Emergent BioSolutions Inc., Q2 2009 Earnings Call Transcript

Aug. 6.09 | About: Emergent BioSolutions (EBS)

Emergent BioSolutions Inc., (NYSE:EBS)

Q2 2009 Earnings Call

August 6, 2009 5:00 pm ET

Executives

Robert G. Burrows - Vice President, Investor Relations

Fuad El-Hibri - Chairman of the Board, Chief Executive Officer

R. Don Elsey - Chief Financial Officer

Daniel J. Abdun-Nabi - President, Chief Operating Officer

W. James Jackson, Ph.D. - Senior Vice President and Chief Scientific Officer

Analysts

Eric Schmidt - Cowen & Company

David Moskowitz - Caris & Company

Mona Ashiya - J.P. Morgan

Sean Long – Kennedy Capital Management

Operator

Welcome to the Emergent BioSolutions Incorporated second quarter 2009 financial results conference call. (Operator Instructions) I would now like to turn the call over to Mr. Robert Burrows.

Robert Burrows

Good afternoon ladies and gentlemen. My name is Robert Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today as we discuss Emergent BioSolutions financial results for the second quarter and first six months of 2009. As is customary, our call today is open to all participants. In addition, the call is being recorded and is copyrighted by Emergent BioSolutions.

Joining me on the call this afternoon will be Fuad El-Hibri, Chairman and Chief Executive Officer, and Don Elsey, Chief Financial Officer. Additional members of our senior management team will be present on the call for purposes of the Q&A session.

Before we begin, however, I am compelled to remind everyone that during the all management may make projections and other forward-looking statements regarding future events and the company’s 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.

You are encouraged to review Emergent’s 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.

For the benefit of those who may be listening to the replay, this call is held and recorded on August 6, 2009. 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 the information in today’s press release or as presented on this call except as maybe required by applicable laws or regulations. Today’s press release may be found on our website at www.emergentbiosolutions.com under Investors/Press Release.

With that brief introduction, I would now like to turn the call over to Fuad El-Hibri, Emergent’s Chairman and CEO.

Fuad El-Hibri

Good afternoon ladies and gentlemen. We appreciate your participation on this call. Today, we announced two important items. First, we reported financial results for the second quarter and first 6 months of 2009. Let me tell you that I’m very pleased with Emergent’s overall performance year to date. We have delivered strong sales and earnings results while we continue to invest in our product pipeline. We remain on the path to achieving our financial and product development goals for the year.

Second, we announced a series of real estate transactions that expand our manufacturing and development infrastructure. In addition the strategic implication, these transactions should reduce our total debt and annual interest and operating expenses. In addition, I would like to provide a brief update on selected aspects of our business.

To begin, let me update you on our biodefense franchise. Specifically, I’d like to address our ongoing core BioThrax business and our combinant anthrax vaccine opportunity. First, BioThrax. As you know, BioThrax is the only FDA license vaccine for the prevention of anthrax disease. We’re currently manufacturing and delivering doses of BioThrax to the strategic national stockpile. In fact, we recently completed deliveries under a multi-year contract for 18.75 million doses valued at $448 million. As a result and without interruption, we have begun to manufacture product under our existing follow-on contract. As a reminder, this contract calls for the delivery of an additional 14.5 million doses of BioThrax valued at $405 million over the next two years.

Beyond the follow-on contract, we expect that the US government will continue to procure BioThrax for the strategic national stockpile.

In addition to domestic sales, we’re addressing continuing demand for BioThrax worldwide. Earlier this year, we announced that BioThrax received market authorization in India. Since then, we’ve been marketing BioThrax to the central and local government entities in India. This development in parallel with similar efforts in other foreign jurisdictions is intended to achieve greater market penetration of BioThrax outside the US.

Turning now the various BioThrax enhancement efforts that are currently underway, first we announced that FDA approved 4-year dating for BioThrax triggering a $30 million lumpsum payment from HHS. This payment reflects the price premium for achieving extended dating under the current contract. More recently, we completed deliveries under the current contract and expect to the paid the remaining $4 million premium related to these deliveries.

