Emergent BioSolutions Inc (EBS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Emergent BioSolutions first quarter 2011 financial results conference call. My name is Ann and I'll be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. At this time all participants are in listen-only mode. (Operator Instructions). We will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over to Mr. Bob Burrows. Please proceed, sir.

Thank you, Ann. And good afternoon, ladies and gentlemen. Again, my name is Bob 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 2011.

As is customary, our call today is open to all participants. In addition, the call is being recorded and is copyrighted by Emergent BioSolutions.

Joining me on the call this afternoon with prepared comments will be Fuad El-Hibri, our Chairman and Chief Executive Officer, and Don Elsey, our 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, I'm 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 for 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 May 5, 2011. 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 web site at www.emergentbiosolutions.com under Investors/Press Releases.

And with that 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, everyone, and thank you for joining us on our earnings call today.

For my prepared comments, I will review our financial performance for the first quarter of 2011, provide guidance on second quarter revenue, discuss relevant updates to our business, and highlight key near-term milestones.

Before I begin, I would like to take a moment to comment on our news earlier this week. On Monday, May 2, we announced a modification to our current BioThrax procurement contract with CDC. The contract was expanded by 3.4 million doses with a total additional value of up to $101 million. This brings the total number of doses to be delivered under the contract to 17.9 million. Deliveries are contracted to be completed by the third quarter of this year. In addition, we continue to have discussions with CDC representatives regarding a follow-on multiyear procurement contract. We anticipate an award by the end of the third quarter this year.

Now let me review our first quarter financial results. We achieved total revenues of $18.5 million and realized a net loss of $21 million. As you may remember from our March earnings call, we anticipated reduced deliveries in the first quarter. We redeployed our potency testing capacity primarily to the qualification of replacement reference standards. This process, which is required to enable continued release of BioThrax doses, has now been substantially completed.

Moving on to guidance, we maintain our full-year 2011 guidance of total revenues of $320 million to $340 million. We expect second quarter total revenues of $80 million to $90 million, reflecting a return to normal levels of product release. We anticipate catching up to our total revenue guidance by the end of the year. We also maintain our full-year 2011 net income guidance of $35 million to $45 million.

Let me now discuss the relevant updates to our business since our March earnings call beginning with our BioDefense Division. I'm pleased to report substantial progress across key programs. We completed multiple engineering runs in Building 55 under a funded multiyear program to license the large scale manufacture of BioThrax. We completed qualification activities and are preparing a BLA supplement to obtain regulatory approval for a second fill/finish contract for BioThrax as part of our risk mitigation strategy. We completed dosing patients in the first -- sorry, in the phase I safety study for both Thravixa, our monoclonal anthrax therapeutic, and NuThrax, which combines BioThrax with a novel adjuvant. We also submitted proposals totaling over $95 million to fund continued development of Anthrivig, our polyclonal anthrax therapeutic, Thravixa, and a post-exposure indication for BioThrax.

With respect to our BioSciences Division, the last of about 2,800 infants have been vaccinated in the phase IIb efficacy trial evaluating our MVA-based TB vaccine candidate. This is the largest infant clinical study for a next-generation TB vaccine conducted to date. We're pleased to be developing this product in partnership with the University of Oxford, Aeras, the Wellcome Trust, and SATVI, our South African CRO. We look forward to a final study report in the second half of 2012.

In addition, for TRU-016, our anti-CD37 therapeutic candidate, which is being developed with Abbott under a collaboration agreement, we recently began dosing patients in a phase Ib/II combination study with bendamustine in relapsed CLL patients.

Finally, I would like to provide an update on the key milestones we expect to achieve through year-end. First in terms of additional US government contracts, for BioThrax, we expect to secure a multiyear procurement contract, which will commit substantially all of our current annual capacity. And for Anthrivig, Thravixa, and BioThrax post-exposure, we expect to secure additional multiyear development funding of up to $95 million.

Second, in terms of anticipated milestone payments, we expect to achieve a TRU-016 development milestone, which will trigger a $6 million payment from Abbott.

Third, in terms of clinical development milestones, starting with the advanced stage programs for Anthrivig, we anticipate issuing the final study report for the recently-completed pivotal clinical trial. For the TB vaccine candidate, we expect the initiation of a phase IIb efficacy study in HIV-infected adults and adolescents sponsored by Aeras. And for SBI-087 in RA, we anticipate completing enrollment for a phase II dose regimen findings study.

Then with respect to our phase I programs, we anticipate the following -- for TRU-016 initiating a phase II combination study for CLL and a phase I combination study for NHL, for SBI-087 completing a phase I safety and PK study for SLE, and for Thravixa completing a phase I safety and PK study for anthrax.

