Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Emergent BioSolutions Inc. (NYSE:EBS)

30th Annual J.P. Morgan Healthcare Conference

January 10, 2012 2:00 PM EST

Executives

Daniel Abdun-Nabi – President & Chief Operating Officer

Analysts

Matthew Lowe – JP Morgan

Matthew Lowe – JP Morgan

Hi there and welcome. I’m Matt Lowe of JP Morgan. Our next company to present is Emergent BioSolutions. Presenting will be Daniel Abdun-Nabi, the COO. If you could please turn your cellphones off. The breakout will be in the Sussex room and I’ll hand over to Dan. Thanks.

Daniel Abdun-Nabi

Thank you, Matthew. Good morning Ladies and Gentlemen and thank you for joining the presentation this morning and thank you for the invitation to present. We really do appreciate that.

It is my distinct pleasure to present business overview for Emergent Biosolutions. Before I begin let me remind you I will be making forward-looking statements in the course of this presentation. Those statements are subject to risks and uncertainties and actual results may differ. I direct your attention to our SEC filings for a complete description of the risks and uncertainties affecting our business.

Let me begin with a company overview. I think as I go through this presentation you’ll come to realize that Emergent presents a unique value proposition. We are a proven significant cash generator, operating in two value creating businesses with a focus on high growth disease areas, along with a rich history of strategic transactions. And all of this has allowed us to establish an advanced clinical stage product pipeline and I’d like to talk about each one of these individually.

As I noted, Emergent has a history of cash generation, specifically on our marketed product BioThrax, has a ten year history of revenue generation, primarily through sales to the US government. As you can see from this slide, since September 2004, we have sold or have been under contract to sell approaching 100 million doses of BioThrax to the US government with a total contract value of over $2.5 billion. Our most recent award, which is highlighted in the green row, provides delivery through Q3, 2016 and five years of revenue visibility just for BioThrax.

BioThrax is a significant asset for the company, generating substantial EBITDA which we have been using to support our planned full growth.

To support our growth strategy, we are now operating in two separate and distinct business divisions, BioDefense and BioSciences and each of these divisions has a unique focus and business model. Let me start with the BioDefense model.

It addresses the needs of the US government in stockpiling medical countermeasures to address ongoing biological threats. Thus in doing so, the division really needs to focus on the particular needs of the US government, with the specialized product attributes that they are looking for, with the production capabilities and delivery schedules set they are targeting and we need to be mindful of the changing prioritization that the government articulates from time to time. So along with manufacturing, product development, clinical development, process and analytical development skills that we have, we’ve developed unique capabilities around government contracting, procurement processes, government budgeting, strategic alliances and partnership, all of which has enabled the BioDefense division to be successful.

Separately, the BioSciences group or division really has a separate focus which is really to develop unique vaccines and therapeutics that meet unmet medical needs or underserved medical markets globally. With these two business divisions, we focus on three targeted disease areas and they are depicted here. Infectious disease, oncology and autoimmune and some of the specific targets are identified on the screen. And these were selected using carefully crafted processes and filters that were established by the company and they’re unique and tailored to our organization. So we focus on our core competencies, our unique capabilities and our growth strategy in selecting the disease areas of primary interest to the company.

Applying this process, we have both developed and acquired advanced stage clinical programs which will allow us to achieve our strategic missions. Acquisitions have played a key role in our overall growth program and as you can see from this slide, since 2006, we have a robust and rich history of strategic transactions. This has enabled us to acquire and integrate into our portfolio several advanced stage clinical programs and has also allowed us to expand our manufacturing infrastructure capabilities.

So our current strategy with respect to acquisitions is that continues to be a core focus for us as we grow and we are looking in terms of our growth approach on strategic acquisitions to target near term revenue generators that we could add to the portfolio. We believe this approach will significantly enhance the overall value of the portfolio we currently have under development.

The portfolio that you have in front of you is comprised of a number of different products, both in the BioSciences and the BioDefense divisions. It is very well balanced between vaccines and therapeutics. Importantly, six of the eight products in the portfolio have substantial, that’s either partial or full funding from external third party sources on a non-diluted basis and as I will discuss throughout the presentation, the pipeline is expected to provide clinical data in the coming 12 to 24 months, which could further enhance our overall value and outlook.