Four-year dating has also resulted in premium pricing under the follow-on contract. Furthermore, 4-year dating provides BioThrax another competitive advantage for stockpiling purposes.

Earlier this year, we also announced that FDA approved an IM route of administration and a reduction to a 5-dose schedule over 18 months. This license amendment was supported by an interim analysis of data generated by clinical trial funded by CDC. This trial is designed to support a reduction in the dosing schedule to as few as three doses over 6 months. Recently, CDC completed the study and is expected to release a final study report by the end of the year.

Finally, we continue to pursue an expansion of the BioThrax label to include post exposure indication. This multi-year development initiative is funded by BARDA. As you can see, we continue to enhance our flagship product with multiple initiative designs to meet growing government needs.

Next, I would like to update you on the RPA opportunity. As you know, last year we acquired an advanced recombinant Anthrax vaccine candidate. We responded to an HHS RFP to develop and deliver up to 25 million doses of RPA, and we entered into contract negotiations with BARDA regarding an award. If awarded, the contract is anticipated to have a value in excess of $500 million and a term of up to 8 years.

Recently, HHS amended the solicitation requiring bidders to submit a comprehensive regulatory plan to the FDA by June 15th. We submitted our regulatory plan ahead of the required deadline. Then in early June, we had a productive in-person meeting with the FDA in which they provided with feedback on our regulatory strategy. We are pleased with this feedback, and this meeting reassured us of the appropriateness of our regulatory strategy. We remain in constructive discussions with BARDA regarding the terms of our proposed contract.

Although BARDA has not specified a revised timetable for an award, we remain confident that our proposal will be responsive, and we expect to receive an award this year. As you know, the timing these award depends on internal government processes. With that said, BARDA continues to advise us that they remain committed to this award.

Turning to our commercial pipeline, I would like to update you on our lead program, our TB candidate. Last year, we announced the formation of a joint venture between Emergent and University of Oxford to develop the world’s most clinically advanced vaccine to prevent TB, and I’m excited to informed you that we recently began dosing patients in a phase II-B efficacy trial in South Africa which is funded by the Wellcome Trust and the Aeras Global TB Vaccine Foundation. The trial is expected to include over 2700 infants and to last approximately 2 years. So far, we have enrolled over 300 infants.

In terms of market opportunity, TB is a truly global epidemic. It is the world’s second leading cause of death from infectious disease in adults after HIV. According to a recent WHO report, over one-third of the world’s population is latently infected and approximately 1.7 million people die of TB every year. Over 140 countries in the world including countries in Europe and Asia continue to vaccinate infants, adolescents, and adults with BCG—the only available vaccine against TB today. However, BCG provides only variable protection against pulmonary TB and is not effective in adults.

Our TB candidate is a recombinant vaccine and is intended to augment the immune response to individuals previously immunized by BCG. More recently, it is estimated that BCG is administered to over 70 million infants annually, in both the developing and developed world, including Europe, India, and China, and is routinely given to adult patients with respiratory TB. If proven to be safe and effective, our TB vaccine could address the sizable unmet global need with potential annual requirements approaching 100 million doses across all age groups.

Finally, given the continued emergence of drug-resistant strains of TB and the variable efficacy of BCG, medical experts have identified a need for new immunization strategy, which our TB vaccine candidate would address.

Moving on, I would like to update you on the status of our manufacturing infrastructure. To begin, Building 12. This is our current manufacturing facility in Lansing, which produces between 7 and 8 million doses of BioThrax annually. It is running at full capacity.

Next is Building 55. As you know, Building 55 is our new large scale manufacturing facility in Lansing. In connection with our ongoing negotiations with HHS for the RPA contract, we continue to conduct pre-award activities for the development and manufacturing of RPA in this facility.

