Washington Editor

Emergent BioSolutions Inc. said Wednesday that it signed a three-year contract with the federal government worth up to $448 million to supply anthrax vaccine for the nation's biodefense stockpile.

On news of the contract, shares of the Rockville, Md.-based firm (NYSE:EBS) climbed $1.43 Wednesday, or 18.4 percent, to close at $9.22.

In a conference call, CEO Fuad El-Hibri said the contract with the Department of Health and Human Services (HHS) is the largest deal in the company's history.

HHS is buying 18.75 million doses of BioThrax (anthrax vaccine adsorbed) - the only FDA-approved vaccine for the prevention of the anthrax infection - for a fixed price of $400 million. The fixed price, El-Hibri noted, means the government is "committed" to purchasing all 18.75 million doses. HHS had specified 18.75 million as the maximum number of doses in the agency's May 2007 request for proposal, he added.

The vaccine, El-Hibri said, will supplement the 10 million doses of the vaccine already included in the Strategic National Stockpile (SNS) - a national cache of vaccines, anti-infectives, chemical antidotes and other medical supplies that can be deployed within 12 hours to anywhere in the U.S. or its territories in the event of a disaster.

Emergent BioSolutions' earlier agreements with HHS for the 10 million doses were worth more than $240 million, El-Hibri noted.

If the FDA approves the firm's pending supplement to its biologics license application to extend the shelf life of BioThrax from three years to four years, the company will receive an additional $34 million, El-Hibri said.

However, he noted, if Emergent BioSolutions fails to obtain the four-year expiry approval, the firm will "not be entitled" to the additional $34 million.

El-Hibri said he could not provide details of the pending supplemental application, but, he assured, "We are confident in the data supporting our application."

HHS also will pay up to $11.5 million in milestone payments if certain conditions are met under Emergent BioSolutions' development program to expand the use of BioThrax for a post-exposure indication.

El-Hibri said his firm anticipates receiving $8.8 million of the $11.5 million in the fourth quarter of 2007.

Emergent BioSolutions' development program to expand BioThrax beyond the current pre-exposure prophylaxis indication is designed to permit the administration of the vaccine in combination with antibiotics following exposure to anthrax, the firm said.

Although the vaccine had not achieved post-exposure prophylaxis approval, HHS in December 2001 offered BioThrax to postal workers, Capitol Hill staffers and any other people who were likely to have been exposed to Bacillus anthracis spores.

Five people died in the fall 2001 of inhalation anthrax after letters containing the spores were distributed by an unknown source in the U.S. mail.

Thousands of Americans were provided prophylactic anti-infective agents as a precautionary measure to prevent further infection.

HHS said in 2001 that it was not endorsing the use of BioThrax as a post-exposure treatment, but was offering it to certain members of the public as a precautionary measure.

The new contract with HHS also calls for Emergent BioSolutions to provide all shipping services related to delivery of the 18.75 million doses into the SNS in exchange for an additional payment of $2.2 million.

El-Hibri said his company anticipates making delivery of 6 million doses of BioThrax to the SNS by the end of the year and equal amounts of doses in each following year of the contract.

As a result, he said, "We are currently reaffirming our expectations, but with slight modification, for full year total revenue growth of 10 to 15 percent, with a bias toward the upper end of the range, with positive net earnings for the year."

El-Hibri said his firm also is in negotiations for a contract with the Department of Defense (DOD) to supply a minimum of 1 million doses of BioThrax and up to 3.6 million doses over the next year.

That contract also includes three one-year option periods with options to purchase the same minimum and maximum amounts in each of the option years, he said.

El-Hibri said his firm does not expect that agreement to be signed before the end of this quarter, but he anticipated that the deal would be finalized before the end of the year. "We continue to negotiate with key personnel at DOD," he said.

More than 6.5 million doses of BioThrax have been administered to more than 1.6 million military personnel since 1998, the firm noted.

Emergent BioSolutions, founded in 2004 by BioPort Corp., formerly of Lansing, Mich., is the only firm licensed to produce and market anthrax vaccine in the U.S.

BioPort acquired its vaccine-manufacturing assets from the Michigan Department of Public Health in Lansing, where the vaccine has continued to be produced.

After Emergent was formed, it became the parent company of BioPort and acquired the license for BioThrax.