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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period endedSeptember 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
Commission file number: 001-33137

ebs-20200930_g1.jpg
EMERGENT BIOSOLUTIONS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware14-1902018
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
400 Professional Drive Suite 400
Gaithersburg, Maryland20879
(Address and zip code of Principal Executive Offices)
(240) 631-3200
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.001 per shareEBSNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filer Smaller reporting company

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of October 30, 2020 the registrant had 52,999,139 shares of common stock outstanding.
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Emergent BioSolutions Inc.
Index to Form 10-Q
Page No.
 
 
 
 
 
 
 


2

EMERGENT BIOSOLUTIONS INC.
PART I. FINANCIAL INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q and the documents we incorporate by reference include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding the future earnings and performance of Emergent BioSolutions Inc. or any of our businesses, our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management and the continued impact of the COVID-19 pandemic, are forward-looking statements. We generally identify forward-looking statements by using words like "will," "believes," "expects," "anticipates," "intends," "plans," "forecasts," "estimates" and similar expressions in conjunction with, among other things, discussions of financial performance or financial condition, growth strategy, product sales, manufacturing capabilities, product development, regulatory approvals or expenditures. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. We cannot guarantee that any forward-looking statement will be accurate. You should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. You are, therefore, cautioned not to place undue reliance on any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances.
There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements, including, among others:
the impact of global economic conditions and public health crises and epidemics, such as the novel strain of coronavirus (SARS-CoV-2) causing COVID-19 disease, on our markets, operations and employees as well as those of our customers and suppliers;
the availability of U.S. government (USG) funding for procurement of our products;
our ability to perform under our contracts with the USG including the timing of and specifications relating to deliveries;
our ability to provide contract development and manufacturing (CDMO) services for the development and/or manufacture of product candidates of our customers at required levels;
our ability and the ability of our contractors and suppliers to maintain compliance with current good manufacturing practices and other regulatory obligations;
our ability to obtain and maintain regulatory approvals for our product candidates and the timing of any such approvals;
the continued exercise of discretion by the Biomedical Advanced Research and Development Authority (BARDA) to procure additional doses of AV7909 (anthrax vaccine adsorbed with adjuvant) prior to approval by the U.S. Food and Drug Administration (FDA);
the exercise of all remaining options under our contract for the procurement of ACAM2000®(Smallpox (Vaccinia) Vaccine, Live) and other procurement contracts;
the negotiation of further commitments or contracts related to the collaboration and deployment of capacity toward future commercial manufacturing under our CDMO contracts;
our ability to secure licensure of AV7909 from the FDA within the anticipated timeframe, if at all;
our ability to secure follow-on procurement contracts for our public health threat (PHT) products that are under procurement contracts that have expired or will be expiring;
our ability to successfully appeal the recent patent litigation decision related to NARCAN®(naloxone hydrochloride) Nasal Spray 4mg/spray;
our ability and the ability of our collaborators to enforce patents related to NARCAN Nasal Spray against potential generic entrants;
our ability to develop safe and effective treatments for COVID-19 and obtain FDA approval or authorization for emergency or broader patient use of such treatments;
our ability to identify and acquire companies, businesses, products or product candidates that satisfy our selection criteria;
our ability to comply with the operating and financial covenants required by our senior secured credit facilities and our 3.875% Senior Unsecured Notes due 2028;
the procurement of products by USG entities under regulatory exemptions prior to approval by the FDA and corresponding procurement by government entities outside of the United States under regulatory exemptions prior to approval by the corresponding regulatory authorities in the applicable country;
3

EMERGENT BIOSOLUTIONS INC.
the impact on our revenues from declines in sales of our vaccine products that target travelers due to the reduction of international travel caused by the COVID-19 pandemic;
the success of our commercialization, marketing and manufacturing capabilities and strategy; and
the accuracy of our estimates regarding future revenues, expenses, capital requirements and needs for additional financing.

The foregoing sets forth many, but not all, of the factors that could cause actual results to differ from our expectations in any forward-looking statement. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. You should consider this cautionary statement, the risk factors identified in the section entitled “Risk Factors” in this quarterly report on Form 10-Q and the risk factors identified in our other periodic reports filed with the Securities and Exchange Commission (SEC) when evaluating our forward-looking statements.
NOTE REGARDING COMPANY REFERENCES
References in this report to “Emergent,” the “Company,” “we,” “us,” and “our” refer to Emergent BioSolutions Inc. and its consolidated subsidiaries.
NOTE REGARDING TRADENAMES
BioThrax® (Anthrax Vaccine Adsorbed), RSDL® (Reactive Skin Decontamination Lotion Kit), BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), Anthrasil® (Anthrax Immune Globulin Intravenous (Human)), VIGIV (Vaccinia Immune Globulin Intravenous (Human)), Trobigard® (atropine sulfate, obidoxime chloride), ACAM2000® (Smallpox (Vaccinia) Vaccine, Live), Vivotif® (Typhoid Vaccine Live Oral Ty21a), Vaxchora® (Cholera Vaccine, Live, Oral), NARCAN® (naloxone HCI) Nasal Spray and any and all Emergent brands, products, services and feature names, logos and slogans are trademarks or registered trademarks of Emergent or its subsidiaries in the United States or other countries. All other brands, products, services and feature names or trademarks are the property of their respective owners.
4


