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5300000 -5400000 -200000 -5400000 2700000 1600000 19995000 94871000 <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt;"><div style="text-align: left; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">4.</font>&#160;<font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Acquisitions</font></div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: left; text-indent: 18pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold; font-style: italic;">Acquisition of ACAM2000 business</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">On October 6, 2017, the Company completed the acquisition of the ACAM2000&#174; (Smallpox (Vaccinia) Vaccine, Live) business of Sanofi Pasteur Biologics, LLC ("Sanofi"). This acquisition includes ACAM2000, the only smallpox vaccine licensed by the FDA, a current good manufacturing practices ("cGMP") live viral manufacturing facility and office and warehouse space, both in Canton, Massachusetts, and a cGMP viral fill/finish facility in Rockville, Maryland. With this acquisition, the Company also acquired an existing 10-year contract with the Centers for Disease Control and Prevention ("CDC"), which will expire and be up for renewal or extension in March 2018. This contract had a stated value up to $425 million, with a remaining contract value of up to approximately $160 million as of the acquisition date, for the delivery of ACAM2000 to the SNS and establishing U.S.-based manufacturing of ACAM2000. <font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">This acquisition added to the Company's product portfolio and expanded the Company's manufacturing capabilities.</font></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">At the closing, the Company paid $97.5 million in an upfront payment and $20 million in milestone payments earned as of the closing date tied to the achievement of certain regulatory and manufacturing-related milestones, for a total payment in cash of $117.5 million. The agreement includes an additional milestone payment of up to $7.5 million upon achievement of a regulatory milestone, which was achieved in November 2017. The $7.5 million milestone payment was made during the fourth quarter of 2017. This transaction will be accounted for by the Company under the acquisition method of accounting, with the Company as the acquirer. Under the acquisition method of accounting, the assets and liabilities of the ACAM2000 business will be recorded as of October 6, 2017, the acquisition date, at their respective fair values, and combined with those of the Company.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The contingent purchase consideration obligation is based on a regulatory milestone. At October 6, 2017, the contingent purchase consideration obligation related to the regulatory milestone was recorded at a fair value of $2.2 million. The Level 3 fair value of this obligation is based on a present value model of management's assessment of the probability of achievement of the regulatory milestone as of the acquisition date. 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The Company places its cash and cash equivalents with high quality financial institutions. Management believes that the financial risks associated with its cash and cash equivalents are minimal. 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All significant intercompany accounts and transactions have been eliminated in consolidation.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In anticipation of the spin-off, the Company realigned certain components of its biosciences business to the new Aptevo segment to be consistent with how the Company's chief operating decision maker ("CODM") allocates resources and makes decisions about the operations of the Company. Effective January 1, 2016, the Company changed its segment presentation to reflect this new structure, and recast all prior periods presented to conform to the new presentation. On August 1, 2016, the Company completed the spin-off of Aptevo. As of December 31, 2017, the results of operations and financial position of Aptevo are reflected as discontinued operations for all periods presented through the date of the spin-off. The historical financial statements and footnotes have been revised accordingly. See Note 3. "Discontinued operations" for further details regarding the spin-off. 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In connection with the notice of termination, bondholders were given the option to convert their notes into the Company's stock at a rate of 32.386 per $1,000 of principal outstanding, plus a make-whole of an additional 3.1556 shares per $1,000 principal outstanding, in accordance with the terms of the indenture. The Company was not obligated to pay accrued or unpaid interest on converted notes, and bondholders who did not convert by the deadline of December 28, 2017 would retain their bonds but lose the conversion rights associated with the Notes and be paid interest of 2.875% until the earlier of maturity of the Notes in 2021 or the bonds being called and repaid in full by the Company. Between July 15, 2017 and the notification of termination of conversion rights, the Company accrued interest on the converted Notes of $2.4 million which was recorded as an increase in additional paid-in-capital on the balance sheet. Between November 14, 2017 and December 28, 2017 (the "conversion period"), approximately $239.4 million of bonds were converted into 8.5 million shares of the Company's common stock, inclusive of shares issued as part of the make-whole provision. In addition, the Company recorded a reduction in additional paid-in-capital on the Company's balance sheet of $3.6 million associated with debt issuance costs attributable to the converted notes. After giving effect to the converted bonds, the outstanding principal balance of the Notes as of December 31, 2017 was $10.6 million.</div><div style="line-height: 10.25pt; margin-top: 3pt; margin-bottom: 3pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;"><u>Senior secured credit agreement</u></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">On September 29, 2017, the Company entered into a senior secured credit agreement (the "2017 Credit Agreement") with four lending financial institutions, which replaced the Company's prior senior secured credit agreement (the "2013 Credit Agreement"). The 2017 Credit Agreement provides for a senior secured credit facility of up to $200 million through September 29, 2022. The 2017 Credit Agreement also includes a $100 million accordion feature, which could provide an additional $100 million in revolver or incremental term loans, at the option of the Company, resulting in a potential aggregate commitment of up to $300 million, subject to certain conditions and requirements set forth in the 2017 Credit Agreement. As of December 31, 2017, no amounts were drawn under the 2017 Credit Agreement.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's payment obligations under the 2017 Credit Agreement are secured by a lien on substantially all of the Company's assets, including the stock of all the Company's domestic subsidiaries, and the assets of the subsidiary guarantors. Borrowings under the 2017 Credit Agreement will bear interest at a rate per annum equal to (a) a eurocurrency rate plus a margin ranging from 1.50% to 2.50% per annum, depending on the Company's consolidated net leverage ratio or (b) a base rate (which is the highest of the prime rate, the federal funds rate plus 0.50% and a eurocurrency rate for an interest period of one month plus 1%) plus a margin ranging from 0.50% to 1.50%, depending on the Company's consolidated net leverage ratio. The Company is required to make quarterly payments under the 2017 Credit Agreement of accrued and unpaid interest on the outstanding principal balance, based on the above interest rates. In addition, the Company is required to pay commitment fees ranging from 0.25% to 0.40% per annum, depending on the Company's consolidated net leverage ratio, in respect of daily unused commitments under the 2017 Credit Agreement.</div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"></font><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The 2017 Credit Agreement contains affirmative and negative covenants customary for financings of this type. Negative covenants in the 2017 Credit Agreement, among other things, limit the Company's ability to incur indebtedness and liens; dispose of assets; make investments including loans, advances, guarantees, or acquisitions (other than permitted acquisitions, subject to compliance with the financial covenants and certain other conditions); and enter into certain mergers or consolidation transactions. The 2017 Credit Agreement also contains financial covenants, tested quarterly and in connection with any triggering events under the 2017 Credit Agreement: (1) a minimum consolidated debt service coverage ratio of 2.50 to 1.00, and (2) a maximum consolidated net leverage ratio of 3.50 to 1.00, which may be adjusted to 4.00 to 1.00 for a four-quarter period in connection with a permitted acquisition, subject to the terms and conditions of the 2017 Credit Agreement. Each of the ratios referred to in the foregoing clauses (1) and (2) is calculated on a consolidated basis for each consecutive four fiscal quarter periods. 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Discontinued operations</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">On August 1, 2016, the Company completed the spin-off of Aptevo <font style="background-color: #FFFFFF; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">through</font> the distribution of 100% of the outstanding shares of common stock of Aptevo to the Company's shareholders (the "Distribution"). The Distribution was made to the Company's shareholders of record as of the close of business on July 22, 2016 (the "Record Date"), who received one share of Aptevo common stock for every two shares of Emergent common stock held as of the Record Date. The Distribution was intended to qualify as a tax-free distribution for federal income tax purposes in the United States. In the aggregate, approximately 20.2 million shares of Aptevo common stock were distributed to the Company's shareholders of record as of the Record Date in the Distribution. After the Distribution, the Company no longer holds shares of Aptevo's common stock. In addition, on August 1, 2016, the Company entered into a non-negotiable, unsecured promissory note with Aptevo to provide an additional $20 million in funding, which the Company paid in January 2017.