Bob Burrows - Investor Relations Dan Abdun-Nabi - President and Chief Executive Officer Bob Kramer - Executive Vice President and Chief Financial Officer.

Jessica Fye - JPMorgan Marc Frahm - Cowen & Company Jim Molloy - Laidlaw David Meyers - Wells Fargo Lisa Springer - Singular Research.

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2015 Emergent BioSolutions, Inc. Earnings Conference Call. [Operator Instructions] As a reminder, today’s program is been recorded. I would now like to introduce your host for today’s program, Mr. Bob Burrows. Please go ahead..

Thank you, Jonathan and good afternoon everyone. Again, my name is Bob Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today as we discuss our financial and operational results for the fourth quarter and 12 months of 2015 as well as our 2016 forecast. 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 with prepared comments will be Dan Abdun-Nabi, President and Chief Executive Officer and Bob Kramer, Executive Vice President and Chief Financial Officer. There will be a Q&A session at the conclusion of our prepared comments.

Other members of senior management will be available to participate. Before we begin, I will remind everyone that during today’s call either on our prepared comments or the Q&A session management may make projections and other forward-looking statements related to our business, future events, our 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.

Please review our 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.

During our prepared comments as well as during the Q&A session, we may 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 tables found in today’s press release regarding our use of adjusted net income, EBITDA and adjusted EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures.

For the benefit of those who maybe listening to the replay of the webcast, this call was held and recorded on February 25, 2016. Since then, Emergent may have made announcements related to topics discussed during today’s 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 maybe required by applicable laws or regulation. Today’s press release maybe found on the Investors home page of our website.

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 and good afternoon everyone and thank you for joining us. During the call today, I will provide a brief business update and Bob Kramer will discuss our recent financial performance in greater detail. Let we start with a summary of our 2015 financial performance.

Overall, 2015 was a very successful year and we ended the year with a strong fourth quarter. During the quarter, total revenue was $168 million, up 14% from 2014. Our GAAP net income increased by 11% and our adjusted net income increased by 8% compared to the same quarter in 2014.

For the full year, total revenues exceeded $520 million, a 16% increase over 2014. Our 2015 GAAP net income increased 71% and our adjusted net income increased 39% over the prior year. Finally, our EBITDA in 2015 was $130 million, growing 41% compared to the prior year. In 2016, we are forecasting continued growth in revenues, net income and EBITDA.

The financial forecast that we announced today reaffirms the guidance that we provided at the JPMorgan Healthcare Conference in January. We plan to achieve our 2016 revenue target based on a number of factors.

First, continued BioThrax sales under our existing procurement contract as well as under the anticipated follow-on contract with the CDC; second, through anticipated sales of our other portfolio products to the U.S.

government under existing procurement contracts; third, through an expansion of our contract manufacturing services in both our Maryland and Winnipeg operations; fourth, by securing additional funding for contracts and grants both existing and new; and finally, through increasing international sales.

With an expanding product portfolio, we see real potential to meaningfully grow our international sales over time. As a reminder, in our recently announced 5-year growth plan, we are targeting to achieve at least 10% of our revenues from ex-U.S. sources by 2020.

Turning now to Building 55, as we previously announced, the FDA requested that we perform a reanalysis on one of the more than 30 assays used for comparability before filing our sBLA. We are on track to complete their request during the first half of the year, after which we expect to submit the sBLA.

As a reminder, we anticipate a PDUFA date of 4 months following acceptance by the FDA of the sBLA filing. Moving on to our follow-on BioThrax procurement contract with the CDC, we have had a preliminary meeting and exchanges of communication with the CDC on this topic.

The CDC recognizes the importance of the anthrax preparedness and with FY 2016 funding levels we anticipate that a follow-on multi-year contract will be put in place to ensure an uninterrupted supply of BioThrax through the SNS.

As a reminder, we do not intend to disclose any specifics or details of our contract negotiations with the CDC, until such time as the contract has been completed. Turning now to an update on Emergard, our military-grade auto-injector platform, last week, we announced that the U.S.

