Emergent BioSolutions: The Wall Street Analyst Forum Presentation Transcript
Moderator Note:
Read the history (to include contract prices, names changes and name followers). Suggest for anyone that has not, read the "Op-Ed" pieces under the website: www.military-biodefensevaccines.org
http://seekingalpha.com/article/44484
Emergent BioSolutions (EBS)
The Wall Street Analyst Forum
August 14, 2007 10:30 am ET
Executives
Robert Kramer - VP, Manufacturing Operations
Robert Burrows - VP, Corporate Communications
Gerry Scott - President, Wall Street Analyst Forum
Presentation
Gerry Scott
Good morning, ladies and gentlemen. Good morning, my name is Gerry Scott, President of Wall Street Analyst Forum, and I will be hosting the first company at list in the Homeland Security program. The first company that is presenting with us today is an interesting one because we run an analyst conference here always [turned] occasionally with the company that right to them for biotechnology, especially pharma, the right to them for Homeland Security and this company sort of straddles both of those industry groupings.
So, I would like to introduce the first company in this segment, Emergent BioSolutions and we are welcoming those that are physically here, and welcome to the Internet attendees as well.
Emergent BioSolutions is a biopharmaceutical company dedicated to one simple mission: to protect life. They develop, manufacture and commercialize immunobiotics, consisting of vaccines and therapeutics that assist the body's immune system to prevent or treat disease. Their biodefense business focuses on immunobiotics for use against biological agents that are potential weapons of bioterrorism and biowarfare. Their marketed product, BioThrax Anthrax Vaccine Adsorbed, is the only vaccine approved by the U.S. Food and Drug Administration for the prevention of anthrax infection. Their commercial business focuses on immunobiotics for use against infectious diseases and other medical conditions that resulted in significant unmet or underserved public health needs.
So without any further introduction, I would like to introduce the management of company Robert Kramer, who is here and Robert Burrows from the company.
Robert Kramer
Thank you, Gerry. As Gerry introduced, I am joined this morning by our Vice President of Investor Relations, Bob Burrows. It's my pleasure to be here with you this morning. I am going to read just a brief statement regarding the Safe Harbor statement. This presentation includes forward-looking statements, so please refer to any filings we have with the SEC.
As Gerry introduced, what we would like to talk about this morning is to give a brief overview of Emergent BioSolutions, who we are, what we do, what makes us different and why I think we are well positioned to be successful, both in this new area of biodefense as well as the more traditional commercial vaccine business in space. Also, I want to talk a little bit about our corporate operations, where we have people and what they do. A brief overview of the financials and then wrap this up with some time for Q&A at the end.
The company snapshot is such that again Emergent BioSolutions traded under ticker EBS. We first went public in November of last year. We have a market gap between $3 million and $4 million of shares outstanding right at $30 million, and our research coverage is currently provided by Cowen, HSBC, J.P. Morgan and Weisel.
As Gerry indicated, our mission and purpose is pretty simple. We protect life. We are a biopharmaceutical company that started in 1998 with the acquisition of some manufacturing operations in Lansing, Michigan as well as some FDA licensed products that I will talk about. We specialize in the development, manufacture and commercialization of immunobiotics. Those are products, primarily vaccines and therapeutics, that assist the body's immune system to prevent or treat disease. We are a different kind of company in that, first of all, we are fully integrated which is not normal for a biopharmaceutical or biotech company. We have revenue, significant revenue that is funding a number of investment opportunities that I will talk about -- both for facilities, as well as for product part of development portfolio. We had sales of our lead product BioThrax last year of approaching $150 million.
We consider ourselves a leader in the expanding biodefense market, I will talk about that in a minute, but for now we see biodefense as a growing market with the U.S. government spending and committing literally billions of dollars into the development of much needed medical counter measures for treatment and prevention against biologic attacks. Whether they be anthrax or botulinum or smallpox, plague or tularemia, those five threat agents plus others are something that the government and of all us should be concerned about. We have lead products in a number of those threat agents and categories that I'll talk about.
We have a successful track record of generating government contracts, revenue generating, as well as profit generating government contracts, and as you see we have a diversified portfolio split between our two business segments, biodefense and commercial that I have talked about. Our strategies for growth are pretty simple, again it's to pursue these two business segments, biodefense and commercial.
We focus on development not on research, so we let other companies, other organizations do the early stage research. We are very active at looking at other opportunities to invest or to acquire in terms of early stage development. And then our main focus is acquiring that technology and making sure that we advance those candidates through development to commercialization as quickly as possible, leveraging our core competencies, which are development and manufacturing.
We also apply a pretty disciplined portfolio management approach to our development portfolio, continually screening for new investments. Always being mindful about not every candidate in our development portfolio will likely be successful. So, we have 10 products in development which I’ll talk about, but we have more candidates and in the activity that we're continually looking at, our strategy is clearly to grow through acquisition as well as internal growth.
I must skip over to recent news, segment or slide 7, but briefly comment on the fact that right now we are engaged in active discussions with the US government regarding follow on contracts that I’ll talk about here shortly.
In terms of the history of the company, I want to spend a minute on page 8, which gives a chronology of the history of the company. On top we capture how the company has grown since 1998, when it was first founded and in the bottom summarizes the significant contractual relationships that we had with both the U.S. government, as well as with third parties.
As I mentioned, to start with, the company has as its origins in the Michigan Biologics Product Institute, which was a former organization that was part of the state of Michigan. The state of Michigan like several other states, Massachusetts and New York are among the two others, had actual biologic operations that were part of their community health departments.
We acquired this operation, this facility, from the State of Michigan in 1998; it has a rich history going back to the mid 1920s of development, researching, commercialization of biologic products, from agents like anthrax and botulinum and smallpox to more commercial vaccines for diphtheria, tetanus, rabies. Our focus is clearly on biodefense with this portfolio.
