Earnings Call Transcript
Emergent BioSolutions Inc. (EBS)
Earnings Call Transcript - EBS Q3 2016
Operator, Operator
Good day, ladies and gentlemen and welcome to the Q3 2016 Emergent BioSolutions Incorporated Earnings Conference Call. As a reminder, this conference call may be recorded. I would now like to turn the call over to the company for opening remarks. Please go ahead.
Bob Burrows, Vice President of Investor Relations
Thank you, Crystal, and good afternoon everyone. My name is Bob Burrows, Vice President of Investor Relations for Emergent. Thanks for joining us today as we discuss our financial and operational results for the third quarter and first nine months of 2016. 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 at that point. 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. 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 transparency regarding Emergent’s operating performance. Please refer to the tables found in today’s press release regarding our use of adjusted net income, EBITDA, and adjusted EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures. For the benefit of those who may be listening to the replay of the webcast, this call was held and recorded on November 07, 2016. Since then, Emergent may have made announcements related 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 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 home page 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?
Dan Abdun Nabi, President and Chief Executive Officer
Thank you, Bob. Good afternoon, everyone, and thank you for joining our call today. On today's call, I’ll give an overview of our third quarter financial results and highlight some of our recent business achievements. Following that, Bob Kramer will finish with a more detailed discussion of our financial performance. So let me start with our financial results for the quarter. As you can see by our press release earlier today, we reported total revenues from continuing operations of $143 million. Our GAAP net income from continuing operations was $20 million, and adjusted net income was $28 million. As stated in our press release today, we will continue to temporarily postpone our financial guidance for 2016 until our follow-on BioThrax procurement contract with the CDC is complete. We have made substantial progress in that regard and expect that contract to be completed in the coming weeks. Once completed, we will announce the terms of the contract. Now let me highlight a few of our key business and operational developments. First, let's start with our current 2011 BioThrax procurement contract. In September, we announced that the CDC exercised an option to purchase all of the remaining BioThrax doses under this contract. We are pleased to report that we have delivered the full 44.75 million doses to the CDC. Recently we also announced a new contract for NuThrax, our next-generation Anthrax Vaccine. This contract, with a five-year base period of performance valued at $200 million, provides for the advanced development and procurement of 2 million doses following emergency use authorization designation by the FDA. It also includes options for procuring 7.5 million to 50 million additional doses, as well as options for additional studies and post-marketing commitments. The total value of the NuThrax contract, if all options are exercised in full, is up to $1.6 billion. We see the BARDA contract and the anticipated CDC contract as defining the U.S. Government's evolving strategy in National Anthrax Preparedness. At BARDA, funds are allocated for the development of the next generation Anthrax Vaccine while the CDC continues to stockpile the current vaccine. Over the next five years, we expect to see a transition whereby procurement levels of NuThrax begin to rise following Emergency Use Authorization and levels of BioThrax will decrease. On the manufacturing side, the transition from Building 12 to Building 55 is now complete, with Building 55 fully operational, manufacturing BioThrax at a level sufficient to satisfy our anticipated CDC contract as well as international demand. This transition included a reduction in headcount to reflect the efficiencies of Building 55 operations against expected product demand. In 2017, we anticipate that Building 55 will be fully deployed both for the manufacture of BioThrax as well as supporting the development and validation of the NuThrax manufacturing process for the Phase III clinical trial. Finally, we’re evaluating how both Buildings 12 and 55 could be used to manufacture alternative countermeasures in order to fully utilize the capabilities of both facilities long term. Going forward, we will continue to focus on future growth opportunities in the CBRNE public health threats and emerging infectious diseases markets. We see these as globally expanding markets and are committed to remaining a leader for the U.S. and other governments in providing medical countermeasures for preparedness and response initiatives. We expect our growth to be driven by diversification of our product and revenue mix, both organically and through M&A, as well as the expansion of our customer base. That concludes my prepared comments, and I will now turn the call over to Bob Kramer for details on our financial performance. Bob?
