Emergent BioSolutions Inc. Q3 FY2007 Earnings Call

Thank you. Good morning, ladies and gentlemen, and thank you for joining us today as we discuss Emergent BioSolutions financial results for the third quarter of 2007. As is customary, our call today is open to all participants. In addition, the call is being electronically recorded and is copyrighted by Emergent BioSolutions. My name is Bob Burrows and I am Vice President for Investor Relations for the company. Joining me this morning will be Fuad El-Hibri, our Chairman and Chief Executive Officer, and Don Elsey, our Chief Financial Officer. Additional other members of senior management will be present on the call for purposes of Q&A. The agenda for today's call is straightforward. Following my brief introduction, Fuad will briefly discuss third quarter results as well as third quarter accomplishments, progress on typhoid and an update on DoD. Don will then review our financials for the third quarter and the first nine months of 2007 and will also discuss the upward revision to our 2007 revenue guidance. We then will move to the customary Q&A session. Please note that any statements about the company's prospects or future expectations are forward-looking statements. As you know, forward-looking statements involve substantial risks and uncertainties, and actual results may differ materially from expectations. Please refer to the press release issued earlier today and, importantly, to our filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ. Also, 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 and regulations. Today's press release may be found on our website at www.emergentbiosolutions.com, either the home page or under investors/press releases. And with that brief introduction, I would now like to turn the call over to Fuad El-Hibri, our Chairman and CEO. Fuad?

