Emergent BioSolutions Inc (EBS) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Emergent BioSolutions Q1 Financial Results Conference Call. At this time, all participants are in listen-only mode. We will conduct a question and answer session toward the end of this conference.

(Operator instructions)

I would now like to turn the call over to Mr. Robert Burrows. Please proceed, sir.

Thank you, Antoine. 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 first quarter of 2009. As is customary, our call today is open to all participants. And in addition, the call is being recorded and is copyrighted by Emergent BioSolutions.

Joining me on the call this afternoon is 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, and these include Dan Abdun-Nabi, President and Chief Operating Officer, and Dr. Jim Jackson, Chief Scientific Officer.

Before we begin, I am compelled to remind everyone that during the call 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 at 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 replay, this call was held and recorded on May 7, 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 may be required by applicable laws or regulations. Today's press release may be found on our website at www.emergentbiosolutions.com under Investors/Press Releases.

And with that introduction, I will now like to turn the call over to Fuad El-Hibri, Emergent's Chairman and CEO. Fuad?

Thank you, Bob. Good afternoon, ladies and gentlemen. We appreciate your participation on this call. At the close of the market today, we reported financial results for the first quarter of 2009. I am very pleased with Emergent's overall performance during the quarter. We delivered strong sales and earnings results, and we remain firmly on the path to achieving our financial and product development goals for the year.

In reflecting on today's results, I would like to provide brief updates on selected aspects of our business. To begin, let me update you on our biodefense franchise. Specifically, I would like to address our ongoing core BioThrax business and our recombinant PA anthrax vaccine opportunity.

First, BioThrax. As you know, BioThrax is the only vaccine licensed by the FDA for the prevention of anthrax infection. We are currently manufacturing and delivering doses of BioThrax to HHS and the Strategic National Stockpile under a multi-year contract for 18.75 million doses, valued at up to $448 million. The product sales reported this quarter are a result of deliveries made to the SNS under this current contract. We're on target to complete deliveries of BioThrax under this contract by September 2009, if not earlier.

We have also secured a follow-on contract with HHS for an additional 14.5 million doses of BioThrax, valued at up to $405 million. We will transition into this new contract upon completing deliveries under the current contract without interruption. As a result, we have BioThrax sales visibility for the next 24 months. Beyond this, we expect that the US Government will continue to purchase BioThrax in the medium and long-term.

In addition to the market opportunity for BioThrax in the US, we continue to address growing demand for the product worldwide. Recently, we announced that BioThrax received market authorization 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.

Now let me briefly describe the various BioThrax enhancement efforts that are currently under way. First, FDA approved a change to our BioThrax license, providing for an IM route of administration and a reduction to a five-dose schedule over 18 months. This license change was supported and funded by CDC. And we continue to work with them to achieve a three-dose schedule over six months.

Second, at the beginning of this year, we applied to FDA to extend the shelf life of BioThrax from three years to four years. We anticipate FDA approval of the application sometime this year. This would trigger a price increase for doses delivered under the current contract, and would result in the Company receiving an additional payment of approximately $34 million. In addition to the financial benefit, four-year dating provides BioThrax a further competitive advantage for stockpiling purposes.

Finally, we are also making progress on a post-exposure indication for BioThrax, which is funded by BARDA. As you can see, we continue to enhance our flagship product with multiple initiatives designed to meet growing government need.

Next, let me update you on the rPA opportunity. As you know, last year we acquired an advanced recombinant anthrax vaccine candidate, respondent to an HHS RHP to develop and deliver up to 25 million doses of rPA, and 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 the term of five to eight years.

Recently, HHS amended the solicitation, requiring bidders to submit a comprehensive regulatory plan to FDA by June 15. Since then, we met with BARDA. At that meeting, BARDA advised us that they remained firmly committed to this award. In response to the request, we expect to submit the required regulatory documentation to FDA by the end of this month, ahead of schedule. Although BARDA has not specified a revised time table for an award, we remain confident that our proposal will be responsive, and we continue to expect to receive an award.

Turning to our commercial pipeline, let me begin with a brief update on our TB candidate. Last year, we announced the formation of a joint venture between Emergent and the University of Oxford to develop the world's most clinically advanced vaccine under development to prevent tuberculosis. And just recently, we initiated a Phase IIb efficacy trial for our TB vaccine in South Africa with an intended enrollment of over 2,700 infants, and largely funded by the Wellcome Trust and the Aeras Global TB Vaccine Foundation. The trial is expected to last approximately two years.

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.

As of 2007, 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. More recently, it is estimated that BCG is administered to over 70 million infants annually in both the developing and the developed world, including Europe, India, and China, and is routinely given to adult patients with respiratory TB.

Given the continued emergence of drug-resistant strains of TB and the variable efficacy of BCG, medical experts have identified the need for a new immunization strategy. Our TB candidate is a recombinant vaccine, and it is intended to augment the immune response in individuals previously immunized with BCG. If proven to be safe and effective, our TB vaccine could address a sizeable unmet global need, with potential annual requirements approaching 100 million doses.

Now turning to another program in our commercial pipeline, let me update you on recent developments with our Hep B therapeutic candidate. We have identified and secured a contract manufacturer in China for the production of clinical material in support of future clinical trials. The tech transfer for manufacturing of the candidate has begun, and we expect to complete this activity and the manufacture of our clinical batch by the end of the year. The next step will be to proceed with a regulatory filing to initiate an efficacy trial in China, where the disease is highly prevalent.

Moving on, let me update you on the status of our manufacturing infrastructure. In connection with our ongoing negotiations with HHS for the rPA contract, we recently committed to dedicate our new large-scale manufacturing facility in Lansing to the development and manufacture of rPA. We believe that large-scale domestic manufacturing capacity is necessary for receiving a large contract aware. Pre-award activities are ongoing in this facility. In addition, we have initiated plans to expand our BioThrax manufacturing capacity at existing scale to address growing market opportunities.

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 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?

Thank you, Fuad. Good afternoon, everyone. As Fuad mentioned, following the close of the markets today we released our financial results for the first 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 10-Q with the SEC by the close of business tomorrow, Friday, May 8, 2009. The 10-Q, when filed, will also be available on our website.

Now let me discuss the financial results. First quarter was a very strong quarter for our company. Our product sales came in at $61.7 million, which is an increase of 49% over Q1 2008. The growth in sales quarter-over-quarter was driven by a 52% increase in the number of doses delivered to the SNS. Contracts and grants revenue were $2.8 million, a 134% increase over Q1 2008. This growth is a reflection of the impact of contracts we received from BARDA and the NIAID in September of 2008, as well as continuation of work under earlier contracts and grants.

Our gross profit on product sales for Q1 was $46.3 million, which is an increase of 38% over Q1 2008. Our gross margin on product sales remained strong at 75%. With respect to R&D spending, we continue to advance the development of our product pipeline with activities including enhancements to BioThrax. For the quarter, development spending was $15.9 million, which was an increase of 39% over first quarter 2008.

Compared to fourth quarter of 2008, the growth in R&D spending was only 12%. The growth over fourth quarter 2008 was driven primarily by an increase in development for new product candidate programs including rPA, anthrax monoclonal antibody, as well as preparing for the initiation of the Phase IIb tuberculosis trial.

Our SG&A spending of $16 million was a 32% increase over first quarter 2008. However, when compared to fourth quarter in 2008, SG&A increased by only $2.1 million or 15%. The majority of the increase versus fourth quarter 2008 was a result of implementing FAS 141R, which required us to expense $1.4 million of deal expenses associated with the terminated Protein Sciences proposed transaction, which were previously capitalized in 2008. If this expense had not been required to be recognized, the sequential increase would not have been significant. We continue to be very focused on tightly controlling the growth in general and administrative expense.

Our bottom-line net income for the quarter was $11.1 million or $0.37 per basic share, compared to $7 million or $0.24 per basic share for Q1 2008. For the first quarter, the most notable items on our balance sheet were cash and accounts receivable. Our balance of cash and cash equivalence was $61.4 million. Our accounts receivable balance was $74.1 million. The majority of this balance was received early in Q2, giving us current cash balances well in excess of $100 million.

