Good day, ladies and gentlemen and welcome to the first quarter 2012 Emergent BioSolutions Incorporated Earnings Conference Call. My name is Jeff and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Bob Burrows, Vice President of Investor Relations. You have the floor, sir.

Thank you, Jeff. Good afternoon, ladies and gentlemen. Thank you for joining us today as we discuss Emergent BioSolutions first quarter 2012 financial results. As is customary, our call today is open to all participants. In addition, the call is being recorded and is copyrighted by Emergent BioSolutions. Joining me on the call this afternoon with prepared comments will be Dan Abdun-Nabi, our President and Chief Executive Officer and Don Elsey, our Chief Financial Officer. Additional members of our senior management will be present on the call for purposes of the Q&A session. Before we begin, I am compelled to remind everyone that during the call management may make projections and other forward-looking statements regarding future events and the company's 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 potential risks and uncertainties. Actual results may differ materially from those projected in any forward-looking statements. You are encouraged to review Emergent's filings with the SEC on Forms 10-K, 10-Q, and 8-K for more information on the risks and uncertainties that could cause actual results to differ. For the benefit of those who may be listening to replay, this call was held and recorded on May 3, 2012. 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 files. 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 our website at www.emergentbiosolutions.com under Investors/Press Releases. And wWith that introduction, I would now like to turn the call over to Dan Abdun-Nabi, Emergent BioSolutions President and CEO. Dan?

Thank you, Bob. Good afternoon, everyone and thank you for joining our call today. For my prepared comments I will review our financial performance for the first quarter of 2012. Then I will address our 2012 forecast, including revenue expectations for the second quarter and finally, I will provide a brief business update. To begin, let me review our financial results for Q1 2012. Total revenues were approximately $50 million, which is within the $40 million to $50 million range that we provided during our March conference call. In addition, for the quarter we realized a net loss of $6.8 million, or $0.19 per share. This loss includes a one-time, non-cash charge of $9.6 million related to Pfizer's decision to cease further development of SBI-087. Without this non-cash charge, the Q1 net loss would have been approximately $700,000 or $0.02 per share. Just a quick note on Pfizer. Pfizer recently notified us of its intent to terminate its development programs with respect to SBI-087. While Pfizer informed us that the product met the primary endpoint for efficacy and was generally well tolerated in a recently completed Phase II study in RA, Pfizer also indicated that the product did not meet other criteria set by Pfizer to advance the candidate. On termination of the license agreement, which we anticipate shortly, the license technology would revert to us, and Pfizer would have a continuing obligation to pay us low single-digit royalties on net sales of any biosimilar product they may develop directed to CD20. At this time, following the return of the technology to us, we do not plan to pursue further development of SBI-087. Moving on, we finished the quarter with a combined cash and accounts receivable of $194 million. In terms of guidance, we reaffirm our full year 2012 guidance…

Thank you Dan. Good afternoon everyone. Following the close of the markets today we released our financial results for the first quarter 2012. I encourage everyone to take a look at the press release which is currently available on our web site. We plan to file our quarterly report on form 10-Q with the SEC no later than the close of business tomorrow, Friday May the 4th. The 10-Q will also be available on our web site. Let me now briefly discuss the numbers. First quarter 2012 total revenues were $50.3 million versus $18.5 million in the first quarter 2011. First quarter revenues were comprised of $34.4 million of product sales which is an increase of $28.8 million from Q1 2011, and $16 million of contracts and grants revenue, an increase of $3 million from Q1 in 2011. The increase in product sales was primarily due to an increase in the number of doses of BioThrax delivered. Turning to gross margins, our gross margin in Q1 2012 was approximately 78%, which remains within our typical range of between 70% and 80%. Turning to the bottom line, in Q1 2012 we recorded a net loss of $6.8 million or $0.19 per basic share, as compared to a net loss of $21.4 million or $0.61 per basic share in Q1 2011. The Q1 2012 net loss included a one-time non-cash charge of $9.6 million related to impairment of in-process research and development. Without this non-cash impairment, Q1 2012 net loss would have been approximately $700 thousand, or $.02 per share. Turning now to spending, our R&D expense for Q1 2012 was $26.2 million, a 24% decrease from Q1 2011. Recall that contracts and grants revenues and costs associated with non-controlling interests offset a portion of our R&D expenses. Taking into account these…

Thank you very much. (Operator instructions) Our first question comes from the line of Mario Corso with Caris & Company. Please proceed.

