Emergent BioSolutions Inc (EBS) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Emergent BioSolutions conference call to discuss the Q2 2015 financial results and the spinoff of the Biosciences business. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to the Company for opening remarks.

Thank you, Liz. Good morning, everyone. My name is Bob Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today as we discuss our financial results for the second quarter and the first six months of 2015, our outlook for the third quarter and full-year 2015, and our plans to spin off our Biosciences business.

As is customary, our call today is open to all participants. 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. There will be a Q&A session at the conclusion of our prepared comments. Other members of senior management will be available to participate.

Before we begin, I will remind everyone that during today's call either in our prepared comments or the Q&A session management may make projections and other forward-looking statement 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. 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 or the Q&A session we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net loss, adjusted net income, EBITDA, and adjusted EBITDA, and the reconciliations between these non-GAAP financial measures and our 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 August 6, 2015. Since then, Emergent may have made announcements relating to topics discussed during today's call, so again please reference our most recent press releases and SEC filings.

Emergent BioSolutions assumes no obligation to update information in today's press release or as presented on this call except as may be required by applicable laws or regulations. Today's press release may be found on the investor's home page of our website.

With that introduction, I would now like to turn the call over to Dan Abdun-Nabi, Emergent BioSolutions President and CEO.

Thank you, Bob, and good morning, everyone. Thank you for joining our call. Today's call will have three parts.

First, I will highlight some of our recent business achievements, then Bob Kramer will discuss our financial performance, and lastly, I will finish with an overview of today's press release in which we announced our intent to spin off the Biosciences business into a separate standalone, publicly-traded company.

Now turning to our recent business achievements, I will start with a discussion about biodefense division and with an update on Building 55, our large-scale BioThrax manufacturing facility. We have a meeting set up next month with the FDA to discuss the CMC section of our SBLA and finalize the path for filing. With all the progress that we have made to date, we continue to target regulatory approval of Building 55 in early 2016.

Moving to our latest Ebola efforts, last month we were awarded a two-year $19.7 million contract from BARDA to develop and manufacture cGMP lots of three Ebola monoclonal antibodies in a cell line at a 2,000-liter scale. The monoclonal antibodies will be developed and manufactured at our Bayview campus in Baltimore, which is our CIADM site.

The last item to discuss from our Biodefense division is Emergard, the auto-injector that we acquired and announced on Monday. Emergard is a ruggedized, military-grade auto-injector device which is designed for intramuscular self-injected injection of antidotes and other emergency response medical treatments that can address exposure to certain chemical agents and other similar threats. We have received preliminary interest for Emergard from countries outside the US and anticipate making our first deliveries in limited quantities in Q4 of this year.

We acquired rights to the device through an exclusive worldwide license agreement with Pharma Consult of Austria, which has been selling the auto-injector in limited quantities to select allied nations. We are excited to add the Emergard auto-injector platform to our portfolio, which allows us to supply critical medical countermeasures to militaries and countries across the globe.

Based on internal market research, we estimate the annual worldwide market for military-grade auto-injectors to be between $100 million and $200 million. We intend to build upon our broad capabilities in government contracting and distribution to drive revenue growth.

Shifting over to our Biosciences division, last quarter we announced that IXINITY, our treatment for hemophilia B in adults and teenagers, would be available to patients by the end of the quarter. We are very pleased that patients and healthcare providers are now using IXINITY to better manage this disease. So with this launch successfully underway, we look forward to growing IXINITY revenues during the remainder of 2015 and 2016.

On May 19, we announced signing a long-term manufacturing agreement with ProMetic Life Sciences. This deal leverages our manufacturing and plasma fractionation expertise at our Winnipeg facility and creates opportunities for future revenue growth.

Under the terms of the agreement, ProMetic has minimum purchase obligations that increase over the 15-year life of the contract. The aggregate total of the minimum fees over the life of the contract is in excess of CAD100 million. This agreement is another example of our ability to create additional value through our acquisition strategy.