Finally, as Fuad stated, we are reaffirming our 2009 financial guidance. As we have discussed in previous earnings calls, 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 SNS logistics. We expect that this variability will continue on a quarterly basis.

In conclusion, our financial performance as reported today positions us well to achieve our objectives for year-over-year revenue growth and year-end profitability. The strength of our operations and our abilities to effectively manage our business in pursuit of our strategic initiatives remains on track. We look forward to achieving our eighth consecutive year of profitable operations, while making progress toward advancing to ultimate licensure our pipeline of clinical programs.

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. Operator, please proceed.

Thank you.

(Operator Instructions)

Your first question comes from the line of Cory Kasimov with JPMorgan. Please proceed.

Hi, good afternoon. This is actually Mona for Cory. Thanks for taking my questions. I have a couple. So Fuad, in your prepared remarks, you mentioned that you expect sales of BioThrax to continue beyond 2011. And I wonder if you could expand a bit on the basis for confidence, and how you think that might change with the availability of an rPA vaccine.

Yes. Absolutely. Thank you for question. And this is based on several discussions that I have had with representatives of BARDA and HHS, wherein they have stated that they continue to pursue a multi-product, multi-supplier strategy, and that BioThrax has several important attributes that will -- that continues to meet government requirements.

And with all the enhancements that we're making to that product, we anticipate that the government will continue to purchase not only under this current contract, but beyond that. And if you go back since we acquired the facility ten years ago from the state of Michigan, we've been basically under contract with either DOD or HHS for more than ten years now.

Okay. And then, I guess, related to that, you mentioned that you have this dedicated manufacturing facility in Lansing that you've dedicated for the production of rPA. And given the delay there now, how do you handle that? At what point do you decide that you want to want to use this now for BioThrax?

Well, the facility isn't sitting idle. And we are actually conducting pre-award activities for rPA there. Now obviously, if there are more than the expected delays with this rPA award, we would reevaluate whether we continue with the pre-award activities or campaign back to BioThrax. So certainly, rest assured that we are very interested in keeping this very critical asset fully utilized. But currently, in anticipation of the awards, we are conducting pre-award activity on rPA.

Okay. And then one more strategic question, and it's something that we've touched on in the past. But you've spoken about targeting this bar of $20 million for profitability. And I guess I'm wondering at what point would you feel comfortable targeting a higher profitability level. I realize it's a balance between investing in the commercial pipeline and letting it flow to the bottom-line. But how do you think about that for your business?

That's a very good question. We are very excited about our both our biodefense and commercial pipeline of products. And pipeline translates into future growth and other licensed products. And there's a tension between investing more and more money in the pipeline as it advances through the clinic and, of course, maintaining profitability. So we try to balance that, at least for now, by maintaining profitability at around the $20 million level. Now as the more products advance into late-stage clinical trials, that equation may change. But for now, our objective is to remain profitable.

Okay. Actually, just on the commercial pipeline, I guess of your various commercial candidates, which do you believe would make it to market first? And when would that be, given where they are right now?

What I can say is our TB vaccine, which we're very excited about, given the large potential market demand, is in a Phase IIb study right now. We expect within two years to know whether this product is safe and efficacious. If it is, we will certainly accelerate the further development of the program and get it into Phase III as quickly as possible.

And with the support NGOs such as Wellcome Trust and Aeras, we believe that we will have funding that would complement our own. So we're very excited about the TB opportunity. It's difficult, obviously, to project. But what I can tell you is that study will take around two years. Normally a Phase III study might take two to three years. So you can take it from there.

With respect to Hepatitis B, which is also an advanced program, we have now tech transferred the manufacturing process to a Chinese CMO. We have identified a Chinese CRO. And we expect to file an IND there to start up a Phase II efficacy trial as soon as possible thereafter in China. So we are very excited about that. And why China? Because China -- the Hepatitis B disease is highly prevalent there, and there are a lot of chronic carriers. So it facilitates the enrollment and a quick completion of an efficacy trial there.

