Earnings Call Transcript - EBS Q3 2021

Operator, Operator

Thank you for joining us for the Emergent BioSolutions Third Quarter 2021 Financial Results Conference Call. All participants are currently in listen-only mode. After the presentations, we will have a question-and-answer session. I will now turn the call over to the company. Please continue.

Bob Burrows, Investor Relations Officer

Thank you, Cherry and good afternoon, everyone. This is Bob Burrows, Investor Relations Officer for the company. Thank you for joining us today as we discuss the operational and financial results for the third quarter 2021. As is customary, today's call is open to all participants and the call is being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, there is a series of slides accompanying this webcast available to all webcast participants. Turning to slides 3 and 4. During today's call, we may make projections and other forward-looking statements related to our business, future events or our prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statement speaks only as of the date of this conference call and except as required by law. We do not undertake to update any forward-looking 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 today's call, we may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net income, adjusted EBITDA, and adjusted gross margin and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. Turning to Slide 5. The agenda for today's call will include Bob Kramer, President and Chief Executive Officer, who will comment on the current state of the company and Rich Lindahl, Chief Financial Officer who will speak to the financials for 3Q 2021 as well as the forecast for full year 2021. This will be followed by a Q&A session where additional members of the executive leadership team are present and available as needed. Finally, for the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on November 4, 2021. Since then, Emergent may have made announcements related to topics discussed during today's call. And with that introduction, I would now like to turn the call over to Bob whose comments begin with slide 6. Bob?

