Robert Burrows – VP of IR Dan Abdun-Nabi – President and CEO Adam Havey – EVP and President of BioDefense Division Barry Labinger – EVP and President of Biosciences Division Bob Kramer – EVP and Chief Financial Officer.

Brittany O'Neil – JP Morgan Jim Molloy – Summer Street Research Marc Frahm – Cowen and Company.

Good day, ladies and gentlemen, and welcome to the Q2 2014 Emergent BioSolutions Inc. Earnings Conference Call. My name is Whitley, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes. I'd now like to turn the conference over to your host for today, Mr. Bob Burrows. Please proceed sir..

Thank you, Whitley. Good afternoon everybody. Again, my name is Bob Burrows, I'm Vice President of Investor Relations for Emergent, and thank you for joining us today as we discuss our 2Q and six months 2014 financial results. As is customary our call today is open to all participants.

And in addition, the call is being recorded and is copyrighted by Emergent BioSolutions.

Participating on the call with prepared comments will be Dan Abdun-Nabi, President and Chief Executive Officer; Adam Havey, Executive Vice President, and President of our BioDefense Division; Barry Labinger, Executive Vice President, and President of our Biosciences Division; and Bob Kramer, Executive Vice President and Chief Financial Officer.

Following the prepared comments we will conduct a Q&A session. Before we begin I am compelled to remind everyone that during today's call and during our prepared comments, management may make projections and other forward-looking statements related to our business, future events, our prospects or future performance.

We may also make forward-looking statements during the Q&A session. 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. These forward-looking statements reflect Emergent's current perspective on our existing trends and information. Any such forward-looking statements are not guarantees of future performance.

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. These and other risks are further described in the risk factors section of Emergent's most recent quarterly report on form 10-Q filed with the SEC.

We will also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Emergent's operating performance.

Please refer to the table, which can be found in today's press release regarding our use of non-GAAP, or adjusted financial measures and the reconciliations between our non-GAAP adjusted financial measures and our GAAP financial measures.

For the benefit of those who maybe listening to the replay of the webcast this call was held and recorded on August 7, 2014. Since then Emergent may have made announcements relating topics discussed during today call. So again, please 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 the investors homepage of our website.

And with that introduction, I would now like to turn the call over to Dan Abdun-Nabi, Emergent BioSolutions' President and CEO.

Dan?.

Thank you, Bob. Good afternoon everyone and thank you for joining our call today. For my prepared comments I will briefly review the financial results for the second quarter and first half of this year, and then provide an overview of our business operations.

Next I will ask Adam Havey to provide more detail on our BioDefense business followed by Barry Labinger, who will present our Biosciences business. Finally, Bob Kramer will conclude with a discussion of our financial performance.

As you may recall during our call in May, we provided revenue guidance for the second quarter of between $95 million to $110 million. As you saw from our press release today, actual results were at the top end of that range, with total revenue $110.3 million.

Adjusted net income for the second quarter was $9.4 million and on a GAAP basis, our net income was $5 million. During the second quarter, which was the first full quarter of combined operations with Cangene, we began to realize some of the benefits of our growth strategy.

For the remainder of the year, our financial performance will be driven primarily by continued BioThrax sales, with significant increase in RSDL revenue over 2013, and anticipated revenues from our remaining biodefense product portfolio, both domestically and internationally.

As a result, the company is increasing 2014 total revenue guidance to between $425 million and $450 million. As we announced in our press release we have reaffirmed our net income guidance for the year, with a forecast of adjusted net income of between $40 million to $50 million, and GAAP net income of between $30 million to $40 million.

Bob Kramer will provide greater detail on specificity around our financial performance and guidance in his prepared remarks. I would now like to give you an overview of our biodefense operations during the second quarter.

In this division, we continued to deliver BioThrax to the SNS under our CDC contract, and we manufactured consistency lots for Building 55, which keeps us on track to initiate our pivotal non-critical study in the third quarter.

We also received ISO certification for RSDL manufacturing, which is an important milestone for further expanding international sales. And today we announced that we submitted a BLA for AIG, our Anthrax Immune Globulin therapeutic. Adam will talk about these developments and provide a more detailed update on our biodefense operations in a moment.

