Emergent BioSolutions Inc (EBS) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Emergent BioSolutions' Second Quarter of 2012 Financial Results Conference Call. My name is Ian and I will 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) And as a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Bob Burrows, the Vice President of Investor Relations. Please proceed, sir.

Thank you, Ian. Good afternoon, ladies and gentlemen. Thank you for joining us today as we discuss Emergent BioSolutions' second quarter of 2012 financial results. As is customary, our call today is open to all participants. In addition, the call is being recorded and is copyrighted by Emergent BioSolutions.

Our call today will start with a few brief prepared comments by our President and CEO, Dan Abdun-Nabi, who will give an overview of our financial performance for the second quarter, a brief business update and our 2012 forecast, including revenue expectations for the third quarter. Then, our CFO, Don Elsey, will go through the financials in detail before we open up the call for your questions.

We have several other members of senior management available to respond to your questions. 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 August 2, 2012. 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 prepared -- 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/News.

And with that introduction, I would now like to turn the call over to Dan Abdun-Nabi, Emergent BioSolutions' President and CEO. Dan?

Thank you, Bob. Good afternoon everyone and thank you for joining our call today. In my prepared comments, I will review our results for the second quarter and year-to-date, discuss our achievements for this quarter and highlight certain near-term milestones. I will conclude my remarks with our guidance for the third quarter and for the full year. To begin, our total revenues for the second quarter were just over $70 million. This is within the guidance that we provided during our May conference call.

Year-to-date, total revenues were approximately $121 million. Net income for the quarter was $7.6 million and was approximately $800,000 for the first six months of the year. Turning to our achievements during the second quarter, we made progress on a number of initiatives. We commenced the manufacturing of consistency lots in Building 55. This represents a significant step towards licensure of this large scale BioThrax manufacturing facility.

Once completed, the consistency lot material will be used in our pivotal non-clinical study. The data from that study, together with other comparability data, will be reviewed by FDA as part of our licensure package. Last year, FDA indicated its overall support for our plan for regulatory approval of Building 55 without the need for conducting clinical trials. This regulatory plan is based on achieving specified endpoints in our proposed comparability and non-clinical studies.

More recently, during the second quarter, FDA notified us that they concurred with the design of our pivotal non-clinical study. If we are successful in this plan, we remain confident that licensure could occur in late 2014. As a reminder, we are receiving development funding from BARDA to support the licensure of Building 55 for the manufacture of BioThrax.

In terms of BioThrax improvements, we accomplished two important milestones during the second quarter. First, FDA approved an amendment to our BioThrax generally-used Prophylaxis or GUP label. The BioThrax label now provides for a three-dose primary series with booster doses thereafter. This is an important milestone that was achieved with significant support by the U.S. government.

We believe the achievement of this milestone addresses a key requirement and enhances the value of BioThrax to our principal customers within the U.S. government. Second, we completed enrollment in the pivotal immunogenicity study of BioThrax for a post-exposure prophylaxis or PEP indication. This is being conducted under our current BARDA contract. We also secured an additional BARDA contract to support a Phase II non-interference study related to a PEP indication for BioThrax.

Regarding PreviThrax, our recombinant anthrax vaccine candidate, we recently reviewed our progress with representatives from BARDA. Based on that review, we believe that BARDA will exercise an upcoming one-year option under the current development contract that we have with them. We expect to receive formal notice of this exercise in the third quarter of this year.

Lastly, HHS has awarded us a contract to establish a Center of Innovation in Advanced Development and Manufacturing. This contract will involve the use of both our Baltimore and Gaithersburg sites. Contracts were also awarded to Novartis and Texas A&M, which has partnered with GlaxoSmithKline. These centers will address several HHS goals, regarding public health emergencies, including ensuring that the U.S. can quickly develop and manufacture medical countermeasures, reducing U.S. dependence on vaccines made in other countries and developing the next generation of America's biotechnology workforce.

