Good day, ladies and gentlemen and welcome to the Emergent BioSolutions’ Fourth Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder today’s conference is being recorded. I would now like to turn the call over to management. You may begin your conference.

Thank you, Chelsea, and good afternoon everyone. My name is Bob Burrows, Vice President of Investor Relations for Emergent. Thank you for joining us today as we discuss our fourth quarter and full-year 2016 financial and operational results. As is customary, today’s call 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. A Q&A session will follow at the conclusion of our prepared comments and other members of senior management will be available to participate if need be. 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. Again, 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 23, 2017. Since then, Emergent may have made announcements related to topics discussed during today’s call. 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, and good afternoon, everyone, and thank you for joining us this afternoon. During the call today I will highlight several key 2016 developments, and review our 2016 through 2020 strategic plan including our 2020 goals and growth plans over the next four years. I’ll then turn the call over to Bob Kramer, who will review our 2016 financial performance and our 2017 financial and operational growth. So, let’s begin with a review of several key developments from last year. As you know, in the latter half of 2016, we had a number of significant accomplishments. In December we signed a follow-on contract with the CDC valued at up to $911 million to supply the SNS with approximately 29.4 million BioThrax through September 2021. Simultaneously with the CDC contract award, BARDA issued a full-source notification to cure an additional $100 million of BioThrax, for delivery into the SNS within 24 months from the date that contract is awarded, which we continue to anticipate will be in the first half of this year. In 2016, we also signed a contract with BARDA valued at up to $1.6 billion for the development and procurement of new tracks, our next generation Anthrax Vaccine candidate. That contract filed with FDA licensure of building 55, our large scale BioThrax manufacturing facility which will also support NuThrax development and production. And finally, we completed the spin-off of Aptevo Therapeutics, allowing us to focus on public health threats and emerging infectious disease markets. With these operational goals completed, this past December we undertook an evaluation of 2016 through 2020 strategic plan to determine the impact if any on our previously announced 2020 growth. We have now completed that assessment and have concluded that we remain well positioned to continue our growth in the public health…

Thank you, Dan, and good afternoon everyone. Thank you again for joining the call. I’d first like to make some general comments about our financial results for the fourth quarter of 2016 compared to last year and then turn to our performance for the full-year of 2016 compared to last year, including select elements of our balance sheet namely our cash position. I will then discuss how we see our operating and financial performance developing during 2017. With the successful spin-off last year of our BioSciences business into a separate public traded company Aptevo Therapeutics, we are providing our 2016 financials in two ways. First, on a combined basis which includes the now discontinued operations of Aptevo and secondly on a continuing operations basis which excludes the Aptevo operations. You’ll find in today’s press release a reconciliation between combined and continuing operations or statement of operations both for the fourth quarter and for full-year 2016. From our prepared remarks today I’ll be referring to our results on a continuing operations basis, which will be the norm going forward. With that said, the fourth quarter 2016 total revenues were $152 million slightly below Q4 of last year due primarily to the lower BioThrax sales of $68 million partially offset by increases in other product sales, contract manufacturing revenue and grant and contract revenue. As you know, our new BioThrax procurement contract with the CDC was not signed until late Q4 of last year, that’s the reason for lower BioThrax shipments in Q4 of 2016 versus 2015. Moving down the P&L statement, our gross margin for Q4 2016 was 63% within our expected range. Net R&D spend for the quarter continued to trend, continuing to be trending in 2016 whereby our grant and contract revenue exceeds our growth R&D spend resulting in…

[Operator Instructions] And our first question comes from the line of Eric Schmidt with Cowen & Company. Your line is now open.

Thanks for all the updates and for taking my questions. Dan, on the 2020 guidance, you mentioned the $1 billion revenue target would be in part comprised of M&A. Is there any I guess from there you could provide what percent of that $1 billion might be coming from M&A? And you also mentioned you could close a deal in 2017. It wasn’t clear to me though, maybe Bob said this whether the 2017 guidance included some revenue contribution from M&A?

Yes, thanks for participating this afternoon, I really appreciate it. So, on the guidance, no M&A is included in that. On the cost side, there is due diligence cost as we forecast and we budget for. So, on the cost side, we do have SG&A cost associated with normal activities on M&A. But none of the potential revenues that might be associated with an acquisition are included in our forecast. Upon completion the M&A transaction, we would be again in a position to update our guidance to incorporate any adjustments. So, and then in terms of the breakdown on sort of M&A contributions, so I’m going to resist the temptation to get into specific allocations between organic and M&A. As you might recall we had a similar challenge when we issued our 2012 to 2015 guidance. Again we were doubling revenue with significant target for increase in our net income CAGR. And there are many ways to get there, so I want to leave - open the flexibility for management to deal with it in a way that might be slightly different than a single path to completion. But what I would say is that we do anticipate organic growth meaningfully contributing. But it’s clear to me that without M&A we’re not going to get to the $1 billion. So, it is required execution on both fronts. And I do remain very confident in our ability to execute at least one M&A this year which I think will put us on a nice trajectory towards getting to that 2020 goal.

