•政府资金对我们其他商品化的产品，包括Ebanga的可用性此款超便携式投影仪使用了最新的 Android TV 界面，而且遥控器还内置了 Google AssistantTM 功能，用户可以非常方便地使用它。 （ansuvimab-zykl）和BAT® （肉毒中和抗毒素七价（A亿，C，D，E，F，G）-（马血清））；
In November 2023, the Financial Accounting Standards board ("FASB") issued Accounting Standards Update (“ASU”) 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The amendments in the ASU are effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The amendments in the ASU are effective for public business entities for annual periods beginning after December 15, 2024, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on it consolidated financial statements.
14
3. Divestitures
Sale of Travel Health Business
On May 15, 2023, pursuant to the Purchase and Sale Agreement (the “Purchase and Sale Agreement”), by and between the Company, through its wholly owned subsidiaries Emergent International Inc. and Emergent Travel Health Inc., and Bavarian Nordic, the Company completed the sale of its travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California.
At the closing, Bavarian Nordic paid a cash purchase price of $270.2 million, exclusive of customary closing adjustments for cash, indebtedness, working capital and transaction expenses of the business at closing. Bavarian Nordic may also be required to pay milestone payments of up to $80.0 million related to the development of CHIKV VLP and receipt of marketing approval and authorization in the U.S. and Europe, and earn-out payments of up to $30.0 million based on aggregate net sales of Vaxchora® and Vivotif® in calendar year 2026. On July 18, 2024, Bavarian Nordic announced that the European Medicines Agency had validated the marketing authorization application for CHIKV VLP, which triggered a development milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $10.0 million. On August 13, 2024, Bavarian Nordic announced that the FDA has accepted and granted Priority Review for the Biologics License Application for CHIKV VLP, which triggered a milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $20.0 million.
As a result of the divestiture, the Company recognized a pre-tax gain of $74.2 million, net of transaction costs of $4.0 million, recorded within “Gain (loss) on sale of business” on the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023.
In connection with the divestiture, the Company entered into a Transition Services Agreement (the “Bavarian Nordic TSA”) with Bavarian Nordic to help support its ongoing operations. Under the Bavarian Nordic TSA, the Company provided certain transition services to Bavarian Nordic, including information technology, finance and enterprise resource planning, research and development, human resources, employee benefits and other limited services. Income from performing services under the Bavarian Nordic TSA was recorded within “Other, net” on the Condensed Consolidated Statements of Operations. While the services under the Bavarian Nordic TSA were substantially completed in the third quarter of 2024, certain services continue to be provided. There was no Bavarian Nordic TSA services income for the three months ended September 30, 2024. The Bavarian Nordic TSA services income was $0.5 million for the nine months ended September 30, 2024, and $1.2 million and $2.2 million for the three and nine months ended September 30, 2023, respectively.
Sale of RSDL®
On July 31, 2024, the Company, through its wholly owned subsidiary Emergent BioSolutions Canada Inc., entered into the RSDL® Agreement with SERB pursuant to which, among other things, the Company sold its worldwide rights to RSDL® to SERB. The RSDL® Transaction also included the sale to SERB of all the outstanding capital stock of Emergent Protective Products USA Inc. (“EPPU”), a wholly owned subsidiary of the Company, which leases a manufacturing facility in Hattiesburg, Mississippi, as well as certain assets related to RSDL®, including intellectual property rights, contract rights, inventory and marketing authorizations. In addition, the employees of EPPU joined SERB in connection with the RSDL® Transaction.
Pursuant to the RSDL® Transaction, SERB assumed certain government contracts related to RSDL® decontamination lotion, including the Company’s existing contract to supply RSDL® to the U.S. Department of Defense, through a new contract award to the Canadian Commercial Corporation.
At the closing, SERB paid a cash purchase price of $75.0 million, exclusive of customary closing adjustments related to inventory. In addition, SERB will owe the Company a $5.0 million payment upon achievement of a milestone relating to sourcing of a certain component of RSDL® decontamination lotion. In connection with the RSDL® Transaction, the Company recognized a pre-tax gain of $60.8 million, net of transaction costs of $4.1 million, recorded within “Gain (loss) on sale of business” on the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024. The Company determined that the disposal of RSDL® does not qualify for reporting as a discontinued operation since it does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results.
The Company and SERB entered into a transition services agreement (the “SERB TSA”) to ensure the orderly transition of RSDL® decontamination lotion and the related assets to SERB, and a supply agreement (the “SERB Supply Agreement”) pursuant to which they have a suite reservation at the Company’s Winnipeg facility where the Company will perform Bioservices activities to manufacture and supply bulk lotion to SERB. The Company and SERB also entered into a reverse supply agreement (together with the SERB TSA and the SERB Supply Agreement, the “SERB Agreements”) pursuant to which SERB will supply to the Company finished RSDL® for the purposes of the Company’s performance of certain transitional distribution services under customer contracts
15
that have not yet transferred to SERB. Under the SERB Agreements, the Company will retain a portion of net sales received upon delivery of RSDL® to the delayed transfer customers.
The Company accounted for this transaction as a multi-element arrangement and separated the discrete deliverables into different units of account. While there are multiple agreements, the Company determined that the agreements were agreed upon with a single commercial objective and accounted for all of the agreements on a combined basis. The discrete deliverables identified were the sale of the RSDL Transaction disposal group, the obligations under the supply agreement for the suite reservation at Winnipeg and the manufacture and supply of bulk lotion, and the transition services agreement and reverse supply agreement services. All of the deliverables within the agreements were priced at market and according to their relative standalone selling prices.
The following table provides the components of and changes in the Company’s restructuring accrual for the May 2024 Plan during the three and nine months ended September 30, 2024:
Employee Transition
Severance Payments
Employee Benefits
Total
Balance at March 31, 2024
$
—
$
—
$
—
$
—
Accruals
0.2
14.8
2.2
17.2
Cash payments
(0.2)
—
—
(0.2)
Balance at June 30, 2024
$
—
$
14.8
$
2.2
$
17.0
Accruals
—
2.3
0.5
2.8
Cash payments
—
(6.3)
(0.7)
(7.0)
Balance at September 30, 2024
$
—
$
10.8
$
2.0
$
12.8
The following table provides the components of and changes in the Company’s restructuring accrual for the August 2024 Plan during the three and nine months ended September 30, 2024:
Employee Transition
Severance Payments
Employee Benefits
Total
Balance at June 30, 2024
$
—
$
—
$
—
$
—
Accruals
0.1
2.7
0.7
3.5
Cash payments
(0.1)
—
—
(0.1)
Balance at September 30, 2024
$
—
$
2.7
$
0.7
$
3.4
20
5. Inventories, net
Inventories, net consisted of the following:
September 30, 2024
December 31, 2023
Raw materials and supplies
$
86.7
$
128.7
Work-in-process
113.7
113.3
Finished goods
122.3
86.9
Total inventories, net
$
322.7
$
328.9
Inventories, net is stated at the lower of cost or net realizable value.
6. Property, plant and equipment, net
Property, plant and equipment, net consisted of the following:
2024年9月30日
2023年12月31日
土地和改良
$
25.8
$
30.0
建筑物、建筑改善和租赁改善
195.3
229.9
家具和设备
372.6
433.6
软体
66.8
64.0
在建工程
11.4
36.7
资产、厂房和设备（毛额）
$
671.9
$
794.2
减：累积折旧和摊销
(393.8)
(411.4)
固定资产净额
$
278.1
$
382.8
As of September 30, 2024 and December 31, 2023, construction-in-progress primarily included costs incurred to advance the Company’s MCM Product capabilities. Property, plant and equipment, net is stated at cost, less accumulated depreciation and amortization.
7. Intangible assets and goodwill
The Company’s finite-lived intangible assets consist of products acquired via business combinations or asset acquisitions. The following table summarizes the Company’s finite-lived intangible assets:
Weighted Average Useful Life in Years
September 30, 2024
December 31, 2023
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Products
13.5
$
855.4
$
337.6
$
517.8
$
855.4
$
288.8
$
566.6
Customer relationships
0.0
28.6
28.6
—
28.6
28.6
—
CDMO
0.0
5.5
5.5
—
5.5
5.5
—
Total intangible assets
$
889.5
$
371.7
$
517.8
$
889.5
$
322.9
$
566.6
Amortization expense associated with the Company’s finite-lived intangible assets was recorded as follows:
During the nine months ended September 30, 2024, the Company entered into a bilateral agreement with a bank in the amount of $5.5 million that is fully collateralized by cash, which is classified within “Restricted cash” in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2024.
The Company recorded a gain on extinguishments of debt of $0.3 million and $0.6 million during the three and nine months ended September 30, 2024, respectively in “Other, net” on the Condensed Consolidated Statements of Operations related to the Prior Credit Agreement and other loan forgiveness.
3.875% Senior Unsecured Notes due 2028
On August 7, 2020, the Company completed its offering of $450.0 million aggregate principal amount of its Senior Unsecured Notes. Interest on the Senior Unsecured Notes is payable on February 15 and August 15 of each year until maturity, beginning on February 15, 2021. The Senior Unsecured Notes will mature on August 15, 2028.
24
As of August 15, 2023, the Company may redeem all or a portion of the Senior Unsecured Notes at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes plus a “make-whole” premium and accrued and unpaid interest as set forth in the related indenture. Upon the occurrence of a change of control, the Company must offer to repurchase the Senior Unsecured Notes at a purchase price of 101% of the principal amount of such notes plus accrued and unpaid interest.
Negative covenants in the indenture governing the Senior Unsecured 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.
Term Loan Agreement
On August 30, 2024, the Company entered into the Term Loan Agreement with the lenders from time to time party thereto and OHA Agency LLC, as administrative agent. The Term Loan Agreement provides for a Term Loan of $250.0 million, which was drawn in full on the date of entry into the Term Loan Agreement (the “Closing Date”). The Term Loan was issued with an original issue discount of 3.00%.
The Term Loan will accrue interest at the Company’s option at (i) the Base Rate (as defined in the Term Loan Agreement) (subject to a floor of 1.00%) plus 7.25% per annum, referred to as “Term Base Rate Loans” or (ii) Adjusted Term SOFR (as defined in the Term Loan Agreement) (subject to a floor of 2.00% until the second anniversary of the Closing Date, and thereafter, 3.00%) plus 8.25% per annum, referred to as “Term SOFR Loans”). A default interest rate of an additional 2.00% per annum would apply on all outstanding obligations that are not paid when due. If any defaulted obligations are Term SOFR Loans, then such loans would, at the end of the applicable interest period, automatically be converted to Term Base Rate Loans that would continue to be subject to the default interest rate.
The Term Loan will mature on the first to occur (such date, the “Term Loan Maturity Date”) of (i) August 30, 2029, (ii) the date of acceleration of the Term Loan upon the occurrence and during the continuance of an event of default and (iii) solely to the extent the aggregate principal amount of Senior Unsecured Notes outstanding exceeds $25.0 million, May 15, 2028, which is three months prior to the August 15, 2028 maturity date of the Senior Unsecured Notes. The Term Loan Agreement contains certain customary default and cross-default provisions, representations and warranties and affirmative and negative covenants, including (a) restrictions on prepayments and repurchases of indebtedness, including the Senior Unsecured Notes, subject to further customary permitted debt payments (b) a minimum liquidity requirement of $75.0 million commencing on September 30, 2024 and tested every two weeks, and (c) a consolidated gross leverage ratio tested every fiscal quarter commencing with the fiscal quarter ending December 31, 2025, initially at 5.10:1.00 with step-downs as set forth in the Term Loan Agreement. As of September 30, 2024, the Company was in compliance with all covenants under the Term Loan Agreement.
All indebtedness outstanding under the Term Loan Agreement is guaranteed by certain of the Company’s direct and indirect subsidiaries, other than certain subsidiaries that are not material, are excluded pursuant to the terms of the Term Loan Agreement, or will become guarantors on a post-closing basis (the Company and the guarantors, collectively, the Credit Parties”). The indebtedness under the Term Loan Agreement is secured by a first-priority security interest in and lien on substantially all assets of the Company and the other Credit Parties.
The Company may elect to prepay the Term Loan, in whole or in part, subject to (i) through and including the first anniversary of the Closing Date, a make-whole premium plus 4.00% of the aggregate principal amount of the Term Loan subject to prepayment and (ii) after the first anniversary of the Closing Date, a 4.00% prepayment premium, which percentage shall be reduced by 0.25% as set forth on a schedule attached to the Term Loan Agreement. The Term Loan Agreement requires mandatory prepayments of the Term Loan in an amount equal to (a) 100% of the aggregate net cash proceeds from the incurrence of certain indebtedness by the Term Loan Credit Parties and (b) (subject to certain reinvestment rights) 100% of the aggregate net cash proceeds from (1) subject to certain specified exceptions, dispositions of property by the Credit Parties (provided that with respect to any dispositions occurring on or after the Closing Date, prepayment will not be required unless the net cash proceeds exceed $10.0 million in the aggregate per fiscal year or $5.0 million on a per-transaction basis) and (2) insurance proceeds received by any Credit Party or their subsidiaries resulting from theft, loss, physical destruction or damage of property.