We've acquired the facility in '98. It took us three years to address to the satisfaction of the FDA all the compliance issues that we inherited with the acquisition. So that was a difficult time. As soon as we got that under control and well [funded] then we started making strategic acquisitions of other IP, other development products to add to our portfolio for diversification purposes, both in terms of commercial versus biodefense, as well as less reliance on the U.S. government as our only customer.
We started with Antex Biologics in June of '03 with a small development group in Gaithersburg, Maryland. We made another acquisition of a slightly larger company in June of '05 called Microscience, the UK development company, and I will talk about some of the candidates -- they are in our portfolio that evolved out of that acquisition.
In June of last year, we acquired a small development company in Germany under the name of ViVacs. They have an interesting MVA technology; we intend to evaluate its usefulness with respect to influenza products as well as other technologies. And then finally in the top we were able to go public in November of last year.
On the bottom, I am not going to go through the complete chronology, but you can see we've had a significant track record of gaining significant contracts with the U.S. government, both with DoD and HHS. It's safe to say that since 1998 we sold every dose of product of BioThrax that we've been able to manufacture to either HHS or DoD. We are capacity constraint, and I will talk in a minute about how we are solving that piece.
In addition to U.S. government, we've also made some small sales to international countries like Canada and Germany and Taiwan, and that market is a significant market that has not yet fully developed. In terms of just some numbers real quickly, you can see that since 2003 our revenues have grown from $56 million for BioThrax in '03 to almost $150 million in '06. The first half of '07 was close to $50 million.
If you look at the progression of BioThrax sales in '06 quarter-over-quarter and half-by-half, we expect the same kind of performance in '07. It's simply the nature of the contracts that we have outstanding with the government. Gross profit has been in a very similar fashion showed a steady increase from 60% in '03 to slightly 80% in '06.
I mentioned before our characterization. The company is leading in the biodefense market segment. So if you go back several years, BioSheild was passed by the Bush administration in May of '04, $6 billion dedicated to the funding for medical countermeasures against a number of threats Anthrax, botulinum, smallpox, being prime among those. The government has made a couple of significant steps since May of '04 in terms of maturing and committing to this space. One was the formation of BARDA, which is the Biological Advanced Research and Development Authority that was formed earlier this year. A lot of money was put forward in BioShield in May of '04.
The administration is currently maturing how they are managing, administering that significant amount of money with the addition of BARDA, as well as with the addition of PHEMCE, which is the Public Health Emergency Management Group within HHS who is responsible for the decision making of how HHS is spending the $6 billion.
So the key takeaway here is not just money that's available, but HHS, and the government is now putting the administration and management in oversight mechanisms in place to commit to industry that it is not just money, it's a program of system that's going to be here for a long time.
I mentioned our portfolio earlier, we have ten products in development, half in biodefense and half in commercial. Now those two are the biodefense portfolio first. Starting with BioThrax, it is our lead candidate, lead product with over 19 million doses delivered to HHS and DoD since 1998, 6 million -- over 6 million of those doses have been not just purchased, but actually used to protect military personnel.
DoD, as I talked about, has an active immunization program to vaccinate individuals who are going into high-threat areas. The safety and efficacy of BioThrax has been demonstrated time and time again. It was first licensed by the FDA in 1970, so it has been manufactured and approved by the FDA for 37 years. The safety and efficacy has been confirmed most recently by the FDA with the final order they issued in December of '05.
BioThrax, the customer base for BioThrax right now is primarily the U.S. government, split between DoD and HHS. So the Department of Defense has had an active immunization program for military personnel since the early 1990s. So they are buying our products and immunizing their military personnel with the product as opposed to HHS, who is buying our product, putting it in a Strategic National Stockpile of medical countermeasures for the protection of civilians if there is another use of anthrax as a biologic weapon.
They had purchased 10 million doses of our product so far. There is a request for proposal they issued earlier this year for as much as another 18.75 million doses. We are in active negotiations with them to finalize that contract.
The two other customers or three other customers beyond the U.S. government, I want to briefly mention. First of all, there is the emergency responder group. They are counterpart to the military who are actively exposed to the threat of anthrax are occupation such as first responders, emergency medical technicians, police and fire, who will be called in on the front-line of the use of anthrax next time. Those individuals need to be protected, need to be immunized. None of them are right now, that actually is a customer base. If you look at the full-time first responders, that’s more than a million people in United States. It's more than 5 million individuals if you include all the voluntary personnel involved in the emergency responder group -- a huge untapped market that we are aggressively pursuing.
In addition to that, I’ve mentioned the international governments, so countries such as Canada, Germany, Taiwan have purchased smaller amounts of the product, but primarily because of our capacity constraint and the fact that we are selling all we can make of DoD and HHS, we have not been able to fully capitalize on that market.
The BioThrax product is good as it is. There is always room for improvements, so we are continually investing in ongoing enhancements to BioThrax, the licensed vaccine in three areas I'll briefly touch upon. One is pre-exposure label expansion. So there I am talking about reducing the number of doses, license filed with the FDA as well as including a new route of administration to make the product even safer and hopefully more effective.
The second area is post-exposure label indication. So this is the new label indication that, as opposed to pre- or proactively immunizing at risk individuals, once someone has been exposed to anthrax, if you immunize them and give them antibiotics soon enough the combination of the vaccine and antibiotics is protective. And I'll talk in a minute about how we have the third product, which is an immune globulin product that is used once you're exposed to anthrax and it’s too late for the vaccine and antibiotics to be helpful. Then we have another product in development for those patients.
