Ladies and gentlemen, thank you for standing by and welcome to the Emergent BioSolutions Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to hand the conference to Emergent BioSolutions. Please go ahead.

Thank you, Joelle, and good afternoon, everyone. My name is Robert Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today, as we discuss the operational and financial results for the second quarter and six months ended June 30, 2020. As is customary, today's call is open to all participants and in addition, the call is being recorded and is copyrighted by Emergent BioSolutions. The agenda for today's call will follow traditional path with prepared comments from Bob Kramer, President and Chief Executive Officer; and Rich Lindahl, Chief Financial Officer. Other members of the senior team are present and available during the Q&A session following our prepared comments. Before beginning during today's call either on our prepared comments or the Q&A session management may make projections and other forward-looking statements related to our business, future events, our prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. Any forward-looking statement speaks only as of the date of this conference call and except as required by law; we do not undertake to update any forward-looking statement to reflect new information, events or circumstances. Investors should consider this cautionary statement, as well as the risk factors identified in our periodic reports filed with the SEC when evaluating our forward-looking statements. During our prepared comments, as well as during the Q&A session, we may also refer to 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 regarding our use of adjusted net income, and adjusted EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. One final housekeeping item. During the Q&A session because of the fact that we are all in separate locations and practicing the necessary social distancing, per CDC guidelines, we will have CEO, Bob Kramer, fielding all questions to begin with, and then he will verbally hand off to other members of the team for additional answers as warranted. Finally, for the benefit of those who may be listening to a replay of the webcast this call was held and recorded on July 30, 2020. Since then, Emergent may have made announcements related to topics discussed during today's call. You are once again encouraged to refer to our most recent press releases and SEC filings, all of which may be found on the Investors homepage of our website. And with that introduction, I would now like to turn the call over to my colleague, Bob Kramer. Bob?