On the Closing Date, the Company used a portion of the proceeds of the Term Loan to repay all amounts outstanding and terminate commitments under the senior term loan facility under the Prior Credit Agreement, plus accrued interest and fees. The Company previously repaid all amounts outstanding under the revolving credit facility under the Prior Credit Agreement.
Revolving Loan Agreement
On September 30, 2024, the Company entered into the Revolving Credit Agreement with certain subsidiary borrowers (together with the Company, the “Borrowers”), the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as
25
agent (the “Agent”). The Credit Agreement provides for commitments with respect to Revolving Loans of up to the lesser of (x) $100.0 million, which may be increased (but not above $125.0 million, or the “Maximum Revolver Amount”) or decreased (but not below $50.0 million) by the Borrowers in accordance with the terms of the Revolving Credit Agreement and (y) the Borrowing Base (as defined in the Revolving Credit Agreement). Once reduced, the facility may not be increased. Up to $5.0 million of capacity under the Revolving Loans may be used for swing loans and up to $10.0 million may be used for the issuance of letters of credit.
The Revolving Loans will accrue interest at the Base Rate (as defined in the Revolving Credit Agreement) plus a margin of 1.25% (such loans, “Revolving Base Rate Loans”) or, at the Company’s election, at a rate equal to Adjusted Term SOFR (as defined in the Revolving Credit Agreement and subject to a floor of 0.00%) plus a margin of 2.25% (such loans, “Revolving SOFR Loans”), in each case until September 30, 2025. After September 30, 2025, the applicable margin may be reduced to 0.75% in the case of Revolving Base Rate Loans, or 1.75% in the case of Revolving SOFR Loans, provided the Borrowers’ total leverage ratio is less than 4.00 to 1.00 for the most recently completed fiscal quarter and an event of default is not continuing. A default interest rate of an additional 2.00% per annum would apply on all outstanding obligations that are not paid when due.
The Revolving Loans will mature on the first to occur of (i) September 30, 2029; (ii) to the extent there remain outstanding any portion of the term loans extended under the Term Loan Agreement, the date that is 90 days prior to the maturity date under the Term Loan Agreement; and (iii) to the extent any of the Senior Unsecured Notes remain outstanding, May 17, 2028, which is 90 days prior to the August 15, 2028 maturity date of the Senior Unsecured Notes. The Revolving Credit Agreement contains certain customary default and cross-default provisions (including with respect to defaults under the Term Loan Agreement), representations and warranties and affirmative and negative covenants, including (a) restrictions on prepayments and repurchases of indebtedness, including the Senior Unsecured Notes, (b) restrictions on dispositions of material intellectual property, (c) a minimum liquidity requirement of $50.0 million through the day prior to the first date following September 30, 2025 on which the Company’s total leverage ratio measured as of the preceding 12-month period is less than 5.25 to 1.00 (the “Covenant Conversion Date”) and (d) from the Covenant Conversion Date, a fixed charge coverage ratio requirement of at least 1.00 to 1.00. As of September 30, 2024, the Company was in compliance with all covenants under the Revolving Credit Agreement.
All indebtedness outstanding under the Revolving Credit Agreement is guaranteed by certain of the Borrowers’ material direct and indirect subsidiaries, subject to customary exclusions. The indebtedness under the Credit Agreement is secured by a first-priority security interest in and lien on the ABL Priority Collateral and a second-priority security interest and lien on the Term Loan Priority Collateral (in each case as defined in the Revolving Credit Agreement).
The Borrowers may elect to prepay any Revolving Loans, in whole or in part, without premium or penalty. If at any time outstanding Revolving Loans and letters of credit exceed the lesser of (i) the Borrowing Base, as adjusted for reserves established by the Agent, and (ii) the Maximum Revolver Amount, the Borrowers will be required to prepay outstanding obligations in the amount of such excess. The Agent may establish, increase or decrease reserves at its discretion.
10. Share-based compensation and stockholders' equity
Share-based compensation
The Company’s share-based compensation expense relates to stock options, performance stock options, restricted stock units, performance stock units and liability classified long-term incentive awards. During the nine months ended September 30, 2024, the Company granted stock options to purchase 4.1 million shares of common stock; performance stock options, subject to market conditions, to purchase 0.8 million shares of common stock; and 0.2 million restricted stock units. The grants were made under the Emergent BioSolutions Inc. Amended and Restated Stock Incentive Plan and the Emergent BioSolutions Inc. Inducement Plan. Additionally, during the nine months ended September 30, 2024, the Company granted an $8.0 million long-term incentive award, subject to market conditions, with the option to settle in any combination of cash or shares, which is accounted for as a liability classified award. The performance stock options and the long-term incentive award were valued using Monte Carlo valuation models, and both have a performance period of five years to vest based on the Company’s stock price performance. The long-term incentive award will be revalued at each reporting period until the award is earned or expires. The Company’s other equity awards typically vest over three equal annual installments beginning on the day prior to the anniversary of the grant date. The performance stock units settle in stock at the end of the three-year performance period based on the Company's results compared to the performance criteria. During
26
the nine months ended September 30, 2024, 1.0 million stock options, 0.4 million restricted stock units, and 0.1 million performance stock units were forfeited prior to the completion of the applicable vesting requirements or expiration.
Share-based compensation expense, net of forfeitures was recorded in the following financial statement line items:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Cost of Commercial Product sales
$
—
$
—
$
—
$
0.1
Cost of MCM Product sales
0.3
1.0
1.6
3.5
Cost of Bioservices
(0.1)
0.2
0.2
0.8
R&D
—
0.6
1.0
1.7
Selling, general and administrative
2.1
2.2
10.9
13.0
Total share-based compensation expense
$
2.3
$
4.0
$
13.7
$
19.1
Stockholders’ equity
2024 Issuance of Common Stock
In connection with the Term Loan Agreement, the Company entered into a Subscription Agreement, dated as of August 30, 2024 (the “Subscription Agreement”) with the lenders under the Term Loan Agreement, under which on September 17, 2024, the Company issued to the lenders 1.1 million shares of common stock with an aggregate value of $10.0 million, at a price per share of $8.98, which was based on the volume weighted average price per share of common stock for the 30 consecutive trading days ending on, but excluding, the tenth business day of the Term Loan Agreement. At inception, the Subscription Agreement represented a forward sale of the Company’s common stock (the “Forward”).
Because the number of shares issued under the Forward was based on a fixed monetary value known at inception, which would be settled by issuing a variable number of shares, the Forward was classified and recorded as a liability at inception. Because it was liability classified, the Forward was required to be remeasured to fair value at settlement on September 17, 2024, and the Company recognized a gain of $1.6 million recorded within “Other, net” on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2024. The gain was driven by the decline in stock price between the execution date of the Subscription Agreement and the date the shares were issued. There was no remaining liability related to the Forward on the Condensed Consolidated Balance Sheet as of September 30, 2024.
2024 Warrant Issuance
In connection with the Term Loan Agreement, the Company issued to the lenders Series I Warrants to purchase 1.0 million shares of common stock and Series II Warrants to purchase 1.5 million shares of common stock. The Warrants are currently exercisable and will expire on August 30, 2029. Because the Warrants could be cash settled based on events that are outside the control of the Company, it precludes the Warrants from applying the equity contract scope exception, and so are classified as a liability. As of September 30, 2024, the fair value of the Warrants was $13.9 million. See Note 8, “Fair value measurements,” for more information on the accounting treatment and valuation of the Warrants.
27
As of September 30, 2024, the Company had the following Warrants outstanding to acquire shares of its common stock:
Warrants Outstanding
Range of Exercise Price per Share
Expiration Date
Warrants issued related to the Term Loan Agreement
2.5
$9.88 - $15.72
August 2029
Total
2.5
During the three months ended September 30, 2024, no Warrants expired or were exercised.
At-the-Market Equity Offering Facility
In May 2023, the Company established an “at-the-market” equity offering program (the “ATM Program”) pursuant to which the Company may, from time to time, sell up to $150.0 million aggregate gross sales price of shares of its common stock through Evercore Group L.L.C. and RBC Capital Markets, LLC, as sales agents. There were no sales of the Company’s common stock under the ATM Program during the three months ended September 30, 2024. The Company is not eligible to file a new Registration Statement on Form S-3 until 2025 due to the delayed filing of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2023. Therefore, the Company will not be eligible to sell any shares under the ATM Program until a new Registration Statement on Form S-3 is filed and becomes effective. During the second quarter of 2023, the Company sold 1.1 million shares of the Company’s common stock under the ATM Program for gross proceeds of $9.1 million, representing an average share price of $8.22 per share. As of September 30, 2024, $140.9 million aggregate gross sales price of shares of the Company’s common stock remains available for issuance under the ATM Program.
Accumulated other comprehensive income (loss), net of tax
The following table includes changes in accumulated other comprehensive income (loss), net of tax by component:
28
Defined Benefit Pension Plan
Derivative Instruments
Foreign Currency Translation Adjustments
Total
Balance at December 31, 2023
$
—
$
—
$
(5.7)
$
(5.7)
Other comprehensive income before reclassifications
—
—
0.2
0.2
Net current period other comprehensive income
—
—
0.2
0.2
Balance at March 31, 2024
$
—
$
—
$
(5.5)
$
(5.5)
Other comprehensive income (loss) before reclassifications
—
—
—
—
Net current period other comprehensive loss
—
—
—
—
Balance at June 30, 2024
$
—
$
—
$
(5.5)
$
(5.5)
Other comprehensive income (loss) before reclassifications
—
—
(1.8)
(1.8)
Net current period other comprehensive loss
—
—
(1.8)
(1.8)
Balance at September 30, 2024
$
—
$
—
$
(7.3)
$
(7.3)
Balance at December 31, 2022
$
3.5
$
6.2
$
(6.6)
$
3.1
Other comprehensive loss before reclassifications
—
(4.4)
(0.1)
(4.5)
Amounts reclassified from accumulated other comprehensive income
—
2.4
—
2.4
Net current period other comprehensive loss
—
(2.0)
(0.1)
(2.1)
Balance at March 31, 2023
$
3.5
$
4.2
$
(6.7)
$
1.0
Other comprehensive income before reclassifications
—
1.2
2.6
3.8
Amounts reclassified from accumulated other comprehensive loss
(3.5)
(2.9)
—
(6.4)
Net current period other comprehensive income (loss)
(3.5)
(1.7)
2.6
(2.6)
Balance at June 30, 2023
$
—
$
2.5
$
(4.1)
$
(1.6)
Other comprehensive income (loss) before reclassifications
—
0.9
1.2
2.1
Amounts reclassified from accumulated other comprehensive income (loss)
—
(3.1)
—
(3.1)
Net current period other comprehensive income (loss)
—
(2.2)
1.2
(1.0)
Balance at September 30, 2023
$
—
$
0.3
$
(2.9)
$
(2.6)
The tables below present the tax effects related to each component of other comprehensive income (loss):
Three Months Ended September 30,
2024
2023
Pretax
Tax Expense
Net of tax
Pretax
Tax Expense
Net of tax
Derivative instruments
$
—
$
—
$
—
$
(3.1)
$
0.9
$
(2.2)
Foreign currency translation adjustments
(1.8)
—
(1.8)
0.9
0.3
1.2
Total adjustments
$
(1.8)
$
—
$
(1.8)
$
(2.2)
$
1.2
$
(1.0)
Nine Months Ended September 30,
2024
2023
Pretax
Tax Expense
Net of tax
Pretax
Tax Expense
Net of tax
Defined benefit pension plan
$
—
$
—
$
—
$
(4.1)
$
0.6
$
(3.5)
Derivative instruments
—
—
—
(8.0)
2.1
(5.9)
Foreign currency translation adjustments
(1.6)
—
(1.6)
2.9
0.8
3.7
Total adjustments
$
(1.6)
$
—
$
(1.6)
$
(9.2)
$
3.5
$
(5.7)
29
11. Earnings (loss) per common share
Basic earnings (loss) per common share is calculated using the treasury method by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share adjusts basic earnings (loss) per common share for the effects of potentially dilutive common shares and is calculated using the treasury stock method. Potentially dilutive common shares include the dilutive effect of shares issuable under our equity compensation plans, including stock options, restricted stock units and performance stock units, as well as shares issuable upon exercises of the Warrants. Diluted earnings (loss) per share excludes anti-dilutive securities, which represent the number of potential common shares related to shares issuable under our equity compensation plan and pursuant to exercises of the Warrants that were excluded from diluted earnings (loss) per common share because their effect would have been antidilutive.
