Good day, ladies and gentlemen, and welcome to your Third Quarter 2015 Earnings Call. At this time, all participants will be in a listen-only mode. Later, there will be a chance to ask questions, and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference is being recorded. And now, I’ll turn it over to your host, Robert Burrows. Robert, please go ahead.

Thank you, John. Good afternoon, everyone. Thank you for joining us today as we discuss our financial results for the third quarter and first nine months of 2015, our forecast for full year 2015, and our operational goals for the year. 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, 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 in our prepared comments or the Q&A session management may make projections and other forward-looking statement 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, so 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 may be listening to the replay of the webcast, this call was held and recorded on November 5, 2015. Since then, Emergent may have made announcements relating 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 may be required by applicable laws or regulations. Today's press release may be found on the investor's 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. During the call today I'll give an overview of the third quarter financial results, provide an update on our previously announced BioSciences business spinoff, and highlight some of our recent business achievements. Bob Kramer, Chief Financial Officer, will finish with a more detailed discussion of our financial performance. Let me start with our financial performance for the quarter. As you can see by our press release earlier today, we reported a very strong quarter with total revenues of $165 million, a 20% increase year-over-year. Our GAAP net income for the quarter was $37 million, and adjusted net income was $40 million. That represents a year-over-year increase of 69% and 59%, respectively. As we announced in our press release today, we are increasing the lower end of our 2015 revenue guidance and reaffirming our guidance for net income. Now let me highlight a few of our key business and operational developments. During our August earnings call, we announced our plan to pursue a tax-free spinoff of our BioSciences business into a separate, standalone, publicly-traded company. The new company will be called Aptevo Therapeutics. As we stated earlier in the year, the spinoff will enable each company to pursue its own unique and focused growth strategies and plans. Emergent will focus on biodefense, emerging infectious diseases and other public health threats. Aptevo will focus on the highly attractive immune-oncology field. We continue to make progress in this transaction and plan to announce the Aptevo board of directors and senior management team in early 2016. We also anticipate filing the Form 10 with the SEC late in the first quarter of next year with a target to complete the spinoff by midyear. I will now discuss our progress and our…

Thank you, Dan. Good afternoon, everyone, and thank you for joining our call. I would first like to make some general comments about our financial results for the third quarter of 2015 compared to last year, and our performance year-to-date. I will then comment on our balance sheet, focusing on our cash position, before finishing up with details related to our revised 2015 forecast. From an operational perspective, we had an exceptional quarter. And, in fact, our financial performance during the period was the strongest in the Company's history. For the third quarter, total revenues were $164.9 million, or $27 million above Q3 of last year, a 20% improvement. The increase in revenue is primarily due to BioThrax sales during the period. Gross margin on product and CMO revenue for the quarter was 72%, which is above our normal range of 60% to 70%, and again reflecting the significant product contribution of BioThrax revenues during the period. Gross R&D spend for the quarter was $41.9 million, a $2.3 million decline versus prior year, taking into account the offsetting effect of our contracts, grants and collaboration revenues. Our net R&D spend for the quarter was $12.2 million. This is a significant increase versus prior year and it is the result of the recognition in Q3 of 2014 of $15.3 million in the upfront fee that we received from MorphoSys related to the ES414 collaboration agreement. SG&A for the quarter was higher year-over-year by $1.3 million due primarily to IXINITY launch costs and professional services to support our strategic growth initiatives including the proposed spinoff of our BioSciences business. For the quarter our GAAP net income was $36.9 million, or $0.79 per diluted share versus $21.8 million, or $0.49 per diluted share in the same period of last year. On an adjusted…

Okay. Great. [Operator Instructions] I do show just a couple questions in the queue at the moment. Our first coming from Marc Frahm from Cowen & Company. Marc, please go ahead.

Hey, guys. Congratulations on the quarter and thanks for taking my question. First on this reanalysis, has the FDA made any comments on the two methods, and if they like the analysis that you do with the first, quicker one, does the sBLA go in or do you have to wait for that second analysis to happen?

Yeah. Thanks for joining the call, Marc, and thanks for the question. No, they are mutually exclusive. Both would allow us to pursue licensure and submit the application, so they are independent and both would be acceptable.

Okay. And then as we kind of think about moving towards the spinoff, you've talked a bit about M&A. What is the capability to do M&A while you are going through the spinout, and then also with the spinout. If you could give us some – maybe some color on the scale of the unreimbursed R&D, how that is going to get split across the two businesses?

