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R. Don Elsey – Senior Vice President-Finance & Administration, Chief Financial Officer and Treasurer


Christopher N. Marai – Wedbush Securities, Inc.

Emergent BioSolutions Inc. (EBS) Wedbush 2012 Life Sciences Management Access Conference Call August 14, 2012 8:00 AM ET

Christopher N. Marai – Wedbush Securities, Inc.

Okay, hello good morning. My name is Chris Marai. I’m an analyst here at Wedbush Securities with Greg Wade and David Nierengarten. We’re part of the life science and biotechnology team. And it’s my pleasure to introduce to you today the CFO of Emergent Biosolutions, Don Elsey. He will be telling us a little bit about Emergent’s growing pipeline as well as their BioThrax franchise. Great, thank you Don.

R. Don Elsey

Thank you very much. Good morning to the hearty souls who have made it here so bright and early and I know seats are at premium. So let’s just jump in and get started the typical forward-looking statement where we are going to make some forward-looking statements and actual results may differ from those statements.

So I want to jump in with basically a company overview today. And if you take a look at Emergent just at a glance, we’ve got a proven cash generator in BioThrax, the only anthrax vaccine that’s licensed today. We’ve got two value-creating businesses, were organized into BioDefense and BioSciences. We will get into the structure and the focus of those businesses in a little bit.

Focusing on high-growth diseases. The company has been put together through a series of acquisitions both companies and the candidates over the last 8 to 10 years and we will get into a little bit of how that brought the product portfolio together. And then we will talk about the product pipeline itself and where the various candidates are and some of the key activities in the next six to nine months that we’ve got planned for those candidates.

So first let’s talk about BioThrax as I said the only licensed anthrax vaccine today. The contracts that Emergent has had with the government actually go back to about 1998, but this particular slide takes you from 2004 to today and you can see that there has been a series of contracts that Emergent has had with the government and the latest one signed in the September of last year that basically has the government signed up for our capacity from now until 2016. So we manufacture 24x7 and the government has contracted for everything that we make.

You can see that by the time we get to 2016 and we finish that contract, BioThrax will have generate over $2.6 billion worth of revenue and we will have supplied $96 million doses into the stockpile.

Let me talk about the stockpile for a moment and the overall demand equation. The government has a publically stated demand for anthrax vaccine in the stockpile of 75 million doses and please bear with me I’ve got a bit of a headcold. So 75 million doses is a rough calculus, it is 8 million people per city and three doses per person. That demand statement was put together in 2004 and there has been no need to update it because there has been no capacity to even achieve the 75 million. Today, we estimate in the stockpile, the government has about 22 million, 23 million doses of BioThrax in the stockpile of which DOD takes out 1 million to 2 million doses per year for active immunization of our troops before they go into feeders of high threat.

So with our current capacity today of 8 million, 9 million doses per year, mathematically with a full year shelf like, you never get to a full stockpile. So that leads to the next piece off the overall BioThrax equation which is Building 55. And Building 55 is a facility that we broke ground on in 2006. It is a completed facility from a hard asset perspective.

The building is finished, all the equipment is in and it is currently undergoing qualification and validation, and our expectation is, that we may be able to license that facility as early as late 2014. If a human bridging study is required for licensure that could prolong it out to 2015. But that takes our capacity from 8 million to 9 million doses per year upto 25 million doses per year on a single manufacturing train. And the facility is capable of having two manufacturing trains that accept theoretically a capacity of 50 million doses per year.

When we take a look out in time at the governments demands, what they are likely do with the stockpile, we anticipate that the government will essentially contract for one entire manufacturing train out of that facility. If we put in the second train, that would then allow us to go after first responders, go after ex-U.S. demand, which we have not been able to address in the past given that our capacity is being signed up for.

So that’s a very quick overview of our were BioThrax is, or has been, where it is in today’s contract and what we are doing to expand capacity, and grow revenue from the BioThrax product.

As I said before, we are organized in Bio-Defense and Bio-Sciences, you see some of the product candidates here, I want to spend a lot of time here. I will get into actual pipeline chart in a moment. Bio-Defense at this point in time is focused strictly on anthrax, so infectious disease. We continue to take a look entire landscape of chemical, biological, radiological and nuclear. But at this point in time it’s focused on infectious disease. Depending upon where the government goes in formulating counter measures for some of these other areas, we may branch-out into some of those other areas.

Bio-Sciences, we have been into bio-science area or commercial area, since we went public, since we had acquired a firm called Microsciences in the U.K. back in 2005, that brought a portfolio of early-stage vaccine candidates at that point in time. Now as time has evolved, we’ve taken look at those candidates, looked at the probability of giving those to licensure, the sort of time it takes, et cetera. And we have for the most part either sold, licensed, or shelved those particular vaccine candidates.

The focus on oncology and autoimmune diseases came about with our acquisition in 2010 of Trubion out in the Seattle, which has a number of different candidates and up until recently we had some partnerships with Pfizer and Abbott and we’ll talk about that a bit more in a moment.

As I said, a number of strategic transactions whether it would be company acquisition or candidate acquisition, has combined to put together the portfolio that we have today. So let’s talk about that for a moment. As we take a look at BioDefense, you’re going to see these four candidates in addition to BioThrax, but they are all focused on anthrax. So the top line Anthrivig and the bottom line Thravixa are both therapeutics for anthrax.

Anthrivig is a polyclonal, a very, very common IG type of application and its plasma that is basically derived from people who have been immunized with BioThrax. Thravixa, which is monoclonal not altogether dissimilar from the approach that human genome has taken with anthrax. Both these therapeutics, the government is still trying to figure out exactly what it wants to do. Its stated demand is 100,000 doses of a polyclonal and 100,000 doses of monoclonal. Very expensive programs. The polyclonal goes for about $8000 a dose; the monoclonal goes for about $3000 a dose. So the government is still trying to figure out exactly where they want to go with their stockpile demands there.

Our approach to the development of any of these programs is that we will develop these programs as long as there is government funding. If there is not government funding, we’re not going to pursue the development of it.

PreviThrax is a recombinant anthrax vaccine. It’s a program that we’ve been involved with for a number of years. Our PreviThrax and this particular compound, we picked up from VaxGen, a few years back. And for those of you who followed BioDefense, you may remember VaxGen back in 2004 had a $900 million contract that they were unable to execute against and the contract windup being cancelled. That compound actually goes all the way back to Fort Detrick. And so we picked up that compound and we continue to work on it for the government under a contract for $187 million for the development of this candidate.

NuThrax is a particular exciting program from our perspective. Today, BioThrax is indicated as three doses over six months, NuThrax is a program where we take BioThrax plus Coley’s product CPG 7909. And that adjuvant along with BioThrax has shown in preliminary tests, that you can reach the level of immunity in two doses in 17 days. So it significantly enhances the characteristics of BioThrax to be a stockpile program, it also significantly enhances the attractiveness of BioThrax if one goes out and thinks about immunizing to private sector, going out to citizens directly, and providing this vaccine. So very exciting program, that’s also under government funding today.

On the BioSciences side, we’ve got MVA85A, which is the tuberculosis booster vaccine, which is in a joint venture with Oxford University, Wellcome Trust and the Bill & Melinda Gates Foundation. We will talk about that in a couple of moments as far as what’s going on with that in 2012 and 2013.

TRU-016, indicated for CLL and NHL, came to us through the Trubion acquisition. Again, we will talk about that in a moment. Zemab, which we picked up from a company called Tenax for about $2.5 million, $3 million. It was in the middle of a Phase 3 when we acquired it. We thought that there was a possibility of resurrecting that Phase 3 as we got in and evaluated the data that did not paying out to be the case. So at this point in time, Zemab is basically is on the shelf, we don’t see that as a viable program for us to take forward. We may look to monetize that with somebody else, who is more involved in the CTCL and PTCL arena.

So, I wanted to go through some recent announcements, make sure that you’re all up to speed on some of the things that have been notable for us in the past four to six months. Most recently, we were awarded a contract from BARDA as part of the Advanced Development and Manufacturing Consortium that they put together. They awarded three contracts, one to Glaxo in partnerships with Texas A&M, one to Novartis and one to us. And these three centers are to be centers for the entire CBRN countermeasure program.

For us, this is a $160 million eight-year program and first deliverables out of this is to in license a pandemic candidate. It got transferred into our Baltimore facility; build out of flexible manufacturing flexibility in Baltimore, capable of manufacturing 50 million doses in four months. A very nice contract for all party is concerned. Not only do you take a look at the base deliverables, but normally when you work with the government under an umbrella contract like this, it provides you an entrée to many other options that they will choose to exercise over the course of the contract and these represents some real nice upsides both from a revenue perspective and from a profit perspective.

