. I think that as we do that, as our profitability improves, as our credit profile improves, that will put us in a position to look to be more aggressive about investment opportunities and growth opportunities in the future. But at this point, it would be premature for us to put out those kinds of long-range targets.
Makes sense. Thank you.
Thank you very much.
Thank you.