U.S. Markets closed

Edited Transcript of EBS earnings conference call or presentation 6-Nov-19 10:00pm GMT

Q3 2019 Emergent BioSolutions Inc Earnings Call

Rockville Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Emergent BioSolutions Inc earnings conference call or presentation Wednesday, November 6, 2019 at 10:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Adam R. Havey

Emergent BioSolutions Inc. - Executive VP of Business Operations

* Richard S. Lindahl

Emergent BioSolutions Inc. - Executive VP, CFO & Treasurer

* Robert G. Burrows

Emergent BioSolutions Inc. - VP of IR

* Robert G. Kramer

Emergent BioSolutions Inc. - CEO, President & Director

================================================================================

Conference Call Participants

================================================================================

* Boris Peaker

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Daniel G. Wolle

JP Morgan Chase & Co, Research Division - Analyst

* Devin J. Geiman

Guggenheim Securities, LLC, Research Division - Associate

* Jacob William Hughes

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Keay Thomas Nakae

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics

* Lisa Springer

Singular Research, LLC - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2019 Emergent BioSolutions Inc. Earnings Conference call. (Operator Instructions) As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Bob Burrows, Vice President of Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Robert G. Burrows, Emergent BioSolutions Inc. - VP of IR [2]

--------------------------------------------------------------------------------

Thank you, Jonathan, and good afternoon, everyone. Again, it's Bob Burrows, VP of Investor Relations, for the company. Thank you for joining us today as we discuss the operational and financial results for the third quarter and 9 months of 2019.

As is customary, today's call is opened to all participants and, in addition, the call is being recorded and is copyrighted by Emergent BioSolutions.

Participating on the call with prepared comments will be 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 that will follow our prepared comments.

Before beginning, I will remind everyone that 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 therefore 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 statements 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, EBITDA and adjusted EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures.

For the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on November 6, 2019. 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 Bob Kramer, Emergent BioSolutions' President and CEO. Bob?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thank you, Bob, and good afternoon to everyone. Thank you for joining our call today. As with last quarter, I'll provide a brief overview of our financial performance for the quarter and year-to-date periods. And then I'll discuss select operational accomplishments achieved since our second quarter earnings call.

The areas of near-term focus, which are key for us include: First, an update on our medical countermeasure business and including the state of our anthrax vaccine franchise and the ongoing shift from BioThrax to the next-generation vaccine candidate, AV7909; the status of our smallpox franchise, including our award during the quarter of a $2 billion 10-year procurement contract by HHS for ACAM2000; and a new award, as noted in our press release, from HHS to deliver BAT, our botulism antitoxin product into the stockpile over the next 10 years. Secondly, I'll provide an update on our devices business and, in particular, our NARCAN nasal spray and auto-injector platform opportunities. Third, I'll provide an update on our CDMO business. And finally, I'll touch upon our development pipeline.

Let me begin by putting these updates into context. Many of you will recall that we entered the year with a number of goals critical to achieving our guidance numbers for 2019. These included the transition of our anthrax vaccine program from BioThrax to AV7909, the renewal of our contract for our smallpox vaccine, ACAM2000 as well as the contract for our treatment for smallpox vaccine complications, VIGIV.

I'm pleased to say that we successfully achieved all of these milestones in the first 9 months of the year. With these contracts in place, we now have an unprecedented portfolio of long-term procurement contracts facilitating continued growth of medical countermeasure business. With that as background, I'm glad to note we achieved strong financial and operational performance during the quarter, keeping us on track to achieve our goals for this year.

Turning to our key businesses. First, let's touch upon our anthrax vaccine franchise and the transition from our FDA-licensed vaccine BioThrax to our next-generation vaccine candidate, AV7909, currently in development. You will recall that we began the process of manufacturing AV7909 earlier this year. And in July, BARDA exercised its first contract option to procure 10 million doses under an existing $1.5 billion development and procurement contract with BARDA. This 10 million dose contract award was in addition to an earlier commitment by BARDA for 3 million doses under the base portion of the same BARDA contract. In the third quarter, we began shipping AV7909 to the Strategic National Stockpile, and we remain on target to ship all 13 million doses currently under contract by the middle of next year.