In our biosciences business, we continue the integration of our Cangene operations, and we also continued our efforts to partner products based on the ADAPTIR platform. Finally, we continue to focus on managing unfunded R&D costs. Barry will give a full update on biosciences division during his prepared remarks.

As we enter the second half of 2014, we hope to maintain momentum in our operations, and continue to pursue strategic acquisitions with a focus on revenue generating opportunities for both our biodefense and biosciences businesses.

As you know, we have established a highly selective process in order to screen for acquisitions that leverage our core competencies, align with our corporate growth plan, and satisfy internal metrics. That concludes my prepared comments and I will now turn it over to Adam, who will provide an update on the biodefense division.

Adam?.

Thanks Dan. In the second quarter of 2014, the BioDefense division continued to provide specialty products and services that protect civilian and military populations globally against CBRN threats.

Our core areas of focus included delivering BioThrax doses to the strategic national stockpile, developing medical countermeasures for the US government, delivering RSDL to governments and first responders at home and abroad, and penetrating international markets for our three newest products, AIG, BAT and VIG.

We now operate the division with five revenue generating medical countermeasures in our biodefense portfolio. As I mentioned last quarter, we have had many discussions with foreign governments and are seeing increased interest in our products.

I am pleased to report that we are seeing additional international orders, including for the former Cangene biodefense products. The demand for these products is exceeding our initial expectations and we anticipate this will contribute to our second half growth. In the second quarter, biodefense revenues were a little lower $91 million.

This included $67 million in BioThrax revenue and approximately $22 million in contract and grant revenue. BioThrax revenue was primarily from sales under our current five-year $1.25 billion contract with the CDC to deliver 44.75 million doses to the strategic national stockpile.

As you know, our five biodefense products play key roles in protecting both civilians and military personnel. We are continually pursuing enhancements to those countermeasures to align with our customers’ needs and priorities. Let me highlight some of these.

We continue to make progress on our PEP indication for BioThrax, and we expect to file the sBLA in Q4 of 2014. This is a strategic priority for the US government and we believe this will establish BioThrax as the gold standard for both postexposure and prophylactic uses. We also continue to make progress with AIG.

As we announced today, we submitted the BLA to the FDA. This is a significant milestone for the program, and we could not have been – and this could not have been done without the dedication of our whole team.

The employees at our Winnipeg facility have spent many years working on this important method, and should be commended for their tireless dedication to making this a success.

Since this contract was awarded by BARDA in 2005, 10,000 doses of AIG have been delivered to the US strategic national stockpile, and the company will receive a $7 million milestone payment upon FDA approval of the product. We have also delivered plasma under existing contracts with the US government for both BAT and AIG.

Next I like to talk about RSDL, our decontamination lotion product for the neutralization or removal of chemical warfare agents and T2 toxins from the skin. During our earnings call, I mentioned that RSDL now has an expanded field of use to include removal or neutralization of many organophosphate-based pesticides.

I’m also pleased to announce that RSDL received ISO certification, which means that it meets the recognized quality requirements for Canada, Australia, Europe and many other major markets.

ISO certification is a prerequisite for CE Marking of medical devices within European Union, and this certification is an important milestone in expanding the market place for RSDL.

Moving on to building 55, our large-scale BioThrax manufacturing facility, as we mentioned back in April, Emergent and the FDA reached agreement on comparability protocols, which has allowed us to manufacture consistency lots for use in a pivotal non-clinical study.

That pivotal study is scheduled to start in the third quarter, and the data generated will be used in our sBLA filing. This study represents the culmination of numerous pilot studies in an extensive collaboration with BARDA and the FDA.

We are pleased with the foundation that has been laid over the past few years, and we are excited to initiate the last planned study in the comparability process.

We are targeting a rolling submission of the sBLA to the FDA, the first part of which is planned to be submitted in early 2015, and we are planning to submit the data from the pivotal non-clinical study later next year. That concludes my prepared comments and I will now turn it over to Barry, who will provide an update on the biosciences division.

Barry?.

Thanks, Adam and good afternoon everyone. First let me comment on the status on the Cangene integration, since we have now completed our full quarter since the close in late February. I’m pleased to say that the integration is going very smoothly.