Department of Defense and Battelle has selected Emergard over several other commercially available auto-injector devices to be tested against and developed to U.S. military specifications for nerve agent antidote delivery.

Emergard is designed to be transported, stored and operated in a forward deployed environment and built to ensure successful injection through chemical protective equipment. The development and testing under this award is expected to be completed in 2016.

And if successful, could lead to the procurement of specific products within the Emergard platform to meet U.S. military and first responder needs. Finally, I would like to provide an update on our planned spin-off of Aptevo Therapeutics, our biosciences business.

The spin-off is on track with our receipt of a favorable private letter ruling from the IRS and our announcement of the anticipated Board of Directors and senior management team.

The remaining steps include the filing of the Form-10 with the Securities and Exchange Commission securing SEC clearance of that filing and then final approval by our Board of Directors. We continue to expect a mid-2016 completion of this transaction. That concludes my prepared comments.

And I will now turn the call over to Bob Kramer for details on our financial performance.

Bob?.

Thank you, Dan. Good afternoon, everyone and thank you for joining our call. I first like to make some general comments about our financial results for the fourth quarter of 2015 compared to last year.

I will then comment on our performance for the year compared to prior year, followed by comments on our balance sheet progressing on our cash position, and then finishing up with some comments about our 2016 forecast. From an operational perspective, we had another exceptional quarter.

Total revenues were the strongest in the company’s history, coming in at $168.1 million or $20 million above Q4 of last year, a 14% improvement. The increase in the revenue was primarily due to increased BioThrax sales during the period.

Gross margin on a consolidated product and CMO revenue basis for the quarter was 72%, which is above our normal range of 60% to 70% due to increased BioThrax revenues during the period. Gross research and development spend for the quarter was $32.5 million, a $6.5 million decline versus the prior year.

Taking into account the offsetting effect of our contracts, grants and collaborations revenues, our net R&D spend for the quarter was $7.6 million, a significant reduction over 2014. SG&A for the quarter was higher year-over-year by $14 million.

The two largest components of the increase were a one-time $3.5 million reserve for a potential accounts receivable write-off within the biosciences segment and ongoing cost to support the spin-off of Aptevo Therapeutics.

For the quarter, our GAAP net income was $33.3 million or $0.71 per diluted share versus $30.1 million or $0.66 per diluted share in the same period for 2014. On an adjusted basis, we earned $37.5 million or $0.78 per diluted share versus $34.6 million or $0.75 per diluted share in 2014.

EBITDA for the fourth quarter was $58.5 million or $1.22 per diluted share and adjusted EBITDA for the period was $61.7 million or $1.28 per diluted share.

Turning to the full year period, our financials for calendar year ‘15 reflect the continued fundamental strength of the core business augmented by our ongoing efforts to manage costs and drive expanded profitability and cash flow generation. For the year, we achieved the following. Total revenues were $523 million, up 16% versus last year.

Gross margin was 69%, in line with our expected range of between 60% and 70%. Net R&D was $31 million, which is 8% of our adjusted revenues, reflecting the subtraction of grants, contracts from total revenues. SG&A was $148 million, an increase of 21% and represents 28% of our total revenues in 2015.

GAAP net income was $63 million or $1.41 per diluted share. Adjusted net income was $76 million or $1.60 per diluted share. And finally, EBITDA was a $130 million or $2.75 per diluted share, while adjusted EBITDA was $137.4 million or $2.91 per diluted share.

Turning to our balance sheet, our year end capital position remained very strong highlighted by our cash balance of $313 million along with an accounts receivable balance of $121 million.

As we have communicated in the past, our capital deployment priorities remain focused on acquisitions that are synergistic with the core business, CapEx in support of that core business along with targeted R&D projects, plus consideration of stock buybacks and dividends.

Across the board, 2015 performance was substantially improved over the prior year, positioning us to achieve our 2016 financial goals, which include total revenues of between $600 million and $630 million, GAAP net income of between $75 million and $85 million, adjusted net income of between $90 million and $100 million and finally EBITDA of between $150 million and $160 million.

