ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes and other financial information included elsewhere in this Annual Report on Form 10-K (the “Annual Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report includes information with respect to our plans and strategy for our business and financing, as well as forward-looking statements that involve risks and uncertainties. You should carefully review the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report 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
Emergent BioSolutions Inc. (“Emergent,” the “Company,” “we,” “us,” and “our”) 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 services (“CDMO”) portfolio.
We are currently focused on the following four PHT categories: chemical, biological, radiological, nuclear and explosives (“CBRNE”); emerging infectious diseases (“EID”); emerging health crises; and acute, emergency and community care. We have a product portfolio of 10 products that contribute a substantial portion of our revenue and are sold to government and commercial customers. 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 which cover development services, drug substance manufacturing and drug product manufacturing and packaging.
The Company structures the business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: Anthrax - Medical Countermeasures (“MCM”) Products, NARCAN®, Smallpox - MCM products and Emergent Bioservices (CDMO) services (“Bioservices”). In the fourth quarter of 2023, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting process. The revised reporting structure reflects the internal reporting and review process used by our Chief Operating Decision Maker, for making decisions and assessing performance, and is consistent with how we currently manage the business. We now manage our business with a focus on three reportable segments: (1) a Commercial Product segment consisting of our NARCAN®; (2) a MCM Products segment consisting of the Anthrax - MCM, Smallpox - MCM and Other Products and (3) a Services segment consisting of our Bioservices portfolio.
Commercial Product Segment:
The majority of our Commercial product revenue comes from the following product:
NARCAN®
•NARCAN® (naloxone HCl) Nasal Spray, an intranasal formulation of naloxone approved by the United States Food and Drug Administration (“FDA”) (including in over-the-counter ("OTC") form) and Health Canada for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression.
Sale of Travel Health Business
On May 15, 2023, the Company completed the sale of its Commercial Products segment's travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California. For additional information, refer to Note 3, “Divestitures” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
60
MCM Products Segment:
The majority of our MCM product revenue comes from the following products and procured product candidates:
Anthrax - MCM Products
•Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax in combination with appropriate antibacterial drugs;
•BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the United States Food and Drug Administration (“FDA”) for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
•CYFENDUS® (Anthrax vaccine adsorbed (AVA), adjuvanted), previously known as AV7909, which was recently approved by the FDA for post-exposure prophylaxis of disease following suspected or confirmed exposure to Bacillus anthracis in persons 18 through 65 years of age when administered in conjunction with recommended antibacterial drugs. CYFENDUS® is procured by certain authorized government buyers for their use; and
•Raxibacumab injection, the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax.
Smallpox - MCM Products
•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;
•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; and
•TEMBEXA®, an oral antiviral formulated as 100 mg tablets and 10 mg/mL oral suspension dosed once weekly for two weeks which has been approved by the FDA for the treatment of smallpox disease caused by variola virus in adult and pediatric patients, including neonates.
Other Products
•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 symptomatic botulism;
•EbangaTM (ansuvimab-zykl), a monoclonal antibody with antiviral activity provided through a single IV infusion for the treatment of Ebola. Under the terms of a collaboration with Ridgeback Biotherapeutics (“Ridgeback”), Emergent will be responsible for the manufacturing, sale, and distribution of EbangaTM in the U.S. and Canada, and Ridgeback will serve as the global access partner for EbangaTM; and
•Trobigard® atropine sulfate, obidoxime chloride auto-injector, a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. On April 2, 2024, the Belgium Federal Agency for Medicines and Health Products (“FAMHP”) acknowledged and confirmed Emergent’s request to revoke the Market Authorization for the Trobigard Auto-Injector.
61
Services Segment:
Bioservices - contract development and manufacturing
The Company’s services revenue consists of distinct but interrelated bioservices: 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 the Company refers to as “molecule-to-market” offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network of development and manufacturing sites operated by the Company for its internal products and pipeline candidates and third-party bioservices. The Company offers services for both clinical-stage and commercial-stage projects for a variety of third-party customers, including government agencies, innovative pharmaceutical companies, and non-government organizations. In August 2023, the Company initiated an organizational restructuring plan (the “August 2023 Plan”) which included actions to reduce investment in and de-emphasize focus on its Bioservices business. In May 2024, the Company initiated a further organizational restructuring plan (the “May 2024 Plan”) announcing the closure of the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility. Additionally, on August 20, 2024, pursuant to the previously announced Asset Purchase Agreement (the “Asset Purchase Agreement”), the Company completed the sale of its Drug Product facility in Baltimore-Camden (the “Camden Transaction”) to Bora Pharmaceuticals Injectables Inc., a subsidiary of Bora Pharmaceuticals Co., Ltd. (“Bora”). See Note 3, “Divestitures” and Note 4, “Impairment and restructuring charges” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K for more information related to these announcements.
Other Strategic Activities
January 2023 Organizational Restructuring Plan
In January 2023, the Company initiated an organizational restructuring plan (the “January 2023 Plan”) intended to reduce operating costs, improve operating margins, and continue advancing the Company’s ongoing commitment to profitable growth. As part of the January 2023 Plan, the Company reduced its workforce by approximately 125 employees. The charges related to the January 2023 Plan consisted primarily of employee transition, severance payment and employee benefit charges. The cumulative amount of restructuring charge related to the January 2023 Plan since inception is $9.3 million. All activities related to the January 2023 Plan were substantially completed during the first quarter of 2023. Restructuring costs are recognized as an operating expense within the Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
August 2023 Organizational Restructuring Plan
In August 2023, the Company initiated the August 2023 Plan intended to strengthen its core business and financial position by reducing investment in and de-emphasizing focus on its Bioservices business for future growth. As part of the August 2023 Plan, the Company reduced its workforce by approximately 400 employees. The charges related to the August 2023 Plan consisted primarily of employee transition, severance payment and employee benefit charges. The cumulative amount of restructuring charge related to the August 2023 Plan since inception is $19.4 million. All activities related to the August 2023 Plan were substantially completed during the third quarter of 2023. Restructuring costs are recognized as an operating expense within the Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
Trobigard Revocation
On April 2, 2024, Emergent submitted its revocation of the Market Authorization for the Trobigard Auto-Injector to the Belgium FAMHP. The FAMHP subsequently acknowledged and confirmed the revocation date as being April 2, 2024.
May 2024 Organizational Restructuring Plan
In May 2024, the Company initiated the May 2024 Plan. These strategic actions led to a reduction of the Company’s workforce by approximately 300 employees across all areas of the Company and the elimination of approximately 85 positions that were vacant, as well as the closure of the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility. Decisions regarding the elimination of positions and the closure of manufacturing facilities were subject to local law and consultation requirements in certain countries, as well as the Company’s business needs. The cumulative amount of restructuring charge related to the May 2024 Plan since inception is $19.8 million. All activities related to the May 2024 Plan were substantially completed during the third quarter of 2024. Restructuring costs are recognized as an operating expense within the Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
62
Confidential arbitration settlement with Janssen
On July 3, 2024, the Company and its wholly owned subsidiary, Emergent Manufacturing Operations Baltimore, LLC (“EMOB”), entered into a settlement agreement with Janssen Pharmaceuticals, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”) (the "Settlement Agreement") to resolve all claims among the Parties arising from the 2022 termination of the manufacturing services agreement with Janssen (the “Janssen Agreement”). The Settlement Agreement also resolves the Parties’ related and previously disclosed arbitration.
Pursuant to the terms of the Settlement Agreement, Janssen paid the Company $50.0 million on July 31, 2024. In addition, the Settlement Agreement contains broad releases of the parties, their affiliates and subsidiaries, representatives, officers, directors and shareholders, including releases of all claims related to the manufacture of the Product by EMOB, the Janssen Agreement, or any agreement or understanding between the parties concerning the investigational SARS-CoV-2 vaccine, Ad26.COV2-S, recombinant based on the AdVac technology, and the matters at issue in the arbitration.
Development milestone payments for CHIKV VLP
On July 18, 2024, Bavarian Nordic announced that the European Medicines Agency had validated the marketing authorization application for CHIKV VLP, which was submitted in June 2024. This approval triggered a milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $10.0 million.
