Good day, ladies and gentlemen, and welcome to the ThirdQuarter Emergent BioSolutions Earnings Conference Call. My name is Lacey, andI'll be your operator for today's call. At this time, all participants are in alisten-only mode. We will conduct a question and answer session towards the endof this conference (Operator Instructions). As a reminder, this conference isbeing recorded for replay purposes. I would now like to turn the presentation over to our host,Mr. Robert Burrows, Vice President of Investor Relations. Please proceed.

Thank you. Good morning, ladies and gentlemen, and thank youfor joining us today as we discuss Emergent BioSolutions financial results forthe third quarter of 2007. As is customary, our call today is open to allparticipants. In addition, the call is being electronically recorded andis copyrighted by Emergent BioSolutions. My name is Bob Burrows and I am VicePresident for Investor Relations for the company. Joining me this morning willbe Fuad El-Hibri, our Chairman and Chief Executive Officer, and Don Elsey, ourChief Financial Officer. Additional other members of senior management will bepresent on the call for purposes of Q&A. The agenda for today's call isstraightforward. Following my brief introduction, Fuad will briefly discussthird quarter results as well as third quarter accomplishments, progress ontyphoid and an update on DoD. Don will then review our financials for the third quarterand the first nine months of 2007 and will also discuss the upward revision toour 2007 revenue guidance. We then will move to the customary Q&A session.Please note that any statements about the company's prospects or futureexpectations are forward-looking statements. As you know, forward-looking statements involve substantialrisks and uncertainties, and actual results may differ materially fromexpectations. Please refer to the press release issued earlier today and,importantly, to our filings with the SEC for more information on the risks anduncertainties that could cause actual results to differ. Also, Emergent BioSolutions assumes no obligation to updatethe information in today's press release or as presented on this call except asmay be required by applicable laws and regulations. Today's press release maybe found on our website at www.emergentbiosolutions.com, either the home pageor under investors/press releases. And with that brief introduction, I would now like to turnthe call over to Fuad El-Hibri, our Chairman and CEO. Fuad?

Thank you, Bob. Good morning, everyone. Thank you forjoining us today on our quarterly conference call. This morning, we announced financial results for the thirdquarter and first nine months of 2007. In summary, for the third quarter, wereported total revenues of $43.6 million and net income of $2.8 million, or $0.10per share. At September 30th, we have cash and cash equivalents of $24.3million and $42 million of accounts receivable. During the quarter, we announced the signing of a multi-yearcontract with HHS valued at up to $448 million. Under this contract, HHS hasagreed to purchase 18.75 million doses for a firm fixed-price of $400 million.We would receive an additional $34 million upon obtaining regulatory approvalfor 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 withforeign governments, and recently, we successfully completed the meaningfulsale of BioThrax to an allied foreign government. We are pursuing regulatory approval in a number of foreignjurisdictions and have had numerous discussions with representatives of alliedforeign governments interested in purchasing BioThrax. We aim at further expanding our international marketopportunities and remain encouraged by our recent sales and the current levelof interest from several governments around the world. Given the positive developments to date, including theexpanding demand for BioThrax, we are pleased to announce an increase in ourrevenue projections for the year to now reflect an anticipated year-over-yeargrowth of 16% to 18%. We also continue to anticipate positive net earnings for theyear. With that introduction, I will now take you through a more detaileddiscussion of our accomplishments for the third quarter, notably the HHScontract and the NIAID/BARDA funding for our anthrax immunoglobulin candidate,a review of more recent news regarding progress within our commercialportfolio, specifically our oral typhoid vaccine…

Thank you, Fuad. Good morning, everyone. As Fuad mentioned,we released our third quarter 2007 financial results this morning prior to theopening this month. We will be filing with the SEC our quarterly report on form10-Q later today. The press release is available on our website today and theForm 10-Q will also be available on file on our website and on the SEC'swebsite. We are very pleased with our results for the third quarter of 2007 andfor the first nine months. These results reflect our ability to deliver product to bothDoD and HHS and to fund our continued product development programs. During thethird quarter of 2007 and through the first nine months of the year, thefinancial results we have achieved are aligned with our internal expectations. With this background, I will begin the discussion of ourfinancial results. In terms of format, for each financial element discussed, Iwill 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 millionfor the third quarter of 2007, up from $40.9 million for the third quarter of2006. 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% decreasein the average sales price per dose attributable to the discounted price thatFuad indicated earlier. This discounted price provided to HHS was due to theslightly reduced remaining shelf life for those specific doses delivered. Thisdiscount will apply to a portion of the doses remaining to be sold anddelivered to HHS during 2007. Again, as Fuad mentioned, we do not expect thisdiscount to apply to any other doses to be sold and delivered to HHS under thecontract. Product sales revenues for the third quarter of 2007consisted of BioThrax sales…

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

Thanks. Fuad, I wonder if you could just give a little moredetail on. I mean I guess if I do the back calculation, I think I come up withabout -- again took consideration of discount something like 2.5 million dosesdelivered. Can you just give us an idea of how many doses weredelivered to HHS, how many you'll deliver by year-end and what's left ininventory right now?

Well, the delivery schedule is one thing that we do notdisclose. All I can say is that we are on track with delivering, I would say, atleast 6 million doses by year-end.

Okay. And can you just comment on how much is in inventoryright 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 theoperational requirement is for DoD on sort of an annual basis or what ballparknumber of doses that might amount to?

Again, when you look at the historic requirements over thelast few years, you'll see that it has been somewhere between 1.5 million to 2million doses a year. As recent as some discussions we had very recently, DoDconfirmed that that requirement stands. So I can say with some confidence that1.5 million to 2 million doses is not an unreasonable expectation going forwardannually.

Is it safe to say that the mandatory injections haven'tnecessarily raised that requirement just yet?

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

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

Thank you, Gene.

Our next question comes from the line of Richard Smith withJPMorgan. 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 yourcomments, with respect to timing of a potential contract from HHS? I think yousaid previously in 2009. Is this something that could happen in 2008, and whatneeds to be done to get it?

That's a very good question because with the introduction ofBARDA, which helps the developers through the advanced development stage ofproduct development, actually could mean that for the next year or two years wecontinue working on funding with BARDA. The procurement would, could come really at any time, but Iwould estimate that with the introduction of BARDA that that typically happenswhen you're reasonably close to having a licensable product. And as we said earlier, we expect that our product will belicensable by '09 and certainly in '08, an event I would not exclude fromhappening. 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 todata when they got their contract, what did they have in hand when theyreceived it from the HHS?

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

Okay. Thank you very much.

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

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

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

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

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

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

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

Okay.

And how logistically maybe this gives an opportunity for HHSto 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. SoI think that the GAO report and the Presidential Directive I think may havealso taken DoD a bit by surprise. So they're still evaluating the consequences, and theyconfirm to us that the requirement stands. How they're going to procure isgoing to be discussed with HHS.

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

Well, we neither have a visibility into it nor do would webe 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 theresome sort of one-time legal costs and others that bumped that up sort ofartificially?

I'm assuming you meant to say Q3?

Yes. Sorry.

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

Okay. And last question on AIG, have you started humantrials 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 '08event.

Okay. Thank you.

(Operator Instructions) Our next question is a follow-upfrom 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 alittle more detail on the typhoid vaccine and timelines there in terms ofmoving forward?

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

Okay. And that could be anytime in 2008?

Sorry?

And that could be anytime during 2008?

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

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

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

Okay. And just one final question. You mentioned that therewas a meaningful sale to another government agency, another foreign government,allied government. And I'm just wondering; if you care to maybe give a littlemore detail on who that is? Was it somebody that you've dealt with in the past as far asordering, 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 youwhich government, and I can't tell you how many doses. But I can tell you itwas $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.

Okay, thanks.

Thank you.

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

Hi, guys. Thanks, and congratulations on the quarter. Quickquestion. Was wondering if you can give us an update on the shelf lifeextension program with the FDA? Specifically, what would you expect withrespect to timing? And if you could state if you know whether or not thisextension, once it were to go into effect, would it apply to only futureshipments or would it also to apply to shipments that have already been madeand 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 thatwere previously shipped with slightly shorter shelf life, I think, you alsohave an increase in the price that's tied to the shelf life extension. If youcan just give a little bit more color on that, I'd appreciate it.

Yes, absolutely. First of all, we do have till September2010 to get four-year dating approved by FDA. Second, we retroactively, so tospeak, would get a price bump of those doses that we've already delivered, andwe'll get a higher price for those doses to be delivered. Now, the first 5.5 million doses, however, won't beadjusted. So that was because we were building up inventory and because thenegotiations with the government took a little longer than expected, and thosedoses in inventory had a slightly shorter shelf life. So we made a concession and sold those to the government ata reduced price, which won't be recouped. But beyond the 5.5 million doses, theremaining doses, if we get four-year dating approved by FDA, then whether it'sprospectively or retroactively, we would get the higher price. Now, and I'm trying to remember every element of yourquestion. And as to how soon we might get an approval, I can only tell you thatwe are working it very carefully and diligently. The timeline is pretty much inFDA's hands. And we are collaborating, cooperating, and we hope thatwe'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 happenanytime within the next year or year and a half?

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

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

No, the approval applies only to future doses. But thepayment 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 nowlike to turn the call back over to Robert Burrows for closing remarks.

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

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