Kinsale Capital Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 7 speakers on the call.

Operator

Thank you for standing by. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2024 Emergent BioSolutions Inc.

Operator

Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Frank Bargo, Assistant Treasurer.

Operator

Please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining today as Emergent is discussing their operational and financial results for the Q3 2024. As is customary, today's call is open to all participants, is being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, a slide presentation accompanying this webcast is available to all webcast participants. Turning to Slide 3.

Speaker 1

During today's call, Emergent may make projections and other forward looking statements related to their business, future events, their prospects or future performance. These forward looking statements are based on their current intentions, beliefs and expectations regarding future events. Any forward looking statement speaks only as of the date of this call. And except as required by law, Emergent does not undertake to update any forward looking statements to reflect new information, events or circumstances. Investors should consider this cautionary statement as well as the risk factors identified in Emergent's periodic reports filed with the SEC when evaluating their forward looking statements.

Speaker 1

During today's call, Emergent may also discuss certain non GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance. Please refer to the tables found in today's press release. Turning to Slide 4. The agenda for today's call will include Joe Papa, President and Chief Executive Officer, who will provide an update on the company's multiyear plan progress, key product highlights and turnaround actions. Rich Lindahl, EVP, Chief Financial Officer and Treasurer, will speak to key achievements in the 3rd quarter, the financial results for Q3 2024 as well as full year guidance.

Speaker 1

This will be followed by Q and A. Finally, for the benefit of those who may be listening to the replay of this webcast, this call was held and recorded on November 6, 2024. Since then, Emergent may have made announcements related to topics discussed during today's call. And with that, I'd like to now turn it over to Joe Papa for opening remarks.

Speaker 2

Joe? Hello, and thank you for joining us today to discuss our Q3 results and our 2024 financial outlook. I'm joined today by Rich Lindahl, our Chief Financial Officer. Following my opening remarks, Rich will detail our quarter 3 performance as well as our full year guidance update. I will close the call with a discussion of our path forward as we continue to make significant progress on our turnaround efforts.

Speaker 2

Then we'll open up the call for question and answers. Earlier this year, we embarked on a multi year plan to stabilize, turnaround and ultimately transform the Emergent business. Based on the great efforts of the entire Emergent team, I am pleased to share that we have now completed our first phase, the stabilization phase, ahead of our expectations. Emergent is now embarking on the next phase or turnaround as part of our multi year plan to transform and strengthen our business. I'd like to recognize all of our Emergent team members who have demonstrated their commitment to delivering against our multi year plan to stabilize turnaround and transform the business.

Speaker 2

This stems from our collective passion to Emergent's mission to protect, enhance and save lives against leading public health threats around the world. We plan to continue our operational improvement initiatives and focus on driving profitable growth to create sustainable value for shareholders. Beginning on Slide 6, I will review several important updates from the Q3 as well as the full year efforts. First, the Q3 was another strong quarter and paired with a great 1st 6 months of 2024, we are very pleased with the results year to date. I'd like to emphasize that Emergent finished the quarter in its strongest financial position since 2021.

Speaker 2

Reflecting on our strong third quarter financial performance, we are once again raising the revised midpoint for our 2024 revenue and raising our adjusted EBITDA 2024 full year guidance. Rich will walk us through the details. We have strengthened our balance sheet and will exceed our expectations to reduce our net debt by more than $200,000,000 this year. We successfully refinanced our debt closing a new credit facility agreement with Oak Hill Advisors for a term loan of $250,000,000 and using a portion of that capital to repay all amounts of outstanding under the senior bank term loan facility. We entered into a new agreement with Wells Fargo at our ABL facility that will provide revolving loan commitments at an aggregate principal amount up to $100,000,000 We continue to improve working capital, driven by increases in both revenue and cost savings, and we implemented a leaner, more flexible organization by streamlining our site network, including several asset sales.