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The historical statements of operations of Aptevo have been presented as discontinued operations in the consolidated financial statements and the prior period has been restated. 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font-family: 'Times New Roman', Times, serif;">Except for the Company's Canadian subsidiaries, the local currency is the functional currency for the Company's foreign subsidiaries and, as such, assets and liabilities are translated into U.S. dollars at year-end exchange rates. 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The estimates and assumptions used in calculating fair value include identifying future cash flows, which requires that the Company makes a number of critical legal, economic, market and business assumptions that reflect best estimates as of the testing date. The Company's assumptions and estimates may differ significantly from actual results, or circumstances could change that would cause the Company to conclude that an impairment now exists or that it previously understated the extent of impairment. 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The Company's annual assessment includes a comparison of the fair value of intangible assets to existing carrying value, and recognizes an impairment when the carrying value is greater than the determined fair value. The Company believes that the assumptions used in valuing the intangible assets are reasonable and are based upon its best estimate of likely outcomes of sales and clinical development. The underlying assumptions and estimates used to value these assets are subject to change in the future, and actual results may differ significantly from the assumptions and estimates. The Company has selected October 1 as its annual impairment test date for indefinite-lived intangible assets.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company assesses the recoverability of its long-lived assets or asset groups for which an indicator of impairment exists by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If the Company concludes that the carrying value will not be recovered, the Company measures the amount of such impairment by comparing the fair value to the carrying value of the assets or asset groups.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div></div> <div style="font-family: 'Times New Roman', Times, serif; font-size: 10pt;"><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Acquisitions</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In determining whether an acquisition is a business combination versus an asset acquisition, the accounting guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of assets and activities is not a business and therefore treated as an asset acquisition. If it's not met, the entity evaluates whether the set meets the definition of a business. If an acquired asset or asset group does not meet the definition of a business, the transaction is accounted for as an asset acquisition. Otherwise, the acquisition is treated as a business combination.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the merger or acquisition at their respective fair values with limited exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accordingly, the Company may be required to value assets at fair value measures that do not reflect the Company's intended use of those assets. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company's consolidated financial statements after the date of the merger or acquisition. If the Company determines the assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction will be accounted for as an acquisition of assets rather than a business combination and, therefore, no goodwill will be recorded.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The fair values of intangible assets, including acquired in-process research and development ("IPR&amp;D"), are determined utilizing information available at or near the merger or acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, the Company typically obtains assistance from third-party valuation specialists for significant items. Amounts allocated to acquired IPR&amp;D are capitalized and accounted for as indefinite-lived intangible assets. Upon successful completion of each project, the Company will make a separate determination as to the remaining useful life of the asset and begin amortization. The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as asset lives, can materially affect the Company's results of operations.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The fair values of identifiable intangible assets related to current products and product rights are primarily determined by using an "income approach" through which fair value is estimated based on each asset's discounted projected net cash flows. The Company's estimates of market participant net cash flows consider historical and projected pricing, margins and expense levels, the performance of competing products where applicable, relevant industry and therapeutic area growth drivers and factors, current and expected trends in technology and product life cycles, the time and investment that will be required to develop products and technologies, the ability to obtain marketing and regulatory approvals, the ability to manufacture and commercialize the products, the extent and timing of potential new product introductions by the Company's competitors, and the life of each asset's underlying patent, if any. The net cash flows are then probability-adjusted where appropriate to consider the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future net cash flows of each product are then discounted to present value utilizing an appropriate discount rate.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The fair values of identifiable intangible assets related to IPR&amp;D are determined using an income approach, through which fair value is estimated based on each asset's probability-adjusted future net cash flows, which reflect the different stages of development of each product and the associated probability of successful completion. The net cash flows are then discounted to present value using an appropriate discount rate. 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The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities in the United States at December 31, 2017 and recognized a provisional $13.4 million tax benefit in the Company's consolidated statement of income for the year ended December 31, 2017.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits ("E&amp;P") through the year ended December 31, 2017. The Company had an estimated $95.4 million of undistributed foreign E&amp;P subject to the deemed mandatory repatriation and recognized a provisional transition tax of $13.6 million of income tax expense in the Company's consolidated statement of income for the year ended December 31, 2017. The Company expects to pay U.S. federal cash taxes on the deemed mandatory repatriation over eight years.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income ("GILTI") provisions and the base-erosion and anti-abuse tax ("BEAT") provisions.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. The Company expects that it will be subject to incremental U.S. tax on GILTI income beginning in 2018, due to Company's overall foreign loss position. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The Company's estimates are provisional based upon utilization of foreign tax credits and validation of E&amp;P. 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The Company filed its answer on July 28, 2017. The parties are currently in the process of exchanging discovery. The Plaintiffs' filed an amended motion for class certification and appointment of Sponn and Geoffrey L. Flagstad as lead plaintiffs on December 20, 2017. A hearing on that motion is set for May 2, 2018. The Defendants believe that the allegations in the complaint are without merit and intend to defend themselves vigorously against those claims. 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text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#160;As of December 31, 2017 and 2016, the Company's accounts receivable balances were comprised of 89% and 83%, respectively, from the U.S. government. The overall increase in the percentage of accounts receivable attributed to U.S. government was due primarily to the timing of shipments of product and payments received for BioThrax product sales under the Company's contract with the CDC. Unbilled accounts receivable relates to various service contracts for which work has been performed, though invoicing has not yet occurred. 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The Company's current Centers for Disease Control ("CDC") contract does not necessarily increase the likelihood that it will secure future comparable contracts with the U.S. government. The Company expects that a significant portion of the business that it will seek in the near future, in particular for BioThrax, will be under government contracts that present a number of risks that are not typically present in the commercial contracting process. U.S. government contracts for BioThrax are subject to unilateral termination or modification by the government. The Company may fail to achieve significant sales of BioThrax to customers in addition to the U.S. government, which would harm its growth opportunities. The Company may not be able to sustain or increase profitability. The Company may not be able to manufacture BioThrax consistently in accordance with FDA specifications.