Earnings Call Transcript - EBS Q3 2012

Operator, Operator

Good day, ladies and gentlemen and welcome to the Emergent BioSolutions third quarter 2012 financial results conference call. My name is Grant and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. As a reminder, this call is also being recorded for replay purposes. I would now like to turn the call over to your Mr. Bob Burrows, Vice President, Investor Relations. Please proceed.

Robert Burrows, Vice President, Investor Relations

Thank you, Grant. Good afternoon, ladies and gentlemen. Thank you for joining us today as we discuss Emergent BioSolutions' third quarter and year-to-date 2012 financial results and recently announced growth plans through 2015. As is customary, our call today is open to all participants. In addition, the call is being recorded and is copyrighted by Emergent BioSolutions. Participating on the call this afternoon with prepared comments will be our President and Chief Executive Officer, Dan Abdun-Nabi, and Chief Financial Officer, Don Elsey. Several other members of senior management will be available to respond to your questions during the Q&A session. Before we begin, I must remind everyone that during the call management may make projections and other forward-looking statements regarding future events and the company's prospects or future performance. These forward-looking statements reflect Emergent's current perspective on existing trends and information. Any such forward-looking statements are not guarantees of future performance and involve substantial risks and uncertainties. Actual results may differ materially from those projected in any forward-looking statements. You are encouraged to review Emergent's filings with the SEC on forms 10-K, 10-Q, and 8-K for more information on the risks and uncertainties that could cause actual results to differ. For the benefit of those who may be listening to the replay, this call is held and recorded on November 1, 2012. Since then, Emergent may have made announcements relating to topics discussed during today's call. So, again, please do reference our most recent press releases and SEC filings. Emergent BioSolutions assumes no obligation to update the information in today's press release or as presented on this call, except as may be required by applicable laws or regulations. Today's press release may be found on our website at www.emergentbiosolutions.com under investors/news. With that introduction, I would now like to turn the call over to Dan Abdun-Nabi, Emergent BioSolutions' President and CEO. Dan?

