Emergent BioSolutions Inc. [EBS] Filings

10-Q 1 ebs-20230630.htm 10-Q ebs-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33137

EMERGENT BIOSOLUTIONS INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		14-1902018
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

400 Professional Drive Suite 400
Gaithersburg,	MD	20879
(Address and zip code of Principal Executive Offices)

(240) 631-3200

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par Value $0.001 per share

EBS

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2023, the registrant had 51,807,027 shares of common stock outstanding.

Emergent BioSolutions Inc. and Subsidiaries

Form 10-Q

TABLE OF CONTENTS


		Page
Part I. Financial Information
Item 1.	Financial Statements	5

	Condensed Consolidated Balance Sheets—June 30 , 2023 and December 31, 2022	5

	Condensed Consolidated Statements of Operations—Three and Six Months Ended June 30 , 2023 and 2022	6

	Condensed Consolidated Statements of Comprehensive Loss —Three and Six Months Ended June 30 , 2023 and 2022	7

	Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30 , 2023 and 2022	8

	Condensed Consolidated Statements of Changes in Stockholders' Equity—Three and Six Months Ended June 30 , 2023 and 2022	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

Part II. Other Information
Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	77

Item 4.	Mine Safety Disclosures	77

Item 5.	Other Information	77

Item 6.	Exhibits	77

	Signatures	79

EMERGENT BIOSOLUTIONS INC.

PART I. FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding our future performance, business strategy, operations, financial position, revenues and earnings, projected costs, prospects, plans and objectives of management are forward-looking statements. We generally identify forward-looking statements by using words like "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may," "plan," "predict," "should," "will," "would," and similar expressions or variations thereof, the negative thereof, but these terms are not the exclusive means of identifying such statements. Forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. You should realize that if underlying assumptions prove inaccurate or if known or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. You are therefore cautioned not to place undue reliance on any forward-looking statement contained herein. Any forward-looking statement speaks only as of the date on which such statement is made and, except as required by law, we do not undertake any obligation to update any forward-looking statement to reflect new information, events or circumstances.

There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements, including, among others:

•the availability of U.S. Government ("USG") funding for contracts related to procurement of our medical countermeasures, including CYFENDUSTM (Anthrax Vaccine Adsorbed (AVA), Adjuvanted), previously known as AV7909, BioThrax® (Anthrax Vaccine Adsorbed) and ACAM2000® (Smallpox (Vaccinia) Vaccine, Live) among others, as well as contracts related to development of medical countermeasures;

•our ability to meet our commitments to quality and compliance in all of our manufacturing operations;

•our ability to negotiate additional USG procurement or follow-on contracts for our medical countermeasures ("MCM") products that have expired or will be expiring;

•the commercial availability, including the timing of availability, of over-the-counter NARCAN® (naloxone HCI) Nasal Spray;

•the impact of a generic marketplace on NARCAN® (naloxone HCI) Nasal Spray and future NARCAN sales;

•our ability to perform under our contracts with the USG, including the timing of and specifications relating to deliveries;

•our ability to provide contract development and manufacturing ("CDMO") services for the development and/or manufacture of product and/or product candidates of our customers at required levels and on required timelines;

•the ability of our contractors and suppliers to maintain compliance with current good manufacturing practices and other regulatory obligations;

•our ability to negotiate new CDMO contracts and the negotiation of further commitments related to the collaboration and deployment of capacity toward future commercial manufacturing under our existing CDMO contracts;

•our ability to collect reimbursement for raw materials and payment of service fees from our CDMO customers;

•the results of pending stockholder litigation and government investigations and their potential impact on our business;

•our ability to comply with the operating and financial covenants required by our revolving credit facility (the "Revolving Credit Facility") and our term loan facility (the "Term Loan Facility" and, together with the Revolving Credit Facility, the "Senior Secured Credit Facilities"), as well as our 3.875% Senior Unsecured Notes due 2028 ("Senior Unsecured Notes");

•our ability to resolve the going concern qualification in our consolidated financial statements and otherwise successfully manage our liquidity in order to continue as a going concern;

•the procurement of our product candidates by USG entities under regulatory authorities that permit government procurement of certain medical products prior to United States Food and Drug Administration (“FDA”) marketing authorization, and corresponding procurement by government entities outside of the U.S.;

•our ability to realize the expected benefits of the sale of our travel health business to Bavarian Nordic;

•the impact of the organizational changes we announced in January 2023;

•our ability to identify and acquire companies, businesses, products or product candidates that satisfy our selection criteria;

EMERGENT BIOSOLUTIONS INC.

•the impact of cyber security incidents, including the risks from the interruption, failure or compromise of our information systems or those of our business partners, collaborators or other third parties;

•the success of our commercialization, marketing and manufacturing capabilities and strategy; and

•the accuracy of our estimates regarding future revenues, expenses, capital requirements and needs for additional financing.

The foregoing sets forth many, but not all, of the factors that could cause actual results to differ from our expectations in any forward-looking statement. When evaluating our forward-looking statements, you should consider this cautionary statement along with the risk factors identified elsewhere in this document, including in the sections entitled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for our fiscal year ended December 31, 2022, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures about Market Risk" in this Quarterly Report on Form 10-Q, as well as the risks identified in our other reports filed with the SEC. New factors may emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

NOTE REGARDING COMPANY REFERENCES

References in this report to “Emergent,” the “Company,” “we,” “us,” and “our” refer to Emergent BioSolutions Inc. and its consolidated subsidiaries.

