Emergent BioSolutions Inc. (NYSE:EBS) Q4 2022 Earnings Call Transcript

Bob Kramer: Yeah. Thanks, Brandon. So I will take the first question and then ask Rich to comment on the gross margin guidance and potential impact throughout the year as we potentially pivot to NARCAN being distributed OTC. So I think as it relates to kind of the general market dynamic, Brandon, when assuming the timing sticks with FDA approval at the end of March, there will be a bit of a transition period, so we can complete our supply chain solution preparation and prepare for a launch, as we have said in maybe the summer timeframe to see product on shelves. I mean, clearly, it gives us the opportunity to be back into and compete in the retail space, Brandon, which we lost significant market share as a result of the generic products coming in, in December of 2021.

We have always been able to maintain a good, healthy market share of the public interest market, even with the introduction of the generic products. We expect that to hold in the OTC setting. So I think OTC for NARCAN means that we can perhaps be a little bit more competitive or regain some competitive advantage in the retail space, as well as hold on to the public interest market, where we have always had strong traction and relationships with those customers. But Rich, do you want to comment on the gross margin guidance?

Rich Lindahl: Sure. So I guess two parts to the question. One being the overall gross margin guidance is a blend of Product gross margin and Services gross margins. And we do anticipate that Services gross margins, while we would expect some improvement this year are going to remain lower than where we ultimately expect them to be. So I do think over time, the Services gross margins can be a positive influence on the blended gross margins. As it relates to Product margins, I think, generally speaking, we expect there to be stability in Product gross margins. The NARCAN experience will certainly weigh into that. I think at this point, we have made some assumptions about where we expect pricing to be and also other costs related to marketing or other costs associated with NARCAN. We are not prepared to provide specificity on those assumptions at this point, but it does reflect our current assumptions.

Brandon Folkes: Thanks very much. And one more if I may, just sort of very high level. Bob, you talked about the sort of the long-term guidance you last put out in 2019. But the last guide on this year and you have continued to narrow your flow through and work through a lot. But how should we think about how different EBS looks in two years to three years from now. Maybe especially the manufacturing footprint, I know

Bob Kramer: Yeah

Brandon Folkes: you don’t want to give that, but just what are you envisioning in terms of how narrow to take this focus.

Bob Kramer: Yeah. Brandon, it’s a really good question. I think when you look back at November of 2019 prior to COVID, as we shared during that Investor Day, we expected that the organic portion of our business would kind of be able to grow in that mid-to-high single-digit growth rate going forward. And we expect it to be able to continue to do potential M&A transactions that would continue to contribute on a revenue basis to us gaining leadership positions in key niche markets of this public health threat space that we continue to operate in. I think for the next couple of years, we are going to continue to focus on the priorities that I mentioned in my prepared remarks, meaning driving and improving profitability margin both at the gross margin level, as Rich described, as well as the adjusted EBITDA level.