000136764412/31false2022Q1http://fasb.org/us-gaap/2021-01-31#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2021-01-31#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesNoncurrent12P9MP1YP1YP1Y33.3333.3333.3333.3333.3333.3300013676442022-01-012022-03-3100013676442022-04-22xbrli:shares00013676442022-03-31iso4217:USD00013676442021-12-31iso4217:USDxbrli:shares0001367644us-gaap:ProductMember2022-01-012022-03-310001367644us-gaap:ProductMember2021-01-012021-03-310001367644us-gaap:ServiceMember2022-01-012022-03-310001367644us-gaap:ServiceMember2021-01-012021-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2022-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2021-01-012021-03-310001367644ebs:ContractDevelopmentAndManufacturingMember2022-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingMember2021-01-012021-03-310001367644ebs:ContractsAndGrantsMember2022-01-012022-03-310001367644ebs:ContractsAndGrantsMember2021-01-012021-03-3100013676442021-01-012021-03-3100013676442020-12-3100013676442021-03-310001367644us-gaap:CommonStockMember2021-12-310001367644us-gaap:TreasuryStockMember2021-12-310001367644us-gaap:AdditionalPaidInCapitalMember2021-12-310001367644us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001367644us-gaap:RetainedEarningsMember2021-12-310001367644us-gaap:CommonStockMember2022-01-012022-03-310001367644us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001367644us-gaap:RetainedEarningsMember2022-01-012022-03-310001367644us-gaap:TreasuryStockMember2022-01-012022-03-310001367644us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001367644us-gaap:CommonStockMember2022-03-310001367644us-gaap:TreasuryStockMember2022-03-310001367644us-gaap:AdditionalPaidInCapitalMember2022-03-310001367644us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001367644us-gaap:RetainedEarningsMember2022-03-310001367644us-gaap:CommonStockMember2020-12-310001367644us-gaap:TreasuryStockMember2020-12-310001367644us-gaap:AdditionalPaidInCapitalMember2020-12-310001367644us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001367644us-gaap:RetainedEarningsMember2020-12-310001367644us-gaap:CommonStockMember2021-01-012021-03-310001367644us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001367644us-gaap:RetainedEarningsMember2021-01-012021-03-310001367644us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001367644us-gaap:CommonStockMember2021-03-310001367644us-gaap:TreasuryStockMember2021-03-310001367644us-gaap:AdditionalPaidInCapitalMember2021-03-310001367644us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001367644us-gaap:RetainedEarningsMember2021-03-31ebs:categoryebs:productebs:productCandidateebs:segment0001367644us-gaap:LandAndLandImprovementsMember2022-03-310001367644us-gaap:LandAndLandImprovementsMember2021-12-310001367644us-gaap:BuildingAndBuildingImprovementsMember2022-03-310001367644us-gaap:BuildingAndBuildingImprovementsMember2021-12-310001367644us-gaap:FurnitureAndFixturesMember2022-03-310001367644us-gaap:FurnitureAndFixturesMember2021-12-310001367644us-gaap:ComputerSoftwareIntangibleAssetMember2022-03-310001367644us-gaap:ComputerSoftwareIntangibleAssetMember2021-12-310001367644us-gaap:ConstructionInProgressMember2022-03-310001367644us-gaap:ConstructionInProgressMember2021-12-31xbrli:pure0001367644us-gaap:ProductMembersrt:MinimumMember2022-01-012022-03-310001367644srt:MaximumMemberus-gaap:ProductMember2022-01-012022-03-310001367644us-gaap:ProductMember2022-03-310001367644us-gaap:ProductMember2021-12-310001367644us-gaap:CustomerRelationshipsMember2022-01-012022-03-310001367644us-gaap:CustomerRelationshipsMember2022-03-310001367644us-gaap:CustomerRelationshipsMember2021-12-310001367644ebs:ContractDevelopmentAndManufacturingMember2022-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingMember2022-03-310001367644ebs:ContractDevelopmentAndManufacturingMember2021-12-310001367644us-gaap:MoneyMarketFundsMember2022-03-310001367644us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2022-03-310001367644us-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2022-03-310001367644us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2022-03-310001367644us-gaap:MoneyMarketFundsMember2021-12-310001367644us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2021-12-310001367644us-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2021-12-310001367644us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2021-12-310001367644us-gaap:BankTimeDepositsMember2022-03-310001367644us-gaap:BankTimeDepositsMemberus-gaap:FairValueInputsLevel1Member2022-03-310001367644us-gaap:FairValueInputsLevel2Memberus-gaap:BankTimeDepositsMember2022-03-310001367644us-gaap:BankTimeDepositsMemberus-gaap:FairValueInputsLevel3Member2022-03-310001367644us-gaap:BankTimeDepositsMember2021-12-310001367644us-gaap:BankTimeDepositsMemberus-gaap:FairValueInputsLevel1Member2021-12-310001367644us-gaap:FairValueInputsLevel2Memberus-gaap:BankTimeDepositsMember2021-12-310001367644us-gaap:BankTimeDepositsMemberus-gaap:FairValueInputsLevel3Member2021-12-310001367644us-gaap:FairValueInputsLevel1Member2022-03-310001367644us-gaap:FairValueInputsLevel2Member2022-03-310001367644us-gaap:FairValueInputsLevel3Member2022-03-310001367644us-gaap:FairValueInputsLevel1Member2021-12-310001367644us-gaap:FairValueInputsLevel2Member2021-12-310001367644us-gaap:FairValueInputsLevel3Member2021-12-310001367644us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-03-310001367644us-gaap:FairValueMeasurementsRecurringMembersrt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputDiscountRateMemberus-gaap:ValuationTechniqueDiscountedCashFlowMember2022-03-310001367644us-gaap:FairValueMeasurementsRecurringMembersrt:WeightedAverageMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputDiscountRateMemberus-gaap:ValuationTechniqueDiscountedCashFlowMember2022-03-310001367644us-gaap:FairValueMeasurementsRecurringMembersrt:MinimumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueDiscountedCashFlowMemberebs:MeasurementInputProbabilityofPaymentMember2022-03-310001367644us-gaap:FairValueMeasurementsRecurringMembersrt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueDiscountedCashFlowMemberebs:MeasurementInputProbabilityofPaymentMember2022-03-310001367644us-gaap:FairValueMeasurementsRecurringMembersrt:WeightedAverageMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueDiscountedCashFlowMemberebs:MeasurementInputProbabilityofPaymentMember2022-03-310001367644us-gaap:SeniorNotesMemberebs:SeniorUnsecuredNotesDueAugust2028Member2021-12-310001367644us-gaap:SeniorNotesMemberebs:SeniorUnsecuredNotesDueAugust2028Member2022-03-310001367644us-gaap:InterestRateSwapMember2022-01-012022-03-310001367644us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2022-03-31ebs:instrument0001367644us-gaap:OtherCurrentAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2022-03-310001367644us-gaap:OtherCurrentAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2021-12-310001367644us-gaap:OtherCurrentLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2022-03-310001367644us-gaap:OtherCurrentLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2021-12-310001367644us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMemberus-gaap:OtherAssetsMember2022-03-310001367644us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMemberus-gaap:OtherAssetsMember2021-12-310001367644us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMember2022-03-310001367644us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMemberus-gaap:OtherLiabilitiesMember2021-12-310001367644us-gaap:InterestRateSwapMember2021-10-012021-12-310001367644us-gaap:CashFlowHedgingMemberus-gaap:InterestExpenseMemberus-gaap:InterestRateSwapMember2022-01-012022-03-310001367644us-gaap:CashFlowHedgingMemberus-gaap:InterestExpenseMemberus-gaap:InterestRateSwapMember2021-01-012021-03-310001367644us-gaap:NotesPayableOtherPayablesMember2022-03-310001367644us-gaap:NotesPayableOtherPayablesMember2021-12-310001367644us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2022-03-310001367644us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2021-12-310001367644ebs:OtherLongTermDebtFacilityMember2022-03-310001367644ebs:OtherLongTermDebtFacilityMember2021-12-310001367644us-gaap:LineOfCreditMember2022-03-310001367644us-gaap:LineOfCreditMember2021-12-310001367644us-gaap:OtherCurrentAssetsMember2022-03-310001367644us-gaap:OtherAssetsMember2022-03-310001367644us-gaap:SeniorNotesMemberebs:SeniorUnsecuredNotesDueAugust2028Member2020-08-070001367644us-gaap:DebtInstrumentRedemptionPeriodOneMemberebs:SeniorUnsecuredNotesDueAugust2028Member2020-08-072020-08-070001367644srt:MaximumMemberus-gaap:DebtInstrumentRedemptionPeriodOneMemberebs:SeniorUnsecuredNotesDueAugust2028Member2020-08-072020-08-070001367644srt:MaximumMemberus-gaap:DebtInstrumentRedemptionPeriodTwoMemberebs:SeniorUnsecuredNotesDueAugust2028Member2020-08-072020-08-070001367644ebs:AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-08-070001367644ebs:TermLoanFacilityMemberebs:AmendedCreditAgreementMember2020-08-070001367644us-gaap:EurodollarMembersrt:MinimumMemberebs:AmendedCreditAgreementMember2020-08-072020-08-070001367644us-gaap:EurodollarMembersrt:MaximumMemberebs:AmendedCreditAgreementMember2020-08-072020-08-070001367644us-gaap:FederalFundsEffectiveSwapRateMemberebs:AmendedCreditAgreementMember2020-08-072020-08-070001367644us-gaap:EurodollarMemberebs:AmendedCreditAgreementMember2020-08-072020-08-070001367644srt:MinimumMemberebs:AmendedCreditAgreementMemberus-gaap:BaseRateMember2020-08-072020-08-070001367644srt:MaximumMemberebs:AmendedCreditAgreementMemberus-gaap:BaseRateMember2020-08-072020-08-070001367644srt:MinimumMemberebs:AmendedCreditAgreementMember2020-08-072020-08-070001367644srt:MaximumMemberebs:AmendedCreditAgreementMember2020-08-072020-08-070001367644ebs:TermLoanFacilityMemberebs:AmendedCreditAgreementMember2020-08-072020-08-0700013676442020-08-072020-08-070001367644country:USus-gaap:ProductMember2022-01-012022-03-310001367644us-gaap:ProductMemberus-gaap:NonUsMember2022-01-012022-03-310001367644country:USus-gaap:ProductMember2021-01-012021-03-310001367644us-gaap:ProductMemberus-gaap:NonUsMember2021-01-012021-03-310001367644us-gaap:ServiceMembercountry:US2022-01-012022-03-310001367644us-gaap:ServiceMemberus-gaap:NonUsMember2022-01-012022-03-310001367644us-gaap:ServiceMembercountry:US2021-01-012021-03-310001367644us-gaap:ServiceMemberus-gaap:NonUsMember2021-01-012021-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMembercountry:US2022-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMemberus-gaap:NonUsMember2022-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMembercountry:US2021-01-012021-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMemberus-gaap:NonUsMember2021-01-012021-03-310001367644country:USebs:ContractDevelopmentAndManufacturingMember2022-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingMemberus-gaap:NonUsMember2022-01-012022-03-310001367644country:USebs:ContractDevelopmentAndManufacturingMember2021-01-012021-03-310001367644ebs:ContractDevelopmentAndManufacturingMemberus-gaap:NonUsMember2021-01-012021-03-310001367644country:USebs:ContractsAndGrantsMember2022-01-012022-03-310001367644ebs:ContractsAndGrantsMemberus-gaap:NonUsMember2022-01-012022-03-310001367644country:USebs:ContractsAndGrantsMember2021-01-012021-03-310001367644ebs:ContractsAndGrantsMemberus-gaap:NonUsMember2021-01-012021-03-310001367644country:US2022-01-012022-03-310001367644us-gaap:NonUsMember2022-01-012022-03-310001367644country:US2021-01-012021-03-310001367644us-gaap:NonUsMember2021-01-012021-03-310001367644ebs:BARDAMember2020-12-310001367644ebs:ReservationOfManufacturingCapacityMemberebs:BARDAMember2020-12-310001367644ebs:BARDAMemberebs:AcceleratedExpansionOfFillFinishCapacityMember2020-12-310001367644ebs:BARDAMember2022-03-310001367644us-gaap:NonUsMember2022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2022-04-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2023-01-012022-03-3100013676442024-01-01ebs:ContractDevelopmentAndManufacturingLeasesMember2022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2025-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2026-01-012022-03-310001367644ebs:ContractDevelopmentAndManufacturingLeasesMember2022-03-3100013676442022-04-012022-03-310001367644srt:ScenarioForecastMember2022-01-012022-12-3100013676442021-01-012021-12-3100013676442021-11-110001367644us-gaap:TreasuryStockMember2021-11-112022-03-310001367644us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001367644us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001367644us-gaap:CostOfSalesMemberus-gaap:ProductMember2022-01-012022-03-310001367644us-gaap:CostOfSalesMemberus-gaap:ProductMember2021-01-012021-03-310001367644us-gaap:ServiceMemberus-gaap:CostOfSalesMember2022-01-012022-03-310001367644us-gaap:ServiceMemberus-gaap:CostOfSalesMember2021-01-012021-03-310001367644us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310001367644us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001367644us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-03-310001367644us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-03-310001367644us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2021-12-310001367644us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-12-310001367644us-gaap:AccumulatedTranslationAdjustmentMember2021-12-310001367644us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2022-01-012022-03-310001367644us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-01-012022-03-310001367644us-gaap:AccumulatedTranslationAdjustmentMember2022-01-012022-03-310001367644us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2022-03-310001367644us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-03-310001367644us-gaap:AccumulatedTranslationAdjustmentMember2022-03-310001367644us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2020-12-310001367644us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-12-310001367644us-gaap:AccumulatedTranslationAdjustmentMember2020-12-310001367644us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2021-01-012021-03-310001367644us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-01-012021-03-310001367644us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-03-310001367644us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember2021-03-310001367644us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-03-310001367644us-gaap:AccumulatedTranslationAdjustmentMember2021-03-310001367644us-gaap:EmployeeStockOptionMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-03-310001367644us-gaap:RestrictedStockUnitsRSUMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-03-310001367644us-gaap:EmployeeStockOptionMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2022-01-012022-03-310001367644us-gaap:ShareBasedCompensationAwardTrancheTwoMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001367644us-gaap:EmployeeStockOptionMemberus-gaap:ShareBasedCompensationAwardTrancheThreeMember2022-01-012022-03-310001367644us-gaap:RestrictedStockUnitsRSUMemberus-gaap:ShareBasedCompensationAwardTrancheThreeMember2022-01-012022-03-310001367644ebs:ProductsSegmentMember2022-01-012022-03-310001367644ebs:ServicesSegmentMember2022-01-012022-03-310001367644us-gaap:MaterialReconcilingItemsMember2022-01-012022-03-310001367644ebs:ProductsSegmentMember2021-01-012021-03-310001367644ebs:ServicesSegmentMember2021-01-012021-03-310001367644us-gaap:MaterialReconcilingItemsMember2021-01-012021-03-310001367644ebs:ContractsAndGrantsMemberus-gaap:MaterialReconcilingItemsMember2022-01-012022-03-310001367644ebs:ContractsAndGrantsMemberus-gaap:MaterialReconcilingItemsMember2021-01-012021-03-310001367644ebs:ProductsSegmentMemberus-gaap:ProductMember2022-01-012022-03-310001367644ebs:ProductsSegmentMemberus-gaap:ProductMember2021-01-012021-03-310001367644us-gaap:ServiceMemberebs:ServicesSegmentMember2022-01-012022-03-310001367644us-gaap:ServiceMemberebs:ServicesSegmentMember2021-01-012021-03-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-33137
ebs-20220331_g1.jpg
EMERGENT BIOSOLUTIONS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 14-1902018
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
400 Professional Drive Suite 400
Gaithersburg, Maryland 20879
(Address and zip code of Principal Executive Offices)
(240) 631-3200
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, Par Value $0.001 per share EBS New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 22, 2022 the registrant had 50,243,624 shares of common stock outstanding.
1