On August 13, 2024, Bavarian Nordic announced that the FDA had accepted and granted priority review for the Biologics License Application for CHIKV VLP, which triggered a milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $20.0 million.
On February 14, 2025, Bavarian Nordic announced that the FDA approved CHIKV VLP under the Priority Review, which triggered a development milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $30.0 million, which is expected to be received in the first half of 2025.
On February 28, 2025, Bavarian Nordic announced that the European Commission approved CHIKV VLP, which triggered a development milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $20.0 million, which is expected to be received in the first half of 2025.
Sale of RSDL®
On July 31, 2024, the Company, through its wholly owned subsidiary Emergent BioSolutions Canada Inc., entered into the RSDL® Agreement with SERB pursuant to which, among other things, the Company sold its worldwide rights to RSDL® to SERB. The RSDL® Transaction also included the sale to SERB of all the outstanding capital stock of Emergent Protective Products USA Inc. (“EPPU”), a wholly owned subsidiary of the Company, which leases a manufacturing facility in Hattiesburg, Mississippi, as well as certain assets related to RSDL®, including intellectual property rights, contract rights, inventory and marketing authorizations. In addition, the employees of EPPU joined SERB in connection with the RSDL® Transaction.
Pursuant to the RSDL® Transaction, SERB assumed certain government contracts related to RSDL® decontamination lotion, including the Company’s existing contract to supply RSDL® to the U.S. Department of Defense, through a new contract award to the Canadian Commercial Corporation.
At the closing, SERB paid a cash purchase price of $75.0 million, exclusive of customary closing adjustments related to inventory. In addition, SERB will owe the Company a $5.0 million payment upon achievement of a milestone relating to sourcing of a certain component of RSDL® decontamination lotion. The Company recognized a gain on sale of business of $60.8 million, net of transaction costs of $4.1 million, during the year ended December 31, 2024.
The Company and SERB entered into a transition services agreement (the “SERB TSA”) to ensure the orderly transition of RSDL® decontamination lotion and the related assets to SERB, and a supply agreement (the “SERB Supply Agreement”) pursuant to which SERB has a suite reservation at the Company’s Winnipeg facility where the Company will perform Bioservices activities to manufacture and supply bulk lotion to SERB. The Company and SERB also entered into a reverse supply agreement (together with the SERB TSA and the SERB Supply Agreement, the “SERB Agreements”) pursuant to which SERB supplies finished RSDL® to the Company for the Company’s performance of certain transitional distribution services under customer contracts that have not yet transferred to SERB. Under the SERB Agreements, the Company will retain a portion of net sales received upon delivery of RSDL® to the delayed transfer customers.
63
Sale of Baltimore-Camden Facility
On August 20, 2024, pursuant to the Asset Purchase Agreement, the Company completed the sale of its Drug Product facility in Baltimore-Camden to an affiliate of Bora. The Camden site, which was part of the Company’s Bioservices segment, has clinical and commercial non-viral aseptic fill/finish services on four fill lines, including lyophilization, formulation development, and support services. Alongside the facility, approximately 350 Emergent employees joined Bora as part of the transaction.
At closing, Bora paid a cash purchase price of approximately $35.0 million, which included customary closing adjustments for working capital and transaction expenses of the business. As a result of the divestiture, the Company recognized a loss on sale of business of $36.5 million, net of transaction costs of $3.8 million, during the year ended December 31, 2024.
August 2024 Organizational Restructuring Plan
In August 2024, the Company initiated the August 2024 Plan at the Company’s Lansing facility, which reduced the Company’s workforce by approximately 70 employees, as well as eliminated several open positions. The Company also implemented non-labor optimization efforts, such as reducing the Company’s external and vendor spend. The cumulative amount of restructuring charges related to the August 2024 Plan since inception is $3.3 million. All activities related to the August 2024 Plan were substantially completed during the fourth quarter of 2024. Restructuring costs are recognized as an operating expense within the Consolidated Statement of Operations and are classified based on the Company’s classification policy for each category of operating expense.
Term Loan Agreement
On August 30, 2024, the Company entered into a Credit Agreement (the “Term Loan Agreement”) with the lenders from time to time party thereto, and OHA Agency LLC, as administrative agent. The Term Loan Agreement provides for a term loan (the “Term Loan”) of $250.0 million, which was drawn in full on the date of entry into the Term Loan Agreement (the “Closing Date”). The Term Loan was issued with an original issue discount of 3.00%.
On the Closing Date, the Company used a portion of the proceeds of the Term Loan to repay all amounts outstanding and terminate commitments under the senior term loan facility under the Company’s Amended and Restated Credit Agreement, dated October 15, 2018, by and among the Company, the lenders party thereto from time to time, and Wells Fargo Bank, National Association, as the Administrative Agent (the “Prior Credit Agreement”), plus accrued interest and fees. The Company previously repaid all amounts outstanding under the revolving credit facility under the Prior Credit Agreement.
Securities and shareholder litigation
On September 12, 2024, the Company and the lead plaintiffs in stockholder litigation against the Company entered into an agreement in principle to settle the claims against the Company and each of the Company’s current and former officers and directors. On October 4, 2024, the Court granted preliminary approval of the proposed settlement, ordered notice to the settlement class and scheduled a fairness hearing for February 27, 2025. On February 6, 2025, the lead plaintiffs filed a Motion for Final Approval of Class Action Settlement, Certification of the Settlement Class and Approval of Plan of Allocation and Motion for Award of Attorneys' Fees, Reimbursement of Expenses and Compensatory Awards for lead plaintiffs. Under the proposed settlement, the claims against the Company and its officers and directors will be dismissed with prejudice and released in exchange for a payment from the Company of $40.0 million, $30.0 million of which was paid from insurance proceeds, and was funded in the fourth quarter of 2024. At the scheduled fairness hearing on February 27, 2025, the Court granted final approval of the settlement. The Company recorded the settlement and insurance recoverable amounts as pre-tax operating expense and income, respectively, within “Selling, general and administrative” expenses on the Consolidated Statement of Operations for the year ended December 31, 2024.
Asset-Based Revolving Loan
On September 30, 2024, the Company entered into a credit agreement for asset-based revolving loans (the “Revolving Credit Agreement”) with certain subsidiary borrowers (together with the Company, the “Borrowers”), the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as agent (the “Agent”). The Revolving Credit Agreement provides for commitments with respect to asset-based revolver loans (the “Revolving Loans”) of up to the lesser of (x) $100.0 million, which may be increased (but not above $125.0 million, or the “Maximum Revolver Amount”) or decreased (but not below $50.0 million) by the Borrowers in accordance with the terms of the Revolving Credit Agreement and (y) the Borrowing Base (as defined in the Revolving Credit Agreement). Once reduced, the facility may not be increased. Up to $5.0 million of capacity under the Revolving Loans may be used for swing loans and up to $10.0 million may be used for the issuance of letters of credit.
64
2024 Triggering Events
2024 Impairment of long-lived assets
During the preparation of our financial statements for the quarter ended June 30, 2024, due to the decision to close the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility, the Company determined there were indicators of impairment for the Bayview and Rockville asset groups within the Bioservices reporting unit. As a result, the Company performed recoverability tests on those asset groups and concluded that the Bayview and Rockville asset groups were not recoverable as the undiscounted expected cash flows did not exceed their carrying values.
Asset groups are written down only to the extent that their carrying value is higher than their respective fair value. The Company, with the assistance of a third-party valuation firm, applied valuation methods to estimate the fair values for each of the assets within the different asset classes. An orderly liquidation value was applied to estimate the fair value of the personal property assets and market and cost based approaches were applied to estimate the fair value of the real property assets, each representing Level 3 non-recurring fair value measurements. Based on these analyses, the Company allocated and recognized a non-cash impairment charge of $27.2 million during the second quarter of 2024.