This forecast includes the impact of the successful spin-off of Aptevo Therapeutics in mid-2016 and continuous delivery of BioThrax to the CDC under an anticipated follow-on multi-year procurement contract, but importantly does not include any estimates for BioThrax deliveries from Building 55 or any estimates or potential new corporate development or other M&A transactions.

Finally, first quarter 2016 revenues are projected to be between $105 million and $120 million, consistent with what we announced earlier in January. This concludes my prepared remarks. And I will now turn the call over to the operator to begin the question-and-answer session of the call.

Operator?.

[Operator Instructions] Our first question comes from the line of Jessica Fye from JPMorgan. Your question, please..

Hi guys. Thanks for taking my questions. First of all, is just on Building 55 and where we stand with getting that online, I know you sort of lifted out of guidance, it sounds like out of conservatism, but can you just help us get comfortable with that, kind of building coming online this year and what are the remaining steps? Thanks..

Yes. Thank you, Jessica. Thanks for joining the call today. So the process really hasn’t changed at all since the last time we presented it publicly. I think that was at the JPMorgan Healthcare Conference. And the FDA has requested as I indicated that we do a reanalysis of one of the more than 30 comparability assays that are out there.

So we are in the process of getting that done, high degree of confidence that we will get it done in the first half of the year. And then subsequently we will file the sBLA. It is a four month PDUFA clock. So in the course of that time period, whatever steps that need to be taken, we expect will be taken.

And so we see a high degree of confidence in getting that building online and approved this year. So the process has been transparent. We have given you as much information as we got. There will be a pre-approval or prior approval inspection in that process as it is difficult.

And back and forth with the agency, in connection with our application, which is fairly typical. But there should be no surprise as the agency is pretty well versed and up-to-date on where things stand in the facility. And it’s a matter of running the jobs and moving it forward..

Okay. Got it. And I mean two follow-ups on that.

I think you described sort of a short way and a long way of sort of addressing this last assay question that the FDA had and I as of JPMorgan you hadn’t kind of finalized, which route you are going to take, has that kind of conversation happened and you will be concerned – confirms which approach you are going to go forward with.

And then also can you just describe how – as you negotiate the next contract with the CDC, kind of how do you contemplate assuming Building 55 comes online, but what if it doesn’t you have to sort of outline two scenarios when you negotiate that contract, how does that work?.

Yes. Two excellent questions, so let me take your first one first, which is the short path versus the long path. You are absolutely, right. We have prepared and submitted all the information that we believe the FDA needs in order to make a decision on the short path. We have not heard back from them as to their conclusion.

So for the moment, we are continuing the work necessary in order to submit the data that supports the long path forward. If they come back to us and say what, we are satisfied with you provided, it’s good enough, let’s stop here. Then the process gets accelerated. So that’s sort of where we are.

It’s just not heard back from the agency, on their assessment of the data that has been submitted. We have done everything that we can at this juncture. So we are in a waiting mode with respect to agency evaluation.

On the second question, with respect to the contract negotiations, you put your finger on it, interesting and dynamic point, which is what you do with respect to Building 12 versus Building 55. And we have some pretty concrete thoughts there in terms of how we will handle that.

I prefer not to share that with you because it gets into some of the details of the contract negotiation thinking that we have internally and as you can appreciate, it’s important that we keep that confidential as part of this entire process. But we have thought that through.

And we have some I think some creative solutions to how that could work going forward..

Got it. Thank you. If you don’t mind, I would like to have just one more. I think there is a biosimilar company working on like Phase 1 anthrax vaccine, can you talk about how you think about the longer term competitive landscape for anthrax vaccine, whether you see that as competition at all or level of [indiscernible] comments there? Thanks..

Yes, sure. Well, the exciting news with respect to the competitive landscape around anthrax vaccine is the closest competitor is NuThrax. And NuThrax as you know is BioThrax, which is formulated with an adjuvant CPG. It’s completing the work necessary in order to move to the next stage of clinical testing, which is Phase 3. That’s our product.

And that product has been underdevelopment for quite a number of years. And we see that as the most exciting opportunity. And I think the government sees it in that vein as well. Because it answers the mail on so many of the different touch points that the government is looking for.