And the third area is other enhancements, such as extension of dating; right now BioThrax has a three-year label approved by the FDA and we are seeking four-year expiration dating on a product, which is a significant benefit to HHS, who is looking to stop all of the products. So rotation gets cut by a quarter, and it's a much better value proposition for them.
In addition to BioThrax, we are investing in a next-generation anthrax vaccine. We know from HHS that they are continually looking at new technologies to apply to vaccines. So our target specification for our next generation vaccine is something with a novel delivery, so take the needle out of the equation it could be a drinkable product, it could be a patch, it could be a oral delivery, something that’s more patient user-friendly rather than a needle, something where you can reduce the number of doses, could be stored at room temperature for logistical purposes right in the 2 to 8 degrees, which our current product is required to be stored at.
We have a lead candidate for this product, which is a combination of our existing product BioThrax with a new adjuvant called VaxImmune that we’re in cooperation and coordination [with fully on].
The other product that I mentioned, the anthrax immune globulin, this is a product in development in our biodefense portfolio, which is intended to be used in patients who are -- once they are exposed to anthrax and the infection is already beginning, it's too late for antibiotics, too late for vaccines, they need something that’s immediate, hard-hitting protective and that is our AIG or Anthrax immune product.
It’s manufactured taking BioThrax, the licensed vaccine, immunizing individuals, collecting their plasma and we have partnered with Talecris, an ex-Bayer company in North Carolina to fractionate our product for us in order to make this product. We are very excited about it. We filed an IND in March of this year and we will be in discussions with HHS about a development contract and a procurement contract early next year.
So just to summarize, the Anthrax franchise for us is pre-exposure with BioThrax, post-exposure but pre-symptomatic is BioThrax plus antibiotics, and symptomatic is the anthrax immune globulin product.
Real quickly, the other products in development on our biodefense portfolio clearly [stand around] both anthrax and botulinum. Through our history with Michigan, our facility, there was a long history of development of products for botulinum as well as for anthrax.
Briefly we are working on two candidates; one is the vaccine and the other is a botulinum IG product, the sister to the anthrax IG product, where again post-exposure, immediate protection. There needs to be something. All of these spaces as they wrap up the biodefence area, we think we are in lead positions with both anthrax and [BioThrax] franchises to get a significant portion of this expanding biodefense market.
There is a significant amount of money and commitment by the government. We think we are well positioned with our candidates as well as our manufacturing expertise in core competency to get our share of that funding.
Contrast that to the commercial portfolio, this portfolio of five candidates has been acquired by the company over the last three to four years, some from the Microscience acquisition in June of '05 and won the chlamydia vaccine from the acquisition of Antex in June of '03.
They are in various stages of development. I am not going go through every one in detail other than to say that our approach to product development is as a portfolio approach, we continually look and evaluate the success of these candidates through various stages of clinical trial. We look to partner with companies through third parties, either for funding or for co-development based on where we see the value of these candidates being best realized over time.
An example of that is the typhoid vaccine. It's a single-dose oral-delivered product and candidate for patients who are going to be going into areas where typhoid is prevalent. It is being partially funded by the Wellcome Trust, so we are co-developing that with them. Our hepatitis B therapeutic vaccine is a novel treatment for HBV.
Our Group B strep product is a product that we have significant interest by NIH in funding the early stages of development with. Our meningitis B product, last year we announced a licensing agreement with Sanofi, and the reason there is we think that this product has great promise. However, we think that Sanofi is in a better position to generate a long-term value of the single candidate as opposed to Emergent, so we have out-licensed. We generate some royalty payments over time. We get some milestone payments and we are best positioned to enjoy some of the economic upside of that product.
And chlamydia is an area where it is early stage, but there is a significant unmet medical need for this. This disease is a product that was acquired through the Antex acquisition in June of '03, and while it's early stage there is significant upside in this candidate.
I mean now -- quickly go to our corporate operations overview. Emergent as a company over the last five years has grown significantly from what started with the acquisition of the Michigan Biologics Products Institute in Lansing, Michigan in September of '98. We have established our headquarters in Gaithersburg, Maryland and Rockville, Maryland. We have product development sites in Gaithersburg which is the center for the biodefense product development group. We have our commercial operations for product development based in the UK, and then with the acquisition of ViVacs last year we have a small development group in Germany.
Our manufacturing operations are headquartered and based in Lansing, and we do have some additional facilities that are suitable for building out, including pilot plan operations and commercial operations in Fredrick, Maryland. We have the sales and marketing group that is reasonably small, but given our relationships with the U.S. government is necessary. So, now however within the last year we developed some satellite operations in both Germany and Singapore to support the international sale of BioThrax and other products.
Overall, we have slightly more than 500 employees. We started with the 160 in 1998.
Just a word about our manufacturing capacity since I alluded to this earlier. We are now, and have been since day one, very much capacity constraint with respect to our production capacity for BioThrax in Lansing. Because of that and as well in anticipation of growing and the importance of manufacturing in an integrated biologics company, we made a decision a year and a half ago to break ground on a new $75 million state-of-the-art biologics manufacturing facility on our campus in Lansing. So this is a 55,000-square-foot campaignable facility. So you will be capable of making multiple products. So it's not dedicated to BioThrax, not dedicated to any single product. We can make multiple products in that facility. It is in the process now of being commissioned and validated. We broke ground on it in February of 2006. The construction is complete, the equipment is installed and we are going through the very tedious process of validating and commissioning that facility today.
That will take our manufacturing capacity for BioThrax from roughly 9 million doses per year today, which we have to run the facility 24 hours a day, 7 days a week to get to over or up to 40 million doses. That 40 million can be doubled if we put in a second fermentation system and the new facility could be up to 18 million doses. So, the capacity constraint that I mentioned earlier, in terms of selling all we can make, that will soon be released.