Speaker 2

From an operational standpoint, we also made great strides in the execution of our strategic priorities during the Q3. Through our relentless commitment to combat the overdose epidemic and help save lives, as we expected, NARCAN nasal spray volumes increased year to date, and we continue to meet the increased demand of nasal naloxone for our customers. We received FDA approval for ACAM2000 to include the mpox expanded indication in August 2024 as the public health outbreak continues across Africa and other regions. We secured a number of contracts for our medical countermeasures business as a result of increased clarity in the U. S.

Speaker 2

Government as well as international government's plan to procure medical countermeasure products. Also, we announced on Monday, we appointed a new Head of R and D and Chief Medical Officer, Doctor. Simon Lowery, who brings decades of biotech and pharma experience to redefine Emergent's scientific platform for growth. I'm also pleased to announce that Jessica Pearl has been promoted to our General Counsel and Corporate Secretary. Both will be critical leaders on the executive management team as we move the company forward.

Speaker 2

Lastly, we made substantial progress on certain legacy compliance and legal matters, including resolving our Janssen settlement for which Emergent received a $50,000,000 payment also following a successful FDA inspection at the Canton facility, which we have now divested, but importantly, the site received NAI status. As we continue to operate our operations, we expect to remain well positioned to help deliver value for our customers, patients and shareholders, all while striving to instill the highest standards of patient safety, quality and compliance in our work every day. Another question of the day is, how does the election impact your business? We are confident that what we do at Emergent has broad based bipartisan support. We help governments protect from catastrophic public health threats, including opioid overdose deaths and biodefense.

Speaker 2

Both of these programs transcend political parties. With that, I'll hand it over to Rich to review our financials in more detail.

Speaker 3

Thanks, Joe. Good afternoon, everyone. We appreciate you joining the call. As Joe has just discussed, coming out of the Q3, our significant progress against our operational and financial priorities is enabling us to transition from the stabilization phase to the turnaround phase. Our financial foundation has been meaningfully strengthened as a result of the following positive developments, which are highlighted on Slide 8 in the earnings presentation.

Speaker 3

We completed $117,000,000 of asset sales and received a $50,000,000 payment from Janssen Pharmaceuticals as a result of the confidential settlement agreement. Operating cash flow through September 30 was $139,000,000 an improvement of approximately $377,000,000 an improvement of approximately $377,000,000 as compared to the same period in the prior year. And net working capital improved $98,000,000 versus the previous quarter and $100,000,000 as compared to the prior year. These liquidity enhancements supported the refinancing of our prior secured credit facility as we entered into a new $250,000,000 term loan from Oak Hill Advisors, extending the maturity of our debt to August 2029. And we closed a $100,000,000 asset backed revolving credit facility led by Wells Fargo, also maturing in 2029.

Speaker 3

These activities resulted in the following major improvements to our credit profile. Net debt was reduced to $551,000,000 a $206,000,000 reduction since the beginning of 2024. Moody's and S and P both upgraded our corporate family credit rating to B3 and B-, respectively, with stable outlooks. And based on our improved financial position, when we file our 10 Q, you will note that we have removed the prior going concern qualification. Now shifting to key business highlights depicted on Slide 9.

Speaker 3

We received total medical countermeasure contract modifications of over $500,000,000 this year for anthrax MCM, smallpox MCM and BANT, further strengthening our revenue diversification. We also announced a $42,000,000 option exercise for continued development of the EBONGA treatment for Ebola. We are due $30,000,000 from Bavarian Nordic as payment of the first two milestones triggered on acceptance by the EMA and FDA of the chikungunya vaccine license applications. NARCAN volume continues to remain strong, up 7% year to date, and its value proposition continues to drive a differentiated

Speaker 4

price point as compared to

Operator

generic competition. And finally,

Speaker 3

we're further raising the generic competition. And finally, we're further raising the midpoint of our revenue and adjusted EBITDA guidance for 2024. Turning to our financial results. We built upon our solid first half performance with continued strength in the 3rd quarter. As indicated on Slide 10, highlights in the 3rd quarter include total revenues of $294,000,000 at the upper end of our guidance range and a 9% improvement year over year.