ITEM 1. FINANCIAL STATEMENTS
Emergent BioSolutions Inc.
Condensed Consolidated Balance Sheets
(unaudited, in millions, except per share amounts)
 September 30, 2020December 31, 2019
ASSETS 
Current assets:  
Cash and cash equivalents$415.0 $167.8 
Restricted cash0.2 0.2 
Accounts receivable, net196.1 270.7 
Inventories, net270.1 222.5 
Prepaid expenses and other current assets77.4 25.0 
Total current assets958.8 686.2 
Property, plant and equipment, net606.5 542.3 
Intangible assets, net678.1 712.9 
In-process research and development 29.0 
Goodwill266.5 266.6 
Other assets106.4 90.3 
Total assets$2,616.3 $2,327.3 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$102.8 $94.8 
Accrued expenses 34.9 39.5 
Accrued compensation76.9 62.4 
Debt, current portion30.9 12.9 
Other current liabilities53.8 6.7 
Total current liabilities299.3 216.3 
Contingent consideration, net of current portion35.2 26.0 
Debt, net of current portion848.5 798.4 
Deferred tax liability64.0 63.9 
Contract liabilities, net of current portion60.4 85.6 
Other liabilities57.4 48.6 
Total liabilities1,364.8 1,238.8 
Stockholders' equity:
Preferred stock, $0.001 par value; 15.0 shares authorized, no shares issued or outstanding
  
Common stock, $0.001 par value; 200.0 shares authorized, 54.2 and 53.0 shares issued; 53.0 and 51.7 shares outstanding, respectively
0.1 0.1 
Treasury stock, at cost, 1.2 common shares
(39.6)(39.6)
Additional paid-in capital770.9 716.1 
Accumulated other comprehensive loss, net(21.4)(9.9)
Retained earnings541.5 421.8 
Total stockholders' equity1,251.5 1,088.5 
Total liabilities and stockholders' equity$2,616.3 $2,327.3 

See accompanying notes.
5


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Operations
(unaudited, in millions, except per share amounts)
 
Three Months Ended September 30,Nine Months Ended September 30,
 
2020201920202019
Revenues:    
Product sales, net$202.2 $256.2 $648.9 $592.7 
Contract development and manufacturing services157.1 20.0 251.4 54.6 
Contracts and grants25.9 35.6 72.1 98.4 
Total revenues385.2 311.8 972.4 745.7 
Operating expenses:
Cost of product sales and contract development and manufacturing services149.0 108.0 355.7 300.7 
Research and development84.4 53.4 175.0 163.4 
Selling, general and administrative75.5 65.0 221.2 201.3 
Amortization of intangible assets15.0 14.7 44.8 43.9 
Total operating expenses323.9 241.1 796.7 709.3 
Income from operations61.3 70.7 175.7 36.4 
Other income (expense):
Interest expense(7.6)(10.3)(22.6)(29.3)
Other, net1.3 (1.5)1.3 (1.2)
Total other income (expense), net(6.3)(11.8)(21.3)(30.5)
Income before provision (benefit) for income taxes55.0 58.9 154.4 5.9 
Income tax provision (benefit)15.5 15.7 34.7 (1.7)
Net income $39.5 $43.2 $119.7 $7.6 
Net income per common share
Basic$0.75 $0.84 $2.28 $0.15 
Diluted$0.73 $0.83 $2.23 $0.15 
Shares used in computing income per share
Basic53.0 51.6 52.5 51.4 
Diluted54.3 52.3 53.6 52.3 

See accompanying notes.
6


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited, in millions)
 
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income$39.5 $43.2 $119.7 $7.6 
Other comprehensive income (loss), net of tax:
Foreign currency translation(0.2)(1.1)(0.6)0.6 
Unrealized gains (losses) on hedging activities1.0 (3.0)(10.9)(4.2)
Total other comprehensive income (loss)0.8 (4.1)(11.5)(3.6)
Comprehensive income$40.3 $39.1 $108.2 $4.0 
During the three and nine months ended September 30, 2020 there were tax (expense) benefits related to unrealized gains (losses) on hedging activities of $(0.2) and $3.4, respectively; the tax effects of foreign currency translations were de minimus. During the three and nine months ended September 30, 2019 the tax effects of other comprehensive (loss) income were de minimus.
See accompanying notes.
7




Emergent BioSolutions Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in millions)
 