In summary, we have had a very strong first half of the year, achieving three of our 2015 goals including securing FDA approval of Anthrasil, initiating the Phase 1 trial of ES414, and launching IXINITY. We remain on track to deliver our remaining 2015 goals, including finalizing the SBLA submission for Building 55, securing the post-exposure prophylaxis indication for BioThrax, completing an additional strategic acquisition that aligns with our core competencies and supports our growth plan, and announcing our next multiyear growth plan in late 2015.

That concludes my business updates and I will now turn the call over to Bob Kramer for details on our financial performance.

Thanks, Dan, and good morning to everyone. I first like to make some comments about our financial results for the second quarter of 2015 compared to last year and our performance year-to-date. Then I will comment on our balance sheet, focusing on our cash position, and finish up with details related to our 2015 full-year forecasts, including our thoughts on Q3 revenue guidance as well as the implications for revenues and net income in the second half of this year.

Our financial performance in the second quarter and through midyear has been very strong. The second-quarter total revenues were $126.1 million, or $15.8 million above Q2 of last year, representing a 14% improvement. The increase in revenue is primarily due to an increase in contracts, grants, and collaboration revenues related to our various product development initiatives for which we receive funding from third parties.

We also experienced increased BioThrax sales during the period as we delivered a total of 14 lots to the CDC, reflecting our resumption of full manufacturing in Building 12. We continue to convert the substantial backlog of sublots, which were produced during the investigation period earlier this year, and moving them through the process of FDA release and shipment. As a result, we remain confident that we will be able to be fully caught up with our planned BioThrax deliveries by the end of Q3 of this year.

Gross margin on a consolidated product and CMO revenue for the quarter was 70%, at the upper end of our normal range of 60% to 70%. This again reflects the significant profit contribution of BioThrax revenues during the period. Gross research and development spend for the quarter was $40.9 million, or $3.5 million higher than prior year. Taking into account the offsetting effect of our contracts, grants, and collaboration revenue, our net R&D spend for the quarter was $5.7 million versus $14.5 million compared to last year.

SG&A for the quarter was higher year over year by $6 million, due primarily to the launch costs associated with IXINITY and professional service costs to support our strategic growth initiatives. For the quarter, we earned $14.1 million in net income on a GAAP basis, or $0.32 per diluted share, versus $5 million, or $0.13 per diluted share, in the same period for 2014. On an adjusted basis, we earned $17 million, or $0.36 per diluted share, in Q2 of 2015 versus $9.4 million, or $0.25 per diluted share, in 2014.

Similarly, EBITDA for the second quarter was $29.6 million, or $0.62 per diluted share, and adjusted EBITDA for the period was $31 million, or $0.65 per diluted share. Again, reflecting the significant contribution of BioThrax revenues during the quarter.

Turning to the year-to-date performance, the six-month financials reflect the continued fundamental strength of the Biodefense business, aided by the Company's efforts to manage net R&D costs. For the six-month period of 2015, our GAAP net loss was $7.4 million and includes $5.6 million of adjustments for acquisition-related costs and other non-recurring and non-cash expenses. After adjustments, the year-to-date adjusted net loss was $1.8 million, or $0.05 per diluted share.

EBITDA on a year-to-date basis was $9.6 million, or $0.25 per diluted share, and adjusted EBITDA for the period was $12.2 million, or $0.32 per diluted share.

In addition to the strengthening financial performance reflected in our income statement, our balance sheet continues to reflect a very strong capital position highlighted by our cash balance to the end of the quarter of $215 million. We also recorded $100 million of receivables at quarter end, which in part is a result of the timing of the BioThrax shipments late in Q2.