Robert Kramer, Executive Vice President and Chief Financial Officer
Thank you, Dan, and good afternoon, everyone, and thank you for joining our call. To begin, let me first speak to the concept of financial reporting on continuing operations, which we’re using for the first time. As we reported on August 1st, we successfully completed the spinoff of our Biosciences business into a separately publicly traded company, Aptevo Therapeutics. As a result, we are required under GAAP principles to report our financial statements to reflect the fact that we no longer have these operations, which are treated as discontinued operations. These are reflected on the face of the P&L, and one line item titled 'Income (loss) from discontinued operations, net of tax' summarizes the financial results of the Aptevo operations. Importantly, in today’s press release, we provided the reconciliation of our statement of operations for both the quarter and year-to-date periods in 2016 that presents our financial results by line item across three columns: first, continuing operations; second, discontinued operations; and lastly, combined, which reflects our previous consolidated operations inclusive of Aptevo. Now, let me talk about our results for Q3 on a continuing operations basis. During the recent period, total revenues of $143 million were lower than Q3 of last year by $15 million. This was primarily due to lower BioThrax sales, which were impacted by the CDC’s decision not to commit to procuring all of the remaining doses under the 2011 contract until late in Q3, resulting in a portion of the planned Q3 deliveries being shipped in Q4. However, we realized incremental year-over-year growth in our contract manufacturing business, as well as a slight step up in contract and grant revenues, which partially offset the decrease in product sales revenue. Looking at the rest of the income statement, the fundamentals of the business remained very healthy. During the quarter, our gross margin was 64%, within our expected range of 60% to 70%. Net R&D costs continued to be managed carefully, to the point where during Q3 of 2016, our net R&D was fully funded continuing the favorable trend started three years ago following our decision to focus predominantly on non-diluted funding for our R&D efforts. SG&A expense of $41 million was measurably higher than the prior year period of $26 million. This unfavorable variance includes over $12 million of costs related to both the spinoff of Aptevo, as well as restructuring costs associated with the transition of BioThrax manufacturing from Building 12 to Building 55. The third-quarter restructuring costs included severance costs for the recently completed headcount reduction initiatives in Lansing, as well as the write-down of certain Building 12 fixed assets due to the transition of BioThrax manufacturing to the new facility. These transition costs were originally planned to be incurred in 2017. As Dan mentioned, this transition was largely completed in the fourth quarter. For the quarter, our effective tax rate was 39%, well above our historical range of 30%. This was largely attributable to one-time non-cash charges incurred to complete the Aptevo spinoff. Turning to the year-to-date performance, for the nine months of 2016, our business is performing well, as evidenced by the following: first, our gross margin of 61% is in line with expectations; second, our contract and grants revenue of $96 million exceeded our R&D cost for the period of $81 million. This net R&D result is $15 million better than the prior year’s nine-month result; third, while the SG&A spend of $108 million is $22 million above last year, over half of this increase is attributable to costs associated with planning and executing the Aptevo spinoff as well as costs incurred to transition BioThrax manufacturing to the new facility; and finally, the business generated $82 million of EBITDA during the first nine months, reflecting the ongoing strength of the core business. On the balance sheet, at quarter-end, our cash balance was $299 million, down from the second quarter balance of $328 million. The reduction in Q3 cash reflects the $45 million contributed to Aptevo as part of the spinoff, with the final cash contribution of $20 million expected to be paid to Aptevo in the first half of 2017 pursuant to the promissory note. Overall, our liquidity position remains very strong, and we continue to be well positioned to support our operations and strategic M&A initiatives. With the completion of the spinoff of Aptevo Therapeutics and our decision to focus on opportunities in the growing public health threat market, particularly those related to chemical, biological, radiological, nuclear, and explosives, it is imperative that our operational administrative costs be sized to support our growth in these specialized markets. We must enhance the utilization of our operating facilities to the fullest extent possible. We must also continue to carefully manage our portfolio of R&D projects by leveraging third-party funding while being open to making at-risk investments when we see long-term value. Finally, we intend to step up our efforts to manage SG&A costs to ensure that they support our operations and growth plans while being appropriately sized relative to our business footprint. Lastly, regarding 2016 guidance, we continue to defer reestablishing our guidance until the CDC final contract for BioThrax has been finalized, which, as Dan indicated earlier, is expected in the coming weeks. That concludes my prepared remarks, and I’ll now turn the call back over to the operator to begin the question-and-answer session.
Operator, Operator
Thank you. And our first question comes from Jessica Fye from JPMorgan Chase. Your line is now open.
