View:
United States securities and exchange commission logo
August 18, 2021
Richard Lindahl
Chief Financial Officer
Emergent BioSolutions Inc.
400 Professional Drive Suite 400
Gaithersburg, Maryland
Re: Emergent
BioSolutions Inc.
Form 10-K for the
Fiscal Year Ended December 31, 2020
Form 10-Q for the
Fiscal Quarter Ended June 30, 2021
File No. 001-33137
Dear Mr. Lindahl:
We have reviewed your filings and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 10-K for the Fiscal Year Ended December 31, 2020
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Contract Development and Manufacturing Services, page 58
1. You disclosed here that
the increase in the 2020 CDMO service revenue was due to the
Covid-19 related
contracts and arrangements. Considering the significance of this item in
2020 and for the six
months ended June 30, 2021, tell us how you have considered
compliance with the
disclosure requirement under Item 303 of Regulation S-K, which
requires the disclosure
of any significant components of revenues or expenses that, in the
registrant's judgment,
should be described in order to understand the registrant's results of
operations, as well as
any known trends or uncertainties that have had or that the registrant
reasonably expects will
have a material favorable or unfavorable impact on net sales or
revenues or income from
continuing operations. Please include revised disclosure to be
included in future
filings.
Richard Lindahl
FirstName LastNameRichard
Emergent BioSolutions Inc. Lindahl
Comapany
August 18, NameEmergent
2021 BioSolutions Inc.
August
Page 2 18, 2021 Page 2
FirstName LastName
Gross Profit Margin for Product Sales and CDMO services, page 59
2. Here you disclosed gross profit margin for product sales and CDMO
services. Please
respond to the following comments:
The gross profit margin balance you presented on page 59 showed
a significant
increase from 55.9% in 2019 to 63.6% in 2020. Explain to us, and
revise all future
filings to disclose the reason for the significant increase,
including the underlying
drivers and any trends.
During our prior review, you provided analysis and
justifications for reporting a
combined Cost of Product Sale and CDMO services as one line item
in your
statement of operations. Considering that now CDMO service
increased to account
for a significant share of your total revenue and costs, which
also appears to
have contributed to your margin improvement, please provide us
with your analysis
why it is appropriate to continue to report these costs as one
line item.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition - CDMO Services, page 81
3. Here you disclosed that you have determined that the technology
transfer, stand-ready and
suite-reservation performance obligations are satisfied over time, but
only provided the
method used to recognized revenue for the suite-reservation
performance obligation.
Please provide revised disclosure to be included in future filings of
the method used to
recognize the technology transfer and stand-ready performance
obligations, and why the
methods used provide a faithful depiction of the transfer of goods and
services. Refer
to ASC 606-10-50-18.
Note 3. Revenue Recognition, page 85
4. Considering their significance, please expand to provide, here or
where
appropriate, information of your CDMO contracts in sufficient detail
to enable investors
to understand the nature, amount, timing and uncertainty of revenue,
cash flows arising
from these contracts, including both qualitative and quantitative
information, as
required under ASC 606-10-50-1. At a minimum, please clarify to us,
including proposed
disclosure for future filings, the following:
how you accounted for each component of each significant
contract, including the
BARDA contract entered into on May 24, 2020, and included in
Exhibit 10.62, which
consists of $542.7 million allocated to the reservation of
manufacturing capacity and
$85.5 million for accelerating the planned expansion of viral and
non-viral drug
product fill/finish capacity.
o Tell us your consideration of accounting for the reservation
of the
manufacturing capacity performance obligation in Task 1 of
the May 2020
BARDA agreement as a lease. Tell us which contract(s) had a
suite-reservation
performance obligation referred to on page 86 and why. If
the suite-reservation
Richard Lindahl
FirstName LastNameRichard
Emergent BioSolutions Inc. Lindahl
Comapany
August 18, NameEmergent
2021 BioSolutions Inc.
August
Page 3 18, 2021 Page 3
FirstName LastName
performance obligation relates to the BARDA agreement,
please reconcile the
amount allocated to the reservation of manufacturing
capacity in Task 1 of the
Task order ending in 007 to the amounts disclosed on page
86 for operating
leases.