Thank you, Bob, and good afternoon to everyone. Thank you for joining the call. Let me start by acknowledging the extraordinary contributions of my 2,000-plus teammates at Emergent, who have worked tirelessly to enable the company to meet its commitments to public health. Importantly, they have taken on a significant amount of new additional work related to our COVID-19 initiatives, both in the therapeutic area, as well as the CDMO business unit area. They are achieving extraordinary results in one of the most challenging environments we've ever encountered. For more than 20 years, Emergent has prepared for threats like the one posed by COVID-19. Our experience addressing previous public health crises, our expertise in vaccine and drug development, and our ability to manufacture on a large scale has positioned us to contribute to the COVID-19 pandemic response like no other organization. The demand for our services, both from industry and government, both in the immediate term and over the next several years has substantially increased in the last few months. Many of you will recall that at our most recent Investor Day this past November, we outlined our strategy to expand and build scalable leadership positions in current and new public health threat markets as well as to invest in capabilities, innovation, and operational excellence. What we didn't anticipate at the time was just how soon an unprecedented public health threat would emerge and how broadly we would have an opportunity to play a meaningful role as a result. Over the past six months, we've shown how our mix of expertise, capabilities, and readiness have positioned us to respond in a way that few others can. We continue to focus on strong customer centricity, including our ability to meet the needs of the US government and other government customers as well as delivering solutions for fellow innovators and other commercial customers and, most importantly, for our patients. These principles underpinned the durability of our core business and the potential of our long-term strategy. We put the strategy outlined at our Investor Day into action, and today, we are experiencing a step change in both the size of our organization and the pace of our growth. The financial results for the second quarter and year-to-date periods demonstrate the strength of our core business and an acceleration of our 2024 strategy. As a result, we are announcing today an increase in our financial forecast for 2020. In addition, we now believe that this acceleration meaningfully increases the contribution of our organic revenue toward our goal of $2 billion in revenue by 2024 versus what we assumed just nine months ago when we first unveiled our 2020 through 2024 strategic plan. With that said, there continue to be multiple paths to achieving our 2024 strategic objectives. Before we discuss the longer-term expectations, let me first review recent business developments, starting with the pandemic response. At the outset of the crisis, we were able to quickly begin development of our own COVID-19 therapeutic treatment candidates, while at the same time deploy our contract development and manufacturing expertise for customers from the US government to some of the world's leading pharmaceutical and biotechnology innovators including Johnson & Johnson and AstraZeneca. As a follow-on to the $135 million tech transfer and capacity reservation agreement signed with J&J in April, we signed the industry's first COVID-19 commercial supply agreement, a five-year agreement for large-scale drug substance manufacturing for J&J's lead COVID-19 vaccine candidate beginning in 2021. The contract is valued at approximately $480 million over the first two years, with commitments for the remaining three-year period of 2023 through 2025 to be determined next year. In June, in an award valued at approximately $628 million, Emergent joined the US government in a landmark public-private CDMO partnership as part of Operation Warp Speed, committing our development and manufacturing services for production of COVID-19 vaccine candidates for commercial innovators through 2021 at a minimum. This agreement secures capacity for drug substance manufacturing and drug product manufacturing at our three Maryland-based facilities. It also includes an incremental investment of $85 million for the rapid expansion of our viral and non-viral CDMO drug product fill-finish capacity at our Baltimore Camden and Rockville facilities. As a result of this expansion in Camden and Rockville, Emergent is now the only multi-location CIADM, offering broad services including drug product, drug substance, and development and manufacturing services. The expansion also extends our CIADM designation by the US government to drug product, making Emergent the only such facility. Also in June, we announced a partnership to manufacture AstraZeneca's leading vaccine candidate. Under that agreement valued at approximately $87 million, Emergent will provide development services, technology transfer, analytical testing, drug substance processed and performance qualification and will reserve certain large scale manufacturing capacity through 2020. Earlier this week, we announced an additional agreement with AstraZeneca to manufacture a drug substance at large scale for commercial supply. The contract is valued at approximately $174 million through 2021 and brings the total AstraZeneca commitment to just over $260 million. The agreement leaves open the option to enter into additional commercial manufacturing commitments as the candidate progresses over the next three years. Given the scale and the ongoing nature of the threat as well as our diverse offering across development services, drug substance, drug product, and our leading development and manufacturing expertise, we anticipate significant demand for our CDMO business over the next several years across small, mid and large pharma and biotech as well as the US government and NGOs. To be clear, we have three capital investment projects ongoing and supported by this growth and scale of the CDMO business unit. First, we're nearing completion of the $50 million expansion at our Camden facility in Baltimore, where drug product sites that we announced in 2018. Secondly, we will be investing approximately $80 million in our Rockville, Maryland location to broaden our drug product capabilities. And third, we'll be investing $75 million in our Canton, Massachusetts facility to expand our viral-based service offering to include viral sector and gene therapy capabilities. Together, this represents a $200 million expansion of our manufacturing capability and capacity, adding strength, diversity and durability to our network. Turning to the pandemic response within our Therapeutics Business Unit. We're currently developing two potential hyperimmune treatments for COVID-19. First is our COVID-HIG, using our validated human hyperimmune platform. And second is our COVID-EIG, using our validated equine hyperimmune platform. The targeted patient populations for each of these programs are the severe hospitalized COVID-19 patients as well as individuals whose occupation places them at higher risk. In partnership with BARDA and NIAID, we have quickly advanced the evaluation of COVID-HIG for treatment of hospitalized patients with a Phase 3 clinical trial to start in August. Earlier this month, we announced a collaboration with Mount Sinai health systems as well as ImmunoTek Bio Centers and the US Department of Defense, which is providing approximately $35 million of funding to facilitate the development of our COVID-HIG candidate. This collaboration includes the establishment of new plasma