Nine Months Ended September 30,
 20202019
Cash flows provided by operating activities:
Net income$119.7 $7.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense41.0 21.0 
Depreciation and amortization85.6 82.8 
Impairment of IPR&D intangible asset29.0  
Change in fair value of contingent consideration, net31.3 12.4 
Amortization of deferred financing costs2.4 2.2 
Deferred income taxes(4.4)(5.7)
Other0.6 0.7 
Changes in operating assets and liabilities:
Accounts receivable74.6 (18.6)
Inventories(47.6)(24.4)
Prepaid expenses and other assets(61.8)(36.5)
Accounts payable10.6 2.5 
Accrued expenses4.4 5.2 
Accrued compensation14.5 (2.4)
Contract liabilities(9.0)19.1 
Net cash provided by operating activities:290.9 65.9 
Cash flows used in investing activities:
Purchases of property, plant and equipment and other(105.0)(50.8)
Milestone payment from prior asset acquisition(10.0)(10.0)
Net cash used in investing activities:
(115.0)(60.8)
Cash flows provided by financing activities:
Proceeds from revolving credit facility 130.0 
Principal payments on revolving credit facility(373.0)(95.0)
Proceeds from senior unsecured notes450.0  
Principal payments on term loan facility(8.4)(8.4)
Debt issuance costs(8.4) 
Proceeds from exercise of stock options26.6 5.7 
Taxes paid for share-based compensation activity(12.8)(6.6)
Contingent consideration payments(2.2)(3.7)
Net cash provided by financing activities:71.8 22.0 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(0.5)(0.1)
Net increase in cash, cash equivalents and restricted cash247.2 27.0 
Cash, cash equivalents and restricted cash at beginning of period168.0 112.4 
Cash, cash equivalents and restricted cash at end of period$415.2 $139.4 
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$14.0 $27.6 
Cash paid during the period for income taxes87.3 21.2 
Supplemental information on non-cash investing and financing activities:
Purchases of property, plant and equipment unpaid at period end$9.7 $18.1 
Reconciliation of cash and cash equivalent and restricted cash at September 30, 2020 and December 31, 2019:
Cash and cash equivalents$415.0 $167.8 
Restricted cash0.2 0.2 
Total$415.2 $168.0 
See accompanying notes.
8


Emergent BioSolutions Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited, in millions)
 
$0.001 Par Value Common Stock
Additional Paid-In Capital
Treasury Stock
Accumulated Other Comprehensive LossRetained EarningsTotal Stockholders' Equity
Shares
Amount
SharesAmount
Balance at December 31, 201953.0 $0.1 $716.1 (1.2)$(39.6)$(9.9)$421.8 $1,088.5 
Employee equity plans activity1.2 — 54.8 —  — — 54.8 
Net income — — — — — — 119.7 119.7 
Other comprehensive income— — — — — (11.5)— (11.5)
Balance at September 30, 202054.2 $0.1 $770.9 (1.2)$(39.6)$(21.4)$541.5 $1,251.5 
Balance at June 30, 202054.1 $0.1 $758.5 (1.2)$(39.6)$(22.2)$502.0 $1,198.8 
Employee equity plans activity0.1 — 12.4 —  — — 12.4 
Net income — — — — — — 39.5 39.5 
Other comprehensive income— — — — 0.8 — 0.8 
Balance at September 30, 202054.2 $0.1 $770.9 (1.2)$(39.6)$(21.4)$541.5 $1,251.5 
Balance at December 31, 201852.4 $0.1 $688.6 (1.2)$(39.6)$(5.5)$367.3 $1,010.9 
Employee equity plans activity0.4 — 20.2 — (0.1)— — 20.1 
Net income — — — — — — 7.6 7.6 
Other comprehensive income— — — — — (3.6)— (3.6)
Balance at September 30, 201952.8 $0.1 $708.8 (1.2)$(39.7)$(9.1)$374.9 $1,035.0 
Balance at June 30, 201952.7 $0.1 $701.8 (1.2)$(39.7)$(5.0)$331.7 $988.9 
Employee equity plans activity0.1 — 7.0 —  — — 7.0 
Net income — — — — — — 43.2 43.2 
Other comprehensive income— — — — — (4.1)— (4.1)
Balance at September 30, 201952.8 $0.1 $708.8 (1.2)$(39.7)$(9.1)$374.9 $1,035.0 
See accompanying notes.
9

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)


