Bob Burrows - Vice President of Investor Relations Dan Abdun Nabi - President and Chief Executive Officer Robert Kramer - EVP, Corporate Services Division, CFO and Treasurer Adam Havey - Executive Vice President and President of BioDefense Division.

Keay Nakae - Chardan David Maris - Wells Fargo Jim Molloy - Laidlaw Lisa Springer - Singular Research Gregory Macosko - Montrose Advisors.

Good day, ladies and gentlemen and welcome to the Q3 2016 Emergent BioSolutions Incorporated Earnings Conference Call. [Operator Instructions] As a reminder this conference call maybe recorded. I would now like to turn the call over to the company for opening remarks. Please go ahead..

Thank you, Crystal, and good afternoon everyone. My name is Bob Burrows, Vice President of Investor Relations for Emergent. Thanks for joining us today as we discuss our financial and operational results for the third quarter and first nine months of 2016. As is customary, our call today is open to all participants.

In an 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 at that point. 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 November 07, 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 may be found on the Investors home page 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. On today's call, I’ll give an overview of our third quarter financial results and highlight some of our recent business achievements, following that Bob Kramer will finish with the more detailed discussion of our financial performance.

So let me start with our financial results for the quarter. As you can see by our press release earlier today, we reported total revenues from continuing operations of $143 million. Our GAAP net income from continuing operations was $20 million and adjusted net income was $28 million.

As stated in our press release today, we will continue to temporarily postpone our financial guidance for 2016 until our follow-on BioThrax procurement contract with the CDC is complete. We have made substantial progress in that regard and expect that contract to be completed in the coming weeks.

Once completed, we will announce the terms of the contract. Now let me highlight a few of our key business and operational developments. First, let's start with our current 2011 BioThrax procurement contract. In September, we announced that the CDC exercised an option to purchase all of the remaining BioThrax notice under this contract.

We are pleased to report that we have delivered the full 44.75 million doses to the CDC. Recently we also announced a new contract to NuThrax our next generation Anthrax Vaccine.

This part of contract with a five year base period of performance valued at $200 million provides for the advanced development of procurement of 2 million doses following emergency use authorization designation by the FDA.

It also as options for procuring 7.5 million to 50 million additional doses as well as options for additional studies and post marketing commitments. Total value of the NuThrax contract if all options are exercised in full is up to $1.6 billion. We see the BARDA contract and the anticipated CDC contract as defining the U.S.

Government's evolving strategy and National Anthrax Preparedness. At being BARDA funds with development of the next generation Anthrax Vaccine while CDC continues to stop trial to current vaccine.

Over the next five years, we expect to see a transition whereby procurement levels of NuThrax begin to rise following Emergency Use Authorization and levels of BioThrax will decrease.

On the manufacturing side, the transition from Building 12 to Building 55 is now complete, with Building 55 in four operations manufacturing BioThrax at level sufficient to satisfy our anticipated CDC contract as well as international demand.

This transition included a reduction in headcount to reflect the efficiencies of Building 55 operations as expected product demand.

In 2017, we anticipate that Building 55 will be fully deployed both with the manufacture of BioThrax as well as supporting the development and validation of the NuThrax manufacturing process for the plant Phase III clinical trial.

Finally, we’re evaluating our both Buildings 12 and 55 could be used to manufacture alternative countermeasures in order to fully utilize the capabilities of both facilities long time. Going forward, we will continue to focus on future growth opportunities in the CBRNE public health threats and emerging infectious diseases markets.

We see these as globally expanding markets, and are committed to remaining a leader for the U.S. and other governments in providing medical countermeasures for the preparedness and response initiatives.

We expect our growth to be driven by diversification of our product and revenue mix both organically and through M&A and the expansion of our customer base. 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, and good afternoon, everyone, and thank you for joining our call. To begin, let me first speak to the concept of financial reporting on continuing operations, which we’re using for the first time.