The other manufacturing capacity we have is in our facilities in Frederick, Maryland. We have two 145,000-square-foot buildings in Frederick we bought several years ago in order to be able to respond to the manufacturing needs of our product development portfolio. We are looking at building those out first with pilot-scale facilities to support development and thence we'll evaluate whether we put commercial scale equipment in there including fill and finish capability.
A couple of snapshots on page 32 of the Lansing, we call it building 55, again 55,000-square-foot building, three floors, state-of-the-art, state-of-the-industry, really nice facility and that will clearly be the way we grow our business and through with we grow our business long term.
A quick review of the financials, I showed you some numbers early in the presentation that were BioThrax specific in terms of revenues and gross margins. But for the full company results, you can see the progression of revenue on the less than $56 million in '03 to a little more than $150 million in '06. Net income has obviously increased from $4 million to $23 million in '06. Earnings per share have shown the same type of progression.
R&D expenses -- that is obviously an important area of ours. The 10 products that are in various stages of development cost money we do so very carefully. However, still in '06, we spent just shy of $50 million investing in our development portfolio. SG&A expenses are pretty much leveled off at $45 million.
In terms of the balance sheet, the assets at the end of '06 were $238 million. Cash, both from ongoing operations as well as the proceeds of the IPO, were little more than $75 million and we had stockholders' equity of $138 million.
So, in terms of what you can expect or what you should be looking for from Emergent BioSolutions this year and until next year; first of all in the biodefense area, we have delivered all of our contractual requirements on the contracts with both DoD and HHS. We are actively involved in negotiating new contracts this year with both those important customers. Everything remains on track. We have submitted our IND for AIG [issuing check black box]. We look to complete the clinical trial on the dose reduction stage for BioThrax, in order to reduce the doses from 6 to 5 to hopefully eventually 3. We've initiated our first animal study in support of the label expansion for post-exposure protection for BioThrax and we have filed an application with the FDA to increase the dating for BioThrax from three years to fours years.
On the commercial side it's supporting the Phase II work for both the typhoid product as well as Hep B submission of the IND for the first Group B Strep combination study in combination and in coordination with NIH. And we are looking finally to do a proof of principal study with the new technology that we acquired from buybacks in June of last year in support of the third generation flu vaccine.
And so in general, just kind of take away the message -- I mean Emergent is still a recently young company. We've been in business now for almost nine years. We have grown the business essentially from a startup to a small to medium-size biopharmaceutical company. We have a very tight and clear focus on development, as well as leveraging our core competencies in manufacturing.
We have two business segments BioDefense and Commercial. The BioDefense market has stayed as some people think is significant growth opportunity for us, because of two important elements, one is our portfolio and the stage of competition with our candidates and secondly not many companies, if any are positioned as well as we are in terms of having experience in making biologic products day in and day out under an FDA compliant way, and have the expertise in terms of development and managing the transfer from development to commercial operations in a way that we can. So we think we are uniquely positioned to get our share of the $6 billion of BioShield money and other U.S. government money that is out there funding medical countermeasure development.
And then on the commercial side, we have a very strong portfolio that we continue to evaluate. We are going to grow through acquisitions. Continually look at the portfolio for ways to improving GAAP sale and again I think we are uniquely positioned to be very successful in the near-term. So I appreciate your attention and your participation this morning and I will be pleased to respond to any questions you have.
Question-and-Answer Session
Unidentified Audience Member
Why don't you say anything about the fellow that was accused of running anthrax and then to the FDA? Did you follow that at all?
Robert Kramer
Of course we followed it, I think you are referring to Zack and this Hatfield. We followed obviously with interest when it occurred and all of the follow-up investigation that occurred. My knowledge of that is very limited. It was interesting for a while. It was interesting that, not that particular issue, but the fact that whoever was behind the anthrax letters from October of '01, they really haven't determined what their root cause was or who did that. So, I think more than anything else it demonstrates how easy it is to take biologic agents like anthrax and do some pretty nasty stuff with it.
Unidentified Audience Member
Follow up question -- is it mechanically possible to trace back the manufacturer of the anthrax?
Robert Kramer
I suppose it might be possible, I mean, anthrax as you may know -- there are different types of anthrax. At our facility, the anthrax material we use to make our product is attenuated. So there is no live bacteria that goes into the manufacturing of the product.
I suppose it is possible to genetically trace that back, but it has to be very difficult. I think one of the things that was clearly learned -- look at lessons learned from October of '01. It was generally speculated that it took as many as 10,000 spores of anthrax to be lethal, that was proven not to be the case. It takes considerably fewer than 10,000 spores and as few as 100 spores. If you inhale them and keep them in your lungs it can cause death very quickly.
Another lesson learned was, just in terms of preparedness. How do we respond to that kind of event? Another lesson was the need for general education on these kinds of biologic threats and what we do – what we need to do from a medical perspective to treat that?
So a lot of work has gone in, in terms of the government preparing more details, response plans and preparations. Clearly BioShield is a part of this step, in terms of putting some money behind it. They need to complete these medical timing measures but there is still lot of work to be done. Yes.
Unidentified Audience Member
(Question Inaudible)
Robert Kramer
So we have a couple of relationships with the government from the development perspective. NIH has awarded us a small grant for the Group, B-Strep product. NIAID has given us a grant for the development of the anthrax immune globulin product. So particularly in the biodefense side since the eventual product that we come up with is going to be primarily sold to the U.S. government, our approach with biodefense is to put a specified amount of money upfront as seed investment to make sure that the proof of concept for these products is established so that when they get in line to the bidding and can be competing for a request for a proposal or a development contract they are well positioned. There is no question that they are going to be effective, but beyond that we look to the government to award development contracts and procurement contracts to pull those products through the development process to a commercial state. So again if there any questions I appreciate your participation to questions and thank you.
