Emergent BioSolutions(EBS) - 2023 Q4 - Annual Report

PART I Business Emergent BioSolutions is a global life sciences company focused on public health threats, operating through Commercial, MCM, and Services segments, executing a strategic plan to strengthen its financial position - The company is a global life sciences company providing solutions for accidental, deliberate, and naturally occurring public health threats (PHTs) across CBRNE, EID, public health crises, and acute care categories[17][20] - In Q4 2023, the company realigned its business into three reportable segments: Commercial Products, MCM Products, and Services[18][21] - In 2023, the company executed significant strategic actions, including divesting its travel health business, implementing over $160 million in annualized operating expense savings, and de-emphasizing its CDMO business[24] - On May 15, 2023, the company completed the sale of its travel health business, including Vivotif® and Vaxchora®, to Bavarian Nordic[19] Primary Products and Product Candidates The company's portfolio includes government-procured Medical Countermeasures (MCMs), commercial products like NARCAN® Nasal Spray, and a diverse development pipeline Government - MCM Products Portfolio | Product | Indication(s) | | :--- | :--- | | ACAM2000® | Active immunization against smallpox disease | | ANTHRASIL® | Treatment of inhalational anthrax | | BAT® | Treatment of symptomatic botulism | | BioThrax® | Pre- and post-exposure prophylaxis for anthrax disease | | CYFENDUS® | Post-exposure prophylaxis for anthrax disease | | Ebanga™ | Treatment of Zaire ebolavirus infection | | Raxibacumab | Treatment and prophylaxis of inhalational anthrax | | RSDL® | Removal/neutralization of chemical warfare agents from skin | | TEMBEXA® | Treatment of human smallpox disease | | VIGIV® CNJ-016 | Treatment of complications from vaccinia vaccination | - NARCAN® (naloxone HCl) Nasal Spray received OTC approval on March 29, 2023, with retail shipments commencing in August 2023[33] - The FDA extended NARCAN® Nasal Spray's shelf-life from 36 months to 48 months on January 18, 2024[32] Key Product Candidates in Development | Product Candidate | Target Indication | | :--- | :--- | | CGRD-001 | Treatment of nerve agent/organophosphorus poisoning | | EBS-LASV | Prevention of Lassa fever | | EBS-MARV | Prevention of Marburg virus disease | | EBS-SUDV | Prevention of Sudan virus disease | | Pan-Ebola mAbs | Treatment of Ebola virus disease (Sudan virus) | | SIAN | Antidote for acute cyanide poisoning | | UniFlu | Universal influenza vaccine against influenza A and B | | WEVEE-VLP | Prevention of Western, Eastern, and Venezuelan equine encephalitis | Competition The company faces significant competition across its product lines, including smallpox and anthrax vaccines, NARCAN® Nasal Spray, TEMBEXA®, and its Bioservices segment - ACAM2000® vaccine faces competition from JYNNEOS®, licensed for both smallpox and mpox prevention[52] - NARCAN® Nasal Spray faces both generic competition from Teva and Padagis, and branded competition from products like Kloxxado™ and RiVive™[53] - TEMBEXA®, an oral antiviral for smallpox, competes with TPOXX® (tecovirimat), also approved for smallpox and procured by the USG[53] - The Bioservices segment competes with large contract manufacturers including Lonza Group Ltd., Catalent, Inc., and Thermo Fisher Scientific[56] Regulation The company's operations are heavily regulated by U.S. government contracting rules and FDA requirements, with key legislation supporting MCM development and liability protection - As a U.S. Government contractor, the company is subject to extensive statutes and regulations, including the Federal Acquisition Regulation (FAR)[61] - The Project BioShield Act and the Pandemic and All-Hazards Preparedness Act (PAHPA) provide key legislative frameworks for U.S. government MCM procurement[63][64] - The Public Readiness and Emergency Preparedness (PREP) Act provides liability immunity for manufacturers of designated MCMs, including smallpox, anthrax, and botulism products[67] - For MCMs where human efficacy trials are unethical or unfeasible, the company may seek approval under the FDA's "Animal Rule", allowing efficacy data from animal studies[69] Human Capital and ESG In 2023, Emergent's employee count decreased due to restructuring and divestiture, while the company prioritized human capital and ESG stewardship, refreshing its materiality assessment - The company's employee base declined by approximately 900 in 2023, ending the year with around 1,600 employees, due to restructuring and the travel health business sale[112] - The company has three inaugural