Speaker 3

Total segment adjusted gross margin of 59%, a significant improvement both sequentially and year over year. And adjusted EBITDA of $105,000,000 or 36 percent of revenues, an improvement of $85,000,000 versus the prior year. Diving deeper into quarterly revenues. Important items on Slide 11 include: NARCAN sales of $95,000,000 which reflects continued strong volume in our U. S.

Speaker 3

Public interest channel. It's important to note that the prior year included the initial stock in volume and revenue associated with the launch of NARCAN OTC. Price was lower year over year as a result of our previously announced price decrease in September 2023, which was announced with the over the counter launch. Amphrax MCM sales of $11,000,000 a decrease versus the prior year due to the timing of deliveries in 2024. Smallpox MCM sales of $133,000,000 which included deliveries of the previously announced ACAM2000 and VIG contract

Operator

options to the U. S.

Speaker 3

Government. Other product sales of $30,000,000 driven by BAT, our botulism antitoxin product and total bioservices revenues of $14,000,000 Note that the 9% year over year growth in total revenues came despite the divestitures of Camden and RSDL. This outcome reinforces the value of our revenue for diversification. Transitioning operating expenses on Slide 12, our previously announced cost actions were fully implemented by the Q3, resulting in a significant improvement in our total operating expenses. Total adjusted gross margin was 59% in the quarter, trending to a more normalized level and directionally consistent with performance prior to the pandemic.

Speaker 3

Adjusted gross margin performance by business segment was as follows: commercial products was 50%, which highlights key cost reduction initiatives with our suppliers, partially offsetting the lower sales price within the public interest channel. NCM Products adjusted gross margin was 73% and was influenced by higher delivery volumes as well as reduced expenses in our manufacturing facilities. And the Services segment adjusted gross profit was negative $7,000,000 which on a cash basis excluding depreciation is approaching breakeven. Total research and development and SG and A improved $11,000,000 or 11% year over year. This was driven by lower compensation due to the previously announced 2023 2024 restructuring initiatives, reduced internal R and D project expenses and reduced legal fees due to the settlement of key disputes.

Speaker 3

SG and A also includes a time $10,000,000 settlement charge in Q3 related to the shareholder litigation matter. So on a normalized basis, SG and A improved $19,000,000 versus the prior year, and we expect further run rate reductions as we exit 2024 and realize the full impact of the cost actions taken to date. Additional detail on our operating expenses can be found in the appendix of the earnings deck. I will now take a moment to summarize our 2024 year to date performance as shown on Slide 13. Revenue was $849,000,000 up 10% versus the prior year, driven by U.

Speaker 3

S. Government and international medical countermeasures. Year to date adjusted gross margin was $381,000,000 or 46%, reflecting our prior efforts to reduce costs as well as MCM sales timing. And adjusted EBITDA was $162,000,000 an improvement of $188,000,000 versus the prior year. Turning to Slide 14.

Speaker 3

We'd like to highlight the significant improvements we've made to our financial metrics. At the end of the Q3, total cash was $150,000,000 This was aided by generating $139,000,000 of operating cash flow, which as I said earlier was an improvement of $377,000,000 year over year. We also achieved a reduction of $98,000,000 in our net working capital versus the prior quarter. The strong performance in the business coupled with our debt refinancing and reduction efforts has lowered our net leverage to 3.3 times adjusted EBITDA, a material improvement versus the Q3 of 2023. And

Operator

with

Speaker 3

the fully available $100,000,000 undrawn asset backed revolver, total liquidity at the end of Q3 was $250,000,000 an increase of approximately $170,000,000 as compared to the Q2 of 2024. Turning to 2024 guidance, please see Slide 15. With our continued strong performance year to date, we're further raising the midpoint of our revenue and adjusted EBITDA guidance. 2024 full year guidance is as follows, and the details are shown on Slide 26 in the appendix. Total revenues of 1.0 $65,000,000,000 to $1,125,000,000 commercial product sales of $420,000,000 to $430,000,000 We continue to see strong volume demand for NARCAN and the revised guidance takes into account a balanced approach in the competitive environment.

