Emergent BioSolutions - Earnings Call - Q2 2019

Transcript

Speaker 0

Good day, ladies and gentlemen, and welcome to the Emergent BioSolutions Second Quarter twenty nineteen 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. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr.

Bob Burrows, Vice President, Investor Relations. Sir, you may begin.

Speaker 1

Thank you, Valerie, and good afternoon, everyone. Thank you for joining us today as we discuss the operational and financial results for the second quarter and six months of twenty nineteen. 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 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 and 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 and 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.

Speaker 2

During our prepared comments as well as

Speaker 1

during the Q and 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 or loss, 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 08/01/2019. 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 can 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, Merchant BioSolutions' President and CEO. Bob?

Speaker 3

Thank you, Bob, and good afternoon, and thank you all for joining us on the call today. In my prepared remarks, I'll provide a brief overview of our financial performance for the quarter and year to date periods and then discuss select operational accomplishments. The majority of my comments will focus on four areas of near term focus for the company. These include, first of all, the state of our anthrax vaccine franchise, specifically the ongoing shift to the next generation vaccine AV7909 as the primary post exposure asset for our country's strategic national stockpile for anthrax response. Second, the status of the smallpox franchise, including our recent award of the vaccinia immune globulin intravenous contract as well as ongoing contract negotiations with the U.

S. Government related to ACAM2000, the only FDA licensed smallpox vaccine third, the state of the NARCAN nasal spray business and finally, progress on a few key programs within our development pipeline. Before we get into the state of the business, wanted to share a piece of good news on the government's efforts to strengthen national security. On June 24, the Pandemic All Hazards Preparedness Act was reauthorized. This is the second reauthorization of the original act, which was signed in 02/2006.

As background, the original act established The United States framework for responses to threats that may result in a public health emergency. This included establishing the medical countermeasures enterprise and the role of the Assistant Secretary for Preparedness and Response. It also included the stockpiling and procurement of medical countermeasures in the Strategic National Stockpile. And finally, it included the development of medical countermeasures to protect the American public from threats like smallpox, anthrax, botulism among others. This reauthorization expands the 2,006 Act by further strengthening the ability of both the Department of Health and Human Services and the ASPR to combat any public health emergency whether manmade or naturally occurring.

The combination of the reauthorization with the publishing of the White House National BioDefense Strategy in 2018 solidifies the government's commitment to public private partnerships and provides a clear demonstration of the government's unwavering focus on safeguarding our nation's health security. Now I'd like to transition to Emergent's business starting with our financial performance for the quarter. Our second quarter financial results were in line with expectations and reflect the trends we anticipated for the year. As expected and as we've discussed previously, the timing of the progression of both our anthrax and smallpox vaccine programs shift both revenue and earnings more toward the back half of calendar year 2019. As you'll see from today's press release, revenue in the first half of the year is approximately 40% of our full year guidance, tracking as expected.

Further, as I'll cover in more detail in a few minutes, each of our programs continues to evolve at the pace that was planned. To that end, as noted in the press release, we have reaffirmed all of our financial guidance metrics for 2019. Now let's discuss each of the four areas of near term focus for the company. First, the addition of the next generation anthrax vaccine AB7909 to our existing product line. As a reminder to those of you who may be less familiar with the company, Emergent is the only provider of an FDA licensed anthrax vaccine, BioThrax.

We've been working for more than a decade in partnership with the U. S. Government on developing a next generation anthrax vaccine AV7909. This new vaccine candidate, which expands our portfolio beyond BioThrax is designed to offer the benefits of a shorter dosing regimen plus a rapid and more robust immune response, making it well suited for use in the general population under a post exposure scenario. As we disclosed previously, we began manufacturing AB7909 in March and we anticipate beginning delivery of the initial three million doses to the stockpile this quarter as part of our $1,500,000,000 development and procurement contract with BARDA.

As a reminder, that contract includes both a three million dose delivery under the base portion of the contract plus options to procure up to an additional 50,000,000 of AB-seven nine hundred nine over the term of the contract. To that end, as you saw in the separate announcement issued on Tuesday of this week, the U. S. Government has now exercised the first contract option valued at $261,000,000 to procure approximately ten million doses of AB7909. These doses on top of the base three million doses are expected to be delivered to the stockpile over the course of the next twelve months.

During the second quarter, we also continued to deliver BioThrax into the stockpile under our existing procurement contract. Importantly, while the U. S. Government is looking to mainly stockpile AV7909 moving forward for post exposure use, we expect the government to continue to procure BioThrax to support pre exposure immunization programs such as the U. S.

Department of Defense's long standing practice to immunize personnel prior to deployment into high threat areas. To be clear, we see a continuing demand for BioThrax due to its unique indication for pre exposure protection from anthrax. Both of these are significant milestones and we're very pleased with the progress that we're making across the anthrax vaccine business. Turning to our smallpox franchise, we have significant progress to report here as well. In June, we announced a contract award by the U.

S. Government valued at approximately $535,000,000 over a ten year period for the continued supply of vaccinia immune globulin intravenous into the stockpile as a treatment for complications resulting from smallpox vaccination. As many of you know, VIG IV together with our ACAM2000 smallpox vaccine are integral to the government's overall preparedness and response strategy to have a sustainable and sufficient supply of medical countermeasures in the stockpile to protect The U. S. Population against the threat of smallpox.

With the DIG IV contract secured, momentum regarding contract negotiations for ACAM2000 has accelerated with the U. S. Government. We have continued to manufacture product and ensure sufficient supply chain availability to meet our shipment obligations once we land on a final contract. As a result, we have a high degree of confidence in our ability to provide substantial number of doses to the stockpile during the second half of this year, further supporting our reaffirmed guidance.

Next, I'd like to talk about the opioid crisis and in particular the role of NARCAN nasal spray in helping curb the devastating impact of opioid overdoses. As a reminder, current estimates show that there are approximately thirty four million Americans who are in an elevated risk of an opioid overdose according to CDC guidelines. This is roughly ten percent of our country's population. We remain focused on continuing to raise awareness of the threat of opioid overdoses and to work on increasing access to and maintaining the affordability of NARCAN nasal spray. To these ends, we're working closely with insurers and pharmacy benefit management companies and have achieved a 97% access across all payer types.

We've established new statewide distribution programs to increase the breadth of availability of NARCAN nasal spray access through state and local agencies. We continue to work with different organizations in addition to our program for schools, public libraries and YMCAs to increase awareness of the dangers of opioids and expand access of NARCAN nasal spray to help them be prepared for potential opioid overdose emergencies. As an example, Delta Airlines recently stated that it will be joining United, Alaska and Frontier Airlines in having NARCAN nasal spray in their emergency medical kits onboard commercial aircraft. Finally, we continue to work with states to help them implement co prescription legislation. In Q2, New Mexico became the ninth state to implement co prescription legislation joining the states of Virginia, Rhode Island, Vermont, Arizona, Florida, Washington, Ohio and California.

New Mexico now requires a naloxone co prescription for high risk opioid prescriptions and any prescription over a five day supply. As we think about addressing all the market's needs for NARCAN nasal spray, it's important to remember that our product is clearly differentiated as a community use product. It's convenient and does not require any medical training or certification to administer. As a result, we continue to be encouraged by the fact that NARCAN nasal spray is clearly the preferred choice across a broad base of potential end users as evidenced by the business outperforming our plans year to date. Bottom line, NARCAN nasal spray is making a significant difference and we will continue to work hard to address areas of unmet need while continuing to stress expanded access and availability, increased awareness and sustained affordability of this critical asset in response to the opioid crisis.

We have more work to do, but we remain confident in our ability to play a significant role in reducing deaths caused by opioid overdose. Now I'd like to provide an update on our leading clinical development programs. First, we continue to make progress in the development of innovative improvements and new products in our development programs focused on the opioid crisis, including extending the shelf life of NARCAN nasal spray, developing a higher dose naloxone prefilled syringe for medical personnel use and finally developing a single nasal device that can deliver multiple four milligram doses of naloxone. Second, I'm pleased to note that a few weeks ago just after the end of Q2, we completed enrollment in our Phase three AV7909 study ahead of schedule. As a reminder, this study is being conducted to evaluate the lot consistency, immunogenicity and safety of AV7909 in healthy adults.

Announced in March, this Phase three study which is fully funded by BARDA, plan to enroll 3,850 adults across 35 U. S. Sites with an overall study duration of approximately twenty months. Third, you will recall that in April, we announced positive results from our interim analysis of our Phase two study evaluating a series of dosing regimens for our chikungunya virus VLP vaccine candidate. During the second quarter, we selected the dose strength for a single dose administration to support Phase three clinical studies anticipated in 2020 and eventual commercialization.

And fourth, during the second quarter, we completed Phase two trial enrollment of our Flu IGIV therapeutic for severe illness caused by influenza A infection in hospitalized patients. We anticipate data from this trial in the first half of twenty twenty, which will drive the next phase of development with the design of the Phase three trial. In summary, we continue to successfully execute against our operational plans for the year. The second quarter and year to date results demonstrate the progress we're achieving toward our operational goals. The back half of the year promises to be very active and exciting.

Importantly, we remain on track with our plans and remain confident in our outlook for the year. Looking beyond the current year, we're completing our new five year strategic plan covering the period of 2020 through 2024. We expect to introduce the new plan and to provide an in-depth review along with management presentations and invited speakers at an Analyst and Investor Day that we're planning for Q4. More details on that will be forthcoming shortly. That concludes my prepared comments and I'd now like to turn the call over to Rich Lindahl.

Rich? Thank you, Bob. Good afternoon everyone and thank you

Speaker 2

for joining the call. For my prepared comments today, I will walk through our performance for both the second quarter and first half of the year, then shift to the balance sheet and address the state of our capital structure, then wrap up with comments on our forecast for the rest of

Speaker 3

the

Speaker 2

year. As I have said on previous calls, my aim is to focus only on the highlights as we have provided all the numbers related to our second quarter and year to date results as well as the corresponding reconciliation tables in the press release issued this afternoon. Results for the 2019 reflect continued execution against our financial and operational goals and the ongoing diversification of our business. Total revenues were $243,000,000 a 10% increase largely driven by the contribution of products stemming from the acquisitions of Adapt and PaxFax in the 2018 as well as an increase in contracts and grants revenue. Adjusted net income was $6,300,000 lower versus the prior year and adjusted EBITDA was $26,200,000 also lower versus the prior year.

The reduced profitability compared to last year is largely due to product mix as 2019 sales of our higher margin products are more heavily back end weighted. Additionally, we have made strategic investments in R and D during the first half of the year. Our overall performance in the second quarter was as we anticipated and discussed in our Q1 earnings call in May. Digging into more details, let's discuss a few key contributing factors to second quarter twenty nineteen performance. First and foremost, second quarter performance reflects the continued impact of the Adapt and TaxAct acquisitions, both of which were completed in the fourth quarter of twenty eighteen, increasing the diversity, scale and scope of our enterprise.

The second quarter also reflects a slower pace of U. S. Government purchases of BioThrax consistent with our expectations as we support the U. S. Government shift to our next generation anthrax vaccine, AV7909 as the primary vaccine in the Strategic National Stockpile for post exposure response against anthrax.

NARCAN nasal spray revenue was $73,000,000 As was the case in the first quarter, this increase was fueled by higher public interest sales as well as sustained high levels of demand following adoption of naloxone co prescription in the state of California on January 1. To a lesser extent, Narcan nasal spray sales in second quarter also reflect the initial impact of Co Rx adoption in New Mexico. We do not anticipate these factors to continue and therefore in the second half of the year, we expect NARCAN nasal spray demand to reflect a lower normalized quarterly run rate in the high $50,000,000 to low $60,000,000 range. Other product sales were $76,000,000 This increase primarily reflects the contribution of raxidacumab and the travel health vaccines. Biofrax revenue was $28,000,000 As in the first quarter, this amount reflects fewer doses shipped to the stockpile during the period.

As we have previously discussed with you, 2019 is an important year for the anthrax vaccine franchise as we work with the U. S. Government to initiate deliveries in the third quarter of the next generation vaccine AB7909. CDMO revenue was $19,000,000 While below the level in 2018, the prior year period included onetime items that did not recur in 2019. Combined product and CDMO gross margin was 50%.

This metric is similar to the first quarter and continues to reflect the influence of revenue mix on our ongoing efforts to diversify our revenue sources and customer channels. Additionally, during the quarter, we had an increase in facilities related expenses that we consider to be one time in nature and which adversely affects gross margin. Operating expenses, both R and D and SG and A, are higher and largely reflect the continuing impact of incremental operating and integration related costs from the Adapt and TaxAct acquisitions. Turning to year to date performance. Through the first half of twenty nineteen, our business has performed as expected.

Key highlights include total revenue of $434,000,000 an increase of $96,000,000 or 28% as compared to last year Total product sales of $336,000,000 up $81,000,000 or 32%. This figure includes $138,000,000 from NARCAN Nasal Spray, which benefited from both the California Co Rx lift, which has now stabilized and higher orders from public interest customers. For the second half, we are forecasting a more normalized quarterly run rate that would imply full year NARCAN Nasal Spray revenue in the $240,000,000 to $260,000,000 range, which is an increase from the prior 200,000,000 to $220,000,000 range. Total product sales also reflect a large contribution from increased sales of raxibacumab as well as contributions from VivoTif and Vactkora. These increases were offset by lower BioThrax and ACAM2000 sales.

CDMO services revenue was $35,000,000 lower by $15,000,000 or 31% versus the same period last year due to onetime items in 2018 that did not recur. Gross margin was 48%, which is below our target range, but indicative of the influence of product mix and our efforts to continue to diversify our revenue sources as well as increased facilities expenses as mentioned earlier. For additional context, as a percentage of total product and CDMO revenue, BioThrax represented 11% versus over 30% in the prior year period. Product mix will continue to be the primary driver of gross margin and we expect that for the full year, this metric will be in our normalized target annual range of 55 to 60%. Net R and D expense was $47,000,000 or 13% of adjusted revenue, reflecting our ongoing discretionary investment in select development programs, including those acquired as part of the Adapt Pharma and PaxVax acquisitions.

SG and A spend of $136,000,000 or 31% of total revenue is higher than prior year and reflects the addition of the operations and integration related costs associated with the Adapt and PaxBax acquisitions as well as professional services costs in support of our strategic initiatives. Adjusted net loss was just below breakeven and adjusted EBITDA was $33,000,000 both as anticipated for the first half period. In terms of the balance sheet, we continue to maintain a solid liquidity position as evidenced by cash of $177,000,000 and an accounts receivable balance of $218,000,000 as of June 30. Total debt increased about $50,000,000 compared to year end twenty eighteen. Our current capital structure continues to reflect a solid credit profile and positions us for sustained growth and expansion.

Let me turn now to guidance. First, our full year 2019 forecast. As stated in the press release, we once again reaffirm our full year guidance. This includes total revenue of $1,060,000,000 to $1,140,000,000 which reflects the following key revenue components: Amtrak vaccine procurement by the U. S.

Government comprising a mix of both Biofrax and AB7909 pursuant to existing contracts at a combined level anticipated to be consistent with historic annual ranges. A CAM 2,000 sales, including anticipated deliveries in the second half, assuming execution of a follow on contract with the U. S. Government in the third quarter. And NARCAN nasal spray sales across both public interest and retail channels, which we expect to yield full year revenue in a range of $240,000,000 to $260,000,000 I would also note that we have been manufacturing both AB7909 and ACAM2000 in anticipation of the second half deliveries contemplated by our guidance.

Additionally, our full year outlook includes net income of $80,000,000 to $110,000,000 adjusted net income of 150,000,000 to $180,000,000 EBITDA of $255,000,000 to $285,000,000 and adjusted EBITDA of $280,000,000 to $310,000,000 We are also providing a forecast for third quarter twenty nineteen revenue of $245,000,000 to $275,000,000 As we stated in May, the financial picture for the year continues to unfold as we

Speaker 4

had

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anticipated. We expect total revenue to be in our historic range of 40% in the first half versus 60% in the second half, while earnings will be largely concentrated in the second half. 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 annual improvements to our key metrics of gross margin and SG and A as a percentage of revenue as well as adjusted EBITDA margin.

On integration, we remain focused on ensuring we realize the full potential of integrating the operations of both Adapt and PaxBax into our overall business. On capital structure, we seek to maintain a solid credit profile and anticipate our net leverage ratio will end the year at the low end of our target range of two to three times 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 and A opportunities should they arise. That completes my prepared remarks, and I'll now turn the call over to the operator to begin the question and answer session. Operator?

Speaker 0

Thank Our first question comes from Brandon Folkes of Cantor Fitzgerald. Your line is open.

Speaker 5

Hi, thanks for taking my questions and congratulations on the quarter. Firstly, I know you mentioned that on NARC and there were higher public interest sales during the quarter. Could you just give us some color of the split between the first responder public interest and the retail market and historically it's been fifty-fifty. Is that still within range?

Speaker 3

Yes, Brandon, thanks for joining the call and thanks for the question. The split is essentially consistent with what we said before, which is that fifty-fifty split. So it hasn't changed much at all.

Speaker 5

Okay. And then maybe the next one, can you just provide some color historically for BioThorax regarding the procurement there? How much has actually been under the DoD immunization pre exposure program compared to post exposure?

Speaker 3

Yes. So historically, if you look at the prior contracts going back any number of years, government has procured somewhere between nine million and ten million doses per year of BioThrax in pursuit of building the stockpile that they would ideally like to have sufficient to protect the twenty five million lives. The exact split, Brandon, between what's used by DoD for active immunization versus what goes into the stockpile to build the 25,000,000 lives protected number is not exact. So I'd hate to speculate on that split but the vast majority of the product has gone into the stockpile for protection of civilians.

Speaker 5

Okay, thanks. And then one more if I may. You mentioned that you expect to complete the A CAM contract this quarter. Can you just help us think about the process from once you conclude that contract to actually making deliveries of that? And do you have inventory on hand and any lead time we should think about?

Thank you.

Speaker 3

Sure. Good question. Again, think as Rich stated as well as I did in my prepared comments, we have been manufacturing ACAM2000 and are prepared to deliver significant quantities in the second half of this year consistent with the estimates that we included in our 2019 guidance. So process wise, I think it's important to remember that the U. S.

Government has had a long standing practice and strategy of having sufficient medical countermeasures between the therapeutic product as well as the vaccine product, ACAM2000 sufficient to protect all American civilians roughly 300,000,000 doses of smallpox vaccine. So the fact that we were able to complete our VIGIV negotiations earlier this year in June with the ten year $535,000,000 contract gives us again every confidence that our negotiations that we're in right now with ACAM2000 will be completed in time for us to begin deliveries in Q3 for ACAM2000 under the new contract.

Speaker 2

Great. Thank you very much.

Speaker 0

Thank you. Our next question comes from Jessica Fye of JPMorgan. Your line is open.

Speaker 6

Great. Good afternoon. Thanks for taking my questions. First one is just around guidance. Using the midpoints of the third quarter revenue and full year guidance, it appears that the fourth quarter will make up about 40% of your 2019 revenues.

Can you help us think about the proportion of 2019 net income that we should model for 4Q? I appreciate the kind of first half, second half breakdown, but with negative net income in the first half or closer to flat on an adjusted basis. Just hoping we could focus in a little more on how to split up 2019 net income guidance between the third and fourth quarters.

Speaker 3

Yes. Jessica, thanks for the call or the question. Again, I think your math is spot on in terms of if you look at the midpoint of the Q3 range that Rich just provided, which is roughly $260,000,000 in revenue. If you add that to the year to date revenue that we reported, you get pretty close to a $700,000,000 number through Q3 on a projected basis. So we've got a little bit less than 40% to make up in Q4.

As you know, and as indicated by Rich, product mix for the second half sales, particularly in the product sales, will be a significant contributor to turning around the overall profitability of the business in the second half. I don't want to speculate on what the split between Q3 and Q4 similar to the split in revenue. We are confident that again we're going to get this A CAM 2,000 contract across the finish line in sufficient time to begin shipments in Q3 and Q4 and that's really going

Speaker 2

to drive the overall profitability. One thing I might add Bob is and Jeff is that, as you know, we have a high degree of fixed costs in our business. And so we do get significant operating leverage as revenue increases. And so you can certainly expect a high percentage of the increase in revenue in the fourth quarter will flow through to profitability in the fourth quarter. So hopefully, that helps in terms of thinking about the spread a little bit.

Speaker 6

Okay, great. Another question, maybe just following up on the last one on NARCAN. It sounds like with this new updated NARCAN range, it's implying sales for that product in the back half lower than in the first half, even though weekly retail scripts so far in the third quarter are averaging above what they were, for example, in the second quarter. So are you expecting a reversal? Or is it possible that there is some mix shift happening that we're not able to kind of discern in the public versus retail side of that business?

Speaker 3

Yes. I'll take a first shot at that, Jess, and then ask Doug White, who runs the Devices business unit, to weigh in as well. You're right, the first six months of NARCAN sales of roughly $138,000,000 are a bit more weighted than the back half. A lot of that is rich and others have indicated is really the result of the California Co Rx and some other developments. While we see opportunities for additional states to adopt co prescription legislation in the second half of the year, we have not baked any of that potential upside into that $240,000,000 to $260,000,000 range.

I'll let Doug talk to the second half of your question around any developments within the mix of what makes up that revenue. Jeff, thank you

Speaker 7

for the question. So in terms of the numbers in the prescription numbers that are you're referencing, New Mexico just implemented legislation in the June and we're still seeing the impact of that spike that we anticipate when a state implements co prescribing legislation. So that has been happening in July. We anticipate that will start to come back down. While it will still be higher than it was prior to the legislation kicking in, we anticipate that will bring the numbers back to a lower normalized level.

In addition to the comments that Bob made, in the first half of the year, in addition to California co prescribing legislation having an impact, the spike that we've talked about in the past, having a significant impact on the overall numbers. There were also some onetime purchases in the public interest market that we realized in the first half that we don't anticipate in the second half of the year. However, with the expansion of the commercial team, we anticipate continued growth in the public interest area as additional states start to implement programs with public health organizations and first responders.

Speaker 6

Great. Can you quantify those one time public interest purchases?

Speaker 7

We communicated that. And no, I can't.

Speaker 6

Okay. Thank you. Thank you.

Speaker 0

Our next question comes from David Maris of Wells Fargo. Your line is open.

Speaker 8

Good afternoon. So a few questions. First, what states currently have plans for co prescribing or are currently considering it that you think could possibly kick in, in the second half of the year? Then secondly, in July, Insys announced that the FDA had accepted their Veloxo nasal spray. What can you tell us about your view of that product and what your response might be when if it

Speaker 3

does come to the market?

Speaker 8

And then lastly, just as a clarification, it seems like a lot of the concerns about being back end loaded in the year are just explained away by the A CAM 2,000 kicking in at the late part of the year. So would that mean that next year should presumably be flatter even though it may be back end loaded, it will be flatter than this year? Thank you.

Speaker 3

Yes. David, thanks for the questions. So I'll take a couple of them and I'll ask Doug to weigh in on perhaps his thoughts and views of the EnCIST product. So on CORX, there are any number of additional states that we know are considering adopting co prescription. It's a little dangerous to predict which ones may adopt and when they might.

Hence our reluctance to bake any of that potential upside into the two forty to February. So we're not really going to comment on which states and when. In terms of the back end loaded nature of 2019 being impacted by both AV7909, the second generation anthrax vaccine as well as ACAM2000, I think 2020 should not be as back end loaded. I think we will be working on the delivery schedules for both AB7909 and ACAM2000 as part of these contract negotiations. And as you can appreciate, we look to smooth out those deliveries.

It's a better model in terms of the supply chain management. So we'll be looking to take some of those lumps out next year. And maybe Doug, you can comment on the Insys comment.

Speaker 7

Sure. Thanks for the question, David. So yes, we're obviously well aware of Insys application. We understand that they are applying with an eight milligram dose, which we believe will take additional work to validate that the dose is not only safe. I think there's been work done to look at children on that front, but also recognizing that the current standard is at four milligrams for intranasal spray.

So while we have anticipated INTIS to enter the market as a branded competitor at some point, we're not ready to speculate when that is, but we are prepared in the event of that launch and absolutely anticipate the launch of the Insys product.

Speaker 8

Great. Thank you very much.

Speaker 0

Thank you. Our next question comes from Cai Nakae of Chardan. Your line is open.

Speaker 9

Thanks, Cai for Chardan. Can you tell us when we should anticipate that your new product forms for NARCAN might be commercially available?

Speaker 3

Yes. Thanks, Kay, for the question. I'm going to pass it over to Doug and let him comment on that. Sure. So we anticipate getting

Speaker 7

our applications into the FDA in the second half of this year, specifically the multi dose intranasal and the prefilled syringe. I'd be speculating to give you a timeframe of when they would be cleared by the FDA, but we anticipate sometime in 2020.

Speaker 9

Great. That's helpful. Bob,

Speaker 1

as it

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pertains to the new contract for A CAM, while you're expressing your confidence via the guidance in your comments, if it were to bleed into Q4 to finalize that, could you still make up everything you're prepared to sell in Q4 such that you hit the number?

Speaker 3

Yes. There's a lot of assumption baked into there, Kay. Again, I really don't want to speculate on what could happen or what might either might or might not happen other than to reiterate our every confidence in where we are with these negotiations. As you know, they've been ongoing for a while. And as we talked about for the last year, we recognize that given the magnitude of this contract, we were talking about a contract that could span the same duration as the VIGIV contract in order to support a 300,000,000 dose stockpile replenishment and rotation.

These are critically important negotiations that have long lasting impacts and we strive to make sure that we get to a resolution that's fair for the U. S. Government as well as creates an opportunity for Emergent to continue to invest in the infrastructure for this critically needed medical countermeasure. So we remain confident and we have planned on shipping product under the new contract in Q3 and we'll go from there.

Speaker 9

Okay. And then just a final one. With respect to the license fees and grants revenue line, we did see that uptick in Q2 related to, I guess, the clinical trial for 07/2019. Having completed enrollment, should we expect that revenue line to be lower in the back half of the year? Or how should we think about that coming off of this $41,000,000 in Q3?

Speaker 3

Yes. I would expect it to be about even, okay? I wouldn't read too much into what happened in Q2.

Speaker 9

Okay. Very good. Thank you.

Speaker 3

Thank you.

Speaker 0

Thank you. Our next question comes from Lisa Springer of Singular Research. Your line is open.

Speaker 4

Regarding SG and A, I wonder if we should expect to see additional integration expense for TaxAct Adapt Pharma in Q3 and Q4?

Speaker 2

Yes, think we've this is Rich. Thank you for the question, Lisa. We've been incurring integration expenses at a fairly steady rate throughout the first half, and that's going to continue through the second half. So I'm not I wouldn't expect a material increase in integration expenses in SG and A.

Speaker 4

Okay. And I wonder if you could provide us with a little more color the 55% increase in the other products category during the quarter?

Speaker 2

The 55% increase in other product revenue?

Speaker 4

Yes.

Speaker 2

Yes. So that we delivered some additional quantities of some of our device revenue as well, the non NARCAN nasal spray devices. And we also saw some additional deliveries of our raxibacumab product.

Speaker 6

Okay. Thank you.

Speaker 0

Thank you. Our next question comes from Boris Peaker of Cowen. Your line is open.

Speaker 10

Good afternoon. This is John Scott on for Boris. Thanks for taking my question. On NARCAN, firstly, do you see doses being replaced more or less consistently with the expected shelf life? Or are there potentially some expired doses still being stocked that you could try to get people to replace?

And then secondly, can you comment on any new discussions movement toward a naloxone co prescribing policy at the federal level? Thanks.

Speaker 3

Yes, John. Thanks for joining the call. Thanks for the question. I'll field the latter question on federal co prescription and then turn it over to Doug to comment on the first question. I mean, clearly federal co prescription is something that we see as an opportunity to make a much larger dent in the overall thirty four million patient at risk group for overdoses due to opioids.

We think there's merit there. And as we shared with the AdCom meeting of the FDA in December, We think that there is an opportunity to significantly reduce opioid overdose related deaths with a federally mandated co prescription program. Just look at the state experiences for the nine states that have adopted it and what happens within the first sixty days of adopting co prescription legislation in those states, the results are pretty remarkable. If you further look at the results of the study that was done in Ohio and Hamilton County where on a test or pilot basis, the market was essentially flooded with NARCAN nasal spray, the resulting impact on the number of opioid related deaths as well as hospital visits was remarkably lower. So all of which is to say we think that there's benefit and we'll see what the federal government decides to do.

And Doug, you can take the first part of John's question. Sure. In terms of expiring product and replacement, we don't currently track in terms of whether the product is being purchased for

Speaker 7

or new. I will say the vast majority, both in the co prescribing or the prescription market as well as in the public interest market, are new customers, if you will, new markets. There's still a significant way to go in terms of getting NARCAN out in a more expanded way. We do have some information that suggests in the emergency first responder segment, they're utilizing approximately 10% of what they have in stock, but we don't have any data to support how much is being replaced stocking. And this market is not a stockpile market, obviously.

Everything in the public interest is basically being deployed in the field.

Speaker 2

Okay. Thank you and congrats on the quarter. Thanks, John.

Speaker 0

Thank you. I'm showing no further questions at this time. I'll turn the conference back over to Bob Burrows for any closing remarks.

Speaker 1

Thank you, Valerie. 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.

Speaker 0

You. Ladies and gentlemen, you may all disconnect.