Operator
This presentation has now finished. Please check back shortly for the archive.
Read the history (to include contract prices, names changes and name followers). Suggest for anyone that has not, read the "Op-Ed" pieces under the website: www.military-biodefensevaccines.org
http://seekingalpha.com/article/44484
Emergent BioSolutions (EBS)
The Wall Street Analyst Forum
August 14, 2007 10:30 am ET
Executives
Robert Kramer - VP, Manufacturing Operations
Robert Burrows - VP, Corporate Communications
Gerry Scott - President, Wall Street Analyst Forum
Presentation
Gerry Scott
Good morning, ladies and gentlemen. Good morning, my name is Gerry Scott, President of Wall Street Analyst Forum, and I will be hosting the first company at list in the Homeland Security program. The first company that is presenting with us today is an interesting one because we run an analyst conference here always [turned] occasionally with the company that right to them for biotechnology, especially pharma, the right to them for Homeland Security and this company sort of straddles both of those industry groupings.
So, I would like to introduce the first company in this segment, Emergent BioSolutions and we are welcoming those that are physically here, and welcome to the Internet attendees as well.
Emergent BioSolutions is a biopharmaceutical company dedicated to one simple mission: to protect life. They develop, manufacture and commercialize immunobiotics, consisting of vaccines and therapeutics that assist the body's immune system to prevent or treat disease. Their biodefense business focuses on immunobiotics for use against biological agents that are potential weapons of bioterrorism and biowarfare. Their marketed product, BioThrax Anthrax Vaccine Adsorbed, is the only vaccine approved by the U.S. Food and Drug Administration for the prevention of anthrax infection. Their commercial business focuses on immunobiotics for use against infectious diseases and other medical conditions that resulted in significant unmet or underserved public health needs.
So without any further introduction, I would like to introduce the management of company Robert Kramer, who is here and Robert Burrows from the company.
Robert Kramer
Thank you, Gerry. As Gerry introduced, I am joined this morning by our Vice President of Investor Relations, Bob Burrows. It's my pleasure to be here with you this morning. I am going to read just a brief statement regarding the Safe Harbor statement. This presentation includes forward-looking statements, so please refer to any filings we have with the SEC.
As Gerry introduced, what we would like to talk about this morning is to give a brief overview of Emergent BioSolutions, who we are, what we do, what makes us different and why I think we are well positioned to be successful, both in this new area of biodefense as well as the more traditional commercial vaccine business in space. Also, I want to talk a little bit about our corporate operations, where we have people and what they do. A brief overview of the financials and then wrap this up with some time for Q&A at the end.
The company snapshot is such that again Emergent BioSolutions traded under ticker EBS. We first went public in November of last year. We have a market gap between $3 million and $4 million of shares outstanding right at $30 million, and our research coverage is currently provided by Cowen, HSBC, J.P. Morgan and Weisel.
As Gerry indicated, our mission and purpose is pretty simple. We protect life. We are a biopharmaceutical company that started in 1998 with the acquisition of some manufacturing operations in Lansing, Michigan as well as some FDA licensed products that I will talk about. We specialize in the development, manufacture and commercialization of immunobiotics. Those are products, primarily vaccines and therapeutics, that assist the body's immune system to prevent or treat disease. We are a different kind of company in that, first of all, we are fully integrated which is not normal for a biopharmaceutical or biotech company. We have revenue, significant revenue that is funding a number of investment opportunities that I will talk about -- both for facilities, as well as for product part of development portfolio. We had sales of our lead product BioThrax last year of approaching $150 million.
We consider ourselves a leader in the expanding biodefense market, I will talk about that in a minute, but for now we see biodefense as a growing market with the U.S. government spending and committing literally billions of dollars into the development of much needed medical counter measures for treatment and prevention against biologic attacks. Whether they be anthrax or botulinum or smallpox, plague or tularemia, those five threat agents plus others are something that the government and of all us should be concerned about. We have lead products in a number of those threat agents and categories that I'll talk about.
We have a successful track record of generating government contracts, revenue generating, as well as profit generating government contracts, and as you see we have a diversified portfolio split between our two business segments, biodefense and commercial that I have talked about. Our strategies for growth are pretty simple, again it's to pursue these two business segments, biodefense and commercial.
We focus on development not on research, so we let other companies, other organizations do the early stage research. We are very active at looking at other opportunities to invest or to acquire in terms of early stage development. And then our main focus is acquiring that technology and making sure that we advance those candidates through development to commercialization as quickly as possible, leveraging our core competencies, which are development and manufacturing.
We also apply a pretty disciplined portfolio management approach to our development portfolio, continually screening for new investments. Always being mindful about not every candidate in our development portfolio will likely be successful. So, we have 10 products in development which I’ll talk about, but we have more candidates and in the activity that we're continually looking at, our strategy is clearly to grow through acquisition as well as internal growth.
I must skip over to recent news, segment or slide 7, but briefly comment on the fact that right now we are engaged in active discussions with the US government regarding follow on contracts that I’ll talk about here shortly.
In terms of the history of the company, I want to spend a minute on page 8, which gives a chronology of the history of the company. On top we capture how the company has grown since 1998, when it was first founded and in the bottom summarizes the significant contractual relationships that we had with both the U.S. government, as well as with third parties.
As I mentioned, to start with, the company has as its origins in the Michigan Biologics Product Institute, which was a former organization that was part of the state of Michigan. The state of Michigan like several other states, Massachusetts and New York are among the two others, had actual biologic operations that were part of their community health departments.
We acquired this operation, this facility, from the State of Michigan in 1998; it has a rich history going back to the mid 1920s of development, researching, commercialization of biologic products, from agents like anthrax and botulinum and smallpox to more commercial vaccines for diphtheria, tetanus, rabies. Our focus is clearly on biodefense with this portfolio.
