form10-q.htm

We may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. In addition, a failure to comply with the covenants under our existing debt instruments could result in an event of default under those instruments. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness. In addition, the covenants under our existing debt instruments and the pledge of our existing assets as collateral limit our ability to obtain additional debt financing.

We expect to require additional funding and may be unable to raise capital when needed, which would harm our business, financial condition and operating results.

We expect our development expenses to increase in connection with our ongoing activities, particularly as we conduct additional and later stage clinical trials for our product candidates. We also expect our commercialization expenses to increase in the future as we seek to broaden the market for BioThrax and if we receive marketing approval for additional products. We also may undertake additional facility projects in the future.

As of June 30, 2010, we had $102.2 million of cash and cash equivalents. Our future capital requirements will depend on many factors, including:

·	the level and timing of BioThrax product sales and cost of product sales;

·	our ability to obtain funding from government entities and non-government and philanthropic organizations for our development programs;

·	the acquisition of new facilities and capital improvements to new or existing facilities;

·	the timing of, and the costs involved in, completion of qualification and validation activities related to our large-scale manufacturing facility in Lansing, Michigan, the build out of our new manufacturing facility in Baltimore, Maryland and any other new facilities;

·	the scope, progress, results and costs of our preclinical and clinical development activities;

·	the costs, timing and outcome of regulatory review of our product candidates;

·	the number of, and development requirements for, other product candidates that we may pursue;

·	the costs of commercialization activities, including product marketing, sales and distribution;

·	the extent to which we lend money to, and our able to obtain repayment from, third parties ;

·	the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including litigation costs and the results of such litigation;

·	the extent to which we acquire or invest in companies, businesses, products and technologies; and

·	our ability to establish and maintain collaborations.

To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Current economic conditions may make it difficult to obtain financing on attractive terms or at all. Lenders may be able to impose covenants on us that could be difficult to satisfy, which could put us at increased risk of defaulting on debt. If financing is unavailable or lost, we could be forced to delay, reduce the scope of or eliminate our research and development programs or reduce our planned commercialization efforts.

Our ability to borrow additional amounts under our revolving line of credit agreement is subject to our satisfaction of specified conditions. Additional equity or debt financing, grants or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us.

Risks Related to Manufacturing and Manufacturing Facilities

We are in the process of expanding our manufacturing facilities and entering into arrangements with contract manufacturing organizations. Delays in completing facilities, or delays or failures in obtaining regulatory approvals for new manufacturing facility projects or new contract manufacturing partners, could limit our potential revenues and growth.

We continually evaluate alternatives for the manufacture of various product candidates. We may seek to acquire one or more additional facilities or sign agreements with contract manufacturing organizations. We have constructed a large-scale manufacturing facility on our Lansing, Michigan campus for which we received an award from BARDA in July 2010 for scale-up, qualification and validation to manufacture BioThrax. Additionally, in 2009, we acquired a facility in Baltimore, Maryland that we expect to utilize for certain product development or manufacturing projects. In order to do so, we anticipate that we will be required to make certain capital expenditures to upgrade and maintain this facility.

Constructing, preparing and maintaining a facility for manufacturing purposes is a significant project. For example, the process for qualifying and validating our Lansing, Michigan facility for FDA licensure will be costly and time consuming, may result in unanticipated delays and may cost more than expected due to a number of factors, including regulatory requirements. The costs and time required to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory requirements for sales of our products outside the U.S. may be significant. If our qualification and validation activities are delayed, we may not be able to meet our obligations to our customers, which may limit our opportunities for growth. Costs associated with constructing, qualifying and validating manufacturing facilities could require us to ra ise additional funds from external sources, and we may not be able to do so on favorable terms or at all.

BioThrax and our product candidates are complex to manufacture and ship, which could cause us to experience delays in revenues or shortages of products.

BioThrax and all our product candidates are biologics. Manufacturing biologic products, especially in large quantities, is complex. The products must be made consistently and in compliance with a clearly defined manufacturing process. Accordingly, it is essential to be able to validate and control the manufacturing process to assure that it is reproducible. Slight deviations anywhere in the manufacturing process, including maintaining master seed banks and preventing drift, obtaining materials, seed growth, fermentation, filtration, filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures or manufacturing shut-down, delay in the release of lots, product recalls, spoilage or regulatory action. Success rates can vary dramatically at different stages of the manufacturing process, which c an reduce yields and increase costs. From time to time we experience deviations in the manufacturing process that may take significant time and resources to resolve and if unresolved may affect manufacturing output and could cause us to fail to satisfy customer orders or contractual commitments, lead to a termination of one or more of our contracts, lead to delays in our clinical trials, result in litigation or regulatory action against us or cause the FDA to cease releasing product until the deviations are explained and corrected, any of which