The following table presents the calculation of basic and diluted earnings (loss) per common share:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Numerator:
Net income (loss)
$
114.8
$
(263.4)
$
(159.3)
$
(711.0)
Denominator:
Weighted-average number of shares outstanding-basic
53.1
51.8
52.6
50.9
Dilutive securities - equity awards
2.5
—
—
—
Weighted-average number of shares outstanding-diluted
55.6
51.8
52.6
50.9
Earnings (loss) per common share - basic
$
2.16
$
(5.08)
$
(3.03)
$
(13.97)
Earnings (loss) per common share - diluted
$
2.06
$
(5.08)
$
(3.03)
$
(13.97)
Anti-dilutive securities
2.6
4.0
4.4
3.6
12. Revenue recognition
The Company generates the majority of its revenues through product sales to customers. The Company also generates revenues through its Bioservices offerings and suite reservations for and to third parties and contracts and grants revenue. The Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services by analyzing the following five steps: (1) identify the contract with (a) customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
In the third quarter of 2023, the Company launched over-the-counter (“OTC”) NARCAN®, which was approved by the FDA as an over-the-counter emergency treatment of opioid overdose, broadening the Company’s customer base and sales channels to retail pharmacies and digital commerce websites. The Company's Nasal Naloxone Products are now sold commercially over-the-counter at retail pharmacies and digital commerce websites as well as through physician-directed or standing order prescriptions at retail pharmacies, health departments, local law enforcement agencies, community-based organizations, substance abuse centers and other federal agencies.
The Company's OTC NARCAN® customer contracts are fixed price contracts. The Company invoices and records revenue when the pharmacies and wholesalers receive product from the third-party logistics warehouse used by the Company, which is the point at which control is transferred to the customer. Revenues for OTC NARCAN® are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Estimates of variable consideration include allowance for returns, specialty distributor fees, wholesaler fees and prompt payment discounts. OTC NARCAN® may also be sold on consignment through third-party online retailers where revenues are recognized at the point in time when sold to the end customer. The Company pays these third-party online retailers selling commissions and fulfillment fees which are recorded as SG&A expenses and Cost of Commercial Product sales, respectively, in the Condensed Consolidated Statement of Operations. Revenues from OTC NARCAN® are recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with such variable consideration is subsequently resolved. The Company considers several factors in the estimation process for the allowance for returns of OTC NARCAN®, including inventory levels within the distribution channel, product shelf life and historical return activity, including activity for product sold for which the return period has passed, as well as other relevant factors. Because returned product cannot be resold, there is no corresponding asset for product returns.
30
The Company's revenues disaggregated by operating segment and major sources for the three and nine months ended September 30, 2024 and 2023 were as follows:
Three Months Ended September 30, 2024
Three Months Ended September 30, 2023
USG
Non-USG
Total
USG
Non-USG
Total
Commercial Product sales
$
—
$
95.3
$
95.3
$
0.3
$
141.8
$
142.1
MCM Product sales
161.8
12.4
174.2
102.7
5.0
107.7
Bioservices:
Services
—
13.9
13.9
—
13.2
13.2
Leases
—
0.4
0.4
—
1.0
1.0
Total Bioservices
$
—
$
14.3
$
14.3
$
—
$
14.2
$
14.2
Contracts and grants
9.7
0.3
10.0
5.1
1.4
6.5
Total revenues
$
171.5
$
122.3
$
293.8
$
108.1
$
162.4
$
270.5
Nine Months Ended September 30, 2024
Nine Months Ended September 30, 2023
USG
Non-USG
Total
USG
Non-USG
Total
Commercial Product sales
$
0.4
$
333.4
$
333.8
$
0.6
$
385.6
$
386.2
MCM Product sales
319.7
73.3
393.0
279.0
30.2
309.2
Bioservices:
Services (1)
—
96.7
96.7
—
52.2
52.2
Leases
—
0.8
0.8
—
5.5
5.5
Total Bioservices
$
—
$
97.5
$
97.5
$
—
$
57.7
$
57.7
Contracts and grants
23.7
0.9
24.6
14.6
5.0
19.6
Total revenues
$
343.8
$
505.1
$
848.9
$
294.2
$
478.5
$
772.7
(1) Bioservices Services revenues for the nine months ended September 30, 2024 include $50.0 million attributable to the Settlement Agreement with Janssen related to the 2022 termination of the Janssen Agreement. The revenue is related to raw materials purchased for the Janssen Agreement which Janssen had not reimbursed. See Note 15, “Litigation” for additional information related to the accounting treatment and settlement of the arbitration with Janssen.
Bioservices operating leases
Certain multi-year Bioservices arrangements with non-USG customers include operating leases whereby the customer has the right to direct the use of and obtain substantially all of the economic benefits of specific manufacturing suites operated by the Company. The associated revenue is recognized on a straight-line basis over the term of the lease. The remaining term on the Company's operating lease components approximates 2.1 years. The Company utilizes a cost-plus model to determine the stand-alone selling price of the lease component to allocate contract consideration between the lease and non-lease components. During the three and nine months ended September 30, 2024, the Company's non-USG lease revenues were $0.4 million and $0.8 million, respectively, which is included within Bioservices “Leases” on the Condensed Consolidated Statement of Operations. The Company estimates future operating lease revenues to be $0.6 million in the remainder of 2024, $2.2 million in 2025, $1.7 million in 2026, $0.9 million in 2027, $0.9 million in 2028 and no lease revenue thereafter.
31
Transaction price allocated to remaining performance obligations
As of September 30, 2024, the Company has future contract value on unsatisfied performance obligations of approximately $322.4 million associated with all arrangements entered into by the Company. The Company expects to recognize $281.6 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.
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 that the Company does not currently have a contractual right to bill, to be contract assets. As of September 30, 2024 and December 31, 2023, the Company had $7.0 million and $21.9 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:
Contract Liabilities
Balance at December 31, 2023
$
29.9
Balance at September 30, 2024
$
10.7
Revenue recognized in the period from amounts included in contract liability at the beginning of the period:
$
25.8
As of September 30, 2024 and December 31, 2023, the current portion of contract liabilities was $7.3 million and $27.2 million, respectively, and was included in “Other current liabilities” on the Condensed Consolidated Balance Sheets.
Accounts receivable and allowance for expected credit losses
Accounts receivable, including unbilled accounts receivable contract assets, consist of the following:
September 30, 2024
December 31, 2023
Accounts receivable:
Billed
$
102.6
$
141.8
Unbilled
19.2
51.4
Allowance for expected credit losses
(0.5)
(2.2)
Accounts receivable, net
$
121.3
$
191.0
We maintain an allowance for expected credit losses, which represents the estimated aggregate amount of credit risk arising from the inability or unwillingness of specific customers to pay our fees or disputes that may affect our ability to fully collect our billed accounts receivable. We estimate the current-period provision for expected credit losses on a specific identification basis and we consider factors such as the age of the receivables balance, knowledge of the specific customers' circumstances and historical collection experience for similar customers. Accounts receivable, net of the allowance for expected credit losses, represents the amount we expect to collect. Our actual experience may vary from our estimates. At each reporting date, we adjust the allowance for expected credit losses to reflect our current estimate.
32
13. Leases
The Company is the lessee for operating leases for offices, R&D facilities and manufacturing facilities. The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets and liabilities. For a discussion of lessor activities, see Note 12, “Revenue recognition.”
The components of lease expense were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Operating lease cost:
Amortization of right-of-use assets
$
0.7
$
1.1
$
2.5
$
3.1
Interest on lease liabilities
0.2
0.2
0.6
0.6
Total operating lease cost
$
0.9
$
1.3
$
3.1
$
3.7
Operating lease costs are reflected as components of “Cost of Commercial Product sales”, “Cost of MCM Product sales”, “Cost of Bioservices”, “R&D” expense and “SG&A” expense on the Company's Condensed Consolidated Statements of Operations.
Supplemental balance sheet information related to lessee activities is as follows:
Leases
Classification
September 30, 2024
December 31, 2023
Operating lease right-of-use assets
Other assets
$
12.4
$
16.2
Operating lease liabilities, current portion
Other current liabilities
$
2.7
$
3.5
Operating lease liabilities
Other liabilities
10.7
13.8
Total operating lease liabilities
$
13.4
$
17.3
Operating leases:
Weighted average remaining lease term (years)
6.0
6.2
Weighted average discount rate
5.5
%
5.3
%
14. Income taxes
The estimated effective annual tax rate as of September 30, 2024 and 2023 for the years ended December 31, 2024 and 2023, excluding the impact of discrete adjustments, was 20% and (5)%, respectively. The effective tax rate for the nine months ended September 30, 2024 and 2023 was (38)% and (5)%, respectively. The increase in the estimated effective annual tax rate is primarily due to a change in jurisdictional mix of income and losses. The Company recorded a discrete tax expense of $0.4 million and $0.4 million for the three and nine months ended September 30, 2024, respectively, and $1.0 million and $1.0 million for the three and nine months ended September 30, 2023, respectively. The discrete tax expense in 2024 and 2023 was due to return-to-provision adjustments and share-based compensation activity, which was entirely offset by a valuation allowance charge.
The Company establishes valuation allowances for deferred income tax assets in accordance with U.S. GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, the Company considers the scheduled reversal of deferred tax liabilities and assets, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment.
33
15. Litigation
Securities and shareholder litigation
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 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 Exchange Act. 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 the Company's 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 (the "Lead Plaintiffs") are Nova Scotia Health Employees’ Pension Plan and The City of Fort Lauderdale Police & Firefighters’ Retirement System. An order granting Lead Plaintiff’s motion for class certification and appointment of class representatives was entered on June 18, 2024.
On September 12, 2024, the Company and the lead plaintiffs entered into an agreement in principle to settle the claims against the Company and each of the Company’s current and former officers and directors. On October 4, 2024, the Court granted preliminary approval of the proposed settlement, ordered notice to the settlement class and scheduled a fairness hearing for February 27, 2025 to consider whether to grant final approval of the settlement. Under the proposed settlement, the claims against the Company and its officers and directors will be dismissed with prejudice and released in exchange for a payment from the Company of $40.0 million, of which $30.0 million will be paid from insurance proceeds. The Company considers the proposed settlement payment to be probable and reasonably estimable and the insurance proceeds to be committed, therefore, recorded the settlement and insurance recoverable amounts as pre-tax operating expense and income, respectively, recorded within “Selling, general and administrative” on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2024. The related liability was recorded within “Other current liabilities” and the insurance receivable was recorded within “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheet as of September 30, 2024.
On June 29, 2021, Lincolnshire Police Pension Fund (“Lincolnshire”), and on August 16, 2021, Pooja Sayal, filed putative shareholder 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 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, the 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 shareholder 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, respectively, 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 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 a motion to dismiss the complaint. 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 shareholder 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 federal securities laws, each allegation related to the CDMO Manufacturing Capabilities. The complaints seek monetary and punitive damages. On February 22, 2022, the Court entered an order consolidating these actions under
34
case number C-15-21-CV-000496. On March 9, 2022, the parties filed a Joint Stipulation of Stay of Proceedings and Discovery, pursuant to which the parties agreed to stay all proceedings until 30 calendar days after a ruling on the defendants’ motion to dismiss, and on November 2, 2023, the Court approved the parties' joint stipulation to extend the stay of the proceedings and discovery until the close of fact discovery in the Federal Securities Class Action.
In addition to the above actions, the Company received inquiries and subpoenas to produce documents related to these matters from the Department of Justice, the SEC, the Maryland Attorney General’s Office, and the New York Attorney General’s Office. The Company produced documents as required in response and will continue to cooperate with these government inquiries should further requests be made. The Company also received inquiries and subpoenas 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 and Senator Murray of the Committee on Health, Education, Labor and Pensions. The Company produced documents and provided testimony and briefings as requested in response to these inquiries and the Select Subcommittee released its final report related to the coronavirus crisis on December 9, 2022.
