ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and uncertainties of cash flows from operations and from outside resources, so as to allow investors to better view our company from management’s perspective. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this annual report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on Form 10-K, including information with respect to our plans and strategy for our business and financing, includes forward-looking statements that involve risks and uncertainties. You should carefully review the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this annual report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Business Overview

We are a global life sciences company focused on providing innovative preparedness and response solutions addressing accidental, deliberate, and naturally occurring PHTs. Our solutions include a product portfolio, a product development portfolio and a CDMO services portfolio.

We are currently focused on the following five PHT categories: CBRNE, EID, travel health, emerging health crises, and acute/emergency care. We have a product portfolio of eleven products that contribute a substantial portion of our revenue and are sold to government and commercial customers. We also have a product candidate that is procured under special circumstances by the USG, although it is not approved by the FDA. Additionally, we have a development pipeline consisting of a diversified mix of both pre-clinical and clinical stage product candidates. Finally, we have a fully-integrated portfolio of CDMO services. Our CDMO service offerings cover development services, drug substance manufacturing and drug product manufacturing and packaging.

In October 2021, the Company implemented a new organizational structure organized around markets and customers whereas our historical structure was organized around product/platform and service types. The key components of the new business structure include a Government - MCM business line, Commercial business line, and Services - CDMO business line as well as the centralization of R&D functions and capabilities at the enterprise level.

The majority of our product revenue comes from the following products and procured product candidates:

Government - MCM Products

•Anthrax vaccines, including our AV7909 (Anthrax vaccine adsorbed (AVA), adjuvanted) procured product candidate being developed as a next-generation anthrax vaccine for post-exposure prophylaxis and BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA for the general use prophylaxis and post-exposure prophylaxis of anthrax disease. AV7909 has not been approved by the FDA, but is procured by certain authorized government buyers for their use;

•ACAM2000®, (Smallpox (Vaccinia) Vaccine, Live), the only single-dose smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;

•BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), the only heptavalent antitoxin licensed by the FDA and Health Canada for the treatment of botulism;

•CNJ-016® (Vaccinia Immune Globulin Intravenous (Human) (VIGIV)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination;

•Raxibacumab injection, a fully human monoclonal antibody, the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax;

•Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax;

•RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun,

sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin; and

•Trobigard® atropine sulfate, obidoxime chloride AUTO-INJECTOR, a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. It has not been approved by the FDA, but is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure.

Commercial Products

•NARCAN® (naloxone HCl) Nasal Spray, the first needle-free formulation of naloxone approved by the FDA and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression. Recently, the Company authorized Sandoz Inc. to distribute a generic naloxone nasal spray;

•Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever; and

•Vaxchora® (Cholera Vaccine, Live, Oral), the only single-dose oral vaccine approved by the FDA and EMA for the prevention of cholera.

Services - Contract Development and Manufacturing

Ourservices revenue consists of distinct but interrelated CDMO services: drug substance manufacturing; drug product manufacturing (also referred to as "fill/finish" services) and packaging; development services including technology transfer, process and analytical development services; and, when necessary, suite reservation obligations. These services, which we refer to as "molecule-to-market" offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network of nine geographically distinct development and manufacturing sites operated by us for our internal products and pipeline candidates and third party CDMO services. We service both clinical-stage and commercial-stage projects for a variety of third-party customers, including government agencies, innovative pharmaceutical companies, and non-government organizations.

Financial Operations Overview

Revenues

We generate product revenues from the sale of our marketed products and procured product candidates. The USG is the largest purchaser of our Government - MCM products and primarily purchases our products for the SNS, a national repository of

medical countermeasures including critical antibiotics, vaccines, chemical antidotes, antitoxins, and other critical medical supplies. The USG primarily purchases our products under long-term, firm fixed-price procurement contracts, generally with annual options.Our Commercial products, Nasal Naloxone Products, which reverse opioid overdose and our travel health products, Vivotif and Vaxchora, are sold commercially through wholesalers and distributors, physician-directed or standing order prescriptions at retail pharmacies, and to state and local community healthcare agencies, practitioners and hospitals.

We also generate revenue from our CDMO services, which is based on our established development and manufacturing infrastructure, technology platforms and expertise. Our services include a fully integrated molecule-to-market CDMO services business offering across development services, drug substance and drug product for small to large pharmaceutical and biotechnology industry and government agencies/non-governmental organizations. From time to time, clients require suite reservations at our various manufacturing sites, which may be considered leases depending on the facts and circumstances.

We have received contracts and grants funding from the USG and other non-governmental organizations to perform R&D activities, particularly related to programs addressing certain CBRNE threats and EIDs.

Our revenue, operating results and profitability vary quarterly based on the timing of production and deliveries, the timing of manufacturing services performed and the nature of our business to provide large scale bundles of products and services as needs arise. Since early 2020, our revenues from the sale of our vaccine products that target travelers have declined due to the reduction of international travel caused by the COVID-19 pandemic. We expect continued variability in our quarterly financial statements.

Cost of Product Sales and CDMO Services

Products - The primary expenses that we incur to deliver our products consist of fixed and variable costs. We determine the cost of product sales for products sold during a reporting period based on the average manufacturing cost per unit in the period those units were manufactured. Fixed manufacturing costs include facilities, utilities and amortization of intangible assets. Variable manufacturing costs primarily consist of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff, contract manufacturing operations, sales-based royalties, shipping and logistics. In addition to the fixed and variable manufacturing costs

described above, the cost of product sales depends on utilization of available manufacturing capacity. For our commercial sales, other associated expenses include sales-based royalties (which include fair value adjustments associated with contingent consideration), shipping, and logistics.

CDMO - The primary expenses that we incur to deliver our CDMO services consist of fixed and variable costs, including personnel, equipment, and facilities costs. Our manufacturing process includes the production of bulk material and performing drug product work for containment and distribution of biological products. For drug product customers, we receive work in process inventory to be prepared for distribution.

Research and Development Expenses

We expense R&D costs as incurred. Our R&D expenses consist primarily of:

•personnel-related expenses;

•fees to professional service providers for, among other things, analytical testing, independent monitoring or other administration of our clinical trials and obtaining and evaluating data from our clinical trials and non-clinical studies;

•costs of CDMO services for our clinical trial material; and

•costs of materials used in clinical trials and R&D.

In many cases, we plan to seek funding for development activities from external sources and third parties, such as governments and non-governmental organizations, or through collaborative partnerships. We expect our R&D spending will be dependent upon such factors as the results from our clinical trials, the availability of reimbursement of R&D spending, the number of product candidates under development, the size, structure and duration of any clinical programs that we may initiate, the costs associated with manufacturing and development of our product candidates on a large-scale basis for later stage clinical trials, and our ability to use or rely on data generated by government agencies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel-related costs and professional fees in support of our executives, sales and marketing, business development, government affairs, finance, accounting, information technology, legal, human resource functions and other corporate functions. Other costs include facility costs not otherwise included in cost of product sales and CDMO services or R&D expense.

Income Taxes

Uncertainty in income taxes is accounted for using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize in our financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations. For the year ended December 31, 2021, income tax expense totaled $83.5 million. For every 1% change in the 2021 effective rate, income tax expense would have changed by approximately $3.1 million.

For additional information on our uncertain tax positions and income tax expense, please see Note 11, Income taxes to our consolidated financial statements included in this report.

Results of Operations

Year ended December 31,

(in millions) 2021 2020 $ Change % Change

Product sales, net:

CDMO:

Operating expenses:

Goodwill impairment 41.7 — 41.7 NM

Amortization of intangible assets 58.5 59.8 (1.3) (2) %

Other income (expense):

Total other income (expense), net (38.2) (26.6) (11.6) 44 %

NM - Not meaningful

Total Revenues

Legend

Nasal Naloxone Products CDMO Leases

ACAM2000 CDMO Services

Anthrax vaccines Contracts and Grants

Other Product Sales

Product Sales, net

Nasal Naloxone Products

The increase in Nasal Naloxone Product sales for the year ended December 31, 2021 was primarily driven by growth in unit sales of NARCAN to U.S. public interest customers and to a lesser extent the commercial retail markets. Increases in Canadian sales due to an increase in units sold also contributed to growth between 2021 and 2020. Additionally, the Company recorded limited revenues related to an authorized generic nasal naloxone product for the year ended December 31, 2021.

Anthrax Vaccines

The decrease in anthrax vaccine sales for the year ended December 31, 2021 was primarily due to the timing of deliveries to the USG in 2021 as compared to 2020. During 2020 deliveries were larger than average due to the transition to AV7909 which had resulted in delayed deliveries the previous year. The price per unit of AV7909 was largely consistent year over year. Anthrax vaccine product sales are made under annual purchase options exercised by the USG. Fluctuations in revenues result from the timing of the exercise of annual purchase options and the USG purchases and Company delivery of orders that follow.

ACAM2000

ACAM2000 sales for the year ended December 31, 2021 were consistent with 2020. The price per unit and number of units delivered of ACAM2000 was largely consistent other than standard inflationary price increases between 2021 and 2020. ACAM2000 product sales are made under recurring procurement contracts with the USG and any fluctuation in revenues are generally caused by the timing of delivery of orders.