As we reported on August 1st, we successfully completed the spinoff of our Biosciences business into separately publicly traded company Aptevo Therapeutics.

As result, we are required under GAAP principles to report our financial statements to reflect the fact that we are no longer - we no longer have these operations, which are treated as discontinued operations.

These are reflected on the face of the P&L and one line item titled income, loss from discontinued operations net of tax, would summarizes the financial results of the Aptevo operations.

Importantly in today’s press release, we provided the reconciliation of our statement of operations both for the quarter and year-to-date periods in 2016 that presents our financial results by line item across three columns.

First, continuing operations; second, discontinued operations; and lastly, combined which reflects our previous consolidated operations inclusive of Aptevo. Now, let me talk about our results for 3Q on a continuing operations basis. During the recent period, total revenues of $143 million were lower than 3Q of last year by $15 million.

This was primarily due to lower BioThrax sales which were impacted by CDC’s decision to not commit to procuring all of the remaining doses under the 2011 contract until late in Q3, resulting in a portion of the planned 3Q deliveries being shipped in Q4.

However, we realized incremental year-over-year growth in our contract manufacturing business as well as a slight step up in contract in grant revenues which partially offset the decrease in products sales revenue. Looking at the rest of the income statement, the fundamentals of the business remained very healthy.

During the quarter, our gross margin was 64% within our expected range of 60% to 70%. Net R&D costs continued to be managed carefully to the point where during the 3Q of 2016, our net R&D was fully funded continuing the favorable trend started three years ago following our decision to focus predominantly on non-diluted funding for our R&D efforts.

SG&A expense of $41 million was measurably higher in the prior year period of sense of $26 million. This unfavorable variance includes a total of over $12 million of costs related to both the spinoff of Aptevo as well as restructuring costs associated with the transition of BioThrax manufacturing from Building 12 to Building 55.

The third quarter restructuring costs included severance costs for the recently completed headcount reduction initiatives in Lansing as well as the write down of certain Building 12 fixed assets due to the transition of net BioThrax manufacturing to the new facility. These transition costs were originally planned to be incurred in 2017.

As Dan mentioned, this transition was largely completed in the fourth quarter. For the quarter, our effective tax rate was 39% well above our historical range of 30%. This was largely attributable to onetime non-cash charges incurred to complete the Aptevo spinoff.

Turning to the year-to-date performance, to the nine months of 2016, our business is performing well as evidence by the following. First, our gross margin of 61% is in line with expectations. Second, our contract in grants revenue of $96 million exceeded our R&D cost for the period of $81 million.

This net R&D result is $15 million better than a prior year nine month result. Third, while the SG&A spend $108 million is $22 million above last year over half of this increase is attributable to costs associated with planning and executing the Aptevo spinoff as well as cost incurred to transition BioThrax manufacturing to the new facility.

And finally, the business generated $82 million of EBITDA during the first nine months reflecting the ongoing strength of the core business.

On the balance sheet, at quarter end, our cash balance was $299 million, down from the second quarter balance of $328 million, reduction and 3Q cash impart reflects the $45million contributed to Aptevo as part of the spinoff.

The final cash contribution of $20 million expected to be paid to Aptevo in the first half of 2017 pursuant to the promissory note. Overall, our liquidity position remains very strong and we continue to be well positioned to support our operations in strategic M&A initiatives.

With the completion of the spinoff of the Aptevo Therapeutics in our decision to focus on opportunities in the growing public health threat market particularly those related to chemical, biological, radiological, nuclear and explosives, it is imperative that our operational administrative costs be sized in the line to support our growth in these specialized markets.

We must enhance the utilization of our operating facilities to the fullest extent possible, we must also continue to carefully manage our portfolio of R&D projects by leveraging third party funding while being open to making at risk investments when we see long term value.

Finally, we intent on stepping up our efforts to manage SG&A costs to ensure that they support our operations and growth plans while being appropriately sized relative to our business footprint.