Emergent BioSolutions Inc.
Form 10-Q
For the Fiscal Quarter Ended March 31, 2022
TABLE OF CONTENTS
Page
5
 
5
 
6
 
7
 
8
 
9
 
 


2

EMERGENT BIOSOLUTIONS INC.
PART I. FINANCIAL INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q and the documents we incorporate by reference include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding the future earnings and performance of Emergent BioSolutions Inc. or any of our businesses, our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management and the ongoing impact of the COVID-19 pandemic, are forward-looking statements. We generally identify forward-looking statements by using words like "will," "believes," "expects," "anticipates," "intends," "plans," "forecasts," "estimates" and similar expressions in conjunction with, among other things, discussions of financial performance or financial condition, growth strategy, product sales, manufacturing capabilities, product development and regulatory approvals or expenditures. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate. You should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. You are, therefore, cautioned not to place undue reliance on any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances.
There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements, including, among others:

the availability of U.S. Government (USG) funding for contracts related to procurement of our medical countermeasures, including AV7909 (Anthrax vaccine adsorbed (AVA), adjuvanted), BioThrax® (Anthrax Vaccine Adsorbed) and ACAM2000®, (Smallpox (Vaccinia) Vaccine, Live), among others, as well as contracts related to development of medical countermeasures.
our ability to meet our commitments to quality and manufacturing compliance at our manufacturing facilities, and the potential impact on our ability to continue production of bulk drug substance for Johnson & Johnson’s COVID-19 vaccine;
the impact of the generic marketplace on NARCAN® (naloxone HCI) Nasal Spray and future NARCAN sales;
our ability to perform under our contracts with the USG, including the timing of and specifications relating to deliveries;
our ability to provide contract development and manufacturing (CDMO) services for the development and/or manufacture of product and/or product candidates of our customers at required levels and on required timelines;
our ability to obtain and maintain regulatory approvals for our product candidates and the timing of any such approvals and our ability and the ability of our contractors and suppliers to maintain compliance with current good manufacturing practices and other regulatory obligations;
our ability to negotiate additional USG procurement or follow-on contracts for our Public Health Threat (PHT) products that have expired or will be expiring;
our ability to negotiate new CDMO contracts and the negotiation of further commitments related to the collaboration and deployment of capacity toward future commercial manufacturing under our existing CDMO contracts;
the outcomes associated with pending shareholder litigation and government investigations and their potential impact on our business;
our ability to comply with the operating and financial covenants required by our senior secured credit facilities (Senior Secured Credit Facilities) and our 3.875% Senior Unsecured Notes due 2028;
the procurement of products by USG entities under regulatory exemptions prior to approval by the U.S. Food and Drug Administration (FDA) and corresponding procurement by government entities outside of the United States under regulatory exemptions prior to approval by the corresponding regulatory authorities in the applicable country;
the extent of any ongoing impact of COVID-19 pandemic on our supply chains and potential future impact of any variants thereof on our markets, operations and employees as well as those of our customers and suppliers;
3

EMERGENT BIOSOLUTIONS INC.
the impact on our revenues from and duration of declines in sales of our vaccine products that target travelers due to the reduction of international travel caused by the COVID-19 pandemic;
our ability to identify and acquire companies, businesses, products or product candidates that satisfy our selection criteria;
our ability to commercialize, market and manufacture new product candidates successfully; and
the accuracy of our estimates regarding future revenues, expenses, capital requirements and needs for additional financing.

The foregoing sets forth many, but not all, of the factors that could cause actual results to differ from our expectations in any forward-looking statement. New factors emerge from time to time. and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. You should consider this cautionary statement, the risk factors identified in the sections entitled “Risk Factor Summary” and “Risk Factors” in this quarterly report on Form 10-Q and the risk factors identified in our other periodic reports filed with the Securities and Exchange Commission (SEC) when evaluating our forward-looking statements.
NOTE REGARDING COMPANY REFERENCES
References in this report to “Emergent,” the “Company,” “we,” “us,” and “our” refer to Emergent BioSolutions Inc. and its consolidated subsidiaries.
NOTE REGARDING TRADE NAMES
Emergent®, BioThrax®, BaciThrax®, RSDL®, BAT®, Trobigard®, Anthrasil®, CNJ-016®, ACAM2000®, Vivotif®, Vaxchora®, NARCAN® and any and all Emergent BioSolutions Inc. brands, products, services and feature names, logos and slogans are trademarks or registered trademarks of Emergent BioSolutions Inc. or its subsidiaries in the United States or other countries. All other brands, products, services and feature names or trademarks are the property of their respective owners.
4


ITEM 1. FINANCIAL STATEMENTS
Emergent BioSolutions Inc.
Condensed Consolidated Balance Sheets
(unaudited, in millions, except per share amounts)
  March 31, 2022 December 31, 2021
ASSETS  
Current assets:    
Cash and cash equivalents $ 435.8  $ 576.1 
Restricted cash 0.2  0.2 
Accounts receivable, net 181.8  274.7 
Inventories, net 400.7  350.8 
Prepaid expenses and other current assets 81.8  70.3 
Total current assets 1,100.3  1,272.1 
Property, plant and equipment, net 807.5  800.1 
Intangible assets, net 590.6  604.6 
Goodwill 224.9  224.9 
Other assets 57.1  57.3 
Total assets $ 2,780.4  $ 2,959.0 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 107.3  $ 128.9 
Accrued expenses 29.3  51.7 
Accrued compensation 56.4  88.7 
Debt, current portion 31.6  31.6 
Other current liabilities 24.6  72.9 
Total current liabilities 249.2  373.8 
Contingent consideration, net of current portion 4.4  4.5 
Debt, net of current portion 801.5  809.4 
Deferred tax liability 94.8  94.9 
Contract liabilities, net of current portion 5.9  4.7 
Other liabilities 49.3  52.7 
Total liabilities 1,205.1  1,340.0 
Stockholders' equity:
Preferred stock, $0.001 par value; 15.0 shares authorized, no shares issued or outstanding
—  — 
Common stock, $0.001 par value; 200.0 shares authorized, 55.3 and 55.1 shares issued; 50.4 and 51.3 shares outstanding, respectively
0.1  0.1 
Treasury stock, at cost, 4.9 and 3.8 common shares, respectively
(204.4) (152.2)
Additional paid-in capital 834.8  829.4 
Accumulated other comprehensive loss, net (9.3) (16.1)
Retained earnings 954.1  957.8 
Total stockholders' equity 1,575.3  1,619.0 
Total liabilities and stockholders' equity $ 2,780.4  $ 2,959.0 

See accompanying notes.
5


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Operations
(unaudited, in millions, except per share amounts)
 
Three Months Ended March 31,
 
2022 2021
Revenues:    
Product sales, net $ 237.1  $ 137.9 
Contract development and manufacturing:
Services 51.8  67.6 
Leases 9.0  116.2 
Total contract development and manufacturing 60.8  183.8 
Contracts and grants 9.6  21.3 
Total revenues 307.5  343.0 
Operating expenses:
Cost of product sales 80.3  52.6 
Cost of contract development and manufacturing 75.6  46.7 
Research and development 46.4  52.5 
Selling, general and administrative 84.8  80.9 
Amortization of intangible assets 14.0  14.9 
Total operating expenses 301.1  247.6 
Income (loss) from operations 6.4  95.4 
Other income (expense):
Interest expense (8.2) (8.5)
Other, net (2.0) (1.7)
Total other income (expense), net (10.2) (10.2)
Income (loss) before income taxes (3.8) 85.2 
Income taxes 0.1  (15.5)
Net income (loss) $ (3.7) $ 69.7 
Net income (loss) per common share
Basic $ (0.07) $ 1.31 
Diluted $ (0.07) $ 1.28 
Shares used in computing net income (loss) per common share
Basic 50.7  53.3 
Diluted 50.7  54.5 

See accompanying notes.
6


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited, in millions)
Three Months Ended March 31,
2022 2021
Net income (loss) $ (3.7) $ 69.7 
Other comprehensive income (loss), net of tax:
Foreign currency translation 0.5  (2.2)
Unrealized gains (losses) on hedging activities 6.3  3.1 
Total other comprehensive income (loss), net of tax 6.8  0.9 
Comprehensive income (loss), net of tax $ 3.1  $ 70.6 
    
See accompanying notes.
7


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)
 
Three Months Ended March 31,
2022 2021
Cash flows (used in) provided by operating activities:
Net income (loss) $ (3.7) $ 69.7 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Share-based compensation expense 9.9  10.5 
Depreciation and amortization 30.9  28.7 
Change in fair value of contingent consideration, net 0.5  1.1 
Amortization of deferred financing costs 1.0  1.0 
Deferred income taxes 1.9  (1.7)
Other 0.6  3.5 
Changes in operating assets and liabilities:
Accounts receivable 93.7  42.1 
Inventories (50.1) (99.9)
Prepaid expenses and other assets (16.6) (10.0)
Accounts payable (14.7) 20.1 
Accrued expenses and other liabilities (56.5) (40.0)
Accrued compensation (32.2) (29.4)
Contract liabilities (2.0) 9.4 
Net cash (used in) provided by operating activities: (37.3) 5.1 
Cash flows used in investing activities:
Purchases of property, plant and equipment (32.2) (56.1)
Net cash used in investing activities: (32.2) (56.1)
Cash flows used in financing activities:
Purchases of treasury stock (57.5) — 
Principal payments on term loan facility (8.5) (5.6)
Principal payments on convertible senior notes —  (10.6)
Proceeds from share-based compensation activity 0.5  6.9 
Taxes paid for share-based compensation activity (5.0) (12.2)
Contingent consideration payments —  (0.7)
Net cash used in financing activities: (70.5) (22.2)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (0.3) (0.3)
Net change in cash, cash equivalents and restricted cash (140.3) (73.5)
Cash, cash equivalents and restricted cash at beginning of period 576.3  621.5 
Cash, cash equivalents and restricted cash at end of period $ 436.0  $ 548.0 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 11.7  $ 12.4 
Cash paid during the period for income taxes $ 4.8  $ 1.5 
Supplemental information on non-cash investing and financing activities:
Purchases of property, plant and equipment unpaid at period end $ 13.3  $ 32.5 
Purchases of treasury stock $ 1.3  $ — 
Reconciliation of cash and cash equivalents and restricted cash at March 31, 2022 and December 31, 2021:
Cash and cash equivalents $ 435.8  $ 576.1 
Restricted cash 0.2  0.2 
Total $ 436.0  $ 576.3 

See accompanying notes.
8


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited, in millions)
 
$0.001 Par Value Common Stock
Treasury Stock
Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Stockholders' Equity
Shares Amount Shares Amount
Balance at December 31, 2021 55.1  $ 0.1  (3.8) $ (152.2) $ 829.4  $ (16.1) $ 957.8  $ 1,619.0 
Share-based compensation activity 0.2  —  —  —  5.4  —  —  5.4 
Net income (loss) —  —  —  —  —  —  (3.7) (3.7)
Repurchases of stock —  —  (1.1) (52.2) —  —  —  (52.2)
Other comprehensive income (loss), net of tax —  —  —  —  —  6.8  —  6.8 
Balance at March 31, 2022 55.3  $ 0.1  (4.9) $ (204.4) $ 834.8  $ (9.3) $ 954.1  $ 1,575.3 
Balance at December 31, 2020 54.3  $ 0.1  (1.2) $ (39.6) $ 784.9  $ (25.3) $ 726.9  $ 1,447.0 
Share-based compensation activity 0.5  —  —  —  5.2  —  —  5.2 
Net income (loss) —  —  —  —  —  —  69.7  69.7 
Other comprehensive income (loss), net of tax —  —  —  —  —  0.9  —  0.9 
Balance at March 31, 2021 54.8  $ 0.1  (1.2) $ (39.6) $ 790.1  $ (24.4) $ 796.6  $ 1,522.8 
See accompanying notes.
9

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

1.    Business
Overview
Emergent BioSolutions Inc. (the Company or Emergent) is a global life sciences company focused on providing innovative preparedness and response solutions addressing accidental, deliberate, and naturally occurring Public Health Threats (PHTs). The Company's solutions include a product portfolio, a product development portfolio, and a contract development and manufacturing (CDMO) services portfolio.
The Company is focused on the following five distinct PHT categories: chemical, biological, radiological, nuclear and explosives (CBRNE); emerging infectious diseases (EID); travel health; emerging health crises; and acute/emergency care. The Company has a product portfolio of eleven products (vaccines, therapeutics, and drug-device combination products) that contribute a substantial portion of its revenue. The Company has one product candidate that is procured under special circumstances by the U.S. government (USG), although it is not approved by the U.S. Food and Drug Administration (FDA). The Company structures the business with a focus on markets and customers. As such, the key components of the business structure include a Government - Medical Countermeasures (MCM) business line, a Commercial business line and a Services line focused on CDMO.
The Company's products and services include:
Government - MCM Products
AV7909®, is a procured product candidate being developed as a next generation anthrax vaccine for post-exposure prophylaxis of disease resulting from suspected or confirmed Bacillus anthracis exposure. The USG has largely switched from procuring BioThrax to AV7909 for the Strategic National Stockpile (SNS) prior to its approval by the FDA; and
BioThrax®, the only vaccine licensed by the FDA, for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
ACAM2000®, the only single-dose smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;
BAT®, the only heptavalent antitoxin licensed by the FDA and Health Canada for the treatment of botulism; and;
CNJ-016®, also referred to as VIGIV, the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination.
Raxibacumab injection, a fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax;
Anthrasil®, the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax;
RSDL®, the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas, and T-2 toxin.
Trobigard® atropine sulfate, obidoxime chloride AUTO-INJECTOR, is a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. It has not been approved by the FDA, but it is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure.
Commercial Products
NARCAN® (naloxone HCl) Nasal Spray, the first needle-free formulation of naloxone approved by the FDA and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression; Recently, the Company licensed an authorized generic of naloxone nasal spray to Sandoz; and
10

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Vaxchora® (Cholera Vaccine, Live, Oral), the only single-dose oral vaccine licensed by the FDA and the European Medicines Agency (EMA) for the prevention of cholera; and
Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever.
Services - Contract Development and Manufacturing
The Company's services line focused on CDMO offerings cover development services, drug substance manufacturing, drug product manufacturing, and when necessary, suite reservations, which depending on facts and circumstances could be considered a lease. These services are provided across the pharmaceutical and biotechnology industries as well as the USG and non-governmental organizations. The Company's technology platforms include mammalian, microbial, viral, plasma and advanced therapies utilizing the Company's core capabilities for manufacturing to third parties on a clinical and commercial (small and large) scale. Additional services include fill/finish formulation and analytical development services for injectable and other sterile products, inclusive of process design, technical transfer, manufacturing validations, aseptic filling, lyophilization, final packaging and stability studies, as well as manufacturing of vial and pre-filled syringe formats on multiple platforms.
The Company operates as two operating segments: 1) a products segment (Products) consisting of the Government - MCM and Commercial business lines and a services segment (Services) focused on CDMO (Note 14, Segment information).
2.    Basis of presentation and principles of consolidation
Basis of presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Emergent and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.
All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of March 31, 2022. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.
Significant accounting policies
During the three months ended March 31, 2022, there have been no significant changes to the Company's summary of significant accounting policies contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC that have materially impacted the presentation of the Company's financial statements. During the three months ended March 31, 2022, the Company revised the reporting that the Chief Operating Decision Maker (CODM) reviews in order to assess Company performance. The CODM manages the business with a focus on two reportable segments: 1) a products segment (Products) consisting of the Government - MCM and Commercial business lines and 2) the services segment focused on CDMO (Services). This change is further outlined in Note 14, Segment information.
Fair value measurements
Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. The Company has cash held in money market accounts (level 1) and time deposits (level 2), contingent purchase consideration (level 3) and interest rate swaps arrangements (level 2) that are measured at fair value on a recurring basis (Note 7, Fair value measurements and Note 8, Derivative instruments and hedging activities).
11