1.    Business
Organization and business
Emergent BioSolutions Inc. (the "Company" or "Emergent") is a global life sciences company focused on providing civilian and military populations with a portfolio of innovative preparedness and response products and solutions that address accidental, deliberate and naturally occurring public health threats ("PHTs," each a “PHT”).
The Company is focused on the following five distinct PHT categories: Chemical, Biological, Radiological, Nuclear and Explosives ("CBRNE"); emerging infectious diseases ("EID"); travel health; emerging health crises; acute/emergency care; and contract development and manufacturing ("CDMO"). The Company has a product portfolio of ten products (vaccines, therapeutics, and drug-device combination products) that contribute a substantial portion of our revenue. The Company has two product candidates that are procured under special circumstances by certain government agencies, although they are not approved by the U.S. Food and Drug Administration ("FDA") or any health agency. The U.S. government (the "USG") is the Company's largest customer and provides the Company with substantial funding for the development of a number of its product candidates.
The Company's product and services portfolio includes:
Vaccines
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;
BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA, for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;
Vaxchora® (Cholera Vaccine, Live, Oral), the only single-dose oral vaccine licensed by the FDA and the European Medicines Agency (EMA) for the prevention of cholera; and
Vivotif® (Typhoid Vaccine Live Oral Ty21a), the only oral vaccine licensed by the FDA for the prevention of typhoid fever.
Devices
NARCAN® (naloxone HCl) Nasal Spray, the first needle-free formulation of naloxone approved by the FDA and Health Canada, for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression; and
RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA to remove or neutralize the following chemical warfare agents from the skin: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin.
Therapeutics
raxibacumab (Anthrax Monoclonal), a fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax;
Anthrasil® (Anthrax Immune Globulin Intravenous (Human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax;
BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), the only heptavalent antibody therapeutic licensed by the FDA and Health Canada for the treatment of botulism; and;
VIGIV (Vaccinia Immune Globulin Intravenous (Human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination.
Procured Product Candidates
AV7909® (Anthrax Vaccine Absorbed with Adjuvant), is a procured product candidate being developed as a next generation anthrax vaccine for post-exposure prophylaxis of disease resulting from suspected or confirmed Bacillus anthracis exposure. The USG has started procuring AV7909 for the Strategic National Stockpile ("SNS") prior to its approval by the FDA and has been reducing its purchases of BioThrax as a result; and
10

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

Trobigard® is a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. It has not been approved by the FDA or any similar health regulatory body, but it is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure.
Contract Development and Manufacturing Services
The Company's contract development and manufacturing service offerings cover development services, drug substance manufacturing and drug product manufacturing across the pharmaceutical and biotechnology industries as well as the USG and non-governmental organizations. The Company's technology platforms include mammalian, microbial, viral, plasma and advanced therapies utilizing our core capabilities for manufacturing to third parties on a clinical and commercial (small and large) scale. Additional services include fill/finish formulation and analytical development services for injectable and other sterile products, inclusive of process design, technical transfer, manufacturing validations, aseptic filling, lyophilization, final packaging and stability studies, as well as manufacturing of vial and pre-filled syringe formats on multiple platforms.
The Company operates as one operating segment.
2.    Basis of Presentation and Principles of Consolidation
Basis of presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Emergent and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.
All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of September 30, 2020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.
Significant accounting policies
During the nine months ended September 30, 2020, there have been no significant changes to the Company's summary of significant accounting policies contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC. During the nine months ended September 30, 2020, the Company entered into several multi-year CDMO arrangements and further defined our accounting policies around these arrangements in Note 10.
Fair value measurements
Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. The Company has cash held in money market accounts (level 1), contingent purchase consideration (level 3) and interest rate swaps arrangements (level 2) that are measured at fair value on a recurring basis (Note 7 and Note 8). As of September 30, 2020 and December 31, 2019, the Company held cash in money market accounts of $290.8 million and $52.2 million, respectively. The Company also records the assets and liabilities of acquisitions at fair value.
11

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

On a non-recurring basis, the Company measures its long-lived assets, including IPR&D assets (level 3) using fair value measurements. Goodwill is allocated to the Company's reporting units, which are one level below its operating segment. The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of October 1 and earlier if an event or other circumstance indicates that we may not recover the carrying value of the asset. If the Company believes that as a result of its qualitative assessment it is more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, the quantitative impairment test is not required. If however it is determined that it is not more likely than not that the fair value of a reporting unit or other indefinite-lived intangible asset is greater than its carrying amount, a quantitative test is required. Long-lived assets such as intangible assets and property, plant and equipment are not required to be tested for impairment annually. Instead, long-lived assets are tested for impairment whenever circumstances indicate that the carrying amount of the asset may not be recoverable, such as when there is an adverse change in the market relating to those related assets. The impairment test first requires a comparison of undiscounted future cash flows to the carrying value of the asset. Determining the need for a detailed impairment analysis requires the exercise of judgment about several business factors, including the timing of expected future cash flows and assumptions about the economic environment. During the period ending September 30, 2020, the Company recorded an impairment of its IPR&D intangible assets, which is further discussed in note 6.
As of September 30, 2020 and December 31, 2019, the Company had no other significant assets or liabilities that were measured at fair value.
Recently issued accounting standards
Recently Adopted
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13")
In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 provides guidance on measurement of credit losses on financial instruments that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and that requires entities to use a new, forward-looking “expected loss” model that is expected to generally result in the earlier recognition of allowances for losses. The guidance became effective for annual periods beginning after December 15, 2019, including interim periods within those years. The Company adopted the standard as of January 1, 2020 and has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company's consolidated financial statements.
ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820) ("ASU 2018-13")
In August 2018, the FASB issued ASU 2018-13. ASU 2018-13 improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company adopted the standard as of January 1, 2020 which has resulted in expanded disclosures around the Company's recurring level 3 fair value measurements. The disclosures are included in note 7 of the condensed consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15")
In August 2018, the FASB issued ASU 2018-15. ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for all entities for fiscal years beginning after December 15, 2019. The Company adopted the standard as of January 1, 2020 and has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company's consolidated financial statements.
ASU 2017-4, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-4")
In January 2017, the FASB issued ASU 2017-4. ASU 2017-4 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. ASU 2017-4 is effective for annual and interim goodwill tests beginning after December 15, 2019. The Company's measurement period is October 1. The Company adopted the standard as of January 1, 2020 and has evaluated the effects of this standard and determined that the adoption will not have a material impact on the Company's consolidation financial statements.
12