We are now operating as one team in the biosciences division across multiple sites, including Winnipeg, Baltimore, Seattle and Munich. Our divisional senior leadership team is a strong blend from both Cangene and the pre-acquisition Emergent.

There is still work to be done to completed transition to fully unified systems and operational processes, but the business continues to progress as planned. During the second quarter, revenues were split evenly between product sales and contract manufacturing with WinRho and HepaGam B driving the lion’s share of product sales.

Our commercial products are quite mature and we are maintaining relatively stable sales as expected. Our contract manufacturing business, primarily the fill/finish services in our Baltimore site continues to deliver steady growth in revenue.

As you may have seen, we received a complete response letter from the FDA last week regarding the BLA submitted for IXinity, our recombinant Factor IX treatment for Hemophilia B that was part of the portfolio acquired from Cangene.

The complete response letter requested additional analyses of data from completed studies and noted deficiencies related to CMC, all of which must be resolved before approval can be granted by FDA. As you may recall, the BLA was submitted to the FDA by Cangene prior to the closing of the acquisition.

We saw potential upside to our base case analysis of Cangene should this product be approved in the near term. We plan to engage with the FDA to nail down precisely what information will be needed to address all of the issues outlined in the complete response letter.

While we don’t have all of the details, we can conclude that we do not expect to launch this year. We also do not anticipate this to have a negative impact on our financial performance in 2014.

For the remainder of the year we are focused on the following priorities, first, achieving our targeted revenues for the year with contributions from product sales, as well as our contract manufacturing operations. Second, improving our cost structure, which includes optimizing the utilization of our facilities in Winnipeg.

Third, advancing product candidates based on our ADAPTIR platform through partnerships, which would demonstrate the value of our technology and defrayed development costs. ES 414, our bispecific immune-based therapy for prostate cancer is a good example.

And finally, we continue to evaluate M&A opportunities as a source for additional revenue generating assets in our portfolio. We are making good progress on all of these priorities and we look forward to providing further details moving forward. With that, I'll turn it over to Bob Kramer.

Bob?.

Thank you, Barry and good afternoon to everyone on the call. I’m going to start off by reviewing the second-quarter financial results for 2014 compared to last year, and then do the same for the six month period ended June 30.

Next I will discuss our thoughts on Q3 revenue guidance and how that fits with our new estimates for the total year referenced by Dan earlier. I will also comment on our balance sheet, focusing on our cash and accounts receivable position, and then turn the call over to you for questions.

For the quarter, total revenue was $110.3 million, or $27.9 million above Q2 of last year, a 34% improvement. This favorable performance is a result of having the former Cangene operations consolidated with Emergent for the full quarter, following the acquisition in February.

As expected, the gross margin on product and CMO revenue for the quarter of 60.5% is below the historical trend of 70% to 80% due to the addition of the newly acquired products and services.

While we anticipate improvement in the gross margin performance over time, as we communicated last quarter on the call, the new norm will be in the range of 60% to 70% versus the historical margin, which was heavily influenced by BioThrax. R&D spending for the quarter totaled $37.4 million, a $7.1 million increase over the prior year quarter.

The increase is the result of the acquired Cangene R&D activities, which totaled 11.4 million, offset by reduction in Emergent’s R&D investments of $4.3 million. The $11.4 million in former Cangene product R&D included $2.9 million for IXinity, and approximately $6.4 million combined for BAT and AIG.

The $4.3 million reduction in Emergent’s R&D spend included lower spend on Otlertuzumab. On a net basis, R&D spend is $14.5 million for the quarter and is up $1.2 million over last year, reflecting our focus on securing third-party funding for our development programs.

Moving down the income statement to SG&A, total spend for the quarter was $30.6 million, $10 million higher than last year. Again the increase is primarily the result of new costs related to the completed acquisitions, plus diligence cost related to support for new acquisition opportunities.

Finally, net income for the quarter was $5 million or $0.13 per share versus the prior year quarter of $10.5 million or $0.29 per share.