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
On a non-recurring basis, the Company measures its long-lived assets as part of impairment evaluations using fair value measurements. Goodwill is allocated to the Company's reporting units, which are one level below its operating segments. The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of October 1 and earlier if an event or other circumstance indicates that the carrying value of the asset may not be recoverable. If the Company believes that as a result of its qualitative assessment it is more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, the quantitative impairment test is not required. If however it is determined that it is not more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, a quantitative test is required. Long-lived assets such as intangible assets and property, plant and equipment are not required to be tested for impairment annually. Instead, long-lived assets are tested for impairment whenever circumstances indicate that the carrying amount of the asset may not be recoverable, such as when there is an adverse change in the market relating to those related assets. The impairment test first requires a comparison of undiscounted future cash flows to the carrying value of the asset. Determining the need for a detailed impairment analysis requires the exercise of judgment about several business factors, including the timing of expected future cash flows and assumptions about the economic environment.
As of March 31, 2022 and December 31, 2021, the Company had no other significant assets or liabilities that were measured at fair value.
Recently issued accounting standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that the Company adopts as of the pronouncement's specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on the consolidated financial statements or disclosures.
Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued Topic 848, which was further amended in January 2021. Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. Topic 848 contains optional expedients and exceptions to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company continues to assess all potential impacts of the standard and will disclose the nature and reason for any elections that the Company makes.
3.    Inventories, net
Inventory, net consisted of the following:
March 31, 2022 December 31, 2021
Raw materials and supplies $ 244.1  $ 217.5 
Work-in-process 106.0  95.8 
Finished goods 50.6  37.5 
Total inventories, net $ 400.7  $ 350.8 
12

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
4.    Property, plant and equipment, net
Property, plant and equipment, net consisted of the following:
March 31, 2022 December 31, 2021
Land and improvements $ 51.9  $ 52.1 
Buildings, building improvements and leasehold improvements 286.9  269.7 
Furniture and equipment 527.9  513.5 
Software 62.5  60.7 
Construction-in-progress 208.1  223.2 
Property, plant and equipment, gross $ 1,137.3  $ 1,119.2 
Less: Accumulated depreciation & amortization (329.8) (319.1)
Total property, plant and equipment, net $ 807.5  $ 800.1 
As of March 31, 2022 and December 31, 2021, construction-in-progress primarily includes costs incurred related to construction to advance the Company's CDMO capabilities.
5.    Leases
The Company is the lessee for operating leases for offices, research and development facilities and manufacturing facilities. The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (ROU) assets and liabilities. For a discussion of lessor activities, see Note 10, Revenue recognition.
The components of lease expense were as follows: 
Three Months Ended March 31,
2022 2021
Operating lease cost:
Amortization of right-of-use assets $ 1.4  $ 1.3 
Interest on lease liabilities 0.3  0.4 
Total operating lease cost $ 1.7  $ 1.7 
Operating lease costs are reflected as components of cost of product sales, cost of contract development and manufacturing, research and development expense and selling, general and administrative expense.
Supplemental balance sheet information related to lessee activities is as follows:
(In millions, except lease term and discount rate) Balance Sheet location March 31, 2022 December 31, 2021
Operating lease right-of-use assets Other assets $ 26.9 $ 28.3
Operating lease liabilities, current portion Other current liabilities 5.8 5.8
Operating lease liabilities Other liabilities 22.6 24.2
Total operating lease liabilities $ 28.4 $ 30.0
Operating leases:
Weighted average remaining lease term (years) 6.8 7.0
Weighted average discount rate 4.1  % 4.1  %
13

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
6.    Intangible assets
The Company's intangible assets consist of products acquired via business combinations or asset acquisitions. The following table summarizes the Company's intangible assets for the periods ended March 31, 2022 and December 31, 2021:
March 31, 2022 December 31, 2021
Asset Type Estimated Life Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Products
9-22 years
$ 798.0  $ 207.4  $ 590.6  $ 798.0  $ 193.5  $ 604.5 
Customer relationships 8 years 28.6  28.6  —  28.6  28.6  — 
CDMO 8 years 5.5  5.5  —  5.5  5.4  0.1 
   Total intangible assets $ 832.1  $ 241.5  $ 590.6  $ 832.1  $ 227.5  $ 604.6 
Amortization expense associated with the Company's intangible assets was recorded as follows:
Three Months Ended March 31,
2022 2021
Amortization Expense $ 14.0  $ 14.9 
As of March 31, 2022, the weighted average amortization period remaining for intangible assets was 11.7 years.
The following table provides a roll forward of changes in our goodwill balance:
Goodwill, December 31, 2021
$ 224.9 
Foreign currency translation — 
Goodwill, March 31, 2022
$ 224.9 
The carrying amount of goodwill included accumulated impairments of $41.7 million as of March 31, 2022 and December 31, 2021, respectively.
7.    Fair value measurements
The table below presents information about the Company's assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine fair value:
March 31, 2022
December 31, 2021
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Assets:
Money market accounts $ 7.4  7.4  —  $ —  $ 152.4  152.4  —  $ — 
Time deposits 250.2  —  250.2  —  200.0  —  200.0  — 
Derivative instruments 2.5  —  2.5  —  —  —  —  — 
Total $ 260.1  7.4  252.7  $ —  $ 352.4  152.4  200.0  $ — 
Liabilities:
Contingent consideration $ 7.6  —  —  $ 7.6  $ 37.2  —  —  $ 37.2 
Derivative instruments —  —  —  —  6.1  —  6.1  — 
Total $ 7.6  —  —  $ 7.6  $ 43.3  —  6.1  $ 37.2 
14

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Contingent consideration
Contingent consideration liabilities associated with business combinations are measured at fair value. These liabilities represent an obligation of the Company to transfer additional assets to the selling shareholders and owners if future events occur or conditions are met. These liabilities associated with business combinations are measured at fair value at inception and at each subsequent reporting date. The changes in the fair value are primarily due to the expected amount and timing of future net sales, which are inputs that have no observable market. Any changes in fair value for the contingent consideration liabilities related to the Company’s products are classified in the Company's statement of operations as cost of product sales.
The following table is a reconciliation of the beginning and ending balance of contingent considerations.
 
Balance at December 31, 2021 $ 37.2 
Change in fair value 0.5 
Settlements (30.1)
Balance at March 31, 2022 $ 7.6 
As of March 31, 2022 and December 31, 2021, the current portion of the contingent consideration liability was $3.2 million and $32.7 million, respectively, and was included in other current liabilities on the condensed consolidated balance sheets.
The recurring Level 3 fair value measurements for the Company's contingent consideration liability include the following significant unobservable inputs:
Contingent Consideration Liability
Fair Value as of March 31, 2022
Valuation Technique Unobservable Input Range Weighted Average
Revenue milestone and royalty based $7.6 million Discounted cash flow Discount rate
8.3%
8.3%
Probability of payment
25% - 50%
37.7%
Projected year of payment 2022 - 2028 2024
Derivative instruments
Refer to Note 8, Derivative instruments and hedging activities, to these condensed consolidated financial statements.
Non-variable rate debt
As of March 31, 2022 and December 31, 2021, the fair value of the Company's 3.875% Senior Unsecured Notes was $403.7 million and $433.3 million. The fair value was determined through market sources, which are level 2 inputs and directly observable. The carrying amounts of the Company’s other long-term variable interest rate debt arrangements approximate their fair values (see Note 9, Debt).
8.    Derivative instruments and hedging activities
Risk management objective of using derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company has entered into interest rate swaps to manage exposures that arise from the Company's senior secured credit agreement's payments of variable interest rate debt.
If current fair values of designated interest rate swaps remained static over the next twelve months, the Company would reclassify $0.2 million of net deferred gains from accumulated other comprehensive income (loss) into the
15

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
condensed consolidated statement of operations over the next twelve month period. All outstanding cash flow hedges mature in October 2023.
As of March 31, 2022, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
(in millions, except number of instruments) Number of Instruments Notional
Interest rate swaps 7 $ 350.0 
The table below presents the fair value of the Company’s derivative financial instruments designated as hedges as well as their classification on the balance sheets.
Asset Derivatives Liability Derivatives
 
March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021
Balance Sheet Location Fair Value Balance Sheet Location Fair Value Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Interest Rate Swaps Other Current Assets $ 0.2  Other Current Assets $ —  Other Current Liabilities $ —  Other Current Liabilities $ 4.5 
Other Assets $ 2.3  Other Assets $ —  Other Liabilities $ —  Other Liabilities $ 1.6 
The valuation of the interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. We incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. These credit valuation adjustments were not significant inputs for the fair value calculations for the periods presented. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees. The valuation of interest rate swaps fall into Level 2 in the fair value hierarchy.
The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income.
Cumulative Amount of Gain/(Loss) Recognized in OCI on Derivative
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income
March 31, December 31, Three Months Ended March 31,
2022 2021 2022 2021
Interest Rate Swaps $ 2.5  $ (6.1) Interest expense $ 1.4  $ 1.4 
16

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
9.    Debt
The components of debt are as follows:
March 31, 2022 December 31, 2021
Senior secured credit agreement - Term loan due 2023 $ 388.1  $ 396.6 
Senior secured credit agreement - Revolver loan due 2023 —  — 
3.875% Senior Unsecured Notes due 2028
450.0  450.0 
Other 3.0  3.0 
Total debt $ 841.1  $ 849.6 
Current portion of long-term debt, net of debt issuance costs (31.6) (31.6)
Unamortized debt issuance costs (8.0) (8.5)
Non-current portion of debt $ 801.5  $ 809.4 
   
As of March 31, 2022 and December 31, 2021, debt issuance costs associated with the revolver loan were classified as other current assets and other assets on the Company's consolidated balance sheets because there was no outstanding revolver balance at period end. As of March 31, 2022, the Company had $2.0 million and $1.1 million of debt issuance costs associated with the revolver loan classified as other current assets and other assets, respectively. As of December 31, 2021, the Company had approximately $2.0 million and $1.6 million of debt issuance costs associated with the revolver loan that were classified as other current assets and other assets, respectively.
3.875% Senior Unsecured Notes due 2028
On August 7, 2020, the Company completed its offering of $450 million aggregate principal amount of 3.875% Senior Unsecured Notes due 2028 (the 2028 Notes) of which the majority of the net proceeds were used to pay down the Revolving Credit Facility (as defined below). Interest on the 2028 Notes is payable on February 15th and August 15th of each year until maturity, beginning on February 15, 2021. The 2028 Notes will mature on August 15, 2028.
On or after August 15, 2023, the Company may redeem the 2028 Notes, in whole or in part, at the redemption prices set forth in the related Indenture, plus accrued and unpaid interest. Prior to August 15, 2023 the Company may redeem all or a portion of the 2028 Notes at a redemption price equal to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium and accrued and unpaid interest. Prior to August 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Notes using the net cash proceeds of certain equity offerings at the redemption price set forth in the related Indenture. Upon the occurrence of a change of control, the Company must offer to repurchase the 2028 Notes at a purchase price of 101% of the principal amount of such 2028 Notes plus accrued and unpaid interest.
Negative covenants in the Indenture governing the 2028 Notes, among other things, limit the ability of the Company to incur indebtedness and liens, dispose of assets, make investments, enter into certain merger or consolidation transactions and make restricted payments.
Senior secured credit agreement
Also on August 7, 2020, the Company entered into a Second Amendment (the “Credit Agreement Amendment”) to its senior secured credit agreement, dated October 15, 2018, with multiple lending institutions relating to the Company’s senior secured credit facilities (the “Credit Agreement,” and as amended, the “Amended Credit Agreement”), consisting of a senior revolving credit facility (the “Revolving Credit Facility”) and senior term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”). The Credit Agreement Amendment amended, among other things, the definition of incremental facilities limit, the consolidated net leverage ratio financial covenant by increasing the maximum level, increased the permissible applicable margins based on the Company’s consolidated net leverage ratio and increased the commitment fee that the Company is required to pay in respect of the average daily unused commitments under the Revolving Credit Facility, depending on the Company’s consolidated net leverage ratio.
17

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
The Amended Credit Agreement includes (i) a Revolving Credit Facility of $600 million and (ii) a Term Loan Facility with a principal amount of $450 million. The Company may request incremental term loan facilities or increases in the Revolving Credit Facility (each an "Incremental Loan") as long as certain requirements involving our net leverage ratio will be maintained on a pro forma basis. Borrowings under the Revolving Credit Facility and the Term Loan Facility bear interest at a rate per annum equal to (a) a eurocurrency rate plus a margin ranging from 1.25% to 2.25% per annum, depending on the Company's consolidated net leverage ratio or (b) a base rate (which is the highest of the prime rate, the federal funds rate plus 0.50%, and a eurocurrency rate for an interest period of one month plus 1% plus a margin ranging from 0.25% to 1.25%, depending on the Company's consolidated net leverage ratio). The Company is required to make quarterly payments on the last business day of each calendar quarter under the Amended Credit Agreement for accrued and unpaid interest on the outstanding principal balance, based on the above interest rates. In addition, the Company is required to pay commitment fees ranging from 0.15% to 0.35% per annum, depending on the Company's consolidated net leverage ratio, for the average daily unused commitments under the Revolving Credit Facility. The Company is to repay the outstanding principal amount of the Term Loan Facility in quarterly installments on the last business day of each calendar quarter based on an annual percentage equal to 2.5% of the original principal amount of the Term Loan Facility during each of the first two years of the Term Loan Facility, 5% of the original principal amount of the Term Loan Facility during the third year of the Term Loan Facility and 7.5% of the original principal amount of the Term Loan Facility during each year of the remainder of the term of the Term Loan Facility until the maturity date of the Term Loan Facility, at which time the entire unpaid principal balance of the Term Loan Facility will be due and payable. The Company has the right to prepay the Term Loan Facility without premium or penalty. The Revolving Credit Facility and the Term Loan Facility mature on October 13, 2023.
The Amended Credit Agreement also requires mandatory prepayments of the Term Loan Facility in the event the Company or its Subsidiaries (a) incur indebtedness not otherwise permitted under the Amended Credit Agreement or (b) receive cash proceeds in excess of $100 million during the term of the Credit Agreement from certain dispositions of property or from casualty events involving their property, subject to certain reinvestment rights. The financial covenants under the Amended Credit Agreement currently require the quarterly presentation of a minimum consolidated 12-month rolling debt service coverage ratio of 2.50 to 1.00, and a maximum consolidated net leverage ratio of 4.50 to 1.00 (subject to an increase to 5.00 to 1.00 for an applicable four quarter period, at the election of the Company, in connection with a permitted acquisition having an aggregate consideration in excess of $75.0 million). Negative covenants in the Amended Credit Agreement, among other things, limit the ability of the Company to incur indebtedness and liens, dispose of assets, make investments, enter into certain merger or consolidation transactions and make restricted payments. As of the date of these financial statements, the Company is in compliance with all affirmative and negative covenants.
10.    Revenue recognition
The Company operates as two operating segments (Note 14, Segment information). The Company's revenues disaggregated by the major sources were as follows:
Three Months Ended March 31, 2022 Three Months Ended March 31, 2021
U.S. Government Non-U.S. Government  Total U.S. Government Non-U.S. Government  Total
Product sales, net $ 103.4  $ 133.7  $ 237.1  $ 56.4  $ 81.5  $ 137.9 
Contract development and manufacturing:
Services —  51.8  51.8  —  67.6  67.6 
Leases —  9.0  9.0  97.5  18.7  116.2 
Total contract development and manufacturing $ —  $ 60.8  $ 60.8  $ 97.5  $ 86.3  $ 183.8 
Contracts and grants 9.1  0.5  9.6  20.0  1.3  21.3 
Total revenues $ 112.5  $ 195.0  $ 307.5  $ 173.9  $ 169.1  $ 343.0 
18