Fourth, in terms of manufacturing infrastructure milestones, for our Baltimore facility, we're on track to substantially complete facility modifications and to initiate tech transfer for our first product candidate. And for our Lansing facility, we are on track with initiating manufacture of consistency lots of BioThrax in Building 55 by year-end.

Additionally, we continue to pursue acquisition and licensing opportunities to advance our R&D pipeline and expand our sources of revenue.

In conclusion, we continue to execute on this year's operating plan. We look forward to updating you throughout the remainder of the year on our progress toward achieving our key 2011 milestones.

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 2011. I encourage everyone to take a look at the press release, which is currently available on our web site. We plan to file our quarterly report on Form 10-Q with the SEC no later than the close of business tomorrow, Friday, May 6. The 10-Q will also be available on our web site.

I'll now provide a brief overview of our financial results for the first quarter of 2011.

As we previously guided, our total revenues in Q1 were light. Total revenues were $18.5 million, which were comprised of $5.6 million of product sales and $12.9 million of contracts and grants revenue. As Fuad has already discussed, during the quarter we redeployed our potency testing capacity to the qualification of replacement reference standards and other development testing. This process, which is required to enable continued release of BioThrax doses, has now been substantially completed. Looking at the contracts and grants revenue, this increased by 63% or $5 million over the $7.9 million recognized in first quarter 2010. This growth was driven by increases in reimbursement revenues from BARDA related to the Building 55 and [PrevaThrax] contracts awarded in 2011, as well as collaboration revenues from Abbott and Pfizer.

On the spending side, our R&D expense in Q1 2011 was $34.8 million versus $19.9 million for Q1 2010, an increase of 74%. On a sequential basis relative to Q4 2010, our R&D expense increased by 17%. In both instances, the growth in Q1 2011 reflects the impact of the programs we acquired as part of the acquisition of Trubion late last year. If one takes into account the contracts and grants funding we have for many of our programs, our net R&D spend for Q1 2011 was $20 million. We expect our total R&D spending will continue to fluctuate quarter to quarter due to the various development stages of our pipeline candidates.

Our SG&A expense in Q1 2011 was $18.2 million, an increase of $2 million or 12% over Q1 2010. On a sequential basis, our SG&A spending decreased 16% relative to fourth quarter 2010. We expect to continue to carefully manage our growth in overhead.

As a result of both the light revenue and continuing investment in our product pipeline, we recorded a Q1 2011 net loss of $21.4 million or $0.61 per share.

Finally, let me briefly comment on the balance sheet. Our combined cash, cash equivalents, investments, and accounts receivable totaled $155.2 million as of March 31, 2011 compared with $210.3 million at December 31, 2010.

Turning now to our 2011 financial forecast, as Fuad noted earlier, we are reaffirming our 2011 forecast of total revenues of $320 million to $340 million and net income after tax of $35 million to $45 million. For the second quarter of 2011, we are anticipating total revenues of between $80 million and $90 million. And importantly, we remain confident that we will sign a multiyear procurement contract with the US government before the end of September this year.

As we started in our call of March 10 of this year, calendar 2011 is a year of execution. We look forward to completing deliveries of BioThrax under our current US government contract as recently modified and we expect to begin delivering under a follow-on multiyear contract. We continue to make significant progress with the modifications to our Baltimore facility and the process of licensure of Building 55. We anticipate achieving important development milestones in many of our clinical development programs. We also will continue to focus on growing our business through M&A and are actively reviewing opportunities that would bring near-term value.

That concludes my 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). And our first question comes from the line of Eric Schmidt with Cowen and Company. Please proceed.

Good afternoon. Thanks for taking the question.

Just wondering if you could provide a little bit more detail on what "substantially completed" means, what's actually left to be completed? And I guess in addition given it sounds like you haven't started reshipping to the stockpile how you have confidence that the runs that you've been accumulating will pass potency lab testing?

Thank you, Eric. Let me start by saying that with substantially completing the process, we mean that we've done most of the testing that is part of the process of qualifying a new reference lot. Of course, after that we need to put a package together, analyze the data, put it together, and submit it to FDA and give FDA time to review it.

With respect to deliveries, you are right. We haven't shipped yet. But we did -- do expect to ship by the end of this second quarter as we have shown in our guidance for the second quarter, which is $80 million to $90 million in total sales, which as usual a significant portion of that is going to be product sales. So we do anticipate getting product released by end of quarter and actually shipping by end of second quarter.

So, Fuad, just to be clear then, you've obviously been accumulating a lot of product and that's waiting around to be potency-tested once you've finished the qualification. And your best guess, of course, is that most of those lots will pass testing and be shipped this quarter?