Daniel Abdun-Nabi, President and CEO

Well, thank you, Bob. Good morning, everyone and thank you for joining us on our call today. During my prepared comments, I will cover two broad topics. First, I will discuss our financial and operational performance for the past quarter and the year-to-date. Then, I will discuss in greater detail the growth plans through 2015 that we announced this morning. To begin, let me review our financials for the period. Our total revenues for the third quarter were approximately $67 million. This is within the guidance that we provided during our August conference call. Year-to-date total revenues were just over $187 million. Net income for the quarter was $6.6 million and net income for the first nine months of the year was $7.4 million. Turning to our achievements during the third quarter, we made significant progress in a number of areas. In our biodefense division, we completed the manufacturing of BioThrax consistency lots in Building 55 and final product testing of these lots continues to move forward. Regarding PreviThrax, our Recombinant Anthrax Vaccine candidate, we announced that BARDA exercised a one-year contract option to further advance the development of this program. This option was exercised based upon PreviThrax having met all of the key milestones and after BARDA completed the interagency process review. In our biosciences division, we initiated a Phase 2 study of TRU-016 in combination with bendamustine for relapsed refractory CLL. Recruiting for this study is on track, with data expected next year. Meanwhile, we completed the Phase 1b comparative study evaluating TRU-016 in combination with bendamustine and rituximab in relapsed indolent NHL. The data from that study indicated that the combination therapy had an acceptable safety profile and there was evidence of clinical activity. Finally, during the quarter, we initiated a $35 million share repurchase program. Now, I would like to discuss our near-term milestones. First, for our biodefense programs. We anticipate completing all testing for our Building 55 consistency lots in Q1 2013. Once completed, the consistency lot material will be used in our pivotal nonclinical study, which we expect to initiate in Q2 2013. The data from that study along with other comparability data will be reviewed by the FDA as part of our licensing package. We continue to anticipate that we will be in a position to file for regulatory approval for Building 55 in 2014. With respect to a postexposure prophylaxis or PEPC indication for BioThrax, we expect to initiate a Phase 2 antibiotic noninterference study by year-end. We anticipate this will be the final clinical study required in order to secure the PEPC indication. That trial is expected to be completed in mid-2014. Additionally, in Q1 next year, we expect to initiate a Phase 2 immunogenicity study for Nuthrax, also for a PEPC indication. Finally, with respect to our recently announced AVM contract with HHS, we are currently evaluating several potential flu vaccine candidates that meet HHS' requirements and that could be manufactured in our Baltimore facility. We expect to make our final selection before year-end. We also have several near-term milestones for our biosciences program. We have three abstracts accepted for presentation at the ASH conference in December. Two for TRU-016, one in CLL and one in NHL, as well as one for our technology platform. These abstracts will be made public on November 5, on the ASH website. The data is very encouraging and we look forward to discussing these results once the abstracts are released. For MVA85A, our tuberculosis vaccine candidate, we anticipate receiving the data from the 2,800 infant Phase 2b efficacy study in early first quarter 2013. As you may recall, MVA85A is a one-dose booster to BCG. The vaccination base of the trial has been completed and these infants are now being observed. Given the heavy disease burden worldwide and the recognized need for new TB vaccines, we may, depending on the data from the ongoing study, be in a position to pursue accelerated or conditional approval for MVA85A in selected countries. In addition, for TRU-016 in CLL, enrollment is ongoing and patient dosing continues in the Phase 2 comparative study evaluating TRU-016 in combination with bendamustine in relapsed CLL. We recently received approval from our data monitoring committee to continue this trial unchanged. Data from this study will determine whether a Phase 3 is warranted, and we anticipate making that determination next year. As you may have seen, yesterday, we announced the start of the Phase 1b comparative study evaluating TRU-016 in combination with rituximab in frontline CLL. We expect enrollment of this study in the first half of next year with data being available by the end of 2013. Finally, we reaffirm our 2012 full-year guidance of total revenues of $280 million to $300 million, split between product sales of $220 million to $230 million and grants and contracts revenue of between $60 million to $70 million and net income of between $15 million to $25 million. Let me now move on to discussing the growth plan that we announced this morning. Since my employment as CEO of Emergent in April, my team and I have developed a growth plan that continues and expands upon our history of success. This plan establishes the key drivers for how we intend to pursue growth and clearly defines our vision for our mid-term goals and the overall future direction of the company. The plan was developed after evaluating and assessing several inputs, including our business definition, specifically who we are and what we seek to achieve, along with our core competencies. We assessed the expectations of our stakeholders. How can we best deliver on commitments to and the expectations of our customers, our employees and other key stakeholders? We evaluated external market and competitive factors, as well as the views, opinions and expectations of our stockholders as I have heard them expressed over the past six months. With this backdrop, I would like to share with you my views on how we define our business, what our strategic goals are, how we assess our core competencies and what are the core strategies we intend to use to achieve these goals. Our business definition is simple. Our mission is to protect and enhance life by offering specialized products to healthcare providers and governments to address medical needs and emerging health threats. Under the growth plan, we intend to advance our leadership position in the biodefense field and to expand our product offerings in specialty pharma markets. This