NOTE REGARDING TRADE NAMES

Emergent®, CYFENDUSTM, BioThrax®, BaciThrax®, RSDL®, BAT®, Trobigard®, Anthrasil®, CNJ-016®, ACAM2000®, NARCAN®, TEMBEXA® and any and all Emergent BioSolutions Inc. brands, products, services and feature names, logos and slogans are trademarks or registered trademarks of Emergent BioSolutions Inc. or its subsidiaries in the United States or other countries. All other brands, products, services and feature names or trademarks are the property of their respective owners.

ITEM 1. FINANCIAL STATEMENTS

Emergent BioSolutions Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions, except per share amounts)


	June 30, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	88.6	$	642.6

Accounts receivable, net	290.1		158.4
Inventories, net	354.3		351.8
Prepaid expenses and other current assets	44.7		57.9
Total current assets	777.7		1,210.7

Property, plant and equipment, net	395.5		817.6
Intangible assets, net	592.8		728.8
Goodwill	218.2		218.2
Other assets	194.6		191.3
Total assets	$	2,178.8	$	3,166.6

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	108.3	$	103.5
Accrued expenses	31.2		34.9
Accrued compensation	69.6		88.3
Debt, current portion	455.2		957.3
Other current liabilities	28.9		45.9
Total current liabilities	693.2		1,229.9

Debt, net of current portion	448.0		448.5
Deferred tax liability	57.9		71.8
Other liabilities	23.4		33.4
Total liabilities	1,222.5		1,783.6

Stockholders' equity:
Preferred stock, par value $0.001 per share; 15.0 shares authorized, no shares issued or outstanding	—		—
Common stock, par value $0.001 per share; 200.0 shares authorized, 57.4 and 55.7 shares issued; 51.8 and 50.1 shares outstanding, respectively	0.1		0.1
Treasury stock, at cost, 5.6 and 5.6 common shares, respectively	(227.7)		(227.7)
Additional paid-in capital	895.8		873.5
Accumulated other comprehensive income (loss), net	(1.6)		3.1
Retained earnings	289.7		734.0
Total stockholders’ equity	956.3		1,383.0
Total liabilities and stockholders’ equity	$	2,178.8	$	3,166.6

See accompanying notes to condensed consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited, in millions, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Product sales, net	$	302.2	$	237.2	$	445.6	$	474.3
Contract development and manufacturing ("CDMO"):
Services	26.4		2.7		39.8		54.5
Leases	2.7		(4.5)		4.5		4.5
Total CDMO revenues	29.1		(1.8)		44.3		59.0
Contracts and grants	6.6		7.3		13.1		16.9
Total revenues	337.9		242.7		503.0		550.2

Operating expenses:
Cost of product sales	134.9		91.0		237.8		171.3
Cost of CDMO	55.7		78.8		107.9		154.4
Impairment of long-lived assets	306.7		—		306.7		—
Research and development	26.0		49.8		66.6		96.2
Selling, general and administrative	91.4		81.1		191.9		165.9

Amortization of intangible assets	16.1		14.0		33.1		28.0

Total operating expenses	630.8		314.7		944.0		615.8

Loss from operations	(292.9)		(72.0)		(441.0)		(65.6)

Other income (expense):
Interest expense	(28.6)		(7.8)		(46.5)		(16.0)
Gain on sale of business	74.9		—		74.9		—
Other, net	(3.6)		(3.0)		1.3		(5.0)
Total other income (expense), net	42.7		(10.8)		29.7		(21.0)

Loss before income taxes	(250.2)		(82.8)		(411.3)		(86.6)
Income tax provision (benefit)	11.1		(26.4)		33.0		(26.5)
Net loss	$	(261.3)	$	(56.4)	$	(444.3)	$	(60.1)

Net loss per common share
Basic	$	(5.15)	$	(1.13)	$	(8.80)	$	(1.19)
Diluted	$	(5.15)	$	(1.13)	$	(8.80)	$	(1.19)

Weighted average shares outstanding
Basic	50.7		50.0		50.5		50.3
Diluted	50.7		50.0		50.5		50.3

See accompanying notes to condensed consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(unaudited, in millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(261.3)	$	(56.4)	$	(444.3)	$	(60.1)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net	2.6		0.4		2.5		0.9
Unrealized gains (losses) on hedging activities	1.2		1.9		(3.2)		6.8
Reclassification adjustment for gains on hedging activities	(2.9)		0.9		(0.5)		2.3
Reclassification adjustment for gains on pension benefit obligation	(3.5)		—		(3.5)		—
Total other comprehensive income (loss), net of tax	(2.6)		3.2		(4.7)		10.0
Comprehensive loss, net of tax	$	(263.9)	$	(53.2)	$	(449.0)	$	(50.1)

See accompanying notes to condensed consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited, in millions)