FINANCIAL OPERATIONS OVERVIEW
Revenues
We generate Commercial Product revenues through sale of NARCAN® Nasal Spray, which is sold commercially over-the-counter at retail pharmacies and digital commerce websites as well as through physician-directed or standing order prescriptions at retail pharmacies, health departments, local law enforcement agencies, community-based organizations, substance abuse centers and other federal agencies. In addition, we previously generated Commercial product revenues through sale of the Company's travel health products, which we sold to Bavarian Nordic in May 2023. We generate MCM Product revenues from the sale of our marketed products and procured product candidates. The U.S. government (“USG”) is the largest purchaser of our Government - MCM products and primarily purchases our products for the Strategic National Stockpile, 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.
We also generate revenue from our Services segment through our Bioservices portfolio, which is based on our established development and manufacturing infrastructure, technology platforms and expertise. Our services include a fully integrated molecule-to-market Bioservices 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 grant 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, which involves providing large scale bundles of products and services as needs arise. We expect continued variability in our quarterly financial results.
Cost of Product Sales and Services
Commercial and MCM Products - The primary expenses that we incur to deliver our NARCAN® and MCM 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, shipping, and logistics.
Services - The primary expenses that we incur to deliver our Bioservices offerings 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.
65
Research and Development (“R&D”) 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 associated with technology transfer and scale up activities throughout the development stage, including internally and through third-party contract manufacturers;
▪costs of Bioservices for our clinical trial material; and
▪costs of materials intended for use and used in clinical trials and R&D.
In many cases, we 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 (“SG&A”) 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 Bioservices 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.
Changes in tax laws, rulings, policies, or related legal and regulatory interpretations occur frequently and may have significant favorable or adverse impacts on our effective tax rate. In 2021, the Organization for Economic Cooperation and Development released model rules for a 15% global minimum tax applied to cross-border profits of certain large multinational corporations, known as Pillar Two. Pillar Two has now been enacted by approximately 36 countries, including Ireland. This minimum tax is treated as a period cost beginning in 2024 and its impact is included on the Company's financial results of operations for the current period. The Company is monitoring legislative developments, as well as additional guidance from countries that have enacted legislation. We anticipate further legislative activity and administrative guidance in 2025.
Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations.
66
RESULTS OF OPERATIONS
Consolidated and Segment Operating Results:
Year Ended December 31,
(in millions, except %) 2024 2023 $ Change % Change
Revenues:
Commercial Product sales, net:
Other Commercial Products — 9.8 (9.8) (100) %
MCM Product sales, net:
Services:
Bioservices - Leases 1.4 5.7 (4.3) (75) %
Operating expenses:
Amortization of intangible assets 65.1 65.6 (0.5) (1) %
Other income (expense):
Total other income (expense), net (34.2) (4.8) (29.4) NM
(1) Exclusive of intangible assets amortization
NM - Not meaningful
67
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
Revenues and gross margin
Year Ended December 31,
Cost of sales or services
Cost of Commercial Product sales $ 185.9 $ 210.3 (12) %
Total cost of sales or services $ 681.3 $ 705.4 (3) %
Intangible asset amortization:
Commercial Products $ 37.8 $ 38.6 (2) %
Total intangible asset amortization $ 65.1 $ 65.6 (1) %
Total segment gross margin % (1) 26 % 25 %
Total revenues decreased $5.7 million, or 1%, to $1.0 billion in 2024. The decrease was due to a decrease in Commercial Products revenue of $98.4 million, partially offset by increases in MCM Products revenue of $62.6 million, Bioservices revenue of $26.4 million and Contracts and grants revenue of $3.7 million.
Total segment gross margin increased $15.2 million, or 6%, to $267.2 million in 2024. Total segment gross margin percentage increased 2 percentage points to 26%. The increase was primarily due to an increase in the MCM Products segment gross margin of $148.5 million, partially offset by decreases in the Commercial Products segment gross margin and Bioservices segment gross margin of $73.2 million and $60.1 million, respectively. Total segment gross margin and gross margin percentage excludes contracts and grants revenues because the related costs are R&D expenses.
See “Segment Results” for an expanded discussion of revenues and gross profit.
Unallocated corporate operating expenses
R&D Expenses
R&D expenses decreased $40.7 million, or 37%, to $70.7 million in 2024. The decrease was primarily due to the sale of our development program for CHIKV VLP to Bavarian Nordic during the second quarter of 2023 and reduction in related overhead costs driven by the headcount reductions, which were significant contributors to prior period R&D expense. The decrease was also driven by the wind-down of funded projects, excluding EbangaTM. The decrease was partially offset by increases in the allocation of R&D overhead costs and funded R&D related to EbangaTM.
68
SG&A Expenses
Selling, general and administrative expenses decreased $60.4 million, or 16%, to $308.0 million in 2024. The decrease was primarily due to lower employee related expenses and compensation as a result of restructuring initiatives during 2023 and 2024, lower professional services fees related to corporate initiatives, including organizational transformation consulting fees, lower legal fees due to the wind-down of various legal matters and lower marketing costs. This decrease was partially offset by the settlement charge related to the stockholder litigation matter, net of expected insurance proceeds. Selling, general and administrative costs as a percentage of total revenue decreased 6 percentage points to 30% for the year ended December 31, 2024. The decrease was due to a decrease in selling, general and administrative expenses, partially offset by a decrease in revenues during the period.
Goodwill Impairment
Goodwill impairment decreased $218.2 million, or 100%, in 2024. The decrease was due to the $218.2 million impairment charge to goodwill in the MCM Products segment in the third quarter of 2023, which reduced the goodwill balance of the reporting unit and segment to zero as of December 31, 2024 and 2023.
Impairment of Long-lived Assets
Impairment of long-lived assets decreased $279.5 million, or 91%, to $27.2 million in 2024. The decrease was due to a $27.2 million non-cash impairment charge in the second quarter of 2024 related to our Bayview and Rockville asset groups within the Bioservices reporting unit, compared with a $306.7 million non-cash impairment charge recorded in the second quarter of 2023 related to our Camden, Bayview and Rockville asset groups within the Bioservices reporting unit.
Interest expense
Interest expense decreased $16.9 million, or 19%, to $71.0 million in 2024. The decrease was primarily due to a decrease in interest expense related to our syndicated borrowings and a decrease in amortization of debt service costs, partially offset by higher interest expense related to our Term Loan Agreement and the termination of our interest rate swap hedging agreements in 2023.
Gain on sale of business
Gain on sale of business decreased $49.9 million, or 67%, to $24.3 million in 2024. The gain on sale of business in the current year is related to the sale of RSDL® to SERB, partially offset by a loss the sale of the Company’s drug product facility in Baltimore-Camden to Bora. The gain on sale of business in the prior year is attributable to the sale of our travel health business to Bavarian Nordic during the second quarter of 2023.
Other, net
Other, net was $12.5 million in income in 2024 compared to $8.9 million in income in 2023. The change of $3.6 million was primarily due to income associated with development milestone achievements related to CHIK VLP, partially offset by a loss on the sale of a building at our Canton facility, unfavorable foreign exchange revaluations, lower interest income, due to lower balances in our money market accounts, and a write-off of an equity method investment.
Income tax provision (benefit)
Income tax provision of $29.3 million for the year ended December 31, 2023 increased $18.4 million to a provision of $47.7 million for the year ended December 31, 2024. The effective tax rate was (33)% for the year ended December 31, 2024 as compared to (4)% in 2023. The effective annual tax rate decreased largely due to jurisdictional mix of income and losses, GILTI, and other permanent items.
69
SEGMENT RESULTS
COMMERCIAL PRODUCT SEGMENT
Year Ended December 31,
Intangible asset amortization 37.8 $ 38.6 (2) %
Gross margin % (1) 44 % 50 %
Add back:
Intangible asset amortization 37.8 38.6 (2) %
Segment adjusted gross margin (2) $ 213.0 $ 287.0 (26) %
Segment adjusted gross margin % (2) 53 % 58 %
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
NARCAN®
NARCAN® sales decreased $88.6 million, or 18%, to $398.9 million in 2024. The decrease was primarily driven by the discontinuation of prescription NARCAN® due to the launch of OTC NARCAN® in the third quarter of 2023 and lower Canadian retail sales, partially offset by higher sales of OTC NARCAN®.