Thank you, Bob. Good morning, everyone. Thank you for joining us today on our quarterly conference call. This morning, we announced financial results for the third quarter and first nine months of 2007. In summary, for the third quarter, we reported total revenues of $43.6 million and net income of $2.8 million, or $0.10 per share. As of September 30th, we have cash and cash equivalents of $24.3 million and $42 million of accounts receivable. During the quarter, we announced the signing of a multi-year contract with HHS valued at up to $448 million. Under this contract, HHS has agreed to purchase 18.75 million doses for a firm fixed price of $400 million. We would receive an additional $34 million upon obtaining regulatory approval for four-year dating. I will go into more detail on this contract in a moment. We are also cultivating additional markets for BioThrax, most notably foreign governments. We continue to establish relationships with foreign governments, and recently, we successfully completed the meaningful sale of BioThrax to an allied foreign government. We are pursuing regulatory approval in a number of foreign jurisdictions and have had numerous discussions with representatives of allied foreign governments interested in purchasing BioThrax. We aim at further expanding our international market opportunities and remain encouraged by our recent sales and the current level of interest from several governments around the world. Given the positive developments to date, including the expanding demand for BioThrax, we are pleased to announce an increase in our revenue projections for the year to now reflect an anticipated year-over-year growth of 16% to 18%. We also continue to anticipate positive net earnings for the year. With that introduction, I will now take you through a more detailed discussion of our accomplishments for the third quarter, notably the HHS contract and the NIAID/BARDA funding for our anthrax immunoglobulin candidate, a review of more recent news regarding progress within our commercial portfolio, specifically our oral typhoid vaccine candidate, and an update on the current status of our negotiations with DoD. In reviewing our accomplishments for the most recent quarter, there are a number of milestones that I would like to highlight. First, the HHS contract. As we previously announced on September 26th, we signed the largest contract in the history of our company, a multi-year contract with HHS valued at up to $448 million. Components of this multi-year contract include $400 million firm fixed price for delivery of 18.75 million doses of BioThrax for inclusion in the Strategic National Stockpile, $34 million for receipt of regulatory approval of four-year dating for BioThrax payable through a combination of a lump sum payment reflecting a price per dose increase for certain doses delivered prior to approval and an increase in the per dose price to be paid per doses delivered following approval. Up to $11.5 million in milestone payments in connection with advancing our post-exposure indication program for BioThrax, and $2.2 million for logistics and other related support services. The contract runs through September 2010. It is important to note that the 18.75 million doses reflect the maximum number of doses indicated in the original RFP issued by HHS on May 3rd. At the time we announced the contract, we anticipated delivering at least 6 million doses of BioThrax into the Strategic National Stockpile by year-end. We continue to be on track to meet that goal. During the third quarter, we completed the first delivery of doses, which generated revenues of $41.8 million. Importantly, these doses were sold to HHS at a discounted price due to the slightly reduced remaining shelf life for these specific doses. This discount only applies to the first 5.5 million doses of the 6 million doses to be sold and delivered to HHS this year. This discount will not apply to any other doses to be sold and delivered to HHS under the contract in the following years. This contract provides visibility to our future revenues that will support the development of our product pipeline and growth strategy. I would now like to talk about our anthrax immunoglobulin candidate, which we expect will be our next revenue source, driven by what we anticipate will be the government's continued demand for doses of an anthrax therapeutic and their preference to have multiple suppliers. In September, the National Institute of Allergy and Infectious Diseases, National Institutes of Health and the Biomedical Advanced Research and Development Authority agreed to provide us with up to $4.5 million in development funding to support non-clinical and clinical studies of our anthrax IG product. We're developing our AIG product candidate as an intravenous therapeutic for treatment of patients who present with symptoms of anthrax disease following exposure to anthrax. Earlier this year, AIG received fast-track designation from FDA. With this recent funding, in combination with previous development funding of $3.9 million from NIAID in 2006, we are encouraged by the government's continued funding commitment to our anthrax IG product. We are honored to continue our longstanding relationship with the U.S. government and appreciate the dedication and professionalism of the senior leadership within HHS and BARDA in taking these important steps toward enhancing our domestic biodefense infrastructure. Let me now take a moment to update you on recent developments within our advanced pipeline, specifically our lead candidate, our oral typhoid vaccine. As you know, our typhoid product candidate is part of our advanced stage pipeline, which also includes our hepatitis B therapeutic vaccine candidate and our Group B strep vaccine candidate. On October 10th, we announced the completion of a Phase II clinical study of our oral typhoid vaccine candidate. The Phase II study demonstrated that our single-dose drinkable typhoid vaccine candidate achieved the study endpoints for safety and immunogenicity. In this clinical study, we recruited children between 5 and 14 years of age. A total of 101 children received a vaccine candidate and 50 children received placebo. This clinical study, which was conducted in Vietnam, is the first study of this product candidate in a pediatric population in a region in which typhoid is endemic. The trial was performed in collaboration with Oxford University and the Hospital for Tropical Diseases in Vietnam. Clinical study was financially supported by the Wellcome Trust, which also provided support for the Phase I study of our candidate. The data from this Phase II clinical study, which is still being analyzed, supports the following key findings. The vaccine was immunogenic and met the predefined criteria of an overall immune response rate of greater than 50% with 95% confidence. The vaccine induced significantly higher antibody concentrations, indicative of systemic responses in children in the vaccine group compared to the placebo control group. The vaccine was well tolerated with no serious adverse events or deaths reported and no subject withdrew due to adverse events. And overall, there were no statistical differences in the incidence of adverse events between the vaccinated and placebo-treated groups. This data is encouraging and indicates promise for what would be the first single-dose strength of typhoid vaccines. Typhoid is endemic in many developing countries, putting countless international travelers and families who visit these nations at risk. This infectious disease claims approximately 200,000 lives each year worldwide. We are encouraged by the continued development success of our typhoid vaccine candidate and look forward in the coming months to providing additional detail on the Phase II data, as well as visibility regarding our next steps with this promising product candidate. Now, an update on DoD. At a quick review on May 7th of this year, DoD issued a request for proposal for BioThrax. We submitted our response to DoD in July. We have been in discussions regarding the supply of BioThrax to DoD and have been reassured that DoD's operational requirements remain and that DoD has continued commitments to procure BioThrax for its active immunization program. However, we anticipate that the procurement process will take longer than previously expected. The reason for this is the recent GAO report and Presidential Directive, which outlines the U.S. government's objective to enhance coordination and cooperation among federal agencies with respect to countermeasures, procurement, and stockpile management. As I stated earlier, we believe DoD's operational requirements remain, and that DoD has the continued commitment to procure BioThrax for its active immunization program. While we are confident that this procurement will be completed, the timeline has now been pushed out into the next year by the recent reports that I have just mentioned. In conclusion, as I began my comments, we are a profitable biopharmaceutical company with growing revenues. We are focused on expanding the market for our products as well as developing and commercializing new products that address multiple growing market opportunities worldwide. That concludes my prepared comments. I will now have my colleague, Don Elsey, Emergent's Chief Financial Officer, take us through our financial results for the third quarter of 2007 and our revised financial guidance for the year. Don?