Speaker 3

MCM product sales of $510,000,000 to $550,000,000 This includes all of the previously announced contract modifications. And at this point, the vast majority of the MCM revenue is committed in 2024. Services segment revenue of $105,000,000 to $110,000,000 a decrease versus the prior guidance due to the sale of our Camden facility on August 20. Shifting to profitability metrics, we're forecasting adjusted EBITDA of $180,000,000 to $200,000,000 This increase at the midpoint reflects the recently announced awards for our MCM products as well as our continued realization of lower operating expenses. For the full year of 2024, we're forecasting total segment adjusted gross margin of 43% to 45%.

Speaker 3

That's it for the financial update. I'll now turn the call back over to Joe.

Speaker 2

Thank you, Rich. As we look forward, we see meaningful opportunity for Emergent's in line product and future growth drivers that have the potential to impact lives around the world. Let me dive deeper on Slide 17 with key highlights around NARCAN nasal spray. While there's still a tragic number of deaths caused by an opioid, fentanyl or heroin, recent preliminary data from the CDC points to a meaningful decline in overdose deaths in the U. S.

Speaker 2

For the first time in decades. However, rates of overdose deaths still remain particularly high among various demographics of people and regions across the U. S, so we must remain focused on efforts to continue broadening access, increasing awareness and helping to maintain affordability of NARCAN nasal spray. To this end, demand for NARCAN, especially from public interest partners and expanded categories like business, business and retail channels, remains on course. We believe the NARCAN nasal spray value proposition continues to score a differentiated price point for our public interest customers, and we intend to competitively price our NARCAN product.

Speaker 2

We also believe our best in class service, NARCAN Direct, is a differentiated capability for our customers. In August, we announced a new distribution center in Nevada to further demonstrate our customer focused approach and continued investments in NARCAN supply readiness efforts. Across Canada, we are making significant strides to increase access in British Columbia and Western Canada, where take home now axon kits are becoming more readily available to perfect overdose deaths. Our efforts to broaden access through OTC channels in the U. S.

Speaker 2

Help encourage individuals to ensure at home, at school, at work safety plans include NARCAN. These include our continued pledge to support the White House challenge to save lives from overdose through workplace and public safety measures, our engagement with the National Safety Council and other partners to educate and reach businesses. We want to specifically acknowledge that Amazon has publicly announced their efforts to keep employees safe in the workplace. Our continued commitment to educate through our Ready to Rescue campaign to expand awareness vulnerable communities. And this month, we donated 20,000 additional doses of NARCAN to organizations in need.

Speaker 2

As stated, we will remain focused on a multi pronged strategy and effort to help save lives, while relying upon strong bipartisan support to combat this tragic epidemic. Turning to our medical countermeasures portfolio on Slide 18, we are seeing tangible benefit from our product diversification and we'll continue to follow this approach. This starts with maintaining our unique position to prepare and respond to public health threats through our continued engagement with U. S. Government and international customers.

Speaker 2

During the Q3, we gained FDA approval for the use of AKM-two thousand to treat and treat mpox infection, which further strengthens and broadens our smallpox portfolio. This expanded indication has enabled us to have a very important seat at the table with international leaders to help respond to the mpox outbreak. Also in August, we proudly donated 50,000 doses of ACAM2000 for potential deployment across countries in Central Africa. As we look forward, we believe we are well positioned to support the global response by actively engaging with world health leaders, deploying available product inventory based on the needs and the ability to increase supply if needed. One promising medical countermeasure product was the development highlights for the quarter.

Speaker 2

We announced a $42,000,000 contract option with BARDA to develop and scale EVANGA, a licensed treatment for Ebola. Earlier today or just recently, we announced our work to support a clinical trial sponsored by Panther and led by Africa CDC to evaluate the safety and efficacy of Temvexo or brincidofovir in treating mpox infections across Africa. In summary, we are proud to be a trusted partner to supply medical countermeasures for biodefense and health preparedness around the world. Turning to Slide 19. I'd like to touch on several of our turnaround phase focused areas that we will focus on and anticipate can lead to future growth drivers.