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
BARDA COVID-19 Development Public-Private Partnership
In 2020, the Company announced the issuance of a task order under our existing Center for Innovation in Advanced Development and Manufacturing (CIADM) agreement with BARDA for COVID-19 vaccine development and manufacturing (the BARDA COVID-19 Development Public Private Partnership). The BARDA COVID-19 Development Public Private Partnership is considered a lease and is accounted for under ASC 842. The initial task order had a contract value of up to $628.2 million and included the reservation of manufacturing capacity and accelerated expansion of fill/finish capacity valued at $542.7 million and $85.5 million, respectively. Subsequently, the task order was expanded to include incremental capital activities which increased the value to $650.8 million. On November 1, 2021, the Company and BARDA mutually agreed to terminate the Company's CIADM contract and associated task orders, including the BARDA COVID-19 Development Public Private Partnership. The Company did not recognize lease revenues under this arrangement during the three months ended March 31, 2022. During the three months ended March 31, 2021 the Company recognized lease revenues of $97.5 million related to this arrangement.
CDMO operating leases
Certain multi-year CDMO service arrangements with commercial customers include operating leases whereby the customer has the right to direct the use of and obtain substantially all of the economic benefits of specific manufacturing suites operated by the Company. The associated revenue is recognized on a straight-line basis over the term of the lease. The remaining term on the Company's operating lease components approximates 2.1 years. The Company utilizes a cost-plus model to determine the stand-alone selling price of the lease component to allocate contract consideration between the lease and non-lease components. The Company has allocated contract operating lease revenues due under our long-term CDMO services arrangements as follows:
Year ended December 31,
2022 (1)
$ 24.1 
2023 36.5 
2024 32.2 
2025 8.7 
Thereafter 2.7 
$ 104.2 
(1) As of March 31, 2022, amount represents the nine months ending December 31, 2022.
Transaction price allocated to remaining performance obligations
As of March 31, 2022, the Company has future contract value on unsatisfied performance obligations of approximately $1.1 billion associated with all arrangements entered into by the Company. The Company expects to recognize a majority of the $1.1 billion of unsatisfied performance obligations within the next 24 months. The amount and timing of revenue recognition for unsatisfied performance obligations can change. The future revenues associated with unsatisfied performance obligations exclude the value of unexercised option periods in the Company’s revenue arrangements. Often the timing of manufacturing activities changes based on customer needs and resource availability. Government funding appropriations can impact the timing of product deliveries. The success of the Company's development activities that receive development funding support from the USG under development contracts can also impact the timing of revenue recognition.
Contract assets
The Company considers accounts receivable and deferred costs associated with revenue generating contracts, which are not included in inventory or property, plant and equipment and the Company does not currently have a contractual right to bill, to be contract assets. As of March 31, 2022 and December 31, 2021, the Company had $42.2 million and $21.5 million, respectively, of contract assets recorded within accounts receivable, net on the condensed consolidated balance sheets.
19

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Contract liabilities
When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with amounts allocated to those performance obligations is reflected as contract liabilities on the consolidated balance sheets and is deferred until control of these performance obligations is transferred to the customer. The following table presents the roll forward of the contract liability balances:
December 31, 2021 $ 16.4 
Deferral of revenue 6.4 
Revenue recognized (6.9)
March 31, 2022 $ 15.9 
As of March 31, 2022 and December 31, 2021, the current portion of contract liabilities was $10.0 million and $11.7 million, respectively, and was included in other current liabilities on the balance sheet.
Accounts receivable
Accounts receivable, including unbilled accounts receivable contract assets, consist of the following:
March 31, 2022 December 31, 2021
Billed, net $ 115.2  $ 224.9 
Unbilled 66.6  49.8 
Total, net $ 181.8  $ 274.7 
As of March 31, 2022 and December 31, 2021, the allowances for doubtful accounts was $0.7 million and $3.2 million, respectively.
11.    Income taxes
The estimated effective annual tax rate for the years ended December 31, 2022 and 2021, excluding the impact of discrete adjustments, was 25% and 27%. respectively. For the three months ended March 31, 2022 and 2021, the Company recorded a discrete tax expense (benefits) of $0.4 million and $(6.6) million, respectively. The discrete tax expense in 2022 was primarily due to share-based compensation activity offset by return to provision adjustments. The discrete tax benefits in 2021 were primarily due to share-based compensation activity.
12.    Net (loss) income per share
The following table presents the calculation of basic and diluted net (loss) income per share:
Three Months Ended March 31,
2022 2021
Numerator:  
Net (loss) income $ (3.7) $ 69.7 
Denominator:
Weighted-average number of shares—basic 50.7  53.3 
Dilutive securities—equity awards —  1.2 
Weighted-average number of shares—diluted 50.7  54.5 
Net (loss) income per share - basic $ (0.07) $ 1.31 
Net (loss) income per share - diluted $ (0.07) $ 1.28 
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period. Diluted (loss) income per share is computed using the treasury method by dividing net (loss) income by the weighted average number of shares of common stock outstanding during
20

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
the period, adjusted for the potential dilutive effect of other securities if such securities were converted or exercised and are not anti-dilutive. No adjustment for the potential dilutive effect of dilutive securities is reported for the three months ended March 31, 2022 as the effect would have been anti-dilutive due to the Company's net loss.
The following table presents the share-based awards that are not considered in the diluted net (loss) income per share calculation generally because the exercise price of the awards was greater than the average per share closing price during the three months ended March 31, 2022 and 2021. In certain instances, awards may be anti-dilutive even if the average market price exceeds the exercise price when the sum of the assumed proceeds exceeds the difference between the market price and the exercise price.
Three Months Ended March 31,
2022 2021
Anti-dilutive stock awards 1.6  0.1 
13.    Equity
Repurchase programs
On November 11, 2021, the Company announced that its Board of Directors authorized management to repurchase up to an aggregate of $250.0 million of Common Stock under a board-approved Share Repurchase Program, of which $164.7 million has been utilized to purchase 3.8 million shares as of March 31, 2022. During the three months ended March 31, 2022, the Company has utilized $52.2 million to purchase 1.1 million shares. The number of shares repurchased includes trades executed in March and settled in April due to timing. The Share Repurchase Program does not obligate the Company to acquire any specific number of shares. Repurchased shares will be available for use in connection with our stock plans and for other corporate purposes.
Share-based compensation
During the three months ended March 31, 2022, the Company granted stock options to purchase 0.6 million shares of common stock and 1.2 million restricted and performance stock units under the Emergent BioSolutions Inc. Stock Incentive Plan. Typically, the stock option and restricted stock unit grants vest over three equal annual installments beginning on the day prior to the anniversary of the grant date. The performance stock units settle in stock at the end of the three-year performance period based on the Company's results compared to the performance criteria. Share-based compensation expense was recorded in the following financial statement line items:
Three Months Ended March 31,
2022 2021
Cost of product sales $ 1.7  $ 1.5 
Cost of contract development and manufacturing 0.4  0.2 
Research and development 1.1  1.4 
Selling, general and administrative 6.7  7.4 
Total share-based compensation expense $ 9.9  $ 10.5 
21

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
Accumulated other comprehensive income (loss), net of tax
The following table includes changes in accumulated other comprehensive income (loss), net of tax by component:
Defined Benefit Pension Plan
Derivative Instruments Foreign Currency Translation Losses Total
(in millions, net of tax)
Balance, December 31, 2021
$ (4.0) $ (4.5) $ (7.6) $ (16.1)
Other comprehensive (loss) income before reclassifications —  4.9  0.5  5.4 
Amounts reclassified from accumulated other comprehensive income —  1.4  —  1.4 
Net current period other comprehensive income (loss) —  6.3  0.5  6.8 
Balance, March 31, 2022
$ (4.0) $ 1.8  $ (7.1) $ (9.3)
Balance, December 31, 2020
$ (7.7) $ (11.0) $ (6.6) $ (25.3)
Other comprehensive (loss) income before reclassifications —  1.7  (2.2) (0.5)
Amounts reclassified from accumulated other comprehensive income —  1.4  —  1.4 
Net current period other comprehensive income (loss) —  3.1  (2.2) 0.9 
Balance, March 31, 2021
$ (7.7) $ (7.9) $ (8.8) $ (24.4)
The following table presents the tax effects related to each component of accumulated other comprehensive (loss) income:
March 31, 2022 March 31, 2021
Pretax Tax Benefit (Expense) Net of tax Pretax Tax Benefit (Expense) Net of tax
Derivative Instruments $ 8.6  $ (2.3) $ 6.3  $ 2.4  $ 0.7  $ 3.1 
Foreign Currency Translation Losses 0.7  (0.2) 0.5  (2.2) —  (2.2)
Total Adjustments $ 9.3  $ (2.5) $ 6.8  $ 0.2  $ 0.7  $ 0.9 
14.    Segment information
The Company reports segment information based on the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments. During the three months ended March 31, 2022, the Company revised the reporting that the Chief Operating Decision Maker (CODM) reviews in order to assess Company performance. The CODM manages the business with a focus on two reportable segments: 1) a products segment (Products) consisting of the Government - MCM and Commercial business lines and 2) the services segment focused on CDMO (Services). The Company evaluates the performance of these reportable segments based on revenue and adjusted gross margin. Segment revenue includes external customer sales, but it does not include inter-segment services. Adjusted gross margin for each segment is segment revenue less segment cost of sales reduced for significant one-time events. We do not allocate research and development, selling, general and administrative costs, amortization of intangibles assets, interest and other income (expense), or taxes to operating segments in the management reporting reviewed by the CODM. The accounting policies for segment reporting are the same as for the Company as a whole. The Company has recast the related historical information for consistency.
22

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

The following table include segment revenues and a reconciliation of the Company's segment adjusted gross margin to the condensed consolidated statement of operations for each of the Company's reporting segments as follows:
March 31, 2022 March 31, 2021
Products Services Other Consolidated Products Services Other Consolidated
Revenue (1) $ 237.1  $ 60.8  $ 9.6  $ 307.5  $ 137.9  $ 183.8  $ 21.3  $ 343.0 
Contracts and grants revenue —  —  (9.6) (9.6) —  —  (21.3) (21.3)
Cost of product sales (80.3) —  —  (80.3) (52.6) —  —  (52.6)
Cost of contract development and manufacturing —  (75.6) —  (75.6) —  (46.7) —  (46.7)
Gross margin 156.8  (14.8) —  142.0  85.3  137.1  —  222.4 
Changes in fair value of contingent consideration 0.5  —  —  0.5  1.1  —  —  1.1 
Adjusted gross margin $ 157.3  $ (14.8) $ —  $ 142.5  $ 86.4  $ 137.1  $ —  $ 223.5 
(1) Services revenue and Services adjusted gross margin for the three months ended March 31, 2021 includes the impact of $97.5 million of CDMO leases revenues related to the BARDA COVID-19 Development Public Private Partnership which ended in November 2021.
The following table includes depreciation for each segment as follows:
March 31, 2022 March 31, 2021
Depreciation:
Products $ 7.4  $ 7.2 
Services 7.8  5.3
Other 1.4  1.1
Total $ 16.6  $ 13.6 
We manage our assets on a total company basis, not by operating segment, as our operating assets are shared or commingled. Therefore, our CODM does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.
15. Commitments and contingencies
Securities and shareholder litigation
On April 20, 2021, May 14, 2021, and June 2, 2021, putative class action lawsuits were filed against the Company and certain of its current and former senior officers in the United States District Court for the District of Maryland on behalf of purchasers of the Company’s common stock, seeking to pursue remedies under the Securities Exchange Act of 1934. These complaints were filed by Palm Tran, Inc. – Amalgamated Transit Union Local 1577 Pension Plan; Alan I. Roth; and Stephen M. Weiss, respectively. The complaints allege, among other things, that the defendants made false and misleading statements about its manufacturing capabilities with respect to COVID-19 vaccine bulk drug substance (referred to herein as CDMO Manufacturing Capabilities). These cases were consolidated on December 23, 2021, under the caption In re Emergent BioSolutions Inc. Securities Litigation, No. 8:21-cv-00955-PWG (the Federal Securities Class Action). The Lead Plaintiffs in the consolidated matter are Nova Scotia Health Employees’ Pension Plan and The City of Fort Lauderdale Police & Firefighters’ Retirement System. The Lead Plaintiffs filed an amended complaint on March 19, 2022 and the defendants have until May 19, 2022 to file a motion to dismiss. The defendants believe that the allegations in the complaints are without merit and intend to defend the matters vigorously. Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot reasonably estimate the possible loss or range of loss, if any, that may result from the consolidated action.
23

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable. There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company's results of operations or cash flows for that period or on the Company's financial condition.
On June 29, 2021, Lincolnshire Police Pension Fund (“Lincolnshire”) and on August 16, 2021, Pooja Sayal, filed putative stockholder derivative lawsuits in the United States District Court for the District of Maryland on behalf of the Company against certain of the Company's current and former officers and directors for breach of fiduciary duties, waste of corporate assets, and unjust enrichment, each allegation related to the Company’s CDMO Manufacturing Capabilities. In addition to monetary damages, the complaints seek the implementation of multiple corporate governance and internal policy changes. On November 16, 2021, both cases were consolidated under the caption In re Emergent BioSolutions Inc. Stockholder Derivative Litigation, Master Case No. 8:21-cv-01595-PWG. On January 3, 2022, the Lincolnshire complaint was designated as the operative complaint in the consolidated action. On April 13, 2022 the Court approved the parties joint stipulation to and stay of the proceedings and discovery until the close of fact discovery in the Federal Securities Class Action. The defendants believe that the allegations in the complaints are without merit and intend to defend the matter vigorously.
On September 15, 2021, September 16, 2021, and November 12, 2021, putative stockholder derivative lawsuits were filed by Chang Kyum Kim, Mark Nevins and Employees Retirement System of the State of Rhode Island, North Collier Fire Control and Rescue District Firefighters Pension Plan, and Pembroke Pines Firefighters & Police Officers Pension Fund in The Court of Chancery of the State of Delaware on behalf of the Company against certain of its current and former officers and directors for breach of fiduciary duties, unjust enrichment and insider trading, each allegation related to the Company’s CDMO Manufacturing Capabilities. In addition to monetary damages, the complaints seek the implementation of multiple corporate governance and internal policy changes. On February 2, 2022, the cases were consolidated under the caption In re Emergent BioSolutions, Inc. Derivative Litigation, C.A. No. 2021-0974-MTZ with the institutional investors as co-lead plaintiffs. On March 4, 2022, the defendants’ filed their Motion to Dismiss the plaintiffs’ complaint. However, ruling on this motion is stayed pursuant to a March 29, 2022 Order staying all proceedings pending a final, non-appealable judgment in the Federal Securities Class Action.
On December 3, 2021, December 22, 2021 and January 18, 2022, putative stockholder derivative lawsuits were filed by Zachary Elton, Eric White and Jeffrey Reynolds in the Circuit Court for Montgomery County, Maryland on behalf of the Company against certain of its current and former officers and directors for breach of fiduciary duty, unjust enrichment, waste of corporate assets, failing to maintain internal controls, making or causing to be made false and/or misleading statements and material omissions, insider trading and otherwise violating the laws, each allegation related to the Company’s CDMO Manufacturing Capabilities. The complaints seek monetary and punitive damages. On February 22, 2022, the Court entered an order consolidating these actions under case number C-15-21-CV-000496. On March 9, 2022, the parties filed a Joint Stipulation of Stay of Proceedings and Discovery, pursuant to which the parties have agreed to stay all proceedings until thirty (30) calendar days after a ruling on defendants’ motion to dismiss filed in the Federal Securities Class Action. The Court approved the Joint Stipulation on March 14, 2022.
In addition to the above actions, the Company has received preliminary inquiries and subpoenas to produce documents related to these matters from Representative Carolyn Maloney and Representative Jim Clyburn, members of the House Committee on Oversight and Reform and the Select Subcommittee on the Coronavirus Crisis, Senator Murray of the Committee on Health, Education, Labor and Pensions, the Department of Justice, the SEC, the Maryland Attorney General’s Office, and the New York Attorney General’s Office. The Company is producing and has produced documents as required in response and will continue to cooperate with these government inquiries.
Intellectual property