Other Product Sales

The increase in the Company's other product sales during the year ended December 31, 2021, was primarily due to an increase in the quantity of VIGIV offset by a decline in quantity of BAT. The change between 2021 and 2020 is primarily due to timing of deliveries to the SNS.

Contract Development and Manufacturing Services

Services

The increase in CDMO services revenue for the year ended December 31, 2021 is due to a full year of service to innovator customers whose products address the COVID-19 pandemic. The Company entered into most of these arrangements during the second and third quarters of 2020 and has provided services to them and new innovator customers throughout 2021. Additionally, during the year ended

December 31, 2021, the Company recorded out-of-period adjustments of $28.8 million relating to a change in accounting policy (see Note 2).

Leases

The increase in CDMO lease revenue during the year ended December 31, 2021 was primarily due to a full year of service to Johnson & Johnson in 2021 as the arrangement was entered into during the second quarter of 2020. This increase was offset by a decrease from the COVID-19 development public-private partnership with BARDA of $15.7 million. This arrangement was terminated in November 2021.

Contracts and Grants

The increase in contracts and grants revenue for the year ended December 31, 2021 is largely due to the termination of the CIADM contract with BARDA and the recognition of $55.2 million for the release of contract liabilities offset by a decrease in developmental activities associated with the Company's COVID-HIG and AV7909 product candidates.

Cost of Product Sales

l Gross profit margin for product sales

Cost of product sales decreased for the year ended December 31, 2021 largely due to contingent consideration charges for business combinations, as well as inventory write-offs associated with the Company's travel health vaccines of $44.3 million in 2020 that did not recur in 2021. This decrease was further impacted by declines in sales of Anthrax vaccines and other products that was partially offset

by increased costs as a result of higher volume of certain products, mostly Nasal Naloxone Products.

The increase in gross profit margin for product sales for the year ended December 31, 2021 is largely due to non-recurring charges in 2020 related to contingent consideration and inventory write-offs. Excluding those non-recurring charges, the gross profit margin decreased from 2020 and 2021 largely due to changes in product mix.

Cost of CDMO

l Gross profit margin for CDMO

Cost of CDMO increased for the twelve months ended December 31, 2021 largely due to an increase in CDMO service activities at our Bayview facility. Additionally, the Company wrote-off inventory of $41.5 million and incurred remediation costs during 2021 as a result of the cross-contamination event at the Bayview facility identified during the three months ended June 30, 2021.The increase in costs also includes out-of-period adjustments of $16.2 for an accounting policy change (see Note 2).

The decrease in gross profit margin percentage for CDMO for the year ended December 31, 2021 is largely due to inventory write-offs at our Bayview facility and remediation costs of our COVID-19 manufacturing activities.

Research and Development Expenses (Gross and Net)

Research and Development expense

R&D expenses during the year ended December 31, 2021 were consistent with the year ended December 31, 2020. The results in 2020 were impacted due to the impairment of the Company's IPR&D intangible asset of $29 million, while the results in 2021 were impacted due to the write-off of the contract asset associated with the CIADM arrangement of $38.0 million. Excluding the impacts of these items R&D expenses decreased for the year ended December 31, 2021. The decrease was due to a decline in spending associated with the Company's COVID-HIG therapeutic product candidate as well as a decline in developmental activities associated with the Company's AV7909 product candidate.

Selling, General and Administrative Expenses

Selling, General and Administrative

l SG&A as a percentage of total revenue

Selling, general and administrative expenses increased for the year ended December 31, 2021 primarily due to an increase in headcount and professional services as well as increased costs for defending and supporting the Company's corporate reputation.

Amortization of Intangible Assets

Amortization expense

Amortization of intangible assets and the composition of intangible assets amortized during the year ended December 31, 2021 was consistent with 2020.

Goodwill Impairment

Goodwill impairment

As part of the Company's annual impairment testing which reflected the revised reporting unit structure from the Company's reorganization during the fourth quarter of 2021 the Company recognized a $41.7 million impairment of goodwill in the Commercial reporting unit.

Total Other Income (Expense), Net

Interest expense

Other income (expense)

Total other income (expense), net decreased largely due to increases in interest rates during the period and impacts due to changes in foreign currency rates, specifically the Swiss franc.

Income Taxes

Income tax

l Effective tax rate

During the year ended December 31, 2021, income taxes decreased largely due to the decline in income before income taxes. The effective tax rate was 27% for the year ended December 31, 2021 as compared to 25% in 2020. The effective tax rate increased largely due to an increase in non-deductible expenses, specifically goodwill impairment, as a percent of income before income taxes. Excluding these non-deductible expenses, the effective tax rate was consistent in both 2021 and 2020.

Year Ended December 31, 2020 Comparison to Year Ended December 31, 2019

Discussion and analysis of the year ended December 31, 2020 compared to the year ended December 31, 2019 is included under the heading "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 19, 2021.

Financial Condition, Liquidity and Capital Resources

Our financial condition is summarized as follows:

(in millions, except percentages) December 31, 2021 December 31, 2020 Change %

Financial assets:

Cash and cash equivalents $ 576.1 $ 621.3 (7) %

Borrowings:

Debt, current portion 31.6 33.8 (7) %

Debt, net of current portion 809.4 841.0 (4) %

Working capital:

Sources of Liquidity

We have historically financed our operating and capital expenditures through cash on hand, cash from operations, debt financing and contracts and grants development funding. We also obtain financing from the sale of our common stock upon exercise of stock options. We have operated profitably for each of the last five fiscal years through the period ended December 31, 2021. As of December 31, 2021, we had unrestricted cash and cash equivalents of $576.1 million and capacity under our revolving credit facility of $597.7 million. As of December 31, 2021, we believe that we have sufficient liquidity to fund our operations over at least the next 12 months.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2021, 2020 and 2019.

Year ended December 31,

Net cash provided by (used in):

Effect of exchange rate changes (0.3) (1.0) 0.4

Net (decrease) increase in cash and cash equivalents $ (45.2) $ 453.5 $ 55.6

Certain significant cash flows were as follows:

Operating Activities:

Net cash provided by operating activities of $321.1 million in 2021 was due to net income excluding non-cash items of $477.5 million offset by negative working capital changes of $156.4 million due to increases in receivables and associated changes in contract liabilities and the accumulation of inventory.

Net cash provided by operating activities of $536.0 million in 2020 was primarily due to net income excluding non-cash items of $527.2 million and working capital changes of $8.8 million.

Net cash provided by operating activities of $188.0 million in 2019 was primarily due to net income excluding non-cash items of $230.4 million offset by negative working capital changes of $42.4 million.

Investing Activities:

Net cash used in investing activities of $225.0 million in 2021 relates to purchases of property, plant and equipment. The cash used in investing activities increased during the year ended December 31, 2021 largely due to continued investments in infrastructure and equipment associated with increased capacity and capabilities at our Rockville and Bayview facilities.

Net cash used in investing activities of $151.0 million in 2020 was primarily due to infrastructure and equipment investments.

Net cash used in investing activities of $96.9 million in 2019 was primarily due to infrastructure and equipment investments.

Financing Activities:

Net cash used in financing activities of $141.0 million in 2021 was primarily due to repurchases of stock of $106.0 million and payments on debt of $35.9 million.

Net cash provided by financing activities of $69.5 million in 2020 was primarily due to proceeds from the $450.0 million Senior Unsecured Notes and net employee share-based compensation activity of $17.8 million offset by payments of $387.1 million on the term loan and revolving credit facility and $8.4 million of debt issuance costs.

Net cash used in financing activities of $35.9 million in 2019 was primarily due to contingent consideration payments of $50.4 million mostly in relation to the 2018 acquisition of Adapt offset by $13.7 of net proceeds from debt.

Long-term debt

As of December 31, 2021, the Company has $849.6 million of fixed and variable rate debt with varying maturities, with $31.6 million payable within 12 months (see Note 8).

Funding Requirements

We expect to continue to fund our anticipated operating expenses, capital expenditures, debt service requirements and any future repurchase of our common stock from the following sources:

▪existing cash and cash equivalents;

▪net proceeds from the sale of our products and CDMO services;

▪development contracts and grants funding; and

▪our Senior Secured Credit Facilities and any other lines of credit we may establish from time to time.

There are numerous risks and uncertainties associated with product sales and with the development and commercialization of our product candidates. We may seek additional external financing to provide additional financial flexibility. Our future capital requirements will depend on many factors, including (but not limited to):

▪the level, timing and cost of product sales and CDMO services;

▪the extent to which we acquire or invest in and integrate companies, businesses, products or technologies;

▪the acquisition of new facilities and capital improvements to new or existing facilities;

▪the payment obligations under our indebtedness;

▪the scope, progress, results and costs of our development activities;

▪our ability to obtain funding from collaborative partners, government entities and non-governmental organizations for our development programs;

▪the costs of commercialization activities, including product marketing, sales and distribution.