Our contract consists of an initial eight-year cost reimbursable, cost share base period of performance with a fixed price component that would result in funding to us of up to $163 million. The base contract period includes securing a pandemic influenza vaccine candidate, constructing additional facilities to support pandemic influenza vaccine production and obtaining facility licensure to manufacture a pandemic influenza vaccine at the Baltimore site. The contract also contemplates up to 17 additional one-year options.

Further, BARDA may issue task orders for additional services, including the manufacture and delivery of up to 50 million doses of an influenza vaccine in the event of a pandemic and developing and manufacturing services to other companies developing countermeasures against CBRN threats.

We are currently evaluating several potential flu vaccine candidates that meet HHS requirements and that could be manufactured in our Baltimore site. We expect to make our final selection in the near term. This award represents a long-term public-private partnership with BARDA to help achieve our common goal of strengthening the nation's preparedness and response to pandemic.

Turning now to the second half of this year, we anticipate achieving the following key milestones in both our BioDefense and BioScience divisions. In terms of our BioDefense programs, we expect to initiate the BioThrax PEP Phase II antibiotic non-interference study. In addition, we expect to initiate a Phase II clinical study of NuThrax, also for a PEP indication.

Regarding milestones for our BioScience program, for TRU-016 in NHL, we will complete the Phase Ib comparative study and we'll make a determination regarding going forward with the Phase II study. For TRU-016 in CLL, recruitment is ongoing and patient dosing continues in the Phase II combination study. The success of this Phase II combination study will determine whether a Phase III study is warranted. We anticipate making that determination in mid-2013.

For MVA85A, our tuberculosis vaccine candidate, we anticipate receiving the data from the 2800 infant Phase IIb field efficacy study at the end of the year or shortly thereafter. As you may recall, MVA85A is a one dose booster to BCG. The vaccination phase of the trial has been completed and these infants are now being observed.

Let me take a moment to discuss the public health threat globally that tuberculosis represents. Approximately 2 billion people or one-third of the world's population are estimated to be infected with the bacteria and are at risk of developing tuberculosis. According to the WHO, approximately 1.5 million people die from TB every year worldwide. Tuberculosis is the second leading cause of death from infectious disease globally and, according to the CDC, is the leading cause of death among HIV-infected individuals.

As I've mentioned in prior call, the public health challenge has been intensified by the rise of TB strains that fail to respond to the most effective TB treatments.

The global healthcare community is increasingly focused on the TB issue. In fact, in a press release issued in March of this year, the President of the Global Health Program at the Bill & Melinda Gates Foundation said and I quote --There is an urgent need for the global community to support the full range of tools to eliminate tuberculosis. But the development of TB vaccines that can prevent men, women and children from developing the disease would be the single greatest advance in the global fight against TB.

We are actively participating in a number of organizations worldwide, involving addressing the global health concern, we'll collaborate with Aeras, the Wellcome Trust, SATVI, NIAID, Oxford University, EDCTP and other key opinion leaders, all in pursuit of the solution to this substantial unmet global health need. These collaborations have enabled us to conduct a field efficacy study, as well as other clinical trials and to engage in other efforts in order to clarify a rapid path to licensure.

We've also engaged in discussions with representatives of the WHO, regarding MVA85A and our approach to the TB issue. Given the heavy disease burden worldwide and the recognized need for a new TB vaccine, we may, depending on the data from the ongoing study, be in a position to pursue accelerated or conditional approval for MVA85A in selected countries.

With respect to the market opportunities for MVA85A, we have full commercial rights to approximately 55 high-income and middle-income countries, including in the EU, Russia and Brazil as well as in the private markets in both India and China. Within our commercial market, there are an estimated 45 million to 50 million births annually. Even at a modest price per dose and assuming a one-dose booster regimen, this represents a significant market opportunity for Emergent.

So in summary, MVA85A offers the promise of addressing a significant global health threat, while representing a substantial commercial opportunity for Emergent. Finally, let me conclude with our guidance. For the third quarter, we are forecasting total revenues of between $60 million to $70 million and the full year, we reaffirm our guidance of total revenues of between $280 million to $300 million and net income between $15 million to $25 million.