Other Commercial Products
Other Commercial Products sales decreased $9.8 million, or 100%, to no sales in 2024. During the second quarter of 2023, we sold Vivotif® and Vaxchora® to Bavarian Nordic as part of our travel health business.
70
Cost of Sales, Intangible Asset Amortization and Gross Margin
Cost of Commercial Product sales decreased $24.4 million, or 12%, to $185.9 million in 2024. The decrease was primarily due to lower prescription NARCAN® unitvolume and no current period costs related to Vivotif® and Vaxchora®, which were sold to Bavarian Nordic as part of our travel health business in 2023, partially offset by the higher OTC NARCAN® unit volume.
Intangible asset amortization allocated to Commercial Product segment decreased $0.8 million, or 2%, to $37.8 million in 2024. The decrease was due to lower amortization expense resulting from the intangibles sold as part of our travel health business to Bavarian Nordic during the second quarter of 2023.
Commercial Product segment gross margin decreased $73.2 million, or 29%, to $175.2 million in 2024. Commercial Product segment gross margin percentage decreased 6 percentage points to 44% in 2024. The decrease was largely due to an unfavorable price and volume mix in 2024 for NARCAN® products, partially offset by the sale of the products associated with our travel health business to Bavarian Nordic.Commercial Product segment adjusted gross margin excludes the impact of intangible asset amortization of $37.8 million.
MCM PRODUCTS SEGMENT
Year Ended December 31,
Intangible asset amortization 27.3 27.0 1 %
Gross margin % (1) 52 % 26 %
Add back:
Intangible asset amortization 27.3 27.0 1 %
Changes in fair value of financial instruments 0.6 0.2 200 %
Restructuring costs 7.2 5.6 29 %
Inventory step-up provision 6.2 3.9 59 %
Segment adjusted gross margin % (2) 60 % 34 %
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
Anthrax MCM
Anthrax MCM sales decreased $49.1 million, or 26%, to $138.5 million in 2024. The decrease was due to the impact of timing of sales related to CYFENDUS® and lower sales of Anthrasil®, coupled with a decrease in BioThrax® sales, due to timing. Anthrax vaccine product sales are primarily made under annual purchase options exercised by the USG. Fluctuations in revenues result from the timing of the exercise of annual purchase options, the timing of USG purchases, the availability of governmental funding and the Company’s delivery of orders that follow.
71
Smallpox MCM
Smallpox MCM sales increased $109.9 million, or 66%, to $277.3 million in 2024. The increase was due to higher ACAM2000® sales to non-U.S. customers and higher VIGIV CNJ-016® sales, primarily related to USG, partially offset by lower USG purchases of ACAM2000®, due to timing. Fluctuations in revenues result from the timing of the exercise of annual purchase options in existing procurement contracts, the timing of USG purchases, the availability of governmental funding and Company delivery of orders that follow.
Other Product Sales
Other Product sales increased $1.8 million, or 2%, to $94.0 million in 2024. The increase was primarily due to higher BAT® product sales to USG and non-U.S. customers, partially offset by lower sales of RSDL®, which was sold to SERB during the third quarter of 2024.
Cost of Sales, Intangible Asset Amortization and Gross Margin
Cost of MCM Product sales decreased $86.2 million, or 28%, to $219.4 million in 2024. The decrease was primarily due to lower allocations to Cost of MCM Product sales at our Bayview facility, lower shutdown costs, and a reduction in Trobigard®-related costs due to the Belgium FAMHP’s approval of the Trobigard® revocation, partially offset by higher BioThrax® and VIGIV CNJ-016® sales as well as higher allocations to Cost of MCM Product sales at our Winnipeg and Gaithersburg facilities.
Intangible asset amortization allocated to MCM Products increased $0.3 million, or 1%, to $27.3 million in 2024. The increase was due to an increase in amortization expense for intangible assets related to EbangaTM, which were acquired during the second half of 2023.
MCM Products segment gross margin increased $148.5 million, or 130%, to $263.1 million in 2024. MCM Products segment gross margin percentage increased 26 percentage points to 52% in 2024. In addition to the MCM Product sales and Cost of MCM Product sales items as discussed above, the increase was largely due to overall higher sales volumes with a favorable product mix weighted more heavily to higher margin products, coupled with a realization of previously adjusted inventory values. MCM Product segment adjusted gross margin excludes the impacts of intangible asset amortization of $27.3 million, restructuring costs of $7.2 million, inventory step-up provision of $6.2 million and the changes in the fair value of financial instruments of $0.6 million.
72
SERVICES SEGMENT
Year Ended December 31,
Add back:
Settlement charges, net 110.2 — NM
Restructuring costs 0.2 8.4 (98) %
Segment adjusted gross margin (2) $ (60.7) $ (102.6) 41 %
Segment adjusted gross margin % (2) (58) % (131) %
NM - Not meaningful
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
Services Revenues
Bioservices revenue increased $30.7 million, or 42%, to $103.5 million in 2024. The increase was primarily attributable to the $50.0 million arbitration settlement with Janssen related to the Settlement Agreement, coupled with an increase in production at the Camden facility prior to the sale of the facility to Bora. The increase was partially offset by reduced production activities at the Company’s Canton and Winnipeg facilities.
Bioservices lease revenue decreased $4.3 million, or 75%, to $1.4 million in 2024. The decrease was related to the completion of a lease for a Bioservices customer at our Canton facility, partially offset by new lease revenue for SERB at our Winnipeg facility.
Cost of Services and Gross Margin
Cost of Services increased $86.5 million, or 46%, to $276.0 million in 2024. The increase was primarily due to the Settlement Agreement with Janssen and resulting write-down of related assets to net realizable value of $110.2 million, coupled with higher costs at the Company’s Winnipeg facility due to a bad debt charge. These increases were partially offset by lower costs as a result of the sale of the Camden facility to Bora, lower costs associated with production activities at the Company’s Canton facility and higher allocations to R&D at the Company's Gaithersburg facility.
Services segment gross margin decreased $60.1 million, or 54%, to $(171.1) million in 2024. Services segment gross margin percentage decreased 22 percentage points to (163)% in 2024. The decrease was primarily due to the Settlement Agreement with Janssen and resulting revenue and write-down of related assets mentioned above, coupled with lower production at the Company's Canton facility. This decrease was partially offset by an increase in production at the Camden facility prior to the sale of the facility to Bora and a decrease in overhead costs at our other Maryland facilities. Services segment adjusted gross margin excludes the impact of the settlement charge, net of $110.2 million and restructuring costs of $0.2 million.
73
OTHER REVENUE
Year Ended December 31, 2024 Compared with Year Ended December 31, 2023
Contracts and Grants
Contract and grants revenue increased $3.7 million, or 14%, to $30.0 million in 2024. The increase was related to work under the EbangaTM program, partially offset by the wind-down of our other funded development initiatives.
74
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
Consolidated and Segment Operating Results:
Year Ended December 31,
(in millions, except %) 2023 2022 $ Change % Change
Revenues:
Commercial Product sales, net:
Other Commercial Products 9.8 12.9 (3.1) (24) %
MCM Product sales, net:
Services:
Operating expenses:
Amortization of intangible assets 65.6 59.9 5.7 10 %
Impairment of long-lived assets 306.7 — 306.7 NM
Other income (expense):
Gain on sale of business 74.2 — 74.2 NM
Total other income (expense), net (4.8) (49.0) 44.2 (90) %
Income tax provision (benefit) 29.3 (7.4) 36.7 NM
NM - Not meaningful
75
Revenues and gross margin
Year Ended December 31,
Cost of sales or services
Cost of Commercial Product sales $ 210.3 $ 160.3 31 %
Total cost of sales or services $ 705.4 $ 693.1 2 %
Intangible asset amortization allocated to:
Cost of Commercial Products $ 38.6 $ 42.9 (10) %
Cost of Services — 0.1 (100) %
Total intangible asset amortization $ 65.6 $ 59.9 10 %
Total segment gross margin % (1) 25 % 30 %
Total revenues decreased $68.2 million, or 6%, to $1.0 billion in 2023. The decrease was due to a decrease in MCM Product sales of $132.4 million, Bioservices sales of $31.4 million and Contracts and grants revenue of $15.1 million, offset by an increase in Commercial Product sales of $110.7 million.