We've acquired the facility in '98. It took us three years to address to the satisfaction of the FDA all the compliance issues that we inherited with the acquisition. So that was a difficult time. As soon as we got that under control and well [funded] then we started making strategic acquisitions of other IP, other development products to add to our portfolio for diversification purposes, both in terms of commercial versus biodefense, as well as less reliance on the U.S. government as our only customer.
We started with Antex Biologics in June of '03 with a small development group in Gaithersburg, Maryland. We made another acquisition of a slightly larger company in June of '05 called Microscience, the UK development company, and I will talk about some of the candidates -- they are in our portfolio that evolved out of that acquisition.
In June of last year, we acquired a small development company in Germany under the name of ViVacs. They have an interesting MVA technology; we intend to evaluate its usefulness with respect to influenza products as well as other technologies. And then finally in the top we were able to go public in November of last year.
On the bottom, I am not going to go through the complete chronology, but you can see we've had a significant track record of gaining significant contracts with the U.S. government, both with DoD and HHS. It's safe to say that since 1998 we sold every dose of product of BioThrax that we've been able to manufacture to either HHS or DoD. We are capacity constraint, and I will talk in a minute about how we are solving that piece.
In addition to U.S. government, we've also made some small sales to international countries like Canada and Germany and Taiwan, and that market is a significant market that has not yet fully developed. In terms of just some numbers real quickly, you can see that since 2003 our revenues have grown from $56 million for BioThrax in '03 to almost $150 million in '06. The first half of '07 was close to $50 million.
If you look at the progression of BioThrax sales in '06 quarter-over-quarter and half-by-half, we expect the same kind of performance in '07. It's simply the nature of the contracts that we have outstanding with the government. Gross profit has been in a very similar fashion showed a steady increase from 60% in '03 to slightly 80% in '06.
I mentioned before our characterization. The company is leading in the biodefense market segment. So if you go back several years, BioSheild was passed by the Bush administration in May of '04, $6 billion dedicated to the funding for medical countermeasures against a number of threats Anthrax, botulinum, smallpox, being prime among those. The government has made a couple of significant steps since May of '04 in terms of maturing and committing to this space. One was the formation of BARDA, which is the Biological Advanced Research and Development Authority that was formed earlier this year. A lot of money was put forward in BioShield in May of '04.
The administration is currently maturing how they are managing, administering that significant amount of money with the addition of BARDA, as well as with the addition of PHEMCE, which is the Public Health Emergency Management Group within HHS who is responsible for the decision making of how HHS is spending the $6 billion.
So the key takeaway here is not just money that's available, but HHS, and the government is now putting the administration and management in oversight mechanisms in place to commit to industry that it is not just money, it's a program of system that's going to be here for a long time.
I mentioned our portfolio earlier, we have ten products in development, half in biodefense and half in commercial. Now those two are the biodefense portfolio first. Starting with BioThrax, it is our lead candidate, lead product with over 19 million doses delivered to HHS and DoD since 1998, 6 million -- over 6 million of those doses have been not just purchased, but actually used to protect military personnel.
DoD, as I talked about, has an active immunization program to vaccinate individuals who are going into high-threat areas. The safety and efficacy of BioThrax has been demonstrated time and time again. It was first licensed by the FDA in 1970, so it has been manufactured and approved by the FDA for 37 years. The safety and efficacy has been confirmed most recently by the FDA with the final order they issued in December of '05.
BioThrax, the customer base for BioThrax right now is primarily the U.S. government, split between DoD and HHS. So the Department of Defense has had an active immunization program for military personnel since the early 1990s. So they are buying our products and immunizing their military personnel with the product as opposed to HHS, who is buying our product, putting it in a Strategic National Stockpile of medical countermeasures for the protection of civilians if there is another use of anthrax as a biologic weapon.
They had purchased 10 million doses of our product so far. There is a request for proposal they issued earlier this year for as much as another 18.75 million doses. We are in active negotiations with them to finalize that contract.
The two other customers or three other customers beyond the U.S. government, I want to briefly mention. First of all, there is the emergency responder group. They are counterpart to the military who are actively exposed to the threat of anthrax are occupation such as first responders, emergency medical technicians, police and fire, who will be called in on the front-line of the use of anthrax next time. Those individuals need to be protected, need to be immunized. None of them are right now, that actually is a customer base. If you look at the full-time first responders, that’s more than a million people in United States. It's more than 5 million individuals if you include all the voluntary personnel involved in the emergency responder group -- a huge untapped market that we are aggressively pursuing.
In addition to that, I’ve mentioned the international governments, so countries such as Canada, Germany, Taiwan have purchased smaller amounts of the product, but primarily because of our capacity constraint and the fact that we are selling all we can make of DoD and HHS, we have not been able to fully capitalize on that market.
The BioThrax product is good as it is. There is always room for improvements, so we are continually investing in ongoing enhancements to BioThrax, the licensed vaccine in three areas I'll briefly touch upon. One is pre-exposure label expansion. So there I am talking about reducing the number of doses, license filed with the FDA as well as including a new route of administration to make the product even safer and hopefully more effective.
The second area is post-exposure label indication. So this is the new label indication that, as opposed to pre- or proactively immunizing at risk individuals, once someone has been exposed to anthrax, if you immunize them and give them antibiotics soon enough the combination of the vaccine and antibiotics is protective. And I'll talk in a minute about how we have the third product, which is an immune globulin product that is used once you're exposed to anthrax and it’s too late for the vaccine and antibiotics to be helpful. Then we have another product in development for those patients.
And the third area is other enhancements, such as extension of dating; right now BioThrax has a three-year label approved by the FDA and we are seeking four-year expiration dating on a product, which is a significant benefit to HHS, who is looking to stop all of the products. So rotation gets cut by a quarter, and it's a much better value proposition for them.