Great. That's very helpful. Thanks so much.

Thank you.

Your next question comes from the line of David Moskowitz with Caris & Company. Please proceed with your question.

Thanks. Good afternoon, gentlemen. I wanted to ask just a couple of questions. First of all, the number of doses that you guys shipped in the quarter? And really just as importantly, how many of the 18.75 million doses for the current contract have you shipped thus far to the government?

Don, why don't you take that one?

David, let me answer it this way. We normally don't give out specific dose shipment numbers in any given quarter exactly where we are. But we've got about 2 million and change that are left on this particular current contract. We expect, as Fuad mentioned in his comments, that we will transition immediately over to the new contract. So from a shipment perspective, a manufacturing perspective, it's going to be fairly transparent.

Okay. Very good. And you guys have until September to complete those shipments. Is that correct?

We actually have until September of 2010 to complete the shipments on the current 18.75 million. So we will be completing delivery of that approximately a year early.

Got it. And if I could just sneak this one in; so if you're able to make 7.5 million doses a year, and you've got about 2 million left, and you can make -- so that means you can make about 1.8 million a quarter. It seems to me like there's going to be some flexibility in terms of shipment this quarter. And I know there's some overseas demand. And you guys, I think, mentioned on the prepared comments about growing the penetration overseas. So could you talk a little bit about that? And also, I think, the pricing element of that would be important.

I can answer that one for you, David. You know, remember that there are several factors that go into delivery. One is, of course, our manufacturing schedules. The other is if the FDA release -- o each lot, which may vary in time. And then ultimately, the logistics, as Don had said earlier, when CDC can receive the shipment.

So all I can tell you so far, we've pretty much shipped everything that we produce as quickly as possible within our schedule, at least, to the government. And typically the government has been able and willing to receive our shipments. I want to highlight the point that Don made earlier is that there is variability from quarter to quarter, simply based on the schedule of delivery and when they actually accept the shipment. But as you look at it, we basically are manufacturing at full capacity right now. And minus the growing international sales that we position, we are delivering everything else to HHS.

So you guys in the past had talked about 5% of BioThrax revenues or doses, I can't remember what that statistic was, leaving the US or not being shipped to the US Government. What percentage of doses or sales do you expect to go OUS this year?

Well, our sales are in the millions of dollars annually. And our objective, of course, is to keep growing at those sales. And, as I said before, given our flexibility in the schedule with HHS, we can allow the doses that are contracted with foreign governments to be shipped, even if it means that we mean that we might have a few less doses to deliver to HHS for that particular quarter. So far we've always been ahead of schedule. We've allowed ourselves to be -- to manage quarter to quarter shipments to the extent that we accommodate international sales. It hasn't been a problem so far.

And maybe I'm looking at this wrong. Was there a significant amount of XUS shipment this quarter -- excuse me, the past quarter?

We don't really comment on that.

Okay. If I can hit a couple of financial questions, it's like R&D was a little bit light this period relative to the historical trends. And I'm just wondering if there's anything notable about that. And also your tax rate was 42% in the quarter. Is that the run rate we should be looking for going forward?

First off, David, with regards to the R&D expenditure, when you take a look at the number of the candidates that we have in our pipeline, clearly they're going to ebb and flow the activities there with regards to finishing trials, entering new trials, et cetera, et cetera, particularly with typhoid and Hep B you'll see from the spending outline for those two products as we're transitioning those to the endemic areas that we talked about earlier, the actual out-of-pocket spend is a little bit less than in periods past.

And so it's a combination of factors, and you can't take a look at the quarter spending on that and say, Okay. It's got a particular trend one way or another. I would just say this particular quarter was a combination of activities in the various candidates that caused it to be a little less spending this quarter than in the past.

With regards to the tax rate, where we've wound up pretty much on an annual basis is in the area of 40%, plus or minus, depending on what is going on at any point in time, and where our shipments are. We're not able to disclose externally where we ship to the SNS. But clearly, it has an impact with regards to taxation and our overall effective rates, and how the whole tax picture comes together. But generally speaking, we've been able to manage it. And the 40% range may be a little bit less than that when you take the year into account in totality.

One last question on product. When you guys went over the pipeline, I didn't hear anything about the AIG product. I think that's a pretty exciting technology. And if I'm to understand it properly, you guys could get an HHS contract sometime next year for that product. Could you talk about that a little bit in terms of timing and the potential opportunity?

Yes. Indeed, AIG remains a very exciting program for us. We started what we hoped to be the pivotal clinical trial. And that's ongoing. There's not much to report other than that we started about a month ago. An award -- I'm sorry, an RFP, we still believe is likely to come out sometime next year. So our goal is to position ourselves with this product to be competitive in a bit.

And how big could that RFP be?

Well, previously the government had expressed a requirement of about 100,000 doses for each, the AIG program and product, and also anthrax monoclonal product, which is HGSI's product. But on the AIG side, so far only 10,000 doses have been [let]. So 90,000 are still up for grabs. It still means that the requirements remain the same, which we have no reason to believe that it will change.

And the price per dose for the 10,000 doses?

Yes. The price per dose -- the previous price for the 10,000 doses was around $14,000. Again, using a round number, $10,000 a dose. 90,000 doses would translate to about $900 million. So it's a large chunk, a very important product because it's a therapeutic. And so we're very excited about that opportunity. And we're also making progress on our anthrax monoclonal candidate, which I wish I had more to talk when I gave the prepared comments. But we're excited about each one of those candidates.

Fair enough. Thanks.

Thank you, David.

Your next question comes from the line of Eric Schmidt with Cowen & Company. Please proceed with your question.

Thanks. Good afternoon, and congrats on a nice first quarter. Fuad, I was hoping you might comment on which you expect to receive first, either the rPA contract or another contract for BioThrax?

Well, that's an interesting question, Eric, because those are basically on parallel tracks. And when looking back at our history and contracting with the government, we had annual contracts. And lately, the government was willing to give us three-year and multi-year contracts. We've so far had two and three-year contracts. So we're very excited with this longer-term commitment that the government is willing to do.

I would think that in the last year of the contract the government will focus on discussing, negotiating the next three-year contract. We always hope that we might get their attention a little earlier than that. But we believe that a year in advance of the expiration of the full-on contract would be a time when we would start entering into discussions with BARDA again.

So I take that to mean that you don't expect a BioThrax contract until maybe the second half of next year.

Yes, something like that. Let me put it this way, that I would expect discussions to start sometime next year.

Okay.

I mean, we have --

And you're optimistic for rPA?

I mean, we won't start it until third quarter this year, so we'd like to make two or three deliveries under the current contract before we go back after the government to ask for more.

And are you optimistic for rPA this year, or could that slip into next?

Well, I asked Dan to participate today. Dan is our President and COO. He's been spearheading the discussions and negotiations with BARDA. And he can share with you his discussions with BARDA representatives recently.

Yes. Sure, Fuad. As Fuad indicated, we met with BARDA after they amended the solicitation to require that the regulatory plan be submitted to FDA by June 15. And at that meeting, they laid down what they saw as the steps towards completing the contract process. They did indicate that they're very committed to completing the process.

They've gotten assurances from FDA that FDA will review the submissions of the regulatory materials very quickly, and respond to the bidders with any comments that FDA might have. Following receipt of the comments, the process that we would expect to occur is those comments would be addressed in a submission that we would then make to BARDA. We would modify anything that needs to be modified to accommodate FDA's observation.

At that point, BARDA would undertake its own review. They have a Technical Panel process at BARDA, and the plan would then be referred to the Technical Panel for evaluation, as well. And then we would enter into contract negotiations to the extent modifications are required. Of course, we're dealing with an Executive Branch agency, so the White House would be involved, HHS, DHS, OMB, et cetera. So that Executive Branch process would have to be undertaken. So our expectations around this is this could be a six to 12-month process.

Okay. And when do you expect that you might share, either Dan or Fuad, some additional information on your rPA vaccine with us, either stability or clinical data or potentially an update on your manufacturing that you have going in the background there?

In terms of stability, I think we've previously indicated that the formulations that we've identified now we believe have addressed the stability issues that VaxGen suffered when the product was in their hands. And that's what gives us a great deal of confidence that this is a product that meets the requirements of BARDA, and could achieve the goals and objectives of the RFP and the contract.

And how long --? What kind of duration of stability do you have now?

I don't have the statistic. It's well over a year. It may be approaching the 24-month time period. So it's, I think, extended beyond what VaxGen previously wasn't able to demonstrate. And I think it is satisfactory to meet the requirements of the RFP. And in terms of the specifics around that, we ought to get something out to investors at an appropriate time in the future so you can better understand the profile of the product, and where we see the product going.

In terms of manufacturing, we think it's a fairly straightforward manufacturing process that would be undertaken within Building 55 using the standard fermentation capabilities that we've got there. Building 55, I think, is uniquely suited to address the large-scale manufacturing requirements for the rPA candidate.

So I'm not sure there's anything special or unique that we need to share with you in respect to manufacturing capabilities. Obviously, it's a compliant site with quality control and quality assurance systems in place. It's a secure facility. We've been manufacturing BioThrax there for many years, so we understand the regulatory requirements. So from that side, I think we've checked all the boxes.

Great. Thanks a lot.

Your next question comes from the line of Daniel Mallin. Please proceed with your question.

Hi guys. Congratulations on the quarter, and thank you for taking my call. Just a couple of clarification questions on the rPA. I know that much has been made about the delay. But I'm more interested in terms of the time frame to develop a successful rPA vaccine, assuming that one can ultimately be developed. I know that the contracts are actually eight years.

I'm wondering if you can map out for me a little bit, assuming that a contract was awarded or two contracts were awarded -- in other words, let's say tomorrow you received a contract. Where do you stand in terms of the development? I don't think you've done any manufacturing validation trials. I guess you're still playing with lab-scale material that was either given to you by VaxGen or that you've produced in small reactors on your own. But clearly to initiate an additional trial, you'd have to do some manufacturing validation trials.

So I guess, if you could please, just try and map out for me a little bit under the presumptions that a contract award is made henceforth. How quickly would we expect to have an additional trial begin? And I assume it would be an additional Phase II trial. And from there, do you think that it's really eight years to deliver the 25 million doses? Or, is it conceivable that it can be done in, say, five or six?

Well, that's a loaded question, Dan. Let me see if I can answer each aspect of it as best as I can. First, let me say that whenever there is, again, a tech transfer from one facility to another, there would have to be process validation conducted. So we are in the process of tech transferring from the VaxGen facility to our facility. And we will, after the tech transfer has been completed, would start validation.

With respect to the other question you have, which is what would be the next clinical trial that we envision? Yes, your assumption that it would be a Phase II trial is correct. So that obviously would be done as soon as there is an award, and we can gear up for that clinical trial.

With respect to how long would it take, the government has given us five to eight years to do that. I think that given the failure of the previous rPA developer and doing this under strict timelines, I think has given the government the motivation to give us, the developers, more time to develop. So rather than setting us up for failure, the government wants us to succeed. And we would like the government to succeed.

So I think the process has been very informative, I think has been very constructive with the government, and certainly they haven't put pressure on trying to get the process done unreasonably quickly. Obviously we're all interested in completing the licensure as quickly as possible.

The other variable is when can you actually deliver the product into the SNS? And the answer is when it's EUA-able. And the question still remains largely open, when is a product EUA-able? Is it when it's completed its Phase III study, when it's completed all the pivotal animal studies, or sometime before that? And there's still some question as to when a product can actually be delivered into the SNS. The conservative approach would be to say it's very close to actually being licensed. And if you take that conservative approach, yes, it might take the full eight years to get there.