Unidentified Analyst, Analyst
Hey guys, this is Ryan on for Jess. Appreciate you taking our questions. So I guess given the completed delivery of all the doses under the 2011 procurement contract, can you talk about the manufacturing of BioThrax? Are you doing fill/finish or is it just producing the API?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah. Thank you for participating, and thanks for the call. Our facility is in full operation, and it’s exceeding our expectations in terms of efficiency, and we are producing all the way through fill/finish. As I mentioned, production is really targeted towards meeting our expected contract with the CDC as well as any international demand. So yes, operations are ongoing and encompass fill/finish.
Unidentified Analyst, Analyst
Okay. Can you give us a little bit more color on the cadence of interactions with the FDA? Is this waiting for an official meeting or are there milestones that you need to complete before you finalize the contract?
Dan Abdun Nabi, President and Chief Executive Officer
So our interactions with the FDA are complete. The facility has now been licensed. Right now, what we do is produce and then submit for release as we’re licensed vaccine. We submit to the FDA for release on a lot-by-lot basis, so we’re in standard operating mode with the FDA.
Unidentified Analyst, Analyst
Hey, great. Thanks for taking the questions.
Operator, Operator
Thank you. Our next question comes from Keay Nakae from Chardan. Your line is open.
Keay Nakae, Analyst
Yeah, two questions. First, regarding the other product sales on the quarter, can you talk about the timing of that and where we should expect to see those moving forward with your government contracts?
Dan Abdun Nabi, President and Chief Executive Officer
So, we’re not sure that we understood that question. You’re saying with respect to other product sales in the quarter?
Keay Nakae, Analyst
Yeah, in other products?
Dan Abdun Nabi, President and Chief Executive Officer
And the question was?
Keay Nakae, Analyst
You made note in the press release that there was a timing issue regarding those sales?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, that’s typical lumpiness in terms of the delivery. There were BioThrax sales that were not delivered in Q3 that are being delivered in Q4, which is associated with the late exercise by the CDC of the final procurements. Additionally, some item revenue has been moved from 2016 to 2017, which also explains some variability in the other product sales. I hope this gives you a clearer perspective.
Keay Nakae, Analyst
Yeah, it was really about the other products outside of BioThrax, but regarding BioThrax, do you anticipate delivering product in Q4 under the new contract?
Dan Abdun Nabi, President and Chief Executive Officer
Yes, we have completed the delivery of the 44.75. As Bob mentioned, some of those doses moved into Q4 due to the late exercise by the CDC. Any additional deliveries that might be forthcoming under the CDC contract will be updated once that CDC contract is completed.
Keay Nakae, Analyst
Okay, thanks.
Dan Abdun Nabi, President and Chief Executive Officer
Sure.
Operator, Operator
Thank you. Our next question comes from David Maris from Wells Fargo. Your line is open.
Unidentified Analyst, Analyst
Hey everybody, it’s Brendan and for David. Thanks for taking the question. I have a couple, if you don't mind. With the timing of BioThrax, I remember last quarter you said there was about $120 million, $125 million remaining on the contract. You did $94 million this quarter; you said the rest of that goes into Q4. So my guess is that there's an extra $30 million then going into Q4 that we can count on. I know you're going not to provide a real timeline on the BioThrax. Another question really comes down to international demand. In the prepared remarks, it seems like there is a lot of talk of international opportunities and gearing up for manufacturing for international. It seems to be a bit of a departure from previous comments, could you maybe speak to that a bit more if possible? Thank you.
Dan Abdun Nabi, President and Chief Executive Officer
Sure. On the international demand side, I don't want to overstate; clearly, it’s part of our focus on a portfolio basis to ensure that we're addressing the requirements and needs of governments that are our existing customers as well as likely future customers. BioThrax is one of the many products that we do offer on a portfolio basis, so I don't want to give the impression that this is a significant market. The U.S. market clearly leads for BioThrax. However, we do anticipate modest orders, and historically, that has been the case; it has been very lumpy. But we hope to build those orders over time.
Robert Kramer, Executive Vice President and Chief Financial Officer
So Brendan, this is Bob. To your first observation or question, we have, as Dan indicated, completed all deliveries under the existing contract with the CDC for the 44.75 million doses. To the extent that there were pending or open shipments at the end of Q3, those have now been shipped, so that contract is complete.