will enable us to expand revenues, grow net income, and create shareholder value. To that end, we have established the following key financial and operational goals to be achieved by the end of 2015. First, generate annual product revenue of greater than $500 million. Second, achieve a three-year, from 2012 to 2015, compound net income growth rate of greater than 15%. Third, secure diversified revenues from at least three marketed specialty products. The core competencies we intend to build upon to support our growth include our recognized leadership position in the biodefense field that we can leverage to advance our existing pipeline and to acquire new products for the specialty market. The breadth and depth of our resources and expertise in biologics manufacturing and advanced-stage product development, the expertise and capabilities we possess in government and NGO contracting and partnering, and lastly, our experience and expertise in structuring and closing acquisition transactions. By leveraging these core competencies, we plan to execute on the following core strategy. First, we seek to acquire revenue-generating products that are synergistic with our existing operations and competencies. This approach is designed to secure revenue-generating products in the biodefense and other specialty markets where our existing infrastructure can improve performance and contributions. This approach will advance us towards the achievement of our 2015 goals. By increasing top-line product revenue, enhancing contributions to net income growth, and providing product revenue diversification. Secondly, we will focus product development efforts on promising late-stage candidates that satisfy well-defined criteria, limiting early-stage development activities to those less funded by external sources. This approach is designed to advance us towards the achievement of our 2015 goals by advancing only those programs that have achieved clinically important milestones that justify further research and development investments. Also, by enhancing the value of development expenditures by focusing on products that have the potential for nearer-term regulatory approval and minimizing early-stage research and development costs that are not funded by third parties. Lastly, in terms of the core strategy, we will continue to partner with third parties such as governments and NGOs. This approach is designed to advance us towards the achievement of our 2015 growth by mitigating operational risk through the knowledge, capabilities and expertise provided by partners and collaborators, and by offsetting development expenditures through non-dilutive funding. Critical to the success of this growth plan will be to focus on revenue expansion, a disciplined R&D spending plan and controlling G&A costs, all of which will contribute to the targeted growth and net income. As you know, we operate in two separate business divisions, biodefense and bioscience. The growth plan impacts operations of these divisions in slightly different ways. In the biodefense division, we will focus on the following: continue to increase BioThrax revenues from our existing facility, Building 12, and further expand BioThrax product sales following licensure of Building 55, which we anticipate in late 2014 or early 2015. We also seek to leverage manufacturing resources and capabilities to contribute to revenue growth and product expansion and target the acquisition of revenue-generating products, meaning we will evaluate products that broaden our focus beyond anthrax and beyond biologics to address the U.S. government's requirements across the entire biodefense spectrum. We are also looking at revenue-generating products that have true use potential across both biodefense and commercial markets as well as products that are currently sold or have ready appeal to both U.S. and foreign government agencies. We are evaluating products that leverage our core competencies in government contracts and negotiations and products that capitalize on our status as a proven, respected and trusted partner to allied governments. We will also continue R&D where it is funded or substantially funded under government contracts and grants, and finally, we will further control costs in G&A and unfunded R&D. For the biosciences division operations, we will focus on the following. First, we will target acquiring product revenues within specialty focus areas such as products that are used by specialty physicians in targeted disease areas or products that are used in a hospital setting. We will seek to partner our late-stage product candidates as appropriate to provide immediate and long-term value enhancement as progress is achieved. We also look to partner our platform technologies to mitigate development risk and drive future value. Lastly, we will look to limit early-stage R&D costs that are not supported by external funding sources. In our corporate operations generally, we will focus on controlling our G&A costs to operate more efficiently while supporting our program priorities. In summary, we have established definitive financial and operational goals to be achieved by the end of 2015. Please note, and this is important, we will not achieve these growth targets in one year nor do we anticipate that our growth towards this target will be evenly spread year-to-year as we approach 2015. Thus, investors should not expect that all of our growth will occur in the last year of this plan, nor should investors expect that our revenue growth will be linear or that we will achieve 15% net income growth every year. Rather, we intend to drive towards these goals by expanding revenues from our marketed products, acquiring synergistic revenue-generating products in biodefense and other specialty markets, focusing product development efforts on promising late-stage candidates, expanding collaborations with third parties, such as governments and NGOs, limiting early-stage R&D costs that are not supported by external funding, and further controlling our G&A expenditures. By remaining focused on who we are, this plan describes how best to tap into our core competencies while simultaneously focusing on astute and judicious spending in order to continue our history of growth and success. I believe this approach is smart, aggressive and achievable. I see great opportunities ahead for our company, for our employees, for our customers and partners, and for creating shareholder value both in the near and long term. This concludes my prepared comments and I will now turn it over to Don who will take you through the third quarter numbers in greater detail. Don?