Reduction – further reduction in the number of doses down to do two doses, very rapid immunogenicity. So it’s got a nice potency profile, which is very important in the pep – for a pep indication, a good stability profile. So we see that as really the product that’s going to raise the bar significantly with respect to follow-on products.

We too, as you know have an RPA candidate that’s in development. The RPAs have been around now since the early 2000. So we are now approaching 15 years of development of RPAs. And they really are struggling to get beyond Phase 1. There are a lot of challenges associated with RPAs.

We know them as well as anybody, is that to say, that ultimately longer-term something could be developed possibly. But we don’t see that happening in the next 5 years, maybe even 5 years to 10 years, certainly within the lifetime of the upcoming contract that we anticipate with the CDC.

So a longwinded way of saying very excited about our competitive positioning in the anthrax, in that same space, we see NuThrax as really answering the mail there.

And once the government has on NuThrax where it needs to be, we think that they are going to be checking the box on anthrax vaccines and moving on to some of the other threats including emerging infectious diseases that need to be addressed..

Got it. Thank you..

Thank you, Jessica..

Thank you. Our next question comes from the line of Marc Frahm from Cowen & Company. Your question, please..

Thanks for taking my question and congratulations on the quarter. So, with your performance this year on BioThrax sales and next year, there has been quite a step-up in revenue coming from Building 12.

I mean, this year just expecting two very good production years in a row or has something really changed at Building 12 in terms of the efficiency of the process? And then if it’s the latter, if any of that going to translate to what you see as the capacity for Building 55?.

Yes, thank you for being on the call, Marc and I appreciate the question.

So, yes, I think the very successful year is in terms of output from Building 12 and my hats off to the team in Lansing for the work that they have been doing, not only in the day-to-day, but the longer term work that has been focused on improving the processes there, streamlining them and improving the overall output and capabilities of the site production.

So, it’s been a combination of several years of process improvement efforts as well as -- a little bit of luck in the production of BioThrax over the last couple of years. So, knock on wood there. Is that translatable to Building 55? No, not really.

They are different scales as you know and so we will have to wait to see what happens when we get into Building 55 in terms of how the process runs, but certainly very pleased with the output out of Building 12 and what that has meant for the supplier product to the CDC. And ultimately, I would translate into financial performance..

Okay, thanks. And then following up on Building 55, I think you can cover the basis on the U.S. approval, but part of the opportunity is the ability to maybe sell outside the U.S.

and where do things stand with approval in Europe?.

Yes, thanks for asking that question. I did not cover that in my prepared remarks. As we had previously indicated, we are expecting approval in Germany of Building 55 in the middle of this year and that remains on track. So, no change there.

And with that, we can begin on small sales, we expect small scale sales to begin in Europe, but importantly, that approval will allow us to then move into the mutual recognition process and file for regulatory approval in other EU countries on the basis of that German approval, which then further opens the doors for some sales internationally of BioThrax out of 55.

So, thanks for raising that question..

Okay. And then one last one with Emergard, I know you guys have mentioned that this year’s supply has already filled out. So, what’s the capacity there from your suppliers to maybe increase supply in future years? And you, I think at one point, have mentioned the market for that type of product is maybe $100 million, $200 million worldwide.

What’s kind of the path to get there?.

Yes. I am so excited about the Emergard opportunity. I can’t tell you, it’s really proving to be sort of in access of what we originally thought when we undertook this effort.

So, the team has been aggressively looking at the supply chain, because we have sold out the capacity for this year and we are already making significant improvements in capacity, both capacity of manufacturing in the European side that currently produces it and looking at bringing it into the U.S.

with significantly increased capacity beginning next year. So, we are all over that, because the demand is so significant across the globe. And you can see right now with the announcements that we had last week with the U.S.

Department of Defense selecting Emergard as the platform of choice for further evaluation against their criterion and their specifications. And that could lead, I believe, to rather significant market opportunities here in the U.S., for U.S. military as well as first responders.

So, our efforts right now are expanding manufacturing capacity, identifying what are the required APIs, addressing the specification requirements for the U.S. military and trying to increase output sort of towards the latter part of this year into 2017 and beyond. And right now, I am feeling very good about where we stand there.