collection capabilities at Mount Sinai, an organization at the epicenter of the COVID-19 crisis in the United States as well as the development and manufacturing of the product candidate. The collaboration also includes a clinical trial to be conducted at Mount Sinai to evaluate COVID-HIG for use as a prophylactic treatment for populations at high risk of potential exposure such as healthcare workers and military personnel. Our other therapeutic treatment program is the COVID-EIG product candidate. This candidate uses the validated platform and infrastructure from our botulism antitoxin therapeutic program. We're currently vaccinating the horses and we'll complete proof-of-concept studies to determine the potential to advance this program to the clinic to evaluate it as a treatment for COVID-19. We expect to have data this summer and will provide updates as events warrant. Also during the quarter, the Therapeutics Business Unit continued to make progress on additional pipeline programs to strengthen our leadership position in antibody therapeutics and focus on the acute care hospital space. There remains a high unmet need for treatments to reduce the overall burden of severe influenza that results in ICU hospitalizations, respiratory support, and mortality each year. Our lead clinical candidate FLU-IGIV is in late-stage clinical development for patients hospitalized with severe influenza A. We're currently in the process of reviewing the Phase 2 clinical data and will be determining the next steps and timelines as part of that review. Turning next to the vaccine business unit, our core medical countermeasure business inclusive of our anthrax and smallpox franchises continue to proceed on plan for the year, as Rich will discuss in more detail in a few minutes. We have continued to make deliveries of our anthrax vaccine candidate AV7909 to the strategic national stockpile and earlier this month in July, we secured an option to provide additional doses to the US government over the next 12 months. With respect to the smallpox vaccine ACAM2000, in May, we secured the first annual option exercise under last year's contract for additional doses to be delivered over a 12-month period that started in June of this year. We also have a number of other updates related to the vaccine business unit since last quarter's earnings call. First, the initiation of our Phase 3 clinical trial for our single-dose vaccine for chikungunya will likely push into 2021, primarily driven by the timing of certain operational matters, namely the manufacturing prep out of our Bern, Switzerland site where we planned to manufacture our clinical material. Secondly, in April this year, Emergent was notified that we will receive $15 million in funding from CEPI to support the advanced development of our Lassa vaccine program supporting non-clinical and Phase 1 studies. And lastly a note about our travel health business. While a small contributor to our overall total revenue the travel health business has been impacted by the halt in global travel. This negative impact will likely continue until the pandemic impact lessens. Nonetheless, we continue to believe this global pandemic may serve as a catalyst to raise awareness of the risks and opportunities to protect against vaccine-preventable travel-related illnesses. Turning finally to the devices business unit, let me start by taking a minute to comment on the devastating impact COVID-19 is having around the world and in the United States regarding the ongoing opioid crisis. For some, the COVID-19 pandemic and resulting social distancing and isolation has resulted in an increase of stress, depression, anxiety, and fear. Unfortunately, in many instances, these mental and emotional stressors have led to increased substance abuse and subsequently opioid emergencies. We were therefore very pleased to see that the FDA in their recent announcement requiring all labels for opioid pain medication and medicine to treat opioid use disorder be updated to include information about naloxone, as the number of opioid overdose deaths continue to rise during the pandemic. Increased access, awareness, and availability of naloxone is more important than ever right now. The FDA's new labeling requirement is an important step in a nationwide effort to more widely distribute and improve the availability of naloxone for at-risk individuals. We will continue to focus on expanding awareness of the risks of opioids, increasing the public's accessibility to naloxone, and making affordability of NARCAN Nasal Spray a priority. And we remain committed to supporting federal, state, and local organizations and their efforts to combat the opioid crisis. During the quarter, retail pharmacy sales of NARCAN Nasal Spray were stronger than anticipated and there was a significant rebound in May and June from the decline in April caused by the initial impact of the pandemic. Sales are currently trending above pre-COVID-19 levels and states with co-prescription requirements in place, as well as in states where no current requirements for co-prescribing exist. In addition, standing order volume has increased approximately 27% since the middle of May. These increases are in part due to growing awareness and concerns about the rise in opioid overdoses compounded by the pandemic, as well as the concerted efforts by state public health organizations, community organizations, retail pharmacies, and physicians to expand awareness of the need for naloxone. Now, to briefly touch upon the Teva litigation. On June 5th of this year, the US District Court of New Jersey entered a decision in the patent litigation regarding NARCAN Nasal Spray in favor of the defendants, Teva Pharmaceuticals. We are appealing this decision to the Court of Appeals for the Federal Circuit. Despite the decision, we remain focused and committed to expanding awareness and affordable access and continue to build partnerships with state and local governments and community organizations as we focus on getting NARCAN Nasal Spray to vulnerable communities and individuals. Taking all of this into consideration, we continue to expect meaningful contributions from this franchise over the near, medium, and long term. As we've shared with you all in the past, we've factored in the potential generic competition into our planning and continue to believe that we provide differentiated value in raising awareness of the need for naloxone and getting it to the patients who need it. Now before I turn the call over to Rich, let me conclude with a few summary thoughts. Emergent is uniquely prepared to answer the call for the COVID-19 pandemic. We have proven manufacturing capabilities in place and we're working with the US government and leading innovative pharmaceutical and biotech companies in support of their efforts to develop vaccines, while simultaneously advancing two potential therapeutic treatments of our own. The strength and durability of our business model is clear, and the pace at which we're driving our strategy has materially accelerated. As a result, we are significantly increasing our financial guidance for 2020 as Rich will discuss in detail in a few minutes. Finally, I'd like to once again thank our talented team here at Emergent that has stepped up to the challenge throughout this global pandemic. They've remained committed to our mission to protect and enhance life. I couldn't be more proud of the great strides they and we are making at Emergent, and I look forward to keeping you apprised of our progress as we execute on our strategy. With that, that concludes my prepared remarks, and I'll now turn the call over to our Chief Financial Officer, Rich Lindahl. Rich?