For the six-month period ended June 30, financial performance compared to the prior year mirrors the performance in the quarter, mainly increased revenue due to our acquired products and services, lower consolidated gross margin due to the change in the sales mix, relatively flat net R&D costs, and higher SG&A attributable to acquisitions made in 2013 and early 2014.

Finally at quarter year end, our cash and cash equivalents balance was $168 million, slightly higher than the Q2 balance of $160 million. When you add in the $78 million in accounts receivables outstanding at the end of June, our cash and AR total was $246 million, the highest level in the company’s history.

This financial strength positions us well to continue to execute on our growth plan, including targeted acquisitions.

Overall, the financial performance for the quarter and year-to-date is in line with our expectations, and consistent with what was needed to generate the total year projections for revenue and net income contained in our guidance targets.

The new revenue guidance for the year is between $425 million and $450 million, up from the$415 million and $445 million range originally established in the beginning of the year.

This increased range primarily reflects stronger than anticipated revenue associated with the biodefense products acquired from Cangene, the midpoint of the new range is more than 35% higher than last year. With first half revenues being $164 million, we expect increasingly strong quarters in Q3 and in Q4.

The Q3 guidance for revenue of between $110 million and $125 million is consistent both with this improved performance estimate, as well as our historical trend of strong second half results for the year. This trend and historical performance applies to net income as well.

As I mentioned earlier, we expect the consolidated gross margin to increase in the second half of the year as the revenue mix begins to reflect a higher percentage of BioThrax shipments in support of our CDC contract.

The favorable impact of this change in sales mix along with anticipated increased international sales of our biodefense products should boost our profit contribution in the second half of the year and generate net income in line with our guidance of between $30 million and $40 million on a GAAP basis, as well as the GAAP guidance we are maintaining the adjusted net income guidance of between $40 million and $50 million we provided last quarter.

That concludes my remarks, and I'll now turn the call back to the operator, who will take your questions.

Operator?.

(Operator instructions) Your first question comes from the line of Cory Kasimov with JP Morgan. Please proceed..

Hi, this is actually Brittany on for Cory. Thank you for taking the questions.

Can you comment on the market opportunities for AIG, VIG, and are you guys going to have to build any incremental infrastructure at launch?.

Brittany, thanks for joining the call today and I appreciate the question. So the market opportunity for AIG, maybe Adam you can address where you see that going.

But it is both domestic and international and as we stated during our prepared comments, we are very pleased with the extent to which we have been able to cross sell the products within the portfolio, and it is not just with respect to AIG. It is really across the entire portfolio.

So that is something that from our perspective is going quite well with the integration of the Cangene operations in the portfolio there.

So with domestic and international and Adam, you might want to talk a little bit about the manufacturing requirements, and also any more detail on the international markets?.

Sure. As Dan mentioned, it is split – we are obviously in the middle of delivering on our development contract, which is approximately $160 million. In that contract, we deliver our plasma product for future manufacturing and processing for the strategic national stockpile.

So that is an area that we see the market continuing and will remain I think reliable and stable. On the international front, it is really as we are getting out there now with the suite of biodefense products, we are just seeing increased interest in both AIG and BAT specifically, and we believe there is a real opportunity there.

I think it is really early at this point, but we have numerous countries and contracts that we have been dealing with for years on biotech that are interested in those products..

And on the manufacturing point, the facilities up in Winnipeg are well positioned and adequate to meet the demand for AIG. So, we don’t see any capital spend associated with that..

Great. Thanks so much..

Sure..

Your next question comes from the line of Jim Molloy with Summer Street. Please proceed..

Hi guys. Thanks for taking my question.

I was wondering if you could walk through -- you mentioned at the end talking about improving the cost structure and margins improving in the second half, but revenues -- you're increasing revenue and yet maintaining flat net income guidance for the year, walk me through what I'm missing and why top line increasing and improving margins doesn’t equate to increase in net income?.

Sure Jim. Thanks for the call. This is Bob. So, as we typically do Jim when we go through the year, we feel a little more comfortable about where we think we are going to fall in the range, first of all.

So we have seven months under our belt and have a little clarity on BioThrax shipments and the other components of the base business, so we feel a little more comfortable about tightening the range, and secondly some of the growth opportunity that we see as was commented by Adam and Barry in the past, is related to exceeding expectations in the acquired products from the former Cangene operations, and as we identified early on for 2014 until we squeeze out the synergies that we anticipated that is going to be fairly low margin revenue.

So while we see some upside in the revenue, it is not going to be particularly profit rich revenue, and as such we felt we didn’t feel comfortable with increasing the guidance on that income at this time..

All right. Great, thanks for that explanation. And then on, now Building 55, my understanding, you're going to start the rolling submission first quarter and end it second – some time in '15. Last guidance we had on licensure of this company, of this product, was end of '15, potential production early '16.

What's the best expectation for licensure of Building 55 and starting getting the wheels turning there?.

Yes. I know it is – it is a great question and thanks for asking Jim. So the rolling submission, you correctly point out, we anticipate [Indiscernible] starting that submission, which is I think a good development and a new development from our perspective.

As you know, there are a couple of components to any deal as submission including in this case the manufacturing, the data, and then the non-clinical data package that needs to go in. And the non-clinical data package is really dependent on some reports being written up by the third parties that are facilitating and conducting those studies.

So we are right now in the process of determining what the optimal schedule is with that third party to see what is the art of the possible and the doable. So we'll have some better visibility in terms of when those reports might be available given the timeline that we now have for the commencement of those non-clinical studies.

So I don’t have a more specific date to give you with respect to the potential for licensure, but we continue to track towards getting these non-clinicals started, getting the rolling submissions underway and I think we will have better granularity on the completion of the submission of the BLA to the FDA in the coming months..

Is it still the expectation that one year from the completion of the BLA for licensure, or is it one year from the start of the rolling submission to licensure?.

So, it is not one year from the completion of the BLA submission. Adam, do you want to touch on the expectation on –.

Sure. So Jim as we have talked about before, there is really this pivotal study is the last step really the planned step in this comparability journey that we've been on. From there, as we mentioned we will initiate that first submission. There will likely be a PAI of Building 55 where the FDA will come on site and meet with us.

So that will likely happen in the first half of next year and then if that in-live phase of the non-clinical study wraps up, which will be probably late 2014, early 2015. There is, as Dan mentioned, some processing of that data that will have to occur, but I think we are still targeting the end of the year.

But as Dan mentioned, we will be working that out with our [detail] on our suppliers and be able to give more granularity as we progress into the year. But technically this is right on track.

As I said in my comments we are really excited about this and as we have been saying for a while, technically this is a matter of getting to the finish line, which is a matter of when and I think things are clearly strong right now to stay right on course..

Could I just – one quick follow-up on that, did you say you're still targeting then -- your current expectation is still to have the licensure of this by the end of '15, is that your target or –.

Yes. I think that is our target and as I said there are a couple of moving pieces, and we need to flatten that out. But that still remains the target, and I think it is achievable. So we will work things out the way we would like them to come out..

Great. All right. Thank you very much for taking the questions..

Sure..

(Operator instructions) Your next question comes from the line of Marc Frahm with Cowen and Company. Please proceed..

Hi, yes, thanks for taking my questions today.

And first is just now that you have got a little bit more of an opportunity to dig into Cangene, is there any kind of seasonality to the revenues that we should be thinking about?.

Yes, Marc thanks for joining the call and thanks for your question, [Indiscernible] and there is two pieces to it. Sorry for the break here. We are getting a little feedback at our end and hopefully not at your end. So there are two pieces.

Obviously there is the biodefense product portfolio, which is being managed in Adam’s division and then there is the bioscience business, which is both the commercial products and the CMO business, which Barry is managing.

And I think there are different answers depending on which of the portfolios you look at, and I might ask Barry to talk about the biosciences, which I think has a different profile than the bio-D..

Yes, so it is actually different between the two components of the revenue streams even in the biosciences revenue. So in the product, the commercial products, for instance, WinRho and HepaGam, there isn’t any meaningful seasonality that affects the sales curve. In the contract manufacturing, there is a little bit more.

We have our annual shutdown early in the year, which certainly affects revenue in sort of late first quarter, early second quarter and then as we come back out of that, we expect to have more consistent revenue flow throughout the rest of the year.

So that is really the only significant chunk of seasonality that I would expect on the biosciences piece of the revenue from the former Cangene. The biodefense is certainly a little bit more lumpy, and I think Adam can comment on that..

So, as kind of history has shown, I mean, BioThrax I think is always going to be weighted towards the second half of the year, and that means driven by shutdown activities. We shutdown typically in October that spills into the first quarter, and it takes some time to get back up to steady state.

We do see some of that same seasonality with RSDL, very similar and it is quite lumpy. US government purchases tend to be either early in the year or late in the year, especially as new budgets are approved especially in the fourth quarter. And so for at least for those two products, it will be similar.

So for the other, for BAT, AIG and VIG I think we are still a little too early to know on seasonality, but I think the international markets can be lumpy as well over time. So we are going to have some pockets here when they go up and down..

Yes, this is Bob. The only other thing I might add – getting feedback again – is for 2014, the additional Cangene revenue primarily – particularly in the bio-D area is going to be second half weighted, very similar to BioThrax.

So, as Adam indicated, as we go through the first year or so, we will have a better indication of how lumpy that is, and you will see as well in our results and get better used to seeing that those trends. But for this year it is going to be a bit back end weighted..

Okay. That's great. And I think back when you guys announced the Cangene acquisition, you mentioned the possibility of, I think especially in the biosciences products, taking some price increases that hadn't been taken in years through contract renegotiations.

Do you have a better feel for when those -- maybe you've had some success already or when those contracts are coming up?.

Yes, it is a great question. So we haven’t seen any of the impact of that as yet, and the driver for that is as you mentioned the contracting, which kind of limits how much price changes can pass through to the bottom line. So, the important contracts that provide those kind of constraints go into the first part of 2015.

So right around that time we should start to see some price increase opportunity start to come to fruition..

Okay. And then lastly, if there's any updates you can give on Otlertuzumab and kind of partnership discussions, maybe any terms sheets..

Yes. So there are continuing discussions going on about Otlertuzumab. We have interested parties in science of this product and there is strong appreciation for the fact that we have got proof of concept in a novel anti-cancer agent with a really good safety profile.

And there is a need for that in CLL in combination therapies offering opportunities to give sustained remissions even after cessation of therapy. Even in light of the new products that have been launched by Ibrutinib that give great responses, but you have to stay on therapy and that has its consequences both financial and medical.

So there is interest in the program, but as we have talked about before there is great uncertainty about commercially exactly where will it fit, and that is why it is taking time for anybody to actually jump in and decide to make the investment in a Phase III development program.

So we continue to have discussions, we continue to generate some incremental new data from our ongoing studies and there are some smaller investigator sponsored studies that there is great interest in conducting. So all I can say on that one is stay tuned. We also have additional discussions going on about other ADAPTIR programs.

So, we will pursue those as well and let you know if something gets done there. .

All right. Thank you. .

Your next question, we have a follow up from Jim Molloy from Summer Street. Please proceed..

Hi. Thanks for taking my follow-up.

I just wanted to get squared away, the product sales $78.3 million and $67.5 million BioThrax, what are the other $10.7 million?.

You were looking for the quarter Jim?.

Yes sir.

And how is RSDL in the quarter?.

So in addition to – for the quarter, in addition to BioThrax there are sales of RSDL, there are also sales of the product that Barry mentioned, WinRho and HepaGam, and the other acquired products from the Cangene acquisition that make up the balance of what you are looking at.

Did I answer your question Jim?.

No. I was wondering if you could break down what those were that make up the balance..

They will be in the Q Jim, which is going to be filed in the next day or so..

Okay, great. Thanks..

Sure..

There are no further questions in queue. I will now turn the call back over to Mr. Bob Burrows for closing remarks. Please proceed..

Thank you, Whitley. Ladies and gentlemen, that is all the time we have today. Thank you for your participation. Please note that today’s school is being recorded and a replay will be available beginning later today.

Alternatively there is available a webcast of today’s call, an archived version of which will be available again later today, accessible through the company website. Thank you again and we look forward to speaking to all of you in the future. Goodbye..

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day..