Turning to our smallpox franchise. We achieved a major milestone with the receipt of a contract award by the U.S. government for the ongoing procurement of ACAM2000 valued at approximately $2 billion over the next 10 years. Our ACAM2000 vaccine is the only FDA-licensed smallpox vaccine administered in 1 dose. It's also the primary smallpox vaccine designated for use in a bioterrorism emergency and forms the majority of the U.S. government's smallpox vaccine stockpile.

September announcement of the ACAM2000 contract followed the June 2019 announcement of an award from HHS valued at approximately $535 million over the next 10 years for the continued supply of VIGIV into the stockpile in support of smallpox preparedness.

Now let me turn to our botulism antitoxin, or BAT, opportunity. As we announced in our press release today, we've been awarded a new procurement contract with HHS for BAT, the only FDA-approved treatment for botulism that covers all 7 serotypes. The contract is valued at up to $490 million and consists of 2 deliverables, which we expect to begin delivering in 2020. The first valued at approximately $90 million is for the delivery of 100,000 doses of final drug product into the Strategic National Stockpile during the next 10 years.

The second deliverable was maybe worth up to $400 million is for the production of an additional 100,000 doses of bulk drug equivalent and other related activities to sustain supply chain for BAT over the same 10-year period. The value of the second deliverable will be negotiated and finalized over the next 180 days. This contract, like other recent contract awards, continues our long-standing partnership with the U.S. government in support of their commitment to preparedness and response.

In summary, these 4 contract awards totaling in excess of $3 billion of procurement potential, established a solid foundation for future growth of our medical countermeasures business.

Turning next to the Devices business. Over the last few quarters, we've been sharing with you our continued progress that we've been making in order to help fight the opioid crisis in America. Sales of NARCAN nasal spray in the most recent quarter clearly indicates continued robust demand for this critical component in the arsenal, combating the tragic epidemic.

We remain focused on raising awareness of the risk of opioids and the threat of opioid overdoses, while increasing access to and maintaining the affordability of NARCAN nasal spray. To that end, in the area of awareness and education, there are now 9 states that have adopted co-prescription legislation for high-risk opioid prescriptions, and we continue to work with retail pharmacy chains, government and community organizations to help educate and raise awareness.

On the affordability front, over 97% of insured lives have coverage, including Medicare and Medicaid with a national average co-pay of $19 for a carton of 2 devices. We continue to expand access through expanded distribution to state and local governments, public health, community-based organizations and first responders.

In addition to our focus on addressing opioid overdose reversal treatments, we're also working on new treatments for options associated with opioid use disorder. Specifically, we received a 2-year research grant awarded by the National Institute on Drug Abuse, or NIDA, valued at approximately $6 million for the continued development of AP007, a sustained release formulation of nalmefene, another opioid antagonist, specifically for the treatment of opioid use disorder.

We also made progress in expanding our portfolio of drug device combination development candidates, addressing chemical threats, specifically nerve agents.

During the third quarter, we were awarded a $20 million contract to develop and manufacture an auto-injector containing diazepam to treat nerve agent-induced seizures. Under the multiyear agreement awarded through The Department of Defense's Medical CBRN Defense Consortium, we will develop a device, conduct studies to demonstrate consistent manufacturing, functionality and usability of the final device and complete regulatory activities required to obtain FDA approval of the combination product.

Next, let me turn to our CDMO business. Before I begin this discussion, I'd like to take a moment to welcome the newest member of our executive team, Syed Husain. Syed was recently appointed to head our CDMO business unit, joining us from Alcami Corporation, where he was Chief Commercial Officer. Earlier in his career, Syed gained experience at Lonza, Wyeth as well as Pfizer. We're excited to welcome Syed and look forward to his execution of our strategic vision to grow this business unit in the years ahead.