2022 Termination of manufacturing services agreement with Janssen Pharmaceuticals, Inc.
On July 2, 2020, the Company, through its wholly owned subsidiary, Emergent Manufacturing Operations Baltimore, LLC, entered into the Janssen Agreement with Janssen, 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 Janssen Agreement for, among other things, failure by Janssen (i) to provide the Company the requisite forecasts of the required quantity of Product to be purchased by Janssen under the Janssen Agreement and (ii) to confirm Janssen’s intent to not purchase the requisite minimum quantity of the Product pursuant to the Janssen Agreement and instead, wind-down the Janssen Agreement ahead of fulfilling these minimum requirements. On June 6, 2022, the Company received from Janssen a purported written notice of termination (the “Janssen Notice”) of the Janssen Agreement for asserted material breaches of the Janssen Agreement by the Company, including alleged failure by the Company to perform its obligations in compliance with current good manufacturing practices 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 Janssen Agreement would be effective as of July 6, 2022. On June 14, 2022, Janssen filed a Demand for Arbitration and on July 29, 2022 the Company filed its Answering Statement and counterclaims. On July 3, 2024, the Company and Janssen entered into the Settlement Agreement to resolve all claims among the parties arising from the Janssen Agreement and the activities referenced above. Pursuant to the terms of the Settlement Agreement, Janssen paid the Company $50.0 million on July 31, 2024.
Beginning in the fourth quarter of 2022, because the arbitration process with Janssen was expected to extend longer than one year, the Company reclassified amounts related to the Janssen Agreement from “Inventories, net” and from “Prepaid expenses and other current assets” to “Other assets”, resulting in $152.7 million in long-term assets related to the Janssen Agreement on the Condensed Consolidated Balance Sheet as of December 31, 2022. The long-term asset balance within “Other Assets” prior to announcing the Settlement Agreement was $158.7 million. The Company recorded $50.0 million in “Services revenue” and “Cost of Services” on the Condensed Consolidated Statement of Operations during the nine months ended September 30, 2024 to reflect the settlement receivable as a change in the transaction price for the Janssen Agreement. Additionally, the Company recorded $110.2 million for the nine months ended September 30, 2024 within “Cost of Services” on the Condensed Consolidated Statement of Operations to write down the remaining inventory to its net realizable value and for estimated disposal costs. The receivable for the settlement amount was collected during the third quarter of 2024 and there was no long-term asset balance remaining within “Other Assets” related to the Janssen Agreement as of September 30, 2024.
35
16. Segment information
In the fourth quarter of 2023, the Company realigned its reportable operating segments to reflect recent changes in the Company’s internal operating and reporting process. The revised reporting structure reflects the internal reporting and review process used by the Company’s CODM for making decisions and assessing performance and is consistent with how the Company currently manages the business. The Company now manages its business with a focus on three reportable segments. The Commercial Products segment, which includes NARCAN® products and other commercial products that were sold as part of the travel health business in the second quarter of 2023 (see Note 3, “Divestitures” for more information on the sale of the travel health business); the MCM Products segment, which includes the Anthrax - MCM products, Smallpox - MCM products and Other Products; and the Services segment, consisting of the Company’s Bioservices offerings.
The Company evaluates the performance of these reportable segments based on revenue and segment adjusted gross margin, which is a non-GAAP financial measure. Segment revenue includes external customer sales, but it does not include inter-segment services. The Company defines segment adjusted gross margin, as segment gross margin excluding the impact of restructuring costs, changes in fair value of financial instruments, settlement charges, net and inventory step-up provision. We define total segment adjusted gross margin, which is a non-GAAP financial measure, as total segment gross margin, excluding the impact of restructuring costs, settlement charge, net, changes in fair value of financial instruments and inventory step-up provision. The Company does not allocate research and development expenses, 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 manages its assets on a total company basis, not by operating segment, as the Company's operating assets are shared or commingled. Therefore, the Company’s CODM does not regularly review any asset information by operating segment and, accordingly, the Company does not report asset information by operating segment.
For all tables presented below, the prior period disclosures have been recast to conform to the current period segment presentation.
36
The following table presents segment revenues, segment cost of sales or services, segment gross margin, segment gross margin percentage and segment adjusted gross margin for each of the Company’s reportable segments for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenues:
Commercial Products
$
95.3
$
142.1
$
333.8
$
386.2
MCM Products
174.2
107.7
393.0
309.2
Services
14.3
14.2
97.5
57.7
Segment revenues
283.8
264.0
824.3
753.1
Contracts and grants revenue
10.0
6.5
24.6
19.6
Total revenues
$
293.8
$
270.5
$
848.9
$
772.7
Cost of sales or services:
Cost of Commercial Product sales
$
47.2
$
60.0
$
152.7
160.2
Cost of MCM Product sales
54.0
72.5
147.3
208.4
Cost of Services
21.4
44.3
263.3
151.7
Total cost of sales or services
$
122.6
$
176.8
$
563.3
$
520.3
Gross margin
Commercial Products
$
48.1
$
82.1
$
181.1
$
226.0
MCM Products
120.2
35.2
245.7
100.8
Services
(7.1)
(30.1)
(165.8)
(94.0)
Total segment gross margin (1)
$
161.2
$
87.2
$
261.0
$
232.8
Gross margin %
Commercial Products
50
%
58
%
54
%
59
%
MCM Products
69
%
33
%
63
%
33
%
Services
(50)
%
(212)
%
(170)
%
(163)
%
Total Segment
57
%
33
%
32
%
31
%
Segment adjusted gross margin
Commercial Products
$
48.1
$
82.1
$
181.1
$
226.0
MCM Products
126.3
39.1
255.0
109.3
Services
(7.0)
(22.0)
(55.3)
(85.9)
Total segment adjusted gross margin
$
167.4
$
99.2
$
380.8
$
249.4
(1) Segment revenues less total cost of sales or services.
37
The following table provides a reconciliation of the Company’s total segment adjusted gross margin to the Condensed Consolidated Statement of Operations:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Total segment adjusted gross margin
$
167.4
$
99.2
$
380.8
$
249.4
Reconciling items:
Contracts and grants revenue
$
10.0
$
6.5
$
24.6
$
19.6
Segment restructuring costs
(5.0)
(13.1)
(7.8)
(15.1)
Segment inventory step-up provision
(1.2)
—
(1.2)
(1.9)
Segment changes in fair value of financial instruments
—
1.1
(0.6)
0.4
Segment settlement charge, net
—
—
(110.2)
—
Goodwill impairment
—
(218.2)
—
(218.2)
Impairment of long-lived assets
—
—
(27.2)
(306.7)
Research and development
(13.8)
(15.3)
(61.6)
(82.0)
Selling, general and administrative
(76.6)
(86.0)
(247.2)
(278.7)
Amortization of intangible assets
(16.3)
(16.3)
(48.8)
(49.4)
Interest expense
(8.3)
(19.7)
(56.2)
(66.2)
Gain (loss) on sale of business
64.3
(0.7)
24.3
74.2
Other, net
21.9
(3.4)
15.8
(2.1)
Income (loss) before income taxes
$
142.4
$
(265.9)
$
(115.3)
$
(676.7)
The following table includes depreciation expense for each segment:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Depreciation:
Commercial Products
$
—
$
—
$
—
$
0.3
MCM Products
4.7
7.4
$
16.0
$
22.6
Services
2.3
3.4
7.4
19.7
Other
3.1
0.9
10.6
3.5
Total
$
10.1
$
11.7
$
34.0
$
46.1
38
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, 2023 (the “2023 Form 10-K”). 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 sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in 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
Emergent BioSolutions Inc. (“Emergent,” the “Company,” “we,” “us,” and “our”) is a global life sciences company focused on providing innovative preparedness and response solutions addressing accidental, deliberate, and naturally occurring Public Health Threats (“PHTs”). The Company’s solutions include a product portfolio, a product development portfolio, and a contract development and manufacturing services (“CDMO”) portfolio.
The Company is focused on the following four PHT categories: chemical, biological, radiological, nuclear and explosives (“CBRNE”); emerging infectious diseases (“EID”); emerging health crises; and acute, emergency and community care. As of September 30, 2024, the Company has a product portfolio of 10 products that it is actively developing and/or marketing (vaccines, therapeutics, and drug-device combination products). The revenues generated by the products comprise a substantial portion of the Company's revenue. The Company structures its business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: NARCAN® commercial product, Anthrax - Medical Countermeasures (“MCM”) Products, Smallpox - MCM products and Emergent Bioservices (CDMO) (“Bioservices”).
The Company’s business is organized in three reportable operating segments: (1) a Commercial Products segment consisting of NARCAN® Nasal Spray and other commercial products, which were sold as part of our travel health business in the second quarter of 2023 (see Note 3, “Divestitures” for more information on the sale of the travel health business); (2) a MCM Products segment consisting of our Anthrax - MCM, Smallpox - MCM and Other Products, described below and (3) a Services segment consisting of our Bioservices offerings.
Commercial Products Segment:
The majority of our Commercial product revenue comes from the following products:
NARCAN®
•NARCAN® (naloxone HCl) Nasal Spray, an intranasal formulation of naloxone approved by the United States Food and Drug Administration (“FDA”) (including in over-the-counter form) and Health Canada for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression.
Sale of Travel Health Business
On May 15, 2023, the Company completed the sale of its Commercial Products segment's travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California.
MCM Products Segment:
The majority of our MCM product revenue comes from the following products and procured product candidates:
Anthrax - MCM Products
•Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax in combination with appropriate antibacterial drugs;
39
•BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
•CYFENDUS® (Anthrax vaccine adsorbed (AVA), adjuvanted), previously known as AV7909, which was recently approved by the FDA for post-exposure prophylaxis of disease following suspected or confirmed exposure to Bacillus anthracis in persons 18 through 65 years of age when administered in conjunction with recommended antibacterial drugs. CYFENDUS® is procured by certain authorized government buyers for their use; and
•Raxibacumab injection, the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax.
Smallpox - MCM Products
•ACAM2000®, (Smallpox (Vaccinia) Vaccine, Live), the only single-dose smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;
•CNJ-016® (Vaccinia Immune Globulin Intravenous (Human) (VIGIV)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination; and
•TEMBEXA®, an oral antiviral formulated as 100 mg tablets and 10 mg/mL oral suspension dosed once weekly for two weeks which has been approved by the FDA for the treatment of smallpox disease caused by variola virus in adult and pediatric patients, including neonates.
Other Products
•BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), the only heptavalent antitoxin licensed by the FDA and Health Canada for the treatment of symptomatic botulism;
•Ebanga™ (ansuvimab-zykl), a monoclonal antibody with antiviral activity provided through a single IV infusion for the treatment of Ebola. Under the terms of a collaboration with Ridgeback Biotherapeutics ("Ridgeback"), Emergent will be responsible for the manufacturing, sale, and distribution of Ebanga™ in the U.S. and Canada, and Ridgeback will serve as the global access partner for Ebanga™; and
•Trobigard® atropine sulfate, obidoxime chloride auto-injector, a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. On April 2, 2024, the Belgium Federal Agency for Medicines and Health Products (“FAMHP”) acknowledged and confirmed Emergent’s request to revoke the Market Authorization for the Trobigard Auto-Injector.
Sale of RSDL®
On July 31, 2024, the Company entered into the Stock and Asset Purchase Agreement (the “RSDL® Agreement”) with SERB Pharmaceuticals, through its wholly owned subsidiary BTG International Inc. (collectively, “SERB”), pursuant to which, among other things, the Company sold its worldwide rights to RSDL®, to SERB (the “RSDL® Transaction”). See Note 3, “Divestitures” in Part I, Item 1, of this Quarterly Report on Form 10-Q for more information on the sale of RSDL®.
Services Segment:
Bioservices - contract development and manufacturing
Our services revenue consists of distinct but interrelated Bioservices: drug substance manufacturing; drug product manufacturing (also referred to as “fill/finish” services) and packaging; development services including technology transfer, process and analytical development services; and, when necessary, suite reservation obligations. These services, which we refer to as “molecule-to-market” offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network of distinct development and manufacturing sites operated by us for our internal products and pipeline candidates and third-party Bioservices. 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. In August 2023, we initiated an organizational restructuring plan (the “August 2023 Plan”) which included actions to reduce investment in and de-emphasize focus on our Bioservices business. In May 2024, the Company initiated an organizational restructuring plan (the “May 2024 Plan”) announcing the closure of the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility. Additionally, on August 20, 2024, pursuant to the previously announced Asset Purchase Agreement (the “Asset Purchase Agreement”), the Company completed the sale of its Drug Product facility in Baltimore-Camden (the “Camden Transaction”) to Bora Pharmaceuticals Injectables Inc., a subsidiary of Bora Pharmaceuticals Co., Ltd. (“Bora”).