	Six Months Ended June 30,
	2023		2022
Operating Activities
Net loss	$	(444.3)	$	(60.1)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	15.1		22.2
Long-term incentive plan expense	2.4		—
Depreciation and amortization	67.5		75.4
Change in fair value of contingent obligations, net	1.9		1.8
Amortization of deferred financing costs	9.9		2.0
Deferred income taxes	(10.2)		2.6
Gain on sale of travel health business	(74.9)		—
Impairment of long-lived assets	306.7		—
Other	9.5		2.2
Changes in operating assets and liabilities:
Accounts receivable	(130.6)		97.7
Inventories	(23.8)		(75.5)
Prepaid expenses and other assets	(17.8)		(19.4)
Accounts payable	10.9		(7.6)
Accrued expenses and other liabilities	(13.8)		(36.4)
Accrued compensation	(13.4)		(14.1)
Income taxes receivable and payable, net	14.2		(46.4)
Contract liabilities	(7.7)		2.7
Net cash used in operating activities	(298.4)		(52.9)
Investing Activities
Purchases of property, plant and equipment	(27.6)		(64.3)

Proceeds from sale of travel health business, net	270.2		—
Net cash provided by (used in) investing activities	242.6		(64.3)
Financing Activities

Purchases of treasury stock	—		(81.9)
Principal payments on revolving credit facility	(347.8)		—
Principal payments on term loan facility	(156.8)		(16.9)

Proceeds from stock-based compensation activity	1.3		3.0
Taxes paid for stock-based compensation activity	(2.3)		(5.4)

Proceeds from at-the-market sale of stock, net of commissions and expenses	8.2		—
Net cash used in financing activities:	(497.4)		(101.2)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.8)		0.4
Net change in cash, cash equivalents and restricted cash	(554.0)		(218.0)
Cash, cash equivalents and restricted cash, beginning of period	642.6		576.3
Cash, cash equivalents and restricted cash, end of period	$	88.6	$	358.3
Supplemental disclosure of cash flow information:
Cash paid for interest	$	38.8	$	14.8
Cash paid for income taxes	$	26.9	$	20.0
Supplemental information on non-cash investing and financing activities:
Purchases of property, plant and equipment unpaid at period end	$	7.7	$	7.3

See accompanying notes to condensed consolidated financial statements.

Emergent BioSolutions Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited, in millions)


	$0.001 Par Value Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	55.7	$	0.1	(5.6)	$	(227.7)	$	873.5	$	3.1	$	734.0	$	1,383.0
Net loss	—	$	—	—	$	—	$	—	$	—	$	(183.0)	$	(183.0)
Share-based compensation activity	0.3	—		—	—		4.7		—		—		4.7
Other comprehensive loss, net of tax	—	—		—	—		—		(2.1)		—		(2.1)
Balance at March 31, 2023	56.0	$	0.1	(5.6)	$	(227.7)	$	878.2	$	1.0	$	551.0	$	1,202.6
Net loss	—	$	—	—	$	—	$	—	$	—	$	(261.3)	$	(261.3)
Share-based compensation activity	0.3	—		—	—		9.4		—		—		9.4
At-the-market sale of stock, net of commissions and expenses	1.1	—		—	—		8.2		—		—		8.2
Other comprehensive loss, net of tax	—	—		—	—		—		(2.6)		—		(2.6)
Balance at June 30, 2023	57.4	$	0.1	(5.6)	$	(227.7)	$	895.8	$	(1.6)	$	289.7	$	956.3


	$0.001 Par Value Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	55.1	$	0.1	(3.8)	$	(152.2)	$	829.4	$	(16.1)	$	957.8	$	1,619.0
Net loss	—	$	—	—	$	—	$	—	$	—	$	(3.7)	$	(3.7)
Share-based compensation activity	0.2	—		—	—		5.4		—		—		5.4
Repurchases of common stock	—	—		(1.1)	(52.2)		—		—		—		(52.2)
Other comprehensive income, net of tax	—	—		—	—		—		6.8		—		6.8
Balance at March 31, 2022	55.3	$	0.1	(4.9)	$	(204.4)	$	834.8	$	(9.3)	$	954.1	$	1,575.3
Net loss	—	$	—	—	$	—	$	—	$	—	$	(56.4)	$	(56.4)
Share-based compensation activity	0.2	—		—	—		14.4		—		—		14.4
Repurchases of common stock	—	—		(0.7)	(23.3)		—		—		—		(23.3)
Other comprehensive income, net of tax	—	—		—	—		—		3.2		—		3.2
Balance at June 30, 2022	55.5	$	0.1	(5.6)	$	(227.7)	$	849.2	$	(6.1)	$	897.7	$	1,513.2

See accompanying notes to condensed consolidated financial statements.

EMERGENT BIOSOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, dollar and share amounts in tables in millions, except per share data)

1. Nature of the business and organization

Organization and business

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

The Company is focused on the following four PHT categories: chemical, biological, radiological, nuclear and explosives ("CBRNE"); emerging infectious diseases ("EID"); emerging health crises; and acute/emergency care. The Company has a current product portfolio of 12 products (vaccines, therapeutics, and drug-device combination products). The revenue generated by the products comprises a substantial portion of the Company's revenue. The Company structures the business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: Anthrax - Medical Countermeasures ("MCM") Products, NARCAN, Smallpox - MCM Products and CDMO Services. The Company operates as two operating segments: (1) a products segment ("Products") consisting of the Anthrax - MCM products, NARCAN, Smallpox - MCM products and Other products and (2) a services segment ("Services") focused on CDMO services (Note 17, "Segment information").