Couple of months ago, we have announced a $35 million stock buyback. We have 36 million shares outstanding today. Normally, I would not have been a supporter of a stock buyback just from the perspective of the number of shares outstanding, but clearly, at the share price that exists today, it’s an undervalued share price from our perspective. And so we’re basically putting our money where our [mouth] is and so we are going to buy some of these shares back, because we feel it’s significantly undervalued.

BioThrax three-dose primary series; so this is the three doses over six months. Prior to this approval by the FDA, it was five doses over 18 months, which is as one kind of imagine is a little bit of a clunky regiment if you will, so this was a very important label change. The government was buying based on a three dose assumption anyhow, but this now allows them to continue to buy and not have at the off-label.

Just recently, we went through the Q2 earnings and during that call, we gave projection on next quarter’s revenues as well as we reaffirmed the 2012 revenue and net income guidance. Just to refresh everybody’s memory, the revenue guidance is $280 million to $300 million for the year and the net income is $15 million to $25 million.

So some of the other slides that I’ve got in the presentation and this will be posted on the website. It goes into a lot of detail some of which have already covered here. So on BioThrax, I think we’ve already discussed an awful lot of the aspects here. From a key perspective of what’s going on this year for BioThrax is continuing to deliver against the contract. We’ve initiated the consistency lots in Building 55, we would hope to complete the consistency lots by the end of 2012 early 2013, package that data get the data to the FDA and start down the final path of licensor for this facility. So that is very important.

You see the ongoing enhancements extend shelf life to five years that would be very beneficial to BARDA. It’s one of those things that is totally in the hands of the FDA. I’m somewhat pessimistic that we would get that any time soon. Four year dating on BioThrax, is the longest dating of any vaccine today and it took the FDA a long time to get comfortable with that. And we’ve to show a number of samples that were eight, nine, 10 years in their life in order to get four year dating. I expect that they are going to put us through a number of hurdles to get to five year dating.

BioThrax on the stockpile side, we’ve already talked about that is our move past that. This is Building 55 as I said $25 million on a single train, $50 million if we put in a second train. A second train would take about $15 million in CapEx take us probably six months to accomplish. Now that the Building and the overall infrastructure is in place. BioSciences MVA85A, so this booster as some of you may know that only vaccine that is out there is BCG. It’s been around for 80 years. If this booster becomes approved, it will be the first new vaccine for TB since BCG and 80 years ago.

We’re just concluding our Phase IIb in South Africa in 2,800 infants. As I said before this is partnered with The Bill & Melinda Gates Foundation as well as working with Sapiens South Africa. We expect this data to be available, either fourth quarter of this year, first quarter in 2013. A very important, very large market, I would expect that once the data becomes available. It’s either going to be compelling enough that we have a number of suitors who want to become involved in this program or the data will be insufficient. And it will be a program that we choose not to take forward.

The Phase III that would be reported on this would be substantial. We’re probably talking 8,000 to 10,000 patients. At least three years. So it’s not a program that we as an individual company would look to take on by ourselves. But again, if the data is compelling enough to proceed the Phase III, we think there is a number of large pharma partners, who will be very interested in this.

TRU-016 let me spend a moment. Just on the overall products that we picked up with Trubion. Trubion, I’ll call it a relatively inexpensive acquisition for us to get into the oncology and autoimmune area. In autoimmune, we had a partnership with Pfizer and that was indicative for rheumatoid arthritis and lupus and on the oncology side we had a partnership with Abbott. Both of those partnerships as we were communicated from Abbott and Pfizer. These candidates did not make their financial hurdles as they took a look at their overall portfolio. So both the Abbott partnership and the Pfizer partnership were concluded either at the tail end of 2011 or in early 2012.

What we’ve done on SBI-087, which was the autoimmune for RA. We’ve actually shelved that program at this point in time and are looking to potentially license that to another partner, but it’s not a program that we are going to take forward.

TRU-016, the one partnered with Abbott was in the middle of a number of trials and you can see the detail here on the trails on the 16007 and 16201 and we have decided that we are going to finish those trails that we are in process. So what we anticipate is data at ASH this fall on NHL, we anticipate data on CLL in the first quarter and again this program will either go forward or be terminated based on it’s data. If the data is compelling again this is a product that we would look to partner out, it’s not one that we would take forward into Phase 3 on our own. So that gives you an overview of TRU-016. The prior slide was on CLL, this gives you some detail on the trials that are in NHL.