Speaker 2

Continuing to be a mission driven company that strives to be a leader in public health, maintaining a level of revenue diversification across our products, strategically focusing on international expansion efforts in line extensions of our current product and creating long term and sustainable value for our shareholders. On Slide 20, we provide a summary of our products, communications, current market and our future growth opportunities. On Slide 21, we outlined a significant progress on the strategic operational changes to stabilize our financial position, and I'm excited about how we are positioned for the future as we enter a new phase of turnaround growth. Our confidence in our financial stability is based on our strong third quarter and year to date results, the significant reduction in our total quantum of debt and importantly, our cash generation, our commitment to ensuring public health preparedness with NARCAN nasal spray and our medical countermeasure products. And as I mentioned, with the addition of the new leadership of Doctor.

Speaker 2

Lowery, our Chief Medical Officer, Head of R and D, I believe we have the right team and capability to accomplish our turnaround goals over the 18 to 24 months. We are grateful to the entire Emergent team for all of their work to date and look forward to seeing what else we can accomplish together. I look forward to keeping you updated on our continued progress as we continue to transform and strengthen Emergent and enter this exciting turnaround phase for our company. Thank you. And now, operator, I'd like to turn it back to you for question and answer.

Operator

We will now begin the question and answer session. At this time, I would like And your first question comes from the line of Brandon Fox with Broadman and Ranshaw. Please go ahead.

Speaker 5

Thanks for taking my questions and congratulations on all the progress. Maybe just 2 from me. Can we just talk about the gross margin on NARCAN sort of longer term? Obviously, I think it was at about 50% this quarter. It looks very good.

Speaker 5

Just how do we think about that with the moving pieces on NARCAN? And then maybe well, let's I'll stop that and ask for a second half to this.

Speaker 3

Sure. Hi, Brandon. This is Rich. I think certainly the gross margin has responded to the price reductions that we referenced earlier on the call. I think we're starting to see some stabilization in the pricing environment.

Speaker 3

We're also continuing to look for ways to improve the cost of goods sold there as well. So while I hesitate to give you a specific long term guide on gross margin there, I think that we're stabilizing the gross margin somewhere in the area of this level.

Speaker 5

Thanks, Rich. That's very helpful. And then maybe Joe, obviously congratulations on all the progress here and not to get greedy, but can you just elaborate on the seeking new opportunities aligned to your internal capabilities? Is that something that's high on the priority list? Is that just in the infancy of exploration at this stage?

Speaker 5

And then how should we think about bringing in additional assets in 2025? And any preference there on commercial versus development stage given the additions to your team?

Speaker 2

Sure. A lot of great comments there. Let me try to take them 1 by 1. Certainly, we're delighted with the progress. We're delighted to look at these financial results.

Speaker 2

We're delighted to pay down the debt we've been able to pay down and certainly the net debt coming down by approximately $200,000,000 We think all of that's great. As we think though about the future and the go forward, we're very much focused on growth and what can we do to increase the growth and where we can make the resource allocations for to ensure growth for the future. So that's what we're focused on. I think it's going to come both internally and through business development deals. On the internal side, clearly, you've seen some of the comments I made today about what we're doing, Rich talked about Ibonga.

Speaker 2

Clearly, we have opportunities with Tembecza and what we're doing there with the PANTHER trial and what we're doing with working with the U. S. Government and BARDA. So there's a lot of things we can do internally. Raxibacumab is another one that we have for anthrax.

Speaker 2

A lot of those projects are ones where we think there are clear opportunities that leverage our existing infrastructure on the medical countermeasure side. On the other side, on the what we're doing with NARCAN, we clearly believe there's opportunities to expand with NARCAN, everything from kits that go into the business. I mentioned about it last time. We've all seen, as you go into a restaurant, the defibrillator kits that are on the wall. We think that another product wall clearly could be our NARCAN product to save lives.