If our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through public or private equity or debt offerings, bank loans or collaboration and licensing arrangements.

If we raise funds by issuing equity securities, our stockholders may experience dilution. Public or bank debt financing, if available, may involve agreements that include covenants, like those contained in our Senior Unsecured Notes due 2028 and the Senior Secured Credit Facilities, which could limit or restrict our ability to take specific actions, such as incurring additional debt, making capital expenditures, pursuing acquisition opportunities, buying back shares or declaring dividends. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us.

Economic conditions, including market volatility and adverse impacts on financial markets as a result of the COVID-19 pandemic, may make it more difficult to obtain financing on attractive terms, or at all. If financing is unavailable or lost, our business, operating results, financial condition and cash flows would be adversely affected, and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.

Unused Credit Capacity

Available room under the revolving credit facility for the years ended December 31, 2021 and 2020 was:

(in millions)

Contractual Obligations

As of December 31, 2021, the Company has contractual obligations related to lease arrangements and purchase commitments. The lease arrangements are for certain equipment and facilities. As of December 31, 2021, the Company had fixed lease payment obligations of $34.7 million, with $6.9 million due within 12 months. The Company has non-cancelable purchase commitments of $132.0 million, with $124.3 million being due within 12 months.

Critical Accounting Policies and Estimates

Our consolidated financial statements and related disclosures are prepared in accordance with US GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported. Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management considers an accounting policy to be critical if it is important to reporting our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition, contingent consideration, and income taxes.

Revenue Recognition

The Company's product sales are recognized at a point-in-time generally upon delivery to the customer, depending on the performance obligation which the Company is delivering. The Company's CDMO arrangements are generally recognized on a percentage of completion basis utilizing a cost-to-cost method. Revenues are recognized as a percentage of

the work completed during the period in an amount that reflects the percentage of the consideration which the Company expects to receive in exchange for the product or services.

For contracts with multiple performance obligations, the Company allocates the contract price to each performance obligation on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. Certain contracts may include lease components which are recognized under ASC 842. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers, however when prices in standalone sales are not available the Company may use third-party pricing for similar products or services or estimate the standalone selling price based on the best available information.

Revenues are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with customers. The Company makes estimates of the transaction price, including variable consideration that is subject to a constraint. Estimates of variable consideration includes allowances for returns, specialty distributor fees, wholesaler fees, prompt payment discounts, government rebates, chargebacks and rebates under managed care plans. Revenues from sales of products is recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with such variable consideration is subsequently resolved. Provisions for variable consideration revenues from sales of products are recorded at the net sales price. For additional information on our revenues, refer to Note 3, of Item 8. Financial Statements and Supplementary Data.

Contingent Consideration

updates in the assumed timing of or achievement of net sales and/or the achievement of development and regulatory milestones. For additional information on the Company's contingent consideration, refer to Note 4, of Item 8. Financial Statements and Supplementary Data.

Income Taxes

The Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and R&D tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.

The Company’s income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. As tax laws are complex and subject to different interpretations, significant management judgement is required in (1) calculating the Company's income tax expense, deferred tax assets and deferred tax liabilities, (2) determining any valuation allowance recorded against deferred tax assets and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company's estimates and assumptions may differ from tax benefits ultimately realized. For additional information on the Company's income taxes, refer to Note 11, of Item 8. Financial Statements and Supplementary Data.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of additional risks arising from our operations, see “Item 1A—Business—Risk Factors” in this 2021 Annual Report.

Market Risks

We have interest rate and foreign currency market risk. Because of the short-term maturities of our cash and cash equivalents, we believe that an increase in market rates would likely not have a significant impact on the realized value of our investments.

Interest Rate Risk

We have debt with a mix of fixed and variable rates of interest. Floating rate debt carries interest based generally on the eurocurrency rate, as defined in our Amended Credit Agreement, plus an applicable

margin. We manage the impact of interest rate changes on our variable debt through derivative instruments such as interest rate swap arrangements. For debt that we have not hedged through our interest rate swap arrangements increases in interest rates could therefore increase the associated interest payments that we are required to make on this debt. See Note 8, "Long-term debt," to the Notes of our consolidated financial statements included in this 2021 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”

We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our operating results assuming various changes in market interest rates. A hypothetical increase of one percentage point in the eurocurrency rate as of December 31, 2021 would increase our interest expense by approximately $0.7 million annually.

Foreign Currency Exchange Rate Risk

We have exposure to foreign currency exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar, Swiss franc and British pound. We manage our foreign currency exchange rate risk primarily by either entering into foreign currency hedging transactions or incurring operating expenses in the local currency in the countries in which we operate, to the extent practicable. We currently do not hedge all of our foreign currency exchange exposure and the movement of foreign currency exchange rates could have an adverse or positive impact on our results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Emergent BioSolutions Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Emergent BioSolutions Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2004.

Baltimore, Maryland

February 25, 2022

Emergent BioSolutions Inc. and Subsidiaries

Consolidated Balance Sheets

(in millions, except per share data)

December 31,

ASSETS

Current assets:

Cash and cash equivalents $ 576.1 $ 621.3

Restricted cash 0.2 0.2

Prepaid expenses and other current assets 70.3 36.5

Property, plant and equipment, net 800.1 644.1

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Debt, current portion 31.6 33.8

Other current liabilities 72.9 83.1

Contingent consideration, net of current portion 4.5 34.2

Deferred tax liability 94.9 53.2

Contract liabilities, net of current portion 4.7 55.5

Stockholders’ equity:

Treasury stock, at cost, 3.8 and 1.2 common shares, respectively (152.2) (39.6)

Accumulated other comprehensive loss, net (16.1) (25.3)

Total liabilities and stockholders’ equity $ 2,959.0 $ 2,883.2

The accompanying notes are an integral part of the consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Consolidated Statements of Operations

(in millions, except per share data)

Year Ended December 31,

Revenues:

CDMO:

Operating expenses:

Goodwill impairment 41.7 — —

Amortization of intangible assets 58.5 59.8 58.7

Other income (expense):

Total other income (expense), net (38.2) (26.6) (36.7)

Net income per common share

Shares used in computing net income per share

The accompanying notes are an integral part of the consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in millions)

Year Ended December 31,

Other comprehensive income (loss), net of tax:

Foreign currency translation (1.0) (1.7) 0.4

Unrealized gains (losses) on hedging activities 6.5 (9.4) (1.6)

Unrealized gain (losses) on pension benefit obligation 3.7 (4.3) (3.2)

Total other comprehensive income (loss), net of tax 9.2 (15.4) (4.4)

Comprehensive income (loss), net of tax $ 240.1 $ 289.7 $ 50.1

The accompanying notes are an integral part of the consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)

Year Ended December 31,

Cash flows from operating activities:

Stock-based compensation expense 42.4 51.0 26.7

Change in fair value of contingent obligations, net 2.9 31.7 24.8

Amortization of deferred financing costs 4.1 3.5 3.0

Deferred income taxes 46.9 (2.4) (1.1)

Write off of contract asset and liability (17.2) — —

Changes in operating assets and liabilities:

Prepaid expenses and other assets (24.7) (29.2) (39.1)

Accrued expenses and other liabilities (9.2) 19.4 (15.1)

Cash flows from investing activities:

Purchases of property, plant and equipment (225.0) (141.0) (86.9)

Milestone payment from prior asset acquisition — (10.0) (10.0)

Net cash used in investing activities (225.0) (151.0) (96.9)

Cash flows (used in) provided by financing activities:

Purchases of treasury stock (106.0) — —

Proceeds from revolving credit facility — — 130.0

Proceeds from senior unsecured notes — 450.0 —

Principal payments on convertible senior notes (10.6) — —

Principal payments on revolving credit facility — (373.0) (105.0)

Principal payments on term loan facility (25.3) (14.1) (11.3)

Proceeds from stock-based compensation activity 15.9 31.6 8.2

Taxes paid for stock-based compensation activity (13.8) (13.8) (7.4)

Debt issuance costs — (8.4) —

Contingent consideration payments (1.2) (2.8) (50.4)

Net cash (used in) provided by financing activities: (141.0) 69.5 (35.9)

Net change in cash, cash equivalents and restricted cash (45.2) 453.5 55.6

Supplemental disclosure of cash flow information:

Cash paid during the year for interest 30.4 21.0 34.5

Cash paid during the year for income taxes 71.6 109.3 30.8

Supplemental information on non-cash investing and financing activities:

Purchases of property, plant and equipment unpaid at period end 20.0 22.0 12.3

Purchases of treasury stock 6.6 — —

Reconciliation of cash and cash equivalents and restricted cash:

The accompanying notes are an integral part of the consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders' Equity

(in millions, except per share data)

Shares Amount Shares Amount

Share-based compensation activity 0.6 — 27.5 — — — — 27.5

Net income — — — — — — 54.5 54.5

Other comprehensive income (loss), net of tax — — — — — (4.4) — (4.4)

Share-based compensation activity 1.3 — 68.8 — — — — 68.8

Other comprehensive income (loss), net of tax — — — — — (15.4) — (15.4)

Share-based compensation activity 0.8 — 44.5 — — — — 44.5

Repurchases of stock — — — (2.6) (112.6) — — (112.6)

Other comprehensive income (loss), net of tax — — — — — 9.2 — 9.2

The accompanying notes are an integral part of the consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Notes to consolidated financial statements

1.Nature of the business and organization

Organization and business

Emergent BioSolutions Inc. (the "Company" or "Emergent") is a global life sciences company focused on providing innovative preparedness and response solutions addressing accidental, deliberate, and naturally occurring Public Health Threats (PHTs). The Company's solutions include a product portfolio, a product development portfolio, and a contract development and manufacturing (CDMO) services portfolio.