That's correct. Absolutely. And also, Eric, be reminded that we have annual maintenance shutdowns that we perform. And the one that we performed last year was towards the later part of the year, which means that anyway even if we hadn't reallocated the -- or redeployed the potency testing capacity that the first quarter would have been light in terms of product release anyway because it takes about three to four months from the time we reinitiate after a shutdown until we get FDA release of a product. So yeah, there are certainly lots in the queue that we are confident are going to test within the normal range of testing throughout the year so that at the -- by end of second quarter we would have an ability to achieve the guidance that we gave.

Thanks for the clarification.

One more question on the $600,000 in sales to international and other customers. I think that may be the first time you've broken that number out, at least if my memory serves? Is this going to be something we see in the future? And is $600,000 about the kind of run rate or is this an aberrant quarter one way or another?

So, Eric, this is Don. How are you?

Good. Thanks Don.

Good. Good.

We've broken that out in past calls and certainly in all of the filings with the SEC, so this is nothing out of the ordinary and we will continue to break it out as we go forward.

As you know, as we've talked about the ex-US market in the past, the -- I don't think one could point to a run rate for ex-US. As demands arise and as we're able to satisfy those demands with some capacity that may be available, we'll do so. But I wouldn't project a run rate at this point in time.

And I would like to add to that, too, is that we are pursuing regulatory approval to market BioThrax in several countries around the world. And as we're making progress towards that and hopefully which will culminate in market authorization in those markets, we think that that's -- and assuming we do have a bit extra capacity that that might increase future sales. Again, there is no promise of that. It's I was just giving you a little bit more color as to what we are doing in terms of potentially expanding our -- the potential of our international markets.

Thank you.

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

Good afternoon. Thanks for taking my questions.

First up, with respect to Building 55, could you give us a little more granularity in to the milestones associated with licensure and the anticipated timeline for those? And then, Don, could you just tell us a little bit about what depreciation expense was in the quarter and how you think that's going to behave over the anticipated coming year and maybe next year as you guys get more manufacturing capacity under your belt?

Thanks.

Thanks for joining us today, Greg. Let me try to answer the first question, which is that really we have a multiyear contract with BARDA to scale-up the manufacturing of BioThrax in Building 55. And there are -- this is a development contract, which has, you know, which has normal development milestones that we achieve. We prepare invoices and get reimbursed for the activity that we expended on the project. So the key milestones I guess for this year is consistency lot manufacture. For next year, it's clinical testing and nonclinical stuff, which go on in parallel, and then hopefully thereafter BLA submission.

All right, Greg, good afternoon.

With regards to depreciation for the quarter, it was about $2.2 million. And basically it's going to remain in that area until such time as Baltimore comes on. As you know, depreciation begins when an asset is put in place for its intended use, so Building 55 won't contribute to that stream until such time as it's licensed. So Baltimore is probably the next significant asset investment and we would look at that beginning probably in 2012.

Great. Thanks for taking my questions.

Thank you, Greg.

(Operator Instructions). And our next question comes from the line of Karen Jay with JPMorgan.

Good afternoon. Karen for Cory Kasimov.

I have two questions. The first is now that you've had the -- been awarded the bridging contract, is there any visibility into potential timing of the RFP -- for the renewal?

Yes, thank you for joining us, Karen.

Yes, indeed, we were very pleased to execute the modification, which actually adds 3.4 million doses to the contract, the existing contract that we have, which we are -- we have been overall delivering early on, so that bridges us through September.

The RFP is still being worked on. We have no reason to believe that it's not forthcoming very soon. We remain confident that it's going to come out. We remain confident that an award will be finalized by the end of the third quarter this year.

Okay, great.

And my second question is on Building 55 -- any updates on whether or not bridging studies will be required?

It's -- we've -- we have dialogue with FDA on an ongoing basis. And once our consistency lots are completed, we will have another meeting with FDA to discuss this in greater detail. So it's a little premature now to comment. And we're not -- we are prepared to do both. If there is a bridging study to be done, we are prepared to do that. If we don't have to do one, it means earlier approval, which is also a good thing. So we are not opining as to what the situation might be. We are happy that our Building 55 contract with the government allows -- provides funding for the situation that we do have to do a clinical bridging study.

Great, thank you.

Thank you.

Ladies and gentlemen, with no further questions, this concludes today's question-and-answer session. I would now like to turn the call back over to Bob Burrows for closing remarks.

Thank you, Ann. Ladies and gentlemen, that concludes today's call. Thank you for participation. Please note that today's call has been recorded and a replay will be available beginning later today through May 19. 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 web site.

Thank you, again, and we look forward to speaking to all of you in the future. Goodbye.

Ladies and gentlemen, we thank you for participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day.