Speaker 2

That clearly defibrillators cost somewhere around $1800 They save 1700 lives a year. We think we can put together a NARCAN kit that costs about $45 that could save infinitely more lives. So we think that's another simple example of what we're trying to do is leverage the existing capabilities we have today as an example. But beyond kits, we've also aligned extension opportunities we see that can be very beneficial, especially as we think about, unfortunately, the thousands of deaths that are occurring with college students, high school students, people that we know, we can do a better job of saving those lives if only we have access to the product at the time of need. And we know that at the time of needs, often there are people there with the patient.

Speaker 2

If we can just have product available, we can save lives. So look to us to spend more time talking about that in terms of NARCAN, new formulation, new kits, also geographic expansion. And then of course, what I mentioned on medical countermeasures are all part of it. On the business development side, I'm not talking about 100 of 1,000,000 of dollars business development opportunities, but I do think there's opportunities for us to do some business development. And we're going to look to really look for those products that fit within what we do with the first responders for the NARCAN side of the business.

Speaker 2

There's other products first responders need. We'll look to develop products for them that they need and use our distribution capabilities to get products to them. And also on the medical countermeasures, what else can we do to help the U. S. Government and other governments around the world to help their approach to medical countermeasures.

Speaker 2

So I think there's a lot of opportunities in front us and we look forward to having more chance to explain those and elaborate on them in the near future.

Speaker 5

Great. Thank you very much and congrats again on all the progress.

Speaker 2

Thank you. Thanks, Brent. Operator, next question.

Operator

And your next question comes from the line of Jessica Fye with JPMorgan. Please go ahead.

Speaker 6

Hey, this is Nick on for Jess. Thanks for taking our questions. 2 part here on NARCAN. Can you talk a little bit more of the factors that went into lowering that NARCAN guidance? Is it driven more by lower expected volumes?

Speaker 6

Or is it more on the competitive pricing pressures? And then also, could you provide an update on what the latest mix of NARCAN revs is across the public interest markets, maybe some of those ex U. S. Revs in Canada and then OTC and how we should expect that to evolve over time?

Speaker 2

Sure. I'll start with the first one in terms of what we're doing at NARCAN. We're looking at a couple of factors. Number 1, we're looking at the expanded volume that we are seeing with NARCAN. I think Rich made mention though that we're seeing about 7% year to date growth in volume with NARCAN.

Speaker 2

And then within public interest space, we're seeing about 14%,

Operator

both

Speaker 2

of those versus last year numbers. So we're seeing volume increase to be clear. Having said that, we've said before and we'll say it again that we intend to price our product competitively so that we get to hold on to our harsh volumes that we think are available to us as the market leader. We want to make sure we're holding on to those lines. But competitive pricing doesn't mean we're going to match all of the other players, but we want to be in the ballpark and competitive realizing that we provide other value beyond just simply the product because of our ability to have very good distribution capabilities for NARCAN.

Speaker 2

We obviously have the brand name NARCAN. We obviously have the manufacturing capability. So our view is that those are all important factors that we will look at to the future. And as we think about the future beyond the next this year, we certainly believe also that the amount of expenditures that are going to fund this area, the $54,000,000,000 over the next 10 years by the pharma companies that have to fund the opioid settlement is going to do a lot for expanding the volume and the awareness and the education that goes into opioid overdose. So we do think there's a lot of opportunity to go around the table.

Speaker 2

Having said all that, I'd like to get to the other part of your question was what are some of the other issues that we faced. And that clearly, as we thought about NARCAN, we want to make sure that we took into account some of the initiatives that we did versus a year ago and looked at, for example, we discontinued the Rx NARCAN last year. The prescription strength, that was something that caused one impact in the quarter. We're also looking at sales in Canada and what's happening there and also what we are offset by some things we're seeing on the OTC sales. There's a lot of different factors going into it, but we given the diversity of our portfolio, we felt it was prudent at this time to look at that NARCAN number, manage that to where we think it could be.