That concludes my prepared comments and now, we will turn it over to Don, who will take you through the numbers in greater detail.

Thank you, Dan. Good afternoon, everyone. Following the close of the markets today, we released our financial results for the second quarter 2012. 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, no later than the close of business tomorrow, Friday, August 3. The 10-Q will also be available on our website.

Let me now briefly discuss the numbers. Second quarter 2012 total revenues were $70.4 million versus $88.1 million in the second quarter 2011. Total revenues for the first six months of 2012 were $120.7 million versus $106.7 million for the first half of 2011.

Diving a little deeper, year-to-date product sales revenues were $87.5 million versus $77.1 million for the first six months of last year. This increase was driven by a 23% increase in the number of BioThrax doses delivered.

Year-to-date contracts and grants revenues were $33.2 million versus $29.6 million for the same period last year. This increase was primarily due to increased activity under our BARDA development contracts for Building 55 in PreviThrax.

Turning to gross margins, our gross margin in Q2 2012 was approximately 75%, which is within our typical range of between 70% and 80%. Gross margin for the first six months of 2012 was approximately 76%.

Turning to the bottom line, second quarter 2012 net income was $7.6 million or $0.21 per basic share as compared to $14.2 million or $0.40 per basic share in the second quarter of 2011. Net income for the first six months of 2012 was $800,000 or $0.02 per share as compared to a net loss of $7.2 million or a loss of $0.20 per share for the first half of 2011. Year-to-date net income reflects the impact of the $9.6 million non-cash charge in the first quarter. If you adjust for this non-cash charge, 2012 year-to-date net income was $7.8 million or $0.22 per share.

Turning now to spending, our R&D expenses for the second quarter 2012 were $30.6 million compared to $31.5 million in the same period last year. I'd like to highlight that contracts and grants revenues and costs associated with non-controlling interests in our joint ventures offset a portion of our gross R&D expenses. When we take these into account, our net R&D for Q2 2012 was $11.3 million.

R&D expenses for the first six months of 2012 were $56.9 million compared to $66.2 million in the first six months of 2011. Again, adjusting for contracts and grants revenues and non-controlling interests in our joint ventures, the net R&D for the first half of 2012 was $20.4 million.

Our SG&A expenses for the second quarter 2012 were $17.9 million compared to $20.4 million in the second quarter 2011. The decrease is primarily attributable to the restructuring charges related to our UK operations that we incurred in 2011. SG&A expenses for the first six months of 2012 were $37.4 million compared to $38.6 million for the first half of 2011.

Turning now to the balance sheet, we ended the second quarter 2012 with cash and cash equivalents of $161.8 million and an accounts receivable balance of $46.8 million.

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) Cory Kasimov, JPMorgan.

Hey, good afternoon, guys, and thanks for taking my questions. I have a few of them for you. First of all, just wondering if the FDA approval of the new Three-Dose Primary Series for BioThrax, if that has any impact on pricing going forward.

No. Cory, by the way, thanks for participating today. No, it doesn't have any impact on pricing under the contract.

Okay. And then, Don, are you able to talk a little bit about the logistics of your planned buyback? Is there anything -- any granularity or anything you can give us there?

Yes, I think in terms of timing and next steps, we, as you know, have Board approval. We've announced that. We've now worked through the mechanisms that would be established under a formal plan and we expect that would be initiated sometime in the very near term.

Okay. And then, lastly, I missed part of what you had said on the pending TB data. So I'm sorry if you're repeating this, but do you have a sense of what your next steps are going to be, if the Phase IIb results are positive at the end of this year?

Yes, I think what we've talked about and we've already had some preliminary discussions with some key opinion leaders and representatives in the public health community, an approach that might permit for either accelerated or conditional approval. And we do need to sit down with regulatory authorities and define exactly how that would work but big picture, the concept would be, we would be approved to manufacture and supply the product in select territories to start to begin to address the public health threat, while at the same time, either undertaking follow-on Phase III study or some other level of activity that would support the data that we saw in the Phase IIb. And the exact parameters and what that might look like remains to be decided. But I think, as I said, a lot will be depending upon what the data looks like.