Hi. Yes, thanks for taking my questions. With respect to Pfizer, are there anymore payments coming upon the termination of that collaboration, and is there any CVR avoidance that you would like to point out there? And on BioThrax, can you talk a little bit about how yields are going and how many doses may have been shipped in the quarter? Thanks very much.

Thanks, Mario. Appreciate you joining the talk today and appreciate the question. So first with respect to Pfizer payment, no further payments are going to be forthcoming under the collaboration around SBI-087. However, as I indicated, there is an ongoing low single-digit royalty obligation for any biosimilar they may develop and commercialize targeting CD-20. So that would be the only remaining financial obligation. With respect to CVR avoidance, there was indeed an avoidance of CVR, and the number is $3 million. That was avoided as a result of the early termination of the license arrangement. And your last question related to production of BioThrax in terms of how to put it in the facility, as you know every year we establish a plan and we have a delivery schedule through the CDC for stockpiling in the SNS. And as you can see by the reaffirmation of our guidance, we believe we're going to be on plan, we're going to be on track, so production is supporting the financial results that we've reported to you for the forecast for the remainder of the year. So, so far, so good, we're on track.

So just a quick follow-up on the Pfizer piece. So in terms of your revenue guidance, was there a Pfizer revenue assumption in there and now it just puts you in a different spot of that range than previously?

This is Don. There were some minor revenues out in the later part of the year, but nothing appreciable, so it really didn't have impact there.

Great. Thanks.

Our next question comes from the line of Cory Kasimov with JPMorgan. Please proceed.

Hey, good afternoon guys. Thanks for taking the question. A couple of them for you. First of all, can you give us, Don, the relative breakdown between biodefense and bioscience R&D spending this quarter?

Yes, Cory, if you give me just a minute, let me get my hands on that.

All right. I can go to the second question and can come back to it.

I've got it, Cory.

Okay.

So basically as you break it down--now this is the gross development, not the net that we talked about in the comments--there was approximately $15 million in biodefense. There was approximately $9 million in biosciences and $2 million in other.

Okay. Perfect. That's helpful. And then I was wondering if you guys can talk a little bit about any supportive data you have for your TB vaccine that gives you confidence that this Phase II b study could work?

Yes. Let me start, and then I'm going to ask Jim Jackson, our Chief Scientific Officer, to add to my comments. So, as you know, the product is a MBA-based vector delivering of an antigen. So we have seen this product in quite a number of early clinical trials whereby the vector is effectively delivering the antigen, and we are seeing some robust immune responses. Of course, the challenge here is are those immune responses generating antibodies that are protective, and that is the hoped for answer that we expect or anticipate deriving from the ongoing study. So in terms of the ability of the candidate to generate immune responses, we've seen that consistently through use of the candidate MBA vector in earlier studies. But in terms of answering the final question about whether those antibodies are actually protective, that is what we are hoping the Phase II efficacies will provide us. Jim, anything to add to that?

Yes, Corey, if you remember MD-85A has been through series, rather exhaustive series of pre-clinical animal efficacy evaluations. I think there were four different animal models that this vaccine had been tested in for its ability to augment or promote further cell-mediated immunity to that initially primed by BCG. In addition to the reproduceable animal efficacy results, the immunogenicity result that we see, and 85A has now I think, been in like 12 different clinical studies where we have demonstrated safety and strong, solid immunogenicity on the cell mediated side. Not only in adults but adolescents and now in infants, as well. All that taken together, Corey, it's a very, pretty compelling story for all of us and unlike some of the other prototype booster vaccines that are out there that have now started progress [inaudible] clinical development, our vaccine really elicits very strong CD-4 type cell mediated immune responses. Which we think, and a number of the leaders of the TB field, think are going to be paramount to leading to a very efficacious vaccine.