In addition to BioThrax, we are investing in a next-generation anthrax vaccine. We know from HHS that they are continually looking at new technologies to apply to vaccines. So our target specification for our next generation vaccine is something with a novel delivery, so take the needle out of the equation it could be a drinkable product, it could be a patch, it could be a oral delivery, something that’s more patient user-friendly rather than a needle, something where you can reduce the number of doses, could be stored at room temperature for logistical purposes right in the 2 to 8 degrees, which our current product is required to be stored at.
We have a lead candidate for this product, which is a combination of our existing product BioThrax with a new adjuvant called VaxImmune that we’re in cooperation and coordination [with fully on].
The other product that I mentioned, the anthrax immune globulin, this is a product in development in our biodefense portfolio, which is intended to be used in patients who are -- once they are exposed to anthrax and the infection is already beginning, it's too late for antibiotics, too late for vaccines, they need something that’s immediate, hard-hitting protective and that is our AIG or Anthrax immune product.
It’s manufactured taking BioThrax, the licensed vaccine, immunizing individuals, collecting their plasma and we have partnered with Talecris, an ex-Bayer company in North Carolina to fractionate our product for us in order to make this product. We are very excited about it. We filed an IND in March of this year and we will be in discussions with HHS about a development contract and a procurement contract early next year.
So just to summarize, the Anthrax franchise for us is pre-exposure with BioThrax, post-exposure but pre-symptomatic is BioThrax plus antibiotics, and symptomatic is the anthrax immune globulin product.
Real quickly, the other products in development on our biodefense portfolio clearly [stand around] both anthrax and botulinum. Through our history with Michigan, our facility, there was a long history of development of products for botulinum as well as for anthrax.
Briefly we are working on two candidates; one is the vaccine and the other is a botulinum IG product, the sister to the anthrax IG product, where again post-exposure, immediate protection. There needs to be something. All of these spaces as they wrap up the biodefence area, we think we are in lead positions with both anthrax and [BioThrax] franchises to get a significant portion of this expanding biodefense market.
There is a significant amount of money and commitment by the government. We think we are well positioned with our candidates as well as our manufacturing expertise in core competency to get our share of that funding.
Contrast that to the commercial portfolio, this portfolio of five candidates has been acquired by the company over the last three to four years, some from the Microscience acquisition in June of '05 and won the chlamydia vaccine from the acquisition of Antex in June of '03.
They are in various stages of development. I am not going go through every one in detail other than to say that our approach to product development is as a portfolio approach, we continually look and evaluate the success of these candidates through various stages of clinical trial. We look to partner with companies through third parties, either for funding or for co-development based on where we see the value of these candidates being best realized over time.
An example of that is the typhoid vaccine. It's a single-dose oral-delivered product and candidate for patients who are going to be going into areas where typhoid is prevalent. It is being partially funded by the Wellcome Trust, so we are co-developing that with them. Our hepatitis B therapeutic vaccine is a novel treatment for HBV.
Our Group B strep product is a product that we have significant interest by NIH in funding the early stages of development with. Our meningitis B product, last year we announced a licensing agreement with Sanofi, and the reason there is we think that this product has great promise. However, we think that Sanofi is in a better position to generate a long-term value of the single candidate as opposed to Emergent, so we have out-licensed. We generate some royalty payments over time. We get some milestone payments and we are best positioned to enjoy some of the economic upside of that product.
And chlamydia is an area where it is early stage, but there is a significant unmet medical need for this. This disease is a product that was acquired through the Antex acquisition in June of '03, and while it's early stage there is significant upside in this candidate.
I mean now -- quickly go to our corporate operations overview. Emergent as a company over the last five years has grown significantly from what started with the acquisition of the Michigan Biologics Products Institute in Lansing, Michigan in September of '98. We have established our headquarters in Gaithersburg, Maryland and Rockville, Maryland. We have product development sites in Gaithersburg which is the center for the biodefense product development group. We have our commercial operations for product development based in the UK, and then with the acquisition of ViVacs last year we have a small development group in Germany.
Our manufacturing operations are headquartered and based in Lansing, and we do have some additional facilities that are suitable for building out, including pilot plan operations and commercial operations in Fredrick, Maryland. We have the sales and marketing group that is reasonably small, but given our relationships with the U.S. government is necessary. So, now however within the last year we developed some satellite operations in both Germany and Singapore to support the international sale of BioThrax and other products.
Overall, we have slightly more than 500 employees. We started with the 160 in 1998.
Just a word about our manufacturing capacity since I alluded to this earlier. We are now, and have been since day one, very much capacity constraint with respect to our production capacity for BioThrax in Lansing. Because of that and as well in anticipation of growing and the importance of manufacturing in an integrated biologics company, we made a decision a year and a half ago to break ground on a new $75 million state-of-the-art biologics manufacturing facility on our campus in Lansing. So this is a 55,000-square-foot campaignable facility. So you will be capable of making multiple products. So it's not dedicated to BioThrax, not dedicated to any single product. We can make multiple products in that facility. It is in the process now of being commissioned and validated. We broke ground on it in February of 2006. The construction is complete, the equipment is installed and we are going through the very tedious process of validating and commissioning that facility today.
That will take our manufacturing capacity for BioThrax from roughly 9 million doses per year today, which we have to run the facility 24 hours a day, 7 days a week to get to over or up to 40 million doses. That 40 million can be doubled if we put in a second fermentation system and the new facility could be up to 18 million doses. So, the capacity constraint that I mentioned earlier, in terms of selling all we can make, that will soon be released.