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

Not Yet Adopted
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued Topic 848. Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. ASC 848 contains optional expedients and exceptions for applying US GAAP to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance. The Company continues to assess all potential impacts of the standard and will disclose the nature and reason for any elections that the Company makes.
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14")
In August 2018, the FASB issued ASU 2018-14. ASU 2018-14 modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for all entities for fiscal years ending after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2018-14 on its consolidated financial statements.
ASU 2019-12, Simplifications to Accounting for Income Taxes ("ASU 2019-12")
In December 2019, the FASB issued ASU 2019-12. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. ASU 2019-12 is effective for all entities for fiscal years beginning after December 15, 2020, and earlier adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements.
3.    Inventories, net
The components of inventory are as follows:
September 30, 2020December 31, 2019
Raw materials and supplies$116.8 $70.5 
Work-in-process104.3 89.7 
Finished goods49.0 62.3 
Total inventories, net$270.1 $222.5 
Inventories, net is stated at the lower of cost or net realizable value. During the three months ended September 30, 2020, the Company recorded a charge of $13.8 million for inventories associated with the travel health business that are not expected to be realized before expiration following a reduction in travel due to COVID-19. The charge was reflected as a component of cost of product sales and contract development and manufacturing services.
13

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

4.    Property, plant and equipment
Property, plant and equipment consisted of the following:
September 30, 2020December 31, 2019
Land and improvements$51.2 $46.5 
Buildings, building improvements and leasehold improvements280.6 234.8 
Furniture and equipment352.2 334.2 
Software56.6 55.7 
Construction-in-progress112.8 81.5 
Property, plant and equipment, gross853.4 752.7 
Accumulated depreciation(246.9)(210.4)
Total property, plant and equipment, net$606.5 $542.3 
5.    Leases
The Company has operating leases for corporate offices, research and development facilities and manufacturing facilities. We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use ("ROU") assets and liabilities.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses an implicit rate when readily determinable. At the beginning of a lease, the operating lease ROU asset also includes any concentrated lease payments expected to be paid and excludes lease incentives. The Company's lease ROU asset may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. The Company's leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows: 
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Operating lease cost:
Amortization of right-of-use assets$1.1 $0.8 $3.2 $2.1 
Interest on lease liabilities0.2 0.1 0.8 0.4 
Total operating lease cost$1.3 $0.9 $4.0 $2.5 
14

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

Supplemental balance sheet information related to leases was as follows:
(In millions, except lease term and discount rate)Balance Sheet locationSeptember 30, 2020December 31, 2019
Operating lease right-of-use assetsOther assets$23.4$24.7
Operating lease liabilities, current portionOther current liabilities4.43.6
Operating lease liabilitiesOther liabilities20.722.1
Total operating lease liabilities$25.1$25.7
Operating leases:
Weighted average remaining lease term (years)7.48.0
Weighted average discount rate4.2 %4.2 %
6.    Intangible assets
The Company's intangible assets consist of products acquired via business combinations or asset acquisitions. The following tables summarize the Company's intangible assets for the periods ended September 30, 2020 and December 31, 2019:
September 30, 2020
(in millions) 
Estimated Life
CostAccumulated AmortizationNet
Products
9-22 years
$798.0 $123.9 $674.1 
Customer relationships8 years28.6 25.6 3.0 
Contract development and manufacturing8 years5.5 4.5 1.0 
    Total intangible assets$832.1 $154.0 $678.1 
December 31, 2019
(in millions) 
Estimated Life
CostAccumulated AmortizationNet
Products
9-22 years
$788.0 $82.2 $705.8 
Customer relationships8 years28.6 23.0 $5.6 
Contract development and manufacturing8 years5.5 4.0 $1.5 
    Total intangible assets$822.1 $109.2 $712.9 

During the nine months ended September 30, 2020 and 2019, the Company achieved a sales milestone that resulted in a $10.0 million obligation related to the Company's asset acquisition of raxibacumab in October 2017. As of September 30, 2020 there are no remaining contractual obligations for sales milestones related to the raxibacumab acquisition.