Speaker 2

It could be upside, too, but we want to manage to that. I think I got the first part of the question. Is there a second part as well?

Speaker 5

Yes, the second part.

Speaker 3

The mix between.

Speaker 6

Yes, the mix between.

Speaker 3

But I think you kind of touched on it.

Speaker 2

Yes. The majority of the business by far is still the pit business, somewhere in the 70% range of the totality of the business. I think that's the question, right?

Speaker 6

Yes. And then just a follow-up there. In the pit market, can you talk a bit more about some of the competitive dynamics you're seeing there? I mean, just thinking about any contract between competitors and states that could be unfolding kind of similar to what we saw in the state of California?

Speaker 2

Sure. Yes, we have followed that, as you would imagine, very closely. And we are doing well. Clearly, there are some like in the CalRx program that their competitor did pick up that business. But across all the different states, we're doing very well.

Speaker 2

The one thing I probably should have mentioned, I don't recall I said it exactly, but we're seeing pricing stabilize in the overall NARCAN business. At least one of the things we follow, as you would imagine, we follow it on a weekly basis. But from July through October 2024, the pricing has been relatively stable. So we're not seeing anything dramatically change with the pricing environment. And as you can tell by the amount of volume we have, we're growing in terms of volumes up 7% of the total business versus last year.

Speaker 2

So relatively stable pricing environment, the prices I'm sorry, the volume is going up about 7% for year to date numbers.

Speaker 5

Great. And maybe if I

Speaker 6

could just squeak one last one in on smallpox. On the $400,000,000 of orders that you announced back in September, I believe it was you noted $210,000,000 had hit through the end of that period, I. E. Through end of 3Q. There is like a remaining $180,000,000 or so more that is expected to hit over the course of maybe the next couple of months or quarters.

Speaker 6

Can you just kind of talk about how that's weighted across 4Q and say maybe early 2025? And how we should also think about that being broken down between various products?

Speaker 2

Yes. Do you want to take it, Richard? Sure. Yes. I mean

Speaker 3

I would say that certainly a portion of it is going to hit in Q4. Most of it will hit in 2025. But that's it's all baked into our guidance that we've updated.

Speaker 6

Great. Thank you.

Speaker 2

Thank you for the question. Operator, next question?

Operator

And your next question comes from the line of Alex Twelsey with Wells Fargo. Please go ahead.

Speaker 4

Hey, guys. Thanks for taking the question here. If I can belabor the NARCAN question one more time, of the 30 odd percent decline in Q3, are you able to bucket out how much of that was the year over year, call it, headwind from the initial ramp of OTC? How much of that is pricing and how much of that was organic declines or increase? I know you guys have referenced year to date figure, but if there's any figure you can reference for the quarter just to get a sense of how that segment has been performing sequentially, I think it'd be very helpful.

Speaker 3

Yes. I think the stock in revenue from last year was in between $10,000,000 to $15,000,000 It was probably around $12,000,000 or so. The rest of it is really more overall mix and really driven by the pricing impacts.

Speaker 4

Got it. And I know you guys took pricing down back in, I think it was August of last year when the drug went OTC. It sounds like you've taken down pricing since then to be more competitive with generics. Is that a reasonable assumption?

Speaker 3

Yes. We've been responding, as Joe said, to be competitive. We haven't been matching pricing, but we have remained competitive in the marketplace. And that has resulted in us being, as Joe said, we've had some very good success in keeping a lot of the business that we had even in light of some of the additional competition that's been out there.

Speaker 4

Okay. Switching gears. Just in terms of asset sales, obviously, a great job on the $200,000,000 that you've done so far. But you still have Exeter Warehouse. You still have Canton.

Speaker 4

You still have Rockville. You still have 400 Professional Drive. You still have Bayview. Any updates on thoughts around those properties? Any progress on asset sales there or anything else we should expect for the next 12 months, whatever it is?