Now I’d like to talk about each of the divisions in a little bit greater detail and I’d like to start with the BioDefense division. Our flagship product is BioThrax. It is the only FDA licensed vaccine for the prevention of anthrax disease and as medical – BioDefense medical countermeasure, it’s really rather unique. It is both FDA approved for the prevention of anthrax disease and has been administered in 2.7 million individuals as part of a standardized vaccination program. So that’s rather unusual.

So with the US government support, we are looking to evergreen BioThrax to enhance its attractiveness as a BioDefense medical countermeasure and this includes securing a second indication and that’s for post exposure Prophylaxis, optimizing the schedule for the vaccine, extending the shelf life for up to five years to enhance its utility as a stockpile product and we’re also looking to expand our manufacturing capacity for the product. We are currently operating at between 7 and 9 million doses per year and we’re targeting nearly a tripling of that to 25 million doses per year. And that’s really in order to address the US government’s stated requirements for the vaccine.

As you can see from this slide, the US government has articulated a stated need to stockpile anthrax vaccine at the level of 75 million doses. We are currently providing as much vaccine as we can out of our current production facility and with the recent award of 44.75 million doses over the next five years, I think the government intends to make measured progress towards that objective. As you can see from Secretary Sebelius’ quote, the awards and the contracts to Emergent are really all part of a plan to hit the 75 million dose requirement. However, the current limitations in our facility will result in not being able to achieve that in the absence of significant expansion capacity. So we are working with the US government to enhance the manufacturing output from our facilities in order to address the stated need.

Building 55 has been designed and has been built specifically towards that objective. Currently with one fermentation train in the facility, we are targeting the production of up to 25 million doses per annum. The facility is expandable. There’s expansion capacity in the suites such that we can add a second fermentation trend, thereby doubling potential capacity up to 50 million doses per year. We are under contract with the US government up to $107 million and the purpose of the contract is to secure FDA approval for the manufacture of BioThrax in Building 55 at large scale.

We anticipate licensure could be in the 2014 to 2015 timeframe and that’s based on recent discussions with FDA. We met with FDA to discuss our regulatory approval, strategy and plans and we believe we have support from the FDA towards that end. We are finalizing those plans as we speak and we anticipate being able to proceed towards regulatory approval without the need for additional clinical studies for the vaccine.

Moving forward, we have a number of products in the pipeline addressing the anthrax threat, both on the therapeutic and the vaccine side. These products are really being developed to address the stated government’s requirements for therapeutics and for vaccine as I previously articulated. The first of this is Anthrivig. It is a Human polyclonal antibody. It is derived from individuals who have been vaccinated with BioThrax and the purpose of the program right now is to address the 100,000 dose stockpile requirement stated by the US government for a polyclonal therapeutic. This is a therapeutic, so it has no impact at all on the stated requirement for vaccines stockpile. So they are separate and distinct and complementary requirements. We recently completed a pivotal study on the program and our next step is to secure additional funding to complete regulatory approval for the therapeutic and then hopefully supply into the S&S.

Moving forward, we are developing a couple of vaccines again to address the stated government requirement. The first is a Recombinant Protective Antigen Vaccine we call PreviThrax. It is under contract. It’s a multiyear up to $187 million contract. We have completed optimization of the production process and believe the process can meet US government requirements at a 500-litre scale, which is really quite impressive. Our next step is to confirm the stability of the vaccine under an approved and agreed upon protocol which was designed to trigger option funding under the current contract that we have to take the product to the next step.

Similarly, we have NuThrax which is BioThrax in combination which a novel adjuvant, in this case CPG 7909. This product is also under development with US government funding and really the focus of this program is to reduce the number of doses to two and accelerate the vaccination schedule to be within two weeks, while at the same time achieving rapid and protective immune response levels for the vaccine.

To round out our Anthrax franchise is Thravixa. Thravixa is our anthrax monoclonal therapeutic. The focus of this program again is to address the government’s stated need for up to 100,000 dose stockpile of a monoclonal, again distinct from the Polyclonal that I already covered. We expect to complete phase one PK studies in 2012 and all of this is again with funding and support from the US government. We are looking to continue development funding with BARDA and we are looking for opportunities to continue to advance that program with that funding.

In terms of 2011 accomplishments, quite a bit has been covered over the last year. We continue to deliver BioThrax into the S&S under our current contracts and we’ve made significant progress towards licensure of Building 55 for large scale manufacturing of BioThrax. We asked our clinical programs under the plans that we’d agreed upon with BARDA and we are on track for those and importantly and significantly we received more than 44 million dose supply arrangement for the S&S over the period of the next five years. So through that award, we have revenue visibility for the next five years just for BioThrax for approximately $1.25 billion.