Thank you, Bob. Good afternoon everyone and thank you for joining the call. It's abundantly clear that our financial performance in the second quarter and year-to-date in 2020 has been the strongest in the company's history and builds upon the integrated nature of our strategic plan and the investments we have made in our infrastructure and operations. As Bob referenced earlier, our financial and operational success for the first half of 2020 reflects the strength and durability of our core medical countermeasures business, the resilience of our diversified revenue portfolio, and the robust acceleration of our molecule-to-market CDMO services by securing about $1.5 billion in long-term contracts. To be sure, COVID-19 has posed challenges to certain aspects of our business and operations, and our teams continue adapting to related disruptions on personal, professional, and societal levels. Even so, we ended the second quarter with strong momentum and positive financial tailwinds across all of our business units. We anticipate continued strong performance in the second half of the year and have significantly raised our 2020 guidance. With that, let's first look at our second-quarter performance. Highlights include total revenues of $395 million, an increase of $152 million or 62% versus the prior year. Adjusted EBITDA of $156 million, an increase of $127 million or 431% versus the prior year. And adjusted net income of $106 million, a $96 million improvement versus the prior year. Breaking down quarterly revenue a bit further, anthrax vaccine sales were $132 million, reflecting the continued transition from BioThrax to AV7909 in the strategic national stockpile. NARCAN Nasal Spray sales were $73 million, continuing the consistent quarterly performance of this critical drug-device combination product for opioid overdose reversal. ACAM2000 sales were $70 million as we commenced deliveries to the SMS, following the first annual option exercise, which was received during the quarter. And other product sales were $23 million, primarily reflecting sales of RSDL and BAT. We also saw substantial growth in CDMO services, as revenues more than tripled to $73 million in the quarter versus the prior year. This outcome reflects the contribution of recently announced partnerships. Most notably, our landmark public-private CDMO partnership with BARDA in support of the US government's Operation Warp Speed program. Looking beyond revenue, the quarterly results also include combined product and CDMO gross margin of 65%, reflecting the impact of overall product mix as well as improved contributions from CDMO services. Net R&D expense of $24 million or 7% of adjusted revenue in line with our ongoing disciplined approach to discretionary development investments. SG&A spend of $76 million reflects ongoing investments in capabilities and capacities to support future growth, and the impact of an increase in share-based compensation expense due to a one-time $15 million special broad-based immediately vested equity award to employees below the Senior Vice President level. Our financial performance for the first half of 2020 was also very strong, driven by all the factors just discussed for the second quarter. Key highlights include total revenues of $587 million, an increase of $153 million or 35% as compared to last year. Total product sales of $447 million, up $110 million or 33%. This includes $184 million from anthrax vaccines, $145 million from NARCAN Nasal Spray, $70 million from ACAM2000, and other product sales of $48 million. It is also worth highlighting that sales of anthrax vaccines and ACAM2000 are both up meaningfully versus the prior year. The recent option exercises for AV7909 and ACAM2000 reflect the US government's continued execution against our long-term contracts and sustained focus on preparedness against other threats, even in the context of the current global pandemic. CDMO services revenue of $94 million reflects a significant expansion of this business through the recently announced arrangements across development services, drug substance, and drug product offerings in response to the COVID pandemic. These new collaborations reflect a balanced mix of clinical and commercial activities, led by our landmark public-private CDMO partnership with the US government, which was designed to pave the way for innovators to leverage our proven US manufacturing supply chain. Combined product and CDMO gross margin of 62%, reflecting the impact of mix and the improved contribution from CDMO. Net R&D expense of $44 million or 8% of adjusted revenue, in line with our ongoing disciplined investments in select internally funded development programs. SG&A spend of $146 million reflects the increase in share-based compensation and continued investment in staffing to support future growth. And in terms of year-to-date profitability, adjusted EBITDA of $171 million or 29% of total revenue and adjusted net income of $106 million or 18% of total revenue, both reflect the influence of product mix, operational execution, and cost management balanced with prudent investments and a sustained focus on profitable growth. In terms of the balance sheet, we continue to maintain a strong financial position with ample liquidity to capitalize on opportunities for growth. At June 30, 2020, we had cash of $269 million and accounts receivable of $259 million. These current liquid assets of over $525 million are the highest in our company history. In addition, we ended the quarter with remaining borrowing capacity of $244 million under our revolving credit