Don Elsey, Chief Financial Officer

Thank you, Dan, good morning, everyone. Prior to the open of the markets today, we released our financial results for the third quarter 2012. I encourage everyone to take a look at the press release which is currently available on our website. We plan to file our quarterly report on Form 10-Q with the SEC no later than the close of business tomorrow, Friday, November 2. The 10-Q will also be available on our website. Let me now briefly discuss the numbers. Third quarter 2012 total revenues were $66.6 million versus $58.8 million in the third quarter 2011. Total revenues for the first nine months of 2012 were $187.3 million versus $165.4 million for the first nine months of 2011. Diving a little deeper, year-to-date product sales revenues were $141.5 million versus $120.7 million for the first nine months last year. This increase was primarily due to an increase in doses of BioThrax delivered, partially offset by a lower sales price per dose. Year-to-date contracts and grants revenues were $45.8 million versus $44.7 million for the same period last year. This increase was primarily due to increased activity in associated revenue from our partner development contracts. Turning to gross margins, our gross margin in Q3 2012 was approximately 81%, which is modestly higher than our typical range of between 70% and 80%. Gross margin for the first nine months of 2012 was approximately 78%. Turning to the bottom line, third quarter 2012 net income was $6.6 million or $0.18 per basic share compared to $1.5 million or $0.04 per basic share in the third quarter of 2011. Net income for the first nine months of 2012 was $7.4 million or $0.21 per share, as compared to a net loss of $5.6 million, or a loss of $0.16 per share for the first nine months of 2011. As you may recall, the year-to-date net income reflects the impact of a $9.6 million non-cash charge in the first quarter related to the impairment of in-process R&D. Turning now to spending. Our R&D expenses for the third quarter 2012 were $27.4 million compared to $29.2 million in the same period last year. I would like to highlight that contracts and grants revenues and costs associated with non-controlling interest in our joint ventures offset a portion of our gross R&D expenses. When we take these into account, our net R&D for Q3 2012 was $13.8 million. R&D expenses for the first nine months of 2012 were $84.3 million compared to $95.5 million in the first nine months of 2011. Again, adjusting for contracts and grants revenues and non-controlling interest in our joint ventures, the net R&D for the first nine months of 2012 was $34.3 million. Our SG&A expenses for the third quarter 2012 were $19.2 million compared to $17.1 million in the third quarter 2011. The increase in this period is primarily attributable to increased personnel and professional services. SG&A expenses for the first nine months of 2012 were $56.5 million compared to $56 million for the first nine months of 2011. Turning now to the balance sheet. We ended the third quarter 2012 with cash and cash equivalents of $197.9 million and an accounts receivable balance of $17.1 million. Just wrapping up our share repurchase, at this point in time, we repurchased approximately 400,000 shares at a price of $5.9 million. That concludes my comments. I will now turn the call over to the operator so that we can begin the question-and-answer portion of the call. Operator, please proceed.

Operator, Operator

Our first question comes from the line of Cory Kasimov from J.P. Morgan. Please go ahead.

Matt Lowe, Analyst, J.P. Morgan

It is actually Matt Lowe in for Cory today. Just a couple of questions. First one is, when the Phase 2 TB vaccine gets released, just wondering, how much detail will you be able to give us in that release? What might be in it? Secondly, just any more comments on potential ongoing BD efforts contributing to the 2015 growth plan?

Daniel Abdun-Nabi, President and CEO

Sure, in terms of the release itself, I think we are working out with our partners the actual plan for releasing the data. As you can appreciate, Gates, through the institute is very interested, as is Oxford and Wellcome Trust. Then there are also the South African partners that we work with. So the actual details of the communication plan are currently being finalized. So I can't give you specifics yet, in terms of how that is going to work, but certainly in early Q1 next year, you will see the details. I think the team is also anticipating that there would be a publication in a well-recognized journal of the full results of the study. So stay tuned for more on that one. In terms of the BD efforts, we have a number of ongoing activities, with respect to potential targets and they are numerous and I would say, broad and I am pleased with the progress that is being made. They are in various stages of evolution from early stage to later stage, but stay tuned for further announcements on that. I think a priority for us, as I indicated, is that we would like to complete the AVM selection process and make that announcement by year-end. So you can look for that.

Operator, Operator

Thank you for your question there. Our next question comes from the line of Nicolas Bishop from Cowen and Company. Please go ahead.

Nicolas Bishop, Analyst, Cowen and Company

I have a couple of questions on the three-year growth plan. The first one is, just to clarify the three marketed specialty products that you talked about. One of those is BioThrax, I assume. Just confirm that’s correct. Then, I wonder if you could provide any more granularity on the $500 million plus revenue guidance. How much of that do you envision being BioThrax versus something else because it seems to me you could get there on BioThrax alone, if building 55 is approved.

Daniel Abdun-Nabi, President and CEO

Yes, so thank you for joining us this morning. So BioThrax is certainly one of the three; your observation is correct. In terms of the allocation of the breakdown of the products by revenue, again, I think we set a target for ourselves. I am not prepared to give an assessment of how it works right now. Remember that our current contract with the CDC runs through 2016 and we still have yet to work out how we are going to introduce Building 55 material into the mix. So I am really not in a position to give you specifics on that, but our evaluation suggests we should be able to achieve the target that we set out there. We are comfortable with that. We have done the analysis and we have looked at potential product opportunities for acquisition, and on balance, I think we will be able to hit the target that we have set out for you.

Nicolas Bishop, Analyst, Cowen and Company

Then just two follow-ups on the plan. I guess I will ask the first one and let you respond, and that is, can you get to your revenue targets just based on the programs that are extending your pipeline today, or do you need to make external acquisitions to get there?

Daniel Abdun-Nabi, President and CEO

As we look at our pipeline today, we don't see beyond the BioThrax in Building 55 other products coming to market within the planned period by the end of 2015. So we are looking at acquisitions to support expanded BioThrax sales.

Nicolas Bishop, Analyst, Cowen and Company

Okay and then I guess just one bigger-picture strategy question. That is, if you could just explain the motivation for providing this guidance today, especially taking into account that it assumes acquisitions of the products you don't yet own. Just what's the intent of providing this big picture now versus maybe after you have closed something?

Daniel Abdun-Nabi, President and CEO

Yes, and I think that’s a good question. We have been evaluating the direction of the company: What are the ways in which we want to build and grow on our history of success? A couple of things. We felt it was very important to be transparent with our shareholders and investors in terms of where we are taking the company, to lay out specific milestones that we have set for ourselves and allow our investors to measure our progress towards those milestones. A couple of other things that make our unique refinements, which is we have given real financial goals. We have put out a growth target for the bottom line, which historically we have not set. We have put out a top-line growth figure; again, historically, we have not given that kind of granularity and specificity. So I think that is an important element of communication today. Also, we have communicated to you what we think our core competencies are and how we think we can leverage those core competencies. Our competence in the biodefense field as a specialty market, we think that is a growth opportunity and we believe that we have competencies that cut across specialty fields that we can leverage to build the business. I am quite confident that the acquisition strategy that we have laid out here can be implemented successfully, both in the near and midterm. So my view on it is, yes, while there is some risk, and I am glad you recognized there is some risk, I think the risk is manageable and the plan is achievable. The point here is really to lay out for you how we see the path forward, give you some milestones down the road that we are targeting and we are seeking to achieve, tell you how we are going to get there, and allow you to measure our progress as a management team in achieving those goals.

Nicolas Bishop, Analyst, Cowen and Company

Okay, that was really helpful. Thanks a lot, and if I can just sneak in one last one. On the fourth quarter, either for Dan or Don. Looking at our model, if we put revenues even near the low end of guidance, the net income seems to come towards the top or even above guidance. Is there a possibility that there could be a spike in one of the expense items in the fourth quarter, or could there even be P&L related acquisition expenses, it seems that or could you comment on that?

Don Elsey, Chief Financial Officer

Thank you for the question. With respect to Q4, with respect to our guidance for the full year, there are no acquisition expenses anticipated in there. I can't comment on your model per se, but with the expenses that we project for fourth quarter, which are normal, I anticipated expenses in support of our programs going forward, and the revenues we are projecting, we see the guidance as being appropriate.