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Accounts receivable are stated at invoice amounts and consist primarily of amounts due from the U.S. government, as well as amounts due under reimbursement contracts with other government entities and non-government organizations. If necessary, the Company records a provision for doubtful receivables to allow for any amounts which may be unrecoverable. 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ASU No. 2014-09 supersedes the revenue recognition requirements in <font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;">Topic 605, Revenue Recognition</font>, as well as most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 also specifies the accounting for some costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company will adopt the requirements of the new standard in the first quarter of 2018 using the modified retrospective method. The modified retrospective method requires companies to recognize the cumulative effect of initially applying the new standard as an adjustment to opening retained earnings.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company used a cross functional team to identify and organize its contracts for analysis. The Company has finalized its review of its revenue contract portfolio and made its determination of its revenue streams as well as completed extensive contract specific reviews to determine the impacts of the new standard on its historical and prospective revenue recognition. Because many of the Company's contracts with customers have unique contract terms, the Company reviewed all of its non-standard agreements in order to determine the effect of adoption. As a result, it has determined the BARDA BioThrax Contract and BARDA NuThrax Contract will have a material change in revenue recognition that will likely increase the amount of deferred revenue on the adoption date. The Company is in the process of finalizing its analysis of the CIADM contract but expects that the revenue recognition policy and possibly the cumulative effect could be material. The Company is also finalizing its accounting policy; related income tax effects for these contracts; evaluating costs that may need to be capitalized or expensed; and designing and implementing the necessary changes to processes and controls in order to account for revenue under the new standard. 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ASU No. 2016-02 increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements for both lessees and lessors. The standard will be effective January 1, 2019 for the Company, with early adoption permitted. The standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements. 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width: 1%; padding-bottom: 4px; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.10</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; padding-bottom: 4px; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; padding-bottom: 4px; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">(0.27</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; padding-bottom: 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">)</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; padding-bottom: 4px; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.52</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; padding-bottom: 4px; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; padding-bottom: 4px; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; border-bottom: #000000 double 4px; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; border-bottom: #000000 double 4px; 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width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td></tr><tr><td valign="bottom" style="vertical-align: bottom; width: 52%; background-color: #CCEEFF;"><div style="text-align: left; text-indent: -7.2pt; margin-left: 14.4pt; line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Net income (loss) per share from continuing operations-diluted</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.26</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">(0.05</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; 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vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.67</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td></tr><tr><td valign="bottom" style="vertical-align: bottom; width: 52%; padding-bottom: 2px; background-color: #FFFFFF;"><div style="text-align: left; text-indent: -7.2pt; margin-left: 14.4pt; line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Net income (loss) per share from discontinued operations-diluted</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; padding-bottom: 2px; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; 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An item can generally be considered a separate unit of accounting if both of the following criteria are met:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">(1) the delivered item or items have value to the customer on a standalone basis. The item or items have value on a standalone basis if they are sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. 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The Company deems service to have been rendered if no continuing obligation exists on the part of the Company.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's contract with the Biomedical Advanced Research and Development Authority ("BARDA") to establish a Center for Innovation in Advanced Development and Manufacturing ("CIADM") is a service arrangement that includes multiple elements. The CIADM contract requires the Company to provide a flexible infrastructure to supply medical countermeasures to the U.S. government over the contract period and includes such items as construction and facility design, workforce development and licensure of a pandemic flu vaccine. Since none of the individual elements by themselves satisfy the purpose of the contract, the Company has concluded that the CIADM contract elements cannot be separated as they do not have stand-alone value to the U.S. government. Therefore, the Company has concluded that there is a single unit of accounting associated with the CIADM contract. The Company recognizes revenue under the CIADM contract on a straight-line basis, based upon its estimate of the total payments to be received under the contract. The Company analyzes the estimated payments to be received on a quarterly basis to determine if an adjustment to revenue is required. Changes in estimates attributed to modifications in the estimate of total payments to be received are recorded prospectively.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's BAT contract with BARDA is a service arrangement that includes multiple elements. The deliverables to BARDA include supplying product to the SNS, performing stability testing for the product, achievement of extended product expiry dating, maintenance of horse populations and plasma extraction. The Company has determined that each of the deliverables above represents a separate unit of accounting as they have standalone value to the U.S. government. The Company allocated the value of the contract to the undelivered elements based on best estimate of selling price ("BESP"). BESP methodology for the deliverables, excluding the product sales, was developed using a cost build-up for internal and external costs, plus a specified mark-up. The allocation of value to the product sales was based on the remaining unallocated value. The Company completed the final delivery of the BAT product in 2017. 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The deliverables to BARDA include to supply product to the SNS, perform stability testing for the product, achievement of extended product expiry dating and plasma extraction. The Company has determined that each of the deliverables above represents separate units of accounting as they have standalone value to the U.S. government. The Company allocated the value of the contract to the undelivered elements based on BESP. BESP methodology for the deliverables, excluding the product sales, was developed using a cost build-up for internal and external costs, plus a specified mark-up. The allocation of value to the product sales was based on the remaining unallocated value. The Company recognizes revenue for:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">VIGIV and Anthrasil product sales upon delivery to the CDC;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">stability testing based on the required testing schedule of the product;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">extended product expiry based on achievement of the extension; and</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">plasma collection on a per liter basis.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's contract for the NuThrax product candidate with BARDA, which was entered into on September 30, 2016 is a service arrangement that includes multiple elements. The deliverables to BARDA are the completion of development for NuThrax and the procurement of product for the SNS. The Company has determined that each of the deliverables above are a separate unit of accounting as they have standalone value to the U.S. government. The Company allocated the value of the contract to the undelivered elements based on best estimate of selling price ("BESP"). BESP methodology for the development deliverable was developed using a cost build-up for internal and external costs, plus a specified mark-up.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company has determined that the procurement of NuThrax under the BARDA NuThrax Contract is a contingent deliverable, as it is dependent upon successful completion of development; therefore, the Company has excluded this from the allocation of the contract consideration. The Company has allocated $147.5 million to the development services deliverable and will recognize revenue as the services are provided.