Bob Kramer, President and CEO

Thank you, Bob, and good afternoon, everyone. I appreciate you joining the call. Today, I will update you on our Bayview site progress, share our recent accomplishments and milestones, and discuss the business enhancements we've made to better serve our customers. Additionally, I will cover our revised full-year guidance and our decision to conclude our involvement in the Center for Innovation in Advanced Development and Manufacturing program with the US government. My comments are summarized in slides 7 and 8 of the accompanying deck. Let's get started. This year, our Emergent team has demonstrated strength and resilience, making significant progress in the quarter. Notable highlights include resuming operations and production for Johnson & Johnson at the Bayview site in late July and completing all outstanding work for AstraZeneca. By the end of the quarter, we have contributed over 100 million dose equivalents of COVID-19 vaccine for global distribution, and we look forward to continuing our support for J&J's ongoing vaccine production while aiding their regulatory efforts. We have also secured key commitments from the US government for two core medical countermeasure products. We received a contract modification that funds the second of nine annual options to supply ACAM2000 to the Strategic National Stockpile valued at approximately $182 million. Additionally, we secured funding for the procurement of extra doses of AV7909 for the SNS valued at around $399 million over the next 18 months. Our NARCAN Nasal Spray team has been performing exceptionally well in the midst of the worsening opioid crisis, ensuring access to this critical product for patients and caregivers. We have initiated our pivotal Phase III trial for our chikungunya vaccine CHIKV VLP, marking a key milestone for us as it is the first Phase III drug development program funded entirely by Emergent. This underscores our commitment to advancing our pipeline in response to public health threats and expanding our travel health vaccines franchise. Finally, we are growing our CDMO operations by securing a new multiyear contract to produce Providence Therapeutics' mRNA COVID-19 vaccine candidate at our Winnipeg site. These highlights illustrate that our core strategy and diversified business model remain strong. Today, we also announce that the Department of Health and Human Services and Emergent have mutually agreed to end our partnership in the CIADM program, closing out all open obligations and task orders issued under the CIADM base contract, including those related to COVID-19 response. We are proud of the contributions made by our employees over the past nine years to uphold our CIADM commitments. The program, initiated in 2012, aimed to address the shortage of domestic manufacturing capability needed in response to an unforeseen public health threat following the H1N1 pandemic. While the concept was innovative, the execution of the CIADM program and the necessary operational investments by all administrations fell short of what was required to maintain emergency capabilities. When the COVID pandemic emerged, Emergent was one of only two original partners still involved. Despite the challenges, we acted quickly to utilize several of our facilities to meet government needs and achieved remarkable progress under very difficult conditions. Our work with BARDA under the CIADM program included several activities: capacity reservations at our Bayview, Camden, and Rockville locations; government capital investment for fill/finish capacity at Camden and Rockville; drug substance manufacturing for AstraZeneca at Bayview; and drug product manufacturing for various COVID-19 therapeutic candidates in Camden. As a reminder, our COVID-19 initiatives under the CIADM program were expected to conclude this year, and importantly, our decision does not affect our collaboration with Johnson & Johnson, which was never part of our CIADM contract. We will continue producing their COVID-19 vaccine drug substance at our Bayview facility, and I want to reiterate our pride in our collaboration with J&J, along with AstraZeneca, which has produced over 100 million dose equivalents of COVID-19 vaccine for global distribution. Although we are concluding our involvement in the CIADM program, it is crucial to recognize that the work done under this program and related contracts served a vital purpose, and our organization is immensely proud of it. Despite earlier setbacks this year, the team has remained dedicated to our mission of protecting and enhancing lives, learning from our experiences, and striving to improve even further. I am proud of our team's resilience and the positive impact we've had on millions of lives worldwide. We're optimistic about the opportunities ahead for our business. Let me now shift to recent changes we've made to support our strategy. During the quarter, we've restructured our operations into three business lines that focus on distinct customer or market types: the newly established government or medical countermeasure business, the commercial business, and the services or CDMO business, which remains largely unchanged. Each of these sectors reports to our Chief Operating Officer, Adam Havey. The government or MCM business will be led by Paul Williams, who previously managed the vaccines business unit. This new structure aims to better serve our customers by leveraging our collective expertise as one team and reducing complexity with multiple contacts for the government through various business units. The commercial business will be directed by Doug White, who previously headed the devices business unit, and will now focus on our core commercial capabilities while seeking new investment opportunities. Doug's portfolio includes NARCAN Nasal Spray, travel vaccines, and other customer-facing products. This organizational change allows us to consolidate strategic and operational elements that were previously spread across multiple business units, positioning us to expand into new markets and integrate newly acquired products more efficiently. The services or CDMO business will continue to serve our pharma and biotech innovator clients, providing development, drug substance, and drug product manufacturing services that