Lastly, in terms of 2016 guidance, we continue to defer reestablishing its guidance until the CDC file one contract for BioThrax has been finalized which as Dan indicated earlier is expected in the coming weeks. That concludes my prepared remarks and I’ll now turn the call back over to the operator to begin the question-and-answer session.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Jessica Fye from JPMorgan Chase. Your line is now open..

Hey guys this is Ryan on for Jess. Appreciate you taking our questions.

So I guess given as this completed delivery of all the doses under the 2011 procurement contract, can you talk about the manufacturing of BioThrax, are you - is that ongoing now, are you doing front finish or is it just producing the API?.

Yeah. Thank you for participating and thanks for the call. We have a facility is in full operation and it’s leading our expectations in terms of efficiency and we are producing all the way through fill/finish. As I mentioned, production is really targeted towards meeting our expected contract with the CDC as well as any international demand.

So yes, operations are ongoing and all the way through fill/finish..

Okay.

Can you give us a little bit more color on sort of on the cadence of interactions with the FDA, is this weeding for like an official meeting or rather do you need to - are there sort of milestones that you need to complete before you before just solidify the contract?.

So our interactions with the FDA are complete. The facility has now been licensed. Right now what we do is produce and then submit for release as we’re licensed vaccine. We submit to the FDA for release on a live by live basis. So we’re in standard operating mode with the FDA..

Hey, great. Thanks for taking the questions..

Sure..

Thank you. Our next question comes from Keay Nakae from Chardan. Your line is open..

Yeah, two questions.

First, as far as the other product sales on the quarter, can you talk about the timing of that and where we should expect there with your government contracts moving forward?.

So, we’re not sure that we understood that question.

You’re saying with respect to other product sales in the quarter?.

Yeah, in other products?.

And the question was..

You made note in press release, there was a timing issue about those sales?.

Yeah, that’s typical lumpiness in terms of the delivery. I think there was BioThrax sales which were not delivered in Q3 that are being delivered in Q4 and now is associated with late exercise by CDC of the final procurements. And then there were some item revenue that has been moved from 2016 to 2017.

So that also I think explains some variability in the other product sales. I think that gives you reference..

Yeah, yeah, it was really the other products on the side BioThrax but with respect to BioThrax, do you anticipate delivering product in Q4 under the new contract?.

Yeah, so we have completed the delivery of the 44.75. As Bob mentioned, some of those doses because of the late exercise by CDC, in fact moved into Q4. So any additional deliveries that might be forthcoming under the CDC contract we’ll wait to update you on the other investors once that’s CDC contract is completed..

Okay thanks..

Sure..

Thank you. Our next question comes from David Maris from Wells Fargo. Your line is open..

Hey everybody its Brendan and for David. Thanks for taking the question.

I have a couple if you don't mind, so with the timing of BioThrax, I remember last quarter you said there was about $120 million, $125 million remaining on the contract, you did $94 million this quarter, you said the other rest of that goes into 4Q, excuse me, so my guessing that there's just extra $30 million then going into 4Q that we can count on.

I know you're going to not provide other real timing on the BioThrax.

And other question really comes down to international demand, in the prepared remarks, it seems like there is a lot of talk of international opportunities and gearing up for manufacturing for international, it seems to be a bit of a departure from previous comments, and could you maybe speak to that a bit more if possible? Thank you..

Sure. So on the international demand side, I don't want to overstate, clearly it’s part of our focus on a portfolio basis to ensure that we're addressing across the portfolio that we’ve got international, our requirements and needs of governments that are our existing customers as well as post backed customers.

BioThrax is one of the many products that we do offer on the portfolio basis, so I don't want to lead the impression that this is a significant number. The U.S. market clearly is the leading market for BioThrax.

But we do anticipate modest orders and historically that's in the case, that too has been very lumpy, but we hope to build on those orders overtime..