The Company's products and services include:

Anthrax - MCM Products

•Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the United States Food and Drug Administration (“FDA”) and Health Canada for the treatment of inhalational anthrax in combination with appropriate antibacterial drugs;

•BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;

•CYFENDUS™ (Anthrax vaccine adsorbed (AVA), adjuvanted), previously known as AV7909, which was recently approved by the FDA for post-exposure prophylaxis of disease following suspected or confirmed exposure to Bacillus anthracis in persons 18 through 65 years of age when administered in conjunction with recommended antibacterial drugs. CYFENDUS™ is procured by certain authorized government buyers for their use;

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

NARCAN

•NARCAN® (naloxone HCl) Nasal Spray, an intranasal formulation of naloxone approved by the 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;

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™;

•RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA that is intended to remove or neutralize chemical warfare agents from the skin, including: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin; and

•Trobigard® atropine sulfate, obidoxime chloride auto-injector, a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. It was approved in Belgium in 2021 but has not been approved by the FDA. Trobigard is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure outside of the U.S.

Sale of Travel Health Business

On May 15, 2023 the Company completed the sale of its products segment's travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California. For additional information refer to Note 3, "Divestiture".

Services - Contract Development and Manufacturing

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

2. Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Emergent and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.

All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of June 30, 2023. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

Going concern

As of June 30, 2023, there is $250.2 million outstanding on the Company's Revolving Credit Facility and $206.1 million on Term Loan Facility that matures in May 2025. The Company determined that there is 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. This evaluation considered the mitigating effect of management’s plans that have been implemented as of June 30, 2023. Management may evaluate the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. The Company's plans include (A) amending the agreement for the Senior Secured Credit Facilities which occurred on May 15, 2023 with the Fourth Amendment to Amended and Restated Credit Agreement, Waiver and First Amendment to Amended and Restated Collateral Agreement (the “Credit Agreement Amendment”), and (B) the execution of the capital raise requirement prescribed in the Credit Agreement Amendment, as further described below.

While the Company executed the Credit Agreement Amendment and extended the maturity date on the Senior Secured Credit Facilities to May 15, 2025, the Credit Agreement Amendment also requires the Company to raise at least $75.0 million through the issuance of equity and/or unsecured indebtedness by April 30, 2024. As a result of this provision, the Company has determined it is appropriate to continue to classify the debt as a current liability on the Condensed Consolidated Balance Sheets. While the Company expects to complete these actions, management cannot make the assumption that it is probable that the Company will be successful. As a result, the Company continues to evaluate a number of uncertain factors related to its assessment of its ability to satisfy the capital raise requirement, including its ability to comply with the terms and operating and financial covenants required by the Senior Secured Credit Facilities, other market conditions, economic conditions, particularly in the pharmaceutical and biotechnology industry, disruptions or volatility caused by factors such as lingering impacts of the COVID-19 pandemic, regional conflicts, inflation, and supply chain disruptions.

The Condensed Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Pre-launch inventory

Within the Company's Products segment, costs relating to raw materials and production of inventory in preparation for product launch prior to regulatory approval are capitalized when the review process has progressed to a point where objective and persuasive evidence exists that regulatory approval is probable, the future economic benefit is expected to be realized, and the Company believes that material uncertainties related to the ultimate regulatory approval have been significantly reduced. Pre-launch inventory is recorded to research and development expense unless these criteria are met. For pre-launch inventory that is capitalized, the Company considers a number of specific facts and circumstances, including the product candidate’s current status in the drug development and regulatory approval process, results from related clinical trials, results from meetings with relevant regulatory agencies prior to the filing of regulatory applications, potential obstacles to the approval process, historical experience, viability of commercialization and market trends. This policy is not applicable to pre-launch inventory purchased to satisfy a performance obligation related to a CDMO contract as CDMO pre-launch inventory may be capitalized if it has future economic benefit based on the terms of the contract.

Significant accounting policies

With the exception of the policy on pre-launch inventory discussed above, there have been no significant changes to the Company's summary of significant accounting policies during the six months ended June 30, 2023 contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, that have materially impacted the presentation of the Company's financial statements.

Fair value measurements

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


Level 1 —			Observable inputs for identical assets or liabilities such as quoted prices in active markets;
Level 2 —			Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 —			Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use.

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

New accounting standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that the Company adopts as of the pronouncement's specified effective date. There were no new accounting pronouncements that were issued or became effective since the issuance of the Company’s 2022 Annual Report on Form 10-K that had, or are expected to have, a material impact on its consolidated financial position, results of operations or cash flows.

3. Divestiture

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 ("Bavarian Nordic”), the Company completed the previously announced sale of the Company’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.

At the closing, Bavarian Nordic paid a cash purchase price of $270.0 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.

As a result of the divestiture, during the three months ended June 30, 2023, the Company recognized a pre-tax gain of $74.9 million, net of transaction costs of $4.0 million, which was recorded within "Gain on sale of business" on the Condensed Consolidated Statements of Operations.

The Company determined that the disposal of the travel health business 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 our operations and financial results. No adjustments were made to prior period results as a result of the disposal.

In connection with the divestiture, the Company entered into a Transition Services Agreement (“TSA”) with Bavarian Nordic to help support its ongoing operations. Under the TSA, the Company will provide 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 TSA was recorded within "Other income (expense), net" on the Condensed Consolidated Statements of Operations and was $1.0 million for the three and six months ended June 30, 2023.