capitalize on our core competencies. We have also formed a centralized and cross-functional product development committee to oversee our R&D portfolio, along with creating a science and innovation team led by Dr. Laura Saward, who previously managed the therapeutics business unit. This new structure will enable us to effectively execute our strategic plan and achieve long-term success, reinforcing our foundation and creating new growth opportunities. Returning to operational highlights, we've resumed production of J&J's COVID-19 vaccine at our Bayview facility following a comprehensive quality enhancement process and the FDA's approval to restart. Over the last five months, we have invested millions of dollars in improving cleaning procedures, upgrading our facilities, implementing additional quality control measures, and enhancing processes for batch record keeping, personnel training, data integrity, and laboratory testing. Emergent teams, with support from our J&J colleagues, oversee all operations and material transfers. We have also engaged an independent consultancy specializing in quality control to conduct reviews and certifications before batch releases. We are working closely with the FDA and J&J to ramp up production levels in line with these new procedures. I commend our team's efforts over the past 18 months, which have transformed our Bayview facility from a clinical-stage operation to one capable of supporting larger-scale production. In our core government or medical countermeasures business, our collaboration with the US government to protect against smallpox, anthrax, and other Category A biological threats remains a priority. We previously announced the government has exercised and funded the next term extension for ACAM2000 under our 10-year contract, and we've also secured the next option for our smallpox therapeutic, VIGIV. We recently secured the government's final option under the existing contract to supply doses of our next-generation anthrax vaccine candidate, AV7909, to the Strategic National Stockpile, valued at approximately $399 million over the next 18 months. This contract facilitates procurement while we seek full FDA approval for AV7909. I'm pleased to share two important updates on our regulatory path for AV7909. First, the FDA has agreed to our request for a rolling review of the AV7909 BLA, which allows us to submit application sections as they are completed rather than waiting for the complete package. We anticipate starting the BLA submission in mid-December, aiming for approval late this year or early next year. Second, the FDA has granted orphan drug designation for AV7909, providing development incentives, including a waiver of the BLA filing fee and potential seven-year marketing exclusivity upon regulatory approval. In R&D, we've begun our pivotal Phase 3 safety and immunogenicity study for our single-dose chikungunya vaccine candidate, CHIKV VLP, which is the only virus-like particle vaccine in development for active immunization against chikungunya disease. We expect to enroll 3,150 participants across 50 US sites soon. I want to recognize our teams for enabling this significant milestone and advancing our development pipeline, which is vital for our long-term growth. We anticipate launching additional Phase I studies over the next year, alongside continued success in our auto-injector platform programs focused on chemical threats, making us optimistic about the R&D programs' contributions to future growth. In our CDMO business, we are observing growth related to the pandemic and beyond, with continued interest from both existing clients and new prospects across various organization sizes. We are winning new business across all our service pillars—development services, drug substance, and drug product, including drug packaging. For example, we signed a new five-year agreement with Providence Therapeutics to support mRNA vaccine development from our Gaithersburg and Winnipeg facilities. This agreement, valued at $90 million, builds on an existing partnership and highlights the value of our integrated service capabilities for customers. We aim to continue fostering growth and maturation in this core business. Regarding NARCAN Nasal Spray, our commitment to addressing the opioid epidemic remains strong. Our NARCAN team is working diligently to ensure that NARCAN Nasal Spray is accessible and affordable as overdose incidents continue to impact families and communities nationwide. We are focused on combating this crisis not only through our work on NARCAN but also through outreach and public awareness campaigns regarding the dangers of opioids. On the patent infringement litigation front, we noted that the US Circuit Court of Appeals held final oral arguments on August 2. While the timing is in the hands of the appellate court, we believe a decision could come by the end of this year. In the event of generic market entry, we are prepared to launch an authorized generic product with a large generics partner and are confident in maintaining significant market share. Longer term, we view Narcan and our broader opioid-related portfolio as essential to our solutions for public health. Finally, I want to share two important corporate updates. We plan to publish our first ESG or sustainability report later this month, which will detail our environmental, social, and governance practices, including product quality and safety standards, our employee-focused programs, charitable initiatives, environmental safeguards, and governance principles. Additionally, on the personnel front, Mary Oates, our former Head of Global Quality, has decided to pursue a new career opportunity and has left Emergent. We are conducting an external search for a new Head of Global Quality but are confident that our talented professionals will continue driving the quality advancements achieved in recent months. In summary, our third quarter results illustrate that our business remains resilient and positioned for growth in line with our strategy. We remain committed to pursuing organic opportunities and potential acquisitions with prudent capital deployment, all aimed at maximizing shareholder value. Now I'll turn the call over to Rich, who will walk us through the detailed results for the quarter. Rich?