Next, the new manufacturing in Maryland is part of our strategy to expand our manufacturing infrastructure and increase the flexibility of how we utilize our manufacturing assets. We are acquiring a large scale facility that includes several suites suitable for CGMP manufacturing of multiple products as well as space for process development and administrative functions. This facility was previously occupied by a reputable CMO which used the site to manufacture a number of licensed products.

In conjunction with this acquisition, we have positioned for sale one of the two facilities we own in Frederick. Quite simply, we are in the process of selling an unimproved facility in Frederick and using the proceeds to acquire another facility in Maryland that is suitable for CGMP manufacturing within a timeframe and at a cost that should be significantly below what would be required to build out our Frederick facility. In terms of immediate cash impact to the company the exchange of these two facilities should be neutral.

From a strategic perspective, the new Maryland manufacturing facility broadens our options. Specifically; this facility should enable us to offer to the US government another site wherein RPA manufacturing could be accomplished. This could free up building 55 in Lansing for five track scale up. Regardless of where we eventually manufacture RPA, the introduction of the new Maryland facility into our overall manufacturing infrastructure should create greater flexibility and position us well to build value from our manufacturing assets in a more timely fashion and at a lower cost.

Lastly, the Gaithersburg laboratory facility: As part of our strategy to expand our product development infrastructure, we are in negotiations to acquire a suitable laboratory facility in Gaithersburg that includes space for product development, process development, asset development, and administrative functions. In conjunction with this acquisition, we have positioned for sale the second of the two facilities that we own in Frederick. Here again, we’re in the process of selling the other unimproved facility in Frederick and using the proceeds to acquire a new laboratory facility in Gaithersburg that is suitable for our growing product development programs.

In terms of immediate cash impact to the company, the exchange of these two facilities should actually be positive. Bottomline, the exchange of the Frederick facilities we currently for both the Maryland manufacturing facility and the Gaithersburg should in aggregate be cash positive and should result in savings for the company including a reduction in our total debt and annual interest and operating expense.

Lastly, let me comment on our 2009 forecast. We are reaffirming our forecast for total revenues of approximately $225 million to $240 million and net income in excess of $20 million. Let me remind you that this forecast has always included the impact of the full $34 million price premium for 4-year dating and does not reflect any financial impact from an RPA award, and furthermore let me point out that with or without an RPA award this year, our core business remains strong and our reaffirmed guidance represents significant revenue growth over last year.

That concludes my prepared comments, and I will now turn it over to Don who will take you through the numbers in greater detail.

Don Elsey

As Fuad mentioned, following the close of the markets today, we released our financial results for the second quarter of 2009. I encourage everyone to take a look at the press release which is currently available on our website. We plan to file our quarterly report on Form Q with the SEC by the close of business tomorrow, Friday, August 7, 2009. The 10-Q filed will also be available on our website. Now let me discuss the financial results.

The second quarter was a very strong quarter for our company. Our product sales came in at $69.3 million, which is an increase of 64% over Q2 2008. The growth in sales quarter over quarter was driven by the achievement of 4-year dating for BioThrax which as Fuad mentioned triggered a lump sum payment from HHS. Product sales for the first half of 2009 were $131 million which is an increase of 56% over the first half of 2008.

Contracts and grants revenues were $3.9 million versus $1.2 million in Q2 2008, and for the first half of 2009, it was $6.7 million compared to $2.4 million in the first half of 2008. The growth in contracts and grants revenues is a reflection of the impact of contracts we received from BARDA and NIAID in September 2008 as well as the continuation of work under earlier government contracts and grants.

Our gross profit on product sales was 85% for Q2 2009 and 80% for the first half of 2009. Our gross profit margins for the second quarter and first half were positively impacted by the payment for 4-year dating. If that impact is removed, the margins for these two periods are generally consistent with historic trends.

With respect to R&D spending, we continue to advance the development of our product pipeline with activities including enhancements to BioThrax, pre-award work on RPA, and the initiation of the phase II-B trial for our tuberculosis candidate. For the second quarter of 2009, development spending was $20.7 million which was an increase of $3.5 million or 20% over the second quarter of 2008. For the first half of 2009, R&D spending was $36.6 million, an increase of $7.9 million or 28% over the same period in 2008.

