Emergent BioSolutions Inc (EBS) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Emergent BioSolutions Fourth Quarter 2016 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 be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I would now like to turn the conference over to management. You may begin your conference.

Thank you, Chelsea, and good afternoon, everyone. My name is Bob Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today as we discuss our fourth quarter and full year 2016 financial and operational results.

As is customary, today's call today 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, President and Chief Executive Officer, and Bob Kramer, Executive Vice President and Chief Financial Officer. A Q&A session will follow at the conclusion of our prepared comments and other members of senior management will be available to participate if need be.

Before we begin, 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 reflect Emergent's current perspective on existing trends and information. Any such forward-looking statements are not guarantees of future performance and involve substantial risks and uncertainties. Actual results may differ materially from those projected in any forward-looking statements. So please review our filings with the SEC on Forms 10-K, 10-Q, and 8-K for more information on the risks and uncertainties that could cause actual results to differ.

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 transparence regarding Emergent's operating performance. Again, please refer to the tables found in today's press release regarding our use of adjusted net income and EBITDA, and a reconciliation 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 February 23, 2017. Since then, Emergent may have made announcements related to topics discussed during today's call. Please reference our most recent press releases and SEC filings. Emergent BioSolutions assumes no obligation to update the information in today's press release or as presented on this call, except as may be required by applicable laws or regulation. Today's press release may be found on the Investors homepage of our website. And with that introduction, I would now like to turn the call over to Dan Abdun-Nabi, Emergent BioSolutions' President and CEO, Dan?

Thank you, Bob. Good afternoon, everyone, and thank you for joining us this afternoon. During the call today, I will highlight several key 2016 developments and review our 2016 through 2020 strategic plan, including our 2020 goals and growth plans over the next four years. I will then turn the call over to Bob Kramer who will review our 2016 financial performance and our 2017 financial and operational goals.

So let's begin with a review of several key developments from last year. As you know, in the latter half of 2016 we had a number of significant accomplishments. In December, we signed a follow on contract with the CDC valued at up to $911 million to supply the SNS with approximately 29.4 million doses of BioThrax through September, 2021.

Simultaneously with the CDC contract award, BARDA issued a sole source notification to procure an additional $100 million of BioThrax for delivery into the SNS within 24 months from the data that contract is awarded, which we continue to anticipate will be in the first half of this year.

In 2016 we also signed a contract with BARDA valued at up to $1.6 billion for the development and procurement of NuThrax, our next generation anthrax vaccine candidate. That contract followed FDA licensure of Building 55, our large scale BioThrax manufacturing facility which will also support NuThrax development and production.

And finally, we completed the spinoff of Aptevo Therapeutics, allowing us to focus on public health threats and emerging infectious disease markets.

With these operational goals completed, this past December we undertook an evaluation of our 2016 through 2020 strategic plan to determine the impact, if any, on our previously announced 2020 goals. We have now completed that assessment and have concluded that we remain well positioned to continue our growth in the public health threats and emerging infectious diseases markets and to achieve the following 2020 goals.

First, achieve $1 billion in total revenue with at least 10% derived from ex-US sales. Achieve a net income margin of at least 13%. And this is defined as GAAP net income over total revenue which is a slight change from our prior metric and I will discuss that change in greater detail in a moment. Finally, achieve a portfolio that includes six products in clinical or advanced development, three of which are dual market opportunities.

So let me discuss each of these goals in greater detail, starting with our 2020 revenue target of $1 billion. We envision this goal being achieved through a combination of organic growth as well as through M&A. We expect that the primary drivers for organic growth will include growth in product sales driven by increases in our anthrax vaccine revenue through a combination of BioThrax and NuThrax deliveries to the SNS, growth in our auto injector product offerings, including by expanding our manufacturing capacity to address unmet demand, obtaining FDA approval for the auto injector devices for sale in the United States, broadening our customer base both domestically and internationally, and expanding the number and types of chemical threats that can be addressed with this platform.

We also see product sales growth through the potential for EUA procurement of our development stage products that address unmet medical needs. This includes NuThrax as well as potentially several of our hyperimmunes and anti-infectives. And finally, we anticipate increasing sales in international markets which I will discuss in greater detail in just a moment.

