Emergent BioSolutions Inc. Q2 2010 Earnings Call Transcript

Emergent BioSolutions Inc. Q2 2010 Earnings Call Transcript
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Emergent BioSolutions Inc. (EBS)

Q2 2010 Earnings Call Transcript

August 5, 2010 5:00 pm ET

Executives

Robert Burrows – VP, IR

Fuad El-Hibri – Chairman and CEO

Don Elsey – SVP of Finance &administration and CFO

Analysts

Eric Schmidt – Cowen & Company

David Moskowitz – Madison Williams & Company

Jeremiah Shepard – Wedbush

Jim Molloy – Caris & Company

Stephen Brozak – WBB Securities

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the second quarter 2010 Emergent BioSolutions earnings conference call. My name is Saab, and I will be your operator for today. (Operator instructions) I would now like to turn the conference over to Mr. Robert Burrows. Please proceed.

Robert Burrows

Thank you, Saab. Good afternoon, ladies and gentlemen. My name is Robert Burrows. I’m 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 2010.

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 you may be listening to the replay, this call was held and recorded on August 5, 2010. 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. With that introduction, I would now like to turn the call over to Fuad El-Hibri, Emergent BioSolutions' Chairman and CEO. Fuad?

Fuad El-Hibri

Thank you, Bob. Good afternoon everyone, and thank you for joining us on today's conference call. For my prepared comments, I will review our financial performance for the second quarter of 2010, provide a reaffirmation of our financial forecast, discuss updates regarding our business, and highlight key upcoming milestones. To begin, let me review our financial results for the second quarter of 2010.

Our revenues of approximately $62 million and net income of $10 million include the scheduled deliveries of BioThrax to the SNS, as well as progress payments under existing development contracts. These financial results are in line with our projections for the year. We remain on track to achieve our guidance for the year, which was revised upwards on July 20. With respect to our guidance, today we reaffirm our 2010 forecast for total revenues of $275 million to $300 million, and net income of $40 million to $50 million. This upward revision is supported by the recent modification to our current BioThrax contract with CDC, which increased the number of doses we can deliver into the SNS during 2010.

This is also supported by an increased volume of available doses due to consistently high production yields projected throughout 2010. We believe our multi-year drive to optimize the manufacturing process at our current facility has contributed to the projected higher yields. As a result, we expect to generate higher revenues and profitability in the second half of the year as reflected by this revised forecast.

Let me now provide an update on our business. In mid-July, BARDA awarded us a contract valued at up to $107 million to complete development and obtain FDA licensure for large-scale manufacturing of BioThrax at our new state-of-the-art facility in Lansing. This cost plus fixed fee development contract consists of a two-year base period of performance valued at $55 million and three option years that, if exercised by BARDA, would increase the contract value to $107 million. The majority of the value can be realized in the first three years of performance from mid-2010 to mid-2013. We anticipate recognizing revenues of up to $10 million and pretax earnings of up to $5 million during the second half of 2010.

This contract funds our development efforts to achieve an annual output of 26 million doses of BioThrax. This is a significant increase over our current capacity of around 8 million doses per annum. We believe that the US government considers this contract a low-risk approach to meeting its stated requirement of 75 million doses of licensed BioThrax vaccine in the shortest period of time.

Turning to the rPA activity, we are in advanced negotiations for a contract award, which we anticipate will be a multi-year development contract with potential funding of up to $200 million. We now expect an award by the end of September, which coincides with the government’s fiscal year-end. Revenue impact from this contract for 2010 is not reflected in our recently revised forecast.

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