Emergent BioSolutions Inc. (EBS)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes and other financial information included elsewhere in this Annual Report on Form 10-K (the “Annual Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report 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 Annual Report 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.

We are currently 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. We have a product portfolio of 10 products that contribute a substantial portion of our revenue and are sold to government and commercial customers. Additionally, we have a development pipeline consisting of a diversified mix of both pre-clinical and clinical stage product candidates. Finally, we have a fully integrated portfolio of CDMO services which cover development services, drug substance manufacturing and drug product manufacturing and packaging.

The Company structures the business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: Anthrax - Medical Countermeasures (“MCM”) Products, NARCAN®, Smallpox - MCM products and Emergent Bioservices (CDMO) services (“Bioservices”). In the fourth quarter of 2023, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting process. The revised reporting structure reflects the internal reporting and review process used by our Chief Operating Decision Maker, for making decisions and assessing performance, and is consistent with how we currently manage the business. We now manage our business with a focus on three reportable segments: (1) a Commercial Product segment consisting of our NARCAN®; (2) a MCM Products segment consisting of the Anthrax - MCM, Smallpox - MCM and Other Products and (3) a Services segment consisting of our Bioservices portfolio.

Commercial Product Segment:

The majority of our Commercial product revenue comes from the following product:

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 ("OTC") 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. For additional information, refer to Note 3, “Divestitures” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.

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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 United States Food and Drug Administration (“FDA”) for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;

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

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Services Segment:

Bioservices - contract development and manufacturing

The Company’s 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 the Company refers to as “molecule-to-market” offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network of development and manufacturing sites operated by the Company for its internal products and pipeline candidates and third-party bioservices. The Company offers services for 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, the Company initiated an organizational restructuring plan (the “August 2023 Plan”) which included actions to reduce investment in and de-emphasize focus on its Bioservices business. In May 2024, the Company initiated a further 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”). See Note 3, “Divestitures” and Note 4, “Impairment and restructuring charges” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K for more information related to these announcements.

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 consisted 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 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 Bioservices 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 consisted 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 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 $19.8 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 Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.

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Confidential arbitration settlement with Janssen

On July 3, 2024, the Company and its wholly owned subsidiary, Emergent Manufacturing Operations Baltimore, LLC (“EMOB”), entered into a settlement agreement with Janssen Pharmaceuticals, Inc., one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”) (the "Settlement Agreement") to resolve all claims among the Parties arising from the 2022 termination of the manufacturing services agreement with Janssen (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 investigational SARS-CoV-2 vaccine, Ad26.COV2-S, recombinant based on the AdVac technology, 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 had 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.

On February 14, 2025, Bavarian Nordic announced that the FDA approved CHIKV VLP under the Priority Review, which triggered a development milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $30.0 million, which is expected to be received in the first half of 2025.

On February 28, 2025, Bavarian Nordic announced that the European Commission approved CHIKV VLP, which triggered a development milestone payment receivable under the Purchase and Sale Agreement to the Company in the amount of $20.0 million, which is expected to be received in the first half of 2025.

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, during the year ended December 31, 2024.

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 SERB has 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 supplies finished RSDL® to the Company for 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.

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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 included 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 year ended December 31, 2024.

August 2024 Organizational Restructuring Plan

In August 2024, the Company initiated the August 2024 Plan at the Company’s Lansing facility, which reduced the Company’s workforce by approximately 70 employees, as well as 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 $3.3 million. All activities related to the August 2024 Plan were substantially completed during the fourth quarter of 2024. Restructuring costs are recognized as an operating expense within the 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”) 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 in stockholder litigation against the Company 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. On February 6, 2025, the lead plaintiffs filed a Motion for Final Approval of Class Action Settlement, Certification of the Settlement Class and Approval of Plan of Allocation and Motion for Award of Attorneys' Fees, Reimbursement of Expenses and Compensatory Awards for lead plaintiffs. 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, $30.0 million of which was paid from insurance proceeds, and was funded in the fourth quarter of 2024. At the scheduled fairness hearing on February 27, 2025, the Court granted final approval of the settlement. The Company recorded the settlement and insurance recoverable amounts as pre-tax operating expense and income, respectively, within “Selling, general and administrative” expenses on the Consolidated Statement of Operations for the year ended December 31, 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.

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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 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.

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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 associated with technology transfer and scale up activities throughout the development stage, including internally and through third-party contract manufacturers;

▪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 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 36 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 2025.

Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations.

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RESULTS OF OPERATIONS

Consolidated and Segment Operating Results:

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Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Revenues and gross margin

Total revenues decreased $5.7 million, or 1%, to $1.0 billion in 2024. The decrease was due to a decrease in Commercial Products revenue of $98.4 million, partially offset by increases in MCM Products revenue of $62.6 million, Bioservices revenue of $26.4 million and Contracts and grants revenue of $3.7 million.

Total segment gross margin increased $15.2 million, or 6%, to $267.2 million in 2024. Total segment gross margin percentage increased 2 percentage points to 26%. The increase was primarily due to an increase in the MCM Products segment gross margin of $148.5 million, partially offset by decreases in the Commercial Products segment gross margin and Bioservices segment gross margin of $73.2 million and $60.1 million, respectively. Total segment gross margin and gross margin percentage excludes contracts and grants revenues because the related costs are R&D expenses.

See “Segment Results” for an expanded discussion of revenues and gross profit.

Unallocated corporate operating expenses

R&D Expenses

R&D expenses decreased $40.7 million, or 37%, to $70.7 million in 2024. The decrease was primarily due to the sale of our development program for CHIKV VLP to Bavarian Nordic during the second quarter of 2023 and reduction in related overhead costs driven by the headcount reductions, which were significant contributors to prior period R&D expense. The decrease was also driven by the wind-down of funded projects, excluding EbangaTM. The decrease was partially offset by increases in the allocation of R&D overhead costs and funded R&D related to EbangaTM.