facility. Year-to-date, CapEx of $59 million reflects ongoing projects to scale the business, specifically CDMO drug substance and drug product capacity and capability investments at our Maryland locations as well as our Canton Massachusetts site. Net-net, our accelerating momentum creates favorable conditions for us to execute on our growth strategy and deliver solutions to address global public health threats. I'll move on now to our updated guidance. Taking into consideration the performance for the first half of the year, our outlook for the remainder of the year across all of our business units, and the expectation that challenges in some parts of our business will be offset by expansion in other parts, we are raising our overall forecast for the full year 2020. This forecast consists of the following elements. Total revenue of $1.5 billion to $1.6 billion, an increase of 27% versus the midpoint of the prior range. In terms of product specific detail, anthrax vaccine sales of between $320 million and $350 million, an increase of 18% versus the midpoint of the prior range. Our revised outlook for anthrax vaccines reflects improved visibility into this year's anticipated deliveries of AV7909, as we continue to gain more experience with this development stage product candidate. NARCAN Nasal Spray sales of between $285 million and $315 million unchanged from the prior guidance, and ACAM2000 sales of between $180 million and $200 million also unchanged from prior guidance. For the CDMO business, we now anticipate a range of between $440 million and $460 million or more than three times higher at the midpoint versus the prior guidance range. This new expectation for 2020 illustrates the important role Emergent is playing in the COVID-19 response, and more broadly reflects the transformation occurring in our CDMO business unit to provide long-term sustainable growth as evidenced by our ability to secure $1.5 billion in long-term contracts across our target markets of pharma, biotech, and the US government. Our profitability guidance includes adjusted net income of $340 million to $390 million, an increase of 97% at the midpoint versus the prior range and adjusted EBITDA of $535 million to $600 million, an increase of 72% at the midpoint versus the prior range and a clear indication of the earnings potential of our overall operations. Importantly, our revised 2020 guidance takes into account the following considerations. First, improvement of full-year gross margin by 400 to 600 basis points, driven by product mix and increased contribution from our CDMO business. Second, the delay into 2021 of the launch of the Phase 3 clinical study for the CHIKV VLP program due to the timing of certain operational factors. Third, the deferral into 2021 of a follow-on procurement contract with the US government for raxibacumab due to the impact of the prioritization of the Operation Warp Speed program on our efforts to tech transfer the raxibacumab process for the BayView Baltimore site. Fourth, continued significant disruption of global travel through at least the end of 2020, which greatly reduces Vaxchora and Vivotif revenues. And finally, an assumption of no generic competition in 2020 for NARCAN Nasal Spray. We also continue to assess the business and operational implications associated with the COVID-19 pandemic and to utilize numerous measures to mitigate the risk of disruption to our business from this public health threat. Lastly, we are providing guidance on third quarter total revenue of between $420 million and $450 million. Taking all of this into consideration, let me also reaffirm what you heard earlier from Bob regarding the clear progress toward our 2020-2024 growth strategy. To that end, our 2024 year-end targets continue to be $2 billion in top-line revenue, with an adjusted EBITDA margin of 27% to 30%. As we have discussed, there are many different paths to reaching these targets. But with the acceleration of our CDMO business unit, we have an even greater confidence that these targets can be reached on an organic basis. Nevertheless, our strategy has not changed, and we are continuing to pursue growth organically as well as through M&A as we have previously communicated. We are pleased by the resilience and durability of our business model as well as the impact of our strategy of diversifying our revenue mix and expanding the range of public health threats that we address. Let me conclude by reaffirming what I said 90 days ago on our previous call. At Emergent, we have built a strong and resilient business with the financial strengths and contingency planning needed to maintain and in some cases expand our ability to deliver preparedness and response solutions. Our business is not immune to the effects of the pandemic, but the very nature of this crisis illustrates why Emergent's products and services are critical to addressing public health threats. Our current outlook, combined with what we have announced thus far this year, gives tangible evidence of the durability and viability of our unique business model and the role that we play in protecting and enhancing the lives of many across the globe. The current environment provides an opportunity for Emergent to illustrate our capabilities and the purpose for which we were built. I know, I speak for all our employees in saying that we are truly proud to be part of this company executing on our mission to protect and enhance life at this critical moment. That completes my prepared remarks, and I'll now turn the call over to the operator to begin the question-and-answer session.