From a financial perspective, you can see the revenue picture for us since 2006. Building 55 is very key in changing this plateau of revenue if you will. Again, we sell everything we make, there is not a whole lot that we can do to increase revenues other than taking on new research programs with the government, such as the ADM contract. So at this point in time, we are looking for Building 55 to help breakthrough.

And I will talk about our M&A focus here in a moment. The net income has been historically a valve if you will to ratch it up, ratch it down depending upon the clinical trials that were happening at that time, which candidates we were pursuing et cetera. And in 2012, as I just outlined, I think you see some real pivot point on MVA-85A and TRU-016, and they either want monetization with other partners or you’ll see the R&D spending on those will come down rather dramatically. So that’s a quick view of the financials.

Let me go back to M&A for a moment. In the past, we have always been aggressive. We talked about being inquisitive of late stage compounds companies. And when we went after Trubion, some people thought; okay, that’s not really late stage, it’s sort of mid stage. And as that whole acquisition has worked out, I think that’s probably a fair observation.

What we have said recently in the first quarter earnings call and in second quarter earnings call is, we still intent to remain inquisitive, except the candidates, the companies that we are taking a look at. Again, we want them to dovetail from a common sense perspective into our technology, into our expertise where we think we can leverage it, but we’re looking for those things that can be accretive immediately.

Again as we probably all know that shopping list is not a long list, but we do feel that there are some very interesting opportunities out there that fit into our overall fields of expertise, that can add to both the topline and the bottom line basically from day one. So that’s the shift in our focus in the M&A activity. So that basically, there is a lot of other slides in here, with a lot of other detail, but I’m going to keep it to this and open it up for any questions that you have.

Question-and-Answer Session

Unidentified Analyst


R. Don Elsey

It’s a question we get a lot, which is what do we think about the commitment to the government, to continued funding for BioThrax procurement? And that is not only from the executive branch, but the congressional branch. We spend a lot of time on capital. We speak with lots of very influential players and the various procurement agencies, et cetera, and we believe that they are wholly committed to this.

The funding for BioThrax procurement comes from CDC, under the auspices of HHS. Again, this is something that for the most part has been already identified in current budgets, et cetera. You never take it for granted. You never sit back and say, of course, it’s just going to come automatically. But if there is a program that we have seen total bipartisan support on, it’s the Strategic National Stockpile, whether it’d be for our BioThrax, whether it’d be for the smallpox vaccine, whether it’d be for other countermeasures that are out there.

As we talk to a number of the players in that arena and we talk to them about where the budget cuts may come and what have you – there’s no indication of any issue here on the BioThrax procurement. I would say, as one moves over to do is the contracts and grants and the development work, I’d say that’s, equally true. I think each agency is taking a look at what they are developing and saying, what can we prove here and there and elsewhere and can we delay something for a while, I think we’ve seen as a company.

Examples of that, where we were doing development work on Botulinum, and I think the governments set back and said, we really don’t know what we want to do with this and not just go into great detail on this, but Botulinum is a very difficult but to address and they stopped funding for it, as a result we stopped to work on it. But that’s where I think you see pruning of various programs, but on mainstream procurement activities and insurance policies such as the Stockpilers. I don’t think you’re going to see a whole lot in that arena.

Other questions?

Unidentified Analyst


R. Don Elsey

Sure, so the question was with regards to Trubion programs specifically TRU-016 and how we might advance that. Again, I think this is a program, where the data is going to be all important. And if the data is compelling and as you know CLL and NHL are very competitive marketplaces, but if the data is compelling, I see us partnering that asset up with somebody that could take that forward through the Phase 3. That’s not – again, could we do the clinical trials and alike and Phase 3? We could. But the beauty of the partnership with Abbot was they not only had greater manufacturing resources, but they had the sales and marketing resources. And that’s not something that we would envision replicating.

I can see us going into various areas where we might have a sales force that is extremely targeted, but not something like CLL and NHL. So I really see that the data supports doing a partnership again with another pharma or it indicates that we should shut the program down. Anything else?

Okay, well, thanks to everyone for attending at this point. I appreciate it. Have a great day.

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