With respect to G&A spending, in the latest quarter, our SG&A spending was $19.4 million, an increase of $4.3 million or 29% over the second quarter of 2008. This spending includes a non-cash charge of $3.8 million for the write-off of engineering expenses associated with our Frederick Maryland facilities which as you now know we are in the process of selling.

For the first half of 2009, the SG&A spending was $35.3 million, an increase of $8.3 million or 30% over the first half of 2008. Again, this spending includes a non-cash charge of $3.8 million for the write-off of engineering expenses associated with our Frederick facilities as well as the reclassification of previously capitalized deal expenses of $1.4 million.

Our bottomline net income for the quarter was $14.8 million, or $0.49 per basic share, compared to $1.8 million or $0.06 per basic share for Q2 2008. For the first half of 2009, net income was $26 million or $0.86 per basis share compared to $8.8 million or $0.30 per basic share for the first half of 2008.

Turning now to the balance sheet, as of June 30th, the most notable items were cash and accounts receivable. Our balance of cash and cash equivalents was $102.5 million, and our accounts receivable balance was $55.4 million. The majority of the AR balance was received early in Q3.

In the balance sheet accounts, you will see the classification of the Frederick facilities as assets held for sale and the classification of our bank loans associated with these facilities as current debt. As Fuad outlined, we are essentially using the proceeds of the sale of the Frederick facilities to fund the purchase of a manufacturing facility and a laboratory facility. When these transactions are closed, which we expect to occur in the next 90 days, we would expect a cumulative transaction effect to be essentially cash neutral. We will close out our current bank loans associated with the Frederick facilities and establish new loans appropriate for the new facilities. I anticipate that we will be able to provide more complete details on these transactions during our Q3 conference call if not before.

Finally, as Fuad stated, we are reaffirming our 2009 financial guidance. As we have discussed in previous earnings calls, I would like to remind our participants today that our product revenues and in turn our net income will fluctuate from quarter to quarter. Despite a pre-established target delivery schedule, our shipments to the government each quarter can vary significantly based on certain factors including manufacturing yield, product release, and strategic national stockpile logistics. We expect that this variability will continue on a quarterly basis, but will be relatively predictable on an annual basis.

In conclusion, our financial performances reported today position us well to achieve our objectives for year over year revenue growth and year end profitability. We believe that the actions we have taken during the first half of 2009 on all fronts improves our position in both the biodefense and commercial markets to respond to the government’s requirements and to effectively and efficiently bring our product candidates through the regulatory process.

That concludes my prepared comments. I will now turn the call over to the operator so that we can begin the question and answer portion of the call.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Mona Ashiya - J.P. Morgan.

Mona Ashiya - J.P. Morgan

On the new manufacturing infrastructure, I’m wondering what kind of time frame you are looking at to get the Maryland facility up and running if you use this for RPA and also what sort of capacity this facility has and also what level of investment it would take beyond the actual purchase to get it ready for manufacturing.

Fuad El-Hibri

There are several questions you’ve just posed. Now let me try to answer them one by one. First, we do believe that the new facility in Maryland is suitable for RPA manufacturing and as I mentioned earlier, this facility did produce licensed products before. We are in the process of evaluating each of the suites and their suitability for the RPA manufacturing requirement. We’re not at a stage right now where we can share with you or anyone else the scope of the costs to make that suite 100% compatible for the manufacturing process.

Mona Ashiya - J.P. Morgan

Can you say what kind of capacity?

Fuad El-Hibri

It can generate the same type of capacity as Building 55 would.

Mona Ashiya - J.P. Morgan

Actually that fits nicely into my next question which is on the status of Building 55. My impression was that the qualification and validation that was needed to use this facility for BioThrax was suspended when you thought the facility could be used for RPA so I was wondering if you wanted to use this facility now for BioThrax, what kind of time frame are you looking at get it set up again to use for BioThrax manufacturing again?

