Emergent BioSolutions Inc.: Form 10-Q for the period ended Sep 30, 2024

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;
• 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”).

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.

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.

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 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.

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.

RESULTS OF OPERATIONS

Consolidated and Segment Operating Results:

(in millions, except %)

46

Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023

Revenues and gross margin

(dollars in millions)

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.

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.

Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023

Revenues and gross margin

(dollars in millions)

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.

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.

SEGMENT RESULTS

COMMERCIAL PRODUCTS SEGMENT

(dollars in millions)

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.

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® unit volume, 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

(dollars in millions)

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.

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.

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

(dollars in millions)

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.

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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our financial condition is summarized as follows:

(dollars in millions)

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.

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:

(in millions)

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.

Debt

As of September 30, 2024, the Company has $700.8 million of fixed and variable rate debt with varying maturities. See Note 9, “Debt” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, of this Form 10-Q for further discussion.

Uncertainties and Trends Affecting Funding Requirements

We expect to continue to fund our short-term and long-term anticipated operating expenses, capital expenditures and debt service requirements from the following sources:

• existing cash and cash equivalents;
• net proceeds from the sale of our products and Bioservices;
• development contracts and grant funding;
• proceeds from potential asset sales; and
• our Term Loan Agreement and Revolving Loans.

There are numerous risks and uncertainties associated with product sales and with the development and commercialization of our product candidates. We may seek additional external financing to provide additional financial flexibility. Our future capital requirements will depend on many factors, including (but not limited to):

• the level, timing and cost of product sales and Bioservices;
• the extent to which we acquire or invest in and integrate companies, businesses, products or technologies;
• the acquisition of new facilities and capital improvements to new or existing facilities;
• the payment obligations under our indebtedness;
• the scope, progress, results and costs of our development activities;
• our ability to obtain funding from collaborative partners, government entities and non-governmental organizations for our development programs; and
• the costs of commercialization activities, including product marketing, sales and distribution.

If our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through public or private equity or debt offerings, bank loans, collaboration and licensing arrangements, cost reductions, assets sales or a combination of these options.

If we raise funds by issuing equity securities, our stockholders may experience dilution. Public or bank debt financing, if available, may involve agreements that include covenants, like those contained in our Senior Unsecured Notes and our Senior Secured Credit Facilities, which could limit or restrict our ability to take specific actions, such as incurring additional debt, making capital expenditures, pursuing acquisition opportunities, buying back shares or declaring dividends. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us.

Economic conditions, including market volatility and adverse impacts on financial markets, may make it more difficult to obtain financing on attractive terms, or at all. Any new debt funding, if available, may be on terms less favorable to us than our Senior Unsecured Notes or our Senior Secured Credit Facilities. If financing is unavailable or lost, our business, operating results, financial condition and cash flows would be adversely affected, and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.

Unused Credit Capacity

Available room under the Revolving Loans as of September 30, 2024 and the revolver under the Prior Credit Agreement as of December 31, 2023 was:

(in millions)

59

For a discussion of additional risks arising from our operations, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, under the heading “Item 1A. Risk Factors” in addition to updates contained in “Item 1A-Risk Factors” of this Quarterly Report on Form 10-Q.

Market risk

We have interest rate and foreign currency market risk. Because of the short-term maturities of our cash and cash equivalents, we believe that an increase in market rates would likely not have a significant impact on the realized value of our investments.

Interest rate risk

We have debt with a mix of fixed and variable rates of interest and we are satisfied with the current fix-float mix of the Company's debt portfolio. Floating rate debt carries interest based generally on the eurocurrency rate, as defined in the Prior Credit Agreement, as amended from time to time, plus an applicable margin. Increases in interest rates could result in an increase in interest payments for our floating rate debt. See Note 9, "Debt" in the Notes to Consolidated Financial Statements in Part I, Item 1. of this Form 10-Q.

From time to time, we may use derivative instruments to manage our interest rate risk and market risk exposure.

We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our operating results assuming various changes in market interest rates. A hypothetical increase of one percentage point in the eurocurrency rate as of September 30, 2024 would increase our interest expense by approximately $2.5 million annually.

Foreign currency exchange rate risk

We have exposure to foreign currency exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar, Swiss franc and British pound. We manage our foreign currency exchange rate risk primarily by either entering into foreign currency hedging transactions or incurring operating expenses in the local currency in the countries in which we operate, to the extent practical. We currently do not hedge all of our foreign currency exchange exposure and the movement of foreign currency exchange rates could have an adverse or positive impact on our results of operations.

Evaluation of disclosure controls and procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company’s Annual Report on Form 10-K for the year ended December 31, 2023 contains disclosure regarding the risks and uncertainties related to the Company’s business under the heading Item 1A. Risk Factors. There have been no material changes to the Company’s risk factors as presented in the Company’s 2023 Form 10-K, except as described below:

Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position. We may not have sufficient cash flow from our operations to pay our substantial debt.

As described in Note 9, “Debt” in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, as of September 30, 2024, we had approximately $700.8 million of total indebtedness, which includes our outstanding Senior Unsecured Notes.

Our level of indebtedness could have important consequences for us, including:

• limiting our ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
• increasing our vulnerability to adverse economic, industry or competitive developments;
• limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
• placing us at a competitive disadvantage compared to our competitors that have less debt.

Our indebtedness may increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures, potential acquisitions and/or joint ventures. Our level of indebtedness and the ultimate cost of such indebtedness could have a negative impact on our liquidity, cost of future debt financing and financial results, and our credit ratings may be adversely affected as a result of the incurrence of additional indebtedness. In addition, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.

Our cash flow from operations and capital resources may not be sufficient for payments of interest on and principal of our debt, and alternative financing measures may not be available on terms that are acceptable to us, or at all, and we may not be able to meet our scheduled debt service obligations.

We have incurred significant indebtedness in connection with our acquisitions and servicing our debt requires a significant amount of cash. We may not have sufficient cash flow from our operations to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to further refinance, our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. We may also seek additional debt financing to support our ongoing activities or to provide additional financial flexibility. Debt financing can have significant adverse consequences for our business, including:

• requiring us to dedicate a substantial portion of cash flows from operations to payment on our debt, which would reduce available funds for other corporate initiatives;
• increasing the amount of interest that we have to pay on debt with variable interest rates, if market rates of interest increase, to the extent we are unable to offset such risk through our hedging instruments;
• subjecting us, as under our Senior Secured Credit Facilities and the indenture governing the Senior Unsecured Notes, to restrictive covenants that reduce our ability to take certain corporate actions, acquire companies, products or technology, or obtain further debt financing;
• requiring us to pledge our assets as collateral, which could limit our ability to obtain additional debt financing;
• limiting our flexibility in planning for, or reacting to, general adverse economic and industry conditions; and
• placing us at a competitive disadvantage compared to our competitors that have less debt, better debt servicing options or stronger debt servicing capacity.

We may not have sufficient funds or be able to obtain additional financing to pay the amounts due under our indebtedness. In addition, failure to comply with the covenants under our Senior Secured Credit Facilities and other debt agreements, including the maintenance of a specified consolidated net leverage ratio, debt service coverage ratio, consolidated EBITDA level, minimum liquidity level, maximum capital expenditure level and required liquidity raise under our Senior Secured Credit Facilities, the additional terms and conditions imposed by the Seventh Amendment could result in an event of default under those agreements. An event of default could result in the acceleration of amounts due under a particular debt agreement and a cross-default and acceleration under other debt agreements, and we may not have sufficient funds to pay or be able to obtain additional financing to make any accelerated payments.

Our current indebtedness restricts and any additional debt financing may restrict the operation of our business and limit the cash available for investment in our business operations.

The Senior Secured Credit Facilities include the Term Loan Facility, which had an outstanding principal balance of $250.0 million as of September 30, 2024, and the ability to borrow up to $100.0 million under the Revolving Credit Agreement (subject to certain adjustments described therein). In addition, we have outstanding an aggregate principal amount of $450.0 million of our Senior Unsecured Notes. We may also seek additional debt financing to support our ongoing activities or to provide additional financial flexibility. Debt financing can have significant adverse consequences for our business, including:

• the level, timing and cost of product sales and Bioservices;
• the extent to which we acquire or invest in and integrate companies, businesses, products or technologies;
• the acquisition of new facilities and capital improvements to new or existing facilities;
• the payment obligations under our indebtedness;
• the scope, progress, results and costs of our development activities;
• our ability to obtain funding from collaborative partners, government entities and non-governmental organizations for our development programs;
• the extent to which we repurchase common stock under any future share repurchase program; and
• the costs of commercialization activities, including product marketing, sales and distribution.

In addition, our Senior Secured Credit Facilities and our Senior Unsecured Notes each contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other indebtedness. For example, if we default under the Senior Secured Credit Facilities, the lenders would have the right to accelerate the repayment of borrowings under the Senior Secured Credit Facilities, which would result in a cross-default and acceleration of the Company’s obligations under the Senior Unsecured Notes. The occurrence of a default under any of these arrangements would permit the holders of the notes or the lenders under our Senior Secured Credit Facilities to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable, and there is no assurance that we would have sufficient funds to satisfy any such accelerated obligations.

We may be unable to continue to progress on or implement our strategic plans and sustain our current operating performance, in which case our business, results of operations, financial condition and prospects could be adversely affected, and which may give rise to substantial doubt regarding our ability to continue as a going concern.

As of September 30, 2024, we had unrestricted cash and cash equivalents of $149.9 million and remaining capacity under the Credit Agreement of $100.0 million. Also as of September 30, 2024, we had borrowing of $250.0 million on our Term Loan Facility and $450.0 million of Senior Unsecured Notes outstanding. The Company may be unable to comply with debt covenants in future periods without additional sources of liquidity.

If our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through public or private equity or debt offerings, bank loans or collaboration and licensing arrangements. Our Registration Statement on Form S-3 expired on August 9, 2024 and we are ineligible to file a new Registration Statement on Form S-3 until 2025. There can be no assurance that we will become eligible to file a shelf registration statement or to have such a shelf registration statement become effective after such period, which may inhibit our ability to access the capital markets to raise funds.

If we raise funds by issuing equity securities, including through our ATM Program, our stockholders may experience dilution. Debt financing, if available, may involve agreements that include covenants, like those contained in our Senior Secured Credit Facilities and the indenture governing the Senior Unsecured Notes, limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, pursuing acquisition opportunities or declaring dividends. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us. Our Senior Secured Credit Facilities as well as the indenture governing the Senior Unsecured Notes restrict our ability to incur additional indebtedness.

Economic conditions may make it difficult to obtain financing on attractive terms, or at all. If financing is unavailable or lost, our business, operating results, financial condition and cash flows would be adversely affected, and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.

We may not realize the expected benefits of the sale of our travel health business to Bavarian Nordic, the sale of RSDL® to SERB, and the sale of our drug product facility in Baltimore-Camden to Bora.

On May 15, 2023, pursuant to the Purchase and Sale Agreement, we completed the previously announced sale to Bavarian Nordic of our travel health business, including rights to Vaxchora® and Vivotif®, as well as our development-stage chikungunya vaccine candidate CHIKV VLP, our manufacturing site in Bern, Switzerland and certain of our development facilities in San Diego, California for a cash purchase price of $270.2 million, subject to certain customary adjustments. In addition, we may receive 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 sales-based milestone payments of up to $30.0 million based on aggregate net sales of Vaxchora® and Vivotif® in calendar year 2026.

On June 20, 2024, Cangene bioPharma LLC (“Cangene”), a subsidiary of the Company (together with Cangene, the “Seller”), entered into an Asset Purchase Agreement with Bora, under which the Seller sold its drug product facility in Baltimore-Camden for a cash purchase price of approximately $35.0 million. The transaction closed on August 20, 2024.

On July 31, 2024, we entered into a Stock and Asset Purchase Agreement with SERB Pharmaceuticals, through its wholly owned subsidiary BTG International Inc. (collectively, “SERB”), pursuant to which, among other things, we sold our worldwide rights to RSDL®, to SERB (the “RSDL® Transaction”) for a cash purchase price of $75 million, which was paid at closing and will be subject to customary adjustments based on inventory value at closing. In addition, SERB will pay us a $5 million payment upon achievement of a milestone relating to sourcing of a certain component of RSDL® decontamination lotion. The 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.

There can be no assurance that we will be able to realize in full the expected benefits of these transactions, including as to whether any milestone payments will be received. If we are unable to or do not realize the expected strategic, economic, or other benefits of these transactions, it could adversely affect our business and financial position.