During the nine months ended September 30, 2020 and 2019, the Company recorded amortization expense for intangible assets of $44.8 million and $43.9 million, respectively. During the three months ended September 30, 2020 and 2019, the Company recorded amortization expense for intangible assets of $15.0 million and $14.7 million, respectively. As of September 30, 2020, the weighted average amortization period remaining for intangible assets was 13 years.

In-process research and development ("IPR&D") assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the three months ended September 30, 2020, the Company concluded that its IPR&D intangible asset, AP004 (Naloxone prefilled syringe), currently has de minimis value and as such the Company has recorded an impairment charge of $29.0 million during the three and nine months ended September 30, 2020. The impairment charge is reflected as a component of research and development expense on the consolidated statement of operations.
15

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

Goodwill was $266.5 million and $266.6 million for the periods ended September 30, 2020 and December 31, 2019, respectively. The change in the balance during the period was due to foreign currency translation adjustments.
7.    Contingent consideration
Contingent consideration liabilities associated with business combinations are measured at fair value. These liabilities represent an obligation of the Company to transfer additional assets to the selling shareholders and owners if future events occur or conditions are met. These liabilities associated with business combinations are measured at fair value at inception and at each subsequent reporting date. The changes in the fair value are primarily due to the expected amount and timing of future net sales, which are inputs that have no observable market (Level 3).

The following table is a reconciliation of the beginning and ending balance of contingent considerations and is based on level 3 significant unobservable inputs.
 
Balance at December 31, 2019$29.2 
Change in fair value31.3 
Settlements(2.2)
Balance at September 30, 2020$58.3 
The recurring Level 3 fair value measurements for the Company's contingent consideration liability include the following significant unobservable inputs:
Contingent Consideration Liability
Fair Value as of September 30, 2020
Valuation Technique
Unobservable Input
RangeWeighted Average
Revenue milestone and royalty based$58.3 millionDiscounted cash flowDiscount rate
2.5% - 8.6%
4.2%
Probability of payment
50% - 100%
75.0%
Projected year of payment2020 - 20282022
8.    Derivative instruments and hedging activities
Risk management objective of using derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company has entered into interest rate swaps to manage exposures that arise from the Company's senior secured credit agreement's payments of variable interest rate debt.
Accounting policy for derivative instruments and hedging activities
The Company entered into interest rate swaps in June 2019. The Company's interest rate swaps qualify for hedge accounting as cash flow hedges. All derivatives are recorded on the balance sheet at fair value. Hedge accounting provides for the matching of the timing of gain or loss recognition on these interest rate swaps with the recognition of the changes in interest expense on the Company's variable rate debt. For derivatives designated as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The cash flows from the designated interest rate swaps are classified as a component of operating cash flows, similar to interest expense. If current fair values of designated interest rate swaps remained static over the next twelve months, the Company would reclassify $5.7 million of net deferred losses from accumulated other comprehensive loss to the statement of operations over the next twelve month period. All outstanding cash flow hedges mature in October 2023.
16

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

As of September 30, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Number of Instruments
Notional
Interest rate swaps7$350.0 
The table below presents the fair value of the Company’s derivative financial instruments designated as hedges as well as their classification on the balance sheet.
Asset DerivativesLiability Derivatives
 
September 30, 2020December 31, 2019September 30, 2020December 31, 2019
 
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Interest Rate SwapsOther Current Assets$ Other Current Assets$ Other Current Liabilities $5.6 Other Current Liabilities$ 
Other Assets$ Other Assets$ Other Liabilities$10.7 Other Liabilities$2.0 
The valuation of the interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC 820, Fair Value Measurement, we incorporate credit valuation adjustments in the fair value measurements to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. These credit valuation adjustments were concluded to not be significant inputs for the fair value calculations for the periods presented. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as the posting of collateral, thresholds, mutual puts and guarantees. The valuation of interest rate swaps fall into Level 2 in the fair value hierarchy.
The table below presents the effect of cash flow hedge accounting on accumulated other comprehensive income.
Hedging derivatives
Cumulative Amount of Gain/(Loss) Recognized in OCI on Derivative
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income
September 30,December 31,Nine Months Ended September 30,
2020201920202019
Interest Rate Swaps$(16.3)$2.0 Interest expense$(2.5)$0.5 
17

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

9.    Debt
The components of debt are as follows:
September 30, 2020December 31, 2019
Term loan due 2023$427.5 $435.9 
Revolver loan due 2023 373.0 
3.875% Senior Unsecured Notes due 2028
450.0  
2.875% Convertible Senior Notes due 2021
10.6 10.6 
Other3.0 3.0 
Total debt891.1 822.5 
Current portion of long-term debt, net of debt issuance costs(30.9)(12.9)
Unamortized debt issuance costs(11.7)(11.2)
Non-current portion of debt$848.5 $798.4 
   
As of September 30, 2020, the Company had approximately $1.8 million and $3.7 million of debt issuance costs associated with the revolver loan that were classified as other current assets and other assets, respectively, on the Company's consolidated balance sheets because there was no outstanding revolver balance at period end. As of December 31, 2019, the Company had approximately $1.8 million and $5.0 million of debt issuance costs associated with the revolver loan that were classified as debt, current portion and debt, net of current portion, respectively, on the Company's consolidated balance sheets because there was an outstanding revolver balance at period end.