40
Other Strategic Activities
January 2023 Organizational Restructuring Plan
In January 2023, the Company initiated an organizational restructuring plan (the “January 2023 Plan”) intended to reduce operating costs, improve operating margins, and continue advancing the Company’s ongoing commitment to profitable growth. As part of the January 2023 Plan, the Company reduced its workforce by approximately 125 employees. The charges related to the January 2023 plan consist primarily of employee transition, severance payment and employee benefit charges. The cumulative amount of restructuring charge related to the January 2023 Plan since inception is $9.3 million. All activities related to the January 2023 Plan were substantially completed during the first quarter of 2023. Restructuring costs are recognized as an operating expense within the Condensed Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
August 2023 Organizational Restructuring Plan
In August 2023, the Company initiated the August 2023 Plan intended to strengthen its core business and financial position by reducing investment in and de-emphasizing focus on its CDMO services business for future growth. As part of the August 2023 Plan, the Company reduced its workforce by approximately 400 employees. The charges related to the August 2023 Plan consist primarily of employee transition, severance payment and employee benefit charges. The cumulative amount of restructuring charge related to the August 2023 Plan since inception is $19.4 million. All activities related to the August 2023 Plan were substantially completed during the third quarter of 2023. Restructuring costs are recognized as an operating expense within the Condensed Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
Trobigard Revocation
On April 2, 2024, Emergent submitted its revocation of the Market Authorization for the Trobigard Auto-Injector to the Belgium FAMHP. The FAMHP subsequently acknowledged and confirmed the revocation date as being April 2, 2024.
May 2024 Organizational Restructuring Plan
In May 2024, the Company initiated the May 2024 Plan. These strategic actions led to a reduction of the Company’s workforce by approximately 300 employees across all areas of the Company and the elimination of approximately 85 positions that were vacant, as well as the closure of the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility. Decisions regarding the elimination of positions and the closure of manufacturing facilities were subject to local law and consultation requirements in certain countries, as well as the Company’s business needs. The cumulative amount of restructuring charge related to the May 2024 Plan since inception is $20.0 million. All activities related to the May 2024 Plan were substantially completed during the third quarter of 2024. Restructuring costs are recognized as an operating expense within the Condensed Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
Confidential arbitration settlement with Janssen
On July 3, 2024, the Company, its wholly owned subsidiary, Emergent Manufacturing Operations Baltimore, LLC (“EMOB”), and Janssen executed the Settlement Agreement to resolve all claims among the Parties arising from the Janssen Agreement. The Settlement Agreement also resolves the Parties’ related and previously disclosed arbitration.
Pursuant to the terms of the Settlement Agreement, Janssen paid the Company $50.0 million on July 31, 2024. In addition, the Settlement Agreement contains broad releases of the parties, their affiliates and subsidiaries, representatives, officers, directors and shareholders, including releases of all claims related to the manufacture of the Product by EMOB, the Janssen Agreement, or any agreement or understanding between the parties concerning the Product, and the matters at issue in the arbitration.
Development milestone payments for CHIKV VLP
On July 18, 2024, Bavarian Nordic announced that the European Medicines Agency had validated the marketing authorization application for CHIKV VLP, which was submitted in June 2024. This approval triggered a milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $10.0 million.
On August 13, 2024, Bavarian Nordic announced that the FDA has accepted and granted priority review for the Biologics License Application for CHIKV VLP, which triggered a milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $20.0 million.
41
Sale of RSDL
On July 31, 2024, the Company, through its wholly owned subsidiary Emergent BioSolutions Canada Inc., entered into the RSDL® Agreement with SERB pursuant to which, among other things, the Company sold its worldwide rights to RSDL® to SERB. The RSDL® Transaction also included the sale to SERB of all the outstanding capital stock of Emergent Protective Products USA Inc. (“EPPU”), a wholly owned subsidiary of the Company, which leases a manufacturing facility in Hattiesburg, Mississippi, as well as certain assets related to RSDL®, including intellectual property rights, contract rights, inventory and marketing authorizations. In addition, the employees of EPPU joined SERB in connection with the RSDL® Transaction.
Pursuant to the RSDL® Transaction, SERB assumed certain government contracts related to RSDL® decontamination lotion, including the Company’s existing contract to supply RSDL® to the U.S. Department of Defense, through a new contract award to the Canadian Commercial Corporation.
At the closing, SERB paid a cash purchase price of $75.0 million, exclusive of customary closing adjustments related to inventory. In addition, SERB will owe the Company a $5.0 million payment upon achievement of a milestone relating to sourcing of a certain component of RSDL® decontamination lotion. The Company recognized a gain on sale of business of $60.8 million, net of transaction costs of $4.1 million.
The Company and SERB entered into a transition services agreement (the “SERB TSA”) to ensure the orderly transition of RSDL® decontamination lotion and the related assets to SERB, and a supply agreement (the “SERB Supply Agreement”) pursuant to which they have a suite reservation at the Company’s Winnipeg facility where the Company will perform Bioservices activities to manufacture and supply bulk lotion to SERB. The Company and SERB also entered into a reverse supply agreement (together with the SERB TSA and the SERB Supply Agreement, the “SERB Agreements”) pursuant to which SERB will supply to the Company finished RSDL® for the purposes of the Company’s performance of certain transitional distribution services under customer contracts that have not yet transferred to SERB. Under the SERB Agreements, the Company will retain a portion of net sales received upon delivery of RSDL® to the delayed transfer customers.
Sale of Baltimore-Camden Facility
On August 20, 2024, pursuant to the Asset Purchase Agreement, the Company completed the sale of its Drug Product facility in Baltimore-Camden to an affiliate of Bora. The Camden site, which was part of the Company’s Bioservices segment, has clinical and commercial non-viral aseptic fill/finish services on four fill lines, including lyophilization, formulation development, and support services. Alongside the facility, approximately 350 Emergent employees joined Bora as part of the transaction.
At closing, Bora paid a cash purchase price of approximately $35.0 million, which includes customary closing adjustments for working capital and transaction expenses of the business. As a result of the divestiture, the Company recognized a loss on sale of business of $36.5 million, net of transaction costs of $3.8 million, during the nine months ended September 30, 2024.
August 2024 Organizational Restructuring Plan
In August 2024, the Company initiated an organizational restructuring plan (the “August 2024 Plan”) at the Company’s Lansing facility, which reduced the Company’s workforce by approximately 70 employees, as well eliminated several open positions. The Company also implemented non-labor optimization efforts, such as reducing the Company’s external and vendor spend. The cumulative amount of restructuring charges related to the August 2024 Plan since inception is $3.5 million. All activities related to the August 2024 Plan are expected to be substantially completed during the fourth quarter of 2024. Restructuring costs are recognized as an operating expense within the Condensed Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.
Term Loan Agreement
On August 30, 2024, the Company entered into a Credit Agreement (the “Term Loan Agreement”) by and among the Company with the lenders from time to time party thereto, and OHA Agency LLC, as administrative agent. The Term Loan Agreement provides for a term loan (the “Term Loan”) of $250.0 million, which was drawn in full on the date of entry into the Term Loan Agreement (the “Closing Date”). The Term Loan was issued with an original issue discount of 3.00%.
On the Closing Date, the Company used a portion of the proceeds of the Term Loan to repay all amounts outstanding and terminate commitments under the senior term loan facility under the Company’s Amended and Restated Credit Agreement, dated October 15, 2018, by and among the Company, the lenders party thereto from time to time, and Wells Fargo Bank, National Association, as the Administrative Agent (the “Prior Credit Agreement”), plus accrued interest and fees. The Company previously repaid all amounts outstanding under the revolving credit facility under the Prior Credit Agreement.
42
Securities and shareholder litigation
On September 12, 2024, the Company and the lead plaintiffs entered into an agreement in principle to settle the claims against the Company and each of the Company’s current and former officers and directors. On October 4, 2024, the Court granted preliminary approval of the proposed settlement, ordered notice to the settlement class and scheduled a fairness hearing for February 27, 2025 to consider whether to grant final approval of the settlement. Under the proposed settlement, the claims against the Company and its officers and directors will be dismissed with prejudice and released in exchange for a payment from the Company of $40.0 million, of which $30.0 million will be paid from insurance proceeds. The Company considers the proposed settlement payment to be probable and reasonably estimable and the insurance proceeds to be committed, therefore, recorded the settlement and insurance recoverable amounts as pre-tax operating expense and income, respectively, recorded within “Selling, general and administrative” on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2024. The related liability was recorded within “Other current liabilities” and the insurance receivable was recorded within “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheet as of September 30, 2024.
Asset-Based Revolving Loan
On September 30, 2024, the Company entered into a credit agreement for asset-based revolving loans (the “Revolving Credit Agreement”) with certain subsidiary borrowers (together with the Company, the “Borrowers”), the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as agent (the “Agent”). The Revolving Credit Agreement provides for commitments with respect to asset-based revolver loans (the “Revolving Loans”) of up to the lesser of (x) $100.0 million, which may be increased (but not above $125.0 million, or the “Maximum Revolver Amount”) or decreased (but not below $50.0 million) by the Borrowers in accordance with the terms of the Revolving Credit Agreement and (y) the Borrowing Base (as defined in the Revolving Credit Agreement). Once reduced, the facility may not be increased. Up to $5.0 million of capacity under the Revolving Loans may be used for swing loans and up to $10.0 million may be used for the issuance of letters of credit.
2024 Triggering Events
2024 Impairment of long-lived assets
During the preparation of our financial statements for the quarter ended June 30, 2024, due to the decision to close the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility, the Company determined there were sufficient indicators of impairment for the Bayview and Rockville asset groups within the Bioservices reporting unit. As a result, the Company performed recoverability tests on those asset groups and concluded that the Bayview and Rockville asset groups were not recoverable as the undiscounted expected cash flows did not exceed their carrying values.
Asset groups are written down only to the extent that their carrying value is higher than their respective fair value. The Company, with the assistance of a third-party valuation firm, applied valuation methods to estimate the fair values for each of the assets within the different asset classes. An orderly liquidation value was applied to estimate the fair value of the personal property assets and market and cost based approaches were applied to estimate the fair value of the real property assets, each representing Level 3 non-recurring fair value measurements. Based on these analyses, the Company allocated and recognized a non-cash impairment charge of $27.2 million during the second quarter of 2024.
FINANCIAL OPERATIONS OVERVIEW
Revenues
We generate Commercial Product revenues through sale of NARCAN® Nasal Spray, which is sold commercially over-the-counter at retail pharmacies and digital commerce websites as well as through physician-directed or standing order prescriptions at retail pharmacies, health departments, local law enforcement agencies, community-based organizations, substance abuse centers and other federal agencies. In addition, we previously generated Commercial product revenues through sale of the Company's travel health products, which we sold to Bavarian Nordic in May 2023.We generate MCM Product revenues from the sale of our marketed products and procured product candidates. The U.S. government (“USG”) is the largest purchaser of our Government - MCM products and primarily purchases our products for the Strategic National Stockpile, a national repository of medical countermeasures including critical antibiotics, vaccines, chemical antidotes, antitoxins, and other critical medical supplies. The USG primarily purchases our products under long-term, firm fixed-price procurement contracts, generally with annual options.
We also generate revenue from our Services segment through our Bioservices portfolio, which is based on our established development and manufacturing infrastructure, technology platforms and expertise. Our services include a fully integrated molecule-to-market Bioservices business offering across development services, drug substance and drug product for small to large pharmaceutical and biotechnology industry and government agencies/non-governmental organizations. From time to time, clients
43
require suite reservations at our various manufacturing sites, which may be considered leases depending on the facts and circumstances.
We have received contracts and grant funding from the USG and other non-governmental organizations to perform R&D activities, particularly related to programs addressing certain CBRNE threats and EIDs.
Our revenue, operating results and profitability vary quarterly based on the timing of production and deliveries, the timing of manufacturing services performed and the nature of our business, which involves providing large scale bundles of products and services as needs arise. We expect continued variability in our quarterly financial results.
Cost of Product Sales and Services
Commercial and MCM Products - The primary expenses that we incur to deliver our NARCAN® and MCM products consist of fixed and variable costs. We determine the cost of product sales for products sold during a reporting period based on the average manufacturing cost per unit in the period those units were manufactured. Fixed manufacturing costs include facilities, utilities and amortization of intangible assets. Variable manufacturing costs primarily consist of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff, contract manufacturing operations, sales-based royalties, shipping and logistics. In addition to the fixed and variable manufacturing costs described above, the cost of product sales depends on utilization of available manufacturing capacity. For our commercial sales, other associated expenses include sales-based royalties, shipping, and logistics.
Services - The primary expenses that we incur to deliver our Bioservices offerings consist of fixed and variable costs, including personnel, equipment, and facilities costs. Our manufacturing process includes the production of bulk material and performing drug product work for containment and distribution of biological products. For drug product customers, we receive work in process inventory to be prepared for distribution.