In addition, our inventory balance is larger than normal at the end of Q2 due to the backlog of BioThrax product, which serves to further underscore the shift for the second half of 2015 in terms of BioThrax revenues for the year. As a result of the financial performance through midyear, we put ourselves in a good position to deliver increasingly strong financial results in Q3 and Q4 and, accordingly, we are re-affirming our forecast for total revenues of between $510 million and $540 million for the full year 2015, including $270 million to $285 million of BioThrax sales.

Further, net income we are reaffirming at $50 million to $60 million on a GAAP basis for the year and $60 million to $70 million on an adjusted basis. We are also forecasting Q3 total revenues of between $140 million and $155 million.

That concludes my remarks and I will now turn the call back over to Dan, who will take you through the spinoff that we announced earlier this morning.

Thanks, Bob. I will now walk you through the investor slide presentation that provides an overview of our Biosciences spinoff.

Just a reminder on page 2, the presentation does include forward-looking information. Actual results may differ.

Now turning to page 3, as we announced this morning, the Board of Directors has authorized management to pursue a tax-free spinoff of the Company's Biosciences business into a separate, standalone, publicly-traded company. For purposes of this presentation, we will refer to that company as SpinCo.

Upon separation it is expected to create two independent public companies with distinct strategic plans, growth strategies, and operational and development priorities. Emergent will remain a global specialty biopharmaceutical company focused on providing specialty products for civilian and military populations that address intentional and naturally-emerging public health threats.

SpinCo will focus on advancing a portfolio of immuno-oncology therapeutics based on its proprietary ADAPTIR platform technology. It will receive a fixed cash contribution from Emergent and also rely upon ongoing revenues from its existing commercial product sales as well as partnership funding. And, finally, it will be managed by a dedicated and separate management team as well as a separate Board of Directors.

The spinoff is anticipated to be completed middle of 2016.

Turning to page 4, the spinoff has compelling rationale for both the companies as well as its shareholders. It enables each company to tailor its business strategies to best address the opportunities within its target market. It enhances the business focus for both and better aligns resources to achieve their strategic priorities.

It allows each company to pursue distinct capital structures, as well as capital allocation strategies, as well as enabling each company to target an investor base attracted to its business profile.

Turning now to the benefits to Emergent on page 5, this spinoff will establish Emergent as a pure-play company recognized as a leader in the biodefense and emerging infectious disease fields. Spinoff also enhances its financial returns and operating margins through a reduction in burdens on cash flow associated with oncology R&D and it eliminates sales, marketing, and G&A costs associated with the Biosciences business.

All this allows for greater flexibility in capital allocation, including acquisitions that are synergistic with the core business and consideration of stock buybacks and dividends.

Turning to the Company profile on page 6, the business direction and focus remains the same. We will be focused on CBRNE -- chemical, biological, radiological, nuclear, explosive -- as well as emerging infectious disease markets. We see this as a well-established and growing market opportunity.

We will have six products focused in that area, as well as a robust pipeline of clinical and preclinical candidates, including vaccines, therapeutics, and devices. All of the manufacturing capabilities within the Company today will remain with Emergent, including the cGMP manufacturing and the fill finish and CMO services at the sites located at the bottom of your screen there. We will also retain all commercial operations capability with domestic and international distribution and sales.

We will be focused on three platform technologies including our MVAtor technology, which was used for the manufacturing of our Ebola vaccine that is currently in clinical testing. Our hyperimmune platform, which is the backbone for our BAT, VIG, and Anthrasil products, and Emergard, which is the ruggedized, military-grade auto-injector device platform that we announced earlier this week.

The leadership for Emergent will remain the same. Bob Kramer will remain as CFO and I will continue as CEO and Adam Havey will continue as President of the Biodefense division.

Looking now at the financial profile on page 7, this spinoff is designed and will result in an enhanced financial performance for Emergent. We anticipate continued revenue growth, both organically and through M&A, across all of our revenue streams: product sales, contracts, grants, and collaboration, as well as CMO revenue.