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">On March 16, 2017, the Company entered into a contract with BARDA, valued at $100 million, for the delivery of BioThrax to the SNS over a two-year period of performance. In conjunction with the signing of this contract, the Company entered into a modification to its BARDA NuThrax Contract that increases the number of doses of NuThrax to be delivered under the base period from two million to three million doses with a commensurate reduction in dose price for the initial deliveries. The modification also provides for a discount on the sales price for doses to be procured during the option period up to $100 million. As a result of the modification of the BARDA NuThrax Contract, in conjunction with execution of the BARDA BioThrax Contract, the Company has determined that the two agreements are linked under the revenue recognition requirements of the Financial Accounting Standards Board ("FASB") Topic 605, Revenue Recognition. The Company analyzed these agreements and determined that the units of accounting under the linked agreements are:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">development services for the NuThrax product candidate under the BARDA NuThrax Contract; and</div></td></tr></table></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">procurement of BioThrax under the BARDA BioThrax Contract.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's allocation of contract consideration for the development services was updated based on the services provided prior to March 17, 2017. The allocation of contract consideration for the BioThrax doses to be sold under the BARDA BioThrax Contract was determined based on similar pricing provided to other customers. The Company's determination of the amount of contract consideration to be allocated to the discounts was based on an undiscounted probability adjusted model, which factored in the expected timing of regulatory approval for the NuThrax product candidate, expected levels of procurement of the NuThrax product candidate upon regulatory approval and the market conditions for these types of medical countermeasures. The Company allocated the contract consideration to the two units of accounting as follows:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$137.1 million was allocated to the development services for the NuThrax product candidate under the BARDA NuThrax Contract; and</div></td></tr></table></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$93.6 million was allocated to the procurement of BioThrax under the BARDA BioThrax Contract.</div></td></tr></table></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"></font><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company deferred a portion of the consideration received for doses delivered under the BARDA BioThrax Contract and the development services for the NuThrax product candidate. The Company will recognize the deferred revenue upon the delivery of NuThrax doses under the BARDA NuThrax Contract, or upon the future extinguishment of the Company's obligation to deliver NuThrax doses to which the discount applies.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Revenue associated with non-refundable upfront license fees under arrangements where the license fees and research and development activities cannot be accounted for as separate units of accounting is deferred and recognized as revenue either on a straight-line basis over the Company's continued involvement in the research and development process or based on the proportional performance of the Company's expected future obligation under the contract. Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved, and the milestone payments are due and collectible. If not deemed substantive, the Company recognizes such milestone as revenue on a straight-line basis over the remaining expected term of continued involvement in the research and development process.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Milestones are considered substantive if all of the following conditions are met: (1) the milestone is non-refundable, (2) achievement of the milestone was not reasonably assured at the inception of the arrangement, (3) substantive effort is involved to achieve the milestone, and (4) the amount of the milestone appears reasonable in relation to the effort expended. 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font-weight: bold;">(in thousands)</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; border-bottom: #000000 solid 2px;">&#160;</td><td colspan="2" valign="bottom" style="vertical-align: bottom; border-bottom: #000000 solid 2px;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; border-bottom: #000000 solid 2px;">&#160;</td></tr><tr><td valign="bottom" style="vertical-align: bottom; width: 88%; background-color: #CCEEFF;"><div style="text-align: left; line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">2018</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; 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text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td></tr><tr><td valign="bottom" style="vertical-align: bottom; width: 52%; background-color: #CCEEFF;"><div style="text-align: left; text-indent: -7.2pt; margin-left: 14.4pt; line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Net income (loss) per share from continuing operations-basic</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; 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vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #FFFFFF;">&#160;</td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #FFFFFF;">&#160;</td></tr><tr><td valign="bottom" style="vertical-align: bottom; width: 52%; background-color: #CCEEFF;"><div style="text-align: left; text-indent: -7.2pt; margin-left: 14.4pt; line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Net income (loss) per share from continuing operations-diluted</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.26</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">(0.05</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">)</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.43</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td><td colspan="1" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$</div></td><td colspan="1" valign="bottom" style="vertical-align: bottom; text-align: right; width: 9%; background-color: #CCEEFF;"><div style="line-height: 9.1pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">0.67</div></td><td colspan="1" nowrap="nowrap" valign="bottom" style="text-align: left; vertical-align: bottom; width: 1%; background-color: #CCEEFF;">&#160;</td></tr><tr><td valign="bottom" style="vertical-align: bottom; 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All significant intercompany accounts and transactions have been eliminated in consolidation.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In anticipation of the spin-off, the Company realigned certain components of its biosciences business to the new Aptevo segment to be consistent with how the Company's chief operating decision maker ("CODM") allocates resources and makes decisions about the operations of the Company. Effective January 1, 2016, the Company changed its segment presentation to reflect this new structure, and recast all prior periods presented to conform to the new presentation. On August 1, 2016, the Company completed the spin-off of Aptevo. As of December 31, 2017, the results of operations and financial position of Aptevo are reflected as discontinued operations for all periods presented through the date of the spin-off. The historical financial statements and footnotes have been revised accordingly. See Note 3. "Discontinued operations" for further details regarding the spin-off. For periods following the spin-off, the Company reports financial results under one operating segment which is also a single reportable segment.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Use of estimates</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Cash and cash equivalents</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Cash equivalents are highly liquid investments with a maturity of 90 days or less at the date of purchase and consist of time deposits and investments in money market funds with commercial banks and financial institutions. Also, the Company maintains cash balances with financial institutions in excess of insured limits. The Company does not anticipate any losses with such cash balances.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Fair value of measurements</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company measures and records cash equivalents and investment securities considered available-for-sale at fair value in the accompanying financial statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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The Company's current Centers for Disease Control ("CDC") contract does not necessarily increase the likelihood that it will secure future comparable contracts with the U.S. government. The Company expects that a significant portion of the business that it will seek in the near future, in particular for BioThrax, will be under government contracts that present a number of risks that are not typically present in the commercial contracting process. U.S. government contracts for BioThrax are subject to unilateral termination or modification by the government. The Company may fail to achieve significant sales of BioThrax to customers in addition to the U.S. government, which would harm its growth opportunities. The Company may not be able to sustain or increase profitability. The Company may not be able to manufacture BioThrax consistently in accordance with FDA specifications.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Accounts receivable are stated at invoice amounts and consist primarily of amounts due from the U.S. government, as well as amounts due under reimbursement contracts with other government entities and non-government organizations. If necessary, the Company records a provision for doubtful receivables to allow for any amounts which may be unrecoverable. This provision is based upon an analysis of the Company's prior collection experience, customer creditworthiness and current economic trends.