Unidentified Analyst, Analyst
Yeah, we can assume that that number of about $122 million is still good from previous?
Robert Kramer, Executive Vice President and Chief Financial Officer
That’s correct.
Unidentified Analyst, Analyst
Okay. And then if I could also just add, could you provide any update with Ermahgerd and the RSDL products just to get some more color on the other Biode where those may be and if you're working on expanding capacity for Ermahgerd?
Dan Abdun Nabi, President and Chief Executive Officer
Yes, so there are a number of interesting opportunities that we're focused on with respect to Ermahgerd, and customer interest and demand has been significant. Adam, maybe you could just take a couple of minutes and walk through some of the things that we’re looking at with respect to that platform in terms of potentially driving growth over the coming year or two.
Adam Havey, Executive Vice President and President of BioDefense Division
Sure. As we've talked about before, Ermahgerd is a platform technology, and as we expand that manufacturing capacity, as Dan mentioned, we're seeing some additional demand in the ex-U.S. markets. I think the primary driver as we look at Ermahgerd moving forward is to partner with the U.S. Government and get an FDA license for the technology, particularly our lead product, which is a combination nerve agent antidote. We expect to see more activity internationally as we move into 2017, as well as some work with the U.S. Government in 2017. But I’m glad you brought it up because over the course of the coming years, we expect that Ermahgerd could significantly contribute to both top-line and bottom-line growth for the company.
Unidentified Analyst, Analyst
Okay, that's great. Thank you very much.
Dan Abdun Nabi, President and Chief Executive Officer
Sure.
Operator, Operator
Thank you. Our next question comes from Jim Molloy from Laidlaw. Your line is open.
Jim Molloy, Analyst
Hi, guys, thanks for taking my question. In SG&A and R&D these levels that sort of levels we are seeing currently; these are kind of the go-forward levels we should expect for the remainder of the year and in 2017 going forward? And then on contracts and grants fully front, on the R&D contracts and grants above the R&D, typically there is some more R&D there. What is that, I guess, now making money off the R&D that U.S. Governments sort of supplying you?
Robert Kramer, Executive Vice President and Chief Financial Officer
Yeah, Jim, this is Bob, thanks for joining the call and thanks for the questions. So in general, Jim, regarding your question on whether these are ongoing run rates for both SG&A and R&D that you should expect, I think you have to consider a couple of things. First of all, for 2016, there are a number of non-recurring costs associated with executing the spinoff of Aptevo, as well as some significant costs that were incurred in 2016 to implement the transition of manufacturing from Building 12 to Building 55, most of which were included in SG&A costs that will not be incurred going forward. So the run rate will not be as significant as implied by the year-to-date numbers. Secondly, in terms of the ratio of grants and contracts to R&D expense, the grant and contract revenue is driven by a number of factors, including how we recognize or are required to recognize revenue from those activities; so that is not as linear or as predictable as you might expect. I think going forward we will likely incur gross R&D expense, as well as some net R&D expense. How significant we will have to evaluate as soon as we get the CDC contract negotiated, and I think we will incorporate those thoughts into the 2017 guidance that we are prepared to give in early January.
Jim Molloy, Analyst
Okay, great. Thank you for that. And then on the international contracts, I guess you’ve touched on briefly, we’ve talked about in the past. Can you talk a little bit about the magnitude? Would it be half of your typical U.S. revenue, 10%, 5%? Do you guys have any idea on where that would be? And then I think in the final weeks of sort of the BioThrax contract, any indications on the size and duration?
Dan Abdun Nabi, President and Chief Executive Officer
I'm not sure I understood your question on the international side. Are you looking for 2016, or I’m not sure what you’re referring to in terms of the size?
Jim Molloy, Analyst
My apologies, last year BioThrax was $293 million; this year about $280 million. Perhaps is that can you sign a $280 million international contract? Or will it be more like a $10 million international contract?
Dan Abdun Nabi, President and Chief Executive Officer
No, I wouldn't think of it in those terms. These are modest orders, and again, we’re taking a portfolio approach because oftentimes customers have some interest in countermeasures for a broad portfolio of targets. So we think about it more in terms of the cross-functional needs of the customers; we aren’t simply targeting one product or another. So I don't think about it in terms of BioThrax orders and their significance. We’re looking at opportunities as an aggregate and how we drive that growth across the portfolio. There, I think we're making significant progress, and as time goes on, I believe we will continue to see increases. While they may be small, it’s a small base from which we're working, but nevertheless, we’re making real progress in driving those numbers. I'm not really ready to give you any specific forecasts other than the trend is in the right direction.