Thank you, Fuad. Good morning, everyone. As Fuad mentioned, we released our third quarter 2007 financial results this morning prior to the opening this month. We will be filing with the SEC our quarterly report on form 10-Q later today. The press release is available on our website today and the Form 10-Q will also be available on file on our website and on the SEC's website. We are very pleased with our results for the third quarter of 2007 and for the first nine months. These results reflect our ability to deliver product to both DoD and HHS and to fund our continued product development programs. During the third quarter of 2007 and through the first nine months of the year, the financial results we have achieved are aligned with our internal expectations. With this background, I will begin the discussion of our financial results. In terms of format, for each financial element discussed, I will first address the third quarter period followed by the nine-month period. And we'll start with a discussion of product revenues. Product sale revenues increased by $900,000 to $41.8 million for the third quarter of 2007, up from $40.9 million for the third quarter of 2006. This increase in product sales revenues was primarily due to a 43% increase in the number of doses of BioThrax delivered, offset by a 29% decrease in the average sales price per dose attributable to the discounted price that Fuad indicated earlier. This discounted price provided to HHS was due to the slightly reduced remaining shelf life for those specific doses delivered. This discount will apply to a portion of the doses remaining to be sold and delivered to HHS during 2007. Again, as Fuad mentioned, we do not expect this discount to apply to any other doses to be sold and delivered to HHS under the contract. Product sales revenues for the third quarter of 2007 consisted of BioThrax sales to HHS of $41.8 million, as compared to product sale revenues for the third quarter of 2006, which consisted of BioThrax sales to HHS of $17.5 million and to the DoD of $23.4 million. For the first nine months of 2007, product sales revenues increased by $28.5 million to $89.8 million for the first nine months of 2006. This increase in product sales revenues was primarily due to a 76% increase in the number of doses of BioThrax delivered, partially offset by a 17% decrease in the average sales price per dose attributable to the same factors that applied to the three-month product sales figures. Product sales revenues for the first nine months of 2007 consisted of BioThrax sales to HHS of $63.5 million and sales to the DoD of $26.2 million. Product sales revenues for the first nine months of 2006 consisted of BioThrax sales to HHS of $35.4 million and sales to the DoD of $25.3 million and aggregate international and other sales of $630,000. Moving on to contracts and grant revenues. Contracts and grant revenues increased by $600,000 to $1.9 million for the third quarter of 2007, up from $1.3 million for the third quarter of 2006. Contracts and grant revenues for the third quarter of 2007 consisted of recognition of $500,000 related to the amortized upfront payment received in 2006 and development service revenue from the Sanofi Pasteur collaboration, grant revenue from NIH of $900,000 and grant revenue from the Wellcome Trust of $400,000. Contracts and grant revenues for the third quarter of 2006 consisted of the amortized upfront payment received in 2006 and development service revenue from the Sanofi Pasteur collaboration. For the first nine months of 2007, contracts and grant revenues decreased by $1.1 million to $3.5 million from $4.6 million for the first nine months of 2006. Contracts and grant revenues for the first nine months of 2007 consisted of $2.2 million for recognition of the upfront payment received in 2006 and development service revenue from the Sanofi Pasteur collaboration, grant revenue from NIH of $900,000 and grant revenue from the Wellcome Trust of $400,000. Contracts and grant revenues for the first nine months of 2006 consisted of $3.2 million from the recognition of the upfront payment and development service revenues from the Sanofi Pasteur collaboration and $1.5 million in grant revenue from the Wellcome Trust. We'll move on to the cost of product sales and gross margins. Cost of product sales increased by $4.1 million to $11.4 million for the third quarter of 2007 from $7.3 million for the third quarter of 2006. For the first nine months of 2007, cost of product sales increased by $11.2 million to $22.8 million, up from $11.6 million for the first nine months of 2006. The increase for both the third quarter and the nine-month period of 2007 was primarily attributable to the increase in the number of BioThrax doses delivered, coupled with increased costs associated with our annual production shutdown, the related impact on production yield and the write-off of waste during the period. In addition to the normal variation in cost of production, the discounted price, which again was a discount that was a part of the negotiated contract and applies only to those doses sold in the third quarter as well as a portion of the remaining doses to be sold to HHS by year-end. So the discounted price for product delivered in third quarter negatively impacted the gross margin for the third quarter. This impact will carry into the fourth quarter, but not beyond that. Looking at research and development expense, as we discussed in the second quarter, we began an increase in the level of investment in R&D back in the third quarter of 2006. The R&D investment for the third quarter of 2007 is actually less than the third quarter of 2006 and the increase in spending for the first nine months of 2007 is a reflection of that increased level of investment overall in R&D as we continue to advance our products in their pipeline. When comparing third quarter of 2007 to third quarter 2006, research and development expenses decreased by $700,000 to $12.8 million from $13.5 million in 2006. For the first nine months of 2007, research and development expenses increased by $12.5 million to $41.7 million, up from $29.2 million for the first nine months of 2006. In evaluating the R&D spending for both the third quarter and the first nine months of 2007, the primary driver was the effort to advance all of our product candidates as we completed various studies and began subsequent studies and trials. As we begin to enter later stage trials for our various candidates, we may need to again increase R&D spending. Consistent with our strategy, we would manage these costs through non-dilutive partnerships with industry, government, and non-government entities. Moving on to SG&A expenses, as we have highlighted in prior quarters, our investment in G&A began to ramp up also in Q3 2006 in preparation for our IPO. Recently, the rate of increase in G&A spending has begun to slow as we have established the infrastructure to manage our Company. For the third quarter of 2007, selling, general, and administrative expenses increased by $3.8 million to $15 million, up from $11.2 million for the third quarter of 2006. The increase in G&A spending was primarily attributable to an increase in general and administrative expenses for the addition of personnel related to our transition to being a publicly traded company and increased legal and other professional services for our headquarters organization. For the first nine months of 2007, selling, general, and administrative expenses increased by $8.5 million to $38.9 million, up from $30.4 million for the first nine months of 2006. The increase in spending for the nine-month period was driven by the same factors as for the third quarter. Turning to net income, net loss, we reported net income of $2.8 million for the third quarter 2007, or $0.10 per share, as compared to net income of $4.4 million, or $0.19 per share, in the third quarter of 2006. The decrease in net income was driven primarily by a $3.1 million increase in operating expenses. For the nine months of 2007, we reported a net loss of $4.8 million, or $0.17 per share, as compared to a net loss of $3.3 million, or $0.15 per share, for the first nine months of 2006. The increase in net loss was driven by an increase in revenues of $27 million, which was offset by an increase in the cost of goods sold and operating expenses. Looking at the balance sheet, as Fuad mentioned, cash and cash equivalents at September 30th was $24.3 million, with an additional $42 million in accounts receivable generated by our product sales at the end of September to HHS under the new contract. During the nine months, the net decrease in cash and cash equivalents of $52 million resulted primarily from operating expenses, including research and development, capital expenditures, the payment of 2006 income taxes, and the repayment of an existing revolving line of credit. This was offset by collection of accounts receivable related primarily to amounts due from HHS and the DoD that were billed in December of 2006 and received in January 2007. Additionally, in the third quarter we received approximately $15 million in net proceeds related to an increased loan agreement with HSBC that was completed at the end of the second quarter. Moving on to our guidance for 2007, as Fuad indicated in his remarks, we are increasing our financial guidance for 2007 revenue. Specifically, we anticipate growth in total revenues of 16% to 18% based principally on delivering doses according to the schedule in the HHS contract. With respect to net income, we continue to expect to achieve positive net earnings for 2007. This as well is predicated on deliveries according to schedule as well as continued management of operating expenses. Please note that any statements about the company's prospects or future expectations are forward-looking statements. As Bob stated earlier, forward-looking statements involve substantial risks and uncertainties, and actual results may differ materially from expectations. Please refer to our press release on our financial results issued earlier today and to our filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ. That concludes my prepared comments, and I will now turn the call back to the operator so we can begin the question-and-answer portion of the call.

(Operator Instructions) And our first question comes from the line of Gene Mack with HSBC Securities. Please proceed.

Thanks. Fuad, could you provide more detail? Based on my calculations, considering the discount, it seems like around 2.5 million doses have been delivered. Can you tell us how many doses were delivered to HHS, how many you plan to deliver by year-end, and what the current inventory looks like?

Well, the delivery schedule is one thing that we do not disclose. All I can say is that we are on track with delivering, I would say, at least 6 million doses by year-end.

Okay. And can you just comment on how much is in inventory right now?

That's also something that I'm sorry I can't comment on.

Okay. Can you give us a little bit more detail on what the operational requirement is for DoD on sort of an annual basis or what ballpark number of doses that might amount to?

Again, when you look at the historic requirements over the last few years, you'll see that it has been somewhere between 1.5 million to 2 million doses a year. As recent as some discussions we had very recently, DoD confirmed that that requirement stands. So I can say with some confidence that 1.5 million to 2 million doses is not an unreasonable expectation going forward annually.

Is it safe to say that the mandatory injections haven't necessarily raised that requirement just yet?

Well, there are a lot of moving pieces. One is the nature of the immunization program, whether it is mandatory or voluntary. Then also in what arenas are we actively engaged. And then also the rotation strategy of military personnel in and out of these theaters. So, there's really a lot of variables that affect the exact requirement. But if you look back and from what we've heard looking forward, I believe that 1.5 million to 2 million is a very reasonable range.

Okay. I've got more questions, but I'll jump back in the queue.

Our next question comes from the line of Richard Smith with JPMorgan. Please proceed.

Yes, good morning, everyone. Just a quick question on AIG. Could you just give us a sense, and apologies if you mentioned this in your comments, with respect to timing of a potential contract from HHS? I think you said previously in 2009. Is this something that could happen in 2008, and what needs to be done to get it?

That's a very good question because with the introduction of BARDA, which helps the developers through the advanced development stage of product development, actually could mean that for the next year or two years we continue working on funding with BARDA. The procurement would, could come really at any time, but I would estimate that with the introduction of BARDA that that typically happens when you're reasonably close to having a licensable product. And as we said earlier, we expect that our product will be licensable by '09 and certainly in '08, an event I would not exclude from happening. So it's really something that could happen anytime late '08, early '09.

So I mean if we look at what Cangene has with respect to data when they got their contract, what did they have in hand when they received it from the HHS?

Well, we can't really comment other than that we believe it was relatively early stage. And I think the government had, since the BARDA introduction and since some lessons that HHS has learned, I think now they wait for product to become more mature before they actually issue a procurement contract. Because as we stated earlier that under a procurement contract, at least prior to the BARDA authority, there typically weren't any advance payments made. And the developer had to basically develop at risk until such time as they could deliver a licensable product into the Strategic National Stockpile. So I think that the paradigm has somewhat changed to where BARDA now enters into a development contract with developers, and once a product is developed to a point where it's late stage, I think then that product becomes interesting for a procurement by HHS.