Syed will be sharing his thoughts on the CDMO business during the upcoming Investor Day in New York later this month. For now, let me comment on one of his projects that being the expansion of our drug product capacity and capabilities in our Camden facility in Baltimore.

Expansion is a significant capital investment that will generate measurable benefits for our clients as they progress their innovative products through the clinic and through commercialization. It encompasses state-of-the-art flexible technology using an isolator and closed fill line capable of filling vials, syringes and cartridges.

Before I close, I'd like to highlight one of our key development programs. As many of you know, we're developing a virus-like particle vaccine candidate for chikungunya, which is an illness that spreads through mosquito bites and for which there is no vaccine or treatment currently available.

Shortly after the end of third quarter, our vaccine candidate was granted priority medicines or PRIME designation by the EMA. The PRIME designation enhances support and development of medicines that target an unmet medical need that may offer a major therapeutic advantage over existing treatments, or benefit patients without preventative or treatment options. This fast track designation -- this follows the fast track designation by the FDA for this candidate and reflects our approach to both pursuing U.S. as well as EU regulatory PASS in parallel.

Importantly, we've been invited to represent industry at FDA's upcoming VERPAC meeting to be held this Friday. The VERPAC discussion, hopefully, will provide clarity on the Phase III requirements for our chikungunya virus vaccine with particular attention to what expectations will be required in the design of the Phase III trial. As we've said, we're working toward initiating our Phase III for our product in 2020. So we look forward to sharing our expertise and participating in this important discussion and coming to a more clear understanding of the path forward of a solution increased -- to the increasing threat from this viral disease.

In summary, the third quarter marked the achievement of numerous operational milestones, setting us up for a firm foundation to further grow our medical countermeasure business as well as our commercial business.

Earlier this year, we completed a strategic plan to further diversify and expand our business and to scale over the next 5 years. We look forward to sharing our plans with you at the upcoming Analyst and Investor Day meeting to be held in New York on November 21, and our hope is that you'll be able to join us there.

With that, please allow me to turn the call over to our Chief Financial Officer, Rich Lindahl.

--------------------------------------------------------------------------------

Richard S. Lindahl, Emergent BioSolutions Inc. - Executive VP, CFO & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, Bob. Good afternoon, everyone, and thank you for joining the call. For my prepared comments today, I will walk through our performance for both the third quarter and first 9 months of the year, then shift to the balance sheet and address the state of our capital structure before wrapping up with comments on our guidance for 2019.

Third quarter results reflect the increasing scale, breadth and depth of our products and services, as evidenced by the following key metrics. Total revenues of $312 million, an 80% increase versus the prior year, largely due to deliveries of ACAM2000 under our recently awarded contract and sales of NARCAN nasal spray, which was acquired in the fourth quarter of 2018.

Adjusted EBITDA of $106 million, an increase of $67 million versus the prior year and adjusted net income of $63 million, an increase of $35 million versus the prior year.

Let's now review highlights at the next level of detail, starting with revenue. NARCAN nasal spray sales were $75 million, continuing the performance we've seen over the prior 2 quarters and reflecting the impact of ongoing community access programs, addressing the public interest market and, to a lesser extent, the higher aggregate demand as legislation from each of the 9 states that have adopted naloxone co-prescription has come online. ACAM2000 sales were $112 million, reflecting the benefit of the new 10-year contracts signed during the quarter and indicating that we have already delivered a majority of the $170 million of product under the base year of performance.

Sales from our anthrax vaccines franchise of $40 million comprised almost entirely of AV7909. This outcome reflects the initial deliveries under the $1.5 billion AV7909 development and procurement contract with BARDA signed in September 2016 and, thus, marks a significant milestone in the anticipated shift by the U.S. government to stockpiling the next-generation anthrax vaccine candidate. Other product sales were $29 million, reflecting sales of over half a dozen countermeasure products addressing biological, chemical and emerging infectious disease public health threats as well as our 2 travel health vaccines.