Research and Development ("R&D") Expenses
We expense R&D costs as incurred. Our R&D expenses consist primarily of:
▪personnel-related expenses;
▪fees to professional service providers for, among other things, analytical testing, independent monitoring or other administration of our clinical trials and obtaining and evaluating data from our clinical trials and non-clinical studies;
▪costs of Bioservices for our clinical trial material; and
▪costs of materials intended for use and used in clinical trials and R&D.
In many cases, we seek funding for development activities from external sources and third parties, such as governments and non-governmental organizations, or through collaborative partnerships. We expect our R&D spending will be dependent upon such factors as the results from our clinical trials, the availability of reimbursement of R&D spending, the number of product candidates under development, the size, structure and duration of any clinical programs that we may initiate, the costs associated with manufacturing and development of our product candidates on a large-scale basis for later stage clinical trials, and our ability to use or rely on data generated by government agencies.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses consist primarily of personnel-related costs and professional fees in support of our executives, sales and marketing, business development, government affairs, finance, accounting, information technology, legal, human resource functions and other corporate functions. Other costs include facility costs not otherwise included in cost of product sales and Bioservices or R&D expense.
Income taxes
Uncertainty in income taxes is accounted for using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize in our financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position.
44
Changes in tax laws, rulings, policies, or related legal and regulatory interpretations occur frequently and may have significant favorable or adverse impacts on our effective tax rate. In 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules for a 15% global minimum tax applied to cross-border profits of certain large multinational corporations, known as Pillar Two. Pillar Two has now been enacted by approximately 30 countries, including Ireland. This minimum tax is treated as a period cost beginning in 2024 and its impact is included on the Company's financial results of operations for the current period. The Company is monitoring legislative developments, as well as additional guidance from countries that have enacted legislation. We anticipate further legislative activity and administrative guidance in 2024.
Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations.
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. There have been no significant changes to our critical accounting policies and estimates contained in “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Part II, Item 7, of the 2023 Form 10-K, as filed with the SEC.
New accounting standards
For a discussion of new accounting standards please see Note 2, “Summary of significant accounting policies”, in Part I, Item 1, of this Quarterly Report on Form 10-Q.
45
RESULTS OF OPERATIONS
Consolidated and Segment Operating Results:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions, except %)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Revenues
Commercial Product sales, net:
NARCAN®
$
95.3
$
142.1
$
(46.8)
(33)
%
$
333.8
$
376.4
$
(42.6)
(11)
%
Other Commercial Products
—
—
—
NM
—
9.8
(9.8)
(100)
%
Total Commercial Product sales, net
95.3
142.1
(46.8)
(33)
%
333.8
386.2
(52.4)
(14)
%
MCM Product sales, net:
Anthrax MCM
11.4
32.9
(21.5)
(65)
%
106.0
76.0
30.0
39
%
Smallpox MCM
132.7
24.7
108.0
NM
200.8
155.8
45.0
29
%
Other Products
30.1
50.1
(20.0)
(40)
%
86.2
77.4
8.8
11
%
Total MCM Product sales, net
174.2
107.7
66.5
62
%
393.0
309.2
83.8
27
%
Services:
Bioservices - Services
13.9
13.2
0.7
5
%
96.7
52.2
44.5
85
%
Bioservices - Leases
0.4
1.0
(0.6)
(60)
%
0.8
5.5
(4.7)
(85)
%
Total Services revenues
14.3
14.2
0.1
1
%
97.5
57.7
39.8
69
%
Contracts and grants
10.0
6.5
3.5
54
%
24.6
19.6
5.0
26
%
Total revenues
293.8
270.5
23.3
9
%
848.9
772.7
76.2
10
%
Operating expenses:
Cost of Commercial Product sales
47.2
60.0
(12.8)
(21)
%
152.7
160.2
(7.5)
(5)
%
Cost of MCM Product sales
54.0
72.5
(18.5)
(26)
%
147.3
208.4
(61.1)
(29)
%
Cost of Bioservices
21.4
44.3
(22.9)
(52)
%
263.3
151.7
111.6
74
%
Research and development
13.8
15.3
(1.5)
(10)
%
61.6
82.0
(20.4)
(25)
%
Selling, general and administrative
76.6
86.0
(9.4)
(11)
%
247.2
278.7
(31.5)
(11)
%
Amortization of intangible assets
16.3
16.3
—
—
%
48.8
49.4
(0.6)
(1)
%
Goodwill impairment
—
218.2
(218.2)
(100)
%
—
218.2
(218.2)
(100)
%
Impairment of long-lived assets
—
—
—
NM
27.2
306.7
(279.5)
(91)
%
Total operating expenses
229.3
512.6
(283.3)
(55)
%
948.1
1,455.3
(507.2)
(35)
%
Income (loss) from operations
64.5
(242.1)
306.6
127
%
(99.2)
(682.6)
583.4
85
%
Other income (expense):
Interest expense
(8.3)
(19.7)
11.4
58
%
(56.2)
(66.2)
10.0
15
%
Gain (loss) on sale of business
64.3
(0.7)
65.0
NM
24.3
74.2
(49.9)
(67)
%
Other, net
21.9
(3.4)
25.3
NM
15.8
(2.1)
17.9
NM
Total other income (expense), net
77.9
(23.8)
101.7
NM
(16.1)
5.9
(22.0)
NM
Income (loss) before income taxes
142.4
(265.9)
408.3
154
%
(115.3)
(676.7)
561.4
83
%
Income tax provision (benefit)
27.6
(2.5)
30.1
NM
44.0
34.3
9.7
28
%
Net income (loss)
$
114.8
$
(263.4)
$
378.2
144
%
$
(159.3)
$
(711.0)
$
551.7
78
%
NM - Not meaningful
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Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Revenues and gross margin
Three Months Ended September 30,
(dollars in millions)
2024
2023
% Change
Total revenues
$
293.8
$
270.5
9
%
Contracts and grants
10.0
6.5
54
%
Total segment revenues (1)
$
283.8
$
264.0
8
%
Cost of Commercial Product sales
47.2
60.0
(21)
%
Cost of MCM Product sales
54.0
72.5
(26)
%
Cost of Bioservices
21.4
44.3
(52)
%
Total cost of sales or services
122.6
176.8
(31)
%
Total segment gross margin (1)
$
161.2
$
87.2
85
%
Total segment gross margin % (1)
57
%
33
%
(1) We define total segment revenues, which is a non-GAAP financial measure, as our total revenues, less contracts and grants revenue, which is also equal to the sum of the revenues of our reportable operating segments. We define total segment gross margin, which is a non-GAAP financial measure, as total segment revenues less our aggregate cost of sales or services. We define total segment gross margin percentage, which is a non-GAAP financial measure, as total segment gross margin as a percentage of total segment revenues. We believe that this non-GAAP operating measure, when reviewed collectively with our GAAP financial information, provides useful supplemental information to investors in assessing our operating performance.
NM - Not meaningful
Total revenues increased $23.3 million, or 9%, to $293.8 million for the three months ended September 30, 2024. The increase was due to increases in MCM Products revenue of $66.5 million, Contracts and grants revenue of $3.5 million and Services revenue of $0.1 million, partially offset by a decrease in Commercial Products revenue of $46.8 million.
Total segment gross margin increased $74.0 million, or 85%, to $161.2 million for the three months ended September 30, 2024. Total segment gross margin percentage increased 24 percentage points to 57% for the three months ended September 30, 2024. The increase in total segment gross margin was due to increases in MCM Products gross margin of $85.0 million and Services gross margin of $23.0 million, partially offset by a decrease in Commercial Products gross margin of $34.0 million. Total segment gross margin and total segment gross margin percentage exclude Contracts and grants revenues because the related costs are R&D expenses.
See “Segment Results” for an expanded discussion of revenues and gross margin.
Unallocated corporate operating expenses
R&D Expenses
R&D expenses decreased $1.5 million, or 10%, to $13.8 million for the three months ended September 30, 2024. The decrease was driven by a reduction in spend for certain funded and unfunded projects, excluding EbangaTM. The decrease was partially offset by an increase in funded R&D related to EbangaTM.
SG&A Expenses
SG&A expenses decreased $9.4 million, or 11%, to $76.6 million for the three months ended September 30, 2024. The decrease was primarily due to lower employee related expenses and compensation as a result of restructuring initiatives during 2023 and 2024, coupled with a decrease in legal services fees for disputes and other corporate initiatives. This decrease was partially offset by the settlement charge related to the stockholder litigation matter, net of expected insurance proceeds. SG&A expenses as a percentage of total revenue decreased 6 percentage points to 26% for the three months ended September 30, 2024.
Amortization of Intangible Assets
Amortization of intangible assets was consistent with the prior year period at $16.3 million for the three months ended September 30, 2024.
47
Goodwill Impairment
Goodwill impairment decreased $218.2 million, or 100%, for the three months ended September 30, 2024. The decrease was due to the $218.2 million impairment charge to goodwill in the MCM Products segment in the third quarter of 2023, which reduced the goodwill balance of the reporting unit and segment to zero as of September 30, 2024 and 2023.
Interest expense
Interest expense decreased $11.4 million, or 58%, to $8.3 million for the three months ended September 30, 2024. The decrease was primarily due to lower amortization of debt service costs coupled with lower interest costs related to our syndicated borrowings, partially offset by higher interest expense related to the termination of our interest rate swap hedging agreements and interest related to our Term Loan Agreement.
Gain (loss) on sale of business
Gain (loss) on sale of business was a gain of $64.3 million for the three months ended September 30, 2024 compared with a loss of $0.7 million for the three months ended September 30, 2023. The gain on sale of business in the current year is related to the sale of RSDL® to SERB coupled with a reduction to the loss on the sale of the Company’s drug product facility in Baltimore-Camden to Bora, which is attributable to a net working capital adjustment payable to the Company. The loss on sale of business in the prior year is attributable to a net working capital adjustment, payable to Bavarian Nordic, related to the sale of our travel health business to Bavarian Nordic during the second quarter of 2023.
Other, net
Other, net was $21.9 million in income for the three months ended September 30, 2024 compared with $3.4 million in expense for the three months ended September 30, 2023. The change of $25.3 million was primarily attributable to income associated with development milestone achievements related to CHIK VLP, partially offset by a loss on the sale of a building at our Canton facility.
Income tax provision (benefit)
Income tax provision increased $30.1 million to $27.6 million for the three months ended September 30, 2024. The increase was primarily due to an increase in taxable income in the Company’s profitable jurisdictions.
48
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Revenues and gross margin
Nine Months Ended September 30,
(dollars in millions)
2024
2023
% Change
Total revenues
$
848.9
$
772.7
10
%
Contracts and grants
24.6
19.6
26
%
Total segment revenues (1)
$
824.3
$
753.1
9
%
Cost of Commercial Product sales
152.7
160.2
(5)
%
Cost of MCM Product sales
147.3
208.4
(29)
%
Cost of Bioservices
263.3
151.7
74
%
Total cost of sales or services
563.3
520.3
8
%
Total segment gross margin (1)
$
261.0
$
232.8
12
%
Total segment gross margin % (1)
32
%
31
%
(1) We define total segment revenues, which is a non-GAAP financial measure, as our total revenues, less contracts and grants revenue, which is also equal to the sum of the revenues of our reportable operating segments. We define total segment gross margin, which is a non-GAAP financial measure, as total segment revenues less our aggregate cost of sales or services. We define total segment gross margin percentage, which is a non-GAAP financial measure, as total segment gross margin as a percentage of total segment revenues. We believe that this non-GAAP operating measure, when reviewed collectively with our GAAP financial information, provides useful supplemental information to investors in assessing our operating performance.
NM - Not meaningful
Total revenues increased $76.2 million, or 10%, to $848.9 million for the nine months ended September 30, 2024. The increase was due to increases in MCM Products revenue of $83.8 million, Services revenue of $39.8 million, and Contracts and grants revenue of $5.0 million, partially offset by a decrease in Commercial Products revenue of $52.4 million.
Total segment gross margin increased $28.2 million, or 12%, to $261.0 million for the nine months ended September 30, 2024. Total segment gross margin percentage was relatively consistent at 32% for the nine months ended September 30, 2024. The increase in total segment gross margin was due to an increase in MCM Products gross margin of $144.9 million, partially offset by decreases in Services gross margin of $71.8 million and Commercial Products gross margin of $44.9 million. Total segment gross margin and Total segment gross margin percentage exclude Contracts and grants revenues because the related costs are R&D expenses.
See "Segment Results" for an expanded discussion of revenues and gross margin.
Unallocated corporate operating expenses
R&D Expenses
R&D expenses decreased $20.4 million, or 25%, to $61.6 million for the nine months ended September 30, 2024. The decrease was primarily due to the sale of our development program for CHIKV VLP to Bavarian Nordic in the second quarter of 2023 and lower overhead costs driven by headcount reductions. The decrease was also driven by the wind-down of funded projects, excluding EbangaTM. The decrease was partially offset by write-offs related to program terminations during the period and increases in the allocation of R&D overhead costs and funded R&D related to EbangaTM.
SG&A Expenses
SG&A expenses decreased $31.5 million, or 11%, to $247.2 million for the nine months ended September 30, 2024. The decrease was primarily due to lower employee related expenses and compensation as a result of restructuring initiatives during 2023 and 2024, lower professional services fees related to corporate initiatives, including organizational transformation consulting fees, and lower legal fees due to the wind-down of various legal matters. This decrease was partially offset by the settlement charge related to the stockholder litigation matter, net of expected insurance proceeds. SG&A expenses as a percentage of total revenue decreased 7 percentage points to 29% for the nine months ended September 30, 2024.
49
Amortization of Intangible Assets
Amortization of intangible assets decreased $0.6 million, or 1%, to $48.8 million for the nine months ended September 30, 2024. The decrease was primarily due to a decrease in amortization expense resulting from the intangibles sold with our travel health business to Bavarian Nordic, partially offset by an increase in amortization expense for the intangible asset related to EbangaTM, which was the result of the contingent consideration payment made to Ridgeback in the third quarter of 2023.
Goodwill Impairment
Goodwill impairment decreased $218.2 million, or 100%, for the nine months ended September 30, 2024. The decrease was due to the $218.2 million impairment charge to goodwill in the MCM Products segment in the third quarter of 2023, which reduced the goodwill balance of the reporting unit and segment to zero as of September 30, 2024 and 2023.
Impairment of Long-Lived Assets
Impairment of long-lived assets decreased $279.5 million, or 91%, to $27.2 million for the nine months ended September 30, 2024. The decrease was due to a $27.2 million non-cash impairment charge in the second quarter of 2024 related to our Bayview and Rockville asset groups within the Bioservices reporting unit, compared with a $306.7 million non-cash impairment charge recorded in the second quarter of 2023 related to our Camden, Bayview and Rockville asset groups within the Bioservices reporting unit.
Interest expense
Interest expense decreased $10.0 million, or 15%, to $56.2 million for the nine months ended September 30, 2024. The decrease was primarily due to a decrease in interest expense related to our syndicated borrowings and a decrease in amortization of debt service costs, partially offset by higher interest expense related to the termination of our interest rate swap hedging agreements and interest related to our Term Loan Agreement.
Gain on sale of business
Gain on sale of business decreased $49.9 million, or 67%, to $24.3 million for the nine months ended September 30, 2024. The gain on sale of business in the current year is related to the sale of RSDL® to SERB, partially offset by a loss the sale of the Company’s drug product facility in Baltimore-Camden to Bora. The gain on sale of business in the prior year is attributable to the sale of our travel health business to Bavarian Nordic during the second quarter of 2023.
Other, net
Other, net was $15.8 million in income for the nine months ended September 30, 2024 compared to $2.1 million in expense for the nine months ended September 30, 2023. The change of $17.9 million was primarily due to income associated with development milestone achievements related to CHIK VLP, partially offset by a loss on the sale of a building at our Canton facility, lower interest income, due to lower balances in our money market accounts, and a write-off of an equity method investment.
Income tax provision (benefit)
Income tax provision increased $9.7 million, or 28%, to $44.0 million for the nine months ended September 30, 2024. The increase was largely due to the jurisdictional mix of income and losses. The effective tax rate was (38)% for the nine months ended September 30, 2024 as compared with (5)% in 2023. The effective annual tax rate increased largely due the jurisdictional mix of income and losses and the prior year impairment loss.
50
SEGMENT RESULTS
COMMERCIAL PRODUCTS SEGMENT
Three Months Ended September 30,
Nine Months Ended September 30,
(dollars in millions)
2024
2023
% Change
2024
2023
% Change
Revenues
$
95.3
$
142.1
(33
%)
$
333.8
$
386.2
(14
%)
Cost of sales
$
47.2
$
60.0
(21
%)
$
152.7
$
160.2
(5
%)
Gross margin (1)
$
48.1
$
82.1
(41
%)
$
181.1
$
226.0
(20
%)
Gross margin % (1)
50
%
58
%
54
%
59
%
Segment adjusted gross margin (2)
$
48.1
$
82.1
(41
%)
$
181.1
$
226.0
(20
%)
Segment adjusted gross margin %(2)
50
%
58
%
54
%
59
%
(1) Gross margin is calculated as revenues less cost of sales. Gross margin percentage is calculated as gross margin divided by revenues.
(2) Segment adjusted gross margin, which is a non-GAAP financial measure, is calculated as gross margin excluding the impact of amortization of intangible assets, restructuring costs and non-cash items related to changes in fair value of financial instruments, settlement charges, net and inventory step-up provision. Segment adjusted gross margin percentage, which is a non-GAAP financial measure, is calculated as segment adjusted gross margin divided by revenues. The Company’s management utilizes segment adjusted gross margin and segment adjusted gross margin percentage for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.
NM - Not meaningful
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
NARCAN®
NARCAN® sales decreased $46.8 million, or 33%, to $95.3 million for the three months ended September 30, 2024. The decrease was primarily driven by the discontinuation of prescription NARCAN® due to the launch of over-the-counter (“OTC”) NARCAN® in the third quarter of 2023 and lower Canadian retail sales, partially offset by higher sales of OTC NARCAN®.
Cost of Commercial Product Sales and Gross Margin
Cost of Commercial Product sales decreased $12.8 million, or 21%, to $47.2 million for the three months ended September 30, 2024. The decrease was primarily due to lower prescription NARCAN® unit volume, partially offset by higher OTC NARCAN® unit volume.
Commercial Products gross margin decreased $34.0 million, or 41%, to $48.1 million for the three months ended September 30, 2024. Commercial Products gross margin percentage decreased 8 percentage points to 50% for the three months ended September 30, 2024. The decrease was largely due to an unfavorable price and volume mix in 2024 for NARCAN® products.Commercial Products segment adjusted gross margin is consistent with gross margin.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
NARCAN®
NARCAN® sales decreased $42.6 million, or 11%, to $333.8 million for the nine months ended September 30, 2024. The decrease was primarily driven by the discontinuation of prescription NARCAN® due to the launch of OTC NARCAN® in the third quarter of 2023 and lower Canadian retail sales, partially offset by higher sales of OTC NARCAN®.
Other Commercial Products
Other Commercial Products sales decreased $9.8 million, or 100%, to no sales for the nine months ended September 30, 2024. During the second quarter of 2023, we sold Vivotif® and Vaxchora® to Bavarian Nordic as part of our travel health business.
51
Cost of Commercial Product Sales and Gross Margin
Cost of Commercial Product sales decreased $7.5 million, or 5%, to $152.7 million for the nine months ended September 30, 2024. The decrease was primarily due to no current period costs related to Vivotif® and Vaxchora®, which were sold to Bavarian Nordic as part of our travel health business, and lower prescription NARCAN® unitvolume, partially offset by the higher OTC NARCAN® unit volume.
Commercial Products gross margin decreased $44.9 million, or 20%, to $181.1 million for the nine months ended September 30, 2024. Commercial Products gross margin percentage decreased 5 percentage points to 54% for the nine months ended September 30, 2024. The decrease was largely due to an unfavorable price and volume mix in 2024 for NARCAN® products, partially offset by the sale of the products associated with our travel health business to Bavarian Nordic.Commercial Products segment adjusted gross margin is consistent with gross margin.
MCM PRODUCTS SEGMENT
Three Months Ended September 30,
Nine Months Ended September 30,
(dollars in millions)
2024
2023
% Change
2024
2023
% Change
Revenues
$
174.2
$
107.7
62
%
$
393.0
$
309.2
27
%
Cost of sales
$
54.0
$
72.5
(26
%)
$
147.3
$
208.4
(29
%)
Gross margin (1)
$
120.2
$
35.2
NM
$
245.7
$
100.8
144
%
Gross margin % (1)
69
%
33
%
63
%
33
%
Add back:
Changes in fair value of financial instruments
—
(1.1)
100
%
0.6
(0.4)
NM
Restructuring costs
4.9
5.0
(2
%)
7.5
7.0
7
%
Inventory step-up provision
1.2
—
NM
1.2
1.9
(37
%)
Segment adjusted gross margin (2)
$
126.3
$
39.1
NM
$
255.0
$
109.3
133
%
Segment adjusted gross margin %(2)
73
%
36
%
65
%
35
%
(1) Gross margin is calculated as revenues less cost of sales. Gross margin percentage is calculated as gross margin divided by revenues.
(2) Segment adjusted gross margin, which is a non-GAAP financial measure, is calculated as gross margin plus restructuring costs and non-cash items related to changes in fair value of financial instruments, inventory step-up provision and settlement charge, net. Segment adjusted gross margin percentage, which is a non-GAAP financial measure, is calculated as segment adjusted gross margin divided by revenues. The Company’s management utilizes segment adjusted gross margin and segment adjusted gross margin percentage for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.
NM - Not meaningful
Anthrax MCM
Anthrax MCM sales decreased $21.5 million, or 65%, to $11.4 million for the three months ended September 30, 2024. The decrease reflects the impact of timing of sales related to CYFENDUS® and Anthrasil®, partially offset by an increase in BioThrax® sales, due to timing. Anthrax vaccine product sales are primarily made under annual purchase options exercised by the USG. Fluctuations in revenues result from the timing of the exercise of annual purchase options, the timing of USG purchases, the availability of governmental funding and the Company’s delivery of orders that follow.
52
Smallpox MCM
Smallpox MCM sales increased $108.0 million to $132.7 million for the three months ended September 30, 2024. The increase was primarily due to timing of USG purchases of ACAM2000® and VIGIV. Fluctuations in revenues from Smallpox MCM result from the timing of the exercise of annual purchase options in the existing procurement contracts, the timing of USG purchases, the availability of governmental funding and Company delivery of orders that follow.
Other Products
Other Products sales decreased $20.0 million, or 40%, to $30.1 million for the three months ended September 30, 2024. The decrease was due to lower product sales of BAT®, due to timing of deliveries, and lower product sales of RSDL®, which was sold to SERB during the third quarter of 2024.
Cost of MCM Product Sales and Gross Margin
Cost of MCM Product sales decreased $18.5 million, or 26%, to $54.0 million for the three months ended September 30, 2024. The decrease was primarily due to lower sales of BAT® and CYFENDUS®, coupled with lower allocations to Cost of MCM Product sales at our Bayview facility. This decrease was partially offset by higher sales of BioThrax® and ACAM2000®.
MCM Product gross margin increased $85.0 million to $120.2 million for the three months ended September 30, 2024. MCM Product gross margin percentage increased 36 percentage points to 69% for the three months ended September 30, 2024. The increase was largely due to overall higher sales volumes with a favorable product mix weighted more heavily to higher margin products coupled with lower allocations to Cost of MCM Product sales at our Bayview facility and overall lower shutdown costs across our facilities. MCM Products segment adjusted gross margin excludes the impacts of non-cash items related to restructuring costs of $4.9 million and inventory step-up provision of $1.2 million.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Anthrax MCM
Anthrax MCM sales increased $30.0 million, or 39%, to $106.0 million for the nine months ended September 30, 2024. The increase was due to the impact of timing of sales related to CYFENDUS® and BioThrax®, partially offset by a decrease in Anthrasil® sales, due to timing. Anthrax vaccine product sales are primarily made under annual purchase options exercised by the USG. Fluctuations in revenues result from the timing of the exercise of annual purchase options, the timing of USG purchases, the availability of governmental funding and the Company’s delivery of orders that follow.
Smallpox MCM
Smallpox MCM sales increased $45.0 million, or 29%, to $200.8 million for the nine months ended September 30, 2024. The increase was due to higher VIGIV sales, primarily related to USG, and higher ACAM2000® sales to non-U.S. customers, partially offset by lower USG purchases of ACAM2000®, due to timing. Fluctuations in revenues result from the timing of the exercise of annual purchase options in existing procurement contracts, the timing of USG purchases, the availability of governmental funding and Company delivery of orders that follow.
Other Products
Other Products sales increased $8.8 million, or 11%, to $86.2 million for the nine months ended September 30, 2024. The increase was primarily due to higher BAT® product sales to USG and non-U.S. customers, partially offset by lower sales of RSDL®, which was sold to SERB during the third quarter of 2024.
Cost of MCM Product Sales and Gross Margin
Cost of MCM Product sales decreased $61.1 million, or 29%, to $147.3 million for the nine months ended September 30, 2024. The decrease was primarily due to lower allocations to Cost of MCM Product sales at our Bayview facility, lower shutdown costs, and a reduction in Trobigard®-related costs, due to the Belgium FAMHP’s approval of the Trobigard® revocation, partially offset by higher BioThrax® and VIGIV sales.
53
MCM Product gross margin increased $144.9 million, or 144%, to $245.7 million for the nine months ended September 30, 2024. MCM Product gross margin percentage increased 30 percentage points to 63% for the nine months ended September 30, 2024. In addition to the MCM Product revenue and Cost of MCM Products items as discussed above, the increase was largely due to overall higher sales volumes with a favorable product mix weighted more heavily to higher margin products coupled with a realization of previously adjusted inventory values. MCM Products segment adjusted gross margin excludes the impacts of restructuring costs of $7.5 million, inventory step-up provision of $1.2 million and the changes in fair value of financial instruments of $0.6 million.
SERVICES SEGMENT
Three Months Ended September 30,
Nine Months Ended September 30,
(dollars in millions)
2024
2023
% Change
2024
2023
% Change
Revenues
$
14.3
$
14.2
1
%
$
97.5
$
57.7
69
%
Cost of services
$
21.4
$
44.3
(52
%)
$
263.3
$
151.7
74
%
Gross margin (1)
$
(7.1)
$
(30.1)
(76
%)
$
(165.8)
$
(94.0)
(76
%)
Gross margin % (1)
(50)
%
(212)
%
(170)
%
(163)
%
Add back:
Settlement charge, net
—
—
NM
110.2
—
NM
Restructuring costs
0.1
8.1
(99
%)
0.3
8.1
(96
%)
Segment adjusted gross margin (2)
$
(7.0)
$
(22.0)
(68
%)
$
(55.3)
$
(85.9)
(36
%)
Segment adjusted gross margin %(2)
(49)
%
(155)
%
(57)
%
(149)
%
(1) Gross margin is calculated as revenues less cost of sales. Gross margin percentage is calculated as gross margin divided by revenues.
(2) Segment adjusted gross margin, which is a non-GAAP financial measure, is calculated as gross margin plus restructuring costs and non-cash items related to changes in fair value of financial instruments, inventory step-up provision and settlement charge, net. Segment adjusted gross margin percentage, which is a non-GAAP financial measure, is calculated as segment adjusted gross margin divided by revenues. The Company’s management utilizes segment adjusted gross margin and segment adjusted gross margin percentage for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.
NM - Not meaningful
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Services Revenues
Bioservices revenues increased $0.7 million, or 5%, to $13.9 million for the three months ended September 30, 2024. The increase was primarily attributable to an increase in production at the Company’s Camden facility, prior to the sale of the facility to Bora, partially offset by lower production at the Company’s Canton and Winnipeg facilities.
Bioservices lease revenues decreased $0.6 million, or 60%, to $0.4 million for the three months ended September 30, 2024. The decrease was related to the completion of a lease for a Bioservices customer at our Canton facility, partially offset by new lease revenue associated with SERB at our Winnipeg facility.
Cost of Services and Gross Margin
Cost of Services decreased $22.9 million, or 52%, to $21.4 million for the three months ended September 30, 2024. The decrease was primarily due to lower overhead and remediation costs related to the sale of the Camden facility, coupled with a decrease in overhead costs at our other Maryland facilities as a result of the announced shutdowns and lower costs at our Canton facility. The decrease was partially offset by an increase in production at our Winnipeg facility.
Services gross margin increased $23.0 million, or 76%, to $(7.1) million for the three months ended September 30, 2024. Services gross margin percentage increased 162 percentage points to (50)% for the three months ended September 30, 2024. The increase was primarily due to lower overhead and remediation costs related to the sale of the Camden facility coupled with lower costs at our Bayview facility. Services segment adjusted gross margin excludes the impact of restructuring costs of $0.1 million.
54
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Services revenues
Bioservices revenues increased $44.5 million, or 85%, to $96.7 million for the nine months ended September 30, 2024. The increase was primarily attributable to the $50.0 million arbitration settlement with Janssen related to the Settlement Agreement, coupled with an increase in production at the Camden facility prior to the sale of the facility to Bora. The increase was partially offset by reduced production activities at the Company’s Canton and Winnipeg facilities.
Bioservices lease revenues decreased $4.7 million, or 85%, to $0.8 million for the nine months ended September 30, 2024. The decrease was related to the completion of a lease for a Bioservices customer at our Canton facility, partially offset by new lease revenue for SERB at our Winnipeg facility.
Cost of Services and Gross Margin
Cost of Services increased $111.6 million, or 74%, to $263.3 million for the nine months ended September 30, 2024. The increase was primarily due to the Settlement Agreement with Janssen and resulting write-down of related assets to net realizable value of $110.2 million, coupled with higher costs at the Company’s Winnipeg facility due to a bad debt charge. These increases were partially offset by lower costs associated with production activities at the Company’s Canton facility, lower costs as a result of the sale of the Camden facility to Bora and higher allocations to Cost of MCM Product sales.
Services gross margin decreased $71.8 million, or 76%, to $(165.8) million for the nine months ended September 30, 2024. Services gross margin percentage decreased 7 percentage points to (170)% for the nine months ended September 30, 2024. The decrease was primarily due to the Settlement Agreement with Janssen and resulting revenue and write-down of related assets mentioned above, coupled with lower production at the Company's Canton facility. This decrease was partially offset by an increase in production at the Camden facility prior to the sale of the facility to Bora and a decrease in overhead costs at our other Maryland facilities. Services segment adjusted gross margin excludes the impacts of the settlement charge, net of $110.2 million and restructuring costs of $0.3 million.
OTHER REVENUE
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Contracts and Grants
Contracts and grants revenue increased $3.5 million, or 54%, to $10.0 million for the three months ended September 30, 2024. The increase was primarily due to timing of funding as well as an increase related to work under the EbangaTM program.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Contracts and Grants
Contracts and grants revenue increased $5.0 million, or 26%, to $24.6 million for the nine months ended September 30, 2024. The increase was related to work under the EbangaTM program, partially offset by the wind-down of our other funded development initiatives.
55
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our financial condition is summarized as follows:
September 30,
December 31,
(dollars in millions)
2024
2023
Change %
Financial assets:
Cash and cash equivalents
$
149.9
$
111.7
34
%
Borrowings:
Debt, current portion
$
0.8
$
413.7
(100)
%
Debt, net of current portion
661.8
446.5
48
%
Total borrowings
$
662.6
$
860.2
(23)
%
Working capital:
Current assets
$
661.4
$
679.5
(3)
%
Current liabilities
229.9
651.3
(65)
%
Total working capital
$
431.5
$
28.2
1430
%
Principal Sources of Capital Resources
We have historically financed our operating and capital expenditures through existing cash and cash equivalents, cash from operations, development contracts and grant funding and borrowings under various credit agreements, including our Term Loan Agreement and other lines of credit we have established from time to time. We also occasionally obtain financing from the sale of our common stock upon exercise of stock options. As of September 30, 2024, we had unrestricted cash and cash equivalents of $149.9 million and available borrowing capacity of up to $100.0 million under the Revolving Credit Agreement.
Going Concern Considerations
In the prior quarter, in evaluating the Company’s ability to continue as a going concern, the Company took into account the potential mitigating effects of management’s previously disclosed plans, which had not yet been fully implemented. During the three months ended September 30, 2024, the Company made significant progress implementing these plans, which progress is described below. As a result, the Company believes that as of September 30, 2024 it has alleviated substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
During the three months ended September 30, 2024, the Company entered into the Term Loan Agreement, which provides for a Term Loan of $250.0 million, and the Revolving Credit Agreement, which provides for Revolving Loans of up to $100.0 million, which have maturity dates that can extend through the second quarter of 2029. Also during the three months ended September 30, 2024, the Company repaid all amounts outstanding under its Prior Credit Agreement. As of September 30, 2024 there was $250.0 million outstanding under the Term Loan Agreement and no outstanding Revolving Loans. For more information about the new Senior Secured Credit Facilities, see Note 9, “Debt” for a discussion of the material terms and financial covenants.
During the nine months ended September 30, 2024, the Company generated cash through the sale of certain assets, including the RSDL® Transaction, which provided for a cash purchase price of approximately $75.0 million; and the Camden Transaction, which provided for a cash purchase price of approximately $35.0 million. Additionally, the Company received funds of $50.0 million in connection with the confidential arbitration settlement (the “Settlement Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”), one of the Janssen Pharmaceutical Companies of Johnson & Johnson, related to the 2022 termination of manufacturing services agreement with Janssen (the “Janssen Agreement”). See Note 3, “Divestitures” in Part I, Item 1, of this Quarterly Report on Form 10-Q for additional information related to RSDL® Transaction and Camden Transaction and Note 15, “Litigation” for additional information related to the accounting treatment and settlement of the arbitration with Janssen. Additionally, the Company is realizing positive operational impacts of its restructuring and cost savings initiatives, including the closure of certain Bioservices facilities and reductions in force.
As of September 30, 2024, the Company had unrestricted cash and cash equivalents of $149.9 million and available borrowing capacity of up to $100.0 million under the Revolving Credit Agreement. The Company believes that its sources of liquidity, including debt and cash flows from operating activities, are adequate to fund its operations for at least the next twelve months from the issuance of these condensed consolidated financial statements.
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At-the-Market Equity Offering Facility
In May 2023, the Company established the ATM Program pursuant to which the Company may, from time to time, sell up to $150.0 million aggregate gross sales price of shares of its common stock through Evercore Group L.L.C. and RBC Capital Markets, LLC, as sales agents. There were no sales of the Company’s common stock under the ATM Program during the three months ended September 30, 2024. The Company is not eligible to file a new Registration Statement on Form S-3 until 2025 due to the delayed filing of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2023. Therefore, the Company will not be eligible to sell any shares under the ATM Program until a new Registration Statement on Form S-3 is filed and becomes effective. During the second quarter of 2023, we sold 1.1 million shares of our common stock under the ATM Program for gross proceeds of $9.1 million, representing an average price of $8.22 per share. As of September 30, 2024, $140.9 million aggregate gross sales price of shares of the Company’s common stock remains available for issuance under the ATM Program.
Cash Flows
The following table provides information regarding our cash flows for the nine months ended September 30, 2024 and 2023:
Nine Months Ended September 30,
(in millions)
2024
2023
Net cash provided by (used in):
Operating activities
$
138.6
$
(238.4)
Investing activities
96.6
223.7
Financing activities
(190.5)
(540.4)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
—
0.3
Net change in cash, cash equivalents and restricted cash
$
44.7
$
(554.8)
Operating Activities:
Net cash provided by operating activities for the nine months ended September 30, 2024 increased $377.0 million as compared with the nine months ended September 30, 2023. The increase in net cash provided by operating activities was primarily due to positive working capital changes of $287.1 million, driven primarily by changes in prepaid and other assets related to the write-down to net realizable values of the assets classified within “Other long term assets” related to the Janssen Agreement and Settlement Agreement, higher cash collections on accounts receivable and an increase in accrued expenses and other liabilities. This was coupled with a higher net income (loss) excluding non-cash items of $89.9 million, primarily driven by lower impairments of long-loved assets and goodwill.
Investing Activities:
Net cash provided by investing activities for the nine months ended September 30, 2024 decreased $127.1 million as compared with the nine months ended September 30, 2023. The decrease in net cash provided by investing activities was attributable to $270.2 million in proceeds from the sale of our travel health business in 2023, which did not recur in 2024, partially offset by proceeds of $110.2 million related to the RSDL® Transaction and the sale of the Baltimore-Camden facility, a reduction in purchases of property, plant and equipment and proceeds from the sale of property, plant and equipment.
Financing Activities:
Net cash used in financing activities for the nine months ended September 30, 2024 decreased $349.9 million as compared with the nine months ended September 30, 2023. The decrease in net cash used in financing activities was primarily due to proceeds from the Term Loan Agreement, a reduction of principal payments on the revolving credit facility under the Prior Credit Agreement, partially offset by an increase in payments related to the prior Term Loan Facility and an increase in debt issuance costs associated with entry into the Term Loan Agreement and Revolving Credit Agreement.
在与客户直接聘任有关的某些情况下，如果本公司的费用取决于雇用资源与客户的继续雇用，则在满足此类就业条件之前，收入并不完全认定。 Annual Report on Form 10-k for the year ended December 31, 2023 内容披露了与公司业务相关的风险和不确定性，该风险和不确定性在标题1A。风险因素中进行了描述。除下文所述外，公司的风险因素与公司2023年Form 10-k中呈现的内容没有实质变化。