The Company is focused on the following five PHT categories: chemical, biological, radiological, nuclear and explosives (CBRNE); emerging infectious diseases (EID); travel health; emerging health crises; and acute/emergency care. The Company has a product portfolio of eleven products (vaccines, therapeutics, and drug-device combination products) that contribute a substantial portion of its revenue. The Company has one product candidate that is procured under special circumstances by the U.S. government (USG), although it is not approved by the U.S. Food and Drug Administration (FDA). The Company recently reorganized the structure of its business with a focus on markets and customers. As such, the key components of the business structure include a Government - Medical Countermeasures (MCM) business line, a Commercial business line and a Services line focused on CDMO.

The Company's products and services include:

Government - MCM Products

▪AV7909®, is a procured product candidate being developed as a next generation anthrax vaccine for post-exposure prophylaxis of disease resulting from suspected or confirmed Bacillus anthracis exposure. The USG has largely switched from procuring BioThrax to AV7909 for the Strategic National Stockpile (SNS) prior to its approval by the FDA; and

▪BioThrax®, the only vaccine licensed by the FDA, for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;

▪ACAM2000®, the only single-dose smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;

▪BAT®, the only heptavalent antitoxin licensed by the FDA and Health Canada for the treatment of botulism; and;

▪CNJ-016®, the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination.

▪Raxibacumab injection, a fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax;

▪Anthrasil®, the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax;

▪RSDL®, the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas, and T-2 toxin.

▪Trobigard® atropine sulfate, obidoxime chloride AUTO-INJECTOR, is a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. It has not been approved by the FDA, but it is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure.

Commercial Products

▪NARCAN® (naloxone HCl) Nasal Spray, the first needle-free formulation of naloxone approved by the FDA and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression; Recently, the Company licensed an authorized generic of naloxone nasal spray to Sandoz; and

▪Vaxchora® (Cholera Vaccine, Live, Oral), the only single-dose oral vaccine licensed by the FDA and the European Medicines Agency (EMA) for the prevention of cholera; and

▪Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever.

Services - Contract Development and Manufacturing

The Company's services line focused on CDMO offerings cover development services, drug substance manufacturing, drug product manufacturing, and when necessary, suite reservations, which depending on facts and circumstances could be considered a lease. These services are provided across the pharmaceutical and biotechnology industries as well as the USG and non-governmental organizations. The Company's technology platforms include mammalian, microbial, viral, plasma and advanced therapies utilizing the Company's core capabilities for manufacturing to third parties on a clinical and commercial (small and large) scale. Additional services include fill/finish formulation and analytical development services for injectable and other sterile products, inclusive of process design, technical transfer, manufacturing validations, aseptic filling, lyophilization, final packaging and stability studies, as well as manufacturing of vial and pre-filled syringe formats on multiple platforms.

The Company operates as one operating segment.

2. Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying consolidated financial statements include the accounts of Emergent and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements requires management to make estimates, judgments and assumptions that affect reported amounts and disclosures for asset impairments, revenue recognition, allowances for doubtful accounts, inventory, depreciation and amortization, business combinations, contingent consideration, stock-based compensation, income taxes, and other contingencies. Management continually re-evaluates its estimates, judgments and assumptions. These estimates are sometimes complex, sensitive to changes in assumptions and require fair value determinations using Level 3 fair value measurements. Actual results may differ materially from those estimates.

Cash, cash equivalents and restricted cash

Cash equivalents are highly liquid investments with a maturity of 90 days or less at the date of purchase and consist of time deposits and investments in money market funds with commercial banks and financial institutions. Also, the Company maintains cash balances with financial institutions in excess of insured limits. Restricted cash includes cash that is not readily available for use in the Company's operating activities. Restricted cash is primarily comprised of cash pledged under letters of credit.

Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value include:

On a recurring basis, the Company measures and records money market funds (level 1), contingent purchase consideration (level 3) and interest-rate swap arrangements (level 2) using fair value measurements in the accompanying financial statements. The carrying amounts of the Company's short-term financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable and convertible senior notes approximate their fair values due to their short maturities. The carrying amounts of the Company’s long-term variable interest rate debt arrangements (level 2) approximate their fair values.

Significant customers and accounts receivable

Billed accounts receivable are stated at invoice amounts and consist of amounts due from the USG, commercial CDMO customers, as well as amounts due under reimbursement contracts with other government entities and non-government organizations. The Company's branded and generic opioid overdose reversal product is sold commercially through physician-directed or standing order prescriptions at retail pharmacies, as well as state health departments, law enforcement agencies, state and local community based organizations, substance abuse centers and federal agencies. If necessary, the Company records a reserve for doubtful receivables to allow for amounts which may be unrecoverable. This provision is based upon an analysis of the Company's prior collection experience, customer creditworthiness and current economic trends. Amounts determined to be uncollectible are charged or written-off against the reserve. Unbilled accounts receivable relates to various service contracts for which work has been performed and the Company has a right to bill but invoicing has not yet occurred. Contract assets include revenues recognized in advance of billings and the Company does not have a right to invoice the customer under the terms of the contract. The Company has receivables from contracts containing lease components. At each reporting period, the Company assesses whether it is probable that the Company will collect all future lease payments. The Company considers payment history and current credit status when assessing collectability. The Company does not adjust our receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale.

Concentration Risk

Customers

The Company has long-term contracts with the USG that expire at various times from 2022 through 2029. The Company has derived a significant portion of its revenue from sales of ACAM2000 and Anthrax Vaccines under contracts with the USG. The Company's current USG contracts do not necessarily increase the likelihood that it will secure future comparable contracts with the USG. The Company expects that a significant portion of the business will continue to be under government contracts that present a number of risks that are not typically present in the commercial contracting process. USG contracts for ACAM2000 and Anthrax Vaccines are subject to unilateral termination or modification by the government. The Company may fail to achieve significant sales of ACAM2000 and Anthrax Vaccines to customers in addition to the USG, which would harm their growth opportunities. The Company's other product sales, largely Nasal Naloxone Products, are largely sold commercially through physician-directed or standing order prescriptions at retail pharmacies, as well as to state health departments, local law enforcement agencies, community-based organizations, substance abuse centers and other federal agencies. Our CDMO customers are generally third-party pharmaceutical companies.

Although the Company seeks to expand its customer base and to renew its agreements with its customers prior to expiration of a contract, a delay in securing a renewal or a failure to secure a renewal or securing a renewal on less favorable terms may have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s accounts receivable do not represent a significant concentration of credit risk. The USG accounted for approximately 50%, 64% and 61% of total revenues for 2021, 2020 and 2019, respectively. The Company’s accounts receivable as of December 31, 2021 and 2020, consist primarily of amounts due from the USG or other large multi-national highly reputable customers for product sales, CDMO services or from government agencies under government grants. Management does not deem credit risk to be significant.

Financial Institutions

Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.

Lender Counterparties

There is lender counterparty risk associated with the Company's revolving credit facility and derivatives instruments. There is risk that the Company’s revolving credit facility investors and derivative counterparties will not be available to fund as obligated. If funding under the revolving credit facility is unavailable, the Company may have to acquire a replacement credit facility from different counterparties at a higher cost or may be unable to find a suitable replacement. The Company seeks to manage risks from its revolving credit facility and derivative

instruments by contracting with experienced large financial institutions and monitoring the credit quality of its lenders. As of December 31, 2021, the Company does not anticipate nonperformance by any of its counterparties.

Inventories

Inventories are stated at the lower of cost or net realizable value with cost being determined using a standard cost method, which approximates average cost. Average cost consists primarily of material, labor and manufacturing overhead expenses (including fixed production-overhead costs) and includes the services and products of third-party suppliers. The Company analyzes its inventory levels quarterly and writes down, in the applicable period, inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected customer demand. The Company also writes off, in the applicable period, the costs related to expired inventory. Costs of purchased inventories are recorded using weighted-average costing. The Company determines normal capacity for each production facility and allocates fixed production-overhead costs on that basis.

The Company records inventory acquired in business acquisitions utilizing the comparative sales method, which estimates the expected sales price reduced for all costs expected to be incurred to complete/dispose of the inventory with a profit on those costs.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairments. subject to reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal, recurring or periodic repairs and maintenance activities related to property, plant and equipment are expensed as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if the repair will result in future economic benefits.

Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset.

The Company capitalizes internal-use software when both (a) the software is internally developed, acquired, or modified solely to meet the entity’s internal needs and (b) during the software’s development or modification, no substantive plan either exists or is being developed to market the software externally. Capitalization of qualifying internal-use software costs begins when the preliminary project stage is completed, management with the relevant authority, implicitly or explicitly, authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended.

The Company generally depreciates or amortizes the cost of its property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets, which are summarized as follows:

Land Not depreciated

Buildings 31-39 years

Building improvements 10-39 years

Furniture and equipment 3-15 years

Software 3-7 years

Leasehold improvements Lesser of the asset life or lease term

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.

The Company determines the fair value of the property, plant and equipment acquired in a business combination utilizing either the cost approach or the sales comparison approach. The cost approach is determined by establishing replacement cost of the asset and then subtracting any value that has been lost due to economic obsolescence, functional obsolescence, or physical deterioration. The sales comparison approach determines an asset is equal to the market price of an asset of comparable features such as design, location, size, construction, materials, use, capacity, specification, operational characteristics and other features or descriptions.

Income taxes

Income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and R&D tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.

Deferred income tax effects of transactions reported in different periods for financial reporting and income tax return purposes are recognized under the asset and liability method of accounting for income taxes. This method gives consideration to the future tax consequences of the deferred income tax items and immediately recognizes changes in income tax laws in the year of enactment.

The Company's ability to realize deferred tax assets depends upon future taxable income as well as the limitations discussed below. For financial reporting purposes, a deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized prior to expiration. The Company considers future taxable income and ongoing tax planning strategies in assessing the need for valuation allowances. In general, if the Company determines that it is more likely than not to realize more than the recorded amounts of net deferred tax assets in the future, the Company will reverse all or a portion of the valuation allowance established against its deferred tax assets, resulting in a decrease to income taxes in the period in which the determination is made. Likewise, if the Company determines that it is not more likely than not to realize all or part of the net deferred tax asset in the future, the Company will establish a valuation allowance against deferred tax assets, with an offsetting increase to income taxes, in the period in which the determination is made.

Under sections 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a "loss corporation", as defined therein, there are annual limitations on the amount of net operating losses and deductions that are available. The Company has recognized the portion of net operating losses and R&D tax credits acquired that will not be limited and are more likely than not to be realized.

Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions, in (1) calculating the Company's income tax expense, deferred tax assets and deferred tax liabilities, (2) determining any valuation allowance recorded against deferred tax assets and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company's estimates and assumptions may differ from tax benefits ultimately realized.

Asset Impairment Analysis

Goodwill and Indefinite-lived Intangible Assets

Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but is reviewed for impairment. Goodwill is allocated to the Company's reporting units, which are components of our business for which discrete cash flow information is available one level below its operating segment. The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of October 1 and earlier if an event or other circumstance indicates that we may not recover the carrying value of the asset. If the Company believes that as a result of its qualitative assessment it is more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, the quantitative impairment test is not required. If however it is determined that it is not more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, a quantitative test is required.

The quantitative goodwill impairment test is performed using a one-step process. The process is to compare the fair value of a reporting unit with its carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit is impaired and an impairment loss is recognized in an amount equal to that excess up to the total amount of goodwill included in the reporting unit.

When the Company has material indefinite lived intangible assets associated with in-process research and development (IPR&D) a qualitative assessment is performed. If the qualitative assessment indicates that it is not

more likely than not that the fair value of the indefinite lived intangible asset exceeds its carrying amount, the Company compares the estimated fair value of the intangible with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Determining fair value requires the exercise of judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows (see Note 7).

Long-lived Assets

Long-lived assets such as intangible assets and property, plant and equipment are not required to be tested for impairment annually. Instead, they are tested for impairment whenever circumstances indicate that the carrying amount of the asset may not be recoverable, such as when the disposal of such assets is likely or there is an adverse change in the market involving the business employing the related assets. If an impairment analysis is required, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to hold the asset for continued use, the impairment test first requires a comparison of undiscounted future cash flows to the carrying value of the asset. If the carrying value of the asset exceeds the undiscounted cash flows, the asset would not be deemed to be recoverable. Impairment would then be measured as the excess of the asset’s carrying value over its fair value. Fair value is typically determined by discounting the future cash flows associated with that asset. If the intent is to hold the asset for sale and certain other criteria are met, the impairment test involves comparing the asset’s carrying value to its fair value less costs to sell. To the extent the carrying value is greater than the asset’s fair value less costs to sell, an impairment loss is recognized in an amount equal to the difference. Significant judgments used for long-lived asset impairment assessments include identifying the appropriate asset groupings and primary assets within those groupings, determining whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining the future cash flows for the assets involved and assumptions applied in determining fair value, which include, reasonable discount rates, growth rates, market risk premiums and other assumptions about the economic environment.

Contingent Consideration

In connection with the Company's acquisitions accounted for as business combinations, the Company records contingent consideration associated with sales-based royalties, sales-based milestones and development and regulatory milestones at fair value. The fair value model used to calculate these obligations is based on the income approach (a discounted cash flow model) that has been risk adjusted based on the probability of achievement of net sales and achievement of the milestones. The inputs the Company uses for determining the fair value of the contingent consideration associated with sales-based royalties, sales-based milestones and development and regulatory milestones are Level 3 fair value measurements. The Company re-evaluates the fair value on a quarterly basis. Changes in the fair value can result from adjustments to the discount rates and updates in the assumed timing of or achievement of net sales and/or the achievement of development and regulatory milestones. Any future increase or decrease in the fair value of the contingent consideration associated with sales-based royalties and sales-based milestones along with development and regulatory milestones are based on an assessment of the likelihood that the underlying net sales or milestones will be achieved.

The associated payments which will become due and payable for sales-based royalties and milestones result in a charge to cost of product sales in the period in which the increase is determined. Similarly, any future decrease in the fair value of contingent consideration associated with sales-based royalties and sales-based milestones will result in a reduction in cost of product sales. The changes in fair value for potential future sales-based royalties associated with product candidates in development will result in a charge to cost of product sales in the period in which the increase is determined.

Leases

The Company has operating leases for corporate offices, R&D facilities and manufacturing facilities. The Company determines if an arrangement is a lease at inception. Operating leases with future minimum lease payments in excess of 12 months and total lease payments greater than $0.1 million are included in right-of-use (ROU) assets and liabilities. The Company has elected to record expense on a cash basis for leases with minimum lease payments of 12 months or less and/or total lease payments less $0.1 million.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The Company uses an implicit rate when readily determinable. At the beginning of a lease, the operating lease ROU asset also includes any concentrated lease payments expected to be paid and excludes lease incentives. The Company's lease ROU asset may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately.

Revenue recognition

The Company recognizes revenue when the Company's customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services by analyzing the following five steps: (1) identify the contract with a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Multiple performance obligations

At contract inception, the Company assesses the products or services promised in a contract and identifies a performance obligation for each promise to transfer to the customer a product or service that is distinct, including evaluating whether the contract includes a customer option for additional goods or services which could represent a material right. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606. Contracts sometimes include more than one product, a lease, or options for customers to purchase additional products or services in the future for free or at a discount, which gives rise to separate performance obligations. For contracts with multiple performance obligations, the Company allocates the contract price to each performance obligation on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers, however when prices in standalone sales are not available the Company may use third-party pricing for similar products or services or estimate the standalone selling price. Allocation of the transaction price is determined at the contracts’ inception.

Transaction price and variable consideration

Once the performance obligations in the contract have been identified, the Company estimates the transaction price of the contract. The estimate includes amounts that are fixed as well as those that can vary based on expected outcomes of the activities or contractual terms. The Company's variable consideration includes net profit received from sales of the Company's generic Nasal naloxone product, certain products sold on a net basis, cost-plus-fee contract terms and consideration transferred under its development contracts as consideration received can vary based on developmental progression of the product candidate. When a contract's transaction price includes variable consideration, the Company evaluates the variable consideration to determine whether the estimate needs to be constrained; therefore, the Company includes the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at each reporting date. There were no significant constraints or material changes to the Company's variable consideration estimates as of or during the twelve months ended December 31, 2021.

Product sales

For our product sales, we recognize revenue at a point in time when the Company’s performance obligations have been satisfied and control of the products transfer to the customer. To indicate the transfer of control the Company will have a present right to payment, legal title must have passed to the customer, and the customer must have the significant risks and rewards of ownership. This point in time depends on several factors, including delivery, transfer of legal title, transition of risk and rewards of the product to the customer and the Company's right to payment.

The Company's contracts for the sale of the Company's Government - MCM products include certain acceptance criteria before title passes to the customer. The primary customer for the Company's Government - MCM products and the primary source of funding for the development of its MCM product candidate portfolio is the USG. The USG

contracts for the sale of the Company's Government - MCM products are normally multi-year contracts with annual options.

For the Company’s commercial products, upon transfer of control of the goods the Company reflects estimates of the consideration that the Company expects. Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that is subject to a constraint. Estimates of variable consideration include allowances for returns, specialty distributor fees, wholesaler fees, prompt payment discounts, government rebates, chargebacks and rebates under managed care plans.

Revenue is recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with such variable consideration is subsequently resolved. Provisions for variable consideration revenues from sales of products are recorded at the net sales price. Calculating certain of these provisions involves estimates and judgments and the Company determines their expected value based on sales or invoice data, contractual terms, historical utilization rates, new information regarding changes in these programs’ regulations and guidelines that would impact the amount of the actual rebates, the Company's expectations regarding future utilization rates for these programs and channel inventory data. These provisions reflect the Company's best estimate of the amount of consideration to which the Company is entitled based on the terms of the contract. The Company reassesses the Company's provisions for variable consideration at each reporting date.

CDMO services

The Company performs CDMO services for third parties. Under these contracts, activities can include drug substance and drug product manufacturing services for injectable and other sterile products, and development services such as pharmaceutical product process development, process design, technology transfer, manufacturing validations, laboratory analytical development support, aseptic filling, lyophilization, final packaging, stability studies, and suite-reservations. These contracts vary in duration, activities, and number of performance obligations. Performance obligations identified under these arrangements may include drug substance and/or drug product manufacturing, technology transfer activities, and suite-reservations.

Drug substance, drug product manufacturing, development services and technology transfer performance obligations are recognized as revenue over-time because the Company’s performance does not create an asset with an alternative use and the Company has an enforceable right to payment for performance completed as work is performed. In drug product arrangements, the customer typically owns and supplies the active pharmaceutical ingredient (API), that is used in the manufacturing process; in drug substance arrangements, the customer provides certain seed material that is used in the manufacturing process. The transaction price generally contains both a fixed and variable component. The fixed component is stated in the agreement as a fixed price per unit with no contractual provision for a refund or price concession and the variable component generally results from pass-through costs that are billed at cost-plus over the life of the contract. The Company uses an input method to measure progress toward the satisfaction of the related performance obligations based on costs incurred as a percentage of total costs to complete which the Company believes best depicts the transfer of control of goods or services promised to its customers.

Suite reservations are classified as leases when the customer directs the use of the identified suite and obtains substantially all the economic benefits from the manufacturing capacity. If a customer reserves more than one suite, the allocation of contract value is based on relative selling price which varies due to size, location, capacity, production capability for drug product or drug substance, and the time of planned use. The associated revenue is recognized on a straight-line basis over the period of performance. For arrangements that contain both lease and non-lease components, consideration in the contract is allocated on a relative standalone selling price basis.

The Company’s CDMO customer contracts generally include provisions entitling the Company to a termination penalty when the contract is terminated prior to the contract’s nominal end date. The termination penalties in the customer contracts vary but are generally considered substantive for accounting purposes and create enforceable rights and obligations throughout the stated duration of the contract. The Company accounts for a contract cancellation as a contract modification. The determination of the contract termination penalty is based on the terms stated in the related customer agreement. As of the modification date, the Company updates its estimate of the transaction price, subject to constraints, and recognizes the amount over the remaining performance period or measure of progress under the arrangement.

For contracts that contain lease components, the Company assesses the collectability of the lease payments. If the collectability of the lease payments is probable, the Company recognizes lease income over the term of the

lease on a straight-line basis. If collectability is not deemed probable at any time during the term of the lease, the Company’s lease income is limited to the lesser of (i) the lease payments that have been collected from the lessee, or the straight-line recognition of the contract value. If the collectability assessment changes to probable after the Company has determined collectability is not deemed probable, any difference between the lease income that would have been recognized if collectability had always been assessed as probable and the lease income recognized to date is recognized as a current-period adjustment to lease income. Changes to the collectability of operating leases are recorded as adjustments to lease income in the consolidated statements of operations in the period that they occur.

Contracts and grants

The Company generates contract and grant revenue primarily from cost-plus-fee contracts associated with development of certain product candidates. Revenues from reimbursable contracts are recognized as costs are incurred, generally based on allowable costs incurred during the period, plus any recognizable earned fee. The Company uses this input method to measure progress as the customer has access to the development research under these projects and benefits incrementally as R&D activities occur. When applicable, the Company considers fixed fees under cost-plus-fee contracts to be earned in proportion to the allowable costs incurred in performance of the contract, the cost-to-cost measure of progress. The Company analyzes costs for contracts and reimbursable grants to ensure reporting of revenues gross versus net is appropriate. The USG contracts for the development of the Company's MCM product candidates are normally multi-year contracts.

Research and development

The Company expenses R&D costs as incurred. The Company's R&D expenses consist primarily of:

▪personnel-related expenses;

▪fees to professional service providers for, among other things, analytical testing, independent monitoring or other administration of the Company's clinical trials and obtaining and evaluating data from the Company's clinical trials and non-clinical studies;

▪costs of CDMO services for clinical trial material; and

▪costs of materials used in clinical trials and R&D.

Comprehensive income

Comprehensive income is comprised of net income and other changes in equity that are excluded from net income. The Company includes translation gains and losses incurred when converting its subsidiaries' financial statements from their functional currency to the U.S. dollar in accumulated other comprehensive income as well as gains and losses on its pension benefit obligation and derivative instruments.

Translation of Foreign Currencies

For our non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign currency exchange rates for the period. Adjustments resulting from the translation of the financial statements of our foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income, a separate component of equity. For subsidiaries where the functional currency of the assets and liabilities differ from the local currency, non-monetary assets and liabilities are translated at the rate of exchange in effect on the date assets were acquired while monetary assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign currency rates for the period. Translation adjustments of these subsidiaries are included in other income (expense), net in our consolidated statements of income.

Earnings per share

Basic net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted income per common share is computed using the treasury method by dividing net income by the weighted average number of shares of common stock outstanding during the period, adjusted for the potential dilutive effect of other securities if such securities were converted or exercised and are not anti-dilutive.

Treasury stock

When stock is acquired for purposes other than formal or constructive retirement, the purchase price of the acquired stock is recorded in a separate treasury stock account, which is separately reported as a reduction of equity.

When stock is retired or purchased for formal or constructive retirement, the purchase price is initially recorded as a reduction to the par value of the shares repurchased, with any excess purchase price over par value recorded as a reduction to additional paid-in capital related to the series of shares repurchased and any remainder excess purchase price recorded as a reduction to retained earnings. If the purchase price exceeds the amounts allocated to par value and additional paid-in capital related to the series of shares repurchased and retained earnings, the remainder is allocated to additional paid-in capital related to other series of shares.

To determine the cost of treasury stock that is either sold or reissued, the Company uses the last in, first out method. If the proceeds from the re-issuance of treasury stock are greater than the cost, the excess is recorded as additional paid-in capital. If the proceeds from re-issuance of treasury stock are less than the cost, the excess cost first reduces any additional paid-in capital arising from previous treasury stock transactions for that class of stock, and any additional excess is recorded as a reduction of retained earnings.

Accounting for stock-based compensation

The Company has one stock-based employee compensation plan, the Emergent BioSolutions Inc. Stock Incentive Plan (the Emergent Plan), under which the Company may grant various types of equity awards including stock options, restricted stock units and performance stock units.

The terms and conditions of equity awards (such as price, vesting schedule, term and number of shares) under the Emergent Plan is determined by the compensation committee of the Company's board of directors, which administers the Emergent Plan. Each equity award granted under the Emergent Plan vests as specified in the relevant agreement with the award recipient and no option can be exercised after seven years from the date of grant. The Company records the estimated fair value of awards in expense on a straight-line basis over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance, where a portion of the award vests upon retirement eligibility), the Company estimates and recognizes expense based on the period from the grant date to the date the employee becomes retirement eligible.

The Company determines the fair value of restricted stock units using the closing market price of the Company's common stock on the day prior to the date of grant. The Company's performance stock units settle in the Company's stock. The fair value is determined on the date of the grant using the number of shares expected to be earned and the ending market value of the stock on the day prior to the grant date. The number of shares expected to vest is determined by assessing the probability that the performance criteria will be met and the associated targeted payout level that is forecasted will be achieved.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted. Set forth below is a discussion of the Company's methodology for developing each of the assumptions used:

▪Expected dividend yield — the Company does not pay regular dividends on its common stock and does not anticipate paying any dividends in the foreseeable future.

▪Expected volatility — a measure of the amount by which a financial variable, such as share price, has fluctuated (historical volatility) or is expected to fluctuate (implied volatility) during a period. The Company analyzed its own historical volatility to estimate expected volatility over the same period as the expected average life of the options.

▪Risk-free interest rate — the range of U.S. Treasury rates with a term that most closely resembles the expected life of the option as of the date on which the option is granted.

▪Expected average life of options — the period of time that options granted are expected to remain outstanding, based primarily on the Company's expectation of option exercise behavior subsequent to vesting of options.