3.875% Senior Unsecured Notes due 2028

On August 7, 2020, the Company completed its offering of $450 million aggregate principal amount of 3.875% Senior Unsecured Notes due 2028 (the “2028 Notes”) of which the majority of the net proceeds were used to pay down the Revolving Credit Facility (as defined below). Interest on the 2028 Notes is payable on February 15th and August 15th of each year until maturity, beginning on February 15, 2021. The 2028 Notes will mature on August 15, 2028.

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

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

18

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

Senior secured credit agreement

Also on August 7, 2020, the Company entered into a Second Amendment (the “Credit Agreement Amendment”) to its senior secured credit agreement, dated October 15, 2018, with multiple lending institutions relating to the Company’s senior secured credit facilities (the “Credit Agreement,” and as amended, the “Amended Credit Agreement”), consisting of a senior revolving credit facility (the “Revolving Credit Facility”) and senior term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”). The Credit Agreement Amendment amended, among other things, the definition of incremental facilities limit, the consolidated net leverage ratio financial covenant by increasing the maximum level, increased the permissible applicable margins based on the Company’s consolidated net leverage ratio and increased the commitment fee that the Company is required to pay in respect of the average daily unused commitments under the Revolving Credit Facility, depending on the Company’s consolidated net leverage ratio.

The Amended Credit Agreement includes (i) a Revolving Credit Facility of $600 million with a maturity date of October 13, 2023, and (ii) a Term Loan Facility with a principal amount of $450 million. The Company may request incremental term loan facilities or increases in the Revolving Credit Facility (each an "Incremental Loan") as long as certain requirements involving our net leverage ratio will be maintained on a pro forma basis. Borrowings under the Revolving Credit Facility and the Term Loan Facility bear interest at a rate per annum equal to (a) a eurocurrency rate plus a margin ranging from 1.25% to 2.25% per annum, depending on the Company's consolidated net leverage ratio or (b) a base rate (which is the highest of the prime rate, the federal funds rate plus 0.50%, and a eurocurrency rate for an interest period of one month plus 1% plus a margin ranging from 0.25% to 1.25%, depending on the Company's consolidated net leverage ratio. The Company is required to make quarterly payments on the last business day of each calendar quarter under the Amended Credit Agreement for accrued and unpaid interest on the outstanding principal balance, based on the above interest rates. In addition, the Company is required to pay commitment fees ranging from 0.15% to 0.35% per annum, depending on the Company's consolidated net leverage ratio, for the average daily unused commitments under the Revolving Credit Facility. The Company is to repay the outstanding principal amount of the Term Loan Facility in quarterly installments on the last business day of each calendar quarter based on an annual percentage equal to 2.5% of the original principal amount of the Term Loan Facility during each of the first two years of the Term Loan Facility, 5% of the original principal amount of the Term Loan Facility during the third year of the Term Loan Facility and 7.5% of the original principal amount of the Term Loan Facility during each year of the remainder of the term of the Term Loan Facility until the maturity date of the Term Loan Facility, at which time the entire unpaid principal balance of the Term Loan Facility will be due and payable. The Company has the right to prepay the Term Loan Facility without premium or penalty. The Revolving Credit Facility and the Term Loan Facility mature on October 13, 2023.

The Amended Credit Agreement also requires mandatory prepayments of the Term Loan Facility in the event the Company or its Subsidiaries (a) incur indebtedness not otherwise permitted under the Amended Credit Agreement or (b) receive cash proceeds in excess of $100 million during the term of the Credit Agreement from certain dispositions of property or from casualty events involving their property, subject to certain reinvestment rights. The financial covenants under the Amended Credit Agreement currently require the quarterly presentation of a minimum consolidated 12-month rolling debt service coverage ratio of 2.50 to 1.00, and a maximum consolidated net leverage ratio of 4.50 to 1.00 (subject to an increase to 5.00 to 1.00 for an applicable four quarter period, at the election of the Company, in connection with a permitted acquisition having an aggregate consideration in excess of $75.0 million). Negative covenants in the Amended Credit Agreement, among other things, limit the ability of the Company to incur indebtedness and liens, dispose of assets, make investments, enter into certain merger or consolidation transactions and make restricted payments. As of the date of these financial statements, the Company is in compliance with all affirmative and negative covenants.

2.875% Convertible senior notes due 2021

On January 29, 2014, the Company issued 2.875% convertible senior notes due 2021 (the "Notes"). The Notes bear interest at a rate of 2.875% per year, payable semi-annually in arrears on January 15 and July 15 of each year. The Notes mature on January 15, 2021.
19

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

10.    Revenue recognition
The Company operates as one operating segment. Therefore, results of its operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. The Company's revenues disaggregated by the major sources were as follows:
Three Months Ended September 30, 2020Three Months Ended September 30, 2019
 
U.S.
Government
Non-U.S.
Government
 Total
U.S.
Government
Non-U.S.
Government
 Total
Product sales, net$102.4 $99.8 $202.2 $170.2 $86.0 $256.2 
Contract development and manufacturing services85.9 71.2 157.1  20.0 20.0 
Contracts and grants24.9 1.0 25.9 35.6  35.6 
Total revenues$213.2 $172.0 $385.2 $205.8 $106.0 $311.8 
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
 
U.S. GovernmentNon-U.S. Government TotalU.S. GovernmentNon-U.S. Government Total
Product sales, net$390.5 $258.4 $648.9 $338.1 $254.6 $592.7 
Contract development and manufacturing services130.5 120.9 251.4  54.6 54.6 
Contracts and grants67.6 4.5 72.1 94.3 4.1 98.4 
Total revenues$588.6 $383.8 $972.4 $432.4 $313.3 $745.7 
Contract liabilities
When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with amounts allocated to those performance obligations is reflected as contract liabilities on the consolidated balance sheets and is deferred until control of these performance obligations is transferred to the customer. The following table presents the rollforward of the contract liability balances:
December 31, 2019$88.9 
Deferral of revenue60.0 
Revenue recognized(69.0)
September 30, 2020$79.9 
20

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

Transaction price allocated to remaining performance obligations
During the nine months ended September 30, 2020, the Company entered into a number of multi-year contract development and manufacturing services arrangements for the production of developmental vaccines. The Company's performance obligations associated with these arrangements include technology transfer activities, stand-ready obligations, suite-reservations and drug substance manufacturing. The Company has determined that the technology transfer, stand-ready and suite-reservation performance obligations are satisfied over time; the drug substance manufacturing performance obligations are satisfied when the goods have been released, legal title has passed and the goods are in the customer's possession.
The suite-reservation performance obligations are considered an operating lease as the customer obtains substantially all of the economic benefits of the identified asset and has the right to direct its use. The associated revenue is recognized on a straight-line basis over the term of the lease. The remaining term on the Company's operating lease performance obligations approximates 2.5 years. The Company utilizes a cost-plus model to determine the stand-alone selling price of the lease component to allocate contract consideration between the lease and non-lease components. During the three and nine months ended September 30, 2020, the Company's lease revenues were $18.1 million, which is included within contract development and manufacturing services in the condensed consolidated statement of operations. The Company did not recognize lease revenue during the three and nine months ended September 30, 2019. The Company has allocated contracted operating lease revenues due under our long-term CDMO service arrangements as follows:
September 30, 2020
2020 (1)$12.4 
202174.8 
202274.8 
202315.7 
$177.7 
(1) As of September 30, 2020, amount represents the three months ending December 31, 2020.
As of September 30, 2020, the Company expects future revenues of approximately $2.2 billion associated with all performance obligations described above that have not been satisfied and all other arrangements entered into by the Company. The Company expects to recognize a majority of these revenues within the next 24 months. However, the amount and timing of revenue recognition for unsatisfied performance obligations can materially change due to timing of funding appropriations from the USG and the overall success of the Company's development activities associated with its PHT procured product candidates that are then receiving development funding support from the USG under development contracts. In addition, the amount of future revenues associated with unsatisfied performance obligations excludes the value associated with unexercised option periods in the Company's contracts.
Contract assets
The Company considers unbilled accounts receivables and deferred costs associated with revenue generating contracts, which are not included in inventory or property, plant and equipment, as contract assets. As of September 30, 2020 and December 31, 2019, the Company had contract assets associated with deferred costs of $40.8 million and $34.0 million, respectively, which is reflected as a component of other assets on the Company's consolidated balance sheets.
Accounts receivable
Accounts receivable, including unbilled accounts receivable contract assets, consist of the following:
September 30, 2020December 31, 2019
Billed, net$166.0 $227.3 
Unbilled30.1 43.4 
Total, net$196.1 $270.7 
As of September 30, 2020 and December 31, 2019, allowances for doubtful accounts were $0.7 million and de minimis.
21

EMERGENT BIOSOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except share and per share amounts)

11.    Income taxes
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company has assessed the impact of the CARES Act and we do not expect there to be a material impact to our consolidated financial statements.
The effective tax rate for the Company, which excludes discrete adjustments, was 29% and 27% for the nine months ended September 30, 2020 and 2019, respectively. The effective tax rate for the Company, excluding the impact of the non-deductible contingent consideration expense, was 25% and 24% for the nine months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded a discrete tax benefit of $9.9 million and $2.9 million, respectively. The discrete tax benefits in 2020 were primarily due to activity associated with equity awards while the discrete tax benefits in 2019 were primarily due to return to provision adjustments. For the three months ended September 30, 2020 and 2019, the Company recorded a discrete tax benefit (expense) of $3.3 million and $(0.2) million, respectively, primarily due to the finalization of positions taken on the Company's income tax filings and activity associated with equity awards.
12.