Fuad El-Hibri

Yes, that’s a very good question Mona because one of the reasons why we looked at another facility was exactly that we wanted to have an opportunity not only to produce RPA but also continue the scale-up of BioThrax. So with this new facility, assuming the government agrees with our plan we may be able to achieve both. The question as to timing will depend on the plan that we agree with the government and the timing of the award, but one thing I can tell you is that the moment the government has agreed that we can use this alternative facility for RPA manufacturing we would resume the scale-up activities of BioThrax.

Mona Ashiya - J.P. Morgan

In your press release, it looks like there’s a higher cost per dose because of a lower production yield for the quarter for BioThrax and I was just wondering if this was a one-off issue for the quarter or is this something that you see persisting for the rest of the year?

Don Elsey

We’re really looking at this as a one time event. As you’re well familiar the biological yields can certainly fluctuate and, as you probably know, doses we’re delivering in Q2 began their manufacturing in 2008, so that was really the function of some of the manufacturing back in 2008 manifesting itself in Q2. So we don’t expect that to continue on.

Operator

Your next question comes from the line of Eric Schmidt - Cowen & Company.

Eric Schmidt - Cowen & Company

Fuad, did I hear you right that you are now expecting to receive the RPA contract this year?

Fuad El-Hibri

Yes

Eric Schmidt - Cowen & Company

I think that’s a change in tone if not absolute content from your previous guidance of maybe late this year or early next. Could you tell us about what has changed in your discussions?

Fuad El-Hibri

With the change in administration earlier this year when we saw that there were some delays in the process, we wanted to hedge and we really didn’t know whether this was a short-term delay or on that brings us into next year. What we’ve seen in the last three to six months is continued step by step engagement by the government, and we’ve gone through the FDA meeting process, we’ve had several discussions with BARDA. It really does seem that they remain committed and that they want to move this forward as quickly as possible. Now I always hedge this because the government sometimes has priorities that may shift so it could still be that this thing might take a little longer, but the signals we’ve received so far and they’ve been reaffirming themselves from month to month are very positive that they’re committed to the process, committed to letting out two awards for RPA, and right now from what I can see, I’m quite optimistic.

Eric Schmidt - Cowen & Company

And if that happens this year would that be toward the very end of the year or could it be soon?

Fuad El-Hibri

Now we’re becoming real granular, and I’ve already kind of put my neck out there deciding whether it’s this year or next and I feel that there’s a good chance it’s going to happen this year, but to the month I can’t tell you. The good news is that there are only 4-5 more months left this year, and so it’s going to be reasonably short in term.

Eric Schmidt - Cowen & Company

I guess your waiting on this contract in terms of determining what you might be doing with Building 55 versus what you might be doing with your newly acquired facilities in Maryland. What’s actually going on in Building 55 right now? Is it just kind of sitting without any progress or are you behind the scenes getting prepared to potentially make either a validated process for BioThrax or RPA in Building 55?

Fuad El-Hibri

I’m glad you asked that Eric because I want to clarify that. As we previously announced, we had ceased the continued scale-up exercise with BioThrax in favor of the pre-award activities of RPA because we did position as we previously announced building 55 which is one of our great assets as an integral part of our bid for this award, but with this new acquisition in Maryland, we are engaged in discussions with the government to see if we could use that new facility to free up building 55 so that we could continue our BioThrax scale-up, and that has always been a point where people have asked me and said could you do both in building 55, and the answer was no. It’s a campaignable facility which means we could do several products, but not simultaneously. We can do that sequentially with the proper changeover protocols. Now, with this new manufacturing facility, we may be in a position to commit to the government that we could do both—RPA as well as continue our scale-up activities in building 55.

Eric Schmidt - Cowen & Company

But as of today, Fuad, there has been no switch back to BioThrax?