Emergent BioSolutions’ Adapt Pharma subsidiaries (Emergent) are as follows: Emergent Devices Inc. (EBPA), formerly known as Adapt Pharma Inc.; Emergent Operations Ireland Limited (EIRE), formerly known as Adapt Pharma Operations Limited; and Emergent BioSolutions Ireland Limited (EIR2), formerly known as Adapt Pharma Limited.
ANDA litigation - Teva 4mg
Emergent BioSolutions’ Adapt Pharma subsidiaries EBPA and EIRE, and Opiant Pharmaceuticals Inc. (Opiant) received notice letters from Teva Pharmaceuticals Industries Limited and Teva Pharmaceuticals USA (collectively, Teva) that Teva had filed an Abbreviated New Drug Application (ANDA) with the FDA seeking regulatory approval to market a
24

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
generic version of NARCAN® (naloxone HCI) Nasal Spray 4 mg/spray before the expiration of certain patents listed on the FDA’s website for Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book Listed Patents) for NARCAN. Teva’s notice letters alleged that claims of certain Orange Book Listed Patents for NARCAN were invalid and/or would not be infringed by the activities described in Teva’s ANDA. Emergent and Opiant filed complaints against Teva in the U.S. District Court for the District of New Jersey alleging infringement of certain Orange Book Listed Patents for NARCAN. On June 5, 2020, the U.S. District Court for the District of New Jersey ruled in favor of Teva. Emergent appealed the District of New Jersey’s decision to the Court of Appeals for the Federal Circuit (CAFC). On February 10, 2022, the CAFC issued a decision affirming the District Court’s decision and the Company intends to petition for a rehearing.
ANDA litigation - Teva 2mg
Emergent BioSolutions’ Adapt Pharma subsidiaries EBPA and EIRE, and Opiant received a notice letter from Teva that Teva had filed an ANDA with the FDA seeking regulatory approval to market a generic version of NARCAN® (naloxone HCI) Nasal Spray 2 mg/spray before the expiration of certain Orange Book Listed Patents for the 2 mg/spray dose of NARCAN®. Teva’s notice letter alleged that claims of certain Orange Book Listed Patents for the 2 mg/spray dose of NARCAN® were invalid and/or would not be infringed by the activities described in Teva’s ANDA. Emergent and Opiant filed complaints against Teva in the U.S. District Court for the District of New Jersey alleging infringement of certain Orange Book Listed Patents for the 2 mg/spray dose of NARCAN. This case is currently stayed pending final outcome of the appeal of the NARCAN 4 mg/spray case.
25

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
ITEM 2. 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 unaudited condensed consolidated financial statements and accompanying notes and other financial information included elsewhere in this quarterly report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report on Form 10-Q, 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 "Special Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this quarterly report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Business overview
We are a global life sciences company focused on providing innovative preparedness and response solutions addressing accidental, deliberate, and naturally occurring PHTs. Our solutions include a product portfolio, a product development portfolio and a CDMO services portfolio.
We are currently focused on the following five PHT categories: CBRNE, EID, travel health, emerging health crises, and acute/emergency care. We have a product portfolio of eleven products that contribute a substantial portion of our revenue and are sold to government and commercial customers. We also have a product candidate that is procured under special circumstances by the USG, although it is not approved by the FDA. Additionally, we have a development pipeline consisting of a diversified mix of both pre-clinical and clinical stage product candidates. Finally, we have a fully-integrated portfolio of CDMO services. Our CDMO service offerings cover development services, drug substance manufacturing and drug product manufacturing and packaging.
The majority of our product revenue comes from the following products and procured product candidates:
Government - MCM products
Anthrax vaccines, including our AV7909 (Anthrax vaccine adsorbed (AVA), adjuvanted) procured product candidate being developed as a next-generation anthrax vaccine for post-exposure prophylaxis and BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA for the general use prophylaxis and post-exposure prophylaxis of anthrax disease. AV7909 has not been approved by the FDA, but is procured by certain authorized government buyers for their use;
ACAM2000®, (Smallpox (Vaccinia) Vaccine, Live), the only single-dose smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;
BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), the only heptavalent antitoxin licensed by the FDA and Health Canada for the treatment of botulism;
CNJ-016® (Vaccinia Immune Globulin Intravenous (Human) (VIGIV)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination;
Raxibacumab injection, a fully human monoclonal antibody, the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax;
Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax;
RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin; and
Trobigard® atropine sulfate, obidoxime chloride AUTO-INJECTOR, a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. It has not been approved by the FDA, but is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure.
26

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Commercial products
NARCAN® (naloxone HCl) Nasal Spray, the first needle-free formulation of naloxone approved by the FDA and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression. Recently, the Company authorized Sandoz Inc. to distribute a generic naloxone nasal spray;
Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever; and
Vaxchora® (Cholera Vaccine, Live, Oral), the only single-dose oral vaccine approved by the FDA and EMA for the prevention of cholera.
Services - contract development and manufacturing
Our services revenue consists of distinct but interrelated CDMO services: drug substance manufacturing; drug product manufacturing (also referred to as "fill/finish" services) and packaging; development services including technology transfer, process and analytical development services; and, when necessary, suite reservation obligations. These services, which we refer to as "molecule-to-market" offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network of nine geographically distinct development and manufacturing sites operated by us for our internal products and pipeline candidates and third party CDMO services. We service both clinical-stage and commercial-stage projects for a variety of third-party customers, including government agencies, innovative pharmaceutical companies, and non-government organizations.
Financial operations overview
Revenues
We generate product revenues from the sale of our marketed products and procured product candidates which include vaccines, therapeutics and devices which have been described above. The USG is the largest purchaser of our MCM products and primarily purchases our products for the SNS, a national repository of medical countermeasures including critical antibiotics, vaccines, chemical antidotes, antitoxins, and other critical medical supplies. The USG primarily purchases our products under long-term, firm fixed-price procurement contracts, generally with annual options. Our opioid overdose reversal product, NARCAN® Nasal Spray and our travel health products, Vivotif and Vaxchora, are sold commercially through wholesalers and distributors, physician-directed or standing order prescriptions at retail pharmacies, and
to state and local community healthcare agencies, practitioners and hospitals.
We also generate revenue from our CDMO services provided at our established development and manufacturing infrastructure, technology platforms and expertise. Our services include a fully integrated molecule-to-market contract development and manufacturing services business offering across development services, drug substance and drug product for small to large pharmaceutical and biotechnology industry and government agencies/non-governmental organizations. From time to time, clients require suite reservations at our various manufacturing sites, which may be considered leases depending on the facts and circumstances.
We have received contracts and grants funding from the USG and other non-governmental organizations to perform research and development 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 providing large scale bundles of products and services as needs arise. We expect continued variability in our quarterly financial statements.
Cost of product sales and CDMO services
Products - The primary expenses that we incur to deliver our products consist of fixed and variable costs. We determine the cost of product sales for products sold during a reporting period based on the average manufacturing cost per unit in the period those units were manufactured. Fixed manufacturing costs include facilities, utilities and amortization of intangible assets. Variable manufacturing costs primarily consist of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff, contract manufacturing operations, sales-based royalties, shipping and logistics. In addition to the fixed and variable manufacturing costs described above, the cost of product sales depends on utilization of available manufacturing capacity. For our commercial sales, other associated expenses include sales-based royalties (which include fair value adjustments associated with contingent consideration), shipping, and logistics.
27

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
CDMO - The primary expenses that we incur to deliver our CDMO services consist of fixed and variable costs. We operate five facilities that perform manufacturing activities for CDMO services customers. We use the same manufacturing facilities and methods of production for our own products as well as for fulfillment of our CDMO service contracts. Our manufacturing process includes the production of bulk material and performing “fill/finish” work for containment and distribution of biological products. For “fill finish” customers, we receive work in process inventory to be prepared for distribution. When producing bulk material, we generally procure raw materials, manufacture the product and retain the risk of loss through the manufacturing and review process until delivery.
Research and development expenses
We expense research and development costs as incurred. Our research and development expenses consist primarily of:
personnel-related expenses;
fees to professional service providers for, among other things, analytical testing, independent monitoring or other administration of our clinical trials and obtaining and evaluating data from our clinical trials and non-clinical studies;
costs of CDMO services for clinical trial material; and
costs of materials and equipment used in clinical trials and research and development.
In many cases, we plan to seek funding for development activities from external sources and third parties, such as governments and non-governmental organizations, or through collaborative partnerships. We expect our research and development spending will be dependent upon such factors as the results from our clinical trials, the availability of reimbursement of research and development spending, the number of product candidates under development, the size, structure and duration of any clinical programs that we may initiate, the costs associated with manufacturing and development of our product candidates on a large-scale basis for later stage clinical trials, and our ability to use or rely on data generated by government agencies.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of personnel-related costs and professional fees in support of our executives, sales and marketing, business development, government affairs, finance, accounting, information technology, legal, human resource functions and other corporate functions.
Income taxes
Uncertainty in income taxes is accounted for using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize in our financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position.
Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations.
New accounting standards
For a discussion of new accounting standards please read Note 2, Basis of presentation and principles of consolidation, to our condensed consolidated financial statements included in this report.
Critical accounting policies and estimates
The preparation of our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S., requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates. During the three months ended March 31, 2022, there have been no significant changes to our critical accounting policies and estimates contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.
28

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Results of operations
Three Months Ended March 31,
2022 2021 $ Change % Change
Product sales net:        
Anthrax vaccines $ 103.6  $ 55.0  $ 48.6  88  %
Nasal naloxone products 93.1  74.2  18.9  25  %
ACAM2000 14.4  —  14.4  NM
Other product sales 26.0  8.7  17.3  NM
Total product sales, net 237.1  137.9  99.2  72  %
Contract development and manufacturing:
Services 51.8  67.6  (15.8) (23) %
Leases 9.0  116.2  (107.2) (92) %
Total contract development and manufacturing 60.8  183.8  (123.0) (67) %
Contracts and grants 9.6  21.3  (11.7) (55) %
Total revenues 307.5  343.0  (35.5) (10) %
Operating expenses:
Cost of product sales 80.3  52.6  27.7  53  %
Cost of contract development and manufacturing 75.6  46.7  28.9  62  %
Research and development 46.4  52.5  (6.1) (12  %)
Selling, general and administrative 84.8  80.9  3.9  %
Amortization of intangible assets 14.0  14.9  (0.9) (6  %)
Total operating expenses 301.1  247.6  53.5  22  %
Income (loss) from operations 6.4  95.4  (89.0) (93  %)
Other income (expense):
Interest expense (8.2) (8.5) 0.3  (4  %)
Other, net (2.0) (1.7) (0.3) 18  %
Total other income (expense), net (10.2) (10.2) —  —  %
Income (loss) before income taxes (3.8) 85.2  (89.0) NM
Income taxes 0.1  (15.5) 15.6  NM
Net income (loss) $ (3.7) $ 69.7  $ (73.4) NM
NM - Not meaningful

29

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Total revenues
ebs-20220331_g2.jpg
Legend
Nasal naloxone products CDMO services
ACAM2000 CDMO leases
Anthrax vaccines Contracts and grants
Other product sales
Product sales, net
Anthrax vaccines
The increase in Anthrax vaccine sales for the three months ended March 31, 2022 was primarily due to an increase in the number of doses sold as a result of the timing of deliveries to the USG. The price per unit of Anthrax vaccines was largely consistent period over period. Anthrax vaccine product sales are made under annual purchase options exercised by the USG. Fluctuations in revenues result from the timing of the exercise of annual purchase options and the USG purchases and Company delivery of orders that follow.
Nasal naloxone products
The increase in Nasal naloxone product sales for the three months ended March 31, 2022 was driven by strong growth in unit sales of NARCAN Nasal Spray to U.S. public interest and Canadian customers, as well as from sales of the authorized generic product licensed to Sandoz which launched in December 2021. These increases are offset by a decrease in unit sales of NARCAN Nasal Spray in the U.S. commercial retail market.
ACAM2000
The increase in ACAM2000 sales for the three months ended March 31, 2022 was due to international sales.
Other product sales
Other product sales for the three months ended March 31, 2022 was due to sales of VIGIV driven by timing of deliveries to the SNS and to sales of Anthrasil driven by timing of deliveries to international customers.
CDMO
Services
The decrease in CDMO services revenue for the three months ended March 31, 2022 of $15.8 million is largely due to the Company's decision to initiate maintenance and other modification-related work at the Bayview facility which resulted in minimal manufacturing activities during the quarter. The decline in revenues at Bayview was offset by an increase in manufacturing activities at the Company's Camden and Winnipeg sites to support drug substance and drug product manufacturing for customers products and product candidates.
Leases
The decreased CDMO lease revenue during the three months ended March 31, 2022 was primarily due to a reduction of $97.5 million associated with the termination of our COVID-19 development public-private partnership with BARDA in November 2021.
Contracts and grants
Contracts and grants revenue for the three months ended March 31, 2022 decreased as compared to the three months ended March 31, 2021 largely due BARDA's termination of the Center of Innovation and Advanced Development and Manufacturing agreement in November 2021 as well as decreases in development activities associated with various other externally funded research and development projects.
30

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Cost of product sales
ebs-20220331_g3.jpg
Cost of product sales
l Gross profit margin for Product segment
Cost of product sales increased for the three months ended March 31, 2022, largely due to an increase in product sales. The increase in gross profit margin for the Product segment for the three months ended March 31, 2022 is largely due to product revenue mix which was weighted more heavily to higher margin products.
Cost of CDMO
ebs-20220331_g4.jpg
Cost of CDMO services
l Gross profit margin for Services segment
Cost of CDMO increased for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to an increase in costs at the Company's Bayview facility due to professional services costs. Additionally, the costs of CDMO increased at the Camden and Winnipeg sites due to an increase in manufacturing activities. The decrease in gross profit margin for the Services segment was also impacted by the termination of BARDA lease in November 2021.
Research and development expenses (Gross and Net)
ebs-20220331_g5.jpg
Research and development expense
l Research and development expense, net of contracts and grants revenue
Research and development expense for the three months ended March 31, 2022 decreased largely due to a decline in spending for the Company's COVID therapeutic product candidates partially offset by an increase in costs associated with the Company's Phase 3 study of our chikungunya virus-like particle vaccine candidate.
Selling, general and administrative expenses
ebs-20220331_g6.jpg
31

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Selling, general and administrative expenses
l SG&A as a percentage of total revenue
Selling, general and administrative expenses for the three months ended March 31, 2022 increased due to higher professional services in support of the Company's business operations and to the timing of and level of activity related to defending and supporting the Company's corporate reputation.
Amortization of intangible assets
ebs-20220331_g7.jpg
Amortization expense
Amortization of intangible assets and the composition of intangible assets amortized during the three months ended March 31, 2022 were consistent with the three months ended March 31, 2021.
Other income (expense), net
ebs-20220331_g8.jpg
Interest expense
Other income (expense)
Total other income (expense), net was consistent during the three months ended March 31, 2022 when
compared with the three months ended March 31, 2021.
Income tax (benefit) expense
ebs-20220331_g9.jpg
Income tax (benefit) expense
l Effective tax rate
During the three months ended March 31, 2022 and 2021, the estimated effective annual tax rates were 25% and 27%, respectively. The actual effective tax rates includes the impact of discrete tax expense (benefit) during the three months ended March 31, 2022 and 2021 of $0.4 million and $(6.6) million, respectively. Income taxes decreased during the periods largely due to the decline in the (loss) income before income taxes.