All right. That's helpful, thank you.

Our next question comes from the line of Jason Kantor with RBC Capital Markets. Please proceed.

Hi, this is Adnan on Jason's behalf. First, what would constitute a good result for the TB study? And secondly, what would be the registry path or the market strategy?

I didn't catch your first question, I'm sorry. But the second question which is the regulatory path for the TB vaccine?

Yes, that's right.

And maybe you could repeat the first part of your question and we can get to that in just a moment. So, Adnan, thanks for joining the call. The regulatory path is really something we are going to have to discuss in more detail once we see the data with the regulatory authorities. Our belief and there seems to be growing sentiment out there, is that with compelling data there will be some support. And it could be quite broadbased or devising an accelerated path that would allow early licensure. Perhaps there would be conditions that we would expect there would be conditions, perhaps it could be followed-up with a large scale efficacy confirmatory study and the like. But that's speculation at this point. It is very difficult to read the minds of the regulators. We haven't had that robust discussion yet. There are key opinion leader discussions out there that are ongoing about what the level of success ought to be to move for either accelerated or conditional approval and the landscape continues to shift. So I think as the year unfolds we'll learn quite a bit more about regulatory appetite for conditional or accelerated approval and what that might look like. Then, once we see the data then we'll be in a better position to approach the agencies and discuss a more definitive path forward. In terms of somebody handing me a note that your first question is, what would constitute success in the Phase IIb, and that too is an excellent question. Though there's been a great deal of conversation in the community around what the key endpoints should be in terms of measuring success for this, and I'll ask Jim to follow up on that, we look to the recent experience in malaria as a possible benchmark. There was in the malaria trials, a 35% VE, which was deemed by the public health authorities to be quite compelling, and supportive of licensure would be understanding that next generation malaria vaccines should continue to be developed moving that VE rate beyond 35 towards 50 and upwards even towards 70 or 80%. Jim, maybe you can shed a little bit more light on what the current thinking is out there in the KOL community?

Yes. Sure. Thanks, Jason. Basically, what the primary endpoint for this study is going to be, it's going to be a reduction in the number of confirmed cases of TB among the infants that receive not only BCG as a prime, but our MVA 85 as a boost, compared to infants receiving BCG alone. Based on some ongoing dialogue we've had with not only key opinion leaders, but some of the leading public health organizations, U.S., globally as well, is we're probably looking for an increase in vaccine efficacy of somewhere around 30%, maybe greater than what is achieved with BCG alone. That's kind of what we're targeting. I think there are some specifically epidemiological basis for that level of vaccine efficacy as really being a game changer for the TB deal.

Okay. Thank you.

Our next question comes from the line of Nicholas Bishop with Cowen and Company. Please proceed.

I wanted to follow-up a little bit on the TB vaccine, and I wonder if you can help us think about - as you look at the countries where you think you might have kind of a near term possibility of approval, what sort of an addressable market would you imagine is available there? What are the potential margins to EBS, and can you remind us of what EBS's obligations to the Wellcome Trust and so on are.

Yes. Thank you, Nick, appreciate the question. As you might recall it being discussed in prior conference calls and presented at prior conferences, we have four commercial rights to a certain category of countries. They're designated as high-income and middle-income countries. It's about 55 countries and includes those in the EU, Brazil, Russia, and also the private markets in India and China. The addressable market we believe in terms of our space generates about 75 million births annually for those where BCG is actively administered right now as part of an expanded program of immunization. So in terms of the current market based on BCG immunizations, and we're looking at infant immunizations on an annual basis, it's about 75 million births annually. Of course, we would expect that number to move north as vaccine efficacy improves and as the experience with the combination, if you will, the prime and the boost, materializes and increases. We would expect to see immunization rates not only in those jurisdictions increase, but other territories potentially expanding their immunization policies to include a BCG with boost as part of their infant program. So the immediate is in that 75 million as I've expressed, so even with a modest price per dose, you could easily envision a total market size north of 800 million, even north of a billion. Now in terms of what is immediately addressable and how that would play out, again I think that will depend significantly on the conversations that we have with the regulatory authorities. Clearly, right now one of the most serious outbreak countries is South Africa. That was one of the rationales for conducting the studies there. You have high incidence with high morbidity and mortality in that jurisdiction, so that would be a logical first place to start, not necessarily stop. We do have to be mindful that we are not yet set up for large-scale commercial production. That's something that will take place over the course of the next several years, so we're not talking about large introductory launches. We're talking about pilot launches that will enable public health authorities to begin to address the TB threat that they're experiencing in their population. And I'll ask Jim also to expand on those comments. Jim.