CMO revenue of $20 million, down slightly over the prior year due to the timing of services being performed year-over-year.

Looking beyond revenue, the quarterly results include combined product and CMO gross margin of 61%, clearly reflecting the impact of mix, most notably deliveries of ACAM2000 under our new contract as well as continued robust sales of NARCAN nasal spray.

Operating expenses, both R&D and SG&A at higher levels than the prior year, but continuing to primarily reflect the impact of incremental operating costs from the PaxVax and Adapt acquisitions completed in October 2018.

Adjusted net income of $63 million. This outcome reflects the impact of revenue mix on the period, the fixed cost nature of our expanded operations, along with adjustments for acquisition-related costs and noncash amortization stemming from the PaxVax and Adapt acquisitions.

And finally, adjusted EBITDA of $106 million, similarly reflecting the impact of incremental cash and noncash adjustments resulting from our most recent acquisitions.

Turning to our year-to-date performance. Financial results through the first 9 months of 2019 were very strong and reflect the durability of our expanding business model centered on specialty products and services targeting global public health threat market opportunities.

Key highlights include total revenues of $746 million, an increase of $234 million or 46% as compared to last year. Total product sales of $593 million, up $204 million or 52%. This includes $214 million from NARCAN nasal spray, $164 million from ACAM2000 and other product sales of $135 million, all of which were up meaningfully versus the prior year. Offsetting these increases were lower anthrax vaccine franchise sales, reflecting the planned shift by the U.S. government to the next-generation vaccine candidate, AV7909. I will comment more on this during my discussion of our full year guidance.

CMO Services revenue was $55 million, lower than the prior year due to onetime services in 2018, but consistent with our expectations for 2019. Combined product and CMO gross margin of 54%, reflecting the impact of mix and tracking towards a normalized target annual range of 55% to 60%.

Net R&D expense was $65 million or 10% of adjusted revenue, reflecting our ongoing discretionary investment in select development programs that are internally funded, most notably, our chikungunya vaccine program.

SG&A spend of $201 million or 27% of total revenue, reflects the addition of the operations associated with the PaxVax and Adapt acquisitions as well as costs associated with professional services in support of our strategic initiatives. We anticipate that SG&A as a percent of revenue will decline to historical norms by the end of 2019. And in terms of year-to-date profitability, adjusted EBITDA of $145 million and adjusted net income of $67 million were both in line with our expectations.

In terms of the balance sheet, we continue to maintain a solid liquidity position at quarter end as evidenced by cash of $139 million and accounts receivable balance of $281 million. Total debt decreased modestly since June as we continue to manage our credit profile and working capital needs, balanced against pursuing our long-term growth objectives for the business. Our current capital structure continues to position us for sustained growth and expansion.

Let me turn now to guidance. As a reminder, throughout this year, we have been executing on the key objectives we identified when we provided our guidance in January, which, among other things, included initiating shipments of AV7909, working with the U.S. government to exercise the initial $261 million contract option for AV7909 and securing the 10-year procurement contract award for ACAM2000, which we value at approximately $2 billion as well as another 10-year contract for VIGIV valued at approximately $535 million.

As we have come through the year, we have seen our smallpox franchise and NARCAN nasal spray business exceed our initial expectations, offset in part by lower revenue from the anthrax vaccine business related to the U.S. government's desire to shift its stockpile focus from BioThrax to AV7909. The combination of these factors keeps us on track to achieve our initial guidance, which implies a record performance, including a second consecutive year of 40% revenue growth.

