BofA Securities 2020 Health Care Conference

May 12, 2020

Slides

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