o Clarify if the reservation of manufacturing capacity, for
which $542.7 million
was valued as disclosed on page 13, includes the
manufacturing activities
performance obligation discussed in Task 1 in section C.3.1
of the BARDA
agreement and, if so, why the $542.7 million is not
allocated between the
reservation of manufacturing capacity and manufacturing
activities performance
obligations. Refer to Section C.3.1 of the BARDA agreement.
o Clarify if you expensed the costs of the capacity expansion
in Task 2 of section
C.3.2 of the BARDA agreement as research and development or
capitalized the
amounts pursuant to ASC 730-10-25-2a. If you capitalized
the costs, please tell
us why you believe the costs have alternative future use.
In this regard, we note
the reference on page 13 to capital investment projects
which appears to include
the costs under the BARDA agreement.
how you accounted for modifications of your original task
orders, including
modifications to the BARDA agreements to date.
the basis for your accounting for the BARDA contract and each
significant contract,
including the Johnson & Johnson and AstraZeneca contracts,
referencing the
appropriate accounting literature.
where you disclosed in your filing new tasks such as the BARDA
agreement included
in Exhibit 10.66 or any significant modifications to your
agreements, other than in the
Exhibits.
o If no additional disclosure is considered necessary in the
body of the filing,
please tell us why.
o Tell us if the reduction in price for your May 2020 task
order ending in 007,
discussed in Exhibit 10.10 of the June 30, 2021 10-Q, is
material to your
financial statements and, if so, why the terms of the
modification are not
disclosed.
the nature of each performance obligation for each significant
contract and when your
performance obligations are satisfied. Refer to ASC 606-10-50-12.
the amount of the transaction price allocated to performance
obligations for each
contract that are unsatisfied as of the end of the reporting
period pursuant to ASC
606-10-50-13 and an explanation of when you expect to recognize
the revenue.
your consideration of providing disaggregated revenue by
significant contract,
contract-type, and prime vs subcontractor pursuant to ASC
606-10-50-5.
why disclosure of the terms of the significant contracts is not
required to be included
in the filing.
your consideration of including the reservation fee for the
BARDA contract in your
description of CDMO services throughout the filing, including
pages 5 and 12. In
this regard, the description appears inconsistent with the
description on page 81 in the
financial statements.
Richard Lindahl
Emergent BioSolutions Inc.
August 18, 2021
Page 4
Consolidated Financial Statements
17. Segment Information, page 105
5. You state on page 7 that you are organized into four business units,
however you have
only presented one reportable segment. Please provide us an analysis
of why you believe
additional segment disclosure is not required pursuant to ASC 280.
Form 10-Q for the Fiscal Quarter Ended June 30, 2021
Item 1. Risk Factors
Product Development and Commercialization Risks, page 39
6. You disclose in Risk Factors the FDA inspection on April 21, 2021
which discovered
cross-contamination of a single drug substance lot intended for
further drug product
manufacturing and use in the Johnson & Johnson's COVID-19 vaccine.
Please provide
revised disclosure to be included in future filings for the following:
Disclose in Management's Discussion and Analysis the effect the
cross-
contamination had on your results of operations.
Clarify on page 29 that the $41.5 million inventory write-off
relates to the cross-
contamination issue.
Provide additional disclosure relating to the status of the
AstraZeneca contract as a
result of the cross-contamination issue and how your results of
operations have been
and will be affected in the future.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Li Xiao at (202) 551-4391 or Mary Mast at (202) 551-3613
with any
questions.
FirstName LastNameRichard Lindahl Sincerely,
Comapany NameEmergent BioSolutions Inc.
Division of
Corporation Finance
August 18, 2021 Page 4 Office of Life
Sciences
FirstName LastName