Just one other observation. Just a response to your comment regarding lab-scale versus full-scale, the material that we presently have was made at full-scale. So we're not talking about pilot batches or lab-scale material. This is manufactured at full-scale -- the commercial scale that we would take forward for the final product. I just wanted to clarify that. And in terms of the next study, it would be very quickly after the contract award would be the current plan, so that we can continue on the development path that had been started before we assumed control of the product.

I assume you would have to manufacture some protein specifics for your next trial as opposed to using whatever protein you might have inherited from VaxGen, yes?

Well, not necessarily. Not necessarily. I don't think that's necessarily a fair conclusion. We would obviously formulate the product as we've now designed it, and then proceed with the trial. But, again, that's part of our regulatory plan. And we think that's entirely reasonable. We've had outside consultants working with us on this, and everybody has vetted it. We are going to meet with FDA as we communicated earlier, and we'll get some visibility into their views, as well.

Okay. And just one last quick follow-up. Are you currently developing this program with any government funding or grants, or is this all based on internal funds?

When we met with BARDA, we asked that question, whether we would be able to secure pre-contract funding for the continued development of the rPA. And the response was bidders in this RFP are not eligible to receive pre-contract award funding. So we understand that would be true for all participants in this process.

Okay. Thank you once again. Congratulations on the quarter.

Thank you, Dan.

Your next question comes from the line of Greg Wade with Wedbush. Please proceed with your question.

Thanks for taking my question, as well. I was just wondering if you might give us the number of doses that were delivered to the SNS in the first quarter, and how many doses remain under contract one? Thanks.

Hi Greg. This is Don. The question was actually posed a little bit earlier. And we don't give out specific dose numbers. But I did allude to an answer in the earlier question of approximately 2 million and change remain on the current contract that when that is completed, we anticipated beginning delivery under the 14.5 million dose contract. So it will be fairly transparent.

Thanks so much.

You bet.

Your next question comes from the line of Craig Gordon with Cowen & Company. Please proceed with your question.

I apologize for Eric getting in front of me. You know, sometimes you just can't control him. So in terms of the BioThrax extension for the facility, can you -- is that -- the timelines for that, is that 2009 event where you think you can be more specific about that? Or should we think of more details behind that pen war in the 2010 timeframe?

Well, obviously about a year ago before the RFP for rPA, we had envisioned manufacturing BioThrax at large scale in the brand new automated facility. We were all excited about it. But then when the RFP came out, we felt that this asset would be critical in securing a large scale and a large order for rPA manufacturing. Now this facility, as I've mentioned before, is currently dedicated in the pursuit of pre-award activities.

Now, since then and very quickly we looked at other options within our facility and outside of our facility because, as you know -- I don't know if you've been to our facility in Lansing. There's 12.5 acres there with several buildings where we could look at relatively quickly to install additional capacity at the current scale. So we're looking at different options. And as soon as we have a plan that is thought through and finalized, we will update you on that.

Great. And in terms of Typhella, my understanding -- is that still -- are we still waiting for Phase IIb data from the US trial, or has that already gone into Phase IIc in India? Can you just update us on the timelines for Typhella and when see that product going into Phase III, depending on the Phase II data?

Yes, the clinical study report is due to come out next month. So the trial is done here in the United States. And we will, of course, report and publish that. And thereafter, we are planning to take our typhoid vaccine, Typhella, along with Hepatitis B, to an Asian partner. It could be that same Chinese partner. It could be another partner. And with that then, we would gear up for a subsequent clinical trial.

Great. Thank you very much for taking my questions.

Thank you.

And this conclude the question and answer portion of today's call. I will now turn the call back over to Mr. Robert Burrows.

Thank you, Antoine. Ladies and gentlemen, that concludes today's call. And thank you all for your participation. Please note that today's call has been recorded, and a replay will be available beginning later today through the 21 of May. Alternatively, there is available a webcast of today's call, an archived version of which will be available later today, accessible through the Company's website. Again, it's www.emergentbiosolutions.com. Thanks again. We look forward to speaking to all of you in the future. Goodbye.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.