The other manufacturing capacity we have is in our facilities in Frederick, Maryland. We have two 145,000-square-foot buildings in Frederick we bought several years ago in order to be able to respond to the manufacturing needs of our product development portfolio. We are looking at building those out first with pilot-scale facilities to support development and thence we'll evaluate whether we put commercial scale equipment in there including fill and finish capability.
A couple of snapshots on page 32 of the Lansing, we call it building 55, again 55,000-square-foot building, three floors, state-of-the-art, state-of-the-industry, really nice facility and that will clearly be the way we grow our business and through with we grow our business long term.
A quick review of the financials, I showed you some numbers early in the presentation that were BioThrax specific in terms of revenues and gross margins. But for the full company results, you can see the progression of revenue on the less than $56 million in '03 to a little more than $150 million in '06. Net income has obviously increased from $4 million to $23 million in '06. Earnings per share have shown the same type of progression.
R&D expenses -- that is obviously an important area of ours. The 10 products that are in various stages of development cost money we do so very carefully. However, still in '06, we spent just shy of $50 million investing in our development portfolio. SG&A expenses are pretty much leveled off at $45 million.
In terms of the balance sheet, the assets at the end of '06 were $238 million. Cash, both from ongoing operations as well as the proceeds of the IPO, were little more than $75 million and we had stockholders' equity of $138 million.
So, in terms of what you can expect or what you should be looking for from Emergent BioSolutions this year and until next year; first of all in the biodefense area, we have delivered all of our contractual requirements on the contracts with both DoD and HHS. We are actively involved in negotiating new contracts this year with both those important customers. Everything remains on track. We have submitted our IND for AIG [issuing check black box]. We look to complete the clinical trial on the dose reduction stage for BioThrax, in order to reduce the doses from 6 to 5 to hopefully eventually 3. We've initiated our first animal study in support of the label expansion for post-exposure protection for BioThrax and we have filed an application with the FDA to increase the dating for BioThrax from three years to fours years.
On the commercial side it's supporting the Phase II work for both the typhoid product as well as Hep B submission of the IND for the first Group B Strep combination study in combination and in coordination with NIH. And we are looking finally to do a proof of principal study with the new technology that we acquired from buybacks in June of last year in support of the third generation flu vaccine.
And so in general, just kind of take away the message -- I mean Emergent is still a recently young company. We've been in business now for almost nine years. We have grown the business essentially from a startup to a small to medium-size biopharmaceutical company. We have a very tight and clear focus on development, as well as leveraging our core competencies in manufacturing.
We have two business segments BioDefense and Commercial. The BioDefense market has stayed as some people think is significant growth opportunity for us, because of two important elements, one is our portfolio and the stage of competition with our candidates and secondly not many companies, if any are positioned as well as we are in terms of having experience in making biologic products day in and day out under an FDA compliant way, and have the expertise in terms of development and managing the transfer from development to commercial operations in a way that we can. So we think we are uniquely positioned to get our share of the $6 billion of BioShield money and other U.S. government money that is out there funding medical countermeasure development.
And then on the commercial side, we have a very strong portfolio that we continue to evaluate. We are going to grow through acquisitions. Continually look at the portfolio for ways to improving GAAP sale and again I think we are uniquely positioned to be very successful in the near-term. So I appreciate your attention and your participation this morning and I will be pleased to respond to any questions you have.
Question-and-Answer Session
Unidentified Audience Member
Why don't you say anything about the fellow that was accused of running anthrax and then to the FDA? Did you follow that at all?
Robert Kramer
Of course we followed it, I think you are referring to Zack and this Hatfield. We followed obviously with interest when it occurred and all of the follow-up investigation that occurred. My knowledge of that is very limited. It was interesting for a while. It was interesting that, not that particular issue, but the fact that whoever was behind the anthrax letters from October of '01, they really haven't determined what their root cause was or who did that. So, I think more than anything else it demonstrates how easy it is to take biologic agents like anthrax and do some pretty nasty stuff with it.
Unidentified Audience Member
Follow up question -- is it mechanically possible to trace back the manufacturer of the anthrax?
Robert Kramer
I suppose it might be possible, I mean, anthrax as you may know -- there are different types of anthrax. At our facility, the anthrax material we use to make our product is attenuated. So there is no live bacteria that goes into the manufacturing of the product.
I suppose it is possible to genetically trace that back, but it has to be very difficult. I think one of the things that was clearly learned -- look at lessons learned from October of '01. It was generally speculated that it took as many as 10,000 spores of anthrax to be lethal, that was proven not to be the case. It takes considerably fewer than 10,000 spores and as few as 100 spores. If you inhale them and keep them in your lungs it can cause death very quickly.
Another lesson learned was, just in terms of preparedness. How do we respond to that kind of event? Another lesson was the need for general education on these kinds of biologic threats and what we do – what we need to do from a medical perspective to treat that?
So a lot of work has gone in, in terms of the government preparing more details, response plans and preparations. Clearly BioShield is a part of this step, in terms of putting some money behind it. They need to complete these medical timing measures but there is still lot of work to be done. Yes.
Unidentified Audience Member
(Question Inaudible)
Robert Kramer
So we have a couple of relationships with the government from the development perspective. NIH has awarded us a small grant for the Group, B-Strep product. NIAID has given us a grant for the development of the anthrax immune globulin product. So particularly in the biodefense side since the eventual product that we come up with is going to be primarily sold to the U.S. government, our approach with biodefense is to put a specified amount of money upfront as seed investment to make sure that the proof of concept for these products is established so that when they get in line to the bidding and can be competing for a request for a proposal or a development contract they are well positioned. There is no question that they are going to be effective, but beyond that we look to the government to award development contracts and procurement contracts to pull those products through the development process to a commercial state. So again if there any questions I appreciate your participation to questions and thank you.
Operator
This presentation has now finished. Please check back shortly for the archive.