Operator, Operator
Thank you. Our next question comes from Joseph Cohen from Cowen & Company. Your line is open.
Unidentified Analyst, Analyst
Hi, this is Joe on for Eric. Thank you for taking my call. You’ve said a couple of things in the opening remarks; I'm curious if maybe you can elaborate a little bit. You’ve indicated that you are producing BioThrax and Building 55 in anticipation of the demand from the CDC going forward and that you anticipate BioThrax sales to taper as new product comes up. So can you maybe give us a little indication of how, I guess, like the rate that you're producing in anticipation quarter-to-quarter and how you anticipate this looking over the five-year contract coming up?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, so again I think on the contract side, once we have definitive terms, then we'll be able to answer that question more clearly and correctly. But your general observation about the government’s interest in the transition to NuThrax is important for people to understand, and I think it came through in our NuThrax press release. I hope in our comments today. The target goal here is for the government to get to NuThrax because of all the benefits it provides. It’s a two-dose product versus a one-dose product, so the timelines to production and the number of doses that need to be stored in the stock to protect the target population are reduced as well. So there is a real incentive for the government to migrate to NuThrax for all the benefits it provides. Right now, I need to target that around 2019 for the timeline to secure emergency use authorization, and begin that transition; this is part of the government’s planning process and part of what we’re integrating in terms of how we think about the manufacturing.
Unidentified Analyst, Analyst
Great, thank you. And then more, can you update us on the Building 55 approval process in Germany? I think it was previously anticipated by year-end; is there any update on that?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, great question. Thanks for asking. We have submitted all the documents required, so it’s now with the regulators. The timing of their decision is really outside of our control. But we’ve completed what was expected of us.
Unidentified Analyst, Analyst
Okay, great. Thanks for taking my questions.
Operator, Operator
Thank you. Our next question comes from Lisa Springer from Singular Research. Your line is open.
Lisa Springer, Analyst
Thank you. Did I understand correctly that there is going to be a similar transition cost for the move to Building 55 recognized in the fourth quarter?
Dan Abdun Nabi, President and Chief Executive Officer
I think, Lisa, thanks for the call. The transition costs for moving from Building 12 to 55 are essentially complete.
Lisa Springer, Analyst
Okay.
Dan Abdun Nabi, President and Chief Executive Officer
There may be some minor, insignificant costs left for there; they've been incurred and there will not be any meaningful cost going forward.
Lisa Springer, Analyst
Okay. Thank you.
Operator, Operator
Thank you. Our next question comes from Gregory Macosko from Montrose Advisors. Your line is open.
Gregory Macosko, Analyst
Yes, thank you. I’d just like a question to understand when you made the transition and the spinout of Aptevo. You talked about a $40 million to $50 million EBITDA change difference there. Is that adjusted or is that in straight EBITDA guidance you gave?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, thanks for the question. That was not adjusted, just to be really clear, that number of $40 million or the range of $40 million to $50 million of EBITDA pickup as a result of the execution of the spin was our best guess almost a year and a half ago based on what would have happened in calendar year 2014 if the spin had been executed on January 1, 2014, for the entire calendar year. It was comprised of the fact that there would be some revenue-generating products and profit contributions from those products that would be part of Aptevo. It was also in recognition that there was a significant R&D expense that would be avoided by Emergent going forward because it would be part of Aptevo Therapeutics. So that $40 million to $50 million range was not adjusted, but it is really based on what would have happened in calendar year 2014.
Gregory Macosko, Analyst
I see. Okay. And then next, have you completed any of the buyback you announced for the $50 million? Was there any update on that?
Dan Abdun Nabi, President and Chief Executive Officer
We have not initiated any buyback activity under the plan that we communicated earlier this year. The primary reason is that due to the prolonged contract negotiations with the CDC, we have been unable to put a 10b5-1 plan in place, and as such, there has been no activity.
Gregory Macosko, Analyst
Okay, yes. I should have thought of that. Thank you very much.
Operator, Operator
Thank you. And we do have a follow-up from David Maris from Wells Fargo. Your line is open.