Employee Resource Groups (ERGs) for black, women, and veteran employees to foster communication, learning, and community engagement[116] - In 2023, a dedicated full-time role was created to manage ESG efforts, with the strategy influenced by TCFD and SASB frameworks[117][118] - A 2023 materiality assessment identified top ESG priorities including Talent Attraction, Ethics & Compliance, Product Quality & Patient Safety, Sustainable Innovation, Product Affordability & Accessibility, and Responsible Supply Chain[120] Risk Factors The company faces substantial risks including heavy reliance on U.S. Government contracts, complex manufacturing compliance, intense competition for NARCAN®, significant debt, liquidity challenges, and a "going concern" qualification - The company's revenue is substantially dependent on U.S. Government procurement of key products like CYFENDUS®, ACAM2000®, and TEMBEXA®, with reduced demand or funding posing material harm[133] - Substantial doubt exists about the company's ability to continue as a going concern due to debt covenant non-compliance, significant debt maturing in May 2025, and the need for additional funding[276] - NARCAN® Nasal Spray faces significant competition from generic versions by Teva and Padagis, and other branded competitors, potentially eroding sales and revenue[232][233] - The company has identified and is remediating material weaknesses in its internal control over financial reporting, which previously led to a restatement of prior period financial statements[286][287] - Inability to maintain manufacturing compliance with CGMP requirements could hinder production for its own products and Bioservices customers, as evidenced by past FDA Form 483s and a warning letter[145] Unresolved Staff Comments There are no unresolved staff comments - Not applicable[314] Cybersecurity The company's cybersecurity program, integrated into its ERM framework, is managed by the CISO, reviewed by the board, and has not incurred material incidents in three years - Cybersecurity is one of 12 categories in the company's Enterprise Risk Management (ERM) program, with risks assessed annually and reviewed quarterly[315] - The Chief Information Security Officer (CISO) manages cybersecurity risks and reports to the board's Quality Compliance Management Risk Committee and the full board twice annually[318][320] - The company uses the NIST framework to assess third-party vendor risk and employs a 24/7 Managed Security Service Provider (MSSP) for environmental monitoring[317][320] - The company has not incurred material cybersecurity incidents over the past three years and is unaware of any reasonably likely material cybersecurity risks[320] Properties Emergent owns and leases approximately 1.4 million square feet across 16 locations in North America and Europe for manufacturing, labs, offices, and warehousing Principal Property Locations | Location | Use | Approx. Square Feet | Owned/Leased | | :--- | :--- | :--- | :--- | | Lansing, Michigan | Manufacturing, office, lab | 336,000 | Owned | | Winnipeg, Manitoba, Canada | Manufacturing, office, lab | 175,800 | Owned/Leased | | Gaithersburg, Maryland | Lab, office, rental | 184,547 | Owned/Leased | | Canton, Massachusetts | Manufacturing, warehouse | 149,508 | Owned/Leased | | Baltimore, Maryland (Bayview) | Manufacturing, office, lab | 112,000 | Owned | | Baltimore, Maryland (Camden) | Manufacturing, office, lab | 127,900 | Owned/Leased | Legal Proceedings The company is involved in multiple legal proceedings, including securities class action and shareholder derivative lawsuits, primarily related to COVID-19 vaccine manufacturing capabilities and government inquiries - The company faces a consolidated federal securities class action lawsuit alleging false and misleading statements about its COVID-19 vaccine bulk drug substance manufacturing capabilities[681] - Multiple shareholder derivative lawsuits have been filed against current and former officers and directors for alleged breach of fiduciary duties and waste of corporate assets related to manufacturing issues[682][683][684] - The company has received inquiries and subpoenas from the Department of Justice, the SEC, and various state attorneys general related to these matters, and is cooperating[685] Mine Safety Disclosures This item is not applicable to the company - Not applicable[322] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Emergent BioSolutions Inc.'s common stock trades on the NYSE under "EBS", has not paid dividends since its 2006 IPO, and has significantly underperformed major indices over five years - The company's common stock trades on the NYSE under symbol "EBS", with