Pension plans

The Company maintains defined benefit plans for employees in certain countries outside the U.S., including retirement benefit plans required by applicable local law. The plans are valued by independent actuaries using the projected unit credit method. The liabilities correspond to the projected benefit obligations of which the discounted

net present value is calculated based on years of employment, expected salary increase, and pension adjustments. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends. Actuarial gains and losses are deferred in accumulated other comprehensive income, net of tax and are amortized over the remaining service attribution periods of the employees under the corridor method. Differences between the expected long-term return on plan assets and the actual annual return are amortized to net periodic benefit cost over the estimated remaining life as a component of selling, general and administrative expenses in the consolidated statements of operations.

Derivative Instruments and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company has entered into interest rate swaps to manage exposures that arise from the Company's senior secured credit agreement's payments of variable interest rate debt.

The Company's interest rate swaps qualify for hedge accounting as cash flow hedges. All derivatives are recorded on the balance sheet at fair value. Hedge accounting provides for the matching of the timing of gain or loss recognition on these interest rate swaps with the recognition of the changes in interest expense on the Company's variable rate debt. For derivatives designated as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The cash flows from the designated interest rate swaps are classified as a component of operating cash flows, similar to interest expense.

The valuation of the interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC 820, Fair Value Measurement, the Company incorporates credit valuation adjustments in the fair value measurements to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk. These credit valuation adjustments were concluded to not be significant inputs for the fair value calculations for the periods presented. In adjusting the fair value of the Company's derivative contracts for the effect of nonperformance risk, it has considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees. The valuation of interest rate swaps fall into Level 2 in the fair value hierarchy. See Note 9 for further details on the interest rate swaps.

Out-of-period adjustments

During the year ended December 31, 2021, the Company identified and recorded immaterial out-of-period adjustments. In prior years, the Company had recognized revenue for drug substance and drug product manufacturing performance obligations when the goods were released, legal title had passed and the customer had possession. Beginning in 2021, the Company began recognizing revenue over time using an input measure based on costs incurred as a percentage of total estimated contract costs for drug substance and drug product revenue. As batch production and fill-finish manufacturing generally take place over short intervals, the adjustments to the financial statements were not material. Additionally, the Company determined that the classification of its suite reservations, when the customer directs the use of the identified suite and obtains substantially all the economic benefits reflected in CDMO service revenue, are more appropriately classified as leases. Although either classification generally results in recognition of revenue on a straight line basis over-time, the Company identified one lease component commencement date change which impacted the revenue recognized during our 2020 and 2021 periods. The Company has included incremental lease accounting disclosures in these financial statements (see Note 3).

The Company evaluated the materiality of the out-of-period adjustments from quantitative and qualitative perspectives and concluded that the amounts were immaterial to the Company’s prior period interim and annual consolidated financial statements. As a result, no amendments to previously filed interim or annual periodic reports are required. These out-of-period adjustments in the current consolidated statements of operations are as follows:

(in millions) Year Ended December 31, 2021

Contract development and manufacturing revenue:

Leases (5.5)

Total contract development and manufacturing revenue 23.3

Cost of CDMO 16.2

Income before income taxes 7.1

Net income $ 5.3

Reclassifications

In addition, during the year ended December 31, 2021, the Company revised its presentation on the consolidated statement of operations to separately present (i) lease revenue as opposed to combining with CDMO services revenues and (ii) cost of CDMO services as opposed to combining with cost of product sales. As the Company's lease revenue is solely associated with CDMO services and is substantially related to one arrangement which ended in 2021, the Company has combined the costs of CDMO services and leases on the consolidated statement of operations. All associated prior period amounts have been reclassified to conform to the current period presentation.

Recently issued accounting standards

Recently Adopted

ASU 2019-12, Simplifications to Accounting for Income Taxes (ASU 2019-12)

In December 2019, the FASB issued ASU 2019-12. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. ASU 2019-12 is effective for all entities for fiscal years beginning after December 15, 2020, and earlier adoption is permitted. As of January 1, 2021, the Company adopted the standard, which did not have a material impact on the Company's consolidated financial statements.

Not Yet Adopted

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued Topic 848, which was further amended in January 2021. Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. ASC 848 contains optional expedients and exceptions to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company continues to assess all potential impacts of the standard and will disclose the nature and reason for any elections that the Company makes.

3. Revenue recognition

The Company operates in one business segment. Therefore, results of the Company's operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting.

For the years ended December 31, 2021, 2020, and 2019, the Company's revenues disaggregated by the major sources were as follows:

(in millions) Year Ended December 31,

CDMO:

For the years ended December 31, 2021, 2020 and 2019, the Company's product sales from Anthrax Vaccines, ACAM2000, Nasal Naloxone products and Other products as a percentage of total product sales were as follows:

% of product sales:

Anthrax vaccines 25 % 38 % 19 %

Nasal naloxone products 43 % 31 % 31 %

As of December 31, 2021, 2020 and 2019, aside from sales to the USG, there were no sales to an individual customer in excess of 10% of total revenues. For the years ended December 31, 2021, 2020, and 2019, the Company’s revenues from customers within the United States comprised 92%, 93% and 90%, respectively, of total revenues.

BARDA Centers of Innovation and Advanced Development and Manufacturing (CIADM) agreement

The Company and BARDA had a CIADM agreement which began in June 2012 and terminated on November 1, 2021. The value of this base arrangement was $163.2 million and was recorded as a stand-ready performance obligation and reflected as a component of contracts and grants revenue in the consolidated statements of operations. In 2020, we announced that we had been issued a task order under CIADM for COVID-19 vaccine development and manufacturing (the BARDA COVID-19 Development Public Private Partnership). The task order and associated amendments which allowed BARDA to reserve drug substance and drug product manufacturing capacity at various manufacturing sites had a contract value of $650.8 million that was accounted for as a lease. On November 1, 2021, the Company and BARDA mutually agreed to terminate the CIADM agreement and associated task orders which resulted in an adjusted contract value of $140.5 million for the base arrangement and $470.9 million for the BARDA COVID-19 Development Public Private Partnership. For the base arrangement, the Company released $55.2 million of contract liabilities which is reflected as a component of contract and grants revenue on the consolidated statements of operations. Total revenues associated with the base arrangement were $71.3 million, $15.8 million and $15.8 million during the years ended December 31, 2021, 2020 and 2019 and are reflected as a component of contracts and grants revenue on the consolidated statements of operations. Revenues associated with the BARDA COVID-19 Development Public-Private Partnership were $237.6 million and $233.3 million during the years ended December 31, 2021 and 2020 and are recorded as CDMO leases on the consolidated statements of operations. There were no revenues from the BARDA COVID-19 Development Public-Private Partnership during the year ended December 31, 2019. The termination resulted in the write off of $38.0 million in contract assets to R&D expense on the consolidated statements of operations.

CDMO Operating Leases

Certain multi-year CDMO service arrangements with non-USG customers include operating leases whereby the customer has the right to direct the use of and obtain substantially all of the economic benefits of specific manufacturing suites operated by the Company. The associated revenue is recognized on a straight-line basis over the term of the lease. The remaining term on the Company's operating lease components approximates 3.0 years. The Company utilizes a cost-plus model to determine the stand-alone selling price of the lease component to allocate contract consideration between the lease and non-lease components. During the year ended December 31, 2021, the Company's non-USG lease revenues were $62.1 million, which is included within CDMO leases in the consolidated statement of operations. The Company has allocated contracted operating lease revenues due under our long-term CDMO service arrangements as follows:

(in millions) Year Ended December 31,

Transaction price allocated to remaining performance obligations

As of December 31, 2021, the Company expects future revenues of approximately $1.3 billion associated with all arrangements entered into by the Company. The Company expects to recognize a majority of the $1.3 billion of unsatisfied performance obligations within the next 24 months. The amount and timing of revenue recognition for unsatisfied performance obligations can change. The future revenues associated with unsatisfied performance obligations exclude the value of unexercised option periods in the Company’s revenue arrangements. Often the timing of manufacturing activities changes based on customer needs and resource availability. Regulatory compliance may also impact the status of the Company’s COVID-19 related CDMO arrangements. Government funding appropriations can impact the timing of product deliveries. The success of the Company's development activities that receive development funding support from the USG under development contracts can also impact the timing of revenue recognition.

Contract assets

The Company considers unbilled accounts receivable and deferred costs associated with revenue generating contracts, which are not included in inventory or property, plant and equipment, as contract assets. As of December 31, 2021, the Company had $21.5 million from revenue generating contracts recorded within accounts receivable, net on the consolidated balance sheets. As of December 31, 2020, deferred costs from revenue generating contracts recorded as contract assets were $41.1 million, which is reflected as a component of other assets on the consolidated balance sheets.

Contract liabilities

When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with the amount allocated to those performance obligations is reflected as contract liabilities on the consolidated balance sheets and is deferred until control of these performance obligations is transferred to the customer. The following table presents the roll forward of the contract liabilities:

(in millions)

Deferral of revenue 146.2

Revenue recognized (135.0)

Deferral of revenue 279.7

Revenue recognized (363.4)

As of December 31, 2021 and 2020, the current portion of contract liabilities was $11.7 million and $44.6 million, respectively, and was included in other current liabilities on the balance sheet.