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SG&A Expenses

Selling, general and administrative expenses decreased $60.4 million, or 16%, to $308.0 million in 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, lower legal fees due to the wind-down of various legal matters and lower marketing costs. This decrease was partially offset by the settlement charge related to the stockholder litigation matter, net of expected insurance proceeds. Selling, general and administrative costs as a percentage of total revenue decreased 6 percentage points to 30% for the year ended December 31, 2024. The decrease was due to a decrease in selling, general and administrative expenses, partially offset by a decrease in revenues during the period.

Goodwill Impairment

Goodwill impairment decreased $218.2 million, or 100%, in 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 December 31, 2024 and 2023.

Impairment of Long-lived Assets

Impairment of long-lived assets decreased $279.5 million, or 91%, to $27.2 million in 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 $16.9 million, or 19%, to $71.0 million in 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 our Term Loan Agreement and the termination of our interest rate swap hedging agreements in 2023.

Gain on sale of business

Gain on sale of business decreased $49.9 million, or 67%, to $24.3 million in 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 $12.5 million in income in 2024 compared to $8.9 million in income in 2023. The change of $3.6 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, unfavorable foreign exchange revaluations, 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 of $29.3 million for the year ended December 31, 2023 increased $18.4 million to a provision of $47.7 million for the year ended December 31, 2024. The effective tax rate was (33)% for the year ended December 31, 2024 as compared to (4)% in 2023. The effective annual tax rate decreased largely due to jurisdictional mix of income and losses, GILTI, and other permanent items.

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SEGMENT RESULTS

COMMERCIAL PRODUCT SEGMENT

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

NARCAN®

NARCAN® sales decreased $88.6 million, or 18%, to $398.9 million in 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 in 2024. During the second quarter of 2023, we sold Vivotif® and Vaxchora® to Bavarian Nordic as part of our travel health business.

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Cost of Sales, Intangible Asset Amortization and Gross Margin

Cost of Commercial Product sales decreased $24.4 million, or 12%, to $185.9 million in 2024. The decrease was primarily due to lower prescription NARCAN® unit volume and no current period costs related to Vivotif® and Vaxchora®, which were sold to Bavarian Nordic as part of our travel health business in 2023, partially offset by the higher OTC NARCAN® unit volume.

Intangible asset amortization allocated to Commercial Product segment decreased $0.8 million, or 2%, to $37.8 million in 2024. The decrease was due to lower amortization expense resulting from the intangibles sold as part of our travel health business to Bavarian Nordic during the second quarter of 2023.

Commercial Product segment gross margin decreased $73.2 million, or 29%, to $175.2 million in 2024. Commercial Product segment gross margin percentage decreased 6 percentage points to 44% in 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 Product segment adjusted gross margin excludes the impact of intangible asset amortization of $37.8 million.

MCM PRODUCTS SEGMENT

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Anthrax MCM

Anthrax MCM sales decreased $49.1 million, or 26%, to $138.5 million in 2024. The decrease was due to the impact of timing of sales related to CYFENDUS® and lower sales of Anthrasil®, coupled with a decrease 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.

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Smallpox MCM

Smallpox MCM sales increased $109.9 million, or 66%, to $277.3 million in 2024. The increase was due to higher ACAM2000® sales to non-U.S. customers and higher VIGIV CNJ-016® sales, primarily related to USG, 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 Product Sales

Other Product sales increased $1.8 million, or 2%, to $94.0 million in 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 Sales, Intangible Asset Amortization and Gross Margin

Cost of MCM Product sales decreased $86.2 million, or 28%, to $219.4 million in 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 CNJ-016® sales as well as higher allocations to Cost of MCM Product sales at our Winnipeg and Gaithersburg facilities.

Intangible asset amortization allocated to MCM Products increased $0.3 million, or 1%, to $27.3 million in 2024. The increase was due to an increase in amortization expense for intangible assets related to EbangaTM, which were acquired during the second half of 2023.

MCM Products segment gross margin increased $148.5 million, or 130%, to $263.1 million in 2024. MCM Products segment gross margin percentage increased 26 percentage points to 52% in 2024. In addition to the MCM Product sales and Cost of MCM Product sales 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 Product segment adjusted gross margin excludes the impacts of intangible asset amortization of $27.3 million, restructuring costs of $7.2 million, inventory step-up provision of $6.2 million and the changes in the fair value of financial instruments of $0.6 million.

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SERVICES SEGMENT

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Services Revenues

Bioservices revenue increased $30.7 million, or 42%, to $103.5 million in 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 revenue decreased $4.3 million, or 75%, to $1.4 million in 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 $86.5 million, or 46%, to $276.0 million in 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 as a result of the sale of the Camden facility to Bora, lower costs associated with production activities at the Company’s Canton facility and higher allocations to R&D at the Company's Gaithersburg facility.

Services segment gross margin decreased $60.1 million, or 54%, to $(171.1) million in 2024. Services segment gross margin percentage decreased 22 percentage points to (163)% in 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 impact of the settlement charge, net of $110.2 million and restructuring costs of $0.2 million.

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OTHER REVENUE

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Contracts and Grants

Contract and grants revenue increased $3.7 million, or 14%, to $30.0 million in 2024. The increase was related to work under the EbangaTM program, partially offset by the wind-down of our other funded development initiatives.

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Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Consolidated and Segment Operating Results:

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Revenues and gross margin

Total revenues decreased $68.2 million, or 6%, to $1.0 billion in 2023. The decrease was due to a decrease in MCM Product sales of $132.4 million, Bioservices sales of $31.4 million and Contracts and grants revenue of $15.1 million, offset by an increase in Commercial Product sales of $110.7 million.

Total segment gross margin decreased $71.1 million, or 22%, to $252.0 million in 2023. Total segment gross margin percentage decreased 5 percentage points to 25%. The decrease was primarily due to a decrease in the MCM Products segment gross margin of $183.8 million, partially offset by increases in the Commercial Products segment gross margin and Bioservices segment gross margin of $65.0 million and $47.7 million, respectively. Total segment gross margin and gross margin percentage excludes contracts and grants revenues because the related costs are R&D expenses.

See “Segment Results” for an expanded discussion of revenues and gross profit.