I don’t want get into specifics about the actual number of units that we can produce. I consider that to be sort of competitive intelligence that I prefer to keep confidential for our company and our shareholders, but we are doing everything that we can to address that market and we see it as a real significant market.

Certainly, the $100 million, $200 million, but it potentially could grow beyond that..

Okay, thank you..

Thank you. Our next question comes from the line of Jim Molloy from Laidlaw. Your question please..

Hey, thanks for taking my question. I want to follow-up on the ex-U.S. sales price that seems to be one of the – still one of the bigger black boxes as we look at it.

Can you talk a little bit about how you may characterize your pricing ex-U.S., I know in the past you said it should be substantially higher, any kind of bracket around that? And then, any sort of thoughts on what realistically we could expect, I mean, saw [indiscernible] in the U.S., could you double it in ex-U.S or half of that, any sort of bracketing around that you can give us?.

Yes, sure. Thanks, Jim. Nice to hear your voice. Thanks for joining the call today. So, I think high level with what I would like you to think about ex-U.S. is growing that business to about 10% of our revenues by 2020. That’s really the size of the opportunity that we are targeting right now. And it’s across the platform. It’s not just BioThrax.

We see some real opportunity, Emergard, every conversation we have with foreign government agencies, they are very interested in the Emergard platform and the various products that could be provided under that platform. So, remember this is a platform and it sets the stage for unique product offerings under that platform.

The BAT products, the botulism antitoxin also is very high on the radar, RSPL, AIG. So, it’s across the board, which gives me a lot of confidence that we can successfully achieve that greater than 10% target. So, that’s how I would like you to think about it. Certainly, for BioThrax and for really all the products, they are not at the U.S. market level.

Otherwise, we would have targeted international sales at a higher percentage than where we ended up. So, hopefully, that gives you some guidance as you think about your model..

It does. Thank you very much. And another question that often comes up with Ebola, you got Zika often the calls come in from the clients, can EBS handle that? And I am calling you guys.

When sort of the next whatever the name of the next thing that comes up will be and rather than have us calling and when these sort of things come up, what sort of responsiveness does EBS have to sort of turn on the dime or to get active with the government to handle on Ebola, to handle on Zika virus, handle the next when that comes down?.

Yes, great question. And as you think about the focus area of Emergent with the spin-off of the biosciences business coming up, we are really going to be focusing in on the CBRN, but also the emerging infectious diseases space. So, I am glad you have put a spotlight on that. So, you think back over the years, we had the pandemic flu.

And as you know now with our ADM facility, we have a product that’s in the works that could - and we are expected to produce about 15 million doses of a pan flu product within 4 months of identification of the strain. Then we saw Ebola hit and we were capped by the U.S.

government at the ADM side to make the Ebola monoclonal being used in as a therapeutic. And interestingly, don’t forget, we also had an Ebola vaccine that we produced in very short order based on our MVA technology and that went into a clinic lightning fast as a combination vaccination with the GSK products.

So, it was a boost to the GSK prime that, that was in development. And that went into two Phase 1 clinical trials very shortly after we completed production. So, as you think about the next threats coming in the emerging infectious disease, whether it’s Zika or Chikungunya or Dengue or whatever it might be, we see Emergent very well positioned.

We have platform technologies including our hyperimmune. And you think about the hyperimmune platform, it’s very exciting in that we have 6 approved products on that platform. So, the CMC section is fully baked and fully developed.

And it’s simply a matter of identifying and collecting quality plasma with the right antibodies that we can run through that process. That process is fairly quick in terms of getting to the stage where we can have a product candidate available for clinical testing.

So, the hyperimmune is a very appropriate technology to be used in the emerging infectious disease arena. We also have broad spectrum antimicrobial, the antiviral and the antibacterial technologies that we have, both of which are supported by U.S. government funding right now. So, these are broad spectrums.

They can handle new bacterial infections or new viral infections potentially with some of the candidates that are in those platforms. And lastly, the ADM site, where we have very flexible manufacturing and an ability to bring a technology in and manufacture that product for clinical testing. Whatever the U.S. government might decide is appropriate.