Accordingly, as stated in the press release, we again reaffirm our forecast for full year 2019. The elements of our outlook are as follows: total revenue of $1.06 billion to $1.14 billion. In terms of specific key elements we anticipate, first, an 80% to 20% mix of product sales for the combination of CMO revenue and contracting grant funding, which is in line with historic norms; second, ACAM2000 sales between $210 million and $220 million, reflecting our anticipated delivery of the full $170 million of product under the base year of the recently signed 10-year contract; third, NARCAN nasal spray sales between $275 million and $285 million, up from the previous expectation of $240 million to $260 million from earlier in the year, based upon what we have achieved year-to-date as well as the trends we continue to see in the reversal market; and fourth, anthrax vaccine sales of between $170 million and $190 million.

As we've discussed, we are continuing to work with the U.S. government as they shift procurement focus towards AV7909, and at the same time, we are continuing to progress on the critical development efforts associated with the AV7909 Phase III trial and related initiatives. Accordingly, while our 2019 expectation is now lower than in years past, we anticipate that 2020 will see a return to previous historical annual levels as we complete the transition.

Returning to our reaffirmed guidance, additional metrics include net income of $80 million to $110 million; adjusted net income of $150 million to $180 million; EBITDA of $250 million to $280 million; and adjusted EBITDA of $280 million to $310 million.

To wrap up, let me conclude with a reminder of our financial priorities for the full year 2019. They are straightforward and include the following: first, on key performance metrics, we expect to realize incremental improvements to our key metrics of gross margin, SG&A margin, adjusted net income margin and adjusted EBITDA margin.

On integration, although now essentially completed, we remain focused on ensuring we realize the full potential of integrating the operations of both PaxVax and Adapt.

On capital structure, we seek to maintain a solid credit profile and anticipate our net leverage ratio will trend towards the lower end of our target range of 2 to 3x net debt to adjusted EBITDA.

And finally, on liquidity, we continue to focus on having sufficient capital to both invest in the business as well as execute on attractive M&A opportunities should they arise.

Finally, as Bob mentioned, we look forward to hosting our Analyst and Investor Day on November 21 in New York City, where we will provide further insights into our business and share details on our new 2020 to 2024 growth strategy.

That completes my prepared remarks, and I'll now turn the call over to the operator to begin the question-and-answer session. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Brandon Folkes from Cantor.

--------------------------------------------------------------------------------

Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [2]

--------------------------------------------------------------------------------

Congratulation on the progress in the quarter. Firstly, I think we started NARCAN. There's a lot of noise around NARCAN and everyone is always coming out with something for a reversal, but can you provide us some color in terms of the feedback you get both from the first responders and the retail channel? In terms of the brand loyalty around NARCAN, it just seems that it would be -- it would take a lot for people to move away from NARCAN itself. And then secondly, the briefing documents that came out today for the chikungunya vaccines meeting on Friday. Any thoughts on those documents and how this may impact your development strategy? And what we may see coming out of that meeting on Friday?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thanks, Brandon. So on the first question, NARCAN, it's, I think, a good observation on your part. Just -- I think it's important for everyone to remember how easily NARCAN then can be used. I mean it was designed to be user-friendly, easy to apply, not requiring any medical training. We've seen great uptake in all of the markets, whether it's in the local market, the state market by first responders, police, fire. So we're really pleased with that. But big picture, our focus continues to be on making sure that there is the appropriate level of education by patients and customers who would benefit from using a naloxone product, in our case, NARCAN nasal spray as well as having access to it. So the work that we're doing, both with the public interest market at the local community, state and federal level is important. Our work in terms of making product available through the libraries, the high schools is important. And then the last piece is making sure that it is affordable. And we're doing everything we can by working with the insurance companies and payers to, again, ensure that NARCAN is affordable to the very patients and customers who need it.

On the second question about chikungunya. So the VERPAC meeting is the day after tomorrow. We expect to learn a great deal about what the expectations and requirements of the FDA will be for the Phase III clinical trial, so we can plan appropriately our Phase III clinical trial for 2020. I don't know that there's much more to say about that.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Our next question comes from the line of Jacob Hughes from Wells Fargo Securities.