Thank you. Our first question comes from Brandon Folkes with Cantor Fitzgerald. Your line is now open.

Hi, thanks for taking my questions and congratulations on all the progress during the quarter. Firstly, can you just elaborate perhaps on where you are in terms of capacity utilization within the CDMO business? And then maybe following on from that, in terms of how much additional capacity the investments you announced will provide? And then secondly, maybe just a knock out, do you have any thoughts on now that this potential for generic to come to market do you think co-prescribing gained a bit of momentum here and just because payers are perhaps more willing to get behind it? And then lastly, maybe one just on the guidance, if I look at the 2020 EBITDA margin, I'm coming out at about 36.6% and obviously this is quite well above your range for 2024. Given the some of the contracts on COVID are to reserve capacity, can you just provide some color in terms of whether you've assumed any cost of production against those capacity reservation contracts? Or any additional color you can provide in terms of the cost you are adding into the 2020 guidance around that? Thank you.

Great. Thanks, Brandon. Appreciate the questions and thanks for joining the call. So let me take a shot at the first couple of questions, and then I'll ask Rich to comment on your last question around the EBITDA margin implied, as well as our 2024 range that we provided, which is that 27% to 30% range. So I think on the CDMO capacity and Syed can join in here as well, it's a really difficult metric to establish overall across the enterprise, given the fact that we have nine manufacturing facilities that are kind of in play and capable of providing those CDMO services and the nature of how those facilities are being used to support both our internal candidates, as well as the CDMO. I think, if you want to get a little more granular and look at the Bayview facility where the majority of the COVID-19 vaccine development work is being done. Again, as a result of the task order that we executed with BARDA and with Operational Warp Speed and the fact that we're doing support work in manufacturing and scale up for four different COVID-19 candidates, J&J, AZ, Novavax, and Vaxart it's pretty much locked up right now, and that was by design. The US government wanted to make sure that Operational Warp Speed had four unfettered access to the full power of that manufacturing facility and broader network around fill-finish capability to support the COVID-19 vaccine initiatives. So that's how I would answer that. Our NARCAN Nasal Spray, your question about the potential momentum impact of co-prescription, as well as the generic. I think as FDA announced recently with their requirement on the label change I think that will help obviously co-prescription initiatives and momentum. I think, the fact that we continue to see states such as New Jersey either through a legislative means or a policy means continue to adopt co-prescription as a good thing. Again, every time one of those states adopt that it means greater access, greater availability and education and the need for naloxone and getting it into the very patients who needed. So, obviously, it's a good thing. And maybe, with that, I'll let, first Rich talk a little bit about the EBITDA number and then Syed if there's anything more you want to add around the capacity issues on CDMO you can weigh-in as well.

Thank you, Bob and Brandon. I want to highlight three key factors driving the expansion of our EBITDA margin in the new guidance compared to what we previously provided. First, the capacity reservation from the task order we received from BARDA contributes positively, as there are minimal costs linked to the reservation itself; the significant costs arise when we start manufacturing candidates. Second, there's an accounting aspect regarding the capital portion of the task order, where the government is investing $85 million to enhance our capacity at several facilities. This $85 million will be recognized as revenue this year, while the related spending will be recorded as capital expenditures in our cash flow statement and will eventually be reflected as depreciation in our income statement. This structure results in a notably positive effect on adjusted EBITDA due to the recognized revenue. The third factor is our overall product mix. As we have revised our product-level guidance and are achieving higher revenue from certain products, we are also gaining additional economies of scale, which further enhances our EBITDA contribution. These are the main factors driving our performance.

Great. Thanks, Rich. Syed, anything you want to add to the CDMO discussion?

Thank you, Bob. I would like to add a couple of points in addition to what Bob mentioned. It's important to recognize that each of our collaborations has a specific scope of work tied to it, whether that involves clinical or commercial support. When we evaluate our overall network of capabilities, capacities, and expertise, we see opportunities to take on more business, both COVID-related and non-COVID-related. Our goal is to maintain a steady stream of opportunities that aligns with our available capacities. To provide more details, our expansion in Canton, Massachusetts will enhance our viral vector and gene therapy capabilities up to 1,000 liters, which is an ideal size for both clinical and commercial supply in that growing market. In Camden, our investment in drug products from a non-viral approach will double the site's capacity to support clinical and commercial supply. Lastly, our investment in Rockville, Maryland for viral drug product fill and finish will also double that site's capacity to support clinical and commercial supply. With these expansions and the portfolio we have secured, we are effectively aligning our capacity and setting the stage for additional growth opportunities in our portfolio.