Okay. So something potentially along the lines of an accelerated approval for a cancer drug, for example, in the United States?

I think that's a fair comparator, but again, it's premature to give too much definition to it, but that's our concept, exactly.

Okay. All right. Great, thank you very much. That's helpful.

Thank you for your question. Nicholas Bishop, Cowen and Company.

Thanks. First, just a couple of financial ones for Don. I wonder if you can give us any qualitative guidance on the contract and grants line over the next two quarters. I mean, I know we know what the annual guidance is, but you've alluded to some potential new contracts in the third quarter. Is the third quarter likely to be higher than the fourth or is there any help you can give us there?

Generally speaking, as we take a look at the consolidation of contracts and grants, and putting [ADM] aside for a moment, I would say that it's on a fairly straight line over the next two quarters, Nick. While we don't break out specific guidance on those, it, of course, depends on a variety of milestones that are being reached with various contracts and approval from the various agencies to proceed with various steps. So, it's always a little hard to tell, even from within the Company.

But, I think relatively evenly divided over the next couple of quarters on contracts and grants. Putting ADM aside, let me just make a quick comment on ADM, as we talked about earlier. When we announced ADM, we don't anticipate it will have a material impact on 2012. And we anticipate that we will have the accounting for that squared away, certainly in the latter part of this year and will explain that more fully as we come to conclusion with the SEC and we'll reflect that in our guidance for 2013, when we publish that in January of next year.

Okay, great. That's helpful. And then, on BioThrax, I guess, based on your guidance and the pattern for last year, it's reasonable to assume a pretty large fourth quarter on that. Is that fair to say?

That is correct. Given our annual guidance reaffirmation and the Q3 guidance that we gave you, it's a quick mathematical exercise and it will be a large fourth quarter.

Okay. And then, just one last one. I wonder if you could on the Building 55 process, just remind us kind of the timing and kind of gating factors in completing the pivotal and comparability studies and what the design of those studies is.

Yes. So let me start and then I would like to have Adam Havey, the President of our BioDefense Division, add a little color. As we indicated, really the plan that's been worked out with FDA is based on comparability in non-clinical programs. And we have reached agreement as to what those endpoints ought to look like. So we're now initiating the process of conducting those studies and Adam can give you a little bit better clarity in terms of a timeline and what the milestones going forward to BLA submission might look like.

Yes, thanks. At a high level, as Dan mentioned, we initiated our consistency lots which is kind of the first step in the process. And we will wrap those up in this quarter. That will then lead into the start of our pivotal non-clinical study. And that will run primarily through 2013. And then, we'll prepare our FDA submissions, submit it to the FDA and go through the standard regulatory approval process and hopefully with licensure late in 2014.

Okay, thanks. That's very helpful.

Thank you for the question. Mario Corso, Caris & Company.

Yes. Thank you for taking my question. So for the second quarter, your revenue numbers came in toward the low end of your guidance. So as we think about the BioThrax, I'm wondering what you can say about the quarter and going forward, kind of where you are on a yield basis, where you are on a shipment basis. Did something there not occur as well as it could have in order to hit a better part or the upper part of your guidance? And then, in terms of the Building 55 lots, I assume [those being on serial release], so will you be getting some data soon and will that be shared with us or is it just continue on as planned? And then, finally, on NHL, can you talk a little bit more there about what the go no -- go, no-go decision is going to be based upon? Thanks a lot.

Sure. Let me start. Thank you for the questions. So in terms of the revenue, if you look back to the first quarter, for example, we were at the very upper ends of our guidance and this quarter was sort of the low end of the guidance. So we do our best based on the production schedule and deliveries and to give a sense for where we're going to come out on a revenue basis, but it doesn't always work perfectly according to plan.

But I think we typically -- historically have said, look at the whole year but in an effort to get further visibility to you as you look at our Company, we've broken this down on a quarterly basis. So sometimes, it will come in on the high side and sometimes it will come in on the low side. But I think historically, we've been pretty good about hitting our range numbers. So I wouldn't read anything into that. It's just normal variance in terms of output and delivery.

