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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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-20220630_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 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 (§232.405 of this chapter) 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.
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 July 26, 2022 the registrant had 49,861,509 shares of common stock outstanding.
1


Emergent BioSolutions Inc.
Form 10-Q
For the Fiscal Quarter Ended June 30, 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;
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;
our ability to collect reimbursement for raw materials and payment of services fees from Janssen Pharmaceuticals, Inc. or other CDMO customers
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
(in millions, except per share amounts)
  June 30, 2022 December 31, 2021
(unaudited)
ASSETS  
Current assets:    
Cash and cash equivalents $ 358.1  $ 576.1 
Restricted cash 0.2  0.2 
Accounts receivable, net 175.0  274.7 
Inventories, net 425.5  350.8 
Prepaid expenses and other current assets 125.4  70.3 
Total current assets 1,084.2  1,272.1 
Property, plant and equipment, net 798.4  800.1 
Intangible assets, net 576.6  604.6 
Goodwill 224.9  224.9 
Other assets 51.3  57.3 
Total assets $ 2,735.4  $ 2,959.0 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 106.2  $ 128.9 
Accrued expenses 40.3  51.7 
Accrued compensation 74.4  88.7 
Debt, current portion 31.6  31.6 
Other current liabilities 24.2  72.9 
Total current liabilities 276.7  373.8 
Debt, net of current portion 793.6  809.4 
Deferred tax liability 93.4  94.9 
Other liabilities 58.5  61.9 
Total liabilities 1,222.2  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, 55.5 and 55.1 shares issued; 49.9 and 51.3 shares outstanding, respectively
0.1  0.1 
Treasury stock, at cost, 5.6 and 3.8 common shares, respectively
(227.7) (152.2)
Additional paid-in capital 849.2  829.4 
Accumulated other comprehensive loss, net (6.1) (16.1)
Retained earnings 897.7  957.8 
Total stockholders' equity 1,513.2  1,619.0 
Total liabilities and stockholders' equity $ 2,735.4  $ 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 June 30, Six Months Ended June 30,
 
2022 2021 2022 2021
Revenues:    
Product sales, net $ 237.2  $ 181.2  $ 474.3  $ 319.1 
Contract development and manufacturing:
Services 2.7  103.6  54.5  171.2 
Leases (4.5) 87.3  4.5  203.5 
Total contract development and manufacturing (1.8) 190.9  59.0  374.7 
Contracts and grants 7.3  25.4  16.9  46.7 
Total revenues 242.7  397.5  550.2  740.5 
Operating expenses:
Cost of product sales 91.0  81.2  171.3  133.8 
Cost of contract development and manufacturing 78.8  146.6  154.4  193.3 
Research and development 49.8  48.9  96.2  101.4 
Selling, general and administrative 81.1  91.2  165.9  172.1 
Amortization of intangible assets 14.0  15.1  28.0  30.0 
Total operating expenses 314.7  383.0  615.8  630.6 
Income (loss) from operations (72.0) 14.5  (65.6) 109.9 
Other income (expense):
Interest expense (7.8) (8.6) (16.0) (17.1)
Other, net (3.0) 1.3  (5.0) (0.4)
Total other income (expense), net (10.8) (7.3) (21.0) (17.5)
Income (loss) before income taxes (82.8) 7.2  (86.6) 92.4 
Income taxes 26.4  (2.6) 26.5  (18.1)
Net income (loss) $ (56.4) $ 4.6  $ (60.1) $ 74.3 
Net income (loss) per common share
Basic $ (1.13) $ 0.09  $ (1.19) $ 1.40 
Diluted $ (1.13) $ 0.09  $ (1.19) $ 1.37 
Shares used in computing net income (loss) per common share
Basic 50.0  53.6  50.3  53.5 
Diluted 50.0  54.0  50.3  54.3 
See accompanying notes.
6


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in millions)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income (loss) $ (56.4) $ 4.6  $ (60.1) $ 74.3 
Other comprehensive income (loss), net of tax:
Foreign currency translation 0.4  0.5  0.9  (1.7)
Unrealized gains (losses) on hedging activities 2.8  1.5  9.1  4.6 
Total other comprehensive income (loss), net of tax 3.2  2.0  10.0  2.9 
Comprehensive income (loss), net of tax $ (53.2) $ 6.6  $ (50.1) $ 77.2 
See accompanying notes.
7


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)
 