Thanks, Syed. I think, Brandon, that really speaks to our comfort and confidence in the durability and the sustainability of Syed's business unit around CDMO. The fact that, as he shared with everyone in the last fall that we have a very diverse service offering that is attractive to all size companies, whether they have an interest and a need for clinical material or commercial supply agreements like we've now signed with J&J and AstraZeneca. I think our unique product offering and growing capability network really gives us confidence that that business unit has quickly been brought to scale and will continue to grow over the coming years.

Great, thank you very much everyone, very comprehensive answers. I appreciate it. Thank you.

Thank you. Our next question comes from Jacob Hughes with Wells Fargo. Your line is now open.

Hi, good afternoon. Regarding NARCAN, could you discuss your approach to the appeal and what pricing options you might consider compared to a potential generic? Also, as a follow-up on the CDMO growth, some of these contracts are set to expire for COVID after 2021. Do you expect to grow from that base, or will it decline from these levels? Thanks.

Certainly. Thank you for the questions, Jack, and for participating in the call. Regarding the NARCAN inquiry, as I mentioned in my earlier comments, we anticipated and planned for both branded and generic competition when we acquired the product from Adapt a few years ago. What reassures us about the ongoing viability and sustainability of NARCAN is the FDA's recent announcement regarding a supportive label change, which we believe will enhance education and awareness about the need for naloxone. As we discuss in every call, there is a large underserved patient population that remains either unaware of or unable to access naloxone, which means this market is still expanding. We are ready to compete for market share in both generic and branded categories across retail and public interest sectors. We are committed for the long term and believe we offer a unique, high-value product in NARCAN Nasal Spray that caters specifically to patient needs. We are enthusiastic about the future of this product and expect it to significantly contribute to our revenues going forward. Regarding the CDMO question, in terms of sustainability and potential revenue drop-off post-2021, the contracts that Rich mentioned, totaling $1.5 billion in aggregate value—including those with AZ, J&J, and the BARDA/Operation Warp Speed task order—are expected to generate the majority of that revenue over the next 24 months. As Syed pointed out, we need to see how we can continue to leverage our capabilities in support of COVID-19 vaccine candidates or if we will transition to selling capacity and services to the more traditional market that Syed discussed last fall, which represents a $20 billion addressable market for CDMO. However, we do not foresee a significant decline in revenue after 2021 when the $1.5 billion value is fulfilled. Additionally, we have established a five-year commercial supply agreement with J&J, with the first two years valued at $480 million. We anticipate remaining active in the COVID-19 vaccine support space, both with J&J and AZ, after 2021.

Great, thanks. And just one follow-up, just on M&A, how active are you guys, what does the pipeline look like? And what sort of assets are you looking at?

Yes. So I think the landscape looks about the way it did when we shared our thoughts with investors last fall. If anything, it's probably gotten a little busier and populated, Jake. There are a number of opportunities across literally all four of our business units that we are evaluating. Again, to Rich's point, the fact that we have in our words a greater probability of getting to that $2 billion revenue number by 2024 through organic sources only doesn't change our view that we think that there are unique assets out there that we can use to build upon and create leadership positions in segments of the public health threat market where we think we are best positioned to win. We're still highly engaged there and opportunistic and interested in looking at different assets to bring in.

Great. Thanks, guys. Appreciate it.

Thank you. And our next question comes from Dana Flanders with Guggenheim Partners. Your line is now open.

Hi, this is Devin Geiman on for Dana Flanders. Thank you for the questions and congrats on the quarter. Just the first one on CDMO, your guidance is $440 million to $460 million for 2020, which surprisingly a little higher than we had forecast initially. Could you perhaps walk us through your revenue recognition for the procured COVID contracts to date and how they've kind of balanced broadly across 2020 and 2021? And I have a follow-up after that. Thank you.

Sure. So, Rich, you want to tackle that one.

Sure. So when you look at the $628 million piece broken up into two components, the $543 million capacity reservation, which we are recognizing monthly on a straight-line basis from when the task order was awarded in mid-May of this year through December of 2021. The $85 million component related to the capital is not recognized on a straight-line basis, but is more related to progress against the capital project. So a portion of that will come into 2020 and the remainder into 2021. And then the other programs are the revenue recognition is just related to the delivery of certain milestones, and achievement of different aspects of the arrangements that we have in place.