Further, we see continued growth in our contract manufacturing revenue stream. We are investing in our infrastructure to expand our capabilities in bulk manufacturing, fill finish services, and our ADM facility for contract services to a broad spectrum of customers including the US government.

An ancillary benefit of growth in our CMO business will be enhanced utilization of our manufacturing capacity which will have a positive impact on our margin. We envision that each of these will be meaningful contributors to our revenue growth through 2020.

On the M&A front, we continue to target opportunities that maximize our core competencies and are accretive within 12 months of acquisition. These targets include businesses and products that are revenue generating as well as pipeline candidates, particularly those that can be acquired with grant and contract funding to contribute to our revenue growth target. I remain confident that we will execute at least one meaningful acquisition in 2017. And similarly, given the opportunities that are currently under review, I feel very comfortable that we will be able to execute a number of acquisition transactions during the planned period.

So moving onto our target of at least 10% of revenue derived from ex-US sales, as international awareness of the heightened risk of global terrorism continues, we expect the international market for medical countermeasures to grow. We will continue to pursue sales using existing frameworks such as tenders issued on a country by country basis, as well as the NATO Support and Procurement Agency and the EU Joint Procurement Mechanism which enables all 28 EU member states to come together and procure medical countermeasures. In that regard, just last week the EU Parliament approved their latest directive on combatting terrorism. This legislation outlined member states' obligation to provide adequate medical countermeasures to protect their citizens from CBRN threats, which when combined with the EU drug procurement mechanism could lead to increased demand for products across our portfolio.

Finally, our recent German approval for large scale manufacturing of BioThrax in Building 55 positions us to pursue licensure across targeted countries within the EU, providing the foundation to support our efforts to expand the international sales of BioThrax and enhance the utilization of our manufacturing infrastructure.

Our second 2020 financial goal is to achieve a net income margin of at least 13%. Again, this is defined as GAAP net income over total revenue and it's a change from our prior metric which was tied to a net income CAGR. The rationale for changing the metric is to require management to improve the Company's performance on the net income to revenue ratio through increased focus on financial discipline while at the same time continuing to deliver healthy net income growth. It should be noted that this metric is aligned with industry benchmarks. A key to achieving this target is to manage net R&D spend to less than 15% and SG&A spend to less than 25% of revenue.

Finally, on the operational side, our 2020 goal remains to achieve a portfolio that includes six products in clinical or advanced development, three of which are dual market opportunities. Our pipeline is robust and continues to grow. In addition to NuThrax for which we are targeting Phase 3 enrollment in 2018, we have three product candidates scheduled to have their first subjects enrolled this year. Earlier this month we announced initiating a Phase 1B multiple ascending dose study for UV-4B which is our Dengue antiviral therapeutic. Later this year we're targeting to have first subjects enrolled in both our Phase 2 trial for our seasonal influenza hyperimmune therapeutic as well as a Phase 1 trial for a Zika therapeutic.

In addition to these clinical candidates, we have new preclinical candidates in development that leverage our various platform technologies, three of which could be eligible for priority review vouchers, thereby significantly enhancing their potential value.

We feel that the most effective way to achieve our growth objectives is to organize our operations into four distinct business units, each with a leadership team accountable for results and the power to drive growth by leveraging our core competencies. So strategy is driving our new organizational structure. Since these business units will not have fully dedicated resources, but rather will leverage our capabilities across the company, we expect our operations will be more streamlined with meaningful cost efficiencies and savings, particularly in SG&A. Bob Kramer will provide greater clarity around the anticipated cost savings during his prepared remarks.

Let me give you a brief snapshot of each of these business units. First, the vaccines and anti-infective business unit. This unit will consist of BioThrax, our flagship marketed product, and will also be responsible for developing several clinical products including NuThrax, UV-4B, which is our antiviral for Dengue, as well as GC-072, an antibacterial for Burkholderia, as well as numerous pipeline product candidates based on our broad spectrum antiviral and antibacterial small molecule platforms.