So very flexible broad-based in an area where we have tremendous strength and an ability to respond quickly and effectively as these emerging infectious disease appear on the landscape..

Thank you. Well, one last question – I guess two last questions.

I know that competitive reasons really can’t say what you are looking at very vocal that you are looking for acquisitions, the CBRN space, but is it possible to narrow down what areas look most interesting, among that sort of that broader swath of potential opportunities, and I guess maybe a question for Bob as well, if nothing can be met at your price, the share buyback makes sense?.

So let me take the first part and kick the second part over to Bob. Yes. With the focus on CBRN and emerging infectious diseases, there is a lot of very interesting opportunities out there, Jim. And as you know, you have known us for a number of years. We have a very disciplined process.

And we evaluate technologies and we evaluate products and we evaluate companies, all with a very focused lens or prism. And we are methodical. We don’t jump quickly. And my view right now, a lot of interesting opportunities and more coming, particularly as we look across the CBRN and emerging infectious disease areas.

So I would ask you to be a little bit patient there. As you know, M&A takes time and in our space, we want to make sure that we are doing the right deals, at the right time, with the right values that are synergistic with the portfolio and the programs that we are trying to develop.

I am confident that we will be able to successfully execute on one or more transactions as we move forward in our growth plan. And it remains a strategic priority for us and I have a high degree of confidence we will be able to do it. So with that, high-level comment Bob, maybe I will turn it over to you on the second point..

Sure. Jim thanks. Good to hear, from year. So I think we have been pretty consistent with how we want to deploy our capital in that fourth key capital expansion projects to support the core business and our capabilities are report we would support M&A as Dan had described. It’s extremely important.

And then after those two headwinds met, then we will look for alternative ways to return value to shareholders either through a buyback program or dividends. But it’s going to pretty much in that order, Jim..

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

Thank you. Our next question comes from the line of David Meyers from Wells Fargo. Your question please..

Good afternoon and great quarter.

So first on the receivables that seemed to take a pretty big uptick and so I just wanted to see what the timing is there, I think keeping the people that owe the cash are probably good for it, but just want to hear what’s going on behind the scenes and then I have a follow-up?.

Yes, sure. [Technical Difficulty].

Yes..

So, David there is nothing unusual about the nature of the $120 plus million receivable balance at year end. The majority of that is U.S. government. So there has never been a problem collecting that. The timing is usually very quick as well. So nothing unusual other than the dollar values a bit large, but nothing to be concerned about..

Thank you. [Operator Instructions] Our next question comes from the line of Lisa Springer from Singular Research. Your question please..

Hi good afternoon. Actually you already answered my question that concerned M&A and you answered that for Jim. So thank you..

Thank you, Lisa. I appreciate your participation today..

And it looks like we have a follow-up from Mr. Meyers’ line. Hopefully, we won’t have any more feedback? Your line is open..

Great.

I want to find out the follow-on contract with the CDC, maybe if you can update that I jumped on of the call late, so I don’t know if you have already covered that?.

So David, we did cover that during the prepared remarks and there were some questions about what the contours of that might look like. But we have had preliminary meeting and a number of exchanges of communication with the CDC. And I think it’s safe to say the CDC does continue to recognize the importance of being prepared for the anthrax threat.

And with the fiscal year 2016 funding levels, we do anticipate a follow-on multi-year contract will be in place to ensure that there is no interruption by BioThrax to the SNS. We haven’t given any specifics on timing.

And we are – we are not going to really be commenting on the specific details of any of the negotiations that we have ongoing with the CDC, until such time as the contract is completed. At which point, obviously, we will make an announcement..

Thank you. And this does conclude the question-and-answer session of today’s program. I would like to hand the program back to back Bob Burrows for any further remarks..

Thank you, Jonathan. And with that ladies and gentlemen, we now conclude the call. Thank you for participation. Please note an archived version of the webcast of today’s call will be available later today and accessible through the company website. Thank you again and we look forward to speaking to all of you in the future. Goodbye..

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day..