Yes. I think that it's really going to be a strong vaccine for countries where there are mandatory immunization programs, particularly in the Mideast and Mediterranean regions, even some parts of Eastern Europe, where there are addressable populations that have some level of disposable income that can drive a reasonable vaccine price. Now remember this is a booster vaccine, so it will go hand-in-hand with the countries and in healthcare systems where BCG is already being used.

Okay. Thanks. That's helpful. And I have just a couple quick follow-ups for Don on the finances, three questions, there. One is on the revenue, I guess you are just slightly above the top end of the guidance, and I'm wondering if there is one of the two elements of revenue that was near the top of what you'd expected or what was driving that. Second question is, if I'm not mistaken, the share count decreased a little bit quarter-over-quarter. I'm just wondering what was behind that? And finally, the quarterly R&D is a little less than we expected, I wondered if you could help us think about what that will look like going forward?

Sure. I'll take your questions in the order that you gave them. With regards to the revenue, there was not one particular event that was driving the achievement at the top-end of the range. To go back with regards to product sales, as you recall, we deliver in lots to the government, 180,000 doses at a time, $5 million essentially, in revenue per lot. So product sales can go up or down very, very quickly with just one or two extra lots being able to be shipped. On the contracts and grants, it's going to ebb-and-flow with regards to where the various contracts and grants are at, at any point in time. So it is always a little bit of an art in estimating exactly how all the activities are going to go and when they are going to pass through the various checkpoints that the government has with regards to some of these contracts. There [inaudible] one particular event that drove it to the top-end. With regards to the share count, yes, we don't see a decrease. As a matter of fact, we see an increase. So we could take that offline if you'd like but we don't see a decrease in share count. With regard to R&D, as we've said in the past, R&D is really going to be a linear activity throughout the year. It depends upon what phase of development the various candidates are in. So I don't think you should take first quarter as... First quarter times four and that's the annual spend on this. Because, it's going to again increase or decrease depending upon where the various candidates are in their development cycle.

Okay, thanks a lot.

Our next question comes from the line of Jim Molloy with ThinkEquity. Please proceed.

Hey guys, thanks for taking my question. I was wondering if you could walk through, and looking back on the Trubion position and some of the events that are happening now with Abbott and Pfizer, what's going to happen here and the appetite for these types of things going forward?

In terms of when you say the appetite for these things going forward, are you talking about really the M&A arena or are you talking about development arena? Can you help me understand?

Yes. I recall when you guys acquired the asset, it seemed a little bit outside of really your sweet and there's some questions, from some non-forward thinking investors perhaps, whether that was the correct place to be focusing energy even though it was a fairly cheap acquisition. Here with Pfizer, now Abbott, now Pfizer are kind of walking away from these programs. Looking back on it, are you still as confident in the ability to get these things (inaudible) at some point?

Yes. No, it's a fair question and it's an interesting question, Jim, so thanks for putting that on the table. So the way we look at this is the technology, I think, is separate and distinct from the collaborations that the acquisition brought to Emergent. We did value the acquisitions, it was clear. One of the benefits of the acquisition was the fact that we had a partner in Abbott and Pfizer without any cost to us. It was progressing a candidate on its own, which had some upside. So that's clear. The way we look at the events as they've unfolded, as you might recall neither Abbott nor Pfizer really signed up with Trubion for those relationships and for those programs. Both companies inherited them through acquisitions, Abbott through the acquisition of Facet and Pfizer through the acquisition of Wyeth, so they weren't homegrown to begin with. And reasons for the departure of the two partners, if you will, are varied. Abbott, they made it clear that they had a prioritization process they ran through. The product had successfully met the endpoints that were specified and similarly with Pfizer. We see a product meeting an efficacy endpoint and generally well tolerated, so we don't see this as an indictment of the technology or the platform. It does present a challenge for us in terms of now what do we do in terms of R&D spend going forward to advance the candidate, and that's why we're taking a very measured approach with respect to TRU-016 while we have some data that's coming out this year and into next year. And I think it would prudent for us to evaluate data before we make a decision on how best to proceed, whether it's something that we undertake on our own or something that we should partner, and, if so, when do we partner. Those are things that we have to decide internally. For products like this typically Emergent would partner them. The question might be, "When is it appropriate to partner and what are the circumstances under which those partnerships ought to be developed and signed up for?" And with respect to SBI-087 as we indicated, we really don't anticipate taking that on right now. We have enough on our plate. We don't need to enter into the RA field, which is highly competitive, a lot of products. It's moving into biosimilars. It's not really a space that we find core to our strategy and [with which] we think we would be successful. If there were a partnering opportunity or (inaudible) license opportunity for that, possibly, but again it's really not something that we will focus a lot of effort on. Jim Jackson, as you know, our CSO, is also the leader in the Seattle operation and can give you a little bit more insight into some of the other products that are in the portfolio there and that we think have exciting opportunities for us.

No, I think you summarized it quite well. Abbott left the CE-37 collaboration due to an internal portfolio management process. They were quite supportive of the product from the technical perspective, however, it just wasn't as attractive as some other candidates in their portfolio from a commercial point of view. With respect to the overall technology, has seen Abbott lead the co-development relationship and now Pfizer deciding not to pursue further development of SBI-087. It really doesn't in my opinion compare the overall technology. As you know we have three of these [inaudible] small modular [idio]pharmaceuticals, the Smits that have now been in the clinic, the two anti-CV-20s versus 20-15 that Wyse and Pfizer worked on for several years. And then the second generation SPI-087 and now we're progressing TRU-16 which is the ADCD-37 that we're looking for efficacy in B-cells malignancies area. And all three of these molecular candidates have proven to be safe, generally well-tolerated and demonstrating some level of clinical efficacy merits in the auto-immune disease area or whether it's in oncology. We intend to continue to leverage the technology. We have a [inaudible] that we acquired through the Trubion acquisition, particularly on the bio-specific field. We have a couple of candidates we want to move in clinic, hopefully by the end of this year, that will really start to leverage the multispecific value that we originally saw through that acquisition.

I guess one final observation I'd make for you, Jim, is that in terms of our future M&A activity, our focus now is really to look at revenue generators and/or something that are very close to approval, about to be launched. So going forward on the M&A side at least, we are not targeting development programs or earlier stage clinical products, similar to what Trubion represented in terms of an M&A profile for a company.

Great, thank you very much for that answer. Just a quick follow-up, on the Phase II data, we're looking for that for SBI-087 end of 2012. Has that come out and look good, is that what you said?

The Phase IIb data is for MVA-85 and that's the TB candidate and we are expecting data the end of this year.

And I also said we were looking for Phase II SBI-087, last I heard it was in Phase II. Did that report out and look good and Pfizer said, "All right. We're moving on"?

Actually, some of that data will be coming out in the upcoming [inaudible] meeting and as Dan said earlier, well, this has been a candidate that Pfizer had been developing. We don't have full visibility into the development program. Based on what we do know and what we can communicate to you is that in that Phase II eficacy study, the efficacy of the molecule, it did meet its primary endpoint, it was safe. More information, as I said, will be coming out on those clinical outcomes in UR and I think the abstracts are going to be available in the next couple of weeks.

Okay, great. Thanks. So I guess this is the end of the day, unless you find a partner for that product, that product’s going nowhere further for you guys.

Yes, we're not prepared to make an investment in that program at this stage.

Okay. Very good. And a final question. You'd said Building 55 at this juncture you're feeling fairly confident that, assuming all goes well, end of fourth quarter, end of '14, you can get a license to start producing there starting the first quarter of '15.

Yes, our current plan brings us to the end of 2014 for licensure, and it's based on the feedback we got from FDA. As I indicated, we do have programs underway to fulfill the plan, both in terms of comparability study and non-clinical studies to demonstrate that the product manufactured in 55 is indeed comparable to what is currently licensed in Building 12.

Great. Well, thanks for taking my questions, and congratulations to Fuad on Executive of the Year in Maryland.

Yes, thank you, Jim. We'll pass that along.

(Operator instructions) Our next question comes from the line of Ian Somaiya with Piper Jaffray. Please proceed.

Thanks. Maybe if I can just follow up on several other questions that have been asked. On the corporate development side, should we assume that future deals will be focused more on areas of expertise that you already have, maybe potentially anti-infectives as opposed to moving into oncology or autoimmune? And as you think about late-stage assets, can you give us a sense of what the competitor dynamics are in attaining such an asset and how you see yourself positioned to get them?

Ian, thanks for the question and thanks for participating today. So in terms of our core strategy, we are focused on infectious disease, oncology, and autoimmune. We believe that they represent a potential for niche market opportunity for us, and I think the targets for Emergent in terms of new term acquisitions would be marketed products or near-marketed products in that space. So I think we will continue to focus on what we've historically shown as part of our core competency and try to define acquisitions where we can leverage capabilities here, whether it's manufacturing capabilities, whether it's the government side of our relationships in terms of sales and deliveries and contracts. So there could be various aspects, and the acquisitions need not be just in the biosciences space. They also could be targeted to biodefense. So it's a slighter broader universe than the oncology and autoimmune that you described. So the competition is clearly stiff. There are a limited number of such opportunities, and when they're there, there tends to be some interest in an acquisition. Through some of the processes that we've developed internally and our selection criteria, we do believe we've identified some very interesting candidates and products that are available and could be transacted. It's always uncertain as to whether you'll be able to complete any such transaction. Of course, we'll announce the transaction at the appropriate time. But we believe that there are selected targets out there that are transactable and that we could succeed in overall plan, in terms of growth through M&A.

Okay. I just wanted to follow up on the TB vaccine program. I know you provided some qualitative feedback but if you were to qualify what type response is needed for an early filing or an early approval, based on the phase 2 trial, is there a benchmark that you and the [restorians] have agreed or your clinical consultants have pointed to?

That's a great question. The answer is no upfront but we will continue to, as public health authorities convene conferences and as regulatory authorities, really focus on the question of tuberculosis and how to get products quickly approved. I think that the report that I mentioned, in my prepared text's, is another example of just how important it is, globally, to address this TB threat and our candidate being the lead, at this point, in terms clinical development, I think we have a unique opportunity to work with authorities to come up with a paradigm that would allow for allow early conditional licensure and start to address the disease more globally. But right now, there is no agreement with regulatory authorities and I don't anticipate that happening until really post licensure. Jim, do you have anything to add to that.

Yes, just one comment is over the last year or so, we have really engaged in several active dialogue with world or regional public health agencies and regulatory agencies and that dialogue will actually serve as guidance on how we plan to commercialize the vaccine, both in the developing world as well as a more developed world.

So, I guess, in conclusion, there is a strong desire to address this. Assuming that we get positive results, it's had to really describe exactly what that is. I think Jim gave an idea of what that might look like but it's not definitive. In assuming that they are positive in the eyes of the regulatory agencies and public health authorities, couples with the desires, I think that we will be able to map some path towards accelerated or conditional approval.

Okay. Thank you very much.

Ladies and gentleman that does conclude the Q&A portion of our event. I'd like now like to turn the presentation over to Mr. Bob Burrows for closing remarks.

Thank you Jeff. Ladies and gentleman that concludes today's call. Thank you for your participation. Please note that today's call has been recorded and a replay will available beginning later today through May 17th. Alternatively, there is available a webcast of today's call, an archived version, of which will be available later today, accessible through the company’s website at www.emergentbiosolutions.com and clicking on the investor tab. Thank you again, we look forward to speaking with all of you in the future. Goodbye.

Ladies and gentleman that concludes today's conference. Thank you participation, you may now disconnect. Have a wonderful day.