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Concentrations of credit risk and uncertainties</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions. Management believes that the financial risks associated with its cash and cash equivalents are minimal. Because accounts receivable consists primarily of amounts due from the U.S. government for product sales and from government agencies under government grants and development contracts, management does not deem the credit risk to be significant.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Inventories</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Inventories are stated at the lower of cost or net realizable value with cost being determined using a standard cost method, which approximates average cost. Average 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. The Company analyzes its inventory levels quarterly and writes down, in the applicable period, inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected customer demand. The Company also writes off, in the applicable period, the costs related to expired inventory.&#160;Costs of purchased inventories are recorded using weighted-average costing. The Company determines normal capacity for each production facility and allocates fixed production-overhead costs on that basis.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Property, plant and equipment</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:</div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;"></font><br style="line-height: 10.25pt;" /></div><table cellpadding="0" cellspacing="0" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%; border-collapse: collapse;"><tr><td style="width: 50.01%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Buildings</div></td><td style="width: 49.99%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">31-39 years</div></td></tr><tr><td style="width: 50.01%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Building improvements</div></td><td style="width: 49.99%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">10-39 years</div></td></tr><tr><td style="width: 50.01%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Furniture and equipment</div></td><td style="width: 49.99%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">3-15 years</div></td></tr><tr><td style="width: 50.01%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Software</div></td><td style="width: 49.99%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">3-7 years or product life</div></td></tr><tr><td style="width: 50.01%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Leasehold improvements</div></td><td style="width: 49.99%; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Lesser of the asset life or lease term</div></td></tr></table><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company capitalizes internal-use software when both (a) the software is internally developed, acquired, or modified solely to meet the entity's internal needs and (b) during the software's development or modification, no substantive plan either exists or is being developed to market the software externally. Capitalization of qualifying internal-use software costs begins when the preliminary project stage is completed, management with the relevant authority, implicitly or explicitly, authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Income taxes</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized 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 research and development 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.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Deferred income tax effects of transactions reported in different periods for financial reporting and income tax return purposes are recognized under the asset and liability method of accounting for income taxes. This method gives consideration to the future tax consequences of the deferred income tax items and immediately recognizes changes in income tax laws in the year of enactment. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Reform Act"). Further information on the tax impacts of the Tax Reform Act is included in Note 12 of the Company's consolidated financial statements.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's ability to realize deferred tax assets depends upon future taxable income as well as the limitations discussed below. For financial reporting purposes, a deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized prior to expiration. The Company considers future taxable income and ongoing tax planning strategies in assessing the need for valuation allowances. In general, if the Company determines that it is more likely than not to realize more than the recorded amounts of net deferred tax assets in the future, the Company will reverse all or a portion of the valuation allowance established against its deferred tax assets, resulting in a decrease to the provision for income taxes in the period in which the determination is made. Likewise, if the Company determines that it is not more likely than not to realize all or part of the net deferred tax asset in the future, the Company will establish a valuation allowance against deferred tax assets, with an offsetting increase to the provision for income taxes, in the period in which the determination is made.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Under sections 382 and 383 of the Internal Revenue Code, if an ownership change occurs with respect to a "loss corporation", as defined therein, there are annual limitations on the amount of net operating losses and deductions that are available. The Company believes the use of net operating losses and research and development tax credits acquired in the Trubion acquisition will not be significantly limited. Due to the acquisition of Microscience in 2005 and the Company's initial public offering, the Company believes the use of the operating losses incurred prior to 2005 will be significantly limited.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions, in (1)&#160;calculating the Company's income tax expense, deferred tax assets and deferred tax liabilities, (2)&#160;determining any valuation allowance recorded against deferred tax assets and (3)&#160;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 significantly from tax benefits ultimately realized.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Revenue recognition</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company recognizes revenues from product sales <font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">and contract manufacturing </font>if four basic criteria have been met:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#61607;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">there is persuasive evidence of an arrangement;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#61607;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">delivery has occurred or title has passed to the Company's customer;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#61607;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">the fee is fixed or determinable; and</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#61607;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">collectability is reasonably assured.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Under the Company's contracts with the CDC, the Company invoices the CDC and recognizes the related revenue upon acceptance by the government at delivery site, at which time title to the product passes to the CDC.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Agreements with multiple components ("deliverables" or "items") are evaluated to determine if the deliverables can be divided into more than one unit of accounting. An item can generally be considered a separate unit of accounting if both of the following criteria are met:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">(1) the delivered item or items have value to the customer on a standalone basis. The item or items have value on a standalone basis if they are sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. In the context of a customer's ability to resell the delivered item(s), this criterion does not require the existence of an observable market for the deliverable(s); and</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">(2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in control of the Company. Items that cannot be divided into separate units are combined with other units of accounting, as appropriate. Consideration received is allocated among the separate units based on the relative selling price of each deliverable. The Company deems service to have been rendered if no continuing obligation exists on the part of the Company.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's contract with the Biomedical Advanced Research and Development Authority ("BARDA") to establish a Center for Innovation in Advanced Development and Manufacturing ("CIADM") is a service arrangement that includes multiple elements. The CIADM contract requires the Company to provide a flexible infrastructure to supply medical countermeasures to the U.S. government over the contract period and includes such items as construction and facility design, workforce development and licensure of a pandemic flu vaccine. Since none of the individual elements by themselves satisfy the purpose of the contract, the Company has concluded that the CIADM contract elements cannot be separated as they do not have stand-alone value to the U.S. government. Therefore, the Company has concluded that there is a single unit of accounting associated with the CIADM contract. The Company recognizes revenue under the CIADM contract on a straight-line basis, based upon its estimate of the total payments to be received under the contract. The Company analyzes the estimated payments to be received on a quarterly basis to determine if an adjustment to revenue is required. Changes in estimates attributed to modifications in the estimate of total payments to be received are recorded prospectively.