Emergent BioSolutions Inc (EBS) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Emergent BioSolutions, Incorporated Second Quarter 2009 Financial Results Conference Call. My name is Tamesia and I'll be your operator for today. 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). As a reminder, this conference is being recorded for replay purposes.

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

Thank you, Tamesia. 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 and 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 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 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 was held and recorded on August 6th, 2009. Since then, Emergent may have made announcements related to topics discussed during today's call so again, please reference our most recent press releases and SEC filings.

Emergent BioSolutions assumes no obligation to update the information in today's press release or as presented on this call except as may be required by applicable laws or regulations. Today's press release may be found on our website at www.emergentbioslutions.com under Investors/Press Releases.

And with that brief introduction, I would now like to turn the call over to Fuad El-Hibri, Emergent BioSolutions Chairman and CEO. Fuad?

Thank you, Bob. 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 for six 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 to the strategic implications, 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 would like to address our core BioThrax business and our recombinant anthrax vaccine opportunity. First, BioThrax. As you know, BioThrax is the only FDA-licensed vaccine for the prevention of anthrax disease. We are 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 to the various BioThrax enhancement efforts that are currently underway. First, we announced that FDA approved four-year dating for BioThrax, triggering a $30 million lump sum payment from HHS. This payment reflects a price premium for achieving extended dating under the current contract. More recently, we completed deliveries under the current contract and expect to be 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, four-year dating provides BioThrax another competitive advantage for stockpiling purposes.

Earlier this year, we also announced that FDA-approved an ion route of administration and the reduction to a five-dose schedule over 18 months. This license amendment was supported by an interim analysis of data generated by a clinical trial funded by CDC. This trial is designed to support a reduction in the dosing schedule to as few as three doses over six 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 initiatives designed 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 eight 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 FDA in which they provided us 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 of these awards 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, RTB 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 to prevent tuberculosis, and I'm excited to inform you that we recently began dosing patients in a Phase IIb 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 2,700 infants and to last approximately two 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 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 tuberculosis 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 a sizeable 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 the need for a 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 million and 8 million doses of BioThrax annually. It is running at full capacity. Next, 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 manufacture of rPA in this facility.

Next, the new manufacturing facility in Maryland. As 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're 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 manufacture 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 the 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 BioThrax 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, assay 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. Bottom line, the exchange of the two Frederick facilities we currently own for both the Maryland manufacturing facility and the Gaithersburg lab should in aggregate be cash positive and should result in savings for the company, including the reduction in our total debt and annual interest and operating expenses.

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 four-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?

Thank you, Fuad. Good afternoon, everyone. 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 10-Q with the SEC by the close of business tomorrow, Friday, August 7th, 2009. The 10-Q, when 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 four-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 first half 2008. Contracts and grants revenue were at $3.9 million versus $1.2 million in Q2 2008 and for the first half of 2009, was $6.7 million compared to $2.4 million in first half 2008. The growth in contracts and grants revenue 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 2009. Our gross profit margins for the first and second quarter and first half were positively impacted by the payment for four-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 IIb trial for our tuberculosis candidate. For the second quarter 2009, development spending was $20.7 million which was an increase of $3.5 million, or 20% over second quarter 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 second quarter 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 bottom line 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 basic 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 A/R balance was received early in Q3, giving us current cash balances well in excess of $100 million.

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 the 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 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 performance as reported today positions 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. Operator, please proceed.

(Operator Instructions).

And the first question comes from the line of Mr. Cory Kasimov of J.P. Morgan.

Operator, hold on. We can't hear you.

And the first question comes from the line of Mr. Cory Kasimov of J.P. Morgan. Please proceed.

Hi, good afternoon. Actually, this is Mona for Cory. A few questions. One, on the new manufacturing infrastructure. I'm wondering what kind of timeframe you're 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.

Thank you, Mona. This is Fuad. To -- there's several question you've just posed and let me try to answer them one by one. First, we do believe that the new facility in Maryland is suitable for rPA manufacture 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.

Did you say what kind of capacity?

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

Okay. And actually that kind of leads into 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, if you wanted to use the facility now for BioThrax, what kind of timeframe are you looking at to get it, I guess, set up again to use the BioThrax manufacturing?