One change to highlight is that the CMO revenue will increase as a result of the manufacturing of products for SpinCo. Those are the commercial products that SpinCo will have after the spin. The spinoff will also enhance our cost structure and enhance EBITDA performance by the elimination of oncology R&D, the elimination of selling and marketing expenses for commercial products, as well as the elimination of G&A costs within the Biosciences business. The reduced cost structure increases EBITDA $40 million to $50 million and that is based on pro forma estimates looking at 2014 results.

This picture significantly enhances the balance sheet and allows us to pursue optimal capital deployment opportunities, including targeted R&D investments that are aligned with our recognized core focus and capabilities; acquisitions that are synergistic with the core business; and consideration of stock buybacks and dividends.

Turning to the benefits of SpinCo, or to SpinCo on page 8, it establishes SpinCo as a pure-play biopharmaceutical company in the highly-attractive field of immuno-oncology. It enables SpinCo to target its investments and operations to the development of biospecific therapeutics using the proprietary ADAPTIR platform technology that enables increased awareness of the RTCC mechanism of action, which we believe is a very promising approach within the immuno-oncology field.

And, finally, it provides greater visibility into its innovative platform technology and its product candidates to attract potential collaborators and partners.

Looking at the Company profile on page 9, SpinCo is well-positioned as a biopharmaceutical company focused on novel oncology and hematology therapeutics to meaningfully improve patient lives. On spin, it will have four commercial products along with a portfolio of clinical and preclinical candidates and, significantly, the ADAPTIR biospecific oncology immunotherapeutic platform technology.

It will have research and development capabilities through the product development operations in Seattle, as well as commercial capabilities through the commercial operations that take place centered in Berwyn, Pennsylvania.

The organization will be led by Marvin White as the President and CEO. He is a currently a director with Emergent and has been so since 2010. He has former leadership positions in the healthcare arena, including CFO at St. Vincent Health, Executive Director and CFO at Lilly USA, and positions in corporate finance at Eli Lilly.

The remaining members of the management team and the Board of Directors will be identified and announced at a later date. The headquarters for the SpinCo operations will be located in Seattle, Washington.

Turning to page 10, with a discussion on the technology that is really core to the SpinCo company and that is the ADAPTIR platform. It is a promising, novel approach for the generation of immuno therapeutics and it's suitable for producing multiple immuno therapeutics targeting oncology or autoimmune or inflammatory diseases using different modes of actions, including redirected T-cell cytotoxicity or targeted cytokine delivery.

It has a successful history of product candidate generation, target validation, and clinical development and in preclinical studies the biospecific platform demonstrated superior properties in terms of high potency, long half-life, minimal side effects, and antibody-like manufacturing.

Looking at the financial profile on page 11, the entity will be capitalized to create value with a fixed contribution from Emergent of between $50 million to $70 million. Ongoing R&D investments will be partially offset by the growing revenue contribution from IXINITY as well as stable contribution from revenues of the mature products -- WinRho, HepaGam, and VARIZIG -- and continued funding from its existing ES414 partnership with Morphosis.

The Company is also well-positioned for future funding to support development programs through new collaborations around the ADAPTIR platform, as well as independent access to the capital markets.

Turning now to the transaction details on page 12. As I mentioned earlier, the transaction is to be structured as a tax-free distribution to Emergent shareholders of common stock of SpinCo. The stock distribution ratio has not yet been determined, and when it is, it will be announced.

The timing: it's anticipated that this will be completed in mid-2016 and subject to the closing conditions I will discuss in just moment. The corporate name for SpinCo has not yet been determined, and once determined, it will be announced at a later date. Emergent BioSolutions will retain its name.

Emergent expects to incur transaction-related expenses of between $2 million to $4 million during 2015, and those costs have been incorporated -- included in our reaffirmed 2015 financial guidance. We expect additional costs to be incurred in 2016 leading up to the spinoff.