Okay. Thank you very much.

Our next question comes from the line of Eric Schmidt with Cowen. Please proceed.

Hi, good morning. Fuad, what drives your confidence that the DoD is still interested in completing a procurement contract and that this GAO report won't lead to maybe better cooperation and a shifting of BioThrax from one agency to the other?

Thanks, Eric. I do agree that it may shift the procurement of additional doses from DoD to HHS and that's exactly, I believe, as I understand it, the GAO report suggests and the Presidential Directive suggests. But that doesn't really speak to the requirements of DoD. I don't think that the GAO nor the Presidential Directive address at all the requirements. I think the requirements remain, and it's a question of whether it is going to be in a separate contract with us and DoD or that it may be procured through HHS. So we do expect once the workings between the two government agencies have been sorted out, that it will result in either an increase in HHS procurement from us or a direct contract between DoD and us.

The total number of doses between the two agencies you expect to decline modestly versus your previous expectation three months ago?

No. I would still believe that the total requirements for DoD remain and that there's a good possibility that HHS will make the commensurate adjustment to the contract.

I guess, I'm a little bit confused. Maybe we need to step back a bit. But I had read that the GAO contract is suggesting that there's some wastage and that if the two agencies were in better communication, product from HHS that was going to go back could be shipped to DoD with a commensurate decrease in the overall requirements for the government. Is that incorrect?

It's a good question. It would require a lot of logistical coordination to manage effectively doses that are getting close to expiring. So that’s, again, I can't sit here other than to tell you that the DoD requirement stands and that I believe that the HHS contract would be adjusted accordingly.

Okay.

And how logistically maybe this gives an opportunity for HHS to maintain more dated product in the stockpile.

Okay. And is the DoD, RFP still out there?

It's still out there, yes. It wasn't formally withdrawn. So I think that the GAO report and the Presidential Directive I think may have also taken DoD a bit by surprise. So they're still evaluating the consequences, and they confirmed to us that the requirement stands. How they're going to procure is going to be discussed with HHS.

Okay. And last question on this issue, do you have any visibility into where the DoD's inventory is in order that they have, in effect, seemed to continue to satisfy this requirement?

Well, we neither have visibility into it nor would we be able to disclose it. So I can't help you with that.

Okay. And then a question for Don on the SG&A run rate. Is the $15 million in Q2 an estimate to base off going forward, or were there some sort of one-time legal costs and others that bumped that up sort of artificially?

I'm assuming you meant to say Q3?

Yes. Sorry.

Okay. There was some additional activity in Q3 that takes it somewhat higher than our run rate. But if you take a look over the past couple of quarters and average those out, I think you'll see pretty much a run rate that you can develop from there.

Okay. And last question on AIG, have you started human trials yet?

No, we haven't. We're preparing for it.

Will that be a Q4 event or an early '08 event?

What we can say right now is that it's going to be an '08 event.

(Operator Instructions) Our next question is a follow-up from the line of Gene Mack with HSBC Securities. Please proceed.

Thanks for taking a follow-up. Wondering if you could just, Fuad, I apologize if you mentioned this already but could you just give us a little more detail on the typhoid vaccine and timelines there in terms of moving forward?

Yes, what I mentioned earlier is that we are still finalizing the review of the data. We've given some preliminary data to you already. We expect that to be completed by the end of this year. And then in terms of milestones going forward, we anticipate a study in the U.S. where we would use the scaled-up material. So we've completed our process development and process scale-up. We would use the scaled-up material in a small study here in the U.S. in '08. And we would also expect to commence a small study leading up to a Phase III study in India in children two to five. So those are the two events, the two commencements of trials that we expect in '08.

Okay. And that could be anytime in 2008?

Yes. And then in 2009, we expect to commence the full-fledged Phase III study.

Okay. And question on R&D, Don, and I apologize if you went through this as well. It looks like the trend continued to go down over the last three quarters. Just wondering where that ends up maybe for this year and what you're thinking in terms of next year as far as directionally where it goes? Thanks.