Yes, that's a very good question, Mona, because one of the reasons why we looked at another facility is exactly because 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 that the moment the government has agreed that we could use this alternative facility for rPA manufacture, we would resume the scale-up activities of BioThrax.

Okay, that's very helpful. And then one other question. I noticed in the press release, so, it looks like there was a higher cost per dose because of the lower production yield for the quarter for BioThrax and I was just wondering if this is a one-off issue for the quarter or is this something that you see persisting for the rest of the --

Mona, this is Don. Good afternoon. Really looking at this as a one-time event. As you're well familiar, biological yields can certainly fluctuate and as you probably know, doses we were delivering in Q2 began their manufacture in 2008 so that was really a function of some of the manufacturing back in 2008 manifesting itself in Q2 so we don't expect that to continue on.

Okay, thank you very much for taking my questions.

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

Good afternoon. Congratulations on a nice quarter. Fuad, did I hear you right that you're now expecting to receive the rPA contract this year?

Yes.

I think that's a change in tone, if not absolute content, from your previous guidance of maybe late this year, early next. Tell us about what's changed in your discussions?

Yes, I see. 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 maybe one 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 because the government sometimes has priorities that may shift so they 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 months to months, are very positive that they're committed to the process, committed to letting out two awards for rPA and right now, I'm -- from what I can see, I'm quite optimistic.

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

Well 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 year and I feel that there's a good chance it's going to happen this year, but to months, I can't tell you. The good news is there are only four or five more months left this year so, you know, it's going to be reasonably short in term.

Okay. And I guess you're 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 Gaithersburg and Maryland but what actually is 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?

I'm glad you asked that, Eric, because I want to clarify that. As we previously announced, we had seized 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, and -- 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, you know, could you do both in Building 55.

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 building, with this new manufacturing facility, we may be in a position to convince the government that we could do both -- rPAs as well as continue our scale-up activities in Building 55.

But as of today, Fuad, there's been no switch-back to BioThrax?

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

Okay. And just a couple of maybe accounting hits for Don. Is it $30 million you received in lump sum -- I guess you've got $4 million left and is that -- was that in receivables at the end of the quarter or where is that?

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

Okay. Okay. And on the manufacturing facility sale and purchase of the new facilities, are all the prices negotiated?

Let me phrase it this way. We have entered into commitment agreements on the sale of the Frederick facility and on the purchase of the manufacturing facility. I'm not at liberty at this point in time to disclose the dollar arrangements or any of the other details.

Okay. And just one last question. What's the update on the Protein Sciences situation?

As you know, the PSC, Protein Sciences matter, is still in litigation. But, you know, 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 plant 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 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.

Thank you very much.

Thank you, Eric.

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

Yes, thanks for taking the questions. So the first one -- I have to ask -- you know, 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 there are investors out there that would be frustrated with that. It almost implies that there's a loss coming in the back half of the year. Now I know you guys talked about the seasonality. Are you guys expecting to lose money in the quarters going forward?

Number one -- good afternoon, this is Don.

Hey, Don.

As you know, we don't give guidance on a quarterly basis, we give guidance on the annual basis and we're going to stick with that. Seasonality -- I prefer to just say the variability with regards to how income flows from government shipments. What we normally do as we plan our R&D and SG&A spending which is going to be in line with the programs that we support, quite often that is occurring erratically 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 finances for the annual and not so much on a quarter-by-quarter basis. So, with respect to taking a look at models and mathematically what might occur in the second half of the year, I think you can extrapolate out to year models to the guidance that we've given for the annual basis.

All right. Well, 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 be -- may not run at normal levels? And 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 plants' shutdown in Q2, $30 million if you X-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 million to mid $40 million level per quarter. So that's sort of the product revenue side and then SG&A and R&D had some one-time non-cash charges in there, so I guess -- 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 million, $80 million 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.

I don't think that there's anything that we haven't previously discussed in giving the guidance on $225 million to $240 million 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. Then, as in years past, as we take a look at how we spend SG&A and R&D it's usually fairly [ratably] over the year and there's nothing extraordinary that's going to be coming in from that perspective. Remember in the $225 million to $240 million is made up of both the product sales revenues and the contracts and grants rather --

And the $34 million?