Total segment gross margin decreased $71.1 million, or 22%, to $252.0 million in 2023. Total segment gross margin percentage decreased 5 percentage points to 25%. The decrease was primarily due to a decrease in the MCM Products segment gross margin of $183.8 million, partially offset by increases in the Commercial Products segment gross margin and Bioservices segment gross margin of $65.0 million and $47.7 million, respectively. Total segment gross margin and gross margin percentage excludes contracts and grants revenues because the related costs are R&D expenses.
See “Segment Results” for an expanded discussion of revenues and gross profit.
Unallocated corporate operating expenses
R&D Expenses
R&D expenses decreased $76.9 million, or 41%, to $111.4 million in 2023. The decrease was primarily due to the sale of our development program for CHIKV VLP to Bavarian Nordic and reduction in related overhead costs driven by the headcount reductions, which were significant contributors to prior period R&D expense, partially offset by write-offs related to program terminations during the period.
76
SG&A Expenses
Selling, general and administrative expenses increased $28.9 million, or 9%, to $368.4 million in 2023. The increase was primarily due to higher professional services fees related to general corporate initiatives, including organizational transformation consulting fees and legal remediation services fees as well as an increase in marketing expenses related to the launch of OTC NARCAN®. The increase was partially offset by decreases in compensation and other employee costs related to the restructuring initiatives during 2023. Selling, general and administrative costs as a percentage of total revenue increased 5 percentage points to 35% for the year ended December 31, 2023. The increase was due to an increase in selling, general and administrative expenses coupled with a decrease in revenues during the period.
Goodwill Impairment
Goodwill impairment increased $211.5 million to $218.2 million in 2023. During the third quarter of 2023, the Company recognized a $218.2 million impairment charge to goodwill in the MCM reporting unit, reducing the goodwill balance of the reporting unit and segment to zero as of December 31, 2023.
Impairment of Long-lived Assets
During the year ended December 31, 2023, the Company recorded a non-cash impairment charge of $306.7 million related to certain asset groups within our Bioservices reporting unit. The asset groups were written down only to the extent their carrying value was higher than their respective fair values. The Company, with the assistance of a third-party valuation firm, applied valuation methods to estimate the fair values for each of the assets within the different asset classes to determine the amount of the impairment.
Interest expense
Interest expense increased $50.6 million, or 136%, to $87.9 million in 2023. The increase was primarily due to higher interest costs related to our syndicated borrowings and debt service costs attributable to the negotiation of the Fourth Amendment to Amended and Restated Credit Agreement, Waiver and First Amendment to Amended and Restated Collateral Agreement, partially offset by reduced interest expense related to the termination of our interest rate swap hedging agreements.
Gain on sale of business
Gain on sale of business was $74.2 million for the year ended December 31, 2023, which was attributable to the sale of our travel health business to Bavarian Nordic on May 15, 2023.
Other, net
Other, net was $8.9 million in income in 2023 compared to $11.7 million in expense in 2022. The change of $20.6 million, or 176%, was primarily attributable to a write-off of a tax indemnity receivable in the prior period that did not reoccur in the current period, favorable foreign exchange revaluations, higher interest income from rising interest rates during the year, income from the Transition Services Agreement with Bavarian Nordic and a gain on extinguishment of debt.
Income tax provision (benefit)
Income tax benefit of $7.4 million for the year ended December 31, 2022 decreased $36.7 million to a provision of $29.3 million for the year ended December 31, 2023. The effective tax rate was (4)% for the year ended December 31, 2023 as compared to 3% in 2022. The effective annual tax rate decreased largely due to an increase in nondeductible expenses, specifically the impact of a valuation allowance charge in the U.S., state and foreign jurisdictions, goodwill impairment charge, GILTI, and other permanent items. This is partially offset by tax credits and favorable rates in foreign jurisdictions.
77
SEGMENT RESULTS
COMMERCIAL PRODUCTS SEGMENT
Year Ended December 31,
Intangible asset amortization 38.6 42.9 (10) %
Gross margin % (1) 50 % 47 %
Add back:
Intangible asset amortization 38.6 42.9 (10) %
Segment adjusted gross margin % (2) 58 % 59 %
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
NARCAN®
NARCAN® sales increased $113.8 million, or 30%, to $487.5 million in 2023. The increase was primarily driven by higher sales of OTC NARCAN® and branded NARCAN® to U.S. public interest channels and Canadian retail, partially offset by the cessation of authorized generic NARCAN® sales related to the termination of the Company's relationship with Sandoz and a reduction in commercial retail sales in the U.S.
Other Commercial Products
Other Commercial Products sales decreased $3.1 million, or 24%, to $9.8 million. The decrease was driven by lower sales of Vivotif®, partially offset by higher sales of Vaxchora®. During the second quarter of 2023, we sold Vivotif® and Vaxchora® to Bavarian Nordic as part of our travel health business.
78
Cost of Sales, Intangible Asset Amortization and Gross Margin
Cost of Commercial Product sales increased $50.0 million, or 31%, to $210.3 million in 2023. The increase was primarily driven by higher sales of OTC NARCAN® and higher branded NARCAN® sales.
Intangible asset amortization allocated to Commercial Products decreased $4.3 million, or 10%, to $38.6 million in 2023. The decrease was due to lower amortization expense resulting from the intangibles sold as part of our travel health business to Bavarian Nordic.
Commercial Products segment gross margin increased $65.0 million, or 35%, to $248.4 million in 2023. Commercial Products segment gross margin percentage increased 3 percentage points to 50% in 2023. The increase was largely due to a decrease in royalty expense, partially offset by a decrease in the per unit selling price in response to increased competition for generic NARCAN®. Commercial Products segment adjusted gross margin excludes the impact of intangible asset amortization of $38.6 million.
MCM PRODUCTS SEGMENT
Year Ended December 31,
Intangible asset amortization 27.0 16.9 60 %
Gross margin % (1) 26 % 51 %
Add back:
Intangible asset amortization 27.0 16.9 60 %
Changes in fair value of financial instruments 0.2 2.6 (92) %
Restructuring costs 5.6 — NM
Inventory step-up provision 3.9 51.4 (92) %
Segment adjusted gross margin (2) $ 151.3 $ 369.3 (59) %
Segment adjusted gross margin % (2) 34 % 64 %
NM - Not meaningful
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
Anthrax MCM
Anthrax MCM sales decreased $102.5 million, or 35%, to $187.6 million in 2023. The decrease reflects the impact of timing of sales related to CYFENDUS® and BioThrax®, partially offset by an increase in Anthrasil® sales. Anthrax vaccine product sales are primarily made under annual purchase options exercised by the USG. Fluctuations in revenues result from the timing of the exercise of annual purchase options, the timing and amount of USG purchases, the availability of governmental funding and timing of Company delivery of orders that follow.
79
Smallpox MCM
Smallpox MCM sales decreased $67.0 million, or 29%, to $167.4 million in 2023. The decrease was primarily due to lower sales of TEMBEXA®, partially offset by an increase related the exercise and full delivery in the current period of a $120 million option by the USG to purchase ACAM2000®. Fluctuations in revenues result from the timing of the exercise of annual purchase options in existing procurement contracts, the timing of USG purchases, the availability of governmental funding and timing of Company delivery of orders that follow.
Other Product Sales
Other Product sales increased $37.1 million, or 67%, to $92.2 million in 2023. The increase was primarily due to higher BAT® product sales, partially offset by lower RSDL® and Trobigard® product sales due to timing.
Cost of Sales, Intangible Asset Amortization and Gross Margin
Cost of MCM Product sales increased $41.3 million, or 16%, to $305.6 million in 2023. The increase was primarily due to higher sales of ACAM2000®, BAT® and Anthrasil®, partially offset by lower sales of CYFENDUS®, coupled with higher allocations to MCM Product COGS at our Bayview facility, shutdown costs and inventory write-offs.
Intangible asset amortization allocated to MCM Product segment increased $10.1 million, or 60%, to $27.0 million in 2023. The increase was due to higher amortization expense for intangible assets related to TEMBEXA®, NARCAN®, and EbangaTM which were acquired during the second half of 2022.