In terms of milestones for next year, we hope to continue the good progress and the momentum that we’ve established. Once again we will continue to deliver BioThrax to the CDC under the current award and we hope to increase our success rates out of our current facility with the hopes of tracking towards the high end of our range through process improvements and increases in success rates. We also look to obtain FDA approval for reduced dosing schedule for BioThrax, along with achieving consistency lot manufacturing, large scale manufacturing in Building 55.

We’re also targeting completing the ongoing clinical studies for NuThrax and Thravixa and we are seeking additional follow-on funding for many of the programs through the US government processes.

Now let me shift gears to the BioSciences division and specifically let me start with our lead candidate which is MVA85A. This is a vaccine for the prevention of tuberculosis that would be administered as a booster to BCG. BCG is currently being used for the prevention of tuberculosis worldwide and is the only vaccine being solely administered. There are about 100 million doses of BCG distributed across the globe every year. The goal of this program is to reduce the incidence of tuberculosis for those at risk.

MVA85A is a recombinant MVA vector that expresses the antigen 85A. This is believed to be important in the prevention of tuberculosis disease. We established a joint venture with Oxford University where the product was initially developed and we are partnering with AERAS and the Wellcome Trust to fund the clinical development programs for this product.

Importantly, MVA85A is nearing completion of a phase 2B efficacy study involving more than 2,700 infants in South Africa. Dosing on the clinical trial is now complete and we are in the follow up stages of the trial. Therefore we are expecting efficacy data sometime in the next 12 months or so. So it’s a pretty exciting opportunity for us.

Additionally, with the support from AERAS, the Wellcome Trust and EDCTP, MVA85A has now started a second phase 2B efficacy study, this time in HIV infected adults and this clearly is a population significantly at risk for tuberculosis. We see this as an exciting market opportunity. We estimated higher than $800 million per year worldwide and efficacy data we expect will be forthcoming as I said in the next 12 months.

Turning now to SBI-087. It’s a second generation SMIP protein therapeutic that targets CD20. CD20 as you may know is a validated target for certain marketed products including Rituximab. This product is completely out-licensed to Pfizer. So Pfizer is responsible for all aspects of the development program. Therefore if successful we expect we could receive $300 million in milestone payments, along with 10%, more than 10% royalties following regulatory approval. The product does appear to have competitive advantages both in terms of potential potency and in terms of routed administration.

A phase 2 RA trial was completely enrolled last year and we are expecting that Pfizer might announce during the course of 2012 clinical data. It’s an extremely attractive market and we see significant upside potential for Emergent as Pfizer progresses with this product. Of course since we don’t control that, Pfizer’s decisions will be based on clinical data I’m sure as well as their overall product prioritization process.

Moving forward to Z-mab, unlike SBI-087, Z-mab is a monoclonal antibody that is completely within our control. It is an anti-CD4 targeting T-cell lymphomas, both CTCL and PTCL. Both are very attractive markets for us and Z-mab has been granted orphan drug status in CTCL by both FDA and EMA. The product shows favorable activities in phase 1 studies for both indications and phase 2 studies were initiated by Tenex when they were operating the clinical development program.

The phase 2 trial in PCTL was closed down by Tenex due to their financial limitations and the phase two pivotal registration study in CTCL was delayed and put on hold by Tenex again for their financial limitations. After acquisitions, we’ve been evaluating the clinical data to determine the best course of proceeding with the product and we are thinking now we’re targeting combination therapies and potentially even a partnership relationship for Z-mab.

I’d like to finish out our clinical stage program with TRU-016. It’s our second SMIP candidate to enter the clinic and it has shown potential for both CLL and NHL. As you can see from this slide, the CLL market alone is quite attractive for Emergent with more than $1.8 billion targeted worldwide. Phase 1 results demonstrate an encouraging clinical activity and a partial response rate of 86% in treatment naïve patients with CLL.

The drug appears to be well tolerated and in fact we have not reached the maximum tolerated dose with this candidate. The phase two trial started last month in December in combination with Bendamustine and we look forward to completing enrollment in that study during the course of 2012. Clinical data from the study should be available sometime mid 2013 and separately, based on promising data, we’re evaluating TRU-016 in combination with Rituximab and potentially other agents beyond just Bendamustine.