David Maris, Analyst
Hey guys, it's me again. I’m just wondering if you could provide any information about the capacity utilization at Building 55. Is that running at full utilization right now or about just...?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, thanks for the question. So going into 2017, we anticipate that Building 55 will be fully utilized both for BioThrax manufacturing and for NuThrax manufacturing under our BARDA contracts, supporting ongoing deliveries to the U.S. government for the Strategic National Stockpile. NuThrax manufacturing would be in support of the consistency you have in the manufacturing development towards the Phase III clinical trials that will be conducted following the successful completion of that manufacturing. So for 2017, it is fully utilized.
David Maris, Analyst
Okay. Any update on potential acquisitions? I know you mentioned in the prepared remarks looking at diversifying the portfolio in organic opportunities and an update on the potential timeline you can provide?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, thanks for the question. So M&A does remain a key component of our strategic growth plan. We do see a number of very interesting and attractive targets for the areas that we are focused on, that’s CBRNE, EID, as well as emerging infectious diseases. So that does remain a target for us, and we’re very active. I’m not going to put a timeline out there, but it is something that we are committed to as a driver of our growth strategy going forward. Remember, the targets that we’re looking at are not only in this space, but they are intended to generate revenue and contribute to the bottom line within 12 months following the acquisition. So we really are targeting things that can drive our top-line and bottom-line growth. Importantly, we are also looking at opportunities that have the potential for dual-use; that is, not only government stockpiling or procurement, even if it’s not stockpiling, but also have some commercial viability to a broader customer base.
David Maris, Analyst
Okay. And then if I may just ask one more; you also mentioned in that same prepared remark about organic opportunities and doing some at-risk R&D investment. Any timeline there; anything that’s started off? It looks like from the R&D spend during the quarter that wouldn’t be the case, but maybe just some more commentary on that would be helpful?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, sure. On the organic side, Ermahgerd has already come up as a growth opportunity for us. We see continued investments in that platform to address customer needs as being suitable and actually very well justified in light of market demand and interest for the product. RSDL is also broadening the label for that to extend our customer base. Our high premium platform does have real applications beyond the products that are currently licensed. We’re looking at target opportunities there. Across those two like there, I think we have a number of directions we can take to expand and grow both the top-line and bottom-line. Those would justify some R&D investment.
David Maris, Analyst
Any timing on Ermahgerd as far as Department of Defense or anything new orders there?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah, nothing that we’re prepared to share at this point. Please stay tuned, because it’s an area of focus for the company.
David Maris, Analyst
Great. Thank you very much. Thanks for taking all the questions.
Dan Abdun Nabi, President and Chief Executive Officer
Sure.
Operator, Operator
Thank you. And we do have a follow-up from Gregory Macosko from Montrose Advisors. Your line is open.
Gregory Macosko, Analyst
Yeah. Just one brief question with regard to Zika. You mentioned that on the last call; I just wondered if there, you said that you were the only government contract relative to Zika. Could you give us any update on that?
Dan Abdun Nabi, President and Chief Executive Officer
Yeah. So the Zika work in ADM facility continues, and you might recall this was a vaccine candidate that we bought in. Adam, maybe you could give a little color on where we stand there and what the open expectation is there.
Adam Havey, Executive Vice President and President of BioDefense Division
Yes, as we mentioned, we are part of our ADM advanced development manufacturing program with the government. So there's a task order that was initiated and we signed to develop and manufacture a vaccine candidate for Zika, and we're in the process of doing that process development and manufacturing work with the idea of progressing that down the road into some clinical studies. So we're moving that forward in partnership with the government.
Gregory Macosko, Analyst
And would that be funded R&D?
Adam Havey, Executive Vice President and President of BioDefense Division
Yes, that would be right now.
Gregory Macosko, Analyst
Okay, good. Thank you.
Operator, Operator
Thank you. And I'm showing no further questions from our phone lines. I would now like to turn the conference back over to Bob Burrows for any closing remarks.
Bob Burrows, Vice President of Investor Relations
Thank you, Crystal, and with that, ladies and gentlemen, we now conclude the call and thank you for your participation. Please note that an archive version of the webcast of today's call will be available later today and accessible through the company website. Thank you again, and we look forward to speaking with all of you in the future. Goodbye.
Operator, Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.