Sure. So, the first question is a very good question in terms of the ability to spin and fire at the same time, and it really does depend on what particular acquisition might be the subject of the deal. Certainly, a product acquisition is different from a full company acquisition. So, depending on what type of acquisition we're looking at, our capabilities to integrate will differ. I think the other thing I would point out is it does take time between negotiating, signing and closing a deal. So, I would expect that the spinout would not impact our ability to consummate one or more acquisition transactions, whether it's a product, or portfolio of products or a company. Around the allocation of the R&D. So, bob, do you want to handle that?

Sure. Marc, thanks for the question. Again, I think, again, it's safe to say that historically our approach to biodefense R&D, as we've talked about a number of times on the calls, is that we historically have wanted to keep that pretty much expense-neutral. So, we are willing to spend money in R&D as long as it is funded by some type of government contract. So, when you look at historically our net R&D, the net is really heavily weighted toward the biosciences portfolio. So, as we talked about a bit on the call on August 6, we kind of outlined what we thought would be or could be achieved in terms of the split in overall impact on EBITDA in that $40 million to $50 million range. So, I think with what we've reported in that kind of guidance you can get a good feel for what to expect going forward.

Okay. And then one last one. You mentioned you're going to have a follow-up meeting with the CDC to really begin the contract negotiations early next year. Do you expect that there will be a notice of intent from HHS and CDC before that, or will that come after this meeting?

Yeah. That's a great question. I don't have an expectation either way. There are some notice requirements that they must follow before the contract is awarded. My experience is we can have some discussions with them ahead of any kind of notice coming out, but how they actually manage this particular negotiation, obviously not in our control. If it's per history, I think we can have discussions with them and extensive discussions ahead of a formal notice being issued.

Okay. Thank you.

Sure.

Okay. Thank you. We’ll take our next question from Jim Molloy from Laidlaw. Please, go ahead, Jim.

Hey, guys. Thanks for taking my question. On the next U.S. government contract, the next steps, do you have a date we expect that? And then one of the things that's been mentioned in the past is should Building 55 get online and actually product above or fulfill the SNS ex-U.S. sales? Has there been any discussion with potential ex-U.S. buyers of BioThrax should that come up? And then, I guess, the last question in this group will be the assay issues that came up, are these typical assay issues that would come up for the submission, or is this an atypical thing that kind of caught you guys by surprise?

Okay, thanks for joining the call, Jim. Good to hear your voice. So, in terms of the contract, there is no standard. It really is around reaching final agreement on all the key terms. They certainly know what the current contract provides for in terms of duration and deliveries, and they clearly continue to have an expectation of continued supply. So, I can't give you a definitive date. We will know a lot more as we engage in the negotiations with the CDC. Perhaps we will be in a better position to give guidance early next year in terms of likely timeline. But I think that's probably the best I could say about that. Ex-U.S., yes, I think the plan, as I outlined, is we're looking for German approval sometime in the first half of next year. That will enable us to start triggering the manufacturing operations at Building 55, not only for the ex-U.S. market, but in anticipation of delivering to the CDC. And that production would be on an ongoing basis. And the demand, we do have orders. They are limited, and now is the time to start looking at the international market and determining how best to address it. This is only a German approval, as we've described in the past, and we would want to now expand that approval across Europe through the mutual recognition process. And we have targeted countries that we've identified in terms of prioritization for that registration. So, it's the beginning and we look forward to expanding that market as time goes on. And the last on the assay. So, yes, I think the 30 assays were all well known to the FDA, they understood the parameters. So, this is not something out of the blue in terms of what kind of assay is this and what does it mean? And I would say pretty much ordinary course, normal course, answering typical questions that the FDA would like to hear responses to.

Got it, thank you. Then a couple of follow-up questions if I could. Can you talk a little bit, one of the things you discussed was a potential acquisition. Can you talk a little bit about likelihood of that before year-end? Does that still make sense? Obviously, we're getting pretty close there. And then on the Aptevo spinoff, is there any chance that might just be – you could find a buyer of that? You're still planning to write a $50 million to $70 million check to Aptevo when you spin them off and is there potential for an acquisition that would sort of avoid you guys having to write that check?

So, on the M&A, we have a number of opportunities that we are evaluating there in various stages. It would be premature for me to sort of gun-jump and give an expectation. We are coming up on year-end. It is a key focus for us, as you know, as we've said over the years to our growth strategy. You know, you've known us long enough, we're very disciplined about M&A and these processes take some time. So, I'm not all disquieted by where we are in the M&A process and we look forward to continuing to build the business through organic growth but as well through M&A. And on the Aptevo spin, we really do believe it's a tremendous value creator for our shareholders. It creates real opportunity to realize the value associated with the ADAPTIR technology. It is intended to be tax-free, so no consequences to Emergent from a tax perspective. Shareholders will receive the shares tax-free. If they see the value that we anticipate could be realized, they'll hold it. If they would prefer to see the cash benefit of the distribution, then they can realize that through a sale of the shares. So, I think it provides tremendous flexibility for the shareholders and tremendous value creation for the shareholders as well as for the Company moving forward.

Great. Last question Dan, are you still planning to give them the $50 million to $70 million and the – Bob, remind me again, if you mentioned it, I think you may have on the call, what was the driver behind the sort of fairly steep jump in R&D ex-contracts and grants in the current quarter? Thank you.

Yes. The plan has now changed in terms of funding of the spinoff. I will finalize those numbers as we get closer to filing with the SEC. And the R&D question, Bob, I guess that's yours.

So, the steep jump, Jim, in R&D on a net basis, was that the question?

Yes. R&D ex-contract and grants, up to $12 million from lower numbers the prior two quarters.

Yes. So, the increase is really reflective of, Jim, in the third quarter of last year we had about $15.3 million of - associated with the MorphoSys collaboration agreement recognized in the quarter. So, when you look at netting that out in Q3, it's kind of an artificially low number in the third quarter of last year.

Right, a pretty good jump from Q1 and Q2 of this year to third quarter.

Okay. Thank you. [Operator Instructions] So our next question is from Jessica Fye from JPMorgan. Jessica, your line is open.

Hey, guys. This is Ryan on for Jess tonight. I appreciate you taking my question and congrats on the quarter. I guess on Building 55, now that you're cleared for inspection, I believe that you previously talked about the FDA coming in for a routine inspection for Building 12 sometime at the end of this year. So, are you trying to coordinate those two or has the FDA already come in and inspected Building 12?

Thanks, Ryan, for joining the call. We have in fact talked to the FDA about trying to coordinate that. They understand from our perspective that could be preferable. Preliminary indications were that they thought that might be workable as well, but they haven't committed to any timeline either for our inspection or for the inspection of Building 55. So, we're sort of in a wait-and-see mode to see what ultimately happens. And in answer to your second question, no, we haven't received our inspection as of yet.

Do you have a -- I mean, I know it's difficult to say until it's obviously confirmed, but is there a fairly decent likelihood that you guys could do it together just out of efficiency sake or are there two separate sort of processes that you need to follow through in order to coordinate those inspections?

Yeah. I mean it’s really hard to second-guess what the FDA is ultimately going to do. So, I don't want to give you a bum steer on that. It really is entirely in their court. We have expressed our desire and view on efficiency for our operation and for their inspectors. They seem to acknowledge there is some benefit in that, but they are, as you know, free to do whatever they want to do and it's really out of our control.

Okay. And I guess more of a bigger sort of question would be, as we go into an election year you talked about you are going to meet with the CDC for another potential contract, but can you provide any comments on your discussions of how you think the government's willingness to continue stockpiling?

Yes. So, that's a great question. I think there has been a renewed awareness and interest and desire of the federal government to not only continue to protect the nation in the areas where they currently are focused in, but they are also expanding their focus beyond what has traditionally been the threat areas of concern -- small box and anthrax and botulinum and the like. So, funding is going up. The scope of responsibilities are going up, and what we expect to see is shoring up and expanding the capabilities of the government to protect the nation. So, that is a long-winded way of saying we don't see any change in the appetite or the focus on addressing the threats to the country and doing that through the kinds of countermeasures that we manufacture and supply.

Great. Thanks so much for taking my questions and congrats on the quarter.

Thank you.

Okay, thank you. I'm showing no further questions in the queue. I would like to turn it back to your host for any concluding remarks.

Thanks, John. This is Bob Burrows. Before we conclude, my colleague, Bob Kramer, wants to address the one question earlier.

So, sorry, Jim, you got cut off there before I could respond to your question about the 3Q R&D expense compared to Q1 and Q2. I think if you look at how the R&D expense has been trending, not necessarily on a quarter-by-quarter basis, but more broadly on a trailing 12-month basis, you will continue to see that come down. There are ins and outs quarter-over-quarter. For example, earlier this year we had a $5 million payment associated with the initiation of the Phase 1 of ES414 that tends to knock down that earlier quarter number. So, I think, again we can look at it quarter-by-quarter, but it's going to be a little bit choppy. But the most important thing is just look at how the trailing 12 months are trending and I think you'll see a good trend there.

Great. Thanks, Bob. With that, ladies and gentlemen, that concludes the call. Thank you for your participation. Please note an archived version of the call and the webcast of today's call, specifically, will be available later today and accessible through the Company website. Thank you all once again for participating and we look forward to speaking to all of you in the future. Goodbye.