--------------------------------------------------------------------------------

Jacob William Hughes, Wells Fargo Securities, LLC, Research Division - Associate Analyst [5]

--------------------------------------------------------------------------------

Just wondering if you could comment on Teva's proposed framework to give away free naloxone, if this is a risk to your business at all? And then secondly, could you just talk about what drove the lower other product sales in the quarter versus 2Q?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [6]

--------------------------------------------------------------------------------

Sure, Jacob. Thanks for joining the call. So on the Teva announcement, it will really be inappropriate for us to comment. I don't know what they're thinking about, whether it's what form of naloxone. So I think they're probably looking at sub-naloxone for that product donation, not our product, but we'll see what they have. It's a treatment. It's not a direct competitor to NARCAN.

On the other question of other product sales, maybe, Rich, you want to weigh in on that?

--------------------------------------------------------------------------------

Richard S. Lindahl, Emergent BioSolutions Inc. - Executive VP, CFO & Treasurer [7]

--------------------------------------------------------------------------------

Sure, and thank you for the question. So if you look at the other product revenue in the quarter, it was really comprised primarily of our travel health products, our RSDL product and our BAT product. And so those were the primary contributors to other product sales in the quarter. And it's not uncommon for there to be some lumpiness in the way that various products deliver as we go throughout the course of the year. So nothing unusual there.

--------------------------------------------------------------------------------

Jacob William Hughes, Wells Fargo Securities, LLC, Research Division - Associate Analyst [8]

--------------------------------------------------------------------------------

Okay. And if I could just ask one more question. Is there an update on the Teva patent case? Do you still expect something before the end of the year?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [9]

--------------------------------------------------------------------------------

Yes. So what we know, Jacob, is that the trial is substantially complete, say, for some closing arguments. So that is basically done. We're not going to speculate on the timing of what it will -- or how long it may take the judge to come to conclusion. What I will share with you is our continued belief and the strength of the overall patent family of surrounding NARCAN and our bullish view of the NARCAN nasal spray product in general in terms of playing a significant role in reversing this nasty trend for opioid overdose deaths.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

Our next question comes from the line of Dana Flanders from Guggenheim.

--------------------------------------------------------------------------------

Devin J. Geiman, Guggenheim Securities, LLC, Research Division - Associate [11]

--------------------------------------------------------------------------------

This is Devin Geiman for Dana Flanders. Congrats on the quarter. Just a few for me on the anthrax franchise and chikungunya vaccine. First, it seems as though anthrax sales were relatively low this quarter, given the historical run rates have been circa $250 million to $285 million. And today, you guided to $170 million to $190 million. Could you provide some additional detail on that? And if it's just due to the lumpy cadence of the contracting business or the transition between your 2 products? And then secondly, on chikungunya, could you just provide any comments? I know Themis Bio is also working on designing a Phase III trial. So any commentary on that would be helpful.

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [12]

--------------------------------------------------------------------------------

Sure, Devin. Thanks for joining the call. So on the first question, the anthrax vaccine franchise, I guess, I'd offer a couple of observations. First of all, we are just really 3 months into operationalizing the fact that BARDA has now exercised the first option under the contract for the 10 million doses of AV7909. And while we have been anticipating this transition in 2019, we will be supporting both BioThrax as well as AV7909 going forward, with AV7909 as a development stage candidate. We are building the kind of robust infrastructure and supply chain for it that we have in place for BioThrax. And we are confident in our ability to deliver on the 13 million doses of AV7909 by the middle of 2020 as well as the continued supply of BioThrax.

And just keep in mind that our anthrax vaccine will continue to be composed or comprised of both of these products, BioThrax and AV7909 going forward. As an example, the U.S. Department of Defense will continue to procure BioThrax to support their active immunization program for military personnel, while HHS is pivoting the procurement to AV7909 for use in stockpiling anthrax vaccines to protect civilians from the threat of anthrax. So your observation about a relatively light 2019 versus historical is just a matter of timing and building that infrastructure around AV7909. We would expect 2020 to kind of return to that historical run rate for total anthrax vaccine that you mentioned.