Well, we're not in a position to provide guidance at this point in 2008. I will tell you that as you step back to the third quarter of 2006, as I referenced, we basically took a step up in the investment level in R&D. And then as you go quarter-by-quarter, as various trials complete or commence, and as you probably know, we subcontract out a fair amount of development activity, you're going to have contracts that come to fruition and contracts that are completed, and you're going to see some variation in the run rate. But that the investment levels that you've seen over the past couple of quarters again, if you take a look at those, you're going to get a fairly good run rate from the steady state perspective that you could use. As I mentioned in my comments and as Fuad just indicated, as we approach 2009 and beyond and we get into some of the Phase III trials, you could expect reasonably that the investment in R&D will increase again, and we'll manage that internally and hopefully with partners of a non-dilutive nature.

Okay. And just one final question. You mentioned that there was a meaningful sale to another government agency, another foreign government, allied government. And I'm just wondering; if you care to maybe give a little more detail on who that is? Was it somebody that you've dealt with in the past as far as ordering, or is this a new customer?

What I can disclose is that it was approximately $2 million. What I can't disclose by agreement with that government is I can't tell you which government, and I can't tell you how many doses. But I can tell you it was $2 million, and it was in line with our standard international sales prices.

Was it somebody you've dealt with in the past or?

I'm sorry, I can't answer that.

Our next question comes from the line of Daniel Mallin with WBB Securities. Please proceed.

Hi, guys. Thanks, and congratulations on the quarter. Quick question. Was wondering if you can give us an update on the shelf life extension program with the FDA? Specifically, what would you expect with respect to timing? And if you could state if you know whether or not this extension, once it were to go into effect, would it apply to only future shipments or would it also to apply to shipments that have already been made and out in the field? And I'm wondering, if you can give us a little bit of color, I guess the discount that you received on or that was applied to doses that were previously shipped with slightly shorter shelf life, I think, you also have an increase in the price that's tied to the shelf life extension. If you can just give a little bit more color on that, I'd appreciate it.

Yes, absolutely. First of all, we do have until September 2010 to get four-year dating approved by FDA. Second, we retroactively, so to speak, would get a price bump of those doses that we've already delivered, and we'll get a higher price for those doses to be delivered. Now, the first 5.5 million doses, however, won't be adjusted. So that was because we were building up inventory and because the negotiations with the government took a little longer than expected, and those doses in inventory had a slightly shorter shelf life. So we made a concession and sold those to the government at a reduced price, which won't be recouped. But beyond the 5.5 million doses, if we get four-year dating approved by FDA, then, whether it's prospectively or retroactively, we would get the higher price. Now, and I'm trying to remember every element of your question. And as to how soon we might get an approval, I can only tell you that we are working it very carefully and diligently. The timeline is pretty much in FDA's hands. And we are collaborating, cooperating, and we hope that we'll be able to complete that within that timeframe.

So the timeframe is by 2010?

Yes.

So it's reasonable to think that this is not going to happen anytime within the next year or year and a half?

No, I'm sorry; I didn't mean to communicate that. I'm just saying we have until that time, until 2010 to do it. We expect it significantly earlier than that.

Okay. And I think I heard you say that the approval could be either for all future doses or could also apply to doses previously shipped?

No, the approval applies only to future doses. But the payment also calls back to previous shipments.

Okay, that's all I was interested. Thank you very much.

Thank you.

At this time there are no questions in queue. I would now like to turn the call back over to Robert Burrows for closing remarks.

Thank you. Ladies and gentlemen, that concludes today's call. We certainly appreciate your collective participation. Please note that today's call has been recorded and a replay will be available beginning later today through November 16th. Alternatively, there's available a webcast of today's call, an archived version of which will be available later today, accessible through the Company's website, again at www.emergentbiosolutions.com and clicking on the investors tab. Thank you again, and we look forward to speaking to you all in the future. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.