Our antibody therapeutics business unit will consist of our marketed hyperimmune products, Anthrasil, BAT and VIGIV. In addition, this business unit will be responsible for developing our pipeline of antibody candidates for seasonal flu, Zika and hemorrhagic fevers caused by fila viruses such as Marburg and Ebola. These antibody therapeutics may be eligible for EUA procurement during the planned period and several have development contracts with the US government that provides ongoing revenues.

Our devices business unit currently markets two products, RSDL, the only device cleared by the FDA to remove or neutralize chemical warfare agents and T2 toxins from the skin. And Trobagard, an auto injector designed for military use to neutralize specific nerve agents which we are selling outside the United States. Trobagard is based on an auto injector platform that we intend to develop to address a portfolio of chemical and nerve agent threats for military and other high value customers.

Our fourth business unit is contract manufacturing. This unit provides product development, clinical and commercial manufacturing services including bulk manufacturing capabilities and fill finish services that support over 20 licensed products sold in approximately 50 countries. Importantly, our ADM facility will reside in this business unit which provides contract manufacturing services to the US government.

So as a reminder, these business units will not have fully dedicated resources, but rather will leverage our capabilities across the company. Thus, we expect our operations will be more streamlined with meaningful cost efficiencies and savings. I remain very excited about our 2016 through 2020 plan and believe that our strategy and our revised organizational structure will position us to successfully achieve our 2020 goals.

That concludes my prepared comments and I will now turn the call over to Bob Kramer. Bob?

Thank you, Dan, and good afternoon, everyone. Thank you again for joining the I'd first like to make some general comments about our financial results for the fourth quarter of 2016 compared to last year and then turn to our performance for the full year of 2016 compared to last year, including select elements of our balance sheet, namely our cash position. I will then discuss how we see our operating and financial performance developing during 2017.

With the successful spin-off last year of our biosciences business into a separate publicly traded company, Aptevo Therapeutics, we are providing our 2016 financials in two ways. First, on a combined basis which includes the now discontinued operations of Aptevo. And secondly, on a continuing operations basis, which excludes the Aptevo operations. You'll find in today's press release a reconciliation between combined and continuing operations for our statement of operations both for the fourth quarter and for full year 2016. For my prepared remarks today, I'll be referring to our results on a continuing operations basis which will be the norm going forward.

With that said, the fourth quarter 2016 total revenues were $152 million, slightly below Q4 of last year due primarily to lower BioThrax sales of $68 million partially offset by increases in other product sales, contract manufacturing revenue, and grant and contract revenue. As you know, our new BioThrax procurement contract with the CDC was not singed until late Q4 of last year, thus the reason for lower BioThrax shipments in Q4 of 2016 versus 2015.

Moving down the P&L statement, our gross margin for Q4 2016 was 63%, within our expected range. Net R&D spend for the quarter continued to trend, continued the trend in 2016 whereby our grant and contract revenue exceeds our gross R&D spend resulting in a surplus for the quarter. This surplus was the result of higher than normal grant and contract revenue associated with the expansion of our CIADM facility in Baltimore, spending on Building 55, and our VIGIV program. The Q4 and 2016 full year experience of having grant and contract revenue exceed R&D spend is not to be expected going forward.

SG&A expense for the quarter was $35 million or 23% of total revenue, a level below our target range of 25%. As Dan outlined earlier, 2016 was full of important accomplishments which allowed us to finish the year on a high note, and importantly, prepare us for 2017 and beyond.

First, we transitioned our BioThrax manufacturing from Building 12 to Building 55. Second, we transitioned from one five-year BioThrax procurement contract to another five-year contract, but were delayed in signing which resulted in fewer BioThrax doses delivered in Q4 and therefore negatively impacted our total revenues for the year.

Third, we successfully spun out our Aptevo operations and incurred a one-time, a number of one-time transaction related costs that further impacted our GAAP performance for the year. Despite the year over year comparisons, however, our 2016 performance was strong and showed continued diversification of our business as evidenced by the following.

First, total revenues of $489 million for the year are above the preliminary estimate we provided in January, despite the reduced BioThrax deliveries. Importantly, other product sales and contract manufacturing revenues showed tangible year over year growth. Second, our gross margin of 63% was in line with our expectations. Third, as commented upon earlier, our grant and contract revenue was $143 million, exceeded our R&D costs of $108 million, creating a $35 million surplus for the year. While positive for 2016, this should not be seen as a recurring trend.