MCM Products segment gross margin decreased $183.8 million, or 62%, to $114.6 million in 2023. MCM Products segment gross margin percentage decreased 25 percentage points to 26% in 2023. The decrease was largely due to lower sales volumes and higher shutdown related costs and inventory write-offs, coupled with an unfavorable product revenue mix which was weighted more heavily to lower margin products compared with the prior year. The 2023 MCM Products segment adjusted gross margin excludes the impact of intangible asset amortization of $27.0 million, restructuring costs of $5.6 million, non-cash items related to the changes in the fair value of contingent consideration of $0.2 million and the inventory step-up provision of $3.9 million.
80
SERVICES SEGMENT
Year Ended December 31,
Intangible asset amortization — 0.1 (100) %
Add back:
Intangible asset amortization — 0.1 (100) %
Restructuring costs 8.4 — NM
Segment adjusted gross margin (2) $ (102.6) $ (158.6) 35 %
Segment adjusted gross margin % (2) (131) % (144) %
NM - Not meaningful
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
Services Revenues
Bioservices revenue decreased $32.2 million, or 31%, to $72.8 million in 2023. The decrease was driven by reduced production activities at the Company's Winnipeg and Camden facilities. The decreases were partially offset by an increase in production at our Canton facility for a Bioservices customer.
Bioservices lease revenue increased $0.8 million, or 16%, to $5.7 million in 2023. The increase was related to a Bioservices customer at our Canton facility.
Cost of Services, Intangible Asset Amortization and Gross Margin
Cost of Services decreased $79.0 million, or 29%, to $189.5 million in 2023. The decrease was primarily due to reduced production activities related to the halt in manufacturing under the Janssen Agreement coupled with higher allocations to MCM Product cost of sales at our Bayview facility and lower production activities at our Winnipeg facility, partially offset by increased costs at our Camden facility for additional investments in quality enhancement and improvement initiatives and increased costs associated with production activities at our Canton facility for a Bioservices customer.
Intangible asset amortization allocated to Services decreased $0.1 million, or 100%, to no amortization in 2023. The decrease was due to the completion of the amortization of intangible assets acquired from Cangene.
Services segment gross margin increased $47.7 million, or 30%, to $(111.0) million in 2023. Services segment gross margin percentage increased 3 percentage points to (141)% in 2023. The increase was primarily driven by one-time costs and reserves related to the Janssen Agreement in the prior year. The 2023 Services segment adjusted gross margin excludes the impact of restructuring costs of $8.4 million.
81
OTHER REVENUE
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
Contracts and Grants
Contract and grants revenue decreased $15.1 million, or 36%, to $26.3 million in 2023. The decrease was primarily attributable to one-time indirect rate adjustments in the prior period, the conclusion of COVID-19 related studies in the fourth quarter of 2022, and decreases in development activities associated with various externally funded research and development projects. These decreases were partially offset by increases in revenue on the BARDA contract for the procurement of EbangaTM, which was awarded in the current period, and TEMBEXA®.
82
Financial Condition, Liquidity and Capital Resources
Our financial condition is summarized as follows:
December 31,
Financial assets:
Cash and cash equivalents $ 99.5 $ 111.7 (11) %
Restricted cash 6.1 — NM
Total cash, cash equivalents and restricted cash $ 105.6 $ 111.7 (5) %
Borrowings:
Debt, current portion $ — $ 413.7 (100) %
Working capital:
Total working capital $ 436.3 $ 28.2 NM
NM - Not Meaningful
Principal Sources of Capital Resources
We have historically financed our operating and capital expenditures through existing cash and cash equivalents, cash from operations, development contracts and grant funding and borrowings under various credit agreements, including our Term Loan Agreement and other lines of credit we have established from time to time. We also occasionally obtain financing from the sale of our common stock upon exercise of stock options. As of December 31, 2024, we had unrestricted cash and cash equivalents of $99.5 million and available borrowing capacity of up to $100.0 million under the Revolving Credit Agreement.
Going Concern Considerations
During the second quarter of 2024, in evaluating the Company’s ability to continue as a going concern, the Company took into account the potential mitigating effects of management’s previously disclosed plans to mitigate the substantial doubt about the Company’s ability to continue as a going concern, which plans had not yet been fully implemented. During the third quarter of 2024, the Company made significant progress implementing these plans, which progress is described below. As a result, the Company concluded that as of September 30, 2024, it alleviated substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the third quarter financial statements were issued.
During the third quarter of 2024, the Company entered into the Term Loan Agreement, which provides for a Term Loan of $250.0 million, and the Revolving Credit Agreement, which provides for Revolving Loans of up to $100.0 million, which have maturity dates that can extend through the second quarter of 2029. Also during the third quarter of 2024, the Company repaid all amounts outstanding under its Prior Credit Agreement. As of December 31, 2024, there was $250.0 million outstanding under the Term Loan Agreement and no outstanding Revolving Loans. For more information about the new Senior Secured Credit Facilities, see Note 10, “Debt” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
During the year ended December 31, 2024, the Company generated cash through the sale of certain assets, including the RSDL® Transaction, which provided for a cash purchase price of approximately $75.0 million; and the Camden Transaction, which provided for a cash purchase price of approximately $35.0 million. Additionally, the Company received funds of $50.0 million in connection with the Settlement Agreement with Janssen related to the 2022 termination of the Janssen Agreement. See Note 3, “Divestitures” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K for additional information related to RSDL® Transaction and Camden Transaction and Note 19, “Litigation” in the Notes to Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for additional information related to the accounting treatment and settlement of the arbitration with Janssen.
83
Additionally, the Company has realized positive operational impacts of its restructuring and cost savings initiatives, including the closure of certain Bioservices facilities and reductions in force.
As of December 31, 2024, the Company had unrestricted cash and cash equivalents of $99.5 million and available borrowing capacity of up to $100.0 million under the Revolving Credit Agreement. The Company believes that its sources of liquidity, including debt and cash flows from operating activities, are adequate to fund its operations for at least the next twelve months from the issuance of these consolidated financial statements.
At-the-Market Equity Offering Facility
In May 2023, the Company established an at-the-market equity offering program (the "ATM Program") pursuant to which the Company may, from time to time, sell up to $150.0 million aggregate gross sales price of shares of its common stock through Evercore Group L.L.C. and RBC Capital Markets, LLC, as sales agents. There were no sales of the Company’s common stock under the ATM Program during the year ended December 31, 2024. Our Registration Statement on Form S-3 related to the ATM Program expired on August 9, 2024. The Company cannot sell any shares under the ATM Program until a new Registration Statement on Form S-3 is filed and becomes effective. During the second quarter of 2023, we sold 1.1 million shares of our common stock under the ATM Program for gross proceeds of $9.1 million, representing an average price of $8.22 per share. As of December 31, 2024, $140.9 million aggregate gross sales price of shares of the Company’s common stock remains available for issuance under the ATM Program.
Cash Flows
The following table provides information regarding our cash flows for the years ended December 31, 2024 and 2023.
Year Ended December 31,
Net cash provided by (used in):
Operating activities $ 58.7 $ (206.3)
Net change in cash, cash equivalents and restricted cash $ (6.1) $ (530.9)
Operating Activities:
Net cash provided by operating activities increased $265.0 million in 2024. The increase in net cash provided by operating activities was primarily due to positive changes in operating assets and liabilities of $159.0 million, driven largely by a decrease to Prepaid and other assets related to the write-down to net realizable values of the assets classified within “Other long term assets” related to the Janssen Agreement and Settlement Agreement. Additionally, net loss decreased by $569.9 million, offset by a positive change in Goodwill impairment and Impairment of long lived assets of $218.2 million and $279.5 million, respectively.
Investing Activities:
Net cash provided by investing activities decreased $87.1 million in 2024. The decrease in net cash provided by investing activities was primarily due to the proceeds received from the sale of the travel health business during the second quarter of 2023 of $270.2 million, partially offset by proceeds received in 2024 related to the RSDL® Transaction and the sale of the Baltimore-Camden facility of $110.2 million, milestone payments received in 2024 related to an asset divestiture of $30.0 million, and a lower capital expenditures of $28.7 million.
Financing Activities:
Net cash used in financing activities decreased $345.7 million in 2024. The decrease in cash used in financing activities was primarily due to proceeds from the Company's new Term Loan Agreement and a reduction in principal payments and proceeds on the revolving credit facility under the Prior Credit Agreement, partially offset by an increase in payments related to the prior Term Loan Facility and an increase in debt issuance costs associated with entry into the Term Loan Agreement and Revolving Credit Agreement.
84
Debt
As of December 31, 2024, the Company has $700.0 million of fixed and variable rate debt with varying maturities, with no payable amounts within 12 months (see Note 10, “Debt” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K).
Uncertainties and Trends Affecting Funding Requirements
We expect to continue to fund our short-term and long-term anticipated operating expenses, capital expenditures and debt service requirements from the following sources:
•existing cash and cash equivalents;
•net proceeds from the sale of our products and Bioservices;
•development contracts and grant funding;
•proceeds from potential asset sales; and
•our Term Loan Agreement and Revolving Loans.
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 Bioservices;
•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; and
•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, collaboration and licensing arrangements, cost reductions, assets sales or a combination of these options.
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 and our 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, may make it more difficult to obtain financing on attractive terms, or at all. Any new debt funding, if available, may be on terms less favorable to us than our Senior Unsecured Notes or our Senior Secured Credit Facilities. 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.
85
Unused Credit Capacity
Available room under the Revolving Loans as of December 31, 2024 and the revolver under the Prior Credit Agreement as of December 31, 2023 was:
December 31,
Less:
Outstanding Letters of Credit(1) — 0.5
Outstanding Indebtedness — 219.2
Contractual Obligations
As of December 31, 2024, 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, 2024, the Company had fixed lease payment obligations of $15.3 million, with $3.6 million due within 12 months. The Company has non-cancelable purchase commitments of $632.4 million, with an estimated $195.6 million being due within 12 months.
Critical Accounting Policies and Estimates
Our consolidated financial statements and related disclosures are prepared in accordance with U.S. 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 Bioservices 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 Accounting Standards Codification ("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.
MCM product revenues are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with customers. The Company's contracts for the sale of MCM products include certain acceptance criteria before title passes to the customer. MCM product revenue is recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
86
The Company's NARCAN® customer contracts, including OTC NARCAN® customer contracts, are fixed price contracts. For the majority of the Company's OTC NARCAN® contracts, the Company invoices and records revenue when the customers receive product from the third-party logistics warehouse used by the Company, which is the point at which control is transferred to the customer. Revenues for these OTC NARCAN® arrangements are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Estimates of variable consideration includes allowance for returns under direct retailer contracts, specialty distributor fees, wholesaler fees, prompt payment discounts and government rebates. OTC NARCAN® may also be sold on consignment through third-party online retailers where revenues are recognized point in time when sold to the end customer. The Company pays these third-party online retailers selling commissions and fulfillment fees which are recorded as "Selling general and administrative expenses" and "Cost of Commercial Product Sales", respectively, in the Consolidated Statement of Operations. Revenues from OTC NARCAN® are 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. For contracts with direct retailers, the Company considers several factors in the estimation process for the allowance for returns of OTC NARCAN®, including inventory levels within the distribution channel and historical return activity, including activity for product sold for which the return period has passed, as well as other relevant factors. As returned product cannot be resold, there is no corresponding asset for product returns.
For additional information on our revenues, refer to Note 13, "Revenue recognition" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
Contingent Consideration
The Company's acquisitions accounted for as asset acquisitions may include contingent consideration payments to be made for sales-based royalties, sales-based milestones and development and regulatory milestones. We assess whether such contingent consideration meets the definition of a derivative. Contingent consideration payments in an asset acquisition not required to be accounted for as derivatives are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Contingent consideration payments required to be accounted for as derivatives are recorded at fair value on the date of the acquisition and are subsequently remeasured to fair value at each reporting date. For additional information on the Company's contingent consideration, refer to Note 8, "Fair value measurements" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
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 15, "Income taxes" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
Long-lived assets
Long-lived assets such as finite lived intangible assets and property, plant and equipment are not required to be tested for impairment annually, instead they are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability of assets to be held and used by a comparison of the carrying value of the assets with future undiscounted net cash flows expected to be generated by the assets. We group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset group, we estimate the fair value of the asset group to determine whether an impairment loss should be recognized. 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. 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
87
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.
During the second quarter of 2024, due to the decision to close the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility, the Company determined there were sufficient indicators of impairment for the Bayview and Rockville asset groups within the Bioservices reporting unit to require an impairment analysis. As a result, the Company performed recoverability tests on those asset groups and concluded that the Bayview and Rockville asset groups were not recoverable as the undiscounted expected cash flows did not exceed their carrying values. Based on these analyses, the Company allocated and recognized a non-cash impairment charge of $27.2 million during 2024.
Inventories, net
Inventories are stated at the lower of cost or net realizable value with cost being determined using a standard cost method, which approximates actual cost. Actual 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. For internally manufactured inventory, 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 combinations 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. The Company analyzes its inventory each reporting period and records a reserve to reduce the cost basis to net realizable value for inventory that has become obsolete, expired, slow-moving or short-dated based on customer requirements. Reserves for excess and obsolete inventory are relieved when the related inventory is disposed of through scrap or sale.
Significant New Accounting Pronouncements
See Note 2, “Summary of significant accounting policies” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
88
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 2024 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. We terminated our interest rate swaps in June 2023, and we are satisfied with the current fix-float mix of the Company's debt portfolio. Floating rate debt carries interest based generally on the secured overnight financing rate ("SOFR"), as defined in our Term Loan Agreement, plus an applicable margin. Increases in interest rates could result in an increase in interest payments for our floating rate debt. See Note 10, "Debt" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.
From time to time, we may use derivative instruments to manage our interest rate risk and market risk exposure.
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 SOFR rate as of December 31, 2024 would increase our interest expense by approximately $2.5 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, Singapore dollar 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.
89
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Emergent BioSolutions Inc. and Subsidiaries
Index to Consolidated Financial Statements Page
Report of Independent Registered Public Accounting Firm 91
Notes to Consolidated Financial Statements 98
90
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, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 March 3, 2025 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 account or disclosure to which it relates.
91
Reserve for Excess and Obsolete Inventories
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2004.
Tysons, Virginia
March 3, 2025
92
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions, except per share data)
December 31,
ASSETS
Current assets:
Cash and cash equivalents $ 99.5 $ 111.7
Restricted cash 6.1 —
Prepaid expenses and other current assets 26.9 47.9
Property, plant and equipment, net 270.6 382.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Debt, current portion — 413.7
Other current liabilities 27.7 32.7
Deferred tax liability 41.7 47.2
Stockholders’ equity:
Treasury stock, at cost, 5.6 and 5.6 common shares, respectively (227.7) (227.7)
Accumulated other comprehensive loss, net (5.2) (5.7)
Total liabilities and stockholders’ equity $ 1,389.7 $ 1,823.2
The accompanying notes are an integral part of the consolidated financial statements.
93
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
(in millions, except per share data)
Year Ended December 31,
Revenues:
Bioservices:
Operating expenses:
Amortization of intangible assets 65.1 65.6 59.9
Goodwill impairment — 218.2 6.7
Impairment of long-lived assets 27.2 306.7 —
Other income (expense):
Gain on sale of business 24.3 74.2 —
Total other income (expense), net (34.2) (4.8) (49.0)
Income tax provision (benefit) 47.7 29.3 (7.4)
Loss per common share
Weighted average shares outstanding
(1) Exclusive of intangible assets amortization
The accompanying notes are an integral part of the consolidated financial statements.
94
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(in millions)
Year Ended December 31,
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net 0.5 0.9 1.0
Unrealized gains on hedging activities — 2.7 10.8
Reclassification adjustment for gains on hedging activities — (8.9) (0.1)
Total other comprehensive income (loss), net of tax 0.5 (8.8) 19.2
The accompanying notes are an integral part of the consolidated financial statements.
95
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in millions)
Year Ended December 31,
Operating Activities
Share-based compensation expense 18.0 23.1 45.1
Change in fair value of contingent obligations, net 0.6 0.2 2.6
Amortization of deferred financing costs 7.4 21.3 4.1
Deferred income taxes (5.5) (8.9) (28.6)
Noncash gain on sale of business (32.2) (74.2) —
Change in fair value of warrant and forward liabilities 1.1 — —
Goodwill impairment — 218.2 6.7
Impairment of long-lived assets 27.2 306.7 —
Changes in operating assets and liabilities:
Prepaid expenses and other assets 169.9 11.7 (19.9)
Accrued expenses and other liabilities 12.3 (55.7) (66.7)
Long-term incentive plan accrual 3.6 4.8 —
Income taxes receivable and payable, net 23.3 (16.2) 28.7
Net cash provided by (used in) operating activities 58.7 (206.3) (34.1)
Investing Activities
Purchases of property, plant and equipment (22.9) (51.6) (115.8)
Proceeds from sale of property, plant and equipment 7.9 — —
Royalty settlement payment — — (21.8)
Milestone payments from prior asset divestiture (acquisition) 30.0 (6.3) —
Asset acquisitions — — (243.7)
Proceeds from sale of business 110.2 270.2 —
Net cash provided by (used in) investing activities 125.2 212.3 (381.3)
Financing Activities
Proceeds from the issuance of debt, net of lender fees 219.0 — —
Proceeds allocated to warrants issued in conjunction with debt 13.4 — —
Proceeds allocated to common stock issued in conjunction with debt 9.3 — —
Purchases of treasury stock — — (82.1)
Proceeds from revolving credit facility 65.0 20.0 598.0
Principal payments on revolving credit facility (284.2) (398.8) —
Principal payments on term loan facility (198.2) (164.6) (33.8)
Debt issuance costs (14.6) — —
Proceeds from share-based compensation activity 1.5 1.8 5.0
Taxes paid for share-based compensation activity (1.2) (2.5) (5.9)
Net cash provided by (used in) financing activities: (190.0) (535.7) 481.2
Net change in cash, cash equivalents and restricted cash (6.1) (530.9) 66.3
Supplemental cash flow disclosures:
Cash paid for income taxes, net of refunds $ 26.5 $ 52.8 $ 6.2
Non-cash investing and financing activities:
Gain on extinguishments of debt $ 0.6 $ 2.5 $ —
Issuance of common stock in conjunction with debt $ 7.7 $ — $ —
Reconciliation of cash and cash equivalents and restricted cash:
Restricted cash 6.1 — —
The accompanying notes are an integral part of the consolidated financial statements.
96
Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
(in millions, except per share data)
Shares Amount Shares Amount
Other comprehensive income, net of tax — — — — — 19.2 — 19.2
Share-based compensation activity 0.6 — 44.1 — — — — 44.1
Repurchases of common stock — — — (1.8) (75.5) — — (75.5)
Other comprehensive loss, net of tax — — — — — (8.8) — (8.8)
Share-based compensation activity 1.0 — 22.5 — — — — 22.5
Other comprehensive loss, net of tax — — — — — 0.5 — 0.5
Share-based compensation activity 1.0 — 15.9 — — — — 15.9
Issuance of common stock 1.1 — 7.7 — — — — 7.7
The accompanying notes are an integral part of the consolidated financial statements.
97
Emergent BioSolutions Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(dollar and share amounts in tables expressed in millions, except per share data)
1. Nature of the business and organization
Organization and business
Emergent BioSolutions Inc. (“Emergent,” the “Company,” “we,” “us,” and “our”) 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 four PHT categories: chemical, biological, radiological, nuclear and explosives (“CBRNE”); emerging infectious diseases (“EID”); emerging health crises; and acute, emergency and community care. The Company has a product portfolio of 10 products (vaccines, therapeutics, and drug-device combination products). The revenue generated by the products comprises a substantial portion of the Company's revenue. The Company structures the business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: Anthrax - Medical Countermeasures (“MCM”) Products, NARCAN® commercial product, Smallpox - MCM products and Emergent Bioservices (CDMO) (“Bioservices”).
The Company manages the business with a focus on three operating segments: (1) a Commercial Products segment consisting of NARCAN® Nasal Spray and other commercial products that were sold as part of our travel health business in the second quarter of 2023 (see Note 3, “Divestitures” for more information on the sale of the travel health business); (2) a MCM Products segment consisting of our Anthrax - MCM, Smallpox - MCM and Other Products, described below and (3) a Services segment consisting of our Bioservices offerings (See Note 18, “Segment information” for more information on our reportable segments).
The Company's products and services include:
Commercial Products Segment:
NARCAN®
•NARCAN® (naloxone HCl) Nasal Spray is an intranasal formulation of naloxone approved by the United States Food and Drug Administration (“FDA”) (including in over-the-counter form) and Health Canada for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression.
Sale of Travel Health Business
On May 15, 2023, the Company completed the sale of its Commercial Products segment's travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California. For additional information, refer to Note 3, “Divestitures”.
MCM Products Segment:
Anthrax - MCM Products
•Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax in combination with appropriate antibacterial drugs;;
•BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
•CYFENDUS® (Anthrax vaccine adsorbed (AVA), adjuvanted), previously known as AV7909, which was recently approved by the FDA for post-exposure prophylaxis of disease following suspected or confirmed exposure to Bacillus anthracis in persons 18 through 65 years of age when administered in conjunction with recommended antibacterial drugs. CYFENDUS® is procured by certain authorized government buyers for their use; and
•Raxibacumab injection, the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax.
98
Smallpox - MCM Products
•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;
•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; and
•TEMBEXA®, an oral antiviral formulated as 100 mg tablets and 10 mg/mL oral suspension dosed once weekly for two weeks which has been approved by the FDA for the treatment of smallpox disease caused by variola virus in adult and pediatric patients, including neonates.
Other Products
•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 symptomatic botulism; and
•EbangaTM (ansuvimab-zykl), a monoclonal antibody with antiviral activity provided through a single IV infusion for the treatment of Ebola. Under the terms of a collaboration with Ridgeback Biotherapeutics (“Ridgeback”), Emergent will be responsible for the manufacturing, sale, and distribution of EbangaTM in the U.S. and Canada, and Ridgeback will serve as the global access partner for EbangaTM.
Trobigard Revocation
On April 2, 2024, the Belgium Federal Agency for Medicines and Health Products acknowledged and confirmed Emergent’s request to revoke the Market Authorization for the Trobigard Auto-Injector.
Sale of RSDL®
On July 31, 2024, the Company entered into the Stock and Asset Purchase Agreement (the “RSDL® Agreement”) with SERB Pharmaceuticals, through its wholly owned subsidiary BTG International Inc. (collectively, “SERB”), pursuant to which, among other things, the Company sold its worldwide rights to RSDL® to SERB (the “RSDL® Transaction”). See Note 3, “Divestitures” for more information on the RSDL® Transaction.
Services Segment:
Bioservices - CDMO
The Company’s services revenue consists of distinct but interrelated bioservices: 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 the Company refers to as “molecule-to-market” offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network of development and manufacturing sites operated by the Company for its internal products and pipeline candidates and third-party bioservices. The Company services both clinical-stage and commercial-stage projects for a variety of third-party customers, including government agencies, innovative pharmaceutical companies, and non-government organizations. In August 2023, the Company initiated an organizational restructuring plan (the “August 2023 Plan”) which included actions to reduce investment in and de-emphasize focus on its Bioservices business. In May 2024, the Company initiated a further organizational restructuring plan (the “May 2024 Plan”) announcing the closure of the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility. Additionally, on August 20, 2024, pursuant to the previously announced Asset Purchase Agreement (the “Asset Purchase Agreement”), the Company completed the sale of its Drug Product facility in Baltimore-Camden (the “Camden Transaction”) to Bora Pharmaceuticals Injectables Inc., a subsidiary of Bora Pharmaceuticals Co., Ltd. (“Bora”). See Note 3, “Divestitures” and Note 4, “Impairment and restructuring charges” for more information related to these announcements.
99