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's BAT contract with BARDA is a service arrangement that includes multiple elements. The deliverables to BARDA include supplying product to the SNS, performing stability testing for the product, achievement of extended product expiry dating, maintenance of horse populations and plasma extraction. The Company has determined that each of the deliverables above represents a separate unit of accounting as they have standalone value to the U.S. government. The Company allocated the value of the contract to the undelivered elements based on best estimate of selling price ("BESP"). BESP methodology for the deliverables, excluding the product sales, was developed using a cost build-up for internal and external costs, plus a specified mark-up. The allocation of value to the product sales was based on the remaining unallocated value. The Company completed the final delivery of the BAT product in 2017. The Company recognizes revenue for:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">BAT product sales upon delivery to the SNS;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">stability testing based on the required testing schedule of the product;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">extended product expiry based on achievement of the extension;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">horse maintenance based on a per horse basis; and</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">plasma collection on a per liter basis.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 27pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's contracts for VIGIV with the CDC and for Anthrasil with BARDA are service arrangements that include multiple elements. The deliverables to BARDA include to supply product to the SNS, perform stability testing for the product, achievement of extended product expiry dating and plasma extraction. The Company has determined that each of the deliverables above represents separate units of accounting as they have standalone value to the U.S. government. The Company allocated the value of the contract to the undelivered elements based on BESP. BESP methodology for the deliverables, excluding the product sales, was developed using a cost build-up for internal and external costs, plus a specified mark-up. The allocation of value to the product sales was based on the remaining unallocated value. The Company recognizes revenue for:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">VIGIV and Anthrasil product sales upon delivery to the CDC;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">stability testing based on the required testing schedule of the product;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">extended product expiry based on achievement of the extension; and</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">plasma collection on a per liter basis.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's contract for the NuThrax product candidate with BARDA, which was entered into on September 30, 2016 is a service arrangement that includes multiple elements. The deliverables to BARDA are the completion of development for NuThrax and the procurement of product for the SNS. The Company has determined that each of the deliverables above are a separate unit of accounting as they have standalone value to the U.S. government. The Company allocated the value of the contract to the undelivered elements based on best estimate of selling price ("BESP"). BESP methodology for the development deliverable was developed using a cost build-up for internal and external costs, plus a specified mark-up.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company has determined that the procurement of NuThrax under the BARDA NuThrax Contract is a contingent deliverable, as it is dependent upon successful completion of development; therefore, the Company has excluded this from the allocation of the contract consideration. The Company has allocated $147.5 million to the development services deliverable and will recognize revenue as the services are provided.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">On March 16, 2017, the Company entered into a contract with BARDA, valued at $100 million, for the delivery of BioThrax to the SNS over a two-year period of performance. In conjunction with the signing of this contract, the Company entered into a modification to its BARDA NuThrax Contract that increases the number of doses of NuThrax to be delivered under the base period from two million to three million doses with a commensurate reduction in dose price for the initial deliveries. The modification also provides for a discount on the sales price for doses to be procured during the option period up to $100 million. As a result of the modification of the BARDA NuThrax Contract, in conjunction with execution of the BARDA BioThrax Contract, the Company has determined that the two agreements are linked under the revenue recognition requirements of the Financial Accounting Standards Board ("FASB") Topic 605, Revenue Recognition. The Company analyzed these agreements and determined that the units of accounting under the linked agreements are:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">development services for the NuThrax product candidate under the BARDA NuThrax Contract; and</div></td></tr></table></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">procurement of BioThrax under the BARDA BioThrax Contract.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company's allocation of contract consideration for the development services was updated based on the services provided prior to March 17, 2017. The allocation of contract consideration for the BioThrax doses to be sold under the BARDA BioThrax Contract was determined based on similar pricing provided to other customers. The Company's determination of the amount of contract consideration to be allocated to the discounts was based on an undiscounted probability adjusted model, which factored in the expected timing of regulatory approval for the NuThrax product candidate, expected levels of procurement of the NuThrax product candidate upon regulatory approval and the market conditions for these types of medical countermeasures. The Company allocated the contract consideration to the two units of accounting as follows:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$137.1 million was allocated to the development services for the NuThrax product candidate under the BARDA NuThrax Contract; and</div></td></tr></table></div><div><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 72pt; vertical-align: top; align: right;"><div style="text-align: left; margin-left: 54pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">&#183;</div></td><td style="width: auto; vertical-align: top;"><div style="text-align: justify; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">$93.6 million was allocated to the procurement of BioThrax under the BARDA BioThrax Contract.</div></td></tr></table></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"></font><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company deferred a portion of the consideration received for doses delivered under the BARDA BioThrax Contract and the development services for the NuThrax product candidate. The Company will recognize the deferred revenue upon the delivery of NuThrax doses under the BARDA NuThrax Contract, or upon the future extinguishment of the Company's obligation to deliver NuThrax doses to which the discount applies.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Revenue associated with non-refundable upfront license fees under arrangements where the license fees and research and development activities cannot be accounted for as separate units of accounting is deferred and recognized as revenue either on a straight-line basis over the Company's continued involvement in the research and development process or based on the proportional performance of the Company's expected future obligation under the contract. Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved, and the milestone payments are due and collectible. If not deemed substantive, the Company recognizes such milestone as revenue on a straight-line basis over the remaining expected term of continued involvement in the research and development process.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Milestones are considered substantive if all of the following conditions are met: (1) the milestone is non-refundable, (2) achievement of the milestone was not reasonably assured at the inception of the arrangement, (3) substantive effort is involved to achieve the milestone, and (4) the amount of the milestone appears reasonable in relation to the effort expended. Payments received in advance of work performed are recorded as deferred revenue.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company generates contracts and grants revenue from cost-plus-fee contracts. Revenues from reimbursable contracts are recognized as costs are incurred, generally based on allowable costs incurred during the period, plus any recognizable earned fee. The Company considers fixed fees under cost-plus-fee contracts to be earned in proportion to the allowable costs incurred in performance of the contract. The Company analyzes costs for contracts and reimbursable grants to ensure reporting of revenues gross versus net is appropriate. For each of the three years in the period ended December 31, 2017, the costs incurred under the contracts and grants approximated the revenue earned.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Acquisitions</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In determining whether an acquisition is a business combination versus an asset acquisition, the accounting guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of assets and activities is not a business and therefore treated as an asset acquisition. If it's not met, the entity evaluates whether the set meets the definition of a business. If an acquired asset or asset group does not meet the definition of a business, the transaction is accounted for as an asset acquisition. Otherwise, the acquisition is treated as a business combination.