Fourth, while the total SG&A spend of $143 million is $22 million above last year, more than half of this variance was related to the Aptevo spinoff costs incurred as well as costs to transition BioThrax manufacturing to Building 55.

Fifth, the business generated $141 million of EBITDA or 29% of our total revenue, reflecting the ongoing cash flow generating strength of the core business. And finally, the net margin for the year came in at 12.8%. As Dan covered during his discussion of our 2020 financial goals, we are targeting a 13% net margin, net income margin. Historically this margin has been in the 8% to 12% range. The 2016 margin of 12.8% was positively impacted by the previously mentioned surplus of grant and contract revenue in excess of R&D spend. Thus, the 13% margin represents a meaningful improvement over our historical average.

On the balance sheet at year end, our cash position was $271 million, which takes into account the $45 million contributed to Aptevo as part of the spin. Overall, our liquidity position remains very strong and we continue to be well positioned to support our operations as well as our strategic M&A initiatives.

Before I turn to discussing our forecast for 2017, as Dan mentioned earlier, we're in the process of organizing our operations into four distinct business units, each with a leadership team accountable for results and each empowered to drive growth by leveraging our core competencies. One of the drivers of this new structure is its cost efficiency. We expect this will streamline our operational and administrative cost structure such that when fully implemented should result in significantly reduced operating expenses. This includes reduced SG&A which will be implemented throughout 2017. The savings associated with these planned initiatives will be fully realized in 2018 and are expected to result in $20 million of lower spend.

As for 2017 full year forecast, we are reaffirming our guidance. Namely, revenue of between $500 million and $530 million including BioThrax sales of between $260 million and $285 million under our contractual arrangements with both CDC and BARDA. Secondly, net income between $60 million and $70 million, adjusted net income of between $70 million and $80 million, and EBITDA of between $135 million and $145 million.

Please keep in mind that we do not include any M&A activity in our annual guidance except for the provision of specific diligence related expenses required to support our ongoing M&A efforts. Additionally, for the first quarter of 2017, we're estimating total revenues of between $110 million and $125 million. This is an adjustment to our previous revenue guidance for the quarter of between $120 million and $135 million. The Q1 revenue range has been lowered due primarily to the timing of BioThrax shipments between Q1 and Q2 of this year.

That concludes my prepared remarks, and I'll now turn the call over to the Operator to begin the Q&A session. Operator?

(Operator Instructions) Eric Schmidt, Cowen and Company.

Thanks for all the updates and for taking my questions. Dan, on the 2020 guidance, you mentioned the $1 billion revenue target would be in part comprised of M&A. Is there any I guess thumbnail you could provide on what percent of that $1 billion might be coming from M&A? And you also mentioned you could close a deal in 2017. It wasn't clear to me, though maybe Bob said this, whether the 2017 guidance included some revenue contribution from M&A.

Thanks for participating this afternoon. I really appreciate it. So on the guidance, no, no M&A is included in that. On the cost side, there is due diligence costs that we forecast and we budget for, so on the cost side we do have SG&A costs associated with the normal activities on an M&A. But none of the potential revenues that might be associated with an acquisition are included in our forecast. Upon completion of an M&A transaction, we would be then in a position to update our guidance to incorporate any adjustments.

So and then in terms of the breakdown on sort of M&A contributions, I'm going to resist the temptation to get into specific allocations between organic and M&A. As you might recall, we had a similar challenge when we issued our 2012 to 2015 guidance. There again, we were doubling revenue with significant target for increasing our net income CAGR. And there are many ways to get there, so I want to leave open the flexibility for management to do it in a way that might be slightly different than a single path to completion. But what I would say is that we do anticipate organic growth meaningfully contributing, but it's clear to me that without M&A we're not going to get to the $1 billion. So it is going to require execution on both fronts and I do remain very confident in our ability to execute on at least one M&A this year which I think will put us on a nice trajectory towards getting to that 2020 goal.

Okay, thank you for that. Maybe this is for Bob, on the strong Q4 contribution to net R&D, basically R&D was more than fully funded. What drove that? Was that just the timing of revenue recognition on contract and other revenue, or what happened there?