Operator, Operator

Thank you for your question there. Our next question comes from the line of Jason Kantor from Credit Suisse. Please go ahead.

Jason Kantor, Analyst, Credit Suisse

Thanks for taking my question. I was just wondering if you could give us some idea of what kind of hurdle you are looking for in your go-no-go decision in CLL? I assume it's an increasingly crowded space with lots of different drugs. What do you need to see to make that determination to make that investment and would you make investment yourself or does that require a partner?

Don Elsey, Chief Financial Officer

Thank you for the question. In terms of the actual target endpoints, maybe Scott Stromatt, our CMO, Chief Medical Officer can take that piece and then I will come back on the partnering question.

Scott Stromatt, Chief Medical Officer

Sure. In terms of response rates, we are looking at 30% to 50% response rates. What's interesting is that although it is a crowded field, there is no cure to the agents, and given the current inhibitors, they have some activity, but again, they are not a cure. So I think the real promise in a field like combination is very encouraging with TRU-016. So when we conduct common studies in animals, our target would be and our goal is to move towards non-chemotherapy combinations, which won't have a mild depression and won't have the secondary malignancy that's currently an issue.

Don Elsey, Chief Financial Officer

In terms of partnering out, as part of my comments on the growth plan, that’s absolutely on the table. We will evaluate the data from the study, make a determination as the next steps and my expectation is we would look to have some discussions around partnering and make a determination whether it is the right time, it is the right deal, whether we should invest on our own to get to the next inflection point or partner at that point. So stay tuned, but in terms of our overall strategy, partnering late-stage candidates is certainly part of the approach we are taking and it really depends on the product, the market and the deal.

Operator, Operator

Thank you for your question there. Our next question comes from the line of Matthew Luchini from Piper Jaffray. Please go ahead.

Matthew Luchini, Analyst, Piper Jaffray

Just a couple, if I may. The first is, as it relates to the TB vaccine and the data there. Is the definition of success, in your mind, black or white, are there specific hurdle rates you are looking for relative to the booster plus vaccine versus vaccine alone? Or is there gray outcome as well? I think in the past you have mentioned maybe 40% to 50% improvement? Is that a hard and fast line? What happens if the data comes a little bit below that? If you could just share your thoughts on that, that would be great. Thank you.

Daniel Abdun-Nabi, President and CEO

That’s a great question. As you know, we have commented before that there are a lot of eyes on this trial and the results of the study. The endpoint is vaccine efficacy of 50% or greater; that’s what we are hoping the trial will provide. However, there is widespread acceptance of the fact that even below 50%, this vaccine could have tremendous public health benefits. We have heard numbers as low as 30%. So 30% to 50% is indeed the gray zone. We would need to evaluate what the data is telling us, look at the full scope of the data provided by the results of the study, have discussions with key opinion leaders, public health authorities and regulatory agencies, and then devise a path forward based on the data, in your words, within that gray zone. But from a public health perspective, even vaccine efficacy in that range could be highly beneficial. We will just have to see how we develop the product at that point.

Matthew Luchini, Analyst, Piper Jaffray

Looking at the things you laid out in the growth plan, I was just curious. You have outlined some core competencies and some other things here. You talk a little bit about hoping to target on the bioscience side hospital-oriented products. I was just wondering, from your perspective, from a commercial point of view, what do you see as your competitive advantages in terms of selling into that space? If you could just share some thoughts on that, that would be great. Thanks.

Daniel Abdun-Nabi, President and CEO

That is a great question. We, as a team, have talked about that at length. Candidly, if we were going to do an acquisition for that space, it would be a product coupled with commercialization capability and expertise because we recognize that we don't have that internally at Emergent now. So our first foray into that market would be a product coupled with commercialization capability, followed by the hope that we would continue to expand that business by following up with other acquisitions that could be handled by the commercialization team to address that market.