Speaker 2

First, I compliment you on knowing our entire site network.

Speaker 4

Appreciate that.

Speaker 2

That is something we are absolutely looking at that all the time. I don't want to make any specific comments about any individual sites. But to be clear, we have reduced significantly the operating expense of our business, as I mentioned and as Rich mentioned. So we are managing this to make sure that we bring down operating expense to manage it. But we do believe we have a little bit more flexibility now in terms of some of those sites, in terms of what the long term opportunities can be with them, especially as we're thinking about other business development activities, things that we can bring within them to our portfolio for growth.

Speaker 2

So I think we've got a little bit more latitude. I mean, some of them are absolutely you know the sites you talked about. And some of them, when you talked about some of the operational centers in terms of manufacturing sites, they could be more important to us, but we'll manage that. Others just don't we don't have a need, and we're going to certainly try to divest certain locations like potentially warehouse that we don't need. We divested 1 warehouse in Canton, Massachusetts, as an example, that was an unused warehouse.

Speaker 2

The more we can do those types of things, obviously, the better return on investment for our shareholders. So we're going to be focused on it. But I don't want to make any specific prognosis of when and where we'll do that.

Speaker 4

Could Bayview be used to manufacture GLP-1s?

Speaker 2

Bayview is an extraordinary site that has been a significant amount has been invested in the site by Emergent and other government agencies. And we think there's a lot of opportunities for that site in terms of capabilities, in terms of drug substance. But I don't want to specifically talk about any individual product, but it's a phenomenal site. I've got a Chesapeake and pharmaceutical business for over 35 years. And I've been through probably hundreds of different sites.

Speaker 2

Bayview is unique. It's a very significant opportunity and is everything in state of the art. So there is really good capabilities there. We just got to find the right place to kick off some significant opportunities there. But it is a very unique site.

Speaker 2

We've got a lot of capability.

Speaker 4

Okay. Got it. Last one, if I can. If we just look to like 2025 and beyond, and obviously, I understand as well as anybody the lumpiness of the business and there's years where big orders come in or don't come in. But if I just start with, call it, the midpoint of EBITDA guide $190,000,000 even like CDMO gross profit year to date is still $60,000,000 And if that's approaching 0, I mean, that's a big uplift right there.

Speaker 4

Not to ask for forward guidance or anything, but if you had to look to 2025 and beyond, given the big undertaking you guys have taken on the cost side of things that stabilize the business, like, is EBS kind of like a $2.25,000,000 $2.50,000,000 EBITDA business plus looking forward? Or how do you guys think about kind of the long term earnings power of this business?

Speaker 2

I think you probably expect my answer to that. We're not going to make comments specifically about 2025. Having said that, I can certainly say that

Speaker 1

one of the things that

Speaker 2

we did is we took out ballpark $130,000,000 of operating expenses from the business. If you look at just even in the quarter, the operating expense reductions, absent the impairment versus last year, was $65,000,000 just in the quarter. So it tells you we're taking the steps to bring down the operating expense, number 1. Number 2, I've got to say this so that everyone understands, we are continuing to maintain the capabilities to manufacture our products and have the ability to manufacture all of our products and have expectations that over the next several years, we have availability to make all the products even with the reduction in the number of sites and the streamlining of our site network. So that probably is the best way I can answer the question in terms of we've brought down operating expenses significantly.

Speaker 2

As I said, dollars 65,000,000 in the quarter versus a year ago. And then, of course, we still maintain, although the network is streamlined, we still maintain capabilities to make all of our products.

Speaker 4

Got it. Thank you and best of luck with the balance of the year.

Speaker 2

Thank you. Operator, next question?

Operator

And there are no questions at this time. I will now turn the call back over to Frank Bargo for closing remarks.

Speaker 2

This is Joe Bargo. I'll take the closing remarks. So thank you again for everyone for joining us, and we very much appreciate your interest in Emergent. We look forward to having a chance to talk to all of you in the near

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Earnings Conference Call
Kinsale Capital Group Q3 2024
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