4. Restructuring and impairment charges

Impairment of long-lived assets

The Company tests its long-lived assets that are held and used for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. During the preparation of our financial statements for the three months ended June 30, 2023, due to deterioration in performance and resulting downward revisions to our internal CDMO forecast made during the second quarter, including future expected cash flows, the Company determined there were sufficient indicators of impairment on certain asset groups within the CDMO reporting unit to require an impairment analysis. As a result, the Company performed recoverability tests on certain asset groups within the CDMO reporting unit and concluded that the impacted 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 this analysis, the Company allocated and recognized a non-cash impairment charge of $306.7 million during the three months ended June 30, 2023.

The table below presents the total impairment charge by asset class for the three months ended June 30, 2023:


	Three Months Ended June 30, 2023
Buildings, building improvements and leasehold improvements	$	81.5
Furniture and equipment	117.5
Software	0.3
Construction-in-progress	107.4
Total impairment on long-lived assets	$	306.7

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 eliminated approximately five percent of its total headcount. The Company made a $(0.1) million adjustment to the incurred charges in connection with the January 2023 Plan during the three months ended June 30, 2023 and incurred approximately $9.6 million in charges during the six months ended June 30, 2023. These charges consist primarily of charges related to employee transition, severance payments and employee benefits. 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.

The following table presents the total restructuring costs associated with the Company’s segments as well as unallocated corporate and research and development ("R&D") charges for the three and six months ended June 30, 2023:


	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
Products	$	—	$	2.0
Services	—		—
Total restructuring costs by segment	—		2.0
Corporate	0.1		5.1
R&D	$	(0.2)	2.5
Total restructuring costs	$	(0.1)	$	9.6

The following table presents the total restructuring costs, by function, for the three and six months ended June 30, 2023:


	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
Employee transition	$	—	$	0.3
Severance payments	0.1		8.8
Employee benefits	(0.2)		0.5
Total restructuring costs	$	(0.1)	$	9.6

The following table provides the components of and changes in the Company's restructuring accrual during the three and six months ended June 30, 2023:


	Employee Transition		Severance Payments		Employee Benefits		Total
Balance at December 31, 2022	$	—	$	—	$	—	$	—
Accruals	0.3		8.7		0.7		9.7
Cash payments	(0.2)		(2.0)		(0.1)		(2.3)
Balance at March 31, 2023	$	0.1	$	6.7	$	0.6	$	7.4
Accruals	—		0.1		(0.2)		(0.1)
Cash payments	—		(3.6)		(0.1)		(3.7)
Balance at June 30, 2023	$	0.1	$	3.2	$	0.3	$	3.6

5. Inventories, net

Inventories, net consisted of the following:


	June 30, 2023		December 31, 2022
Raw materials and supplies	$	140.3	$	143.4
Work-in-process	149.3		116.2
Finished goods	64.7		92.2
Total inventories, net	$	354.3	$	351.8

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:


	June 30, 2023 (1)		December 31, 2022
Land and improvements	$	30.0	$	54.9
Buildings, building improvements and leasehold improvements	226.4		327.9
Furniture and equipment	412.3		567.5
Software	64.7		65.6
Construction-in-progress	53.5		185.5
Property, plant and equipment, gross	$	786.9	$	1,201.4
Less: Accumulated depreciation & amortization	(391.4)		(383.8)
Total property, plant and equipment, net	$	395.5	$	817.6

(1) During the three months ended June 30, 2023, the Company recorded a non-cash impairment charge of $306.7 million related to certain CDMO long-lived assets. See Note 4, "Restructuring and impairment charges" for more details regarding the impairment charge.

As of June 30, 2023, construction-in-progress primarily included costs incurred to advance the Company's MCM Product capabilities. As of December 31, 2022, construction-in-progress primarily included costs incurred due to construction to advance the Company's CDMO capabilities.

Property, plant and equipment, net is stated at cost, less accumulated depreciation and amortization. During the year ended December 31, 2022, the Company recorded accelerated depreciation of $12.7 million reflecting a shortening of the useful life of certain property, plant and equipment which were to be used in the manufacturing process to fulfill the manufacturing services agreement with Janssen (the "Agreement"). For additional information related to the termination of the Agreement, refer to Note 13, "Revenue recognition".

7. Intangible assets and goodwill

The Company's intangible assets consist of products acquired via business combinations or asset acquisitions. The following table summarizes the Company's Intangible assets, net:


	Weighted Average Useful Life in Years	June 30, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount (1)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Products	13.6	$	849.1	$	256.3	$	592.8	$	982.1	$	253.3	$	728.8
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		$	883.2	$	290.4	$	592.8	$	1,016.2	$	287.4	$	728.8

(1) During the six months ended June 30, 2023, the Company sold $102.9 million of intangible assets, net as part of the sale of its travel health business to Bavarian Nordic. See Note 3, "Divestiture" for more information on the sale of the business.

Amortization expense associated with the Company's intangible assets was recorded as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Amortization expense	$	16.1	$	14.0	$	33.1	$	28.0

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:


	Products (1)		Services (2)		Total



Balance at December 31, 2022	$	218.2	$	—	$	218.2


Balance at June 30, 2023	$	218.2	$	—	$	218.2

(1) Amounts for the Company's Products segment include gross carrying values of $259.9 million as of June 30, 2023 and December 31, 2022 and accumulated impairment losses of $41.7 million.

(2) Amounts for the Company's Services segment include gross carrying values of $6.7 million as of June 30, 2023 and December 31, 2022, and accumulated impairment losses of $6.7 million.

The Company has $218.2 million of total goodwill which is attributable to its Products segment. Quantitative impairment assessments performed during the quarter ended June 30, 2023 indicated that the fair value of the reporting unit was approximately 14% in excess over its carrying value as of the assessment date. There is the risk of future impairments in our reporting unit as any further deterioration in their performance compared to forecast, changes in order volumes or delivery schedules for major customers, decline in our stock price, as well as any changes in economic forecasts and expected recovery in the biopharmaceutical industry, may require the Company to complete additional impairment tests in future quarters and could result in a reporting unit’s fair value falling below carrying value in subsequent quarters. In the event the Company experiences factors that it believes indicate a decline in fair value, including negative changes to long-term growth rates or if discount rates increase, we may be required to record impairments of goodwill and other identified intangible assets. Further, if the composition of the Company’s reporting units' assets and liabilities were to change and result in an increase in a reporting unit’s carrying value, it could lead to additional impairment testing and further impairment losses.

8. Fair value measurements

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


	June 30, 2023								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	20.1	$	20.1	$	—	$	—	$	320.8	$	320.8	$	—	$	—
Time deposits	—		—		—		—		170.7		—		170.7		—
Derivative instruments	—		—		—		—		8.5		—		8.5		—
Total	$	20.1	$	20.1	$	—	$	—	$	500.0	$	320.8	$	179.2	$	—
Liabilities:
Contingent consideration	$	7.4	$	—	$	—	$	7.4	$	6.8	$	—	$	—	$	6.8

Total	$	7.4	$	—	$	—	$	7.4	$	6.8	$	—	$	—	$	6.8

Contingent consideration

Contingent consideration payments in an asset acquisition not required to be accounted for as derivatives are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Contingent consideration liabilities associated with business combinations are measured at fair value. These liabilities represent an obligation of the Company to transfer additional assets to the selling shareholders and owners if future events occur or conditions are met. These liabilities associated with business combinations are measured at fair value at inception and at each subsequent reporting date. The changes in the fair value are primarily due to the expected amount and timing of future net sales, which are inputs that have no observable market. Any changes in fair value for the contingent consideration liabilities related to the Company’s products are classified in the Company's statement of operations as "Cost of product sales."

The table below is a reconciliation of the beginning and ending balance of the Company's contingent consideration liability:


	Contingent Consideration
Balance at December 31, 2022	$	6.8
Change in fair value	1.5
Settlements	(0.7)
Balance at March 31, 2023	7.6
Change in fair value	0.4
Settlements	(0.6)
Balance at June 30, 2023	$	7.4

As of June 30, 2023 and December 31, 2022, the current portion of the contingent consideration liability was $3.6 million and $3.1 million, respectively, and was included in "Other current liabilities" on the Condensed Consolidated Balance Sheets. The non-current portion of the contingent consideration liability is included in "Other liabilities" on the Condensed Consolidated Balance Sheets.

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

Contingent Consideration Liability

Fair Value as of June 30, 2023

Valuation Technique

Unobservable Input

Range

Royalty based

$7.4 million

Discounted cash flow

Discount rate

9.7%

Probability of payment

0% - 75%

Projected year of payment

2023 - 2028

Derivative instruments

Refer to Note 9, "Derivative instruments and hedging activities" for more information about the Company's derivative instruments.

Non-variable rate debt

As of June 30, 2023 and December 31, 2022, the fair value of the Company's 3.875% Senior Unsecured Notes was $252.9 million and $225.1 million, respectively. The fair value was determined through market sources, which are Level 2 inputs and directly observable. The carrying amounts of the Company’s other long-term variable interest rate debt arrangements approximate their fair values (see Note 10, "Debt").

9. Derivative instruments and hedging activities

Risk management objective of using derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. From time to time, the Company enters into interest rate swap transactions to manage exposures that arise from payments of variable interest rate debt associated with the Company's senior secured credit agreements. The objective and strategy with respect to these interest rate swaps is to protect the Company against adverse fluctuations in interest rates.

During the quarter ended June 30, 2023, the Company terminated its designated interest rate swap transactions with a total notional value of $350.0 million. Hedge accounting was also discontinued at that time. As of June 30, 2023, the remaining accumulated other comprehensive income associated with the terminated interest rate swaps, before tax, was $3.5 million and will be amortized to earnings over the remaining term of the interest rate swaps prior to termination.

The table below presents the fair value of the Company’s derivative financial instruments designated as hedges as well as their classification on the Condensed Consolidated Balance Sheets:


		Fair Value of Asset Derivatives
	Classification	June 30, 2023		December 31, 2022
Interest Rate Swaps	Other Current Assets	$	—	$	8.5

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

The following table summarizes the amount of gains or losses reclassified from "Accumulated other comprehensive income (loss), net" into "Interest expense" on the Condensed Consolidated Statement of Operations during the three and six months ended June 30, 2023 and 2022:


	Classification	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Interest rate swaps gain (loss)	Interest expense	$	2.9	$	(0.9)	$	5.3	$	(2.3)

10. Debt

The table below presents the components of the Company’s debt:


	June 30, 2023		December 31, 2022
Senior secured credit agreement - Term loan due 2025	$	206.1	$	362.8
Senior secured credit agreement - Revolver loan due 2025	250.2		598.0
3.875% Senior Unsecured Notes due 2028	450.0		450.0
Other	3.0		3.0
Total debt	$	909.3	$	1,413.8

Less: Unamortized debt issuance costs (1)	(6.1)		(8.0)
Less: Current portion of long-term debt, net	(455.2)		(957.3)
Non-current portion of debt, net	$	448.0	$	448.5

(1) As of June 30, 2023, excludes the unamortized debt issuance costs related to the revolver loan which are included within "Other current assets" on the accompanying Condensed Consolidated Balance Sheet.