Fuad El-Hibri

No. As of today, we continue to conduct RPA work as far as pre-award activities are concerned.

Eric Schmidt - Cowen & Company

For Don, the $30 million you received in lumpsum, I guess you have $4 million left. Was that in receivables at the end of the quarter, or where is that?

Don Elsey

Basically we got a $30 million lumpsum payment for doses that had been delivered up until the second quarter of 2009. There was some additional premium price booked as revenue on doses that shipped within Q2 2009, but after the award of 4-year dating, and then the balance of the premium, if you will, associated in the current contract will be experienced in Q3.

Eric Schmidt - Cowen & Company

On the manufacturing facility sale and purchase of the new facilities, are all the prices negotiated?

Don Elsey

We had entered into commitment agreements on the sale of the Frederick facility and on the manufacturing facility. I’m not at liberty at this point in time to disclose the dollar arrangements or any of the other details.

Eric Schmidt - Cowen & Company

What’s the update on the Protein Sciences situation?

Fuad El-Hibri

As you know, the Protein Sciences matter is still in litigation, and we’re not in a position to give you much more detail than that. I will remind you that we did lend PSC $10 million last year in connection with a planned purchase of the PSC assets which fell through, and after a long period of an effort to collect under this loan in late June, we and several other PSC creditors filed a bankruptcy petition against PSC in federal court in Delaware, and the trial is currently scheduled for August 28th, and all I can tell you is that we remain confident that through the bankruptcy process we will either be repaid or we’ll recover fair value for our loan.

Operator

Your next question comes from the line of David Moskowitz - Caris & Company.

David Moskowitz - Caris & Company

You guys have put up $24 million of net income in the first half of the year, and yet your guidance is unchanged at more than $20 million, so I have to believe that there are investors out there that are going to be frustrated with that. It almost implies that there is a loss coming in the back half of the year. I know you guys talked about the seasonality. Are you guys expecting to lose money in the quarters going forward?

Don Elsey

As you know, we don’t give guidance on a quarterly basis. We give guidance on an annual basis, and we’re going to stick with that. Regarding seasonality, I’d prefer to just say the variability with regards to how income flows from government shipments, what we normally is as we plan our R&D and SG&A spending which is going to be in line with programs that we support, quite often that is occurring ratably through the year, when in fact the revenue streams from the government can be extremely skewed to one end or the other, and so we will focus on the management of the financials for the annual and not so much on a quarter by quarter basis. With respect to taking a look at models and mathematically determining what might occur in the second half of the year, I think you can extrapolate out to your models through the guidance that we’ve given for the annual basis.

David Moskowitz - Caris & Company

Let me try to ask it in a different way. Is there anything in the back half of the year that we should expect may not run at normal levels? I recognize you mentioned the volatility in the quarters. It looks like you had a pretty low level of BioThrax sales this quarter because of the plant shutdown in Q2. $30 million if you take out the HHS payment, so my estimation based on taking 7.5 million doses and multiplying it by the current price is somewhere in that high $30 to mid $40 level for the quarter, so that’s sort of the product revenue side, and then SG&A and R&D you mentioned had some one-time non-cash charges in those, so let me wrap this all together and say is there something that we really should be expecting in the back half of the year whereby you’re not going to see roughly $80 to $85 million of BioThrax sales and/or you’re going to see some anomaly in the operating expense line to really throw numbers off?

Don Elsey

I don’t think there is anything that we haven’t previously discussed and given the guidance on $225 to $240 on the top line and $131 million delivered to date. Certainly, mathematically you can derive what’s going to be experienced over the next couple of quarters. As in years past, as we take a look at how we spend the SG&A and R&D, it’s usually fairly ratable over the year, and there’s nothing extraordinary that’s going to be coming in from that perspective, remembering that the $225 to $240 is made up of both the product sales revenues and the contracts and grants revenue and the $34 million lump sum premium.