Okay, thank you for that. And then, maybe this is for Bob, on the strong Q4 contribution to net R&D. Basically net R&D was more than fully funded. What drove that - was just that timing of revenue recognition on contract on other revenue or what happened there?

Yes, I think, Eric, thanks. That’s right. There were a number of revenue recognition adjustments in Q4 including spending and investments on our CIDM facility in Baltimore as well as our VIGIV product. So again, while positive for 2016 we’re not counting on it on continuing to be in that surplus position going forward.

Thanks very much.

Thank you. And our next question comes from the line of David Maris with Wells Fargo. Your line is now open.

Good afternoon. Couple of questions. So for deals, maybe you can just explain a little further what you’re looking for, what’s your sweet spot for acquisitions? And then secondly, maybe if you can talk about the prospects for ex-U.S. sales; do you currently have the capacity for ex-U.S. sales? What do you think you need to do if you don’t have the capacity to get there? And what’s the sales process? When should we expect that to start to come online? Thank you.

Thanks for joining the call today David. I’m just noting the questions here. So, first on the M&A, the sweet spot, we really are targeting across the CDRN as well as the explosive space, and emerging on infectious diseases. We’re targeting opportunities across all of our business units. And at this point we’ve got a fairly robust funnel which includes revenue generating products, full-on businesses as well as pipeline candidates that come with grant contract funding. So, it is a full portfolio of opportunities. And our expectation is that at least one such acquisition should be completed this year in order for us to remain on track to complete our 2020 goal. So hopefully that’s response to your question. Now, on the international side, the capacity for meeting international demand, we certainly have - certainly for BioThrax we’re building 55 online. We do have the ability to manufacture additional doses for BioThrax as we said historically. We do not believe the international market for BioThrax is anywhere close to the demand in the U.S. Nevertheless, we are seeing increased interest and appetite for discussing with Emergent potential sales of BioThrax. But it’s also across the portfolio. We’re particularly interested in that. Interest in the auto-injector product offering, and there as we said repeatedly, we’re manufacturing constraint and we really do need to expand manufacturing capacity to address that. So, maybe that’s what you were referring to. That manufacturing capacity is moving along nicely. And we expect to be in a position in 2017 to significantly enhance our production capabilities to address that what we see as a growing market. On the sales process or in the cycle, it’s continuous. We are always looking out for and we’re actually seeing tenders coming from the countries increasingly across the globe. We’re seeing in Europe, we’re seeing in the Middle East, we’re seeing in the Near East and we’re seeing in the Far East. So, this is something that’s just normal business. We’re particularly excited it’s with the joint procurement that has been out there now for a bit of time, coupled with the EU directive that just got published which is mandating EU member stage start to procure and stockpile medical counter measures across the CDRN threat list. I’m seeing a real opportunity for our portfolio to come into focus for many of these countries and the opportunity for increasing sales in that jurisdiction. So, more to come on that. It’s going to be an evolving process. It’s not something that happens digitally overnight. The member states have to identify what their particular requirements will be and then determine how best to fulfill them. So I see that evolving over the next 18 to 24 to 30 months, somewhere in that time horizon. So, hopefully that captured your questions here?

It does, thank you.

Thank you. And our next question comes from the line of Jessica Fye with JPMorgan. Your line is now open.

Hi, this is Hugo [ph] on for Jessica. Thank you for taking our question. Maybe as a follow-up to the prior question on M&A, where do you see the greatest opportunities in Bio-Defense?

Yes, you broke up just a little. Where do we see the?

The greatest opportunities in Bio-Defense.

There really a lot of them, we see opportunities on the chemical side, on the biologic side, and there are also on the emerging infectious disease side, in the explosives in particular. We’re very interested in devices that could address the lean care market, the burn market, which for us a dual market opportunity. There we’re seeing the need on a government level to acquire and stockpile and make those available for both civilian protection and military protection. But also as the prospects were being solid in a more traditional commercial setting whether it’s a burnt centers or in hospitals and the like. And we’re seeing at those scenes, we’re looking at therapeutic scenes, we’re really very broad based and robust, smallish products to fairly sizeable product opportunities. So and as I mentioned earlier, full-on businesses as well as individual products, both domestically and internationally I might add.