Yeah, I think, Eric, thanks. That's right, there were a number of revenue rec adjustments in Q4 including spending and investments on our CIADM facility in Baltimore as well as our VIGIV product. So again, while positive for 2016, we're not counting on it on continuing to be in that surplus position going forward.

David Maris, Wells Fargo.

Good afternoon. A couple of questions. So for deals, maybe you can just explain a little further what you're looking for, what's your sweet spot for acquisitions? And then secondly, maybe if you can talk about the prospects for ex-US sales. Do you currently have the capacity for ex-US sales? What do you think you need to do if you don't have the capacity, to get there? And what's the sales process? When should we expect that to start to come online? Thank you.

Thanks for joining the call today, David. I'm just noting the questions here. So first on the M&A, the sweet spot, we really are targeting across the CBRN as well as the explosives space and emerging infectious diseases. We're targeting opportunities across all of our business units. And at this point we've got a fairly robust funnel which includes revenue generating products, full on businesses, as well as pipeline candidates that come with grant and contract funding. So it is a full portfolio of opportunities. And our expectation is that at least one such acquisition should be completed this year in order for us to remain on track to complete our 2020 goal. So hopefully that's responsive to your request.

Now on the international side, the capacity for meeting international demand, we certainly have. Certainly for BioThrax with Building 55 online, we do have the ability to manufacture additional doses for BioThrax. As we've said historically, we do not believe the international market for BioThrax is anywhere close to the demand in the US. Nevertheless, we are seeing increased interest and appetite for discussing with Emergent potential sales of BioThrax. But it's also across the portfolio, particularly interest in that, interest in the auto injector product offering. And there, as we've said repeatedly, we are manufacturing constrained and we really do need to expand manufacturing capacity to address that. So maybe that's what you were referring to. That manufacturing capacity is moving along nicely and we expect to be in a position in 2017 to significantly enhance our production capabilities to address what we see as a growing market.

On the sales process and the cycle, it's continuous. We are always looking out for and we're actually seeing tenders coming from increased countries, from countries increasingly across the globe. We're seeing it in Europe, we're seeing in the Middle East, we're seeing it in the Near East, and we're seeing it in the Far East. So this is something that's just normal business. Where I'm particularly excited is with the joint procurement mechanism that has been out there now for a bit of time coupled with the EU directive that just got published which is mandating EU member states start to procure and stockpile medical countermeasures across the CBRN threat list. I'm seeing a real opportunity for our portfolio to come into focus for many of these countries, and the opportunity for increasing sales in that jurisdiction. So more to come on that, it's going to be an evolving process. It's not something that happens digitally overnight. And then the states have to identify what their particular requirements will be and then determine how best to fulfill them. So I see that evolving over the next 18 to 24 to 30 months, somewhere in that time horizon. So hopefully that captured your questions there.

Jessica Fye, JPMorgan.

Hi, this is Yuko on for Jessica. Thank you for taking our question. Maybe as a follow-up to the prior question on M&A, where do you see the greatest opportunities in biodefense space?

You broke up just a little. Where do we see the --

Oh, the greatest opportunities in biodefense.

Oh boy, there really are a lot of them. We see opportunities on the chemical side, on the biologics side. And there -- and also on the emerging infectious disease side, in the explosives in particular. We're very interested in devices that could address the wound care market, the burn market, which for us is a dual market opportunity. There we're seeing the need on the government level to acquire and stockpile and make those available for both civilian protection and military protection. But also has the prospects for being sold in a more traditional commercial setting, whether it's at burn centers or in hospitals and the like. And we're looking at vaccines, we're looking at therapeutics. It's really very broad based and robust, smallish products to fairly sizable product opportunities. And as I mentioned earlier, full on businesses as well as individual products. Both domestically and internationally I might add.

Keay Nakae, Chardan.

Thanks. Wondering if you can just give us a little bit more color on the significant uptick in the other biodefense product sales in Q4. And even if we think about that number on a full year basis, how do we think about the growth prospects in 2017 versus what you did in total in 2016?