So we see this as a really attractive product candidate for this particular target indication. As I mentioned earlier, TRU-016 is also in development for NHL. The initial study in relapsed NHL demonstrated clinical activity with TRU-016 as a single agent and this activity was sufficient to launch a combination study of TRU-016 with Bendamustine and Rituximab in relapsed NHL patients. The data generated so far from the combination shows that there are no undue problems and no safety issues associated with the three drug combination.

We expect to have clinical data from the ongoing phase 1B combination study by the middle of this year and as you can see, NHL is a very attractive target market at greater than $4 billion worldwide. This was a product that was under collaboration with Abbott until December of last year where they elected to discontinue their participation in the program based on a prior product prioritization process that they underwent. The products as I mentioned are in the midst of clinical trials. Our plan right now is to complete the ongoing clinical programs and take an assessment of where we go next with the product based on the clinical data, including potential partnering opportunities.

In support of the robust clinical programs that we have, we’ve acquired a manufacturing facility in Baltimore, Maryland. This facility is about 56,000 square feet and has two segregated production facilities or suites. This is intended to allow concurrent manufacturing of products using multiple and differing technologies. We have completed the renovations to the facility and we’re now in the process of installing the necessary equipment using flexible manufacturing technology or single use bioreactor technology. We think this is the right direction for the facility as it allows for flexibility, scalability and maximum output out of the site, particularly when we’re looking at both bacterial and viral production.

We have met with the FDA regarding our build up plans for the site and with respect to our planned utilization of the site and we believe that we have their support for a concurrent, multi-technology, simultaneous production in the facility which is critically important as we look at the number of products in the portfolio and our ability to advance that portfolio rapidly and effectively.

I’d like to now turn to the 2011 accomplishments in the BioSciences division and they were quite a few. Of significance, we completed dosing in the infant study for MVA85A and dosing was initiated in the HIV adult patient, again with MVA85A for TB. We’ve initiated phase 1B and phase 2 studies for our oncology products and we completed modification to the production facility that I just described which will support clinical manufacturing in years ahead.

Looking forward to 2012, we hope to continue the good momentum in the BioSciences division and importantly, we’re looking to have efficacy data from the MVA85A infant study out of South Africa. In TRU-016 and CLL, we look to complete the recently launched phase 2 combination study and in NHL, completing the phase 1B comparative study, evaluating the data and making the determination as to whether we proceed with the phase 2 portion of that study. So these activities are quite exciting. We’re really looking forward to 2012 and I look forward to reporting our success as we go forward.

Let me finish up on the financials. As you can see, we’ve established a fairly robust revenue stream and growth pattern over the last five years, revenue CAGR of more than 10%. As represented on the yellow bar, we’re providing preliminary 2011 estimates for revenue of $270 million to $275 million and in the blue bar, revenue forecast for 2012 of $280 million to $300 million.

So our revenue, both historic and forecast, are based on product sales as well as granting contract revenue. So in terms of our forecast for 2012, between 280 and 300, is comprised of product sales of 220 and 230 and grants and contracts revenue of between $60 million and $70 million. So this revenue growth has really enabled us to continue to invest in our portfolio. You can see on the left side of the screen the R&D investment that we’ve seen historically in our portfolio while maintaining profitability depicted on the right hand side of the screen.

So again in the gold bar we’re providing preliminary net income estimates of $20 million to $24 million for 2011 and this guidance is before taking into account all potential adjustments related to the termination of the Abbott relationship for TRU-016. For 2012, we project net income of between $15 million and $25 million, consistent with our overall year-over-year target for net income and this approach has really allowed us to continue to invest our cash in the growing pipeline and adding value to the overall portfolio that we have.

Let me finish up with a review of the balance sheet. As you can see here, cash equivalents, investments and account receivable, approximately $200 million by year-end. That is significant in terms of both supporting ongoing operations and potential acquisitions as we look forward into 2012.

So in summary, I trust the presentation allowed you to get a view as to why we think Emergent is a unique value proposition. Under one roof, you have a proven cash generator, two value creating businesses with a clear focus on high growth disease areas, a rich history of strategic transactions that has enabled us to collectively assemble a very powerful, late stage advanced clinical pipeline and with all this we’re supporting our mission to protect life.

That completes my comments for this morning and I believe there is a follow up breakout session in the Sussex room and I thank you all for attending the session this morning.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Emergent BioSolutions' President Presents at the 30th Annual J.P. Morgan Healthcare Conference (Transcript)
This Transcript
All Transcripts