32

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Financial condition, liquidity and capital resources
Our financial condition is summarized as follows:
March 31, 2022 December 31, 2021 Change %
Financial assets:    
Cash and cash equivalents $ 435.8  $ 576.1  (24) %
Borrowings:
Debt, current portion 31.6  31.6  —  %
Debt, net of current portion 801.5  809.4  (1) %
Total borrowings 833.1  841.0  (1) %
Working capital:
Current assets 1,100.3  1,272.1  (14) %
Current liabilities 249.2  373.8  (33) %
Total working capital $ 851.1  $ 898.3  (5) %
Sources of liquidity
We have historically financed our operating and capital expenditures through cash on hand, cash from operations, debt financing and contracts and grants development funding. We also obtain financing from the sale of our common stock upon exercise of stock options. We have operated profitably for each of the last five annual fiscal years through the period ended December 31, 2021. As of March 31, 2022, we had unrestricted cash and cash equivalents of $435.8 million and capacity under our revolving credit facility of $597.8 million. As of March 31, 2022, we believe that we have sufficient liquidity to fund our operations over the next 12 months.
Cash flows
The following table provides information regarding our cash flows for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
2022 2021
Net cash provided by (used in):    
Operating activities $ (37.3) $ 5.1 
Investing activities (32.2) (56.1)
Financing activities (70.5) (22.2)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (0.3) (0.3)
Net change in cash, cash equivalents and restricted cash $ (140.3) $ (73.5)
Operating activities
Net cash used in operating activities of $37.3 million for the three months ended March 31, 2022 was due to net income excluding non-cash items of $41.1 million offset by negative working capital changes of $78.4 million due to an increase in payments of accrued expenses and other liabilities, compensation and an accumulation of inventory offset by collections on receivables.
Net cash provided by operating activities of $5.1 million for the three months ended March 31, 2021 was due to net income excluding non-cash items of
$112.8 million offset by working capital changes of $107.7 million.
The decrease of $42.4 million from cash provided by operating activities of $5.1 million to cash used in operating activities of $37.3 million is due to a decline in net income excluding non-cash items of $71.7 million offset by a decline in negative impacts from working capital changes of $29.3 million.
33

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Investing activities
Net cash used in investing activities relates to purchases of property, plant and equipment and was $32.2 million and $56.1 million for the three months ended March 31, 2022 and 2021, respectively. The cash used in investing activities decreased during the three months ended March 31, 2022 largely due to decreased infrastructure investment as projects to increase capacity and capabilities at our Rockville facility is nearing completion.
Financing activities
Net cash used in financing activities of $70.5 million for the three months ended March 31, 2022 was primarily due to repurchases of stock of $57.5 million and payments on debt of $8.5 million.
Net cash used in financing activities of $22.2 million for the three months ended March 31, 2021 was primarily due to payments on debt of $16.2 million and net payments related to employee share-based compensation activity of $5.3 million.
The increase of $48.3 million of cash used in financing activities is largely due to an increase in cash used for repurchases of stock of $57.5 million offset by a decline in debt payments of $7.7 million.
Funding requirements
We expect to continue to fund our anticipated operating expenses, capital expenditures, debt service requirements and any future repurchase of our common stock from the following sources:
existing cash and cash equivalents;
net proceeds from the sale of our products and CDMO services;
development contracts and grants funding; and
our Senior Secured Credit Facilities and any other lines of credit we may establish from time to time.
There are numerous risks and uncertainties associated with product sales, delivery of CDMO services 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 cost of contract development and manufacturing services;
the extent to which we acquire or invest in and integrate companies, businesses, products or technologies;
the acquisition of new facilities and capital improvements to new or existing facilities;
the payment obligations under our indebtedness;
the scope, progress, results and costs of our development activities;
our ability to obtain funding from collaborative partners, government entities and non-governmental organizations for our development programs;
the extent to which we repurchase additional shares of our common stock under our current share repurchase program 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 or collaboration and licensing arrangements.
If we raise funds by issuing equity securities, our stockholders may experience dilution. Public or bank debt financing, if available, may involve agreements that include covenants, like those contained in our Senior Unsecured Notes due 2028 and the Senior Secured Credit Facilities, which could limit or restrict our ability to take specific actions, such as incurring additional debt, making capital expenditures, pursuing acquisition opportunities, buying back shares or declaring dividends. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us.
Economic conditions, including market volatility and adverse impacts on financial markets as a result of the COVID-19 pandemic, may make it more difficult to obtain financing on attractive terms, or at all. If financing is unavailable or lost, our business, operating results, financial condition and cash flows would be adversely affected, and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.
34

EMERGENT BIOSOLUTIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(unaudited, amounts in millions, except share and per share amounts)
Unused credit capacity
Available room under the revolving credit facility for the periods ended March 31, 2022 and December 31, 2021 was:
Total Capacity
             Outstanding Letters of Credit
Outstanding Indebtedness on Revolving Credit Facility
      Unused Capacity
March 31, 2022
$600.0 2.2 $597.8
December 31, 2021
$600.0 2.3 $597.7









35

EMERGENT BIOSOLUTIONS INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of additional risks arising from our operations, see “Item 1A-Risk Factors” in this quarterly report.
Market risk
We have interest rate and foreign currency market risk. Because of the short-term maturities of our cash and cash equivalents, we believe that an increase in market rates would likely not have a significant impact on the realized value of our investments.
Interest rate risk
We have debt with a mix of fixed and variable rates of interest. Floating rate debt carries interest based generally on the eurocurrency rate, as defined in our Amended Credit Agreement, plus an applicable margin. We manage the impact of interest rate changes on our variable debt through derivative interest rate swap arrangements. Increases in interest rates could result in an increase in interest payments for debt that we have not hedged through our interest rate swap arrangements. See Note 9, Debt, to the Notes of our condensed consolidated financial statements included in this 2022 Quarterly Report under the caption Item 1, "Financial Statements.”
We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our operating results assuming various changes in market interest rates. A hypothetical increase of one percentage point in the eurocurrency rate as of March 31, 2022 would increase our interest expense by approximately $0.4 million annually.
Foreign currency exchange rate risk
We have exposure to foreign currency exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar, Swiss franc and British pound. We manage our foreign currency exchange rate risk primarily by either entering into foreign currency hedging transactions or incurring operating expenses in the local currency in the countries in which we operate, to the extent practical. We currently do not hedge all of our foreign currency exchange exposure and the movement of foreign currency exchange rates could have an adverse or positive impact on our results of operations.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Item 1 of Part I, “Financial Statements — Notes to condensed consolidated financial statements — Note 15, Commitments and contingencies.”
36

EMERGENT BIOSOLUTIONS INC.
ITEM 1A. RISK FACTORS
The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The occurrence of any of the following risks or of unknown risks and uncertainties may adversely affect our business, operating results and financial condition.
RISK FACTOR SUMMARY
There are a number of government contracting risks that could impact our business, financial condition, operating results and cash flows, including:
Reduced demand for and/or funding for procurement of AV7909 and/or BioThrax or ACAM2000 and discontinuation of funding of our other USG procurement and development contracts.
Inability to receive FDA licensure of AV7909 and realize the full value of our contract for development and procurement of AV7909.
There are a number of manufacturing risks that could impact our business, financial condition, operating results and cash flows, including:
Our inability to maintain quality and manufacturing compliance at our manufacturing facilities has hindered and could continue to hinder our ability to produce bulk drug substance for Johnson & Johnson's COVID-19 vaccine and other products and product candidates for our CDMO customers.
Disruption at, damage to or destruction of our development and/or manufacturing facilities and supply chain, including lower availability of plasma, may impede our ability to manufacture our products, as well as deliver our CDMO services.
Our operations, including our use of hazardous materials, chemicals, bacteria and viruses expose us to significant potential liabilities.
There are a number of product development and commercialization risks that could impact our business, financial condition, operating results and cash flows, including:
The COVID-19 product candidates we are working on for our CDMO customers may not be safe or effective and we may be unable to manufacture sufficient quantities to meet demand.
Clinical trials of product candidates are expensive and time-consuming, and their outcome is uncertain.
We may fail to capitalize on the most scientifically, clinically or commercially promising or profitable product candidates.
Due to numerous factors, the COVID-19 coronavirus pandemic could have a material adverse impact on our business, results of operations and financial performance, including:
Changes in government priorities resulting from the pandemic and continuing supply chain shortages could impact our overall business.
COVID-19 may impede our workers ability to work and may result in reduced production of products or services.
The evolving nature of COVID-19 and related vaccines and treatments and resulting changes in demand for such product candidates may impact sales of related services offered by our CDMO business.
There are a number of regulatory and compliance risks that could impact our business, financial condition, operating results and cash flows, including:
Failure to comply with complex laws and regulations pertaining to government contracts and resources required for responding to related government inquiries.
Conditions associated with approvals and ongoing regulation of products may limit how and the extent to which we manufacture and market them.
Failure to comply with various health care laws could result in substantial penalties.
Failure to comply with obligations under USG pricing programs may require reimbursement for underpayments and the payment of substantial penalties, sanctions and fines.
The extent to which we may be able to lawfully offer to sell and sell unapproved products in many jurisdictions may be unclear or ambiguous and such activities may subject us to regulatory enforcement actions.
There are a number of competitive and political risks that could impact our business, financial condition, operating results and cash flows, including:
Development and commercialization of pharmaceutical products are subject to evolving private and public sector competition.
37

EMERGENT BIOSOLUTIONS INC.
NARCAN is currently subject to generic competition and may be subject to additional branded and generic competition and state laws often mandate the dispensing of generic products rather than branded products where a generic version is available.
Biologic Products may be affected by the approval and entry of follow-on biologics, or biosimilars in the United States and other jurisdictions.
There are a number of risks related to our intellectual property that could impact our business, financial condition, operating results and cash flows, including:
Challenges in defense or enforcement of our intellectual property rights including against current or potential infringers.
Potential discrepancies or challenges with respect to third party licenses, including our failure to comply with obligations under such licenses.
Potential loss of proprietary information and know-how, which carries the risk of reducing the value of our technology and products.
Entry of competing generic drugs upon patent expiry or with patents no longer in force.
There are a number of risks related to reliance on third parties that could impact our business, financial condition, operating results and cash flows, including:
The loss of sole-source suppliers or an increase in the price of inventory.
If third parties upon which we rely to conduct many of our clinical trials and other work do not perform as contractually required or as expected, we may not be able to obtain regulatory approval for or commercialize our product candidates or honor customer obligations.
There are a number of legal and reputational risks that could impact our business, financial condition, operating results and cash flows, including:
Unfavorable results of legal proceedings and government investigations could adversely impact our business, financial condition and results of operations.
Our work on PHTs has exposed us to criticism and may expose us to further criticism, from the media, government personnel and others, which could further harm our reputation,
negatively effect on our share price, operations and our ability to attract and retain talent.
The potential for cyber security incidents to harm our ability to operate our business effectively in light of our heightened risk profile.
Inherent product liability exposure due to our unique business.
There are a number of financial risks that could impact our business, financial condition, operating results and cash flows, including:
Our ability to maintain sufficient cash flow from our operations to pay our substantial debt, both now and in the future.
Our ability to obtain additional funding and be able to raise capital when needed.
Our ability to comply with the covenants under our Senior Secured Credit Facilities and other debt agreements.
There are a number of risks related to our strategic acquisitions and collaborations that could impact our business, financial condition, operating results and cash flows, including:
Our strategy of generating growth through acquisitions may be unsuccessful.
Our failure to successfully integrate acquired businesses and/or assets into our operations and our ability to realize the benefits of such acquisitions.
There are a number of risks associated with our common stock, including, but not limited to:
Our business or our share price could be negatively affected as a result of the actions of shareholders.
The price of our common stock has been and remains subject to extreme volatility.
The risk factors below contain more detailed descriptions of the risks identified above, which may materially harm our business, financial condition or results of cash flows.
38

EMERGENT BIOSOLUTIONS INC.
GOVERNMENT CONTRACTING RISKS
We currently derive a substantial portion of our revenue from USG procurement of AV7909 and ACAM2000 and have historically derived a substantial portion of our revenue from USG procurement of BioThrax. If the USG’s demand for and/or funding for procurement of AV7909 and/or BioThrax or ACAM2000 is substantially reduced, our business, financial condition, operating results and cash flows would be materially harmed.
We derive a substantial portion of our current and expected future revenues from USG procurement of AV7909. As AV7909 is a product development candidate, there is a higher level of risk that we may encounter challenges causing delays or an inability to deliver AV7909 than with BioThrax, which may have a material effect on our ability to generate and recognize revenue.
The success of our business and our future operating results are significantly dependent on anticipated funding for the procurement of our anthrax vaccines and the terms of such procurement by the USG, including the price per dose, the number of doses and the timing of deliveries. We have no certainty that funding will be made available for the procurement of our anthrax vaccines. If priorities for the SNS change generally, or as a result of the conclusion of the USG’s audit of the SNS, or with respect to the level of procurement of our anthrax vaccines, funding to procure future doses of AV7909 or BioThrax may be delayed, limited or not available, BARDA may never complete the anticipated full transition to stockpiling AV7909 in support of anthrax preparedness, and our future business, financial condition, operating results and cash flows could be materially harmed.
In addition, we currently derive a substantial portion of our revenues from sales of ACAM2000 to the USG. If priorities for the SNS change with respect to ACAM2000 or the USG decides not to exercise additional options under our ACAM2000 contract, our future business, financial condition, operating results and cash flows could be materially harmed.
We may not receive eventual FDA licensure of AV7909 in a timely manner or at all. Delays in our ability to achieve a favorable outcome from the FDA could prevent us from realizing the full potential value of our BARDA contract for the advanced development and procurement of AV7909.
In collaboration with us, the CDC filed with the FDA a pre-Emergency Use Authorization (EUA) submission package related to AV7909, which enables FDA review of data in anticipation of a request for an EUA. Following this submission, BARDA began procuring
AV7909, exercising its first contract option in July 2019 to procure 10 million doses of AV7909, its second contract option in July 2020 and, most recently, funding another procurement commitment in October 2021 for inclusion of additional doses into the SNS in support of anthrax preparedness.
We also recently completed the rolling submission of a BLA filing with the FDA related to AV7909 and expect feedback from FDA within 60 days from the latest filing as to whether or not the application has been accepted. There can be no guarantee that our submission will be accepted or approved by the FDA. The FDA may decide that our initial data are insufficient and require additional pre-clinical, clinical or other studies. If we are unsuccessful in obtaining FDA licensure, in a timely manner or at all, we may not be able to realize the full potential value of the contract, which could have a material adverse effect on our future business, financial condition, operating results and cash flows. Furthermore, prior to FDA licensure, if we obtain an EUA, the EUA could be terminated if the emergency determination underlying the EUA terminates.
Our USG procurement and development contracts require ongoing funding decisions by the USG. Simultaneous reduction or discontinuation of funding of these contracts could cause our business, financial condition, operating results and cash flows to suffer materially.
The USG is the principal customer for our MCMs and the primary source of funds for the development of most of our product candidates in our development pipeline, most notably our AV7909 procured product candidate. We anticipate that the USG will also be a principal customer for those MCMs that we successfully develop within our existing product development pipeline, as well as those we acquire in the future. Additionally, a significant portion of our revenue comes from USG development contracts and grants. Over its lifetime, a USG procurement or development program may be implemented through the award of many different individual contracts and subcontracts. The funding for such government programs is subject to Congressional appropriations, generally made on a fiscal year basis, even for programs designed to continue for several years. For example, procurement of AV7909 to be supplied under our development and procurement contract with BARDA is subject to the availability of funding, mostly from annual appropriations. These appropriations can be subject to political considerations, changes in priorities due to global pandemics, the results of elections and stringent budgetary constraints.
Additionally, our government-funded development contracts typically give the USG the right, exercisable in
39