Rich Lindahl, Chief Financial Officer

Thank you, Bob. Good afternoon, everyone, and thank you for joining the call. I'll start on Slide 10 with some summary thoughts to provide context for today's earnings report. As Bob mentioned, our strong performance in the third quarter highlights the resilience of our differentiated business. Our medical countermeasures platform was bolstered by the ACAM2000 option exercise in July and the AV7909 contract modification on September 30. We have resumed operations at Bayview and are assisting J&J in delivering their COVID-19 vaccine candidate. The NARCAN Nasal Spray franchise is gaining traction as we combat the ongoing opioid crisis. We are steadily progressing in building our CDMO business, as shown by recent contract wins. Additionally, we have advanced our R&D efforts, particularly with the launch of the chikungunya Phase III trial. However, several topics require further clarification, starting with the main factors influencing our updated 2021 financial guidance outlined on Slide 11. The primary factor is our agreement with the US government to terminate the CIADM contract and related task orders. As disclosed in an 8-K filed today, this agreement reduced the value of the BARDA task order by $180 million. This decrease will be partially counterbalanced by the $60 million in deferred revenue and other final payments associated with the CIADM base agreement. Notably, due to continued strong demand for NARCAN Nasal Spray, we have raised our full-year forecast for that product by $95 million. After considering various adjustments, we have refined our total revenue range, lowering the midpoint by $50 million. In today's press release, we also indicated that as of September 30, we reversed $86 million of revenue and eliminated accounts receivable balances related to uncollected amounts under the BARDA task order. Following a review of our revenue recognition policy during the third quarter, we determined it was necessary to reclassify certain suite reservation fees from stand-ready obligations to leases, applying lease accounting guidance. Our income statement now reflects distinct line items for CDMO services and CDMO leases, enhancing your understanding of our CDMO service-related revenue fundamentals. Under the lease accounting framework, due to uncertainties regarding the collectability of the full contracted amount, we shifted to cash accounting for the BARDA task order. Therefore, in the third quarter, we adjusted our revenue to align with the $315 million in cash collected under the BARDA task order from May 2020 to September 2021. Looking ahead to the fourth quarter, as a result of terminating the CIADM agreement, we anticipate recognizing $215 million in revenue, which consists of $155 million from task order closeout payments and $60 million in deferred revenue and other payments. The termination also incurs asset write-downs of around $38 million, leading to a net addition to pre-tax income in the fourth quarter of approximately $177 million. For CDMO metrics during the quarter, our new business wins totaled $118 million, reflecting robust performance, particularly due to the Providence Therapeutics contract for COVID-related efforts. The change in backlog reflects the termination of the BARDA task order. The movement of our opportunity funnel downward is attributed to both securing business from opportunities and losing two significant contract bids—one due to a company opting to keep the work in-house and the other deferring the work to a later date. Nevertheless, we continue identifying new leads and securing new business; fluctuations are expected as we pursue these opportunities. Regarding gross margins and profitability, our gross margins stem from revenue mix across various aspects: the ratio of product sales to services and the types of services provided. The adjusted gross margins for our products remain stable and consistent with historical figures. However, on the CDMO services side, we are experiencing several pressures on margins. Factors include lower capacity utilization for drug substance production at Bayview, additional investments in quality enhancement, and higher raw material costs than expected. Although CDMO gross margins are currently below our expectations, we anticipate improvement as we grow our CDMO revenue base, increase facility utilization, shift towards more drug substance manufacturing, achieve scale efficiencies, and enhance productivity. To help investors understand these trends, today's press release includes separate calculations for product gross margin and CDMO gross margin. Now, let’s look at the third-quarter numbers on Slide 12. Highlights include total revenues of $329 million, which were below the previous year's figures and our guidance, primarily due to the $86 million revenue reversal for the BARDA task order. Adjusted EBITDA was a negative $3 million, and we reported an adjusted net loss of $19 million, both significantly lower than the previous year due to various factors that we will review shortly. Other important highlights include NARCAN Nasal Spray sales of $133 million, reflecting an increase from the previous year driven by ongoing demand for this essential drug-device combination for opioid overdose reversal in both retail and public sectors in the US, along with increased sales in Canada. ACAM2000 sales reached $81 million, up from last year due to delivery timing tied to the US government's exercise of their second option under the 10-year procurement contract announced in July. As we have previously noted, we anticipate completing all deliveries related to this option exercise by the end of 2021. Anthrax vaccine sales were $16 million lower than last year due to delivery timing, as modifications to the BARDA contract for AV7909 were only finalized on the last day of the quarter. Other product sales were consistent with last year at $41 million. CDMO revenues fell to $42 million, lower than the previous year's figures mainly because of our transition to cash basis revenue accounting for the BARDA task order, moderately offset by $38 million in out-of-period adjustments related to our revised revenue recognition policy for CDMO services, which will be elaborated on in our upcoming 10-Q filing. Shifting focus from revenue, we are now distinguishing cost of goods sold between product sales and CDMO services. Product cost of goods sold this quarter was $103 million, a $17 million decrease from last year largely due to one-time charges in the prior year, offset by increased costs from current higher product sales. CDMO cost of goods sold totaled $114 million, marking an $86 million increase from the prior year due to the previously mentioned out-of-period adjustments and added expenses at our Bayview facility. Gross R&D expense was $50 million, lower than last year primarily due to a non-recurring $29 million impairment charge recorded last year. Net R&D expense was $33 million, representing 10% of adjusted revenue, consistent with the prior year. SG&A spending amounted to $82 million, accounting for 25% of total revenues, an increase compared to last year as we grew our headcount and professional services. Gross margin for the quarter stood at 30%. As I mentioned, we are now presenting two additional gross margin metrics. The adjusted product gross margin was 62%, consistent with the previous period, while the adjusted CDMO services gross margin was 10% lower than last year mainly due to increased operational costs at Bayview and implementation of our quality enhancement initiatives. Moving to Slide 13, let's review our key CDMO metrics. In the third quarter, we secured new business worth $118 million, indicating strong demand for our services. As of September 30, our rolling backlog exceeded $1 billion, reflecting a 9% decline from the second quarter, attributed largely to the termination of the BARDA task order. You can refer to Page five of today's earnings press release for a detailed breakdown of backlog. Lastly, the opportunity funnel as of September 30 stood at $284 million, down from $672 million on June 30, largely due to significant new business wins in the current quarter and the loss of two major opportunities. On Slide 14, you can observe the sequential trends of these metrics over the last five reporting periods. We look forward to continuing progress in this vital segment of our business going forward. Now, moving on to Slide 15, I'll highlight some balance sheet and cash flow key points. We concluded the third quarter with a solid liquidity position, holding $404 million in cash and nearly $600 million in undrawn revolver capacity. Our net debt stands at $454 million, with a net debt to trailing 12-month adjusted EBITDA ratio of one. Year-to-date, our operating cash flow was negative $8 million, primarily due to the timing of cash collections and increased inventory levels. Capital expenditures year-to-date totaled $178 million. Please refer to slides 16 and 17 for our 2021 forecast and key considerations. According to today's press release, we are revising our 2021 outlook, setting new ranges as follows: total revenue of $1.70 billion to $1.8 billion; NARCAN Nasal Spray sales of $400 million to $420 million; anthrax vaccine sales of $250 million to $260 million; ACAM2000 sales of $200 million to $220 million; and for the CDMO business, we now project a range of $600 million to $650 million. Our profitability guidance includes adjusted EBITDA between $500 million and $550 million, and adjusted net income from $315 million to $350 million. Our revised outlook considers several key factors listed in our earnings press release, many of which remain consistent with our last update in July. These considerations include no raxibacumab revenue this year; competitive pressures in the naloxone market, evidenced by a new entrant we encountered in Q3; no generic entrants before resolving our patent litigation; and ongoing manufacturing of J&J's COVID-19 vaccine at Bayview. Revised considerations also incorporate the financial ramifications of terminating the CIADM agreement and related task orders, including anticipated payments in Q4. We now expect an adjusted gross margin range of 54% to 56%, reflecting both year-to-date performance and expected fourth-quarter outcomes. Regarding the future of our business during the pandemic, we have received many inquiries. We plan to maintain our customary practice of providing initial annual guidance at the beginning of each calendar year after completing our budgeting process for 2022. However, I would like to share some insights on directional trends to enhance understanding of our underlying business. While we have not finalized our budgeting for 2022, current analyst consensus suggests our total 2022 revenue aligns with our perspectives. Specifically, we expect our medical countermeasures business to remain steady due to the visibility provided by our long-term contracts. The opioid crisis has intensified beyond our initial expectations, resulting in NARCAN Nasal Spray revenue consistently exceeding our forecasts. Naturally, there are concerns about potential generic competitors. Since more than half of our market is focused on public interest, it will not be automatically affected by switches for AB-rated products. For other product markets, as Bob mentioned, we are ready to launch an authorized generic in collaboration with a significant generics company, and we remain confident it will continue contributing meaningfully to our top and bottom lines moving forward. In the travel health segment, we are carefully monitoring international travel conditions and do not expect considerable revenue from our travel vaccines next year, although we anticipate some increases in travel following that period. For CDMO, we expect to keep supporting J&J from our Bayview site and further leverage opportunities across other sites that generate revenue. In terms of profitability, we are making investments in our manufacturing and quality systems, which are currently exerting pressure on our CDMO gross margins, but we expect improvements over time. We are also approaching our SG&A expenses with discipline as we prepare for a stronger top-line growth in 2023 and 2024. Regarding R&D, we continue to invest in long-term value drivers alongside programs with non-dilutive funding, while balancing these investments with expected portfolio rationalization. Therefore, we foresee these trends possibly constraining adjusted EBITDA margins to levels at or below those we experienced in 2018 and 2019. We will refine these assessments and expect to provide more concrete information in early January. In conclusion, please turn to Slide 18 for some final remarks. In the third quarter of 2021, we maintained solid performance in critical areas of our business, including anthrax vaccines, ACAM2000, the core medical countermeasure products, the NARCAN Nasal Spray franchise, and the new business acquired in CDMO services. We have also progressed in enhancing our production capabilities at Bayview to support J&J and celebrated a significant pipeline milestone by launching the CHIK vaccine Phase 3 trial last month. While we have revised our guidance for this year in accordance with the CIADM agreement termination and current profitability trends in our CDMO business, concluding the CIADM agreement represented a decisive step forward for the company. Our confidence in the long-term growth potential of our business is stronger than ever. That wraps up my prepared remarks. I will now turn the call over to the operator to begin the question-and-answer session.

Operator, Operator

Your first question comes from Brandon Folkes with Cantor Fitzgerald. Your line is now open.

Brandon Folkes, Analyst

Hi. Thanks for taking my questions. Maybe firstly just on the CIADM contract can you maybe just elaborate in terms of your relationship with HHS and maybe the individuals responsible for that contract versus any impact on your relationship with the Strategic National Stockpile? Just any clarification on the statement that there's reversal of the revenue base due to lack of cash collection, did they stop paying you before the mutual termination of that agreement? And then secondly maybe just on Narcan do you expect a generic entry or an AG to expand the market at a faster rate than it is currently expanding or is price not really a limitation in that market at this stage? Thank you.

Bob Kramer, President and CEO

Thanks, Brandon. So I'll take the first part of the first question. I think we all recognize that the CIADM as it was contemplated back in 2012 was a good idea at the time. But unfortunately it didn't work out as it was anticipated. I think secondly, likewise, the task order for COVID-19 work that we've been doing was also a good idea. And to be clear the government and the public in general has benefited significantly from the activities that were conducted under that task order. I think the government's decision to remove the AstraZeneca product from Bayview and to not direct additional work to Bayview to take its place made it pretty clear that they no longer needed that reserved space. And while we were legally entitled to receive the full payment under the task order and the contractual obligations, we made the business decision after discussions with the government that the best way forward was to kind of end the task order and the CIADM relationship. Part of your question was really related to the relationships between kind of the CIADM and the SNS. And to be clear CIADM is governed overseen by BARDA under HHS. The Strategic National Stockpile is really under the ASPR, the Assistant Secretary for Preparedness and Response. So it's a sister organization but not directly under BARDA. Maybe I'll turn to Rich in terms of the accounting and the cash question Brandon.

Rich Lindahl, Chief Financial Officer

Yeah. So Brandon to answer your question, yes, the government had been behind on payments related to the task order. As you can appreciate every quarter we do an assessment of our accounts receivable and based on our assessment at the end of the second quarter we had believed that it was probable that we were going to collect those amounts. As we came to September 30th, based on where we were at that point in time we determined that it was no longer probable that we were going to collect 100% of the contracted amount. And as a result that triggered a need for us to convert to cash basis of accounting for that under the lease accounting guidance. And so that is why when we compared the amount of revenue that we had accrued up to that point with the amount of cash that we actually collected, there was a difference of $86 million which we reversed in the third quarter.

Bob Kramer, President and CEO

Thanks Rich. Brandon, regarding your second question about whether a generic or authorized generic entrant in the naloxone market would significantly affect the overall market size, I believe it's too early to determine the potential impact. The nasal delivered naloxone market is still evolving. Since acquiring the asset three years ago, our main efforts have been focused on increasing awareness, educating, and ensuring that the product is accessible to the millions of patients who need it. Therefore, I don't expect much of an impact, but we'll have to wait and see.

Brandon Folkes, Analyst

Great. Thank you. I appreciate the additional color. Thank you.

Bob Kramer, President and CEO

Thanks Brandon.

Operator, Operator

Your next question comes from the line of Jessica Fye from JPMorgan. Your line is now open.

Jessica Fye, Analyst

Good evening, everyone. Thank you for taking my questions. I appreciate you helping us understand the decline in the opportunity funnel. I am curious about how many potential clients are currently in that funnel and what the average contract size is. Additionally, how long does it typically take to determine if a contract is moving forward, and how long does the pitched business remain in the funnel before you get that clarity?

Bob Kramer, President and CEO

Yes Jess. Thanks. Great question. So, we haven't broken out the number or the average potential deal size in the opportunity funnel. I think as Rich indicated the two opportunities that he called out one was kind of taken off the table because the party decided to take it internal versus putting it out for bid and going to an external CDMO relationship. And I guess the other was deferred. So, that may come back but no assurance that it will Jess. I'd be guessing quite frankly at the duration of how long things sit in the funnel. I think we have pretty good clarity that once there is a request for a proposal that is given to us and that we respond to, I would think within probably three to six months we know or have a pretty good idea whether it's going to be acted upon or actionable or not. So, that would be my estimate Jess.

Jessica Fye, Analyst

Okay, great. And maybe just two more. One following up on the last question on NARCAN. Maybe bigger picture when you talk about that representing a core part of the long-term portfolio, can you elaborate on what that looks like how you envision it remaining a core part longer term? And then lastly and I think you kind of addressed this, but I was curious if there's any positive CDMO lease revenue in the third quarter that's being offset by the BARDA negative revenue item. And I think based on the $86 you just cited before maybe it's like $15. Is that right?

Rich Lindahl, Chief Financial Officer

Yes, just to knock that one off quickly yes there was $15 million of positive lease revenue that was offset by the negative $86 million related to BARDA.

Bob Kramer, President and CEO

Yes. Jess on your first question regarding NARCAN and I guess our view that its core, I'll say a couple things. Clearly, it's outperforming our expectations today and clearly the expectations that we had when we bought the asset a number of years ago. As Rich articulated, $400 million in revenue projected for this year. The range of $400 million to $420 million is clearly a positive impact. Even in a generic setting, where there is a generic entrant and our authorized generic product competing for space, just to be clear, as we've talked about on prior calls, we see that kind of competitive dynamic looking different in the retail market than in the public interest market for a couple of important reasons. Most notably in the public interest market as you know, the product is already discounted at a 40% discount. So the attractiveness economics is not the typical kind of branded versus generic fight it out for market share in that retail space. So even with an authorized generic and generic competing in the retail space and some pressure and some competition in the public interest market, for us it's still a sizable asset going forward. And that is notwithstanding the fact that we continue to look for additional assets and additional lifecycle management opportunities for NARCAN Nasal Spray including the work that we've done to date regarding dating and the temperature range for the product as well as the by-dose product. So we think it's an attractive area and importantly, it really is on point with our strategy of protecting and enhancing life.

Jessica Fye, Analyst

Thank you.

Bob Kramer, President and CEO

Thanks Jess.

Operator, Operator

Your next question comes from the line of Keay Nakae from Chardan. Your line is now open.

Keay Nakae, Analyst

Hi, guys. Thank you. A couple of questions just to follow up on the last one with respect to having an authorized generic, how much price pressure do you think that introduces in the retail market?

Bob Kramer, President and CEO

Thank you for joining the call and for your question. As with any competition between branded and generic products, we anticipate significant price pressure when a generic enters the market. This will likely result in some loss of market share, though we expect to regain some of that share through our authorized generic. However, we believe the competitive dynamics in the public interest market will differ from those in the retail market, although generics will still have an impact.

Keay Nakae, Analyst

Okay. And just going back also to an earlier question about your relationships. How would you characterize the strength of your relationship with the people over at ASPR?

Bob Kramer, President and CEO

Yeah. Keay, I think it's very strong. You can look to a number of proof points, including the two significant procurement contracts that were exercised and funded recently along with the VIGIV contract. So I mean as we talked about earlier this year, we had a couple of very important contract modifications and extensions to kind of get across the finish line and I think the team and I are very proud of the fact that we've kind of worked through this. I know that a lot of folks on the outside looking in at us were concerned that the challenges that we've had with COVID-19 response were going to somehow impact that core of the business. That's clearly not the case. And we move forward.

Keay Nakae, Analyst

Okay. Final question. For your hyperimmunes for COVID, I know COVID-HIG recently went into a Phase 3. Are you still doing development work for COVID-EIG?

Bob Kramer, President and CEO

Not really, Keay. We've kind of put that on the back burner in order to prioritize our effort on the COVID-HIG side. And it's potentially at a stage where we could reinvigorate, but right now the focus is on COVID-HIG with NIAID.

Operator, Operator

Your next question comes from the line of Lisa Springer from Singular Research. Your line is now open.

Robert Maltbie, Analyst

Hi. Robert Maltbie in for Lisa. Thank you for taking my questions. Regarding the CIADM contract, how common is it in your experience for the government to fall behind? And what is the rationale for not collecting the balance owed?

Bob Kramer, President and CEO

Yes. Robert thanks. It's been a while since we talked. Thanks for joining the call. I'm going to let Rich respond to the collectability or the responsiveness of payment by the government. But as you've followed us for many, many years you know that the government has always paid within a very short period of time. I think this clearly is an unusual circumstance that was partly impacted by the complexity of the task order that we put in place, which just remember that that task order included reservation fee for a number of facilities, including capital expenditure investment by the government in a number of our facilities. It included us doing a lot of work for fill/finish and drug products. So I think the complexity of the task order in large part impacted the timing. And at the end of the day, I think the government decided that they really didn't need that reservation. It took them a while to figure that out. And once they figured it out, we had a productive conversation and mutually agreed to end the task order and end the ADM contract.

Rich Lindahl, Chief Financial Officer

Well, just to reinforce and I think Bob mentioned this earlier, but we did believe that we were legally entitled to the full payment. But we did make a business decision in this circumstance after having discussions with the government that the most appropriate way to resolve the task order and the CIADM relationship more broadly was to come to this arrangement.

Robert Maltbie, Analyst

And a final follow-up related to the chikungunya vaccine. Could you comment on the potential value of the market for the vaccine and who would be the customers? Thank you.

Bob Kramer, President and CEO

Yes, Robert. Thanks again. I'm going to let my colleague Adam Havey talk about that. Adam again is our Chief Operating Officer, who runs now and oversees all three of our business units. So Adam I think you're on the call, if you could respond to that for Robert.

Adam Havey, Chief Operating Officer

Sure. Thanks, Bob. Thanks, Robert, for the question. Just as a reminder, the chikungunya virus is transmitted by mosquitoes, similar to malaria and Zika. The disease can lead to both acute and chronic symptoms, somewhat akin to Lyme disease, which highlights the importance of vaccination. There is a significant unmet medical need in this area. Pre-pandemic, around 35 million unique travelers from the US traveled to chikungunya-endemic regions each year, which is about three times the number of those traveling for typhoid and significantly more than for diseases like cholera. We believe this presents a significant opportunity. We are developing our candidate using VLP technology, which we think can provide a strong immunological response, a good safety profile, and competitive advantages in the market. We are enthusiastic about this and eager to obtain the data to advance the product.

Robert Maltbie, Analyst

Thank you.

Bob Kramer, President and CEO

Thanks, Adam. Thanks, Robert.

Operator, Operator

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Robert Burrows.

Bob Burrows, Investor Relations Officer

Thank you, Charity. With that ladies and gentlemen, we now conclude the call. Thank you for your participation. Please note an archived version of today's webcast as well as a PDF version of the slides used during today's call will be available later today and accessible through the Investors landing page on the company website. Thanks everyone again for participating. We look forward to speaking with all of you in the future. Good night.

Operator, Operator

This concludes today's conference call. Thank you all for your participation. You may now disconnect.