In terms of the Building 55 lots, I'm not sure I understand the question. The consistency lots are going to be produced. We've initiated. That would then lead into the conduct of the studies that Adam has described, so that -- I don't think there is any interim data that you would see -- you would run the studies and you collect the data and then you submit the package to FDA, big picture. So it's not like there is an open-label study that's being conducted that would allow for an interim analysis that we could give you some guidance on over the course of that period. And I guess on the NHL, can you repeat the question? I didn't jot it down in time.

Just wanted to hear thoughts about what the go, no-go decision is going to be based upon and how you're looking at that at this point?

Yes. So as we said, we are awaiting completion of that. We'll look at the data and then make a specific determination. Jim Jackson, who is Head of the Therapeutics arm there and our CSO, Jim, do you want to add a little color as to some of the metrics we're going to look at?

Sure, yes. As Dan said, we're in the process of analyzing the data from that Ib study. And as you know, that was a study where we were looking at the additive effect of TRU-016 in combination with bendamustine and RITUXAN. It was a small study with 12 subjects to it. We are probably looking somewhere around an improvement in the overall CR rate of about 30% over BR alone as kind of a threshold value for the additive effect of TRU-016. We are planning on getting this data together and presenting it later in the year probably at ASH. So that will be a time when we'd really kind of roll this information out publicly.

Thank you for the question. Ian Somaiya, Piper Jaffray.

Hi. Good afternoon, everyone. It's Matthew on for Ian. I just wanted to go back to the flu opportunity quickly. And I just was wondering if you could give a sense of maybe an -- or an update on what your expectations are for what we've been thinking about maybe it's like a baseline volume for the flu contract. Obviously, total volume would be driven by the occurrence of a pandemic outbreak. But if you could maybe dimensionalize for us a little bit what the baseline stockpile might look like and what the timing of that might be on an ongoing basis, that that would be great. Thank you.

Yes, thank you for your question, Matthew. So the ADM contract has a component to it that's not fixed in terms of delivery of up to 50 million doses and that's really not part of the base contract. Really what is contemplated now is that we would obtain licensure in our Baltimore site, once we selected the proper candidate. And then, I think it's going to be really up to the government to determine what its requirements are, which products it would procure, at what levels.

Clearly, the government is looking for multiple suppliers, multiple product candidates and is investing in the development, to get them across the goal line and obtain licensure. But I think it's a little bit premature to be talking about specific contract procurements at this point. We hope, as the program matures and develops, we'll have better clarity and we'll be able to pass that along to you with respect to vaccine stockpile amounts. But you know it is the priority for the government, they do have stockpiles in place today. They're developing additional candidates. They're now establishing these Centers of Innovation for Advanced Development and Manufacturing. So it remains a priority from the government and we're quite pleased that we're part of it.

Okay, great. Fair enough. Thank you.

Thank you very much for your questions. Just to let you know, so at this time, we have no further questions. (Operator Instructions) We have no further questions that have come through into the queue. I would now like to turn the call back over to Mr. Bob Burrows for closing remarks. Please proceed.

Thank you, Ian. In conclusion, the Emergent business is strong and growing, as the premier provider of medical countermeasures against anthrax and the US government we continue to enhance the value and utility of BioThrax and to progress toward the licensure of our large-scale manufacturing facility at the newly announced Center for Innovation in Advanced Development and Manufacturing.

We look forward to the long-term opportunity to help strengthen the country's commitment to public health preparedness and as a key participant in the fight against TB, we continue to work with our partners, collaborators and key stakeholders worldwide to advance our leading TB vaccine candidate, MVA85A.

Ladies and gentlemen, that's all the time we have time, thank you for your participation. Please note that today's call has been recorded and a replay will be available beginning later today through August 16. 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. Thank you again and we look forward to speaking to all of you in the future. Goodbye.

Thank you, ladies and gentlemen, for your participation in today's call. This concludes your presentation. You may now disconnect. Good day.