Unallocated corporate operating expenses

R&D Expenses

R&D expenses decreased $76.9 million, or 41%, to $111.4 million in 2023. The decrease was primarily due to the sale of our development program for CHIKV VLP to Bavarian Nordic and reduction in related overhead costs driven by the headcount reductions, which were significant contributors to prior period R&D expense, partially offset by write-offs related to program terminations during the period.

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SG&A Expenses

Selling, general and administrative expenses increased $28.9 million, or 9%, to $368.4 million in 2023. The increase was primarily due to higher professional services fees related to general corporate initiatives, including organizational transformation consulting fees and legal remediation services fees as well as an increase in marketing expenses related to the launch of OTC NARCAN®. The increase was partially offset by decreases in compensation and other employee costs related to the restructuring initiatives during 2023. Selling, general and administrative costs as a percentage of total revenue increased 5 percentage points to 35% for the year ended December 31, 2023. The increase was due to an increase in selling, general and administrative expenses coupled with a decrease in revenues during the period.

Goodwill Impairment

Goodwill impairment increased $211.5 million to $218.2 million in 2023. During the third quarter of 2023, the Company recognized a $218.2 million impairment charge to goodwill in the MCM reporting unit, reducing the goodwill balance of the reporting unit and segment to zero as of December 31, 2023.

Impairment of Long-lived Assets

During the year ended December 31, 2023, the Company recorded a non-cash impairment charge of $306.7 million related to certain asset groups within our Bioservices reporting unit. The asset groups were written down only to the extent their carrying value was higher than their respective fair values. 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 to determine the amount of the impairment.

Interest expense

Interest expense increased $50.6 million, or 136%, to $87.9 million in 2023. The increase was primarily due to higher interest costs related to our syndicated borrowings and debt service costs attributable to the negotiation of the Fourth Amendment to Amended and Restated Credit Agreement, Waiver and First Amendment to Amended and Restated Collateral Agreement, partially offset by reduced interest expense related to the termination of our interest rate swap hedging agreements.

Gain on sale of business

Gain on sale of business was $74.2 million for the year ended December 31, 2023, which was attributable to the sale of our travel health business to Bavarian Nordic on May 15, 2023.

Other, net

Other, net was $8.9 million in income in 2023 compared to $11.7 million in expense in 2022. The change of $20.6 million, or 176%, was primarily attributable to a write-off of a tax indemnity receivable in the prior period that did not reoccur in the current period, favorable foreign exchange revaluations, higher interest income from rising interest rates during the year, income from the Transition Services Agreement with Bavarian Nordic and a gain on extinguishment of debt.

Income tax provision (benefit)

Income tax benefit of $7.4 million for the year ended December 31, 2022 decreased $36.7 million to a provision of $29.3 million for the year ended December 31, 2023. The effective tax rate was (4)% for the year ended December 31, 2023 as compared to 3% in 2022. The effective annual tax rate decreased largely due to an increase in nondeductible expenses, specifically the impact of a valuation allowance charge in the U.S., state and foreign jurisdictions, goodwill impairment charge, GILTI, and other permanent items. This is partially offset by tax credits and favorable rates in foreign jurisdictions.

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SEGMENT RESULTS

COMMERCIAL PRODUCTS SEGMENT

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

NARCAN®

NARCAN® sales increased $113.8 million, or 30%, to $487.5 million in 2023. The increase was primarily driven by higher sales of OTC NARCAN® and branded NARCAN® to U.S. public interest channels and Canadian retail, partially offset by the cessation of authorized generic NARCAN® sales related to the termination of the Company's relationship with Sandoz and a reduction in commercial retail sales in the U.S.

Other Commercial Products

Other Commercial Products sales decreased $3.1 million, or 24%, to $9.8 million. The decrease was driven by lower sales of Vivotif®, partially offset by higher sales of Vaxchora®. During the second quarter of 2023, we sold Vivotif® and Vaxchora® to Bavarian Nordic as part of our travel health business.

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Cost of Sales, Intangible Asset Amortization and Gross Margin

Cost of Commercial Product sales increased $50.0 million, or 31%, to $210.3 million in 2023. The increase was primarily driven by higher sales of OTC NARCAN® and higher branded NARCAN® sales.

Intangible asset amortization allocated to Commercial Products decreased $4.3 million, or 10%, to $38.6 million in 2023. The decrease was due to lower amortization expense resulting from the intangibles sold as part of our travel health business to Bavarian Nordic.

Commercial Products segment gross margin increased $65.0 million, or 35%, to $248.4 million in 2023. Commercial Products segment gross margin percentage increased 3 percentage points to 50% in 2023. The increase was largely due to a decrease in royalty expense, partially offset by a decrease in the per unit selling price in response to increased competition for generic NARCAN®. Commercial Products segment adjusted gross margin excludes the impact of intangible asset amortization of $38.6 million.

MCM PRODUCTS SEGMENT

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Anthrax MCM

Anthrax MCM sales decreased $102.5 million, or 35%, to $187.6 million in 2023. The decrease reflects the impact of timing of sales related to CYFENDUS® and BioThrax®, partially offset by an increase in Anthrasil® sales. 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 and amount of USG purchases, the availability of governmental funding and timing of Company delivery of orders that follow.

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Smallpox MCM

Smallpox MCM sales decreased $67.0 million, or 29%, to $167.4 million in 2023. The decrease was primarily due to lower sales of TEMBEXA®, partially offset by an increase related the exercise and full delivery in the current period of a $120 million option by the USG to purchase ACAM2000®. 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 timing of Company delivery of orders that follow.

Other Product Sales

Other Product sales increased $37.1 million, or 67%, to $92.2 million in 2023. The increase was primarily due to higher BAT® product sales, partially offset by lower RSDL® and Trobigard® product sales due to timing.

Cost of Sales, Intangible Asset Amortization and Gross Margin

Cost of MCM Product sales increased $41.3 million, or 16%, to $305.6 million in 2023. The increase was primarily due to higher sales of ACAM2000®, BAT® and Anthrasil®, partially offset by lower sales of CYFENDUS®, coupled with higher allocations to MCM Product COGS at our Bayview facility, shutdown costs and inventory write-offs.

Intangible asset amortization allocated to MCM Product segment increased $10.1 million, or 60%, to $27.0 million in 2023. The increase was due to higher amortization expense for intangible assets related to TEMBEXA®, NARCAN®, and EbangaTM which were acquired during the second half of 2022.

MCM Products segment gross margin decreased $183.8 million, or 62%, to $114.6 million in 2023. MCM Products segment gross margin percentage decreased 25 percentage points to 26% in 2023. The decrease was largely due to lower sales volumes and higher shutdown related costs and inventory write-offs, coupled with an unfavorable product revenue mix which was weighted more heavily to lower margin products compared with the prior year. The 2023 MCM Products segment adjusted gross margin excludes the impact of intangible asset amortization of $27.0 million, restructuring costs of $5.6 million, non-cash items related to the changes in the fair value of contingent consideration of $0.2 million and the inventory step-up provision of $3.9 million.

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SERVICES SEGMENT

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Services Revenues

Bioservices revenue decreased $32.2 million, or 31%, to $72.8 million in 2023. The decrease was driven by reduced production activities at the Company's Winnipeg and Camden facilities. The decreases were partially offset by an increase in production at our Canton facility for a Bioservices customer.

Bioservices lease revenue increased $0.8 million, or 16%, to $5.7 million in 2023. The increase was related to a Bioservices customer at our Canton facility.

Cost of Services, Intangible Asset Amortization and Gross Margin

Cost of Services decreased $79.0 million, or 29%, to $189.5 million in 2023. The decrease was primarily due to reduced production activities related to the halt in manufacturing under the Janssen Agreement coupled with higher allocations to MCM Product cost of sales at our Bayview facility and lower production activities at our Winnipeg facility, partially offset by increased costs at our Camden facility for additional investments in quality enhancement and improvement initiatives and increased costs associated with production activities at our Canton facility for a Bioservices customer.

Intangible asset amortization allocated to Services decreased $0.1 million, or 100%, to no amortization in 2023. The decrease was due to the completion of the amortization of intangible assets acquired from Cangene.

Services segment gross margin increased $47.7 million, or 30%, to $(111.0) million in 2023. Services segment gross margin percentage increased 3 percentage points to (141)% in 2023. The increase was primarily driven by one-time costs and reserves related to the Janssen Agreement in the prior year. The 2023 Services segment adjusted gross margin excludes the impact of restructuring costs of $8.4 million.

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OTHER REVENUE

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Contracts and Grants

Contract and grants revenue decreased $15.1 million, or 36%, to $26.3 million in 2023. The decrease was primarily attributable to one-time indirect rate adjustments in the prior period, the conclusion of COVID-19 related studies in the fourth quarter of 2022, and decreases in development activities associated with various externally funded research and development projects. These decreases were partially offset by increases in revenue on the BARDA contract for the procurement of EbangaTM, which was awarded in the current period, and TEMBEXA®.

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Financial Condition, Liquidity and Capital Resources

Our financial condition is summarized as follows:

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 December 31, 2024, we had unrestricted cash and cash equivalents of $99.5 million and available borrowing capacity of up to $100.0 million under the Revolving Credit Agreement.

Going Concern Considerations

During the second quarter of 2024, 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 to mitigate the substantial doubt about the Company’s ability to continue as a going concern, which plans had not yet been fully implemented. During the third quarter of 2024, the Company made significant progress implementing these plans, which progress is described below. As a result, the Company concluded that as of September 30, 2024, it alleviated substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the third quarter financial statements were issued.

During the third quarter of 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 third quarter of 2024, the Company repaid all amounts outstanding under its Prior Credit Agreement. As of December 31, 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 10, “Debt” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.

During the year ended December 31, 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 Settlement Agreement with Janssen related to the 2022 termination of the Janssen Agreement. See Note 3, “Divestitures” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K for additional information related to RSDL® Transaction and Camden Transaction and Note 19, “Litigation” in the Notes to Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for additional information related to the accounting treatment and settlement of the arbitration with Janssen.

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Additionally, the Company has realized positive operational impacts of its restructuring and cost savings initiatives, including the closure of certain Bioservices facilities and reductions in force.

As of December 31, 2024, the Company had unrestricted cash and cash equivalents of $99.5 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 consolidated financial statements.

At-the-Market Equity Offering Facility

In May 2023, the Company established an at-the-market equity offering program (the "ATM Program") pursuant to which the Company may, from time to time, sell up to $150.0 million aggregate gross sales price of shares of its common stock through Evercore Group L.L.C. and RBC Capital Markets, LLC, as sales agents. There were no sales of the Company’s common stock under the ATM Program during the year ended December 31, 2024. Our Registration Statement on Form S-3 related to the ATM Program expired on August 9, 2024. The Company cannot 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 December 31, 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 years ended December 31, 2024 and 2023.

Operating Activities:

Net cash provided by operating activities increased $265.0 million in 2024. The increase in net cash provided by operating activities was primarily due to positive changes in operating assets and liabilities of $159.0 million, driven largely by a decrease to 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. Additionally, net loss decreased by $569.9 million, offset by a positive change in Goodwill impairment and Impairment of long lived assets of $218.2 million and $279.5 million, respectively.

Investing Activities:

Net cash provided by investing activities decreased $87.1 million in 2024. The decrease in net cash provided by investing activities was primarily due to the proceeds received from the sale of the travel health business during the second quarter of 2023 of $270.2 million, partially offset by proceeds received in 2024 related to the RSDL® Transaction and the sale of the Baltimore-Camden facility of $110.2 million, milestone payments received in 2024 related to an asset divestiture of $30.0 million, and a lower capital expenditures of $28.7 million.

Financing Activities:

Net cash used in financing activities decreased $345.7 million in 2024. The decrease in cash used in financing activities was primarily due to proceeds from the Company's new Term Loan Agreement and a reduction in principal payments and proceeds 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.

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Debt

As of December 31, 2024, the Company has $700.0 million of fixed and variable rate debt with varying maturities, with no payable amounts within 12 months (see Note 10, “Debt” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K).

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.

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Unused Credit Capacity

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

Contractual Obligations

As of December 31, 2024, the Company has contractual obligations related to lease arrangements and purchase commitments. The lease arrangements are for certain equipment and facilities. As of December 31, 2024, the Company had fixed lease payment obligations of $15.3 million, with $3.6 million due within 12 months. The Company has non-cancelable purchase commitments of $632.4 million, with an estimated $195.6 million being due within 12 months.

Critical Accounting Policies and Estimates

Our consolidated financial statements and related disclosures are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported. Note 2, “Summary of significant accounting policies” of the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K describes the accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management considers an accounting policy to be critical if it is important to reporting our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition, contingent consideration, and income taxes.

Revenue Recognition

The Company's product sales are recognized at a point-in-time generally upon delivery to the customer, depending on the performance obligation which the Company is delivering. The Company's Bioservices arrangements are generally recognized on a percentage of completion basis utilizing a cost-to-cost method. Revenues are recognized as a percentage of the work completed during the period in an amount that reflects the percentage of the consideration which the Company expects to receive in exchange for the product or services.

For contracts with multiple performance obligations, the Company allocates the contract price to each performance obligation on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. Certain contracts may include lease components which are recognized under Accounting Standards Codification ("ASC") 842. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers, however when prices in standalone sales are not available the Company may use third-party pricing for similar products or services or estimate the standalone selling price based on the best available information.

MCM product revenues are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with customers. The Company's contracts for the sale of MCM products include certain acceptance criteria before title passes to the customer. MCM product revenue is recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

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The Company's NARCAN® customer contracts, including OTC NARCAN® customer contracts, are fixed price contracts. For the majority of the Company's OTC NARCAN® contracts, the Company invoices and records revenue when the customers receive product from the third-party logistics warehouse used by the Company, which is the point at which control is transferred to the customer. Revenues for these OTC NARCAN® arrangements are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Estimates of variable consideration includes allowance for returns under direct retailer contracts, specialty distributor fees, wholesaler fees, prompt payment discounts and government rebates. OTC NARCAN® may also be sold on consignment through third-party online retailers where revenues are recognized point in time when sold to the end customer. The Company pays these third-party online retailers selling commissions and fulfillment fees which are recorded as "Selling general and administrative expenses" and "Cost of Commercial Product Sales", respectively, in the Consolidated Statement of Operations. Revenues from OTC NARCAN® are recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with such variable consideration is subsequently resolved. For contracts with direct retailers, the Company considers several factors in the estimation process for the allowance for returns of OTC NARCAN®, including inventory levels within the distribution channel and historical return activity, including activity for product sold for which the return period has passed, as well as other relevant factors. As returned product cannot be resold, there is no corresponding asset for product returns.

For additional information on our revenues, refer to Note 13, "Revenue recognition" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.

Contingent Consideration

The Company's acquisitions accounted for as asset acquisitions may include contingent consideration payments to be made for sales-based royalties, sales-based milestones and development and regulatory milestones. We assess whether such contingent consideration meets the definition of a derivative. Contingent consideration payments in an asset acquisition not required to be accounted for as derivatives are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Contingent consideration payments required to be accounted for as derivatives are recorded at fair value on the date of the acquisition and are subsequently remeasured to fair value at each reporting date. For additional information on the Company's contingent consideration, refer to Note 8, "Fair value measurements" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.

Income Taxes

The Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and R&D tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.

The Company’s income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. As tax laws are complex and subject to different interpretations, significant management judgement is required in (1) calculating the Company's income tax expense, deferred tax assets and deferred tax liabilities, (2) determining any valuation allowance recorded against deferred tax assets and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company's estimates and assumptions may differ from tax benefits ultimately realized. For additional information on the Company's income taxes, refer to Note 15, "Income taxes" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.

Long-lived assets

Long-lived assets such as finite lived intangible assets and property, plant and equipment are not required to be tested for impairment annually, instead they are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability of assets to be held and used by a comparison of the carrying value of the assets with future undiscounted net cash flows expected to be generated by the assets. We group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset group, we estimate the fair value of the asset group to determine whether an impairment loss should be recognized. Impairment would then be measured as the excess of the asset’s carrying value over its fair value. Fair value is typically determined by discounting the future cash flows associated with that asset. Significant judgments used for long-lived asset impairment assessments include identifying the appropriate asset groupings and primary assets within those groupings, determining whether events or circumstances indicate that the carrying amount of the asset may not be recoverable, determining the future cash

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flows for the assets involved and assumptions applied in determining fair value, which include, reasonable discount rates, growth rates, market risk premiums and other assumptions about the economic environment.

During the second quarter of 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 to require an impairment analysis. 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. Based on these analyses, the Company allocated and recognized a non-cash impairment charge of $27.2 million during 2024.

Inventories, net

Inventories are stated at the lower of cost or net realizable value with cost being determined using a standard cost method, which approximates actual cost. Actual cost consists primarily of material, labor and manufacturing overhead expenses (including fixed production-overhead costs) and includes the services and products of third-party suppliers. For internally manufactured inventory, the Company determines normal capacity for each production facility and allocates fixed production-overhead costs on that basis. The Company records inventory acquired in business combinations utilizing the comparative sales method, which estimates the expected sales price reduced for all costs expected to be incurred to complete/dispose of the inventory with a profit on those costs. The Company analyzes its inventory each reporting period and records a reserve to reduce the cost basis to net realizable value for inventory that has become obsolete, expired, slow-moving or short-dated based on customer requirements. Reserves for excess and obsolete inventory are relieved when the related inventory is disposed of through scrap or sale.

Significant New Accounting Pronouncements

See Note 2, “Summary of significant accounting policies” in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Form 10-K.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and uncertainties of cash flows from operations and from outside resources, so as to allow investors to better view our company from management’s perspective. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K (the "Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and financing, includes forward-looking statements that involve risks and uncertainties. You should carefully review the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this Annual Report 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.

We are currently focused on the following four PHT categories: chemical, biological, radiological, nuclear and explosives (“CBRNE”); emerging infectious diseases (“EID”); public health crises; and acute, emergency and community care. We have a product portfolio of 12 products that contribute a substantial portion of our revenue and are sold to government and commercial customers. Additionally, we have a development pipeline consisting of a diversified mix of both pre-clinical and clinical stage product candidates. Finally, we have a fully integrated portfolio of CDMO services which cover development services, drug substance manufacturing and drug product manufacturing and packaging.

The Company structures the business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: Anthrax - Medical Countermeasures (“MCM”) Products, NARCAN®, Smallpox - MCM products and Emergent Bioservices (CDMO) services ("Bioservices"). In the fourth quarter of 2023, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting process. The revised reporting structure reflects the internal reporting and review process used by our Chief Operating Decision Maker, for making decisions and assessing performance, and is consistent with how we currently manage the business. We now manage our business with a focus on three reportable segments: (1) a Commercial Products segment consisting of our NARCAN® and Other Commercial Products; (2) a MCM Products segment consisting of the Anthrax - MCM, Smallpox - MCM and Other Products 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 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.

Other Commercial Products (Sold to Bavarian Nordic as part of our travel health business in Mar 2023)

•Vaxchora® (Cholera Vaccine, Live, Oral), the first vaccine approved by the FDA for the prevention of cholera, which we sold to Bavarian Nordic as part of our travel health business; and

•Vivotif® (Typhoid Vaccine Live Oral Ty21a), a live attenuated vaccine for oral administration for the prevention of typhoid fever, which we sold to Bavarian Nordic as part of our travel health business.

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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 United States Food and Drug Administration (“FDA”) for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;

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

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

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

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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 eight geographically 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.

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 Company incurred approximately $9.3 million in charges in connection with the January 2023 Plan during the year ended December 31, 2023. These charges consist primarily of charges related to employee transition, severance payments and employee benefits. All activities related to the January 2023 Plan were substantially completed during the first quarter of 2023.

Sale of Travel Health Business to Bavarian Nordic

On May 15, 2023, pursuant to the Purchase and Sale Agreement (the "Purchase and Sale Agreement"), by and between the Company, through its wholly owned subsidiaries Emergent International Inc. and Emergent Travel Health Inc., and Bavarian Nordic, the Company completed the previously announced sale of the Company's travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California.

At the closing, Bavarian Nordic paid a cash purchase price of $270.2 million, exclusive of customary closing adjustments for cash, indebtedness, working capital and transaction expenses of the business at closing. Bavarian Nordic may also be required to pay milestone payments of up to $80.0 million related to the development of CHIKV VLP and receipt of marketing approval and authorization in the U.S. and Europe, and earn-out payments of up to $30.0 million based on aggregate net sales of Vaxchora and Vivotif in calendar year 2026.

As a result of the divestiture, the Company recognized a pre-tax gain of $74.2 million during year ended December 31, 2023, net of transaction costs of $4.0 million, which was recorded within "Gain on sale of business" on the Consolidated Statements of Operations.

FDA Approval of CYFENDUS®

On July 20, 2023, the FDA approved CYFENDUS® 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. In December 2018, CYFENDUS® vaccine was the subject of a pre-emergency use authorization package submitted to the FDA. The following year, the USG began procuring this product for national preparedness efforts.

EbangaTM Procurement Contract

On July 31, 2023, the Company was awarded a 10-year contract by the Biomedical Advanced Research and Development Authority ("BARDA") for advanced development, manufacturing scale-up, and procurement of EbangaTM treatment for Ebola. The contract consists of a base period of performance with two option periods valued at approximately $121.0 million, and five option periods for procurement of EbangaTM over five years valued at up to $583.0 million. If all option periods are exercised, the total contract value will be valued at up to approximately $704.0 million.

Emergent is responsible for the manufacturing, sale, and distribution of EbangaTM in the U.S. and Canada pursuant to a collaboration agreement with Ridgeback, the developer of the treatment.

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Emergent paid Ridgeback $6.3 million in contingent consideration as a result of the award of the BARDA contract in the third quarter of 2023. In addition, the Company could owe up to $50.4 million in contingent consideration to Ridgeback if activities under the awarded contract have not ceased by June 1, 2026.

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 Bioservices business for future growth. As part of the August 2023 Plan, the Company reduced its workforce by approximately 400 employees. The Company incurred approximately $20.0 million in charges in connection with the August 2023 Plan during the year ended December 31, 2023. These charges consist primarily of charges related to severance payments, transition services, and employee benefits. All activities related to the August 2023 Plan were substantially completed during the third quarter of 2023.

Launch of NARCAN® Naloxone HCl Nasal Spray 4 mg Over-The-Counter ("NARCAN® OTC")

In the third quarter of 2023, the Company launched NARCAN® OTC, which was approved by the FDA as an over-the-counter emergency treatment of opioid overdose, broadening our customer base and sales channels to retail pharmacies and digital commerce websites. The Company's Nasal Naloxone products are now sold commercially over-the-counter at retail pharmacies and digital commerce websites as well as through physician-directed or standing order prescriptions at retail pharmacies, health departments, local law enforcement agencies, community-based organizations, substance abuse centers and other federal agencies.

2023 Triggering Events

Long-Live Asset Impairment Testing

The Company tests its long-lived assets that are held and used for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.

During the second quarter of 2023, due to deterioration in performance and resulting downward revisions to our internal Bioservices forecast made during the second quarter, including future expected cash flows, the Company determined there were sufficient indicators of impairment on certain asset groups within the Bioservices reporting unit to require an impairment analysis. As a result, the Company performed recoverability tests on certain asset groups within the Bioservices reporting unit and concluded that the impacted asset groups were not recoverable as the undiscounted expected cash flows did not exceed their carrying values.

Asset groups are written down only to the extent that their carrying value is higher than their respective fair value. The Company, with the assistance of a third-party valuation firm, applied valuation methods to estimate the fair values for each of the assets within the different asset classes. For the intangible assets, an option pricing model was applied to estimate the assets' fair value. An orderly liquidation value was applied to estimate the fair value of the personal property assets and market and cost based approaches were applied to estimate the fair value of the real property assets, each representing Level 3 non-recurring fair value measurements. Based on this analysis, the Company allocated and recognized a non-cash impairment charge of $306.7 million during the year ended December 31, 2023.

Goodwill Impairment Testing

The Company performs its goodwill impairment evaluation annually, during the fourth quarter, or sooner if triggering events are identified. During the third quarter of 2023, the Company observed continued market volatility including significant declines in its market capitalization and revised its financial outlook during the third quarter, which was identified as a triggering event. As a result of the quantitative assessments performed in connection with the preparation of the financial statements as of and for the quarter ended September 30, 2023, the Company recorded a $218.2 million non-cash goodwill impairment charge for the MCM reporting unit within the Products segment, which is included in "Goodwill impairment" on the Condensed Consolidated Statement of Operations for the year ended December 31, 2023. The MCM reporting unit and Products segment had no remaining goodwill as of December 31, 2023. The goodwill impairment charge resulted from a reduction in the estimated fair value of the MCM reporting unit due to changes in the risk profile of the Company as well as revisions to the long-term operating plan that reflected lower expectations for growth and profitability than previous expectations. The Company used a quantitative assessment, utilizing an income-based (discounted cash flows) approach, Level 3 non-recurring fair value measurement, for our goodwill impairment testing.

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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 USG is the largest purchaser of our Government - MCM products and primarily purchases our products for the SNS, 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 for 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 NARCAN® and MCM and other commercial 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 Expenses ("R&D")

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.

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Selling, General and Administrative Expenses

Selling, general and administrative 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.

Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations. For the year ended December 31, 2023, income tax expense totaled $29.3 million. For every 1% change in the 2023 effective rate, income tax expense would have changed by approximately $7.3 million.

The OECD ("Organization for Economic Co-operation and Development") has proposed a global minimum tax of 15% of reported profits (Pillar 2) that has been agreed upon in principle by over 140 countries. During 2023, many countries took steps to incorporate Pillar 2 model rule concepts into their domestic laws. On December 18, 2023, Ireland enacted laws related to this minimum tax, effective January 1, 2024.

Under the Pillar Two rules, a company would be required to determine a combined effective tax rate for all entities located in a jurisdiction. If the jurisdictional effective tax rate determined under the Pillar Two is less than 15%; a top-up tax will be due to bring the jurisdictional effective tax rate up to 15%. We continue to evaluate the potential impacts of proposed and enacted legislative changes on our business in future periods in Ireland and elsewhere.

For additional information on our uncertain tax positions and income tax expense, refer to Note 15, "Income taxes" to our consolidated financial statements included in this report.

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RESULTS OF OPERATIONS

Consolidated and Segment Operating Results:

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Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Revenues and gross margin

Total revenues decreased $68.2 million, or 6%, to $1.0 billion in 2023. The decrease was due to a decrease in MCM Products revenue of $132.4 million, Bioservices revenue of $31.4 million and Contracts and Grants revenue of $15.1 million, offset by an increase in Commercial Products revenue of $110.7 million.

Total segment gross margin decreased $65.4 million, or 17%, to $317.6 million in 2023. Total segment gross margin percentage decreased 5 percentage points to 31%. The decrease was primarily due to a decrease in the MCM Products segment gross margin of $173.7 million, partially offset by increases in the Commercial Products segment gross margin and Bioservices segment gross margin of $60.7 million and $47.6 million, respectively. Total segment gross margin and gross margin percentage excludes contracts and grants revenues because the related costs are R&D expenses.

See "Segment Results" for an expanded discussion of revenues and gross profit.

Unallocated corporate operating expenses

Goodwill Impairment

Goodwill impairment increased $211.5 million to $218.2 million in 2023. During the third quarter of 2023, the Company recognized a $218.2 million impairment charge to goodwill in the MCM reporting unit, reducing the goodwill balance of the reporting unit and segment to zero as of December 31, 2023.

Impairment of long-lived assets

During the year ended December 31, 2023, the Company recorded a non-cash impairment charge of $306.7 million related to certain asset groups within our Bioservices reporting unit. The asset groups were written down only to the extent their carrying value was higher than their respective fair values. 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 to determine the amount of the impairment.

R&D Expenses

R&D expenses decreased $76.9 million, or 41%, to $111.4 million in 2023. The decrease was primarily due to the sale of our development program for CHIKV VLP to Bavarian Nordic and reduction in related overhead costs driven by the headcount reductions, which were significant contributors to prior period R&D expense, partially offset by write-offs related to program terminations during the period.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $28.9 million, or 9%, to $368.4 million in 2023. The increase was primarily due to higher professional services fees related to general corporate initiatives, including organizational transformation consulting fees and legal remediation services fees as well as an increase in marketing expenses related to the launch of NARCAN® OTC. The increase was partially offset by decreases in compensation and other employee costs related to the restructuring initiatives during 2023. Selling, general and administrative costs as a percentage of total revenue increased 5 percentage points to 35% for the year ended December 31, 2023. The increase was due to an increase in selling, general and administrative expenses coupled with a decrease in revenues during the period.

Amortization of Intangible Assets

Amortization of intangible assets increased $5.7 million, or 10%, to $65.6 million in 2023. The increase was primarily due to amortization expense for intangible assets related to TEMBEXA®, NARCAN®, and EbangaTM which were acquired during the second half of 2022. The increase was partially offset by a decrease in amortization expense resulting from the intangibles sold as part of our travel health business to Bavarian Nordic.

Interest expense

Interest expense increased $50.6 million, or 136%, to $87.9 million in 2023. The increase was primarily due to higher interest costs related to our syndicated borrowings and debt service costs attributable to the negotiation of the Fourth Amendment to Amended and Restated Credit Agreement, Waiver and First Amendment to Amended and Restated Collateral Agreement (the “Credit Agreement Amendment"), partially offset by reduced interest expense related to the termination of our interest rate swap hedging agreements.

Gain on sale of business

Gain on sale of business was $74.2 million for the year ended December 31, 2023, which was attributable to the sale of our travel health business to Bavarian Nordic on May 15, 2023.

Other, net

Other, net decreased $20.6 million, or 176%, to an income of $8.9 million in 2023. The decrease in expense was primarily attributable to a write-off of a tax indemnity receivable in the prior period that did not reoccur in the current period, favorable foreign exchange revaluations, higher interest income from rising interest rates during the year, income from the Transition Services Agreement with Bavarian Nordic and a gain on extinguishment of debt.

Income taxes

Income tax benefit of $7.4 million for the year ended December 31, 2022 decreased $36.7 million to a provision of $29.3 million for the year ended December 31, 2023. The effective tax rate was (4)% for the year ended December 31, 2023 as compared to 3% in 2022. The effective annual tax rate decreased largely due to an increase in nondeductible expenses, specifically the impact of a valuation allowance charge in the U.S., state and foreign jurisdictions, goodwill impairment charge, GILTI, and other permanent items. This is partially offset by tax credits and favorable rates in foreign jurisdictions.

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SEGMENT RESULTS

COMMERCIAL PRODUCTS

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

NARCAN®

NARCAN® sales increased $113.8 million, or 30%, to $487.5 million in 2023. The increase was primarily driven by higher sales of NARCAN® OTC and branded NARCAN® to U.S. public interest channels and Canadian retail, partially offset by the cessation of authorized generic NARCAN® sales related to the termination of the Company's relationship with Sandoz and a reduction in commercial retail sales in the U.S.

Other Commercial Products

Other Commercial Products sales decreased $3.1 million, or 24%, to $9.8 million. The decrease was driven by lower sales of Vivotif®, partially offset by higher sales of Vaxchora®. During the second quarter of 2023, we sold Vivotif® and Vaxchora® to Bavarian Nordic as part of our travel health business.

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Cost of Sales and Gross Margin

Cost of Commercial product sales increased $50.0 million, or 31%, to $210.3 million in 2023. The increase was primarily driven by higher sales of NARCAN® OTC and higher branded NARCAN® sales.

Commercial Products gross margin increased $60.7 million, or 27%, to $287.0 million in 2023. Commercial Products gross margin percentage decreased 1 percentage point to 58% in 2023. The decrease was largely due to a decrease in the per unit selling price in response to increased competition for generic NARCAN®, partially offset by a decrease in royalty expense. Commercial Products Segment Adjusted Gross Margin is consistent with gross margin.

MCM PRODUCTS

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Anthrax MCM

Anthrax MCM sales decreased $102.5 million, or 35%, to $187.6 million in 2023. The decrease reflects the impact of timing of sales related to CYFENDUS® and BioThrax, partially offset by an increase in Anthrasil® sales. 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 and amount of USG purchases, the availability of governmental funding and timing of Company delivery of orders that follow.

Smallpox MCM

Smallpox MCM sales decreased $67.0 million, or 29%, to $167.4 million in 2023. The decrease was primarily due to lower sales of TEMBEXA®, partially offset by an increase related the exercise and full delivery in the current period of a $120 million option by the USG to purchase ACAM2000®. 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 timing of Company delivery of orders that follow.

Other Product Sales

Other Product sales increased $37.1 million, or 67%, to $92.2 million in 2023. The increase was primarily due to higher BAT® product sales, partially offset by lower RSDL® and Trobigard® product sales due to timing.

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Cost of Sales and Gross Margin

Cost of MCM Product sales increased $41.3 million, or 16%, to $305.6 million in 2023. The increase was primarily due to higher sales of ACAM2000®, BAT® and AIG, partially offset by lower sales of CYFENDUS®, coupled with higher allocations to MCM Product COGS at our Bayview facility, shutdown costs and inventory write-offs.

MCM Products gross margin decreased $173.7 million, or 55%, to $141.6 million in 2023. MCM Products gross margin percentage decreased 22 percentage points to 32% in 2023. The decrease was largely due to lower sales volumes and higher shutdown related costs and inventory write-offs, coupled with an unfavorable product revenue mix which was weighted more heavily to lower margin products compared with the prior year. The 2023 MCM Product Segment Adjusted Gross Margin excludes the impact of restructuring costs of $5.6 million, non-cash items related to the changes in the fair value of contingent consideration of $0.2 million and the inventory step-up provision of $3.9 million.

SERVICES

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Services Revenues

Bioservices revenue decreased $32.2 million, or 31%, to $72.8 million in 2023. The decrease was driven by reduced production activities at the Company's Winnipeg and Camden facilities. The decreases were partially offset by an increase in production at our Canton facility for a Bioservices customer.

Bioservices lease revenue increased $0.8 million, or 16%, to $5.7 million in 2023. The increase was related to a Bioservices customer at our Canton facility.

Cost of Services and Gross Margin

Cost of Services decreased $79.0 million, or 29%, to $189.5 million in 2023. The decrease was primarily due to reduced production activities related to the halt in manufacturing under the Janssen Agreement coupled with higher allocations to MCM Product cost of sales at our Bayview facility and lower production activities at our Winnipeg facility, partially offset by increased costs at our Camden facility for additional investments in quality enhancement and improvement initiatives and increased costs associated with production activities at our Canton facility for a Bioservices customer.

Services gross margin increased $47.6 million, or 30%, to $(111.0) million in 2023. Services gross margin percentage increased 3 percentage points to (141)% in 2023. The increase was primarily driven by one-time costs and reserves related to the Janssen

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Agreement in the prior year. The 2023 Services Segment Adjusted Gross Margin excludes the impact of restructuring costs of $8.4 million.

OTHER REVENUE

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Contracts and Grants

Contract and grants revenue decreased $15.1 million, or 36%, to $26.3 million in 2023. The decrease was primarily attributable to one-time indirect rate adjustments in the prior period, the conclusion of COVID-19 related studies in the fourth quarter of 2022, and decreases in development activities associated with various externally funded research and development projects. These decreases were partially offset by increases in revenue on the BARDA contract for the procurement of EbangaTM, which was awarded in the current period, and TEMBEXA®.

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Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

RESULTS OF OPERATIONS

Consolidated and Segment Operating Results: