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Emergent BioSolutions Inc  (NYSE:EBS)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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, Investor Relations. You may be get begin, sir.

Robert G. Burrows -- Vice President, Investor Relations

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 session that will follow our prepared comments.

Before beginning, I will remind everyone that during today's call either on our prepared comments or the Q&A session management may make projections and other forward-looking statements related to our business, future events, our prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate.

Investors should 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 statement.

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. Investors should consider this cautionary statement, as well as the risk factors identified in our periodic reports filed with the SEC, when evaluating our forward-looking statements.

During our prepared comments as well as during the Q&A session, we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding 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 the SEC filings, all of which may be found on the Investors home page of our website.

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

Daniel J. Abdun-Nabi -- Chief Executive Officer

Thank you, Bob. Good afternoon everyone and thank you for joining us. During today's call, I will 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 of the third quarter and first nine months of the year and discuss the revisions to our financial guidance for the full year of 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 the strong finish to the year, driven primarily by growth in our organic business as well as the incremental impact of the PaxVax and Adapt 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 seen significant progress across all of these fronts.

In the United States, on September 28th, the President signed into law the Labor-HHS and Education Appropriations Bill for fiscal year 2019. Key biosecurity 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 of 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 Grants, which seeks in part to reduce opioid overdose related deaths by funding overdose treatments, including naloxone. Naloxone is the active ingredient in our opioid overdose treatment; the 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 access to any 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 increase community awareness and education regarding the risks of opioids. Bob will discuss these initiatives in more detail in just a few moments.

At the state level, the adoption of naloxone co-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 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 bio-preparedness to the US government.

The goal of this strategy is to consolidate and implement all US government activities aimed at protecting American public from biological threats and to develop a more resilient and effective bio-defense 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 US government can effectively counter the rapidly changing landscape of biological threats and builds on lessons learned from past biologic coincidence.

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 NATO 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 the procurement of medical countermeasures. It also endorses the important role of industry in 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 on CBRN action plan, stressing that the need, that the ideal solution for dealing with CBRN incidents will 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 Serve Health program which aims, among other things, to protect EU citizens from serious cross-border health threats, a 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 the JAV 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.

Lastly, a joint declaration on EU-NATO cooperation was published by the President of the European Council, the President of the European Commission and the Secretary General of NATO. The joint declaration commits the EU and NATO to strength resilience to CBRN-related risk and supports the EU Commission CBRN action plan that recommends member states 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 US, 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, a growing portfolio of medical countermeasures and services that address these threats, and our network of global government, NGO, and 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?

Robert G. Kramer Sr. -- President and Chief Operating Officer

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'd 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've 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 the 4th, we've begun the integration of PaxVax's products, pipeline, and sites into both our vaccine and NI infectious business unit, as well as the CDMO business unit. As a 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 US 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 further addressing the needs of customers in Europe. They also bring an experienced marketing team and global specialty sales force and distribution network, focused on the growing travelers markets.

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 US, 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 US 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 and 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 and 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've 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 the 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 state and federal initiatives to address the opioid crisis, including federal funding of SAMSA grants under the 2019 appropriations bill, the SUPPORT -- the federal SUPPORT for Patients and Communities Act, the FDA's Advisory Committee, which is scheduled for next month and aims to evaluate strategies to increase the availability of naloxone products intended for use in the community, and finally, various state level initiatives to support co-perception legislation.

In summary, the PaxVax and Adapt acquisition significantly broaden our capabilities and further solidify our position as a leading public health threats 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 and 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 toward 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 into 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 performance -- the Process Performance Qualification runs or PPQ lots are in process and we continue to target the final submission of the full EUA package to the FDA by the end of 2018. Regarding EUA pre-approval, well receiving EUA pre-approval will be a 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 received -- we received notification that no additional non-clinical efficacy studies will 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, VIGIV and Raxibacumab as well as a portfolio of hyperimmune candidates, including those targeting influenza and ZIKA. During the quarter, we continued to fulfill deliveries of VIG and Raxibacumab to the SNS. We also continue to advance the tech transfer of Raxibacumab to Emergent facilities as part of the 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 is a partnership with the US government to build capabilities intended to meet the pandemic, an 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 therapeutic 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 ZIKA virus immune globulin therapeutic, and continue to 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 along RSDL -- alongside RSDL and the Trobigard auto-injector platform; as well as development programs, notably the SIAN cyanide antidote intraNasal Spray, and the D4 dual chamber auto injector.

During the third quarter, we continued to deliver RSDL and Trobigard under existing contracts with US 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 an initial feasibility testing with an expectation for IND submission in 2019.

Turning last to the Contract Development and Manufacturing Operations Unit 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 continue 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 the next three years.

In summary, across the board, our operations remained 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 US government contract deliverables; third, to submit EUA application for NuThrax; next to complete the negotiations with the US 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 a review of our financial performance. Rich?

Richard S. Lindahl -- Chief Financial Officer

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, 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 of 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, Contracts and Grants; CNG revenue was $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've stated before, the mix of product and CMO revenues significantly influences our blended gross margin. In addition, our gross margin in the third quarter reflects a 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 Contracts and 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 contract and 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, namely 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 US 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 in 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 product sales of $245 million, which is a $165 million increase over the primary -- 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 spend 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 non-capitalized 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 $190 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 and 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 forecast. Included in this estimate is anticipated BioThrax revenues in the fourth quarter of 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 will recall that when we announce these acquisitions in August, we described PaxVax as not yet profitable and Adapt is 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 pre-tax 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; pre-tax 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 lists an estimate on adjusted EBITDA; again reflecting the importance of M&A to our growth strategy and its impact on 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 demonstrate the ongoing strength of our organic business, and with the recent closing of both 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'll now turn the call over to the operator to begin the question-and-answer session. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Brandon Folkes from Cantor Fitzgerald. Your line is now open.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Hi, thanks for taking my questions. 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 this 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 at a branded naloxone coming to market to compete with NARCAN. Thank you.

Daniel J. Abdun-Nabi -- Chief Executive Officer

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 the product are receiving and then securing it. And our approach right now on access and affordability, as Bob mentioned in his prepared remarks, there are standing prescriptions that are -- enable individuals to walk into a pharmacy and secure the product without an individualized prescriptions.

In addition, we're seeing coverage by about 97% of insurance companies providing coverage, many at no co-pay and predominantly at about $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.

There is education programs under way. Additional thoughts about how we can expand on that availability on -- so to an area that we continue to evaluate. But given the present circumstances, the availability and access is something that I think is being addressed with the current programs. I'd ask Bob, anything you want to add to that, Bob?

Robert G. Kramer Sr. -- President and Chief Operating Officer

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 principles; whether it's the Co-Prescription Program, the Standing Order Program, the awareness and education programs that we recently announced.

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

Brandon Folkes -- Cantor Fitzgerald -- Analyst

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

Daniel J. Abdun-Nabi -- Chief Executive Officer

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

Doug White -- Senior Vice President, Devices Business Unit Head

Sure. Thanks, Dan. 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.

Daniel J. Abdun-Nabi -- Chief Executive Officer

Yeah. 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.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Great, thank you very much.

Operator

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

Dana Flanders -- Goldman Sachs -- Analyst

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.

Daniel J. Abdun-Nabi -- Chief Executive Officer

Sure. 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?

Abigail Jenkin -- Senior Vice President, Vaccines &Anti-infectives Business Unit Head

Sure. 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.

Dana Flanders -- Goldman Sachs -- Analyst

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.

Robert G. Kramer Sr. -- President and Chief Operating Officer

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.

Doug White -- Senior Vice President, Devices Business Unit Head

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.

Robert G. Kramer Sr. -- President and Chief Operating Officer

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.

Dana Flanders -- Goldman Sachs -- Analyst

Okay, thank you.

Operator

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

Boris Peaker -- Cowen & Company -- Analyst

Great. Thanks for taking my question. 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?

Robert G. Kramer Sr. -- President and Chief Operating Officer

Yeah. 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.

Daniel J. Abdun-Nabi -- Chief Executive Officer

Yeah, 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.

Boris Peaker -- Cowen & Company -- Analyst

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?

Daniel J. Abdun-Nabi -- Chief Executive Officer

So Abi, you want to comment on that?

Abigail Jenkin -- Senior Vice President, Vaccines &Anti-infectives Business Unit Head

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.

Boris Peaker -- Cowen & Company -- Analyst

Got you. Thank you very much for taking my questions.

Operator

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

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay. 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?

Richard S. Lindahl -- Chief Financial Officer

Yeah, this is Rich. 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.

Keay Nakae -- Chardan Capital Markets -- Analyst

Okay, thank you. That's all I have.

Operator

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

Jessica Fye -- J.P. Morgan -- Analyst

Great, thanks for taking my question. 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.

Robert G. Kramer Sr. -- President and Chief Operating Officer

Yeah, Jess, this is Bob. Thanks for the question and the call. 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.

Jessica Fye -- J.P. Morgan -- Analyst

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?

Robert G. Kramer Sr. -- President and Chief Operating Officer

Yeah, 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.

Jessica Fye -- J.P. Morgan -- Analyst

Okay, understood. 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?

Richard S. Lindahl -- Chief Financial Officer

Yeah. 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.

Jessica Fye -- J.P. Morgan -- Analyst

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

Operator

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

David Maris -- Wells Fargo Securities -- Analyst

Good afternoon, 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.

Daniel J. Abdun-Nabi -- Chief Executive Officer

Yeah, thanks for participating on the call, David, and thanks for the 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--

David Maris -- Wells Fargo Securities -- Analyst

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

Daniel J. Abdun-Nabi -- Chief Executive Officer

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--

David Maris -- Wells Fargo Securities -- Analyst

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

Daniel J. Abdun-Nabi -- Chief Executive Officer

Yeah. 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.

Atul Saran -- Executive Vice President, Corporate Development and General Counsel

Sure, thanks Dan. And David, thanks for your question. 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.

David Maris -- Wells Fargo Securities -- Analyst

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?

Atul Saran -- Executive Vice President, Corporate Development and General Counsel

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.

David Maris -- Wells Fargo Securities -- Analyst

Okay, thank you.

Operator

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

Lisa Springer -- Singular Research -- Analyst

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?

Robert G. Kramer Sr. -- President and Chief Operating Officer

That number is about $30 million.

Lisa Springer -- Singular Research -- Analyst

Okay.

Robert G. Kramer Sr. -- President and Chief Operating Officer

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.

Lisa Springer -- Singular Research -- Analyst

Okay, will there be additional capacity available at that site in 2019?

Robert G. Kramer Sr. -- President and Chief Operating Officer

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.

Lisa Springer -- Singular Research -- Analyst

Okay, thank you.

Operator

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.

Robert G. Burrows -- Vice President, Investor Relations

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.

Operator

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.

Duration: 60 minutes

Call participants:

Robert G. Burrows -- Vice President, Investor Relations

Daniel J. Abdun-Nabi -- Chief Executive Officer

Robert G. Kramer Sr. -- President and Chief Operating Officer

Richard S. Lindahl -- Chief Financial Officer

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Doug White -- Senior Vice President, Devices Business Unit Head

Dana Flanders -- Goldman Sachs -- Analyst

Abigail Jenkin -- Senior Vice President, Vaccines &Anti-infectives Business Unit Head

Boris Peaker -- Cowen & Company -- Analyst

Keay Nakae -- Chardan Capital Markets -- Analyst

Jessica Fye -- J.P. Morgan -- Analyst

David Maris -- Wells Fargo Securities -- Analyst

Atul Saran -- Executive Vice President, Corporate Development and General Counsel

Lisa Springer -- Singular Research -- Analyst

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