The closing conditions include receipt of a favorable opinion from outside tax counsel; receipt of a favorable private letter ruling from the Internal Revenue Service; execution of a number of intracompany agreements between Emergent and SpinCo; the effectiveness of the Form 10 registration statement, which must be filed with the Securities and Exchange Commission; and final approval of the transaction by Emergent's Board of Directors.

So in summary, on page 13, the spinoff is expected to create two independent public companies with distinct strategic plans, growth strategies, and operational and development priorities. It enables Emergent to establish itself as a pure-play company in the biodefense and emerging infectious diseases fields. It enables SpinCo to establish itself as a pure-play company in the highly attractive immuno-oncology field. And enables each company to target an investor base interested in its business profile.

That concludes my prepared remarks and I will turn it to the operator to open the Q&A.

(Operator Instructions) Eric Schmidt, Cowen and Company.

Good morning and congratulations on a nice second quarter. Maybe for Bob, it doesn't look like the Biosciences division had a particularly good quarter. Was there anything amiss amongst those more mature products that you are now hoping to spin out? And can you give us a sense of maybe what a normalized annual sales rate would be for the products that are going with the SpinCo?

Thanks for the question. So I don't think there was anything of particular note in Q2 for the Biosciences division or the revenue-generating products. As we have talked about before, those commercial products are fairly mature, so we don't expect a lot of growth from those revenue-generating-products over time.

In terms of the annualized run rate for those products which will go into SpinCo, I think if you go back to prior calls that we had, including the initial call on the Cangene acquisition, we referred to the fact that in the prior year of the Cangene acquisition the Company had total revenues of $127 million for the last fiscal year. And we talked about how the equal parts between Biodefense, what is now the Biosciences commercial revenue, and the CMO business, it was roughly a third, a third, a third in that $127 million.

And not much has really changed in that mix over the last year and a half and we don't anticipate much going forward, except for the fact that now that we've launched IXINITY we expect that revenue to contribute favorably going forward.

Thanks, that's helpful. Any sense of what the gross margin is these days on those, I don't know $40 million, $45 million or so in Bioscience sales?

Again, I think as we talked about, on a consolidated basis for the former Cangene business, their gross margin was in the 30% to 40% range. We had never really broken out the gross margin components for those three areas, so for modeling purposes I think that's the best you can do for now.

Okay. And then maybe shifting back to the Emergent BioSolutions side, obviously you are on track to get Building 55 approved. Just wondering if you could give us an update on your discussions, either with the US government or other purchasers, of the incremental capacity or when you might be in a position to say a little bit more about the potential demand here.

Thanks for the question. We have had an initial meeting with the CDC and we anticipate that probably in the fourth quarter further discussions will continue, and I think they will heat up as we get into the first and second quarters next year. So perhaps a traditional route with respect to contract negotiations with CDC, beginning usually a year ahead of expiration and then accelerating as we approach the end of the contract.

Thank you.

Jessica Fye, JPMorgan.

Thanks for taking my questions. I guess maybe first a bigger picture question on the spin of Biosciences business. Why now?

And then a follow-up to that, I know you mentioned potentially a dividend with the additional cash flow post spin. Can you talk a little bit more detail about how you weigh a dividend relative to continued business development? Thank you.

Sure. In terms of the why now, there has been quite a bit that has changed between then and today, I would say. First, I think there have been significant business developments in the marketplace.

And what I mean by that, biodefense has now really established itself as a growing market opportunity with a focus not only on the traditional biodefense arenas of anthrax and smallpox and botulinum, but really in the emerging infectious disease arena. You've seen that with pan flu and Ebola and other emerging infectious disease threats. So we see the market as maturing and expanding and very attractive, and we think the investment community is recognizing that.

On the business side, we've significantly expand our portfolio on the biodefense arena to address that expanding market. So our portfolio is expanded, the depth and breadth of the organization internally is now well-positioned to take advantage of that growing market.

And similarly on the biosciences side, there has really been an increased focus now on the potential for immuno-oncology, which is really the most exciting field in immuno-oncology research. The ADAPTIR platform has now demonstrated itself as very well-positioned to participate in that growing field.