Six Months Ended June 30,
2022 2021
Cash flows used in operating activities:
Net income (loss) $ (60.1) $ 74.3 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Share-based compensation expense 22.2  21.9 
Depreciation and amortization 75.4  61.9 
Change in fair value of contingent consideration, net 1.8  1.7 
Amortization of deferred financing costs 2.0  2.0 
Deferred income taxes 2.6  (3.2)
Other 2.2  2.0 
Changes in operating assets and liabilities:
Accounts receivable 97.7  (34.7)
Inventories (75.5) (79.7)
Prepaid expenses and other assets (19.4) (2.4)
Accounts payable (7.6) 8.0 
Accrued expenses and other liabilities (82.8) (55.4)
Accrued compensation (14.1) (21.4)
Contract liabilities 2.7  0.4 
Net cash used in operating activities: (52.9) (24.6)
Cash flows used in investing activities:
Purchases of property, plant and equipment (64.3) (123.1)
Net cash used in investing activities: (64.3) (123.1)
Cash flows used in financing activities:
Purchases of treasury stock (81.9) — 
Principal payments on term loan facility (16.9) (11.3)
Principal payments on convertible senior notes —  (10.6)
Proceeds from share-based compensation activity 3.0  10.0 
Taxes paid for share-based compensation activity (5.4) (13.0)
Contingent consideration payments —  (1.1)
Net cash used in financing activities: (101.2) (26.0)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 0.4  (0.1)
Net change in cash, cash equivalents and restricted cash (218.0) (173.8)
Cash, cash equivalents and restricted cash at beginning of period 576.3  621.5 
Cash, cash equivalents and restricted cash at end of period $ 358.3  $ 447.7 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 14.8  $ 15.5 
Cash paid during the period for income taxes $ 20.0  $ 50.3 
Supplemental information on non-cash investing and financing activities:
Purchases of property, plant and equipment unpaid at period end $ 7.3  $ 31.7 
Reconciliation of cash and cash equivalents and restricted cash at June 30, 2022 and December 31, 2021:
Cash and cash equivalents $ 358.1  $ 576.1 
Restricted cash 0.2  0.2 
Total $ 358.3  $ 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 0.4  —  —  —  19.8  —  —  19.8 
Net loss —  —  —  —  —  —  (60.1) (60.1)
Repurchases of stock —  —  (1.8) (75.5) —  —  —  (75.5)
Other comprehensive income, net of tax —  —  —  —  —  10.0  —  10.0 
Balance at June 30, 2022 55.5  $ 0.1  (5.6) $ (227.7) $ 849.2  $ (6.1) $ 897.7  $ 1,513.2 
Balance at March 31, 2022 55.3  $ 0.1  (4.9) $ (204.4) $ 834.8  $ (9.3) $ 954.1  $ 1,575.3 
Share-based compensation activity 0.2  —  —  —  14.4  —  —  14.4 
Net loss —  —  —  —  —  —  (56.4) (56.4)
Repurchases of stock —  —  (0.7) (23.3) —  —  —  (23.3)
Other comprehensive income, net of tax —  —  —  —  —  3.2  —  3.2 
Balance at June 30, 2022 55.5  $ 0.1  (5.6) $ (227.7) $ 849.2  $ (6.1) $ 897.7  $ 1,513.2 
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 0.6  —  —  —  19.5  —  —  19.5 
Net income —  —  —  —  —  —  74.3  74.3 
Other comprehensive income, net of tax —  —  —  —  —  2.9  —  2.9 
Balance at June 30, 2021 54.9  $ 0.1  (1.2) $ (39.6) $ 804.4  $ (22.4) $ 801.2  $ 1,543.7 
Balance at March 31, 2021 54.8  $ 0.1  (1.2) $ (39.6) $ 790.1  $ (24.4) $ 796.6  $ 1,522.8 
Share-based compensation activity 0.1  —  —  —  14.3  —  —  14.3 
Net income —  —  —  —  —  —  4.6  4.6 
Other comprehensive income, net of tax —  —  —  —  —  2.0  —  2.0 
Balance at June 30, 2021 54.9  $ 0.1  (1.2) $ (39.6) $ 804.4  $ (22.4) $ 801.2  $ 1,543.7 
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;
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;
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; and
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.
Ebanga™ (ansuvimab-zykl, formerly referred to as mAb114) is a monoclonal antibody with antiviral activity provided through a single IV infusion for the treatment of Ebola. Under the terms of a collaboration with Ridgeback Biotherapeutics, Emergent will be responsible for the manufacturing, sale, and distribution of Ebanga™ in the United States and Canada, and Ridgeback Bio will serve as the global access partner for Ebanga™.
10