On the chik question, yes, there is another product in development and we expect that both us as well as the other party will be keenly interested in the VERPAC discussion on Friday as will both be held to kind of the same standard for going forward with our respective Phase III activities.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Our next question comes from the line of Jessica Fye from JPMorgan.

--------------------------------------------------------------------------------

Daniel G. Wolle, JP Morgan Chase & Co, Research Division - Analyst [14]

--------------------------------------------------------------------------------

This is Daniel for Jessica Fye. For NARCAN, can you please update us on your latest expectations for the timing of additional branded and generic competition? And what would be your interest level in settling the NARCAN litigation?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [15]

--------------------------------------------------------------------------------

Yes. Daniel, so thanks for the question, and thanks for joining the call. So again, we expect and always have that there will be additional competition in this naloxone market. We modeled that when we were evaluating the business almost 1.5 years ago. And whether that first point of entry by a competitor will be a branded product or a generic, we'll see how that goes. But again, back to my initial comment, our focus is on making sure that NARCAN nasal spray, in particular, is made available to the very patients and customers who need it going forward.

In terms of the settlement question, we are not actively engaged and really are not going to comment on that. We'll see how things go. And again, we can just reiterate our belief and our confidence in the overall strength of the patent portfolio.

--------------------------------------------------------------------------------

Daniel G. Wolle, JP Morgan Chase & Co, Research Division - Analyst [16]

--------------------------------------------------------------------------------

And if I ask -- if I can ask one more question. For AV7909, can you update us on the progress there and talk about the next milestone for that program?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [17]

--------------------------------------------------------------------------------

So the next milestone from the development perspective is the Phase III, which we completed enrollment on. And as you're aware, that product is being procured by BARDA under emergency use authorization and in concert with the $1.5 billion contract that we put in place a number of years ago.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Our next question comes from the line of Boris Peaker from Cowen.

--------------------------------------------------------------------------------

Boris Peaker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [19]

--------------------------------------------------------------------------------

Congrats on the progress. Just a few more questions on NARCAN. I'm just curious what fraction of the drug is actually used for opioid overdose versus what fraction just end up expiring? Kind of do you have a sense of how much the drug in the community is passed its expiration date? Just looking to see if there's kind of a recurring model, just replacing the expired stuff.

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [20]

--------------------------------------------------------------------------------

Yes, Boris, thanks for the question. Thanks for joining the call. We really don't have any visibility into the quantity of NARCAN that's in the market and how long it's -- I mean we know that there's a 2-year shelf life. I mean our expectation is this product is being procured and used as it should be.

--------------------------------------------------------------------------------

Boris Peaker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [21]

--------------------------------------------------------------------------------

So you don't have a sense of what fraction actually is end up being used for opioid reversal...?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [22]

--------------------------------------------------------------------------------

We don't, we don't.

--------------------------------------------------------------------------------

Boris Peaker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [23]

--------------------------------------------------------------------------------

Got you. Maybe another question on NARCAN. How is the co-prescribing legislature impacting sales? And is it more of a -- you view it as a recurring demand going forward or kind of a onetime bolus on a state-by-state basis?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [24]

--------------------------------------------------------------------------------

Yes, good question. So what our experience has shown in the 9 states that have adopted co-prescription is that there is an initial spike in the first, let's say, 30 to 60 days following adoption of co-prescription and whereas there might be -- and that spike could be 6 to 8x the pre-adoption run rate for prescriptions being filled and then after roughly a 45- to 60-day period, it normalizes back down to a run rate as maybe 3 to 5x the pre-adoption rate. So there is an additional spike, but it normalizes at a multiple of what the pre-adoption rate was.