EMERGENT BIOSOLUTIONS INC.
its sole discretion, to extend these contracts for successive option periods following a base period of performance. The value of the services to be performed during these option periods may constitute the majority of the total value of the underlying contract. For example, the September 2016 contract award from BARDA for the development and delivery to the SNS of AV7909 for post-exposure prophylaxis of anthrax disease consists of a five-year base period of performance. The contract award also includes options for the delivery of additional doses of AV7909 to the SNS and options for an additional clinical study and post-marketing commitments. This contract was extended in September 2021 through 2025, and provides for additional procurement of AV7909 for the SNS over 18 months. If levels of government expenditures and authorizations for public health countermeasure preparedness decrease or shift to programs in areas where we do not offer products or are not developing product candidates, or if the USG otherwise declines to exercise its options under our existing contracts, our revenues would suffer, as well as our business, financial condition, operating results and cash flows.
There can be no assurance that we will be able to secure follow-on procurement contracts with the USG upon the expiration of any of our product procurement contracts.
A significant portion of our revenue is substantially dependent upon product procurement contracts with the USG and foreign governments for our MCMs. Upon the expiration of a procurement contract, we may not be able to negotiate a follow-on procurement contract for the particular product for a similar product volume, period of performance, pricing or other terms, or at all. The inability to secure a similar or increased procurement contract could materially affect our revenues and our business, financial condition, operating results and cash flows could be harmed. For example, in November 2019, the BARDA procurement contract for raxibacumab that we acquired in our 2017 acquisition of the product from GlaxoSmithKline LLC was completed. We intend to negotiate a follow-on procurement contract for raxibacumab and other follow-on procurement contracts for most of our MCMs upon the expiration of a related procurement contract, but there can be no assurance that we will be successful obtaining any follow-on contracts. Even if we are successful in negotiating a follow-on procurement contract, it may be for a lower product volume, over a shorter period of performance or be on less favorable pricing or other terms. An inability to secure follow-on procurement contracts for our products or procured product candidates could materially and adversely affect our revenues, and our business, financial condition, operating results and cash flows could be harmed.
The government contracting process is typically a competitive bidding process and involves unique risks and requirements.
Our business involves government contracts and grants, which may be awarded through competitive bidding. Competitive bidding for government contracts presents many risks and requirements, including:
the possibility that we may be ineligible to respond to a request for proposal;
the commitment of substantial time and attention of management and key employees to the preparation of bids and proposals;
the need to accurately estimate the resources and cost structure that will be required to perform any contract that we might be awarded;
the submission by third parties of protests to our responses to requests for proposal that could result in delays or withdrawals of those requests for proposal; and
in the event our competitors protest or challenge contract or grant awards made to us through competitive bidding, the potential that we may incur expenses or delays, and that any such protest or challenge could result in the resubmission of bids based on modified specifications, or in the termination, reduction or modification of the awarded contract.
The USG may choose not to award us future contracts for either the development of our new product candidates or for the procurement of our existing MCM products and may instead award such contracts to our competitors. If we are unable to secure particular contracts, we may not be able to operate in the market for products that are provided under those contracts. Additionally, if we are unable to consistently win new contract awards over an extended period, or if we fail to anticipate all of the costs or resources that we will be required to secure and, if applicable, perform under such contract awards, our growth strategy and our business, financial condition and operating results and cash flows could be materially and adversely affected.
The amount we are paid under our fixed price government procurement contracts is based on estimates we have made of the time, resources and expenses required for us to perform under those contracts. If our actual costs exceed our estimates, we may not be able to earn an adequate return or may incur a loss under these contracts, which could harm our operating results and materially reduce our net income.
40

EMERGENT BIOSOLUTIONS INC.
Our current procurement contracts with HHS and DoD are generally fixed price contracts. We expect that additional future procurement contracts we successfully secure with the USG would likely also be fixed price contracts. Under a fixed price contract, we are required to deliver our products at a fixed price regardless of the actual costs we incur. Estimating costs that are related to performance in accordance with contract specifications is difficult, particularly where the period of performance is over several years and when factoring in higher levels of inflation we are currently experiencing. Our failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed price contract could reduce the profitability of such a contract or cause a loss, which could harm our operating results and materially reduce our net income.
Unfavorable provisions in government contracts, some of which may be customary, may subject our business to material limitations, restrictions and uncertainties and may have a material adverse impact on our business, financial condition, operating results and cash flows.
Government contracts customarily contain provisions that give the USG substantial rights and remedies, many of which are not typically found in commercial contracts, including provisions that allow the USG to:
terminate existing contracts, in whole or in part, for any reason;
unilaterally reduce or modify contracts or subcontracts;
decline, in whole or in part, to exercise an option to purchase product under a procurement contract or to fund additional development under a development contract;
decline to renew a procurement contract;
claim certain rights to facilities or to products, including intellectual property, developed under the contract;
require repayment of contract funds spent on construction of facilities in the event of contract default;
take actions that result in a longer development timeline than expected;
direct the course of a development program in a manner not chosen by the government contractor;
suspend or debar the contractor from doing business with the government or a specific government agency;
pursue civil or criminal remedies under acts such as the False Claims Act and False Statements Act; and
control or prohibit the export of products.
Generally, government contracts contain provisions permitting unilateral termination or modification, in whole or in part, at the USG’s convenience. Under general principles of government contracting law, if the USG terminates a contract for convenience, the government contractor may recover only its incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the USG terminates a contract for default, the government contractor is entitled to recover costs incurred and associated profits on accepted items only and may be liable for excess costs incurred by the government in procuring undelivered items from another source. All of our development and procurement contracts with the USG are terminable at the USG's convenience with these potential consequences.
In addition, our USG contracts grant the USG the right to use technologies developed by us under the government contract or the right to share data related to our technologies, for or on behalf of the USG. Under our USG contracts, we may not be able to limit third parties, including our competitors, from accessing certain of these technology or data rights, including intellectual property, in providing products and services to the USG.
MANUFACTURING RISKS
An inability to maintain manufacturing compliance at our manufacturing facilities could adversely affect our business, financial condition, operating results and cash flows.
The FDA conducts periodic inspections of our manufacturing facilities for compliance with cGMP requirements relating to quality control. The failure to maintain compliance with such standards at our manufacturing facilities has hindered and could continue to hinder our ability to continue manufacturing for CDMO customers, including the bulk drug substance for Johnson & Johnson’s COVID-19 vaccine, which could adversely affect our business, financial condition, operating results and cash flows.
41

EMERGENT BIOSOLUTIONS INC.
Disruption at, damage to or destruction of our manufacturing facilities could impede our ability to manufacture anthrax vaccines, ACAM2000 or our other products, as well as impact the delivery of CDMO services, which would harm our business, financial condition, operating results and cash flows.
Any interruptions in our manufacturing operations could result in our inability to produce products and product candidates for delivery to satisfy the demands of our customers in a timely manner, which would reduce our revenues and materially harm our business, financial condition, operating results and cash flows. A number of factors could cause interruptions, including:
equipment malfunctions or failures;
technology malfunctions;
cyber-attacks;
ongoing supply chain interruptions from the COVID-19 pandemic, including lower available plasma levels caused by the pandemic (which has the potential to impact our plasma-based products);
work stoppages or slowdowns due to the potential resurgence of new COVID-19 variants;
civil unrest and protests, including by animal rights activists;
injunctions;
damage to or destruction of one or more facilities;
FDA facility inspection findings/recommendations; and
product contamination or tampering.
Providers of MCMs could be subject to an increased risk of terrorist activities. The USG has designated both our Lansing, Michigan and our Bayview bulk manufacturing facility in Baltimore, Maryland as facilities requiring additional security. Although we continually evaluate and update security measures, there can be no assurance that any additional security measures would protect these facilities from terrorist efforts determined to disrupt our manufacturing activities.
The factors listed above could also cause disruptions at our other facilities. We do not have any redundant manufacturing facilities for any of our products. Accordingly, any damage to, or disruption or destruction of one or more of our facilities could impede our ability to manufacture our products, our product candidates and our ability to provide manufacturing and development services for external
customers, result in losses and delays, including delays in the performance of our contractual obligations or delays in our clinical trials, any of which could be costly to us and materially harm our business, financial condition, operating results and cash flows.
Problems may arise during the production of our products and product candidates, as well as those we produce for our CDMO customers, due to the complexity of the processes involved in their development, manufacturing and shipment. Significant delays in product manufacturing or development and our ability to ramp up production to meet the needs of our customers could cause delays in recognizing revenues, which would harm our business, financial condition, operating results and cash flows.
The majority of our products and product candidates are biologics. Manufacturing biologics, especially in large quantities, is complex. The products must be made consistently and in compliance with a clearly-defined manufacturing process. Problems during manufacturing may arise for a variety of reasons, including problems with raw materials, equipment malfunction and failure to follow specific protocols and procedures. Slight deviations anywhere in the manufacturing process, including obtaining materials, maintaining master seed or cell banks and preventing genetic drift, seed or cell growth, fermentation, contamination including from particulates among other things, filtration, filling, labeling, packaging, storage and shipping, potency and stability issues and other quality control testing, may result in lot failures or manufacturing shut-downs, delays in the release of lots, product recalls, spoilage or regulatory action. Such deviations may require us to revise manufacturing processes or change manufacturers. Additionally, as our equipment ages, it will need to be replaced, which has the potential to result in similar consequences. Success rates can also vary dramatically at different stages of the manufacturing process, which can reduce yields and increase costs. From time to time, we may experience deviations in the manufacturing process that may take significant time and resources to resolve and, if unresolved, may affect manufacturing output and could cause us to fail to satisfy customer orders or contractual commitments, lead to a termination of one or more of our contracts, lead to delays in our clinical trials, result in litigation or regulatory action against us, including the issuance of Forms FDA 483, warning letters and other restrictions on the marketing or manufacturing of a product, or cause the FDA to cease releasing product until the deviations are explained and corrected, any of which could be costly to us, damage our reputation and negatively impact our business. For example, in April 2021, we temporarily stopped manufacturing bulk drug substance material for Johnson & Johnson’s COVID-19 vaccine at our
42

EMERGENT BIOSOLUTIONS INC.
Baltimore Bayview facility after issues were identified in a viral vaccine drug substance batch.
Additionally, if changes are made to the manufacturing process, we may be required to provide the FDA with pre-clinical and clinical data showing the comparable identity, strength, quality, purity or potency of any impacted products before and after the changes.
We are contractually required to ship our biologic products at a prescribed temperature range and variations from that temperature range could result in loss of product and could significantly and adversely impact our revenues, which would harm our business, financial condition, operating results and cash flows.
In addition, we may not be able to ramp up our manufacturing processes to meet the rapidly changing demand or specifications of our customers on the desired timeframe, if at all. For example, we have not previously had to ramp our organization for a commercial launch of any product or manufacture any product for our CDMO customers at the pace required to address treatments related to COVID-19 and doing so in a pandemic environment with an urgent, critical global need creates unique manufacturing challenges, challenges related to distribution channels, and the need to establish teams of people with the relevant skills. Our inability to ramp up manufacturing to meet the demand or specifications of our customers or the inability to timely obtain regulatory authorization to produce the products or product candidates of our customers could also harm our business, financial condition, operating results and cash flows.
Our products and product candidates procured by the USG and other customers require us to perform tests for and meet certain potency and lot release standards prescribed by the FDA and other agencies, which may not be met on a timely basis or at all.
Our products and product candidates procured by the USG and other customers require us to perform tests for and meet certain potency and lot release standards prescribed by the FDA and other agencies, which may not be met on a timely basis or at all. We are unable to sell any products and product candidates that fail to satisfy such testing specifications. For example, we must provide the FDA with the results of certain tests, including potency tests, before certain lots are released for sale. Potency testing of each applicable lot is performed against qualified control lots that we maintain. We continually monitor the status of such reference lots for FDA compliance and periodically produce and qualify a new reference lot to replace the existing reference lot. If we are unable to satisfy USG requirements for the release of our products or product candidates, our ability to supply such products and product candidates to authorized
buyers would be impaired until such time as we become able to meet such requirements, which could materially harm our future business, financial condition, operating results and cash flows.
Our operations, including our use of hazardous materials, chemicals, bacteria and viruses, require us to comply with regulatory requirements and expose us to significant potential liabilities.
Our operations involve the use of hazardous materials, including chemicals, bacteria and viruses, and may produce dangerous waste products. Accordingly, we, along with the third parties that conduct clinical trials and manufacture our products and product candidates on our behalf, are subject to federal, state, local and foreign laws and regulations that govern the use, manufacture, distribution, storage, handling, exposure, disposal and recordkeeping with respect to these materials. Under the Federal Select Agent Program, pursuant to the Public Health Security and Bioterrorism Preparedness and Response Act, we are required to register with and be inspected by the CDC and the Animal and Plant Health Inspection Service if we have in our possession, or if we use or transfer, select biological agents or toxins that could pose a threat to public health and safety, to animal or plant health or to animal or plant products. This legislation requires stringent safeguards and security measures for these select agents and toxins, including controlled access and the screening of entities and personnel and establishes a comprehensive national database of registered entities. We are also subject to a variety of environmental and occupational health and safety laws. Compliance with current or future laws and regulations in this area can require significant costs and we could be subject to substantial fines and penalties in the event of noncompliance. In addition, the risk of contamination or injury from these materials cannot be completely eliminated. In such event, we could be held liable for substantial civil damages or costs associated with the cleanup of hazardous materials. From time to time, we have been involved in remediation activities and may be so involved in the future. Any related cost or liability might not be fully covered by insurance, could exceed our resources and could have a material adverse effect on our business, financial condition, operating results and cash flows. In addition to complying with environmental and occupational health and safety laws, we must comply with special regulations relating to biosafety administered by the CDC, HHS, U.S. Department of Agriculture and the DoD, as well as regulatory authorities in Canada.
43