Thanks for the question, Keay. We don't disclose the individual product contributions other than BioThrax. But I think what we can say is that some of the other products in general in that portfolio, whether it's the BAT product or even the VIGIV product, we see as having upside and opportunity. As we've commented before, historically those other product categories is a group that contributed somewhere in the range of 5% to 10% of our overall revenue. We see some upside there. It could be in the 10% to 15% range going forward. So I think across the board, including the Trobagard and auto injector technology, we see some upside. Adam, if you want to comment further.

I think you captured many of the opportunities. I think one thing as this part of our business continues to grow, it could be a bit lumpy. We've talked about that, so some of these sales as we get into especially international sales, could come in chunks and we could have a large Q2 and a large Q4. So obviously as we think about trends, we've talked about ways to be more transparent as that grows and becomes more meaningful, in particular on the ex-US side. So more to come, but I think you're going to see in total that other product group continue to build and continue to grow

Just back to the Q4 result, was it just one product in the portfolio that really had an element of outside orders, or was it multiple? And again, just trying to understand what of that was one-time in order to project full year 2017 growth versus full year 2016 growth.

It wasn't one product, Keay. There were several products that contributed to that uptick in the other product revenue. And again, back to Adam's point, those opportunities tend to be a little lumpy. They're not nearly as predictable with a fixed delivery schedule as BioThrax for example. So you'll continue to see some individual product lumpiness, but overall, to the points made earlier, you should see some growth in that category going forward.

Okay, thanks for that. And then over to M&A, obviously it sounds like you've got a pretty good funnel as you say of stuff to look at. But if you could just attribute one sticking point to being able to flow something, is it valuation more than anything else? And what would have changed from last year to this year that might make something look more attractive to being able to finalize? Thanks.

Yeah, thanks for the question. As you know, M&A is a process. You start with an identification of an interesting candidate or company or pipeline. And then you engage in diligence and negotiation. There has to be a willing seller, a willing buyer, a price point. It all has to fall into line. So it's not as though you start from a standing start every year. It's a continuous process. Some products come into the funnel and other products go out.

We were very close last year on completing an acquisition. We had reached agreement on terms, the diligence had been completed and I think both parties were quite satisfied with the structure and the nature of the transaction. And literally at the eleventh hour there was an external event that derailed it. So we lost that opportunity. Those things happen in M&A and that's just the nature of the beast. So it's not as though there's a difference between this year and last year, it's just a continuation, a continuum towards the completion of a transaction. And given where we stand today and the opportunities that we are looking at, and there are multiple, I'll reiterate my high confidence in getting at least one deal completed this year. Which I think will set the stage nicely for continued growth and trajectory towards 2020. So hopefully that's a bit of clarification on that question.

Jim Molloy, Laidlaw.

Hey, Dan, thanks for taking my questions. Always a pleasure to hear from you guys. An excellent quarter it seems and good to see the 2020 guidance reinstated. One of the questions I had on that $1 billion number, you made it very clear that M&A is part of that. How much of that will be on the back of BioThrax? Adam is doing a yeoman's work up there in Michigan.

Thanks, Jim. Thanks for participation this afternoon and thanks for the call. As I mentioned in my prepared comments, we are anticipating meaningful growth through increased product sales. And a component of that is the combination of BioThrax and migrating to NuThrax. As you've seen, we do have a contract with BARDA for development and procurement of NuThrax and it's a sizable contract. We can't predict with certainty how many doses will be procured, but we have certainly in our models assumed that there will be a meaningful contribution to our growth through that migration from BioThrax to NuThrax. And continuing sales opportunity for BioThrax to targeted customers such as the DOD. So it is a, it will remain a meaningful contributor to our story going forward, Jim.

Okay. I know it will, I was hoping to get a number of how many, but that's quite all right. On the BioThrax, OUS, you mentioned the German approval. Would it be reasonable to think that's where if any OUS sales go, that's where the majority will go for the near future? And maybe following up on that, margins have come down a bit, some of the manufacturing coming in at a lower margin. Can you get back to the mid-70s sort of overall gross margin for the whole business?

Let me ask Adam to take the international opportunities on BioThrax. It's actually been, from my vantage point, interesting and exciting. And I think the landscape in Europe is changing in particular. And then Bob, you can take the margin question. Go ahead, Adam.