We now have a candidate in the clinic in partnership with Morphosis utilizing the RTCC mechanism of action, which we believe is very promising. And in order to realize value associated with those operations and really create shareholder value, as well as unlock the potential for each of those companies, this is an opportune time to announce and implement that spinoff.

The second question with respect to the potential for dividends, really what we are looking at is proper allocation of the capital that we will generate in the business. We see growing revenues as we continue to expand in this market. We see an improved cost structure and we see generation of increased cash flow that can be used to support R&D as well as M&A, but we anticipate the potential for additional cash to be available to be deployed for either buybacks or dividends.

The Board is actively evaluating that. We have not made a final decision as to timing or amount, but we think it's reasonable to put it out there that that's on the table for evaluation and consideration.

(Operator Instructions) Jim Molloy, Laidlaw.

Thanks for taking my question. Love this announcement on the spin out. I guess my questions might be instead of why now, why not right now? Why mid-2016? What is sort of the reasons for that being the best time versus this current quarter or even last year?

And can you talk a little bit about was there any interest from strategic acquirers instead of a spinout?

Sure. Thanks, Jim. Thanks for the question and participating on the call. Now is the time; the process, however, requires a great deal of work. Documents need to be prepared and filed with the Securities and Exchange Commission. There's a review process there.

We need to restructure the corporate organization here internally. Assets need be transferred and positioned, so there's some work, ground work that needs to be undertaken before we can actually affect a spin. A 12-month time horizon is really not unusual or unreasonable and that is just how long it takes.

And so the second part of your question in terms of strategic sale, so as we look at this we think the best opportunity for creating value for the companies and shareholders is through the spin. It unlocks the value associated with the ADAPTIR platform and its potential.

In a sale transaction, of course, those proceeds don't go directly to the shareholders. Here shareholders are receiving the common stock and are able to make their investment decision with respect to that enterprise. And of course, any sale transaction is subject to tax at the corporate level. So for a number of reasons we think that this is the optimal structure.

Great. Then can you talk a little bit about --? How much will EBS own, if any, of SpinCo? Why are you guys seeding them $50 million to $70 million? Pretty good chunk of change.

So the answer to the first question is Emergent will not retain any ownership interest in SpinCo. 100% of SpinCo will be distributed to our common stockholders.

With respect to the $50 million to $70 million level, it is a really good question. I'm going to ask Bob Kramer to tackle that one for you.

Jim, thanks again for the question. I think, Jim, when we looked at a number of factors, including some very preliminary SpinCo financial projections and what they will likely do with the business, we also looked at Emergent's ongoing sources and uses of cash for the next several years. We clearly had some discussions with our advisory partner, JPMorgan, on the level of funding that is customary for these types of transactions and clearly centered on our belief that a $50 million to $70 million cash contribution was an adequate number.

It's not an overly conservative number. It's not an overly aggressive number. It allows the appropriate level of funding to support SpinCo's path to near-term value creation. So it was a bit of an art, but we feel very comfortable that it is an appropriate level.

Okay, great. Thank you for that. How does this impact your announced intentions of acquiring another assets? I believe you have been very clear you are expecting -- hoping to do it near term.

Does this make that more likely, less likely? Does this increase or decrease the size of the transaction that you can now target given this will be moving off the books?

Good question, Jim. It really has no impact at all on our planned strategy of growth through acquisitions or our goal for the year of completing at least one acquisition that is consistent with the growth strategy that we have laid out. So no impact.

My last question, the Ebola contract; good to see that come through. I know you guys have been talking about that and waiting on it for a bit. We all have been.

It's somewhat on the smaller side. Is there any thinking that there may be a larger contract at some point or is this the type of contract that we should have been expecting and that is kind of it?

Thanks, Jim. I will ask Adam Havey, the President of Biodefense Division, to answer that one.