Matthew Luchini, Analyst, Piper Jaffray

If I am understanding you, that would somewhat suggest a company acquisition, at least on the early side, as opposed to a license strategy, is that a correct interpretation of your last comment?

Daniel Abdun-Nabi, President and CEO

It is somewhat correct because what we are seeing out there is that there are product opportunities that come with a sales force. There are small divisions of companies available, if you will, for transacting. Of course, you are right; there could also be company acquisitions, which could address that issue. So it's not necessarily a company but certainly the capabilities around commercialization would be part of that initial foray.

Operator, Operator

Thank you for your question there. Our next question comes from the line of Greg Wade. Please go ahead.

Greg Wade, Analyst

If I could just follow up on Nic's questions regarding the bogie for the delta and revenue. Existing products are trading at three to five times revenue. What type of revenue stream are you trying to pull in through an acquisition? Does your $500 million target, as you are expecting it fully to be online by the end with the TB vaccine, play into that number, and some commentary around how much bigger you think BioThrax gets with Building 55 would be helpful? Investors consider how diluted are you willing to undertake in order to achieve your goals. Thanks.

Daniel Abdun-Nabi, President and CEO

Thank you for the question, Greg; very helpful. Starting with the BioThrax piece, again, I think there is too much uncertainty right now about how 55 is going to get feathered into the deliverables on the CDC. So it's going to be very difficult to provide you specifics until we start having those conversations. In terms of the other product opportunities, the targets we are looking at are ways in which we can acquire product opportunities where we can actually build on the business and make it more valuable in our hands than in someone else's hands. That’s where, if we look at, for example, our expertise in government contracting and delivering to governments, whether it’s U.S. or foreign, we are trying to create a portfolio of products that address stated requirements whether it is health threats or biodefense targets. So what we are trying to do is acquire at a value that is below what we think we can build internally and create value through the acquisition. So my expectation is that the targets we announce will, on first flush, not be as large as we think top-line and bottom-line contributions can be because that’s, from my perspective, the rationale for doing a transaction. We have got to be able to acquire something that, in our hands, could be more valuable than it is in the hands of the seller. Second, I don't see this as one large acquisition that answers them all across the board. I think that this could very well be a series of smaller acquisitions, allowing us to grow top-line and bottom-line and hopefully from a market perspective, be small from a valuation perspective as well. So, I think there are multiple ways to model this to get to the end point. There isn’t one model that answers them all. In terms of the specifics around whether flu or TB is in that $500 million estimate, I really don’t want to comment on the profile for 2015 because undoubtedly whatever I say today will ultimately differ over the course of the next three years. So all I know is that I think we have multiple ways to get there and that’s why we have confidence we can achieve it. What we will do is continue to deliver on this plan and then you can better assess what that portfolio ultimately looks like.

Greg Wade, Analyst

Okay, and then just one last question regarding Building 55. The government had a previously stated goal of 70 million plus doses of anthrax vaccine and you are doing your best to supply them as much as you can produce. Have you seen a change in the posture of the government with respect to its plans for that? Do you see less visibility into the potential future demand out of Building 55? Thanks.

Daniel Abdun-Nabi, President and CEO

Thanks for the question. No, I think the government has been absolutely firm and committed to that number. As you point out, we continue to deliver as much product as we can produce, and they reiterated that figure several times. So we see no wavering on that commitment.

Operator, Operator

Thank you for your question. We have no further questions at this time. (Operator Instructions) Robert Burrows?

Robert Burrows, Vice President, Investor Relations

Great, thank you very much. Ladies and gentlemen, that’s all the time we have for today and we really appreciate your participation. Please note that today's call has been recorded and a replay will be available beginning later today through November 8. Alternatively, there is an available webcast of today's call, an archived version of which will be available later today accessible through the company's website at www.emergentbiosolutions.com and clicking on the investors tab. Thank you again, and we look forward to speaking with all of you in the future. Goodbye.

Operator, Operator

Thank you for your participation in today's conference. This now concludes the presentation. You may now disconnect. Have a good day.