Okay, great. And then just a question on NARCAN. Your guidance assumes no generic launch in 2020, what line of sight do you guys have on this? Have you had ongoing conversations with Teva? What makes you comfortable assuming that Teva will not launch early within the cycle of the appeals process?

Yes. So Devin just to be clear, we have, obviously, no assurance that they will not, they very well may do that later in 2020 or in 2021, prior to the expected appeal decision in the second half of the year. We are now and will be prepared to counter or to deal with whatever they decide to do whenever they decide to do it. Our best knowledge right now indicates that and we are assuming as Rich said, we're not expecting them to, but if they do that's fine. So we're maintaining our product guidance for NARCAN for 2020 and we'll talk more about our expectations in 2021 when we provide our guidance probably around January of next year.

Is there any other question, Joelle. Joelle, are you there? Hello, Joelle are you there? Well one sec ladies and gentlemen I'm sending a message. We apologize for the interruption this has never occurred.

Rich, can you hear us. Just to make sure if the call is still alive?

Yes, I can.

Thank you. And our next question comes from Nakae with Chardan. Your line is now open.

Hi, thank you. I have two questions. First, where do you stand with NARCAN regarding your product enhancement and differentiation launches to better distinguish your product from competitors?

Yes. Thanks, Keay for the question and thanks for joining the call. I assume you're referring to one of the life-cycle product improvements or enhancements that we've talked about is the twin-dose or the by-dose product, that will at the end of the day offer two 4-milligram nasal delivered formulations of naloxone in a single device as opposed to having patients or users use two different devices. So we're continuing to develop and evaluate that twin-dose or by-dose. It's not going to be something that will come to the market in 2020. But Doug White, I think you're on the call, if you'd like to provide a little more color around the development status of that, that would be helpful.

Sure. Thanks, Bob. There is one upcoming lifecycle improvement and that is we submitted data to the FDA to extend the shelf life of our small dose NARCAN Nasal Spray from 24 months to 36 months. We expect to receive approval for this extension this year. The multi-dose product is still in development, and we plan to submit an application to the FDA in 2021.

Okay, great. Second question to what extent for the new CDMO contracts have you negotiated higher gross margin? And if so, how many basis point improvement over the prior business?

So just a clarification, Keay, are you referring to just the COVID-19 vaccine CDMO contract?

Yes. Yes, Bob.

Yes. So the nature of those as, Rich, has described is it's a combination of some initial tech transfer as well as capacity reservation based contracts with both J&J as well as AZ and with BARDA HHS and Operation Warp Speed. And then, there are the commercial supply agreements, which are longer-term, more traditional CDMO contracts that are in place. So, as Rich described, the first flavor of those contracts are by design and by structure more favorable from a gross margin perspective because of the nature of the work. The commercial supply agreements are more typical of a standard CDMO gross margin profile, because of the nature of that work. So that's how I would look at that. And clearly, we are experiencing in 2020 and 2021, a bit of an uplift in our margin profile, because of those first category of contracts that will normalize longer-term when those mature and are replaced with more traditional CDMO contracts.

Okay, thank you. That's helpful.

Sure.

Thank you. Obviously, you've locked-in a lot of the coronavirus vaccine manufacturing capacity out there. I just wanted to ask, are there other vaccine developers that you might be in discussions with, might we see some more manufacturing contracts still this year?

Yes. Thank you for the question and thank you for joining the call. I think as we described and as you've heard, the government and the Operation Warp Speed folks comment, the government has prioritized the top tier of COVID-19 vaccine candidates with five of the big players. There are an additional probably nine to twelve other candidates that are in development. They're being supported at some level by the Operation Warp Speed and by HHS such that if any one of the top-tier five fail to meet their clinical endpoints or show promise going forward, there is likely to be a substitution. So what's important I think to understand about the nature of our contracts with Operation Warp Speed is that our capacity has been basically spoken for such that Operation Warp Speed in HHS can substitute different candidates. So it's entirely possible that we may have a substitute, but that will be all fact-dependent. And to Syed's point earlier, the fact that we are continuing to invest in broader services across a broader platform of capabilities and locations, we continue to be in discussion with any number of other developers and innovators for expanded business. So it's a continuing process.

Thank you, Joelle. And with that, ladies and gentlemen, we now conclude the call. Thank you all for your participation. Please note, an archived version of the webcast of today's call will be available later today and accessible through the company website. Once again, thank you and we look forward to speaking with all of you in the future. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.