So Brendan, this is Bob. To your first observation or color, we have, as Dan indicated, we have completed all deliveries under the existing contract with CDC for the 44.75 million doses. So to the extent that there were pending or open shipments at the end of Q3 dose have now been shipped, so that contract is complete..

Yeah, we can assume that that number of about $122 million is still good from previous?.

That’s correct..

Okay.

And then if I could also just add, could you provide any update with Ermahgerd and the RSDL products just to get some more color on the other Biode where those maybe are I know you're working on expanding capacity for Ermahgerd?.

Yes, so there are a number of interesting opportunities that we're focused on with respect to Ermahgerd and customer interest in demand has been significant, Adam maybe you could just take a couple of minutes and just walk through some of the things that we’re looking at with respect to that platform in terms of potentially driving growth over coming year to two..

Sure. Thanks. So as we've talked about before Ermahgerd is a platform technology and as we’ve expand that the manufacturing capacity, as Dan mentioned, we're seeing some additional demand in the x-U.S. markets. I think the primary driver as we look at Ermahgerd moving forward is to start to partner with U.S Government and get an FDA.

License for the technology, in particular our lead product, which would be [indiscernible] which is a combination nerve agent antidote. So we expect to see more activity internationally as we move into 2017 as well as some work with the U.S. Government in 2017.

But we do, and I'm glad you brought it up because over the course of the coming years we do expect that Ermahgerd could be a real contributed to top line and bottom line growth of the company..

Okay, that's great. Thank you very much..

Sure..

Thank you. Our next question comes from Jim Molloy from Laidlaw. Your line is open..

Hi, guys thanks to taking my question.

In the SG&A RN&D these levels that sort of levels we are seeing currently these are kind of the go forward levels we should expect for the remainder the year in 2017 and going forward, and then on a contracts and grants fully front on the R&D contracts and grants above the R&D typically there's some more R&D there.

What is that I guess now making money off the R&Ds that U.S.

Governments sort of supplying you it?.

Yeah, Jim this is Bob, thanks for joining the call and thanks for question. So in general Jim, in terms of your question are these ongoing run rates for both SG&A and R&D that you should expect, I think you have to consider a couple of things.

First of all for 216 there are a number of non-recurring costs associated with executing the spin-off of Aptevo as well as some significant costs that were incurred in 2016 to implement the transition of manufacturing from Building 12 to Building 55 net most of which was put or included in SG&A cost that will not be included or encouraged going forward.

So the run rate will not be as significant as implied with the year-to-date numbers.

I guess, secondly in terms of the ratio of grants and contracts to R&D expense the grant and contract revenue is driven by a number of factors including how we recognize or how we are required to recognize revenue from those activities, so that is not as linear or as predictable as you might expect.

I think going forward we will likely incur gross R&D expense as well as some net R&D expense. How significant we'll have to evaluate as soon as we get the CDC contract negotiated, and I think we will incorporate those thoughts into the 2017 guidance that we are prepared to give in early January..

Okay, great thank you for that. And then on the international contracts I guess you’ve touched on briefly we’ve talked about in the past. Can you talk a little bit about the magnitude it would be half of your U.S. typical U.S.

revenue 10%, 5% is that so you guys have any idea on where would be, and then I think in the final weeks of sort of the BioThrax contract any indications on the size and duration?.

I'm not sure I understood on the international side you're asking if the you’re looking for 2016 I’m not sure which you’re refereeing to in terms of the size?.

My apologize, last year BioThrax is $293 million this year about $280 million perhaps is that can you sign a $280 million dollar international contract or will be more like a $10 million international contract?.

No I wouldn't think of it in those terms. These are modest orders and again we’re taking a portfolio approach, because oftentimes customers have some interest in countermeasures for a whole broad portfolio of targets.

And so we think about it more in terms of the cross functional needs of the customers you haven’t simply targeting one product or another. So I don't think about it in terms of BioThrax only and the significance of the BioThrax order.

You're looking at our international sales opportunity as an aggregate and how do we drive that growth across the portfolio, and there I think we're making significant progress.

And I think as time goes on we'll continue to see significant increases, I'll be good to small it's a small base from which we're working, but nevertheless we're making real progress in driving those numbers. And I'm not really ready to give you any specific forecasts other than the trend is in the right direction..

Excellent. Thank you very much..

Thank you. Our next question comes from Joseph Cohen [ph] from Cowen & Company. Your line is open..

Hi, this is Joe on for Eric. Thank you for taking my call. You’ve said a couple of things in the opening remarks, I'm curious if maybe you can elaborate a little bit.

You’ve indicated that you are producing BioThrax and Building 55 in anticipation for the demand from the CDC going forward and that you anticipate BioThrax fails to sort of taper as new direct comes up.

And so can you maybe give us a little indication of how I guess like the rate that you're producing in anticipation quarter-to-quarter and how you anticipate this looking over the five year contract coming up?.

Yeah, so again I think on the contract side the looks definitive terms then we'll have the - we'll be able to more clearly and correctly answer that question, but your general observation about the government’s interest in the transition to NuThrax is one that is important for people to understand.

And I think it came through in our NuThrax press release. And I hope in our comments today the target goal here is for the government to get to NuThrax because of all the benefit it provides. It’s a two dose products versus Aptevo those products are therefore the time lines to production.

The number of doses that need to be stored in the stock to protect the target population is reduces well. So there is a real incentive for the government to migrate as quickly as possible to NuThrax for all the benefits it provides.

And so right now I need to target that, is out there, it’s sort of that 2019 timeline for late 2018-2019 when we might be able to secure emergency use authorization begin the transition. So that’s part of a government’s planning process and part of what we’re integrating in terms of how we thing about the manufacturing..

Great, thank you. And then more, can you update us maybe on the Building 55 approval process in Germany.

I think it was previously anticipated by year-end, if there any update on that?.

Yeah, great question. Thanks for asking. We have submitted all the documents required, so it’s now with the regulators. And the timing of their decision is really outside of our control. But we’ve completely what expected of us..

Okay, great. Thanks for taking my questions..

Thank you. Our next question comes from Lisa Springer from Singular Research. Your line is open..

Thank you.

Did I understand correctly that there is going to be a similar transition cost for the move to Building 55 recognized in the fourth quarter?.

I think - Lisa, thanks for the call. The transition costs for moving from 12 to 55 are essentially complete..

Okay..

There may be some minor insignificant costs flexible for there, there they’ve been incurred and there will not be any meaningful cost going forward..

Okay. Thank you..

Thank you. Our next question comes from Gregory Macosko from Montrose Advisors. Your line is open..

Yes, thank you. I’d just like a question to understand when you made the transition and the spinout of Aptevo, you talked about a $40 million to $50 million EBITDA change difference there.

Is that an adjusted or is that in straight EBITDA set guidance you gave?.

Yeah, thanks for the question.

That was not adjusted, and just to be really clear that number of 40 million or the range of $40 million to $50 million of EBITDA pickup as result of the execution of the stem was our best guess almost a year and a half ago based on what would have happened in calendar year 2014 if the spin were executed 1-1-2014 for the entire calendar year.

And it was comprised of the fact that there would be some revenue generating products and profit contribution from those products that would be part of that Aptevo. It was also in recognition that there was a significant R&D expense that would be avoided by emerging going forward because it will be part of that Aptevo Therapeutics.

So that $40 million to $50 million range was not an adjusted but it is really based on what would have happened in calendar year 2014..

I see. Okay.

And then next, have you completed any of the buyback you announced the $50 million, was there any update on that?.

We have not initiated any buyback activity under the plan that we communicated earlier this year. The primary reason is that due to the prolong contract negotiations with the CDC, we have been unable to put a plan 10b5-1 plan in place and as such there has been no activity..

Okay, yes. I should have thought of that. Thank you very much..

Thank you. [Operator Instructions] And we do have a follow-up from David Maris from Wells Fargo. Your line is open..

Hey guys, it’s me again.

I’m just wondering if you could provide any information about the capacity utilization at Building 55, is that running at full utilization right now or about just...?.

Yeah, thanks for the question. So going into 2017, we anticipate 55 will be fully utilized you large and committed. To BioThrax manufacturing as well as NuThrax manufacturing under our BARDAcontracts for NuThrax and BioThrax of course is to support ongoing deliveries to be U.S.

government for the Strategic National Stockpile and NuThrax manufacturing would be in support of the consistency you have in the manufacturing development of all towards the Phase III clinical trials that will be conducted following the successful completion of that manufacturing. So for 2017, it is fully utilized..

Okay.

Any update on potential acquisitions, I know you mentioned in the prepared remarks looking at diversifying the portfolio in organic opportunities and update and then potential timeline there you can provide?.

Yeah. Thanks to the question. So M&A does remain a key component of our strategic growth plan. We do see a number of very interesting and attractive targets for the areas that we are focused on, that’s CBRNE, EID as well as emerging infectious diseases. So that does remain a target for us and we’re very active.

So we will stay turn and I’m not going to put a timeline out there, but it is something that we are committed to as a driver of our growth strategy going forward.

And remember the targets that we’re looking at I mean not only in the space but there intended to be revenue generators and contributing to the bottom line within 12 months following the acquisition. So we really are targeting things that can drive our top line talk and bottom lines growth.

And importantly, we also looking at opportunities that have the potential for dual use. So would be not only government stockpiling or procurement even if it’s not stockpiling but also have some commercial portability to broader customer base..

Okay. And then if I may just ask one more, you also mentioned in that same prepared remark about organic opportunities and doing some at risk R&D investment.

Any timeline there anything that’s started off, it looks like from the R&D spend during the quarter that wouldn’t be the case, but maybe just some more commentary on that would be helpful?.

Yeah. Sure. On the organic side Ermahgerd is already come up as a growth opportunity for us. So we see continued investments in that platform to just customer needs as being suitable and actually very well justified in light of market demand in market interest, RSDL as well broadening the label for that to extend the customer base.

Our high premium platform within has real application in areas beyond the products that are currently licensed. So we’re looking at target opportunities there. So across those two like there I think we have a number of directions we can go to expand and grow top line as well as bottom line. And those would justify some R&D investment..

Any timing on Ermahgerd as far as Department of Defense or anything new orders there?.

Yeah, nothing that we’re prepared to share at this point, but please stay tuned because it’s an area of focus for the company..

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

Sure..

Thank you. And we do have a follow-up from Gregory Macosko from Montrose Advisors. Your line is open..

Yeah. Just one brief, with regard to Zika, you mentioned that on the last call and I just wondered if there you said that you were the only government contract relative to Zika.

Could you give us any update on that?.

Yeah. So the Zika work in ADM facility continues and that you might recall this was a vaccine candidate that we bought in and you know Adam maybe give a little color on the where we stand there and what the open expectation is there..

Yes, so as we mentioned I think in the last call, we're - as part of our ADM advanced development manufacturing program with the government.

So there's a task order that was initiated and we signed to develop and basically manufacture a vaccine candidate for Zika and we're in the process of doing that process development and manufacturing work with the idea of progressing that down the road into some clinical studies. So we're moving that forward in partnership with the government..

And would that be funded R&D?.

Yes, that would be right now..

Okay, good. Thank you..

Thank you. And I'm showing no further questions from our phone lines. I would now like to turn the conference back over to Bob Burrows for any closing remarks..

Thank you, Crystal, and with that ladies and gentlemen we now conclude the call and thank you for your participation. Please note an archive version of the webcast of today's call will be available later today inaccessible through the company website. Thank you again and we look forward to speaking with all of you in the future. Good bye..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day..