During the quarter ended June 30, 2023, the Company reclassified the debt issuance costs associated with the revolver loan to "Other current assets." Prior to the second quarter of 2023, the debt issuance costs associated with the revolver loan were classified as a direct offset to the carrying value of the debt within "Other current liabilities." As of June 30, 2023 and December 31, 2022, the Company had $13.5 million and $1.3 million of debt issuance costs associated with the revolver loan, respectively.

3.875% Senior Unsecured Notes due 2028

On August 7, 2020, the Company completed its offering of $450.0 million aggregate principal amount of 3.875% Senior Unsecured Notes due 2028 (the "2028 Notes") of which the majority of the net proceeds were used to pay down the Revolving Credit Facility. Interest on the 2028 Notes is payable on February 15th and August 15th of each year until maturity, beginning on February 15, 2021. The 2028 Notes will mature on August 15, 2028.

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

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

Senior Secured Credit Facilities

On May 15, 2023, the Company entered into the Credit Agreement Amendment. The Credit Agreement Amendment amends the Existing Credit Agreement to, among other things, (a) extend the maturity date of the Senior Secured Credit Facilities from October 13, 2023 to May 15, 2025, (b) reduce the available commitments under the Revolving Credit Facility from $600.0 million to $300.0 million, (c) remove the Company's ability to incur incremental loans and (d) amend certain mandatory prepayment triggers, affirmative covenants, negative covenants and events of default thereunder. In connection with the Credit Agreement Amendment, the Company used the approximately $270.0 million of proceeds from the sale of its travel health business to Bavarian Nordic, which closed on May 15, 2023, together with approximately $217.2 million of cash on hand, to repay approximately $144.4 million in outstanding principal amount of loans under the Term Loan Facility and $342.8 million outstanding principal amount of loans under the Revolving Credit Facility.The Credit Agreement Amendment also requires that we make quarterly principal payments on the Term Loan Facility of approximately $3.9 million, which commenced on June 30, 2023 and will extend through March 31, 2025.

The Credit Agreement Amendment also (w) amends the consolidated debt service coverage ratio financial covenant to require the minimum level to be 2.25 to 1.00 for the fiscal quarters ending March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024, and then 2.50 to 1.00 for each fiscal quarter ending thereafter, (x) amends the consolidated leverage ratio to require the maximum level to be 4.50 to 1.00 for the fiscal quarter ending March 31, 2024 and each fiscal quarter ending thereafter, (y) adds minimum Consolidated EBITDA requirements and maximum capital expenditure requirements for each of the months ending April 30, 2023 through February 29, 2024 and a minimum liquidity requirement as of the end of each calendar month and (z) requires the Company to increase its liquidity by April 30, 2024 by raising at least $75.0 million of equity or unsecured indebtedness.

In addition, the Credit Agreement Amendment replaces the interest rate benchmark such that borrowings under the Revolving Credit Facility and the outstanding principal amount of the Term Loan Facility shall bear interest at a rate per annum equal to (a) a rate based on SOFR, EURIBOR or CDOR plus a margin of 6.00% until March 31, 2024 and thereafter, a margin ranging from 2.75% to 4.00% depending on the Company’s consolidated leverage ratio, or (b) a base rate (which is the highest of the prime rate, the federal funds rate plus 0.50%, and a SOFR rate for an interest period of one month plus 1%) plus a margin of 5.00% until March 31, 2024 and thereafter, a margin ranging from 1.75% to 3.00% depending on the Company’s consolidated leverage ratio. In addition, the commitment fee the Company is required to pay in respect of the annual daily unused commitments under the Revolving Credit Facility shall be 0.15% to 0.40% per annum, depending on the Company’s consolidated leverage ratio.

Under the Credit Agreement Amendment, the Company and the other guarantors have also agreed to provide a lien over certain assets as additional collateral for the benefit of the lenders, including owned real property, equity interests of foreign subsidiaries and certain deposit accounts.

11. Stock-based compensation and stockholders' equity

Stock-based compensation

During the six months ended June 30, 2023, the Company granted stock options to purchase 0.7 million shares of common stock, 1.4 million restricted stock units and 0.5 million performance stock units under the Emergent BioSolutions Inc. Stock Incentive Plan. Performance stock units are presented at the target payout percentage of 100% of target shares granted. Typically, the stock options and restricted stock unit grants vest over three equal annual installments beginning on the day prior to the anniversary of the grant date. The performance stock units settle in stock at the end of the three-year performance period based on the Company's results compared to the performance criteria. During the six months ended June 30, 2023, 0.6 million of stock options and 0.4 million shares of restricted stock units were forfeited prior to the completion of the applicable vesting requirements or expiration. Additionally, an immaterial amount of performance stock units were forfeited during the six months ended June 30, 2023, as the award targets or vesting requirements were not achieved.

Stock-based compensation expense, net of forfeitures was recorded in the following financial statement line items:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of product sales	$	1.2	$	1.9	$	2.6	$	3.6
Cost of CDMO	0.3		0.6		0.6		1.0
R&D	0.4		1.5		1.1		2.6
Selling, general and administrative	6.4		8.3		10.8		15.0
Total stock-based compensation expense	$	8.3	$	12.3	$	15.1	$	22.2

2021 Share Repurchase Program

On November 11, 2021, the Company announced that its Board of Directors authorized a stock repurchase program of up to an aggregate of $250.0 million of Common Stock (the "Share Repurchase Program"), of which $187.9 million was utilized to purchase approximately 4.4 million shares. The Share Repurchase Program expired on November 11, 2022. During the three and six months ended June 30, 2022, the Company utilized $23.3 million and $75.5 million to purchase approximately 0.7 million and 1.8 million shares, respectively. The Share Repurchase Program did not obligate the Company to acquire any specific number of shares. Repurchased shares are available for use in connection with the Company's stock plans and for other corporate purposes.

At-the-Market Equity Offering Facility

We may, from time to time, sell up to $150.0 million aggregate gross sales price of shares of our common stock through Evercore Group L.L.C. and RBC Capital Markets, LLC, as sales agents, under an “at-the-market” equity offering program (the “ATM Program”) that we entered into on May 18, 2023. During the three months ended June 30, 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 June 30, 2023, $140.9 million aggregate gross sales price of shares of our common stock remains available for issuance under the ATM Program. We intend to use proceeds obtained from the sale of shares under the ATM Program for general corporate purposes.

Accumulated other comprehensive income (loss), net of tax

The following table includes changes in accumulated other comprehensive income (loss), net of tax by component:


	Defined Benefit Pension Plan		Derivative Instruments		Foreign Currency Translation Adjustments		Total

Balance at December 31, 2022	$	3.5	$	6.2	$	(6.6)	$	3.1
Other comprehensive income (loss) before reclassifications	—		(4.4)		(0.1)		(4.5)
Amounts reclassified from accumulated other comprehensive income (loss)	—		2.4		—		2.4
Net current period other comprehensive income (loss)	—		(2.0)		(0.1)		(2.1)
Balance at March 31, 2023	$	3.5	$	4.2	$	(6.7)	$	1.0
Other comprehensive income (loss) before reclassifications	—		1.2		2.6		3.8
Amounts reclassified from accumulated other comprehensive income (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)

Balance at December 31, 2021	$	(4.0)	$	(4.5)	$	(7.6)	$	(16.1)
Other comprehensive income (loss) before reclassifications	—		4.9		0.5		5.4
Amounts reclassified from accumulated other comprehensive income (loss)	—		1.4		—		1.4
Net current period other comprehensive income (loss)	—		6.3		0.5		6.8
Balance at March 31, 2022	$	(4.0)	$	1.8	$	(7.1)	$	(9.3)
Other comprehensive income (loss) before reclassifications	—		1.9		0.4		2.3
Amounts reclassified from accumulated other comprehensive income (loss)	—		0.9		—		0.9
Net current period other comprehensive income (loss)	—		2.8		0.4		3.2
Balance at June 30, 2022	$	(4.0)	$	4.6	$	(6.7)	$	(6.1)

The tables below present the tax effects related to each component of other comprehensive income (loss):


	Three Months Ended June 30,
	2023						2022
	Pretax		Tax Expense		Net of tax		Pretax		Tax Expense		Net of tax
Defined benefit pension plan	$	(4.1)	$	0.6	$	(3.5)	$	—	$	—	$	—
Derivative instruments	(2.4)		0.7		(1.7)		3.8		(1.0)		2.8
Foreign currency translation adjustments	2.1		0.5		2.6		1.3		(0.9)		0.4
Total adjustments	$	(4.4)	$	1.8	$	(2.6)	$	5.1	$	(1.9)	$	3.2


	Six Months Ended June 30,
	2023						2022
	Pretax		Tax Expense		Net of tax		Pretax		Tax Expense		Net of tax
Defined benefit pension plan	$	(4.1)	$	0.6	$	(3.5)	$	—	$	—	$	—
Derivative instruments	(5.0)		1.3		(3.7)		12.4		(3.3)		9.1
Foreign currency translation adjustments	2.0		0.5		2.5		2.0		(1.1)		0.9
Total adjustments	$	(7.1)	$	2.4	$	(4.7)	$	14.4	$	(4.4)	$	10.0

12. Loss per common share

Basic loss per common share is calculated using the treasury method by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per common share adjusts basic 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. Diluted loss per share excludes anti-dilutive securities, which represent the number of potential common shares related to shares issuable under our equity compensation plan that were excluded from diluted loss per common share because their effect would have been antidilutive.

The following table presents the calculation of basic and diluted loss per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net loss	$	(261.3)	$	(56.4)	$	(444.3)	$	(60.1)
Denominator:
Weighted-average number of shares outstanding-basic	50.7		50.0		50.5		50.3


Weighted-average number of shares outstanding-diluted	50.7		50.0		50.5		50.3
Net loss per common share - basic	$	(5.15)	$	(1.13)	$	(8.80)	$	(1.19)
Net loss per common share - diluted	$	(5.15)	$	(1.13)	$	(8.80)	$	(1.19)
Anti-dilutive securities	3.6		1.8		3.4		3.0

13. Revenue recognition

The Company operates as two operating segments (see Note 17, "Segment information"). The Company's revenues disaggregated by the major sources were as follows:


	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	USG		Non-USG		Total		USG		Non-USG		Total
Product sales, net	$	150.5	$	151.7	$	302.2	$	118.2	$	119.0	$