a closing price of $3.20 per share as of February 28, 2024[323] - The company has not declared or paid any cash dividends since its November 2006 IPO and has no current plans to do so[324] Five-Year Cumulative Total Stockholder Return | Company / Index | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Emergent BioSolutions Inc. | $100.00 | $91.01 | $151.15 | $73.33 | $19.92 | $4.05 | | S&P 500 | $100.00 | $131.49 | $155.68 | $200.37 | $164.08 | $207.21 | | Russell 2000 | $100.00 | $125.52 | $150.58 | $172.90 | $137.56 | $160.85 | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, total revenues decreased to $1.05 billion, resulting in a $760.5 million net loss due to significant impairments, with the company facing a "going concern" qualification despite restructuring and divestiture efforts - The company's financial statements include a "going concern" qualification, indicating substantial doubt about its ability to continue operations due to debt covenant non-compliance and funding needs[422][423] Consolidated Results of Operations (2023 vs. 2022) | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total revenues | $1,049.3 | $1,117.5 | | Commercial Product sales, net | $497.3 | $386.6 | | MCM product sales, net | $447.2 | $579.6 | | Services revenues | $78.5 | $109.9 | | Loss from operations | ($726.4) | ($170.0) | | Goodwill impairment | $218.2 | $6.7 | | Impairment of long-lived assets | $306.7 | $— | | Net loss | ($760.5) | ($211.6) | - In 2023, the company undertook two organizational restructuring plans, resulting in a workforce reduction of approximately 525 employees and expected annualized savings of over $160 million[339][345][428] - The company sold its travel health business to Bavarian Nordic on May 15, 2023, for $270.2 million cash, recognizing a pre-tax gain of $74.2 million[340][341] Results of Operations (2023 vs. 2022) In 2023, total revenues decreased 6% to $1.05 billion, driven by lower MCM and Services revenues, offset by increased Commercial Product sales, leading to a $760.5 million net loss due to significant impairment charges - NARCAN® sales increased 30% to $487.5 million in 2023, primarily driven by higher sales of NARCAN® OTC and to U.S. public interest channels[378] - Anthrax MCM sales decreased 35% to $187.6 million, and Smallpox MCM sales decreased 29% to $167.4 million, reflecting government procurement timing[382][383] - The company recognized a $218.2 million goodwill impairment charge in the MCM reporting unit and a $306.7 million impairment charge on long-lived assets in the Bioservices unit[367][368] - R&D expenses decreased by 41% to $111.4 million, mainly due to the sale of the CHIKV VLP development program and reduced overhead from restructuring[369] Results of Operations (2022 vs. 2021) In 2022, total revenues decreased 37% to $1.12 billion from $1.77 billion in 2021, primarily due to an 82% drop in Services revenues, resulting in a $211.6 million net loss Consolidated Results of Operations (2022 vs. 2021) | (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | $1,117.5 | $1,773.6 | | Commercial Product sales, net | $386.6 | $438.0 | | MCM product sales, net | $579.6 | $585.9 | | Services revenues | $109.9 | $615.5 | | Income (loss) from operations | ($170.0) | $341.4 | | Net income (loss) | ($211.6) | $219.5 | - Services revenues plummeted by $505.6 million (82%) in 2022, mainly due to the halt in manufacturing under the Janssen contract and the completion of the BARDA COVID-19 partnership[414][415] - NARCAN® sales decreased by 14% to $373.7 million in 2022, driven by lower commercial retail sales and price reductions following a generic competitor launch[406] Financial Condition, Liquidity and Capital Resources The company's liquidity is severely constrained, with cash dropping to $111.7 million and total debt at $860.2 million, leading to a "going concern" qualification due to debt covenant non-compliance and the need for additional funding Key Financial Position Data | (in millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $111.7 | $642.6 | | Total borrowings | $860.2 | $1,405.8 | | Total working capital | $28.2 | ($18.5) | - The company was not in compliance with its minimum consolidated EBITDA covenant as of December 31, 2023, leading to a Forbearance Agreement from lenders until April 30, 2024[425] Cash Flow Summary (2023) | (in millions) | 2023 | | :--- | :--- | | Net cash used in operating activities | ($206.3) | | Net cash provided by investing activities | $212.3 | | Net cash used in financing activities | ($535.7) | - As of December 31, 2023, the company has approximately $526.9 million in non-cancelable purchase commitments for raw materials and Bioservices over the next five years[673] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates and foreign currency exchange rates, with a 1% eurocurrency rate increase impacting annual interest expense by approximately $4.2 million - The company has floating rate debt, and a hypothetical 1% increase in the eurocurrency rate would increase annual interest expense by approximately $4.2 million[463] - The company is exposed to foreign currency exchange rate fluctuations, primarily with respect to the Euro, Canadian dollar, Swiss franc, and British pound[464] - The company terminated its interest rate swap agreements in June 2023 and is currently satisfied with its mix of fixed and floating rate debt[462] Financial Statements and Supplementary Data The audited consolidated financial statements for 2023 show significant financial deterioration, with total assets decreasing to $1.82 billion, a net loss of $760.5 million, and an auditor's "going concern" qualification - The Report of Independent Registered Public Accounting Firm includes an explanatory paragraph stating substantial doubt exists about the Company's ability to continue as a going concern[472] Consolidated Balance Sheet Highlights | (in millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,823.2 | $3,166.3 | | Cash and cash equivalents | $111.7 | $642.6 | | Property, plant and equipment, net | $382.8 | $817.6 | | Goodwill | $— | $218.2 | | Total Liabilities | $1,173.9 | $1,778.6 | | Debt, current portion | $413.7 | $957.3 | | Total Stockholders' Equity | $649.3 | $1,387.7 | Consolidated Statement of Operations Highlights | (in millions, except per share) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total revenues | $1,049.3 | $1,117.5 | $1,773.6 | | Income (loss) from operations | ($726.4) | ($170.0) | $341.4 | | Net income (loss) | ($760.5) | ($211.6) | $219.5 | | Diluted net income (loss) per share | ($14.85) | ($4.22) | $4.06 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable - Not applicable[687] Controls and Procedures As of December 31, 2023, management concluded the company's disclosure controls and internal control over financial reporting were effective, with a previously identified material weakness remediated - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[688] - Management concluded that as of December 31, 2023, the company's internal control over financial reporting was effective, and the independent auditor issued an unqualified opinion[690][691][696] - A material weakness related to state deferred tax calculations, identified in Q3 2023, was remediated as of December 31, 2023[692][693] Other Information During Q4 2023, no directors or Section 16 reporting officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - During the three months ended December 31, 2023, none of the Company's directors or Section 16 reporting officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[703] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable - Not applicable[704] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - The company has adopted a code of business conduct and ethics applicable to all directors, officers, and employees, available on its website[705] - The required information for this item is incorporated by reference from the company's 2024 proxy statement[706] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - The required information for this item is incorporated by reference from the company's 2024 proxy statement[707] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners, management, and related stockholder matters is incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - The required information for this item is incorporated by reference from the company's 2024 proxy statement[708] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - The required information for this item is incorporated by reference from the company's 2024 proxy statement[709] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Annual Meeting of Stockholders proxy statement - The required information for this item is incorporated by reference from the company's 2024 proxy statement[710] PART IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including consolidated financial statements and a comprehensive exhibit index - This section contains the list of financial statements and Schedule II - Valuation and Qualifying Accounts filed with the report[712][713] - A detailed Exhibit Index lists all required documents filed by Item 601 of Regulation S-K, including corporate governance documents, material contracts, and certifications[714][718] Form 10-K Summary This item is not applicable - Not applicable[727]