David Moskowitz - Caris & Company

I’m following all that, and that actually meets the criteria of the model that I’m looking at, so it doesn’t look like there anything unusual. If you hit the low end, then I understand, so just hitting the cost side, to try and wrap this up, in the first quarter you were running about $16 million in SG&A, you had $3 and change in the second quarter. Do you go back down to that level?

Don Elsey

Again, we don’t give guidance on each individual line item, David, but again we spend fairly ratably through the year, and the only thing that I would toss out there is what is all unusual is we had a couple of non-cash charges in the first part of the year. We’ve got a litigation with PSC which is certainly going to drive some spending—exactly how much remains to be seen, but above and beyond that I think that’s as far as I can go with the guidance on the individual line items.

Fuad El-Hibri

Just to add to what Don said, even though our G&A spend is more or less ratably during the year as certain clinical trials start and others end, so there is a little bit more of a variation from quarter to quarter. We’re not just a biodefense BioThrax sales company. We’re developing a pipeline both in biodefense and commercial segment that we are reinvesting to advance and reap the benefits sometime in the future.

David Moskowitz - Caris & Company

If I can quickly dig down to that PSC litigation, I know you don’t want to give straight numbers but are we talking in the $1 to $2 million level or it could be just be multiple millions of dollars?

Don Elsey

Really can’t say at this point. We are number one not ready to or prepared to publicly disclose the amount, but it won’t break the bank, and certainly depends on the length of the proceeding. If this was quickly resolved, it’s one number, and if it goes on for a protracted amount of time, it’s certainly a different number.

David Moskowitz - Caris & Company

On the Building 55, you guys talk about if there is that scenario where you able to shift to the Maryland building after the RPA contract, how long would it take before you actually had salable BioThrax product coming out of Building 55?

Fuad El-Hibri

Well, we previously discussed this. We need to complete our process validation of the scale-up product, then we may or may not need to do a bridging study clinically, so we didn’t give any timeframe, but it’s going to take several years.

Operator

The next question comes from the line of Sean Long – Kennedy Capital Management.

Sean Long – Kennedy Capital Management

I was wondering if you had a BioThrax cost per dose on hand for this quarter.

Don Elsey

We have not traditionally published or shared publicly the cost per dose for BioThrax. We have within the context of the contracts that we’ve been awarded, certainly we talk about the total number of doses and the total value of the contracts, and you can derive a price per dose. Within the context of the publicly published financial statements, you can determine the gross profit over a certain amount of time and back into a cost per dose but that’s not something that we share publicly.

Operator

Your next question comes from the line of David Moskowitz - Caris & Company

David Moskowitz - Caris & Company

Could you talk about the US BioThrax sales that we might expect this year? I remember writing the report we talked about 5% of your sales coming from OUS. Is there a potential for you to be better than that this year?

Don Elsey

If I have difficulty predicting the timeframe with the US government, I can tell you I have much larger challenges in predicting other governments. All I can tell you is that there is continuing demand. Of course, the regulatory questions in some countries like in India, we had to achieve regulatory approval before the government would be seriously considering a purchase. We’re happy to have announced that we’ve achieved it there. We have several other regulatory submissions we’re pursuing and making progress there. The international markets take a little longer and are very hard to predict in terms of annual sales, but if you look along a 3- to 5-year horizon, I feel quite confident that we will have growing international sales.

David Moskowitz - Caris & Company

If I could get a little bit of a handle on the cash differential that you might expect, the debt repayment that you might be able to engage in by swapping the facilities and perhaps the interest expense saved. Any color you can put around that?

Don Elsey

What I can tell you is what I anticipate is a modest reduction. Clearly, we haven’t finalized the financing for all the locations and taken a look at what that all nets out to be because it’s going to, as we’ve said before, it takes 60 to 90 days to close these transactions, but I would expect with regards to the real estate debt that it would be a modest reduction. It’s not a 50% reduction.

Operator

This concludes the question and answer session for today’s call. I would now like to turn the call back over to Mr. Robert Burrows for closing remarks.

Robert Burrows

That concludes today’s call.

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