Good morning, Jim. Thanks for the question. Essentially, as you know and as we have all been kind of looking for and waiting for these task order requests and contracts to come out. I think this is what the government's initial strategy is going to be.

I think if you look at the ZMapp technology, as well as these monoclonals that we are going to be working on, I think they're still in the early stages. And as we work on profit development work and bringing those to the clinic I think the larger contracts may come in the future. But I think in the short term, given the current status of the vaccine landscape on the Ebola side as well as where these monoclonals are, I think this is what we expect for right now.

Great. Thank you for taking the questions.

Shubin Jha, Southpaw.

I just wanted to ask -- I'm guessing that the data in the converts stays with Emergent. With the spin is there any change in the strike price or how does the adjustment take place there?

Sure. Thanks for the call -- question. This is Bob. So the convert, first of all, stays with Emergent. None of that will be allocated or transitioned over to SpinCo.

There will be adjustments to the conversion rate and the conversion price. The calculation is spelled out in the bond document itself, and it's really based on the post-spin value for SpinCo in its relation to the post-spin value of Emergent going forward. So that math again is spelled out in the document itself, but there will be an adjustment to the conversion rate and conversion price.

Thank you.

Eric Schmidt, Cowen and Company.

Thanks for the follow-up. Just maybe another one for Bob on the SpinCo numbers, financials. You got $40 million to $50 million in EBITDA savings on 2014 pro forma basis. I know the Company has already had some good success in bringing down the net R&D over the course of the last few quarters there.

Is there much of a savings on a 2015 basis? And maybe you could just help us understand where those savings are coming from, what kind of SG&A reduction you would have after the SpinCo?

Sure. So as Dan went through as part of the deck, there are a number of categories of costs that we expect to be reduced for Emergent post-spin. And those are identified as the R&D costs that are associated with the Seattle site; the sales and marketing expenses associated with the Berwyn, Pennsylvania, site; the R&D expenses in Winnipeg; and then obviously we're going to lose -- Emergent will lose the gross margin impact of the commercial sales products post-spin.

So when we look at all four of those elements, plus other factors, and try to give some reasonable range of EBITDA impact based on 2014, we got to the $40 million to $50 million range. Obviously, as our planning matures for execution of the spin and other factors are considered, those numbers will move around a little bit, but that's our best estimate today of what the potential benefit of the EBITDA will be generated to Emergent going forward.

Obviously, when we get deeper and more mature in the thinking around 2016 and going forward, those estimates will be adjusted and will be incorporated into any future guidance we give. But right now that is our best estimate.

But, Bob, you've already taken a fair bit of those costs out on the R&D side, haven't you?

We have to some degree. But remember, Eric, that a lot of the reduction in net R&D over the last six to nine months has been a result of some of the upfront payments that we receive from the partnerships. So the spend will continue; we expect to continue to trend down on a gross basis. But that $40 million to $50 million number does not include the roughly $16 million in revenue that we booked as part of that Morphosis agreement last year.

Okay. And then one last question on the tax rate side. Does it impact your -- Emergent BioSolutions, this tax rate going forward? Maybe you could provide just your longer-term thinking on where that tax rate is going to lie out?

Sure. Short term it won't have much of an impact, Eric, on the overall effective tax rate. Longer-term, again as we look to other M&A transactions we are always looking for a more tax efficient way to bring new assets into the Company. We expect longer term that that effective tax rate will trend down from the 30%, but that's going to be M&A-dependent short term with this transaction. There won't be much of an impact on the tax rate.

Thank you.

I'm showing no further questions on the phone lines at this time. I would like to turn the call back to Robert Burrows for closing remarks.

Thank you. With that, ladies and gentlemen, we now conclude the call. Thank you for your participation.

Please note an archived version of the webcast of today's call will be available later today and accessible through the Company website. Thank you all again and we look forward to speaking to all of you in the future. Goodbye.

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