And lump sum premium -- so --

Okay, 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's anything unusual. If you hit the low end, then I understand. So just hitting the cost side, then, to try and wrap this up. In the first quarter you're running about $16 million SG&A, you had $3 million and change in the second quarter. You go back down to that level?

Again, we don't give guidance on each individual line item, David, but, again we spend fairly ratably through the year.

Okay.

And the only thing that -- the only thing that I would toss out there that's at all unusual is we had a couple of non-cash charges in the first part of the year. We've filed 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.

All right. If I could --

And even --

Go ahead.

Yes, sorry David.

This is Fuad. To just to add what Don said. Even though our G&A spend is more or less ratable during the year, our product development spend does fluctuate from quarter to quarter as you may -- as certain clinical trials start and others end so there is a little bit more variation from quarter to quarter. And we're not just a biodefense BioThrax sales company. We are developing a pipeline both in biodefense and commercial segments that's -- we're reinvesting to advance and reap the benefits sometime in the future.

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

I really can't say at this point. We're, number one, not ready to, or prepared to publicly disclose the amount but --

But it won't break the bank.

Yes, it won't break the bank, and it certainly depends on the length of the proceedings. If this is quickly resolved, it's one number and if goes on for a protracted amount of time, it's certainly a different number.

All right. One product question and then I'll jump back in queue. And that is on the Building 55 you guys talk about, if there's that scenario where you're able to shift to the Maryland building after the rPA contract, how long would it take before you actually had saleable BioThrax product coming out of Building 55?

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

Okay. Thanks.

And the next question comes from the line of Sean Long with Kennedy Capital Management. Please proceed.

Good afternoon, gentlemen, how's it going?

Hi, Sean.

Hi, Sean.

I kind of jumped on a little late so I apologize. I had two questions but one was already asked and answered so I appreciate that. I just had -- just if you guys had [dominoes] buying before you, if you had a BioThrax cost per dose on hand and I can call back later if that's something that too much right now, but I was just wondering if you had a BioThrax cost per dose for this quarter.

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 can talk about the 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.

Perfect, Don, thank you, I'll do that. Have a good day. Congratulations.

Thank you, Sean.

Thank you, Sean.

(Operator Instructions). Okay. And the next question comes from the line of Mr. David Moskowitz. Please proceed.

I'm back. Okay.

Hi.

Now my other Q&A. So could you talk about the US BioThrax sales that we might expect this year? I remember right in the report we talked about 5% of your sales coming from the OUS. Is there a potential for you to do better than that this year?

Well, you know, if I have difficulty predicting the timeframes with the US government, I can tell you I have much larger challenges in predicting other governments. All I can tell you is 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 purchase.

We're happy to have announced that we have achieved it there. We have several other regulatory submissions we're pursuing and making progress there. The international markets take a little longer and they're very hard to predict in terms of annual sales but if you look -- along a three to five-year horizon, I feel quite confident that we will have growing international sales.

Okay, great. And just a last question, if I can 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. Any color you could put around that?

David, what I'd tell you is what I anticipate is a modest reduction. Clearly we haven't finalized the financing for all the locations and take a look at what that all nets out to be because it's going to take 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.

Okay, great. Thanks and congratulations on a great quarter.

Thank you, David.

Thank you, David.

Ladies and gentlemen, this concludes the question and answer session for today's call. I would now like to turn the call back to Mr. Robert Burrows for closing remarks.

Thank you very much. Ladies and gentlemen, that concludes today's call. We appreciate everyone's participation today. Please note that today's call has been recorded and a replay will be available beginning later today through August 20th. Alternatively, there is available a webcast of today's call and an archived version will be available later today accessible through the company's website, again at www.emergentbiosolutions.com and clicking on the Investor's tab.

If anyone has additional questions, feel free to give me a call at 301-795-1877. I'm happy to answer anyone's questions in the future. Thank you again and we look forward to speaking to all of you in the future. Goodbye.

Thank you for your participation in today's conference. This concludes the presentation.