Good afternoon, Jim. So as you've seen and mentioned, the German approval is kind of the first step in what we've talked about as the mutual recognition process in Europe. So currently we're in the process of scheduling our technical meetings with other countries in Europe. And I think as we go through that mutual recognition process, likely more demand and orders will follow. So when we think about Germany, I think it's one of many countries that we'll see some interest in. As far as orders go and as far as demand goes, as Dan mentioned earlier, we don't expect that market to be huge, but I think it will start to -- we'll start to see other interest from other countries as the mutual recognition process gets finalized this year.

And just remember, Jim, we put a number out there as a target for ourselves by 2020 which is 10% of our total revenue coming from ex-US markets. So that frames it for you in terms of where we think we can get to in the next four years or so. Bob, on the margin?

Yeah, so Jim, thanks for the question on the margin. Obviously that 60% to 70% range is a blended range going across all of our products, including BioThrax, as well as CMO. So you should not expect us to get back to that 70% to 80% range which we enjoyed when it was essentially a one-product company. The blended range will stay in that 60% to 70% range, and any variability in that is obviously highly dependent upon the composition of the sales mix any particular quarter or year. Just as an example, in 2015, BioThrax represented 90% of the overall product sales. In 2016, it was 80% of the product sales. So as you can appreciate how that flows, that ratio will directly impact the margin in that range.

Absolutely understood. And last question, just on the four business units, I know you touched on it in the prepared remarks, but what exactly drives -- everything is sort of shared right now and I'm thinking this is my asking questions business unit and after the call it will be my writing the note business unit. What really changes dramatically at EBS that drives the huge savings?

That's a great question, Jim, and I'll talk high level and maybe Bob, you can add a little color. The prior structure that we had with the divisions, we had the bioscience and biodefense division, was that each of those divisions really had fully dedicated resources top to bottom. There were some shared resources in the G&A space, but fundamentally the objective was that each of these divisions would be essentially fully standalone operations and companies. And by the way, that is what enabled us to do the Aptevo spinoff because it really did have fully integrated operations, save a few of the SG&A support. Now we're doing away with that. And we're really going to a matrix environment where each of the business units will draw on resources across the organization. So nobody has fully integrated operations, so we're going to eliminate some redundancies that existed in the prior structure and make the cost structure a bit more streamlined and more efficient. Bob, can you add a little color to that?

Yeah, I think that's exactly right, Dan. And Jim, as you can appreciate, when you have fairly standalone, autonomous operating divisions that are staffed with G&A dedicated to that division, it is highly effective in one regard, but it is a little expensive in the other. And what we decided to do is to go to this business unit structure and streamline and centralize a number of the G&A functions that were previously distributed in the operating divisions. So most of the savings really is around the fact that those services are being provided from a centralized org structure to the different business units.

Thank you. (Operator Instructions). Lisa Springer, Singular Research.

Good afternoon. I noticed in the press release that you mentioned reduced US government interest in funding in PreviThrax. Could you comment on that?

Yeah, thanks, Lisa, for joining the call and for the question. Yeah, PreviThrax as you know is our recombinant protective antigen anthrax vaccine. And where we ended up, and I'll ask Adam to add a little color for you, is the government favored NuThrax over our RPA as a next generation for a whole host of very good reasons, not the least of which is the timeline to get to EUA and ultimately regulatory approval. And the most important element there is to be able to reduce the number of doses, to provide protection in combination with antibiotics in a post exposure prophylactic setting, and to be able to stockpile that for the nation as quickly as possible as a product which has some real enhancements over BioThrax. Which has a wonderful profile, but obviously the government is looking to improve on that a bit. Adam, a little more color on the RPA decision?

I think it was really kind of standard down product processes within the government. I think they got requirements, and as Dan mentioned, NuThrax is the preferred and the best next generation candidate and that's the one they're going to fund and we're going to take it to EUA as quickly as possible. And RPA will just be on hold for now, maybe be a risk mitigator down the road. But for now, NuThrax is the lead horse.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back to Mr. Bob Burrows for closing remarks.

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

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.