EMERGENT BIOSOLUTIONS INC.
PRODUCT DEVELOPMENT AND COMMERCIALIZATION RISKS
The COVID-19 product candidates we are working on for our CDMO customers may not be safe or effective and even if they are, we may be unable to manufacture sufficient quantities to meet demand.
We are providing CDMO services for the development and/or manufacture of multiple vaccine and therapeutic product candidates. There can be no assurance that any of these product candidates will be safe or effective. There can also be no assurance that any of these product candidates will be authorized for emergency use or approved by the FDA or any other health regulatory authority or that our facilities will receive authorization from the FDA to release additional batches of COVID-19 drug substance. Even if these product candidates are safe and/or effective and receive authorization or approval by a health regulatory authority or we receive authorization to produce drug substance at our facilities, the manufacturing processes for our CDMO COVID-19 programs are under development and are complex. There can be no assurance that we will be able to produce any significant quantity of these product candidates in a timely basis or at all, or negotiate further commitments under our existing CDMO contracts to manufacture vaccines against COVID-19, which could adversely affect our business, financial condition, operating results and cash flows.
Our growth depends on our success in developing and commercializing our product candidates. If we are unable to commercialize these product candidates, or experience significant delays or unanticipated costs in doing so, our business would be materially and adversely affected.
We have invested significant efforts and financial resources in the development of our vaccines, therapeutics and medical device product candidates and the acquisition of additional product candidates. In addition to our product sales, our ability to generate revenue is dependent on a number of factors, including the success of our development programs, the USG's interest in providing development funding for or procuring certain of our product candidates, and the commercial viability of our acquired or developed product candidates. The commercial success of our product candidates can depend on many factors, including accomplishing the following in an economical manner:
successful development, formulation and cGMP scale-up of manufacturing that meets FDA or other foreign regulatory requirements;
successful program partnering;
successful completion of clinical or non-clinical development;
receipt of marketing approvals from the FDA and equivalent foreign regulatory authorities;
establishment of commercial manufacturing processes and product supply arrangements;
training of a commercial sales force for the product;
successful registration and maintenance of relevant patent and/or other proprietary protection;
competitive pricing and market access; and
acceptance of the product by potential government and other customers.
Clinical trials of product candidates are expensive and time-consuming, and their outcome is uncertain. We must invest substantial amounts of time and financial resources in these trials, which may not yield viable products. Failure to obtain regulatory approval for product candidates, particularly in the United States, could materially and adversely affect our financial resources, which would adversely affect our business, financial condition, operating results and cash flows.
Before obtaining regulatory approval of our product candidates, we and our collaborative partners, where applicable, must conduct pre-clinical studies and clinical trials to establish proof of concept and demonstrate the safety and efficacy of our product candidates. Pre-clinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of such trials do not necessarily predict final results. An unexpected result in one or more of our clinical trials can occur at any stage of testing.
Pre-clinical and clinical testing for certain of our MCM product candidates may face additional difficulties and uncertainties because they cannot ethically or feasibly be tested in human subjects. We therefore expect to rely on the Animal Rule to obtain regulatory approval for some of our MCM product candidates. The Animal Rule permits, for certain limited diseases and circumstances, the use of animal efficacy studies, together with human clinical safety and immunogenicity trials, to support an application for marketing approval. For a product approved under the Animal Rule, certain additional post-marketing requirements apply. For example, to the extent feasible and ethical, applicants must conduct post-marketing studies, such as field studies, to verify and describe
44

EMERGENT BIOSOLUTIONS INC.
the drug's clinical benefit and to assess its safety when used as indicated. It is possible that results from the animal efficacy studies used to support approval under the Animal Rule may not be predictive of the actual efficacy of our product candidates in humans.
Prior to FDA approval of certain MCM product candidates, the Secretary of HHS can contract to purchase MCMs for the SNS under Project BioShield under specific circumstances. Under PAHPRA, the USG may also, at its discretion, purchase critical biodefense products for the SNS prior to FDA approval after the filing of a pre-EUA application with the FDA. If our MCM product candidates are not procured or funded under Project BioShield, or do not qualify for EUA, they generally will have to be fully approved by the FDA through traditional regulatory mechanisms prior to sale and distribution in the United States.
We may experience unforeseen events or issues during, or as a result of, pre-clinical testing, clinical trials or animal efficacy studies. These issues and events, which could delay or prevent our ability to receive regulatory approval for a product candidate, include, among others:
our inability to manufacture sufficient quantities for use in trials;
the unavailability or variability in the number and types of subjects for each study;
safety issues or inconclusive or incomplete testing, trial or study results;
drug immunogenicity;
lack of efficacy of product candidates during the trials;
government or regulatory restrictions or delays; and
greater than anticipated costs of trials.
We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates.
We continue to evaluate our product development strategy and, as a result, may modify our strategy in the future. In this regard, we may, from time to time, focus our product development efforts on different product candidates or may delay or halt the development of various product candidates. We may change or refocus our existing product development, commercialization and manufacturing activities based on government funding decisions. This could require changes in our facilities and our personnel. Any product development changes that we implement may not be successful. In particular, we may fail to select or
capitalize on the most scientifically, clinically or commercially promising or profitable product candidates or choose candidates for which government development funds are not available. Our decisions to allocate our R&D, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources from better business opportunities. Similarly, our decisions to delay or terminate product development programs may also prove to be incorrect and could cause us to miss valuable opportunities.
GLOBAL PANDEMIC RISK
The COVID-19 coronavirus pandemic could have a material adverse impact on our business, results of operations and financial performance.
Our business, operations and financial condition and results have been and may continue to be impacted by the COVID-19 pandemic to varying degrees. The pandemic has presented a number of risks and challenges for our business, including, among others, prior government-mandated work-from-home or shelter-in-place orders; manufacturing disruptions and delays, including at our Baltimore Bayview facility, supply chain interruptions or delays, including challenges related to reliance on third-party suppliers; disruptions to pipeline development and clinical trials and decreased product demand for our travel health vaccines due to the significant reduction in international travel. Additional travel restrictions and other governmental measures may result in further disruptions or continued delays in delivery of supplies by our third-party contractors and suppliers.
We also face uncertainties related to our efforts and those of our collaborative partners to develop a potential treatment or vaccine for COVID-19, including uncertainties related to pre-clinical or clinical trials, the risk that such development programs may not be successful, commercially viable, or that EUA or regulatory approval will not be received from regulatory authorities.
In addition, the trading price of our common stock, and that of other biopharmaceutical companies, has been highly volatile due to the COVID-19 pandemic, especially as a result of investor concerns and uncertainty related to the impact of the pandemic on the economies of countries worldwide. These broad market and industry fluctuations, as well as general economic, political and market conditions, may negatively impact the market price of shares of our common stock.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic and new variants of COVID-19 may further negatively impact our
45

EMERGENT BIOSOLUTIONS INC.
business, affect the supply chain, disrupt key clinical trials, divert government funding away from our primary procured products and product candidates due to changes in government priorities and potential delays in the delivery of products to our customers will depend on future developments, which are highly uncertain. The ultimate geographic spread of COVID-19 and new variants of the disease, the duration of the pandemic, further travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease cannot be predicted with certainty.
The continually evolving nature of the COVID-19 pandemic and the resulting public health response, including the changing demand for various COVID-19 vaccines and treatments from both patients and governments around the world, may affect the demand for COVID-19 product candidates manufactured by our CDMO business.
Through our CDMO business, we provide services for a variety of product candidates intended for the prevention or treatment of COVID-19 and its symptoms and effects. These services include product development, the manufacture of bulk drug substance and drug product fill and finish services.
None of the COVID-19-related product candidates we develop and manufacture have yet to receive full regulatory approval from any regulatory authority, although some are being offered and sold pursuant to an EUA from the FDA or the equivalent authorization from non-U.S. regulatory authorities. Should the facilities producing these product candidates be denied an EUA or one or more of these COVID-19-related product candidates be denied an EUA (or equivalent) or be denied full regulatory approval by the FDA or other major non-U.S. regulatory authority, the demand for such product candidates could decrease significantly and therefore decrease customer orders for additional CDMO services for such product candidates. Additionally, the need for continued manufacture and supply of vaccines (including potential “booster” doses) and therapies to address the COVID-19 pandemic, including new and developing variants of COVID-19, is highly uncertain and subject to various political, economic, regulatory and other factors that are outside of our control. For example, Johnson and Johnson recently suspended its COVID-19 vaccine sales guidance due to global supply surplus and demand uncertainty. Should the United States or other major regions worldwide determine that additional manufacturing of COVID-19 vaccines, boosters, or therapies is no longer necessary, or necessary to a lesser degree, it could adversely affect our revenue and financial condition and our ability to grow our CDMO
business in the near term. In addition, highly-public political and social debates relating to the need for, efficacy of, or side effects related to one or more specific COVID-19 vaccines could contribute to changes in public perception of COVID-19 vaccines manufactured by us, which could decrease demand for a COVID-19 related product candidate we develop or manufacture (in whole or in part).
The impact of working remotely may increase our cybersecurity risk profile and potentially impact productivity if there is a resurgence in COVID-19 variants.
One of the significant areas of impact of COVID-19 on our business has been a shift in company policy to hybrid work arrangements. We have recently implemented a hybrid work model through which our administrative workforce may choose a mixture of in-office and remote work, continue to work entirely on a remote basis or return to the office full time. Although we have allowed all employees to return to the office, a significant number of administrative employees have chosen to continue to work remotely either on a part-time or full-time basis. Working remotely could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. In addition, our on-site staff conducting R&D may not be able to access our laboratories if government-mandated lockdowns return, due to a resurgence in COVID-19 variants and new state and local restrictions.
REGULATORY AND COMPLIANCE RISKS
There are a number of complex laws and regulations that pertain to government contracts and compliance with those laws and regulations require significant time and cost, which could have a material adverse effect on our business, financial condition, operating results and cash flows.
As a manufacturer and supplier of MCMs to the USG addressing PHTs, we must comply with numerous laws and regulations relating to the procurement, formation, administration and performance of government contracts. These laws and regulations govern how we transact business with our government clients and, in some instances, impose additional costs and related obligations on our business operations. Our status as a USG contractor means that we are subject to various statutes and regulations, including:
the Federal Acquisition Regulation (FAR) and agency-specific regulations supplemental to FAR, which comprehensively regulate the award, formation, administration, and performance of government contracts;
46

EMERGENT BIOSOLUTIONS INC.
the Defense Federal Acquisition Regulations (DFARs) and agency-specific regulations supplemental to DFARs, which comprehensively regulate the award, formation, administration, and performance of DoD government contracts;
the Department of State Acquisition Regulation (DOSAR) which regulates the relationship between a Department of State organization and a contractor or potential contractor;
business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Act, the Procurement Integrity Act, the False Claims Act and the Foreign Corrupt Practices Act;
export and import control laws and regulations, including but not limited to ITAR (International Traffic in Arms Regulations); and
laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.
We may be subject to government investigations of compliance with government acquisition regulations. USG agencies routinely audit and investigate government contractors for compliance with applicable laws and standards. Even though we take significant precautions to identify, prevent and deter fraud, misconduct and non-compliance, we face the risk that our personnel or outside partners may engage in misconduct, fraud or improper activities. If we are audited or investigated and such audit or investigation were to uncover improper or illegal activities, we could be subject to civil and criminal fines and penalties, administrative sanctions, including suspension or debarment from government contracting, and suffer significant reputational harm. The loss of our status as an eligible government contractor or significant fines or penalties associated with contract non-compliance or resulting from investigations could have a material adverse effect on our business.
Our long-term success depends, in part, upon our ability to develop, receive regulatory approval for and commercialize product candidates we develop or acquire and, if we are not successful, our business, financial condition, operating results and cash flows may suffer.
Our product candidates and the activities associated with them are subject to extensive FDA regulation and oversight, as well as oversight by other regulatory agencies in the United States and by comparable authorities in other countries. This includes, but is not limited to, laws and regulations governing product development, including testing, manufacturing, record keeping, storage and approval, as well as advertising and promotion. In limited circumstances, governments may procure products that have not obtained regulatory approval. In all other circumstances, failure to obtain regulatory approval for a product candidate will prevent us from selling and commercializing the product candidate.
In the United States, to obtain approval from the FDA to market and sell any of our future drug, biologic, or vaccine products, we will be required to submit an NDA or BLA to the FDA. Ordinarily, the FDA requires a company to support an NDA or BLA with substantial evidence of the product candidate’s effectiveness, safety, purity and potency in treating the targeted indication based on data derived from adequate and well-controlled clinical trials, including Phase 3 trials conducted in patients with the disease or condition being targeted.
However, many of our MCM product candidates, for example, may take advantage of a different regulatory approval pathway under the FDA’s “Animal Rule.” Under the Animal Rule, efficacy must be demonstrated, in part, by utilizing animal models rather than testing in humans. We cannot guarantee that the FDA will permit us to proceed with licensure of any of our MCM product candidates under the Animal Rule. Even if we are able to proceed under the Animal Rule, product development can take a considerable amount of time, and the FDA may decide that our data are insufficient to support approval and require additional pre-clinical, clinical or other studies, refuse to approve our products, or place restrictions on our ability to commercialize those products. Furthermore, products approved under the Animal Rule are subject to certain additional post-marketing requirements. We cannot guarantee that we will be able to meet this regulatory requirement even if one or more of our product candidates are approved under the Animal Rule.
The process of obtaining these regulatory approvals is expensive, often takes many years if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidate involved. Changes in the regulatory approval process may cause delays in the approval or rejection of an application. There is a high rate of failure inherent in this process, and potential products that appear promising at early stages of development may fail for a number of reasons, and positive results from pre-clinical studies may not be predictive of
47

EMERGENT BIOSOLUTIONS INC.
similar results in human clinical trials. Similarly, promising results from earlier clinical trials of a product candidate may not be replicated in later clinical trials.
There are many other difficulties and uncertainties inherent in pharmaceutical R&D that could significantly delay or otherwise materially delay our ability to develop future product candidates, mostly related to clinical trials.
Failure to successfully develop future product candidates may materially adversely affect our business, financial condition, operating results and cash flows.
Once an NDA or BLA is submitted, the FDA has substantial discretion and may refuse to accept any application or may decide that our data are insufficient to support approval and require additional pre-clinical, clinical or other studies.
Unapproved and investigational stage products are also subject to the FDA's laws and regulations governing advertising and promotion, which prohibit the promotion of both unapproved products and unapproved uses of approved products. There is some risk that the FDA could conclude that our communications relating to unapproved products or unapproved uses of approved products constitute the promotion of an unapproved product or product use in violation of FDA laws and regulations. There is also a risk that a regulatory authority in another country could take a similar position under that country's laws and regulations and conclude that we have violated the laws and regulations related to product development, approval, or promotion in that country. Therefore, there is a risk that we could be subject to enforcement actions if found to be in violation of such laws or regulations.
Even if we or our collaborators obtain marketing approvals for our product candidates, the conditions of approvals and ongoing regulation of our products may limit how we manufacture, market and sell our products, which could materially impair our ability to generate revenue.
Once approval has been granted, an approved product and its manufacturer and marketer remain subject to ongoing review and extensive regulation.
We and our collaborators must therefore comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval. Promotional communications with respect to FDA-regulated products are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus,
we will not be able to sell any products we develop for indications or uses for which they are not approved.
If we and our collaborators are not able to comply with post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market and sell any products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any product candidate for which we or our collaborators obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Any product candidate for which we or our collaborators obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control and manufacturing, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the medicine.
Certain of our products are subject to post marketing requirements (PMRs), which we are required to conduct, and post marketing commitments (PMCs), which we have agreed to conduct. The FDA has the authority to take action against sponsors who fail to meet the obligations of a PMR, including civil monetary penalties and/or misbranding charges.
The FDA and other agencies, including the U.S. Department of Justice (DOJ) and the HHS Office of Inspector General (OIG), closely regulate and monitor the pre-approval and post-approval marketing and promotion of products to ensure that they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA, DOJ, and OIG impose stringent restrictions on manufacturers’ communications regarding unapproved products and
48

EMERGENT BIOSOLUTIONS INC.
unapproved uses of approved products and if we market unapproved products or market our approved products for unapproved indications, we may be subject to enforcement action. Violations of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription products may lead to investigations and enforcement actions alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturing partners or manufacturing processes, or failure to comply with regulatory requirements, may result in various penalties and sanctions. For all FDA-regulated products, if the FDA finds that a manufacturer has failed to comply with applicable laws and regulations, or that a product is ineffective or poses an unreasonable health risk, it can institute or seek a wide variety of enforcement actions and remedies, including but not limited to: