Bob Burrows - Vice President of Investor Relations Dan Abdun Nabi - Chief Executive Officer Bob Kramer - President and Chief Operating Officer Rich Lindahl - Chief Financial Officer Doug White - Senior Vice President, Devices Business Unit Head Abigail Jenkin - Senior Vice President, Vaccines and Anti-infectives Business Unit Head Atul Saran - Executive Vice President, Corporate Development and General Counsel.

Brandon Folkes - Cantor Fitzgerald Dana Flanders - Goldman Sachs Boris Peaker - Cowen and Company Keay Nakae - Chardan Jessica Fye - J.P. Morgan David Maris - Wells Fargo Lisa Springer - Singular Research.

Good day, ladies and gentlemen. And welcome to Emergent BioSolutions Inc. Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions].

I would now like to turn the conference over to your host, Bob Burrows, Vice President of Investor Relations. You may begin..

Thank you, Nicole, and good afternoon, everyone. Thank you for joining us today as we discuss the operational and financial results for the third quarter and nine months of 2018. 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.

Participating on the call with prepared comments will be Dan Abdun Nabi, Chief Executive Officer; Bob Kramer, President and Chief Operating Officer; and Rich Lindahl, Chief Financial Officer. Other members of the senior team are present and available during the Q&A 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 realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. Investors are therefore cautioned not to place undue reliance on any forward looking statements.

Any forward looking statements 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.

Investor should consider this cautionary statements as well as 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 our 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 a replay of the webcast, this call was held and recorded on November 1, 2018.

Since then, Emergent may have made announcements related to topics discussed during today's call. You're once again encouraged to refer to our most recent press releases and SEC filings, all of which may be found on the Investors home page of our Web site.

And with that introduction, I would now like to turn the call over to Dan Abdun Nabi, Emergent BioSolutions' CEO.

Dan?.

Thank you, Bob. Good afternoon, everyone and thank you for joining us. During today's call, I'll focus on recent trends in the public health threats market, and Bob will provide updates on our global operations.

Rich will then summarize our financial performance for the third quarter and first nine months of the year, and discuss the revisions to our financial guidance for the full year 2018. As you saw from the press release this afternoon, our performance during the third quarter and year-to-date is solidly in line with expectations.

And we are confident in a strong finish to the year, driven primarily by growth in our organic business, as well as the incremental impact of the PaxVax acquisitions. The public health threats market is greatly influenced by federal, state and local legislation, policy and funding, both in the United States and internationally.

And recently, we have seeing significant progress across all of these fronts. In the United Sates on September 28th, the President signed into law the labor HHS and education appropriations bill for fiscal year 2019. Key bio security programs were funded above the President's requested level and at or above 2018 levels.

This included project Bioshield at $735 million, BARDA at $562 million and the SNS at $610 million. The bill also included $50 million to establish an infectious disease rapid response reserve fund to allow HHS to quickly respond to a pandemic.

In addition as of October 1, advanced research, development and stockpiling of medical countermeasures are now under the office of the Assistant Secretary for Preparedness and Response.

This move consolidates strategic decision-making around the development and procurement of medical countermeasures and streamlines leadership to enable nimble responses to public health emergencies. The 2019 appropriations bill also included substantial funding and other mechanisms to address the opioid epidemic.

The funding includes $1.5 billion for the substance abuse and mental health services administration or SAMHSA and that agency's State Opioid Response Grant, which see in part to reduce opioid overdose related deaths by funding opioid treatments, including Naloxone.

Naloxone is the active ingredient in our opioid overdose treatment, NARCAN Nasal Spray. To further combat the opioid epidemic, on October 24th, the President signed into law the SUPPORT for Patients and Communities Act, which is intended to reduce assets to and the supply of opioids and to expand access to prevention, treatment and recovery services.

During the White House signing ceremony, Emergent announced the launch of two new programs to expand access to NARCAN Nasal Spray and increased community awareness and education regarding the risk of opioids. Bob, will discuss these initiatives in more detail in just a few moments.

At the state level, the adoption of the Naloxone prescribing legislation is gaining momentum as an important component of addressing the risks associated with opioid prescriptions. These legislative actions support clinical guidelines for physicians to co-prescribe the Naloxone with opioid prescriptions to patients at higher risk of overdose.

Currently, co-prescription legislation has been passed in eight states including California, Texas and Virginia. At the federal level an upcoming December meeting of the FDA's advisory committee will solicit input and advice on strategies to increase the availability of Naloxone products intended for use in the community.

In another policy development, the national biodefense strategy was published on September 18th, which demonstrates the importance of biopreparedness to the U.S. government. The goal of this strategy is to consolidate and implement all U.S.

government activities aimed at protecting American public from biological threats and to develop a more resilient and effective biodefense enterprise. Importantly, this new biodefense strategy is aligned with the government's national security strategy, which calls for an annual evaluation of biodefense needs to help ensure that the U.S.

government can effectively counter the rapidly changing landscape of biological threats and build on lessons learned from back past biological incidents. We’re also witnessing similar momentum internationally.

In Europe, Emergent has played an increasingly influential role in responding and contributing to several policy initiatives led by the EU terrorism committee.

These include the CBRN action plan, the civil protection mechanism, the joint action on vaccination and the joint declaration on EU native cooperation, all of which were put forth over the course of the past four months.

The CBRN action plan proposes for the first time that medical preparedness for CBRN attacks be a specific EU priority action and policy commitment. Specifically, the plan focuses on the need for improved preparedness of member states through their procurement of medical countermeasures.

It also endorses the important role of industry and supplying medical countermeasures, recognizing that closer industry relationships are needed to ensure that medical countermeasures are available.

The civil protection mechanism goes further by discussing the implementation CBRN action plan, stressing that the need -- that the ideal solution for dealing with CBRN incidents would be to establish stockpiles in Europe at the regional or EU level, and by ensuring that first responders are adequately protected when they're entering the arena of a possible CBRN attack.

As part of the EU's third health program, which aims among other things, to protect the EU citizens from serious cross-border health threats, and joint action on vaccination was convened to discuss implementing EU legislation on communicable diseases and other health threats, including those caused by biological and chemical incidents.

Emergent was the only industry representative invited to the discussions to work with a JV leadership to raise the importance of vaccine preparedness, especially for biological threats, as well as the importance of stockpiling medical countermeasures at both the EU and national levels and the development of policy recommendations.

Last week, a joint declaration on EU native cooperation was published by the President of the European Council, the President of the European Commission and the Secretary General of NATO.

A joint declaration commenced the EU and NATO to strength and resilience to CBRN related risks and supports the EU commission CBRN action plan that recommends member stay stockpile inventories of essential medical countermeasures as a matter of urgency.

In summary, we are witnessing continued legislative policy and funding efforts for medical countermeasures that demonstrate an increased commitment to public health preparedness and response in the U.S as well as internationally. This progress further supports our belief that the global public health threat market is firmly established and growing.

Taking into account our 20 year track record in the public health threats market, our growing portfolio of medical countermeasures and services that address these threats and our network of global government, NGO, commercial customers and partners, Emergent is well-positioned to remain a leading provider of solutions addressing public health threats.

With that, I'd like to turn the call over to our President and COO, Bob Kramer, for a review of our operations.

Bob?.

Thank you, Dan and good afternoon, to everyone and thank you for joining our call. For my prepared comments today, I'll focus on summary updates on the operations in each of our four business units. But before doing so, I would like to take a moment and give a brief update on the recently closed acquisitions of PaxVax and Adapt Pharma.

With the closing of these two transactions, we have exceeded our 2018 operational goal of completing an acquisition that will generate revenue and be accretive within 12 months of closing.

To that important point, we continue to expect that the Adapt and PaxVax operations will contribute combined revenue in the range of between $270 million and $300 million in 2019 and be accretive to full year 2019 adjusted net income and adjusted EBITDA.

Focusing first on the PaxVax acquisition, since the closing in October 4th, we've begun the integration of PaxVax's products, pipeline and sights into both our vaccine and our infectious business unit, as well as our CDMO business unit.

As reminder, PaxVax adds to our portfolio two FDA approved vaccines, Vivotif for typhoid and Vaxchora for cholera, as well as two development candidates, a Phase 2 chikungunya vaccine and an adenovirus Types 4 and 7 vaccine being developed in collaboration with the U.S. Department of Defense.

The acquisition also expands our international manufacturing footprint with the addition of a cGMP Biologics facility in Bern, Switzerland, which we view as an important strategic step in our approach to addressing the needs of customers in Europe.

They also bring in experienced marketing team and global specialty salesforce and distribution network, focused on the growing travelers market. Shifting to the Adapt Pharma acquisition.

On October 15th, we announced the closing of this significant transaction and have now begun the integration of Adapt's flagship product, NARCAN nasal spray and workforce of 50 employees in the U.S., Canada and Ireland into our devices business unit.

As a reminder, NARCAN nasal spray is the first and only needle-free presentation of naloxone approved by the U.S. Food and Drug Administration and Health Canada for the emergency treatment of known or suspected opioid overdose.

We welcome Adapt’s experienced commercial team currently covering all 50 states in Canada and their R&D organization, which is focused on developing new treatments and delivery options for opioid overdoses.

Going forward, we will continue Adapt’s strategic commitment to strengthening affordable access and expanding awareness and availability of NARCAN nasal spray as a convenient, easy to administer emergency treatment.

As Dan mentioned earlier, concurrent with the signing of the support for Patients and Communities Act, we announced a program to offer free NARCAN nasal spray in opioid awareness education to all public libraries in YMCAs, reaching thousands of communities throughout the United States.

Also in October, we launched a direct to consumer opioid public awareness campaign in eight cities. This campaign focuses on educating both at risk populations and those supporting them, including family members and friends about the risks associated with opioid use, as well as how to be prepared to respond in the event of an emergency.

This campaign also includes education on the availability of NARCAN nasal spray in pharmacies without a prescription and with broad insurance coverage.

As we have previously stated, NARCAN nasal spray has very broad public and private health insurance coverage with 97% of covered members having access to the product with a majority of prescriptions being dispensed at a co-pay of $10 or less and some insurers waiving co-pays entirely.

These efforts complement the broader statement federal initiatives to address the opioid crisis, including federal funding of SAMHSA Grants under the 2019 Appropriations Bill; the federal support for Patients and Communities Act; the FDA’s Advisory Committee, which is scheduled for next month and names to evaluate strategies to increase the availability of Naloxone products intended for use in the community; and finally, various state-level initiatives to co-prescription legislation.

In summary, the PaxVax and adapt acquisitions significantly broaden our capabilities and further solidify our position as a leading public health threat solutions provider to both governments and commercial customers. Now, let me turn to the state of operations in each of our four business units.

Starting with vaccines and anti-infectives, this business unit includes BioThrax and ACAM2000 in a portfolio of development programs, including NuThrax plus vaccines targeting influenza and Zika, as well as anti-infective drug candidates.

Beginning in the fourth quarter, the PaxVax marketed products and development pipeline will be incorporated into this business unit as well. During the third quarter, we continued working towards completing deliveries of both BioThrax and ACAM2000 into the SNS by the end of the year.

In addition, the CDC issued a pre-solicitation notice outlining their interest in continued future procurement of ACAM2000 to the SNS. The issuance of this pre-solicitation notice marks the beginning of the contract negotiation process, which we continue to work toward completing by year end 2018.

In the context of the development programs, looking first at NuThrax. We continue to advance the product development efforts. The process, performance, qualification runs, or PPQ lots, are in process and we continue to target the final submission of the full EU8 package to the FDA by the end of 2018.

Regarding the EUA preapproval, while receiving EUA preapproval will be the significant advancement as it enables BARDA to procure NuThrax under our $1.5 billion development and procurement contract. As a reminder, this contract also includes procurement options to deliver up to $15 million doses of NuThrax to the SNS.

In parallel to the EUA submission, we also made further progress on NuThrax's eventual BLA or Biologics License Application. Specifically, we received notification that no additional non-clinical efficacy studies would be required for the BLA, an important decision for a product candidate that will rely on animal data for approval.

Additionally, we submitted the phase 3 protocol to the FDA and remain on target to initiate the phase 3 study beginning in the first half of 2019. Next is the antibody therapeutic business unit.

This unit consists of four marketed products, including Anthrasil, BAT, DIGIV and Raxibacumab, as well as a portfolio of hyper immune candidates, including those targeting influenza and Zika. During the quarter, we continued to fulfill deliveries of DRG and Raxibacumab to the SNS.

We also continued to advance the tech transfer of Raxibacumab to Emergent facilities as part of its strategy to provide a licensed anchor product for our CIADM facility in Bayview, Baltimore and ensure the continued supply of this important medical countermeasure. As a reminder, the CIADM has a partnership with the U.S.

government to build capabilities intended to meet the pandemic and emerging infectious disease emergency response needs of our government customers. More recently, we were able to negotiate with BARDA a modification to the existing CIADM contract to include funding for the tech transfer of Raxibacumab to our Bayview facility.

In addition, we continue to make progress on growing our international customer base. Specifically, we successfully expanded sales of our Botulism Antitoxin or BAT product, in new territories and signed a distribution agreement for this product in the EU.

Shifting to the development programs, the phase 2 clinical study for influenza Immune Globulin Therapeutics, or FLU-IGIV remains open. Clinical sites are being added for this flu season and we continue to target completion of this 75 patients study in the first half of 2019.

We also initiated a Phase 1 clinical study for our Zika virus Immune Globulin Therapeutic and continue, we anticipate completion and data availability in the first quarter of 2019.

Turning next to the devices business unit, beginning in the fourth quarter, Adapt Pharma’s operations will be incorporated into our devices business unit alongside RSDO and the TROBIGARD auto-injector platform, as well as development programs notably, the cyanide antidote intranasal spray and the D4 dual chamber auto injector.

During the third quarter, we continued to deliver RSDO and TROBIGARD under existing contracts with U.S. and international customers. We also continued our efforts to expand the customers of both these important medical countermeasures.

From a development perspective, we continue to make progress in the SIAN and D4 projects under development contracts with BARDA and DoD respectively. Specific to D4, we completed functional prototypes and initial feasibility testing with an expectation for IND submission in 2019.

Turning last to the contract development and manufacturing operations units, or CDMO. This business unit provides upstream and downstream manufacturing services for both internal, as well as external customers through all phases of drug development.

During the third quarter, we continued to generate revenue on behalf of commercial customers, principally from our Camden fill/finish facility. We also made further progress on the expansion and upgrade of our Camden site where we’re investing in additional capacity expansion, as well as capability upgrades over next three years.

In summary, across the board, our operations remain strong and we remain confident that we will meet all of our operational goals for the year. For the remainder of the year; our priorities are to first, ensure the successful and seamless integration of our newly acquired PaxVax and Adapt Pharma businesses into Emergent; next to execute on all U.S.

government contract deliverables; third to submit EUA application for new NuThrax; next to complete the negotiations with the U.S. government on a follow on ACAM2000 procurement contract and finally to advance on our clinical development candidates.

We will also continue to opportunistically evaluate acquisitions that meet our criteria and fit into our core focus area of public health threats. With that, I’d like to turn the call over to our CFO, Rich Lindahl, for review of our financial performance.

Rich?.

Thank you, Bob and good afternoon everyone, and thank you for joining the call. For my prepared comments today, I will walk through the P&L performance for the third quarter, as well as the year-to-date period, and then shift to the balance sheet and address the state of our capital structure.

I will then wrap up with comments on our revised 2018 guidance. With that, let's first look at our third quarter performance. Results for the third quarter and first nine months of 2018 were strong and reflect both continued execution against our financial and operational goals, as well as the ongoing diversification of our business.

Third quarter total revenues were $174 million, substantially higher than the prior year. Compared to the same period in 2017, quarterly revenue highlights are as follows; first, product sales.

Product sales during the quarter were $133 million, up $19 million due primarily to sales of ACAM2000 and Raxibacumab, which were both acquired in the fourth quarter 2017, partially offset by lower BioThrax revenues, which were consistent with our contracted delivery schedule; second, contract manufacturing services.

CMO revenues were $22 million, up over $3 million year-over-year due primarily to increased contract manufacturing services for existing commercial customers at our Camden Baltimore facility; and third, contracting grants.

C&G revenue with $18 million, up $2 million due primarily to increased research and development activities associated with reimbursable product development programs. Gross margin for the quarter was 53%. As we stated before the mix of product and CMO revenue significantly influences our blended gross margin.

In addition, our gross margin in the third quarter reflects 200 basis point headwind from non-cash amortization costs. Turning to operating expenses. Gross R&D spend was $37 million in the quarter, an increase of $14 million year-over-year.

After adjusting for contracting grants revenue, our net R&D expense, which reflects investments made in programs that are not currently funded in whole or in part by third-party partners was $19 million or 12% of net revenue, which is total revenue less contracting grant revenue.

This metric is up $12 million over 2017, and primarily reflects investments in process improvements related to ACAM2000 at our Canton, Massachusetts site, as well as increased costs associated with the Phase 2 clinical trial for our FLU-IGIV program.

SG&A expenses for the quarter were $42 million, up $8 million, primarily due to $5.2 million of acquisition related costs, mainly diligence and legal expenses associated with the recent PaxVax and adapt Pharma transactions. As a percentage of total revenue, third quarter SG&A expenses were 24%.

For the third quarter of 2018, the provision for tax expense was $600,000, resulting in an effective tax rate of 3% in the quarter. Our quarterly tax provision includes a discrete benefit of $5.6 million, primarily related to finalizing positions taken on the Company's 2017 U.S.

federal and state income tax filings, as well as the impact of stock compensation activity. In terms of our profitability measures, third quarter net income was $21 million and adjusted net income was $28 million. Third quarter EBITDA was $34 million and adjusted EBITDA was $40 million.

Note that we are reintroducing the use of adjusted EBITDA as another important metric, given the contribution of M&A and our continued growth as a company. We believe this metric will allow investors to gain additional insight to the ongoing economics of our business when adjusted for items such as transaction and integration costs.

Turning to our year-to-date performance. Through the first nine months of 2018, our business is performing well and is right where we expected it to be at this point in the year.

Key highlights include; total revenue of $512 million, an increase of $145 million or 39% as compared to last year; total product sales of $389 million, which is up $129 million, or 50%.

This figure includes other products sales of $245 million, which is $165 million increase over the prior year and primarily reflects the incremental contribution of ACAM and Raxibacumab, which did not generate revenue for us until the fourth quarter of last year.

CMO Services revenue was $72 million, up $19 million or 37% versus the same period last year. Gross margin was 52%, still below our target range, but indicative of the influence of revenue mix and our efforts to continue to diversify our revenue sources.

Our gross margin in the year-to-date period also reflects a 300 basis point headwind from non-cash amortization costs. For additional context; note that as a percentage of net revenue, BioThrax was 31%, other products was 53% and CMO 16%. Net research and development expense was $40 million or 9% of net revenue.

SG&A expense was $122 million or 24% of total revenue, higher than the prior year, reflecting higher acquisition related costs associated with the PaxVax and Adapt Pharma transactions incurred through the third quarter, as well as noncapitalized costs associated with critical IT system improvements and higher non-cash stock compensation expense.

Net income was $66 million versus $49 million and adjusted net income was $81 million versus $58 million, reflecting net and adjusted net income margins of 13% and 16%, respectively. And EBITDA was $117 million and adjusted EBITDA $124 million, reflecting margins of 23% and 24%, respectively. Turning to the balance sheet.

We are maintaining a strong liquidity position as we ended September with $340 million of cash and a receivables balance of $77 million. As Bob just reminded you, we closed both the PaxVax and Adapt Pharma acquisitions in the first half of October.

To finance these transactions, we incurred $768 million of debt under our concurrently amended and restated credit facility and also used $119 million of cash on hand.

After factoring in this activity, we now have over $280 million of undrawn capacity under our expanded revolver, which when combined with our cash flow profile, ensures we retain the financial flexibility to fund our operating investment needs, service our debt and opportunistically consider additional M&A as we move down the road.

That completes the review of the quarter and year-to-date. Let me now turn to our guidance. We have revised our full year 2018 financial forecast to reflect the impact of the PaxVax and Adapt Pharma acquisitions, as well as the current trends in the rest of our business. To put our updated forecast in context, I will highlight a number of key factors.

First, our organic business remained strong and very much on track. Accordingly, we anticipate that Emergent’s financial results, excluding PaxVax and Adapt, will be at the higher end of the previous forecasts.

Included in this estimate is anticipated BioThrax revenues in the fourth quarter 2018 that are expected to be similar to the level of BioThrax revenue in the fourth quarter of 2017. This level of BioThrax deliveries for 2018 is consistent with our expectations established at the beginning of the year.

Second, the combined impact of our recent acquisitions on adjusted net income and adjusted EBITDA will be modestly positive in 2018. You'll recall that when we announced these acquisitions in August, we describe PaxVax is not yet profitable and Adapt as having a margin profile comparable to our existing business.

Looking forward, we anticipate that the impact of the PaxVax operations will become accretive to these measures by the time we exit 2019, and that Adapt operations are accretive to these measures throughout 2019.

Third, our net income forecast incorporates a total of approximately $50 million in pretax transaction and integration costs, preliminary purchase accounting impacts and additional interest expense related to these acquisitions. Several of these items are highlighted in the reconciliation of adjusted net income contained in our press release.

Finally, the revised forecast for the year continues to reflect an estimated effective tax rate of approximately 22% to 23%.

In terms of the revised guidance; we now are forecasting total revenue of $770 million to $800 million; pretax income of $75 million to $90 million; net income of $60 million to $70 million; adjusted net income of $105 million to $115 million; and EBITDA of $155 million to $165 million.

We are also adding to the list an estimate on adjusted EBITDA, again, reflecting the importance of M&A to growth strategy and its impact our reported results. Therefore, we are forecasting adjusted EBITDA of $190 million to $200 million.

To conclude, our performance for the quarter and year-to-date periods in 2018 demonstrates the ongoing strength of our organic business. And with the recent closing about the adapt Pharma and PaxVax acquisitions, we are actively engaged in integration and our entire team is excited to move forward and create value together.

That completes my prepared remarks. I will now turn the call over to the operator to begin the question-and-answer session.

Operator?.

[Operator Instructions] And our first question comes from Brandon Folkes from Cantor Fitzgerald..

I've just got two, one, I'd like to get your thoughts on the potential that we saw recently with the guidance of a OTC Naloxone and how do you think that fits into the overall goal of providing affordability and access to the patients? And then secondly, could you just provide a little bit more color how you see the competitive landscape shaping up around the branded Naloxone coming to markets to compete with NARCAN? Thank you..

Thanks Brandon for participating and for the question. So, it’s a really interesting observation that you raised, because the keys around OTC is to ensure access and affordability and that those who actually need to product are receiving and securing it.

And our approach right now on assets and affordability, as Bob mentioned in his prepared remarks, there are standing prescriptions that are unable individuals to walk into a pharmacy and secure on the product without an individualized prescription.

In addition, we’re seeing coverage by about 97% of insurance companies providing coverage, many at local pay and predominantly $10 or less. So really the whole importance of an OTC strategy is to ensure public availability.

And right now, the programs that the Company have in place, I think, are really enabling that access with education programs underway. Additional thoughts about how we can expand on that availability. So it's an area that we continue to evaluate.

But given the present circumstances on the availability and access is something that I think is being addressed with the current programs. I'll ask Bob -- anything you want to add to that Bob..

No, I think that’s complete and accurate, Dan. The programs that were put in place under the Adapt management are taking hold, they’re working and they’re reinforcing the affordable access principals. Whereas the co-prescription program, the standing order program, the awareness and education programs that we have recently announced.

So from our perspective, things are working well and we will continue to evaluate what we need to do with this product going forward..

And maybe just on the competitive landscape, how are you guys shaping up?.

We have Doug White, who is Head of the Business Unit for Devices. Doug, maybe just a little perspective on the branded naloxone..

Yes, we continue to evaluate the marketplace and understand that there are other companies that are doing work and studies with plans to enter the market.

We have anticipated that through our initial analysis and valuation as part of the acquisition and we believe that NARCAN is a very strong brand and that based on our current position, we feel very strongly about our ability to maintain a strong position in the marketplace..

And I think the other thing to add to this is, this is a crisis -- a healthcare crisis that we've not experienced before as a country and there is a real need for products like the NARCAN Nasal Spray to be available.

And as we look at the landscape, increased education, increase awareness, increased avenues for availability, this is a growing marketplace. It's not static and fixed.

And particularly when we see some of the state initiatives and the federal government allocating grant money for block grants to the states and the utilization of those funds by the states to address the opioid crisis in the way they see fit. This is an expanding market.

So it's not static whereby an additional product or two coming into the market actually affects the growth prospects for the NARCAN Nasal Spray. So you have to think of it in those terms as well..

Thank you. And our next question comes from Dana Flanders from Goldman Sachs. Your line is now open..

Hi, thank you very much for the questions. My first is just, maybe you can speak to PaxVax and how you think or where you think you can take operating margins for that business. I know you said accretive by year-end '19.

What's kind of the long-term margin profile you think you can achieve? And then, on Vaxchora specifically; again, I know it's in launch mode, but how you're thinking about that long-term market opportunity? And then I just have a quick follow-up..

So Dana, thanks for the question.

I think as we spoke, when we announced the PaxVax transaction, we expected both it as well as the Adapt transaction to be operating consistent with the profile that we established several years ago for our 2020 financial profile in terms of its contribution, it's profitability profile, so our thinking has not changed there.

I'll let Abi Jenkin, who runs the Vaccine business unit talk about the specific opportunities for Vaxchora. But in general, I'd say our thinking is consistent with what it has always been in terms of the profitability profile on our expectations for the business.

Knowing that we are going through a bit of a transition process, having just gotten our hands on the wheel of this less than a month ago and there is an ongoing integration process and assessment that needs to continue for quite some time.

But Abi with that anything -- any color you want to add?.

In terms of Vaxchora growth specifically, I think the travelers market is, as you mentioned Bob, strong and growing, and Vaxchora unit; numbers of prescribers who are using Vaxchora and the units per physician are increasing.

We've got a great relationship with Passport Health and a number of factors under way and it is the only approved cholera vaccine in the US. So, just a lot of momentum behind the launch that we expect to continue for the remainder of '18 and into '19, for sure..

Okay. And then, on the upcoming panel to discuss naloxone and I know you mentioned that a couple of states have already adopted co-prescribing it with opioids.

I mean what's happened to volumes in those states when that legislation or that state legislation is passed? I mean what's the example of how much volumes pick up and I know it's a state by state basis, but curious if you have an example that you can point to for how we should think about the incremental volume opportunity, assuming this goes through or other state adopt this? Thanks..

Sure, it is. You're correct. It is state by state specific and there are now six states where the co-prescription program has been implemented. There are two others that are scheduled to be implemented soon. But Doug, maybe you want to provide some color on the experience so far in terms of the impact on those sales..

Absolutely. So in states where the co-prescription legislation has been implemented, we do see a spike in volume that happens very shortly after the legislation goes into place and then we see a continued maintenance on -- increase in that state on a weekly basis in terms of prescription.

So it does have an impact and we have seen that demonstrated consistently with all of the states that have initiated legislation..

And it's a little difficult to tell, exactly, Dana what the impact will be knowing that on the date of enactment, there are a certain percentage of prescriptions that maybe 15 days old, 30 days old, 60 days old. So there may be a bit of a delay in when the impact from the co-prescription program will be felt or seen through the channel.

So it's really on a state by state, almost patient by patient basis..

Thank you. And our next question comes from Boris Peaker from Cowen. Your line is now open..

I just want to focus more on the smallpox vaccine, maybe a little.

With BioThrax and ACAM2000, what are some of the key timelines for negotiating future contracts with key milestones that you'll be able to report on that will be more visible to us as investors?.

So, Boris, as we said in our remarks, I think it's a good indication that the government came out with their pre-solicitation notice and their request for proposal to which we have now responded. So it opens the door for us to have more transparent conversations around what an ultimate long-term solution looks like.

I think realistically, when you will get visible or tangible evidence of progress when -- is going to be when we announce a contract award..

I think that's right, Bob. I think that's the next visible milestone for investors to see the progress there. I will say that this has been the countermeasure that's been one of the highest priorities of the US government going back decades.

And for them to have a vaccine that's available in their stockpiles to protect every man, woman and child in the country has been a priority. As I said, going back decades. So we fully expect and all indications are that that commitment remains.

And in fact, as you've seen, they're looking to expand populations with immune compromised as well being available to be protected. So this is a key priority. It's a capability that's unique in this country and so, we fully expect -- the commitment is there; certainly we see the funding is being there, the will is there.

So, very much similar to the contract negotiation process we've undertaken so many times with the US government. So, just a little color there for you, Boris..

Thank you.

And my next question is on, if we look at PaxVax products, what is the opportunity in Europe or ex-US for these products?.

So Abi, you want to comment on that?.

Sure.

So for the PaxVax travelers vaccines, they represent, in terms of product sales, about 30% of the total product sales we estimate for 2018 and it's also an area of growth both for the -- for products like Vivotif, which is the main PaxVax product that's available outside the United States, because Vaxchora hasn't launched yet, but also through our partner relationships where we sell other companies' products and where they sell and distribute ours.

So that's definitely an area of continued growth moving forward as well, especially as we intend to launch Vaxchora outside the United States in 2020..

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

A couple of questions related to the recent acquisitions that you've completed.

Can you give us an estimate of both what do you expect the quarterly depreciation and amortization to be and also what you expect the quarterly interest expense to be?.

What you'll see is we've got roughly $12 million to $13 million of additional D&A that we're expecting in the fourth quarter of 2018. So that's -- some of that is preliminary based on initial purchase accounting estimates and so that could move a little bit, but that's a reasonable estimate for now.

And as far as interest expense is concerned, you should think of it in terms of roughly $8 million to $9 million per quarter as, again, a reasonable estimate..

Thank you. And our next question comes from Jessica Fye from J.P. Morgan. Your line is now open..

You've talked about some investment to support the growth of NARCAN, can you help us think about how aggressive you might be and what that mean for 2019 SG&A? And I have a couple others as well. I mean, if you want me to rattle them off now or go one by one..

So I think we will evaluate carefully how to best support the programs that Adapt Pharma has put in place and the resources that they had made use to deploy those programs.

I think as we've said on the earlier call, they are fairly lean organization with just 50 employees worldwide supporting revenue base that we anticipate for 2019 is going to land somewhere between $200 million and $220 million in revenue. So they've been scrappy.

They've been extremely effective and now we have to step back and evaluate those three principal initiatives around affordable access and awareness and how we can accelerate that, plus ensure that there is a robust, durable supply chain that supporting that product.

So we'll be careful about that, but I think there is an opportunity to carefully make some additional investments to really boost the business overall. Some of this will be SG&A impacts and maybe capital investment related..

Okay.

And then, is it possible to quantify what Raxi and ACAM2000 revenues were on the quarter? And if not, can you at least give us a sense of, say like, how much smaller the second largest product was relative to BioThrax this quarter? Sees like this is one of those ones where it could have been close?.

We haven't typically broken out those other product sales revenue. We're really just disclosing the BioThrax revenue at this point. As we've talked about in the past Jess, those other -- we used to refer to them as other bio-defense product revenues are bit lumpy.

They're subject to a delivery schedule under contract and it may be the case where we have one delivery per year for those products and they kind of trade off timing-wise; they smooth out over time.

So again, if you look historically at the contribution of other product revenue and BioThrax on a trailing 12-months basis, it smooth out, but quarter-by-quarter, I think to your point, you question, it is a bit lumpy..

And then lastly, I think this is sort of following up on the prior question, with respect to that $50 million in pre-tax transaction and integration costs, can you talk about how much of that $50 million hits in the fourth quarter versus that's already in 3Q? And just kind of curious if you can give any more color on like the components of it and what lines that will hit?.

If you look at the reconciliation tables, you will see a couple of components are highlighted.

So you've got about $24 million of transaction and integration expenses, you've got $8 million of inventory step-up you've got; in addition we have another roughly $10 million of amortization; and about $7.5 million, $8 million of interest expense, incremental interest expense.

So that's how you get to the $50 million and nearly all of that is in the fourth quarter..

Nearly all of it's in the fourth quarter. Okay, got it. Thank you..

Thank you. And our next question comes from David Maris from Wells Fargo. Your line is now open..

I have a few naloxone questions. So, first, on the OTC naloxone opportunity; is that something that EBS would plan to participate in and do support the idea of an over-the-counter naloxone.

The second is, what do you think the impact could be on pricing? Also, do you have any IP around the use of nasally delivered naloxone in certain dosage strengths that the current FDA guidance for dosage strengths of 2 to 4 milligrams fall within? And that's -- those are my questions..

So, I'll come back to the earlier answer that I provided, the real benefit of OTC is to ensure access and availability.

And given the programs that are now in place and the systems that have been adopted and implemented, we're not perceiving a significant benefit to have the products available OTC over and above what's being provided today, because remember we've standing prescriptions, we have insurance coverage, and in many instances patients pay nothing for it or the co-pays could be under $10.

It's hard to imagine that in OTC paradigm, where patients would be paying nothing or less than $10 for a product such as this. So we're not really seeing the benefit in terms of increasing accessibility I think -- our affordability and really -- or availability.

So the real driver for OTC really has to be around the benefit that the product provides for addressing the crisis, the opioid crisis and I'm not sure that OTC is the answer. And I think the other thing that's--.

So it wouldn't be detrimental, I mean, you don't see any downside to it from an access standpoint, do you?.

It could very well be detrimental. Yeah. It could very well end up hurting the effort rather than improving the effort.

Not sure that the discussions that are appropriate between pharmacist and patient to a recipient would take place -- not sure that the conversations that might be appropriate between physician and patient would take place certainly on the economic side. There isn't the opportunity to have it covered by insurance with little or no co-pay.

So it actually might reduce and have a negative impact overall. It's hard to predict at this point. We're still early in the stages. So, I'm not sure if people are totally convinced that OTC is the right play here, if the importance of affordability, accessibility and distribution to address the crisis is the priority.

So I think a lot remains to be learned. We do have the FDA Advisory Committee coming up. I think these discussions are going to be very important to gaining a more comprehensive, robust understanding. We expect to participate in those hearings.

We expect to have an active voice in enabling the Advisory Committee to understand our perspective on the benefits and detriments, various ways in which naloxone treatments can address the crisis. So, this is an emerging space. There is no firm fixed answer to the problem.

It's multifaceted, and as you can see by the various legislative initiatives that are out there. The government is looking at numerous ways on how best to address this crisis and reduce it. So OTC is not a silver bullet and shouldn't be construed as such. So I guess--.

I had asked the questions around the IP and the 2 to 4 milligram dosing..

So on the IP question, we do have IP. Who is the best person in the room to answer that? Okay, Atul. Atul Saran our General Counsel, so if you could tackle that one for us Atul..

There are patents that have been issued that are protecting the NARCA Nasal Spray. It's something that we evaluated closely during the course of the acquisition process and came away with a strong comfort level that it will continue to help protect the NARCAN Nasal Spray as a branded product in the marketplace.

And it does include kind of a range of different doses, in response to your questions..

Yes, but I just want to be specific about this, because the Company has said that the draft guidance that the FDA has put out, gives a 2 to 4 milligram dose strengths and that your IP actually -- if you came out with a dose at that level, would the -- a competitor may be violating your IP just by following the draft guidance? And is that -- do you believe that to be the case?.

I mean, David, the patent law is a complex area, we'd have to assess it on a case-by-case basis if there are products that come up. I can't speculate as to any particular product, as to whether it may or may not infringe..

[Operator Instructions] And our last question comes from Lisa Springer from Singular Research. Your line is now open..

Thank you. I just wanted to ask a quick question about the expansion of the Camden facility.

Could you tell us approximately how much of that $50 million is going to be spent in 2019 and is the expansion of the site going to be incremental or it won't really be available for use until the project is fully completed?.

That number is about $30 million. And just to be clear, Lisa, that -- the investment we're making there as we several -- said in our prepared remarks is both a capacity expansion initiative doing more of the same, if you will, as well as a bit of a capability build.

So we are looking for additional customers with new capabilities to which -- to build that business that we know there is a heavy demand for..

Will there be additional capacity available at that site in 2019?.

A portion of it will be online and available in '19; clearly not all of it, Lisa. I think it's scheduled now to all be on board probably closer to the middle of 2020..

Thank you. And I'm showing no further questions at this time, I would now like to turn the call back to Bob Burrows, Vice President, Investor Relations, for any further remarks..

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

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day..