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, 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 licensed an authorized generic of naloxone nasal spray to Sandoz;
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).
Pending Acquisition
On May 15, 2022, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”), by and between the Company and Chimerix, Inc. (the “Seller”), pursuant to which the Company agreed to purchase from Seller its exclusive worldwide rights to brincidofovir, including TEMBEXA® and related assets (the “Transaction”). TEMBEXA is a medical countermeasure for smallpox approved by the U.S. Food and Drug Administration in June 2021.
Under the terms of the Purchase Agreement, the Company will pay $225.0 million upon closing of the Transaction, plus up to $100.0 million in up to four $25.0 million milestone payments. The Purchase Agreement anticipates that the Seller will finalize its negotiations with the Biomedical Advanced Research and Development Authority (“BARDA”) and enter into a procurement contract (the “BARDA Contract”) with BARDA for TEMBEXA, which the Seller is currently negotiating. Each milestone payment is associated with the exercise of future BARDA procurement options of TEMBEXA following the BARDA Contract base period. The closing payment and the milestone payments may be adjusted upward or downward based on actual procurement value. The Seller is also eligible to receive up to $12.5 million in regulatory milestones associated with the SymBio Pharmaceuticals Ltd. brincidofovir licensing arrangements to be assumed by the Company in the Transaction.
The Seller may also earn a 20% royalty on future gross profit of TEMBEXA in the United States associated with volumes above 1.7 million treatment courses of therapy during the exclusivity period of TEMBEXA. Outside of the United States, the Purchase Agreement also allows the Seller to earn a 15% royalty on all gross profit associated with TEMBEXA sales during the exclusivity period of TEMBEXA on a market-to-market basis.
The closing is subject to the execution by the Seller of the BARDA Contract, the satisfaction or waiver of the following other closing conditions: (i) the representations and warranties of the Company and the Seller contained in the Purchase Agreement being true and correct, subject to certain materiality standards; (ii) each of the Company and the Seller having performed and complied with their respective covenants in all material respects; (iii) the waiting period applicable to the consummation of the Transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired; (iv) the delivery of certain ancillary documents, including a transition services agreement and pre-novation agreement; (v) the receipt of any required consent from BARDA to enter into a pre-novation agreement with the Company; (vi) no injunction or other final order preventing the consummation of the Transaction
11

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
having been issued; (vii) and there having occurred no material adverse effect on the assets being sold in the Transaction. Closing of the Transaction is currently expected to occur during the third quarter of 2022.
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 June 30, 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 six months ended June 30, 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 six months ended June 30, 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).
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 June 30, 2022 and December 31, 2021, the Company had no other significant assets or liabilities that were measured at fair value.
12

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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:
June 30, 2022 December 31, 2021
Raw materials and supplies $ 264.0  $ 217.5 
Work-in-process 108.4  95.8 
Finished goods 53.1  37.5 
Total inventories, net $ 425.5  $ 350.8 
Inventories, net is stated at the lower of cost or net realizable value. For additional information related to the termination of the manufacturing services agreement (the “Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”) and associated evaluation of inventory as of June 30, 2022, refer to Note 10, Revenue recognition.
4.    Property, plant and equipment, net
Property, plant and equipment, net consisted of the following:
June 30, 2022 December 31, 2021
Land and improvements $ 51.2  $ 52.1 
Buildings, building improvements and leasehold improvements 293.0  269.7 
Furniture and equipment 527.3  513.5 
Software 66.2  60.7 
Construction-in-progress 218.4  223.2 
Property, plant and equipment, gross $ 1,156.1  $ 1,119.2 
Less: Accumulated depreciation & amortization (357.7) (319.1)
Total property, plant and equipment, net $ 798.4  $ 800.1 
As of June 30, 2022 and December 31, 2021, construction-in-progress primarily includes costs incurred related to construction to advance the Company's CDMO capabilities.
Property, plant and equipment, net is stated at cost, less accumulated depreciation and amortization. During the three and six months ended June 30, 2022, the Company recorded accelerated depreciation of $12.7 million to shorten the useful life of certain property, plant and equipment which were to be used in the manufacturing process to fulfill the manufacturing services agreement with Janssen. For additional information related to the termination of the Agreement, refer to Note 10, Revenue recognition.
13

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Operating lease cost:
Amortization of right-of-use assets $ 1.4  $ 1.5  $ 2.8  $ 2.8 
Interest on lease liabilities 0.3  0.3  0.6  0.7 
Total operating lease cost $ 1.7  $ 1.8  $ 3.4  $ 3.5 
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 June 30, 2022 December 31, 2021
Operating lease right-of-use assets Other assets $ 25.5 $ 28.3
Operating lease liabilities, current portion Other current liabilities 5.9 5.8
Operating lease liabilities Other liabilities 20.9 24.2
Total operating lease liabilities $ 26.8 $ 30.0
Operating leases:
Weighted average remaining lease term (years) 6.7 7.0
Weighted average discount rate 4.1  % 4.1  %
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, net:
June 30, 2022 December 31, 2021
Asset Type Estimated Life Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Products
9-22 years
$ 798.0  $ 221.4  $ 576.6  $ 798.0  $ 193.5  $ 604.5 
CDMO 8 years 5.5  5.5  —  5.5  5.4  0.1 
   Total intangible assets $ 803.5  $ 226.9  $ 576.6  $ 803.5  $ 198.9  $ 604.6 
Amortization expense associated with the Company's intangible assets was recorded as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Amortization Expense $ 14.0  $ 15.1  $ 28.0  $ 30.0 
As of June 30, 2022, the weighted average amortization period remaining for intangible assets was 11.4 years years.
14

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
The following table provides a roll forward of changes in our goodwill balance:
Goodwill, December 31, 2021
$ 224.9 
Foreign currency translation — 
Goodwill, June 30, 2022
$ 224.9 
The carrying amount of goodwill included accumulated impairments of $41.7 million as of June 30, 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 indicates the level within the fair value hierarchy of the valuation techniques we utilized to determine fair value:
June 30, 2022
December 31, 2021
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Assets:
Money market accounts $ 25.1  $ 25.1  $ —  $ —  $ 152.4  $ 152.4  $ —  $ — 
Time deposits 150.2  —  150.2  —  200.0  —  200.0  — 
Derivative instruments 6.3  —  6.3  —  —  —  —  — 
Total $ 181.6  $ 25.1  $ 156.5  $ —  $ 352.4  $ 152.4  $ 200.0  $ — 
Liabilities:
Contingent consideration $ 8.1  $ —  $ —  $ 8.1  $ 37.2  $ —  $ —  $ 37.2 
Derivative instruments —  —  —  —  6.1  —  6.1  — 
Total $ 8.1  $ —  $ —  $ 8.1  $ 43.3  $ —  $ 6.1  $ 37.2 
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 our contingent consideration liability:
 
Balance at December 31, 2021 $ 37.2 
Change in fair value 1.8 
Settlements (30.9)
Balance at June 30, 2022 $ 8.1 
As of June 30, 2022 and December 31, 2021, the current portion of the contingent consideration liability was $3.6 million and $32.7 million, respectively, and was included in other current liabilities on the condensed consolidated balance sheets. The non-current portion of the contingent consideration liability is included in other liabilities on the condensed consolidated balance sheets.
15

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 June 30, 2022
Valuation Technique Unobservable Input Range Weighted Average
Revenue milestone and royalty based $8.1 million Discounted cash flow Discount rate
9.3%
9.3%
Probability of payment
25% - 50%
40.0%
Projected year of payment 2022 - 2028 2024
Derivative instruments
Refer to Note 8, Derivative instruments and hedging activities for more information about our derivative instruments.
Non-variable rate debt
As of June 30, 2022 and December 31, 2021, the fair value of the Company's 3.875% Senior Unsecured Notes was $319.0 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 $4.8 million of net deferred gains from accumulated other comprehensive loss into the condensed consolidated statement of operations over the next twelve-month period. All outstanding cash flow hedges mature in October 2023.
As of June 30, 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
 
June 30, 2022 December 31, 2021 June 30, 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 $ 4.8  Other Current Assets $ —  Other Current Liabilities $ —  Other Current Liabilities $ 4.5 
Other Assets $ 1.5  Other Assets $ —  Other Liabilities $ —  Other Liabilities $ 1.6 
16

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 loss.
Cumulative Amount of Gain/(Loss) Recognized in OCI on Derivative
Location of Gain or (Loss) Reclassified from Accumulated OCL into Income
Amount of Gain/(Loss) Reclassified from Accumulated OCL into Income
June 30, December 31, Six Months Ended June 30,
2022 2021 2022 2021
Interest Rate Swaps $ 6.3  $ (6.1) Interest expense $ (2.3) $ (3.0)
9.    Debt
The components of debt are as follows:
June 30, 2022 December 31, 2021
Senior secured credit agreement - Term loan due 2023 $ 379.7  $ 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 $ 832.7  $ 849.6 
Current portion of long-term debt, net of debt issuance costs (31.6) (31.6)
Unamortized debt issuance costs (7.5) (8.5)
Non-current portion of debt $ 793.6  $ 809.4 
   
As of June 30, 2022 and December 31, 2021 there was no outstanding revolver balance. We classify debt issuance costs associated with the revolver loan as other current assets and other assets on the Company's consolidated balance sheets. As of June 30, 2022, the Company had $2.0 million and $0.6 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 $450.0 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
17

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
redeem up to 40% of the aggregate principal amount of the 2028 Notes using the net cash proceeds of certain equity offerings at the redemption price set forth in the related Indenture. Upon the occurrence of a change of control, the Company must offer to repurchase the 2028 Notes at a purchase price of 101% of the principal amount of such 2028 Notes plus accrued and unpaid interest.
Negative covenants in the Indenture governing the 2028 Notes, among other things, limit the ability of the Company to incur indebtedness and liens, dispose of assets, make investments, enter into certain merger or consolidation transactions and make restricted payments.
Senior secured credit agreement
Also on August 7, 2020, the Company entered into a Second Amendment (the “Credit Agreement Amendment”) to its senior secured credit agreement, dated October 15, 2018, with multiple lending institutions relating to the Company’s senior secured credit facilities (the “Credit Agreement,” and as amended, the “Amended Credit Agreement”), consisting of a senior revolving credit facility (the “Revolving Credit Facility”) and senior term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”). The Credit Agreement Amendment amended, among other things, the definition of incremental facilities limit, the consolidated net leverage ratio financial covenant by increasing the maximum level, increased the permissible applicable margins based on the Company’s consolidated net leverage ratio and increased the commitment fee that the Company is required to pay in respect of the average daily unused commitments under the Revolving Credit Facility, depending on the Company’s consolidated net leverage ratio.
The Amended Credit Agreement includes (i) a Revolving Credit Facility of $600.0 million and (ii) a Term Loan Facility with a principal amount of $450.0 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 $100.0 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.
18

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 June 30, 2022 Three Months Ended June 30, 2021
U.S. Government Non-U.S. Government  Total U.S. Government Non-U.S. Government  Total
Product sales, net $ 118.2  $ 119.0  $ 237.2  $ 66.3  $ 114.9  $ 181.2 
Contract development and manufacturing:
Services —  2.7  2.7  —  103.6  103.6 
Leases —  (4.5) (4.5) 70.4  16.9  87.3 
Total contract development and manufacturing $ —  $ (1.8) $ (1.8) $ 70.4  $ 120.5  $ 190.9 
Contracts and grants 6.2  1.1  7.3  24.4  1.0  25.4 
Total revenues $ 124.4  $ 118.3  $ 242.7  $ 161.1  $ 236.4  $ 397.5 
Six Months Ended June 30, 2022 Six Months Ended June 30, 2021
U.S.
Government
Non-U.S.
Government
 Total
U.S.
Government
Non-U.S.
Government
 Total
Product sales, net $ 221.6  $ 252.7  $ 474.3  $ 122.7  $ 196.4  $ 319.1 
Contract development and manufacturing:
Services —  54.5  54.5  —  171.2  171.2 
Leases —  4.5  4.5  167.9  35.6  203.5 
Total contract development and manufacturing $ —  $ 59.0  $ 59.0  167.9  206.8  374.7 
Contracts and grants 15.3  1.6  16.9  44.4  2.3  46.7 
Total revenues $ 236.9  $ 313.3  $ 550.2  $ 335.0  $ 405.5  $ 740.5 


Termination of manufacturing services agreement with Janssen Pharmaceuticals, Inc.
On July 2, 2020, Emergent BioSolutions Inc., through its wholly-owned subsidiary, Emergent Manufacturing Operations Baltimore, LLC, entered into a manufacturing services agreement with Janssen Pharmaceuticals, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson (the "Agreement"), for large-scale drug substance manufacturing of Johnson & Johnson’s investigational SARS-CoV-2 vaccine, Ad26.COV2-S, recombinant based on the AdVac technology (the “Product”).
On June 6, 2022, the Company provided to Janssen a notice (the “Notice”) of material breach of the Agreement for (i) failure by Janssen to provide the Company the requisite forecasts of the required quantity of Product to be purchased by Janssen under the Agreement; (ii) to confirm Janssen’s intent to not purchase the requisite minimum quantity of the Product pursuant to the Agreement; and (iii) instead, wind-down the Agreement ahead of fulfilling these minimum requirements. Later on June 6, 2022, the Company received from Janssen a purported written notice of termination (the “Janssen Notice”) of the Agreement for asserted material breaches of the Agreement by the Company, including alleged failure by the Company to perform its obligations in compliance with current good manufacturing practices (cGMP) or other applicable laws and regulations and alleged failure by the Company to supply Janssen with the Product. Janssen alleged that the Company’s breaches were not curable and that, therefore, termination of the Agreement would be effective as of July 6, 2022. The Company disputes Janssen's assertions and allegations, including Janssen's ability to effect termination pursuant to the Janssen Notice. The Company and Janssen disagree on the monetary amounts that are due to the Company as a result of termination by any means. The Company believes the amounts due to the Company include, but are not limited to, compensation for services provided, reimbursement for raw materials purchased and non-cancelable orders, and fees for early termination. Janssen has alleged that no additional amount is due to the Company and that the Company should pay Janssen an unspecified amount as a result
19

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
of the Company's alleged failure to perform under the Agreement. The Company has not recorded any contingent liabilities related to Janssen's allegations as the Company believes they are without merit and intends to vigorously defend the Company's position during the dispute resolution process including mediation and/or arbitration.
During the three months ended June 30, 2022, the Company reversed $13.3 million of previously recognized revenue to align cumulative revenue recognized under the Agreement with cumulative cash collections. As of June 30, 2022, the Company has no billed or unbilled net accounts receivable related to the Agreement. During the three months ended June 30, 2022, the Company recorded accelerated depreciation of $12.7 million related to the conclusion of the Agreement which has been recorded in cost of contract development and manufacturing in the condensed consolidated statements of operations.
The Company has $126.2 million of raw materials inventory recorded in its condensed consolidated balance sheet as of June 30, 2022 representing materials purchased for the Agreement which Janssen has not reimbursed. The Company evaluated the net realizable value of this inventory as of June 30, 2022, concluding that because Section 13.4 of the Agreement specifies the Company is entitled to, among other things, reimbursement of raw materials and non-cancelable orders in the event of a contract termination for whatever reason, the Company is entitled to payment from Janssen for these raw materials. Therefore, this inventory remains an asset on the condensed consolidated balance sheet as of June 30, 2022. Additionally, the Company has approximately $18.2 million of non-cancelable orders as of June 30, 2022 which have not been received and Janssen has not reimbursed.
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 the completion of 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 and six months ended June 30, 2022. During the three and six months ended June 30, 2021 the Company recognized lease revenues of $70.4 million and $167.9 million, respectively, 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 2.9 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. Excluding future amounts related to the Janssen Agreement as discussed above, we estimate future operating lease revenues to be $0.4 million in the remainder of 2022, $5.1 million in 2023, $0.9 million in 2024, $0.9 million million in 2025 and $2.7 million in years beyond 2025.

Transaction price allocated to remaining performance obligations
As of June 30, 2022, the Company has future contract value on unsatisfied performance obligations of approximately $545.1 million associated with all arrangements entered into by the Company. The Company expects to recognize a majority of the $545.1 million 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.
20

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 June 30, 2022 and December 31, 2021, the Company had $26.3 million and $21.5 million, respectively, of contract assets recorded within accounts receivable, net on the condensed consolidated balance sheets.
Contract liabilities
When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with amounts allocated to those performance obligations is reflected as contract liabilities on the condensed 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 17.9 
Revenue recognized (10.0)
June 30, 2022 $ 24.3 
As of June 30, 2022 and December 31, 2021, the current portion of contract liabilities was $18.5 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:
June 30, 2022 December 31, 2021
Billed, net $ 119.9  $ 224.9 
Unbilled 55.1  49.8 
Total accounts receivable, net $ 175.0  $ 274.7 
As of June 30, 2022 and December 31, 2021, the allowances for doubtful accounts was $0.9 million and $3.2 million, respectively.
11.    Income taxes
The estimated effective annual tax rate as of June 30, 2022 and 2021 for the years ended December 31, 2022 and 2021, excluding the impact of discrete adjustments, was 29% and 26%, respectively. The Company recorded discrete tax expense (benefits) of $0.2 million and $0.6 million for the three and six months ended June 30, 2022, respectively, and $1.1 million and $(5.5) million, for the three and six months ended June 30, 2021, respectively. The discrete tax expense in 2022 was primarily due to share-based compensation activity offset by return to provision adjustments. The net discrete benefits in 2021 were primarily due to share-based compensation activity.
21

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
12.    Net income (loss) per share
The following table presents the calculation of basic and diluted net (loss) income per share:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Numerator:  
Net income (loss) $ (56.4) $ 4.6  $ (60.1) $ 74.3 
Denominator:
Weighted-average number of shares—basic 50.0  53.6  50.3  53.5 
Dilutive securities—equity awards —  0.4  —  0.8 
Weighted-average number of shares—diluted 50.0  54.0  50.3  54.3 
Net income (loss) per share - basic $ (1.13) $ 0.09  $ (1.19) $ 1.40 
Net income (loss) per share - diluted $ (1.13) $ 0.09  $ (1.19) $ 1.37 
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the treasury method by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period, adjusted for the potential dilutive effect of other securities if such securities were converted or exercised and are not anti-dilutive. No adjustment for the potential dilutive effect of dilutive securities is reported for the three and six months ended June 30, 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 income (loss) per share calculation generally because the exercise price of the awards was greater than the average per share closing price during the three and six months ended June 30, 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Anti-dilutive stock awards 1.8  1.4  3.0  0.5 
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 $187.9 million has been utilized to purchase 4.4 million shares as of June 30, 2022. During the three and six months ended June 30, 2022, the Company has utilized $23.3 million and $75.5 million to purchase 0.7 million and 1.8 million shares, respectively. 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 six months ended June 30, 2022, the Company granted stock options to purchase 0.6 million shares of common stock and 1.4 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
22

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Cost of product sales $ 1.9  $ 1.7  $ 3.6  $ 3.2 
Cost of contract development and manufacturing 0.6  0.3  1.0  0.5 
Research and development 1.5  1.7  2.6  3.1 
Selling, general and administrative 8.3  7.7  15.0  15.1 
Total share-based compensation expense $ 12.3  $ 11.4  $ 22.2  $ 21.9 
Accumulated other comprehensive loss, net of tax
The following table includes changes in accumulated other comprehensive loss, net of tax by component:
Defined Benefit Pension Plan
Derivative Instruments Foreign Currency Translation Adjustments Total
(in millions, net of tax)
Balance, December 31, 2021
$ (4.0) $ (4.5) $ (7.6) $ (16.1)
Other comprehensive income before reclassifications —  6.8  0.9  7.7 
Amounts reclassified from accumulated other comprehensive loss —  2.3  —  2.3 
Net current period other comprehensive income —  9.1  0.9  10.0 
Balance, June 30, 2022
$ (4.0) $ 4.6  $ (6.7) $ (6.1)
Balance, March 31, 2022
$ (4.0) $ 1.8  $ (7.1) $ (9.3)
Other comprehensive income before reclassifications —  1.9  0.4  2.3 
Amounts reclassified from accumulated other comprehensive loss —  0.9  —  0.9 
Net current period other comprehensive income —  2.8  0.4  3.2 
Balance, June 30, 2022
$ (4.0) $ 4.6  $ (6.7) $ (6.1)
Balance, December 31, 2020
$ (7.7) $ (11.0) $ (6.6) $ (25.3)
Other comprehensive income (loss) before reclassifications —  1.6  (1.7) (0.1)
Amounts reclassified from accumulated other comprehensive loss —  3.0  —  3.0 
Net current period other comprehensive income (loss) (7.7) 4.6  (1.7) 2.9 
Balance, June 30, 2021
$ (7.7) $ (6.4) $ (8.3) $ (22.4)
Balance, March 31, 2021
$ (7.7) $ (7.9) $ (8.8) $ (24.4)
Other comprehensive income (loss) before reclassifications —  (0.1) 0.5  0.4 
Amounts reclassified from accumulated other comprehensive loss —  1.6  —  1.6 
Net current period other comprehensive income Net current period other comprehensive income (loss) —  1.5  0.5  2.0 
Balance, June 30, 2021
$ (7.7) $ (6.4) $ (8.3) $ (22.4)
23

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
The following table presents the tax effects related to each component of other comprehensive income (loss):
Three Months Ended June 30, 2022 June 30, 2021
Pretax Tax Benefit (Expense) Net of tax Pretax Tax Benefit (Expense) Net of tax
Derivative Instruments 3.8  (1.0) 2.8  1.2  0.3  1.5 
Foreign Currency Translation Adjustments 1.3  (0.9) 0.4  0.5  —  0.5 
Total adjustments $ 5.1  $ (1.9) $ 3.2  $ 1.7  $ 0.3  $ 2.0 
Six Months Ended June 30, 2022 June 30, 2021
Pretax Tax Benefit (Expense) Net of tax Pretax Tax Benefit (Expense) Net of tax
Derivative Instruments 12.4  (3.3) 9.1  3.6  1.0  4.6 
Foreign Currency Translation Adjustments 2.0  (1.1) 0.9  (1.7) —  (1.7)
Total adjustments $ 14.4  $ (4.4) $ 10.0  $ 1.9  $ 1.0  $ 2.9 
14.    Segment information
The Company reports segment information based on the internal reporting used by management for making decisions and assessing performance. During the first quarter of 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.
24

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
The following tables 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:
Three Months Ended June 30, 2022 Three Months Ended June 30, 2021
Products Services Other Consolidated Products
Services (1)
Other Consolidated
Revenues $ 237.2  $ (1.8) $ 7.3  $ 242.7  $ 181.2  $ 190.9  $ 25.4  $ 397.5 
Contracts and grants revenue —  —  (7.3) (7.3) —  —  (25.4) (25.4)
Cost of product sales (91.0) —  —  (91.0) (81.2) —  —  (81.2)
Cost of contract development and manufacturing —  (78.8) —  (78.8) —  (146.6) —  (146.6)
Gross margin 146.2  (80.6) —  65.6  100.0  44.3  —  144.3 
Changes in fair value of contingent consideration 1.3  —  —  1.3  0.6  —  —  0.6 
Adjusted gross margin $ 147.5  $ (80.6) $ —  $ 66.9  $ 100.6  $ 44.3  $ —  $ 144.9 
(1) Services revenue and Services adjusted gross margin for the three months ended June 30, 2021 includes the impact of $70.4 million of CDMO leases revenues related to the BARDA COVID-19 Development Public Private Partnership which ended in November 2021.
Six Months Ended June 30, 2022 Six Months Ended June 30, 2021
Products Services Other Consolidated Products
Services (1)
Other Consolidated
Revenues $ 474.3  $ 59.0  $ 16.9  $ 550.2  $ 319.1  $ 374.7  $ 46.7  $ 740.5 
Less:
Contracts and grants revenue —  —  (16.9) (16.9) —  —  (46.7) (46.7)
Cost of product sales (171.3) —  —  (171.3) (133.8) —  —  (133.8)
Cost of contract development and manufacturing —  (154.4) —  (154.4) —  (193.3) —  (193.3)
Gross margin 303.0  (95.4) —  207.6  185.3  181.4  —  366.7 
Changes in fair value of contingent consideration 1.8  —  —  1.8  1.7  —  —  1.7 
Adjusted gross margin $ 304.8  $ (95.4) $ —  $ 209.4  $ 187.0  $ 181.4  $ —  $ 368.4 
(1) Services revenue and Services adjusted gross margin for the six months ended June 30, 2021 includes the impact of $167.9 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:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Depreciation:
Products $ 6.7  $ 8.7  $ 14.1  $ 15.9 
Services 20.8  7.6  28.6  12.9
Other 1.0  2.2 2.4  3.3
Total $ 28.5  $ 18.5  $ 45.1  $ 32.1 
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.
25

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 defendants filed a motion to dismiss on May 19, 2022 and the Lead Plaintiff filed an opposition to that motion on July 19, 2022. 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.
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
26

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)
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 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 unsuccessfully appealed the decision to the Court of Appeals for the Federal Circuit (CAFC) and followed with a petition for rehearing that was ultimately denied on May 5, 2022.
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 and it is anticipated the matter will be dismissed.
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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.
Ebanga™ (ansuvimab-zykl, formerly referred to as mAb114) is a monoclonal antibody with antiviral activity provided through a single IV infusion for the treatment of Ebola. Under the terms of a
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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)
collaboration with Ridgeback Biotherapeutics, Emergent will be responsible for the manufacturing, sale, and distribution of Ebanga™ in the United States and Canada, and Ridgeback Bio will serve as the global access partner for Ebanga™.
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.
Pending Acquisition
On May 15, 2022, the Company entered into an Asset Purchase Agreement by and between the Company and Chimerix, Inc. (the “Seller”), pursuant to which the Company agreed to purchase from Seller its exclusive worldwide rights to brincidofovir, including TEMBEXA® and related assets. TEMBEXA is a medical countermeasure for smallpox approved by the U.S. Food and Drug Administration in June 2021. Closing of the Transaction is currently expected to occur during the third quarter of 2022.
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
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)
facilities, utilities and amortization of intangible assets. Variable manufacturing costs primarily consist of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff, contract manufacturing operations, sales-based royalties, shipping and logistics. In addition to the fixed and variable manufacturing costs described above, the cost of product sales depends on utilization of available manufacturing capacity. For our commercial sales, other associated expenses include sales-based royalties (which include fair value adjustments associated with contingent consideration), shipping and logistics.
CDMO - The primary expenses that we incur to deliver our CDMO services consist of fixed and variable costs. 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 see Note 2, Basis of presentation and principles of consolidation, in Part I item 1, of this Quarterly Report on Form 10-Q.
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 six months ended June 30, 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.
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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 June 30, Six Months Ended June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Product sales net:        
Nasal naloxone products $ 101.6  $ 106.2  $ (4.6) (4) % $ 194.7  $ 180.4  $ 14.3  %
ACAM2000 —  —  —  NM 14.4  —  14.4  NM
Anthrax vaccines 95.6  51.5  44.1  86  % 199.2  106.5  92.7  87  %
Other product sales 40.0  23.5  16.5  70  % 66.0  32.2  33.8  NM
Total product sales, net 237.2  181.2  56.0  31  % 474.3  319.1  155.2  49  %
Contract development and manufacturing:
Services 2.7  103.6  (100.9) (97) % 54.5  171.2  (116.7) (68) %
Leases (4.5) 87.3  (91.8) NM 4.5  203.5  (199.0) (98) %
Total contract development and manufacturing (1.8) 190.9  (192.7) NM 59.0  374.7  (315.7) (84) %
Contracts and grants 7.3  25.4  (18.1) (71) % 16.9  46.7  (29.8) (64) %
Total revenues 242.7  397.5  (154.8) (39) % 550.2  740.5  (190.3) (26) %
Operating expenses:
Cost of product sales 91.0  81.2  9.8  12  % 171.3  133.8  37.5  28  %
Cost of contract development and manufacturing 78.8  146.6  (67.8) (46  %) 154.4  193.3  (38.9) (20  %)
Research and development 49.8  48.9  0.9  % 96.2  101.4  (5.2) (5  %)
Selling, general and administrative 81.1  91.2  (10.1) (11  %) 165.9  172.1  (6.2) (4  %)
Amortization of intangible assets 14.0  15.1  (1.1) (7  %) 28.0  30.0  (2.0) (7  %)
Total operating expenses 314.7  383.0  (68.3) (18  %) 615.8  630.6  (14.8) (2  %)
Income (loss) from operations (72.0) 14.5  (86.5) NM (65.6) 109.9  (175.5) NM
Other income (expense):
Interest expense (7.8) (8.6) 0.8  (9  %) (16.0) (17.1) 1.1  (6  %)
Other, net (3.0) 1.3  (4.3) NM (5.0) (0.4) (4.6) NM
Total other income (expense), net (10.8) (7.3) (3.5) 48  % (21.0) (17.5) (3.5) 20  %
Income (loss) before income taxes (82.8) 7.2  (90.0) NM (86.6) 92.4  (179.0) NM
Income taxes 26.4  (2.6) 29.0  NM 26.5  (18.1) 44.6  NM
Net income (loss) $ (56.4) $