Accounts receivable

Accounts receivable including unbilled accounts receivable contract assets consist of the following:

December 31,

As of December 31, 2021 and 2020, the allowance for doubtful accounts was $3.2 million and $3.1 million, respectively.

4. Fair value measurements

The table below presents information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine fair value:

(In millions) Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Assets:

Liabilities:

Contingent consideration $ 37.2 $ — $ — $ 37.2 $ 58.1 $ — $ — $ 58.1

Contingent consideration

Contingent consideration liabilities associated with business combinations are measured at fair value. These liabilities represent an obligation of the Company to transfer additional assets to the selling shareholders and owners if future events occur or conditions are met. These liabilities associated with business combinations are measured at fair value at inception and at each subsequent reporting date. The changes in the fair value are primarily due to the expected amount and timing of future net sales, which are inputs that have no observable market. Any changes in fair value for the contingent consideration liabilities related to the Company’s products are classified in the Company's statement of operations as cost of product sales. Any changes in fair value for the contingent consideration liabilities related to the Company’s product candidates are recorded in R&D expense for regulatory and development milestones.

The following table is a reconciliation of the beginning and ending balance of the contingent consideration liabilities measured at fair value during the years ended December 31, 2021 and 2020.

(in millions)

Expense included in earnings 31.7

Settlements (2.8)

Expense included in earnings 2.9

Settlements (23.8)

As of December 31, 2021 and 2020, the current portion of the contingent consideration liability was $32.7 million and $23.9 million, respectively, and was included in other current liabilities on the consolidated balance sheets.

The recurring Level 3 fair value measurements for the Company's contingent consideration liability include the following significant unobservable inputs:

Non-Variable Rate Debt

As of December 31, 2021 and December 31, 2020, the fair value of the Company's 3.875% Senior Unsecured Notes was $433.3 million and $466.0 million, respectively. The fair value was determined through market sources, which are level 2 inputs and directly observable. The carrying amounts of the Company’s other long-term variable interest rate debt arrangements approximate their fair values (see Note 8).

Non-recurring fair value measurements

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. As of December 31, 2021 and 2020, other than those outlined in Note 7, there were no material assets or liabilities measured at fair value on a non-recurring basis.

5. Inventories

Inventories consist of the following:

December 31,

Raw materials and supplies $ 217.5 $ 160.6

Inventories, net is stated at the lower of cost or net realizable value. During the year ended December 31, 2021, the Company recorded inventory write-offs at its Bayview facility of $41.5 million,which were the result of the cross-contamination event at the Bayview facility. The inventory write-off resulted from the Company's plan to discard raw materials and in-process batches that were deemed unusable. The charge was reflected as a component of cost of CDMO services on the Company's consolidated statements of operations.

6. Property, plant and equipment, net

Property, plant and equipment, net consists of the following:

December 31,

Land and improvements $ 52.1 $ 52.7

Buildings, building improvements and leasehold improvements 269.7 246.3

Less: Accumulated depreciation and amortization (319.1) (259.1)

Total property, plant and equipment, net $ 800.1 $ 644.1

For the years ended December 31, 2021 and 2020, construction-in-progress primarily includes costs incurred related to construction to advance the Company's CDMO capabilities.

Depreciation and amortization expense associated with property, plant and equipment was $62.2 million, $50.1 million and $49.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

7. Intangible assets and goodwill

The Company's intangible assets consist of products acquired via business combinations or asset acquisitions. Components of the Company’s intangible assets, excluding IPR&D and goodwill, consisted of the following:

(in millions) Estimated Life Cost Accumulated Amortization Net

Customer relationships 8 years 28.6 28.6 —

(in millions) Estimated Life Cost Accumulated Amortization Net

For the years ended December 31, 2021, 2020, and 2019, the Company recorded amortization expense for intangible assets of $58.5 million, $59.8 million and $58.7 million, respectively, which is included in the amortization of intangible assets in the consolidated statements of operations. As of December 31, 2021, the weighted average amortization period remaining for intangible assets is 11.9 years.

Future amortization expense as of December 31, 2021 is as follows:

(in millions)

Total remaining amortization $ 604.6

As a result of the Company's expectation that it would not generate future cash flows to recover the asset balance of the Company's IPR&D intangible asset, the Company recorded an intangible asset impairment charge of $29.0 million during the year ended December 31, 2020. As such, there is no remaining balance recorded on the Company's consolidated balance sheets at December 31, 2021 and 2020. The impairment charge is reflected as a component of R&D expense in the consolidated statement of operations for the year ended December 31, 2020.

The following table is a summary of changes in goodwill:

Year ended December 31,

Balance at beginning of the year $ 266.7 $ 266.6

Goodwill impairment (1) (41.7) —

Foreign currency translation (0.1) 0.1

Balance at end of the year $ 224.9 $ 266.7

(1) The carrying amount of goodwill included accumulated impairments of $41.7 million as of December 31, 2021. There were no impairment charges or accumulated impairments as of December 31, 2020.

On October 1, 2021, the date of the Company's annual goodwill impairment testing, the Company reorganized its lines of business resulting in a change in the composition of two of its reporting units. The Company performed quantitative tests to determine fair values of the reporting units using both a market based (comparable company multiple) and income based (discounted cash flows) approach, each a level three non recurring fair value measurement, of the reporting units both before and after the reorganization of the lines of business and its reporting units and determined that there was a goodwill impairment of $41.7 million associated with the new commercial reporting unit. The Company utilized a quantitative assessment for our goodwill impairment testing of one reporting unit in 2020. The Company used a qualitative assessment for our goodwill impairment testing for all other reporting units in 2020. The assessments completed during the year ended 2020 indicated no impairment.

8. Long-term debt

The components of debt are as follows:

December 31,

Senior secured credit agreement - Term loan due 2023 $ 396.6 $ 421.9

Senior secured credit agreement - Revolver loan due 2023 — —

Current portion of debt, net of debt issuance costs (31.6) (33.8)

Unamortized debt issuance costs (8.5) (10.7)

Debt, net of current portion $ 809.4 $ 841.0

As of December 31, 2021, the Company had approximately $2.0 million and $1.6 million of debt issuance costs associated with the revolver loan that were classified as other current assets and other assets, respectively, on the Company's consolidated balance sheets because there was no outstanding revolver balance at December 31, 2021. As of December 31, 2020, the Company had approximately $2.0 million and $3.5 million of debt issuance costs associated with the revolver loan that were classified as other current assets and other assets, respectively, on the Company's consolidated balance sheets because there was an outstanding revolver balance at December 31, 2020.

3.875% Senior Unsecured Notes due 2028

On August 7, 2020, the Company completed its offering of $450 million aggregate principal amount of 3.875% Senior Unsecured Notes due 2028 (the 2028 Notes) of which the majority of the net proceeds were used to pay down the Revolving Credit Facility (as defined below). Interest on the 2028 Notes is payable on February 15th and August 15th of each year until maturity, beginning on February 15, 2021. The 2028 Notes will mature on August 15, 2028.

On or after August 15, 2023, the Company may redeem the 2028 Notes, in whole or in part, at the redemption prices set forth in the related Indenture, plus accrued and unpaid interest. Prior to August 15, 2023 the Company may redeem all or a portion of the 2028 Notes at a redemption price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium and accrued and unpaid interest. Prior to August 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Notes using the net cash proceeds of certain equity offerings at the redemption price set forth in the related Indenture. Upon the occurrence of a change of control, the Company must offer to repurchase the 2028 Notes at a purchase price of 101% of the principal amount of such 2028 Notes plus accrued and unpaid interest.

Negative covenants in the Indenture governing the 2028 Notes, among other things, limit the ability of the Company to incur indebtedness and liens, dispose of assets, make investments, enter into certain merger or consolidation transactions and make restricted payments.

Senior Secured Credit Agreement

Also on August 7, 2020, the Company entered into a Second Amendment (the Credit Agreement Amendment) to its senior secured credit agreement, dated October 15, 2018, with multiple lending institutions relating to the Company’s senior secured credit facilities (the Credit Agreement, and as amended, the Amended Credit Agreement), consisting of a senior revolving credit facility (the Revolving Credit Facility) and senior term loan facility (the Term Loan Facility, and together with the Revolving Credit Facility, the Senior Secured Credit Facilities). The Credit Agreement Amendment amended, among other things, the definition of incremental facilities limit, the consolidated net leverage ratio financial covenant by increasing the maximum level, increased the permissible applicable margins based on the Company’s consolidated net leverage ratio and increased the commitment fee that the Company is required to pay in respect of the average daily unused commitments under the Revolving Credit Facility, depending on the Company’s consolidated net leverage ratio.

The Amended Credit Agreement includes (i) a Revolving Credit Facility of $600 million with a maturity date of October 13, 2023, and (ii) a Term Loan Facility with a principal amount of $450 million. The Company may request

EBS US Equity

EBS · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EBS US Equity☆

EBS · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EBS US Equity