Thank you.

Thank you. And our next question comes from the line of Keay Nakae with Chardan. Your line is now open.

Yes, thanks. I was wondering if you can just give us a little bit more color on the significant up-tick in the other Bio-Defense product sales in Q4. And even if we think about that number on a full-year basis, how do we think about the growth prospects in 2017 versus what you did in total in ‘16?

Yes, thanks for the question Keay. We don’t disclose the individual product contributions other than BioThrax. But I think what we can say is that some of the other products in general in that portfolio whether it’s the BAT product or even the VIGIV product we see as having upside in opportunity. As we commented before, historically those other product categories as a group have contributed somewhere in the range of 5% to 10% overall revenue. We see some upside there, it could be in the 10% to 15% range going forward. So, I think across the board including the Trobagard and auto injector technology, we see some upside. Adam, if you want to comment further?

I think you captured many of the opportunities. I think one thing as this part of our business continues to grow it could be a bit lumpy. And we’ve talked about that, so some of the sales as we get into especially international sales could come in chunks. We could have a large Q2 and large Q4. So, obviously as we think about trends, we talked about ways to be more transparent as that grows and becomes more meaningful in particular ex-U.S. side. So, more to come but I think you’re going to see in total that other product group continues to build and continue to grow.

Well, just back to the Q4 result, was it just one product in the portfolio that really had fulfillment of outside orders or was it multiple? And again, just trying to understand what of that is one-time in order to project full-year ‘17 growth versus full-year ‘16 growth?

Yes, sure, it wasn’t one product Keay. There were several products that contributed to that up-tick in the other product revenue. And again back to Adam’s point, those opportunities tend to be a little lumpy they’re not nearly as predictable with our fixed delivery schedule as BioThrax for example. So, we’ll continue to see some individual product lumpiness but overall to the point I made earlier, you should see some growth in that category going forward.

Okay, thanks for that. And then, over to M&A, obviously it sounds like you’ve got a pretty good funnel as you say, step to look at. But if you could just attribute one sticking point to being able to float something, is it valuation more than anything else? And what would have changed from last year to this year that might make something look more attractive to being able to finalize? Thanks.

Yes, thanks for the question. As you know, M&A is a process. You start with an identification of an interesting candidate or company or pipeline. And then you engage in diligence and negotiation as we’re willing seller, a willing buyer price point. And it all has to fall into line. So, it’s not as though you start from standing, start every year, it’s a continuous process. And some products come into the funnel and other products go out. But we were very close last year on completing an acquisition, we had reached agreement on terms, the diligence had been completed. And I think both parties were quite satisfied with the structure and the nature of the transaction. And literally at the 11th hour, it was an external event that derailed it. So, we lost that opportunity. Those things happen in M&A and that’s just the nature of the beast. So, it’s not as though there is a difference between this year and last year, it’s just the continuation and a continuum towards the completion of the transaction. And given where we stand today and the opportunities that we are looking at, and there are multiple how I reiterate my high confidence in getting at least one deal completed this year, which I think will set the stage likely for continued growth and trajectory towards 2020. So, hopefully that’s a bit of clarification on that question?

Yes, thank you.

Thank you. And our next question comes from the line of Jim Molloy with Laidlaw. Your line is now open.

Hi Dan, thanks for taking my questions. That was a pleasure to hear from you guys, an excellent quarter it seems. And good to see the 2020 guidance reinstated. One of the questions I had on that $1 billion number, you made it very clear that M&A is part of that. How much of that will be on the back of BioThrax? Adam is doing a yeoman’s work up there in Michigan.

Yes, thanks Jim. Thanks for participating this afternoon and thanks for the call. So, as I mentioned in my prepared comments, we are anticipating meaningful growth through increased product sales. And the component of that is the combination of BioThrax and migrating to NuThrax. And as you’ve seen we do have a contract with BARDA for development and procurement of NuThrax. And it’s a sizeable contract. We can’t predict for sure with certainty how many of those will be procured. But we have certainly in our models assumed that there will be a meaningful contribution to our growth through that migration from BioThrax to NuThrax. And continuing sales opportunity for BioThrax has targeted customers such as the DOD. So, it is, it will remain a meaningful contributor to our story going forward Jim.

Okay. I know it will, I was hoping to get a number of how meaningful, but that’s quite all right. On the BioThrax, OUS, you mentioned the German approval. Would it be reasonable to think that’s where if any OUS sale goes that’s where the majority will go for the near future? And maybe following up on that margins have come down a bit some of the manufacturing coming in at a lower margin, can you get back to the mid-70s sort of overall gross margin for the whole business?

Well, let me ask Adam to take the international opportunities on BioThrax. It’s actually been from my vantage point interesting and exciting. And I think the landscape in Europe is changing in particular. And then Bob, you can take the margin question. Go ahead Adam.

Good afternoon Jim. So, as you’ve seen and mentioned, the German approval is kind of the first step in what we’ve talked about as the mutual recognition process in Europe. So currently we’re in the process of scheduling our technical meetings with other countries in Europe. And I think as we go through that mutual recognition process likely more demand in orders will follow. So, when we think about Germany, I think it’s one of many countries that we’ll see some interest in. And as far as orders go and as far as demand goes as Dan mentioned earlier, we don’t expect that market to be huge. But I think it will start to, we’ll start to see other interest from other countries as that mutual recognition process gets finalized this year.

And just remember, Jim, we put a number out there as target for ourselves by 2020 which is 10% of our total revenue coming from ex-U.S. markets. So that frames it for you in terms of where we think we can get to in the next four years or so. Bob, on the margin?

Yes, so Jim thanks for the question on the margin. Obviously that 60% to 70% range is a blended range going across all of our products including BioThrax as well as CMO. So, you should not expect us to get back to that 70% to 80% range which we enjoyed when it was essentially a one-product company. The blended range stays in that 60% to 70% range. And any variability in that is obviously highly dependent upon the composition of the sales mix, any particular quarter or year. Just as an example, in 2015, BioThrax represented 90% of the overall product sales; in 2016, it was 80% of the product sales. So as you can appreciate how that flows that ratio will directly impact the margin in that range.

Absolutely understood. And last question, just on the four business units, I know you touched on it in the prepared remarks, but what exactly drives, sort of drives, - everything is sort of shared right now and I’m thinking this is my asking questions business unit and after the call it will be my writing the note business unit. What really changes dramatically at EBS that drives the huge savings?

Yes, that’s a great question Jim. And I’ll top kind of level and maybe Bob you can add a little color. The prior structure that we had with the divisions, we have the BioScience and BioDefense division, was that each of those divisions really had fully dedicated resources top to bottom. There were some shared resources in the G&A space but fundamentally the objective was that each of these divisions would be essentially to withstand standalone operations and companies. And by the way that is what enables to do the Aptevo spin-off because it really did have fully integrated operations, say the few of the SG&A support. Now we’re doing away with that. And we really go into a matrix environment where each in the business units will draw on resources across the organization. So nobody has fully integrated operations. So we’re going to eliminate some redundancies that, is vested in the prior structure and make the cost structure a bit more streamlined and more efficient. Bob, can you add a little color to that?

Yes, I think that’s exactly right, Dan. And Jim, if you can appreciate when we have fairly standalone autonomous operating divisions that are staffed with G&A dedicated to that division, it’s highly effective in one regard but it is a little sensitive in the other. And what we’ve decided to do is to go to this business unit structure and streamline and centralize a number of the G&A functions that were previously distributed in the operating divisions, so most of the savings really is around the fact that those services are being provided from a centralized org structure to the different business units.

Got it. Thank you very much for taking the questions.

Thanks Jim.

Thank you. [Operator Instructions] And our next question comes from the line of Lisa Springer with Singular Research. Your line is now open.

Good afternoon. I noticed in the press release that you mentioned reduced U.S. government interest in funding in PreviThrax. Could you comment on that?

Yes, thanks Lisa for joining the call and for the question. Yes, PreviThrax as you know is our recombinant protective antigen anthrax vaccine. And where we ended up and I’ll ask Adam to add a little color for you is the government favored NuThrax over our RPA as a next generation for a whole host of very good reasons, the least of which is the timeline to get to EUA and ultimately regulatory approval. And the most important element there is to be able to reduce the number of doses to provide protection in combination with antibiotics as opposed to closure prophylactic setting. And to be able to stockpile that for the nation is possible as a product which has some new enhancements over BioThrax, which has wonderful profile. But obviously the government is looking to feel on that a bit. Adam, little more color on the RPA decision?

Yes. I think it was really kind of standard down [indiscernible] within the government. I think they got requirements. And as Dan mentioned, NuThrax, preferred and the best next generation candidate and that’s the one they’re going to fund and we’re going to take to EUAs as quickly as possible. And RPA will just be on hold for now and maybe we have a risk mitigate down the road. But for now NuThrax is the lead horse.

Okay, thanks.

Thank you, Lisa.

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back to Mr. Bob Burrows for closing remarks.

Thank you, Chelsea. 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 and accessible 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. And you may all disconnect. Everyone have a great day.