--------------------------------------------------------------------------------

Boris Peaker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [25]

--------------------------------------------------------------------------------

Great. And my last question also on NARCAN. Just curious with the overdoses being more linked to fentanyl going forward. Are you developing a next formulation of NARCAN higher dose? And if so can you comment on that development?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [26]

--------------------------------------------------------------------------------

Yes. So as we stated on the call, we are developing a nalmefene product that is intended to be longer-acting and release formula.

--------------------------------------------------------------------------------

Boris Peaker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [27]

--------------------------------------------------------------------------------

And that's nasal? Or is that a nasal nalmefene?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [28]

--------------------------------------------------------------------------------

No, it's not, Boris. I mean going back to your initial question, we know that the 4-milligram nasal delivered form of naloxone is the effective dose. And we -- and the fact that we have 2 of those devices in 1 carton provides individuals with the ability to deliver 8 milligrams, if needed.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Our next question comes from the line of Keay Nakae from Chardan.

--------------------------------------------------------------------------------

Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [30]

--------------------------------------------------------------------------------

Bob, just a question on the 2020 expectation for anthrax sales. It sounds like if I'm hearing you correctly, maybe the control of how much product has been delivered is really due to your operations and not the orders for the product from the government. Is that the fair way to read that?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [31]

--------------------------------------------------------------------------------

No, Keay. First of all, thanks for the question, and thanks for joining the call. I think what we have learned over 2019 is the fact that AV7909 is a development stage candidate. We're 3 months into establishing a routine that is more similar to BioThrax in terms of the supply chain and operationalizing that supply chain. We have -- essentially with the exercising of that initial option by BARDA, we have 12 months to deliver the 10 million doses that were exercised, and we continue to feel confident in our ability to deliver those 10 million doses between now and the middle of 2020. And we're working through -- again, this transition with both slowing down BioThrax and ramping up AV7909 to meet that ongoing demand for those 2 anthrax vaccine candidates.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Lisa Springer from Singular Research.

--------------------------------------------------------------------------------

Lisa Springer, Singular Research, LLC - Research Analyst [33]

--------------------------------------------------------------------------------

I apologize if this was already covered because I was a little bit late to the call. But where do you stand in terms of negotiating the new contract for raxibacumab?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [34]

--------------------------------------------------------------------------------

Yes, Lisa, thanks for joining the call. So we expect that potentially an RFP for raxi will be out in the coming months, and we will respond to it as we always do with opportunities like that, but I'm not going to predict the exact timing of that.

--------------------------------------------------------------------------------

Lisa Springer, Singular Research, LLC - Research Analyst [35]

--------------------------------------------------------------------------------

Okay. And then also do you still expect to be releasing some preliminary data from the seasonal flu therapeutic at the year-end?

--------------------------------------------------------------------------------

Robert G. Kramer, Emergent BioSolutions Inc. - CEO, President & Director [36]

--------------------------------------------------------------------------------

I don't believe so Lisa. I don't think that was ever in the cards, but let me check with the team, and we'll get back to you.

--------------------------------------------------------------------------------

Lisa Springer, Singular Research, LLC - Research Analyst [37]

--------------------------------------------------------------------------------

Okay. I thought at one point, it was said that there was going to be some data available by year-end 2019?

--------------------------------------------------------------------------------

Adam R. Havey, Emergent BioSolutions Inc. - Executive VP of Business Operations [38]

--------------------------------------------------------------------------------

Lisa, this is Adam Havey. So I think our plan was always to complete the Phase II this year and have an end of Phase II meeting with the FDA and then publish the data. So I think we've completed enrollment doing the data analysis. So I think you'll hear us talk about flu quite a bit in 2020. And actually, Laura will be talking about it at the Analyst and Investor Day as well.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bob Burrows for any further remarks.

--------------------------------------------------------------------------------

Robert G. Burrows, Emergent BioSolutions Inc. - VP of IR [40]

--------------------------------------------------------------------------------

Thank you, Jonathan. And with that, ladies and gentlemen, we now conclude the call. Thank you 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. Thank you all again, and we look forward to speaking with all of you in the future. Goodbye.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.