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the merger or acquisition at their respective fair values with limited exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accordingly, the Company may be required to value assets at fair value measures that do not reflect the Company's intended use of those assets. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company's consolidated financial statements after the date of the merger or acquisition. If the Company determines the assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction will be accounted for as an acquisition of assets rather than a business combination and, therefore, no goodwill will be recorded.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The fair values of intangible assets, including acquired in-process research and development ("IPR&amp;D"), are determined utilizing information available at or near the merger or acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, the Company typically obtains assistance from third-party valuation specialists for significant items. Amounts allocated to acquired IPR&amp;D are capitalized and accounted for as indefinite-lived intangible assets. Upon successful completion of each project, the Company will make a separate determination as to the remaining useful life of the asset and begin amortization. The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as asset lives, can materially affect the Company's results of operations.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The fair values of identifiable intangible assets related to current products and product rights are primarily determined by using an "income approach" through which fair value is estimated based on each asset's discounted projected net cash flows. The Company's estimates of market participant net cash flows consider historical and projected pricing, margins and expense levels, the performance of competing products where applicable, relevant industry and therapeutic area growth drivers and factors, current and expected trends in technology and product life cycles, the time and investment that will be required to develop products and technologies, the ability to obtain marketing and regulatory approvals, the ability to manufacture and commercialize the products, the extent and timing of potential new product introductions by the Company's competitors, and the life of each asset's underlying patent, if any. The net cash flows are then probability-adjusted where appropriate to consider the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future net cash flows of each product are then discounted to present value utilizing an appropriate discount rate.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The fair values of identifiable intangible assets related to IPR&amp;D are determined using an income approach, through which fair value is estimated based on each asset's probability-adjusted future net cash flows, which reflect the different stages of development of each product and the associated probability of successful completion. The net cash flows are then discounted to present value using an appropriate discount rate. Indefinite-lived intangible assets are tested for impairment annually or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Intangible assets and long-lived assets</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company assesses intangible assets for impairment on an annual basis or more frequently if indicators of impairment are present. The Company's annual assessment includes a comparison of the fair value of intangible assets to existing carrying value, and recognizes an impairment when the carrying value is greater than the determined fair value. The Company believes that the assumptions used in valuing the intangible assets are reasonable and are based upon its best estimate of likely outcomes of sales and clinical development. The underlying assumptions and estimates used to value these assets are subject to change in the future, and actual results may differ significantly from the assumptions and estimates. The Company has selected October 1 as its annual impairment test date for indefinite-lived intangible assets.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company assesses the recoverability of its long-lived assets or asset groups for which an indicator of impairment exists by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If the Company concludes that the carrying value will not be recovered, the Company measures the amount of such impairment by comparing the fair value to the carrying value of the assets or asset groups.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Goodwill</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company assesses the carrying value of goodwill on an annual basis, or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable,<font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;">&#160;</font>to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. The provisions of the relevant accounting guidance require that the Company perform a two-step impairment test. In the first step, the Company compares the fair value of its reporting unit to the carrying value of the reporting unit. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting unit's goodwill. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, an impairment loss equal to the difference is recognized. The Company calculates the fair value of the reporting unit utilizing the income approach. The income approach utilizes a discounted cash flow model, using a discount rate based on the Company's estimated weighted average cost of capital. The Company also evaluates goodwill for all reporting units using the qualitative assessment method, which permits companies to qualitatively assess whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. The Company considers developments in its operations, the industry in which it operates and overall macroeconomic factors that could have affected the fair value of the reporting unit since the date of the most recent quantitative analysis of a reporting unit's fair value.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The determination of the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. The estimates and assumptions used in calculating fair value include identifying future cash flows, which requires that the Company makes a number of critical legal, economic, market and business assumptions that reflect best estimates as of the testing date. The Company's assumptions and estimates may differ significantly from actual results, or circumstances could change that would cause the Company to conclude that an impairment now exists or that it previously understated the extent of impairment. The Company selected October 1 as its annual goodwill impairment test date.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: left; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Contingent Consideration</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company records contingent consideration associated with (a) sales based royalties and (b) development and regulatory milestones at fair value. The fair value model used to calculate this obligation is based on the income approach (a discounted cash flow model) that has been risk adjusted based on the probability of achievement of net sales and achievement of the milestones. The inputs the Company uses for determining the fair value of the contingent consideration associated with sales based royalties and development and regulatory milestones are Level 3 fair value measurements. The Company re-evaluates the fair value on a quarterly basis. Changes in the fair value can result from adjustments to the discount rates and updates in the assumed timing of or achievement of net sales. Any future increase in the fair value of the contingent consideration associated with sales based royalties along with development and regulatory milestones are based on an increased likelihood that the underlying net sales or milestones will be achieved.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The associated payment or payments which will become due and payable for sales based royalties associated with products will result in a charge to cost of product sales and contract manufacturing in the period in which the increase is determined. Similarly, any future decrease in the fair value of contingent consideration associated with sales based royalties will result in a reduction in cost of product sales and contract manufacturing. The changes in fair value for potential future sales based royalties associated with product candidates in development will result in a charge to selling, general and administrative expense in the period in which the increase is determined. Similarly, any future decrease in the fair value of contingent consideration associated with potential future sales based royalties for products candidates will result in a reduction in selling, general and administrative expense.</div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"></font><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The associated payment or payments which will become due and payable for development and regulatory milestones will result in a charge to research and development expense in the period in which the increase is determined. Similarly, any future decrease in the fair value for development and regulatory milestones will result in a reduction in research and development expense.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Research and development</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">We expense research and development costs as incurred. Our research and development expenses consist primarily of:</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">personnel-related expenses;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">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;</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">costs of contract manufacturing services for clinical trial material; and</div></td></tr></table></div><div style="text-align: justify; line-height: 10.25pt;"><table cellpadding="0" cellspacing="0" class="DSPFListTable" style="font-family: 'Times New Roman', Times, serif; font-size: 10pt; width: 100%;"><tr><td style="width: 36pt;"></td><td style="width: 18pt; vertical-align: top; align: right; font-size: 10pt; font-family: Wingdings;">&#167;</td><td style="width: auto; vertical-align: top; text-align: justify;"><div style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;">costs of materials used in clinical trials and research and development.</div></td></tr></table></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In many cases, we plan to 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 research and development spending will be dependent upon such factors as the results from our clinical trials, the availability of reimbursement of research and development 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 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, such as studies involving BioThrax conducted by the CDC.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Comprehensive income</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Comprehensive income is comprised of net income and other changes in equity that are excluded from net income. The Company includes translation gains and losses incurred when converting its subsidiaries' financial statements from their functional currency to the U.S. dollar in accumulated other comprehensive income.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Foreign currencies</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">Except for the Company's Canadian subsidiaries, the local currency is the functional currency for the Company's foreign subsidiaries and, as such, assets and liabilities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates during the year. Translation adjustments resulting from this process are charged or credited to other comprehensive income. The Company's Canadian subsidiaries functional currency is U.S. dollars due primarily to a significant amount of the transactions of the subsidiaries being denominated in U.S. dollars.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Capitalized interest</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company capitalizes interest based on the cost of major ongoing capital projects which have not yet been placed in service. For the years ended December 31, 2017, 2016, and 2015, the Company incurred interest of $7.0 million, $8.3 million and $7.8 million, respectively. Of these amounts, the Company capitalized $2.2 million, $2.2 million and $2.9 million, respectively.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Earnings per share</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company calculates basic earnings per share by dividing net income by the weighted average number of shares of common stock outstanding during the period.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">For the years ended December 31, 2017, 2016, and 2015, the Company calculated diluted earnings per share using the if-converted method by dividing the adjusted net income by the adjusted weighted average number of shares of common stock outstanding during the period. The adjusted net income is adjusted for interest expense and amortization of debt issuance cost, both net of tax, associated with the Company's 2.875% Convertible Senior Notes due 2021 (the "Notes"). The weighted average number of diluted shares is adjusted for the potential dilutive effect of the exercise of stock options and the vesting of restricted stock units along with the assumption of the conversion of the Notes, each at the beginning of the period. During the fourth quarter of 2017, the Company issued a notice of termination of conversion rights related to the Notes and issued 8.5 million shares of common stock due to conversions that occurred in 2017.</div><div style="line-height: 11.4pt;"><br style="line-height: 11.4pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-weight: bold;">Accounting for stock-based compensation</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company has one stock-based employee compensation plan, the Fourth Amended and Restated Emergent BioSolutions Inc. 2006 Stock Incentive Plan (the "2006 Plan"), which includes both stock options and restricted stock units.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">As of December 31, 2017, an aggregate of 18.9 million shares of common stock were authorized for issuance under the 2006 Plan, of which a total of approximately 4.9 million shares of common stock remain available for future awards to be made to plan participants. 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ASU No. 2014-09 supersedes the revenue recognition requirements in <font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;">Topic 605, Revenue Recognition</font>, as well as most industry-specific guidance, and significantly enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 also specifies the accounting for some costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company will adopt the requirements of the new standard in the first quarter of 2018 using the modified retrospective method. The modified retrospective method requires companies to recognize the cumulative effect of initially applying the new standard as an adjustment to opening retained earnings.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">The Company used a cross functional team to identify and organize its contracts for analysis. The Company has finalized its review of its revenue contract portfolio and made its determination of its revenue streams as well as completed extensive contract specific reviews to determine the impacts of the new standard on its historical and prospective revenue recognition. Because many of the Company's contracts with customers have unique contract terms, the Company reviewed all of its non-standard agreements in order to determine the effect of adoption. As a result, it has determined the BARDA BioThrax Contract and BARDA NuThrax Contract will have a material change in revenue recognition that will likely increase the amount of deferred revenue on the adoption date. The Company is in the process of finalizing its analysis of the CIADM contract but expects that the revenue recognition policy and possibly the cumulative effect could be material. The Company is also finalizing its accounting policy; related income tax effects for these contracts; evaluating costs that may need to be capitalized or expensed; and designing and implementing the necessary changes to processes and controls in order to account for revenue under the new standard. Based on the Company's timeline and planned resources, the Company anticipates completing its implementation in connection with its first quarter 2018 interim financial statements.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"><u>ASU 2016-02,&#160;</u></font><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;"><u>Leases (Topic 842)</u></font><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"><u>&#160;</u></font></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In February 2016, the FASB issued ASU 2016-02,<font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;">&#160;Leases (Topic 842)</font>&#160;(<font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;">"</font>ASU No. 2016-02"). ASU No. 2016-02 increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements for both lessees and lessors. The standard will be effective January 1, 2019 for the Company, with early adoption permitted. The standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements. 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ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including: (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. As of January 1, 2017, the Company adopted and performed the evaluation required by the standard and did not identify any conditions or events that would have a material impact on the current disclosures in the financial statements. The Company has retrospectively adjusted the operating and financing sections within the statement of cash flows for the classification of employee taxes paid associated with equity award activities for the year ended December 31, 2016. In addition, the Company prospectively adopted the provisions related to the excess tax benefits, and as a result prior periods were not adjusted. If the Company had adopted this provision retrospectively, there would have been approximately 4% change to the estimated effective annual tax rate for the year ended December 31, 2016, but for the year ended December 31, 2016, there would have been a tax benefit associated with stock option activity of $3.3 million recorded in the provision for income taxes on the Company's statement of operations.</div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;"><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif;"><u>ASU No. 2017-01, </u></font><font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;"><u>Business Combinations (Topic 805): Clarifying the Definition of a Business</u></font></div><div style="line-height: 10.25pt;"><br style="line-height: 10.25pt;" /></div><div style="text-align: justify; text-indent: 36pt; line-height: 10.25pt; font-size: 10pt; font-family: 'Times New Roman', Times, serif;">In January 2017, the FASB issued ASU No. 2017-01, <font style="font-size: 10pt; font-family: 'Times New Roman', Times, serif; font-style: italic;">Business Combinations (Topic 805): Clarifying the Definition of a Business </font>("ASU No. 2017-01"). ASU No. 2017-01 provides clarification for the definition of a business with the objective of adding guidance and providing a more robust framework to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard will be effective for all annual periods beginning after December 15, 2017. During the fourth quarter of 2017, the Company early adopted ASU 2017-01 and determined the acquisition of Raxibacumab is an asset acquisition. See Note 4. 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Reflects a change in estimate attributed to higher pretax income within continuing operations. According to the ordering rules of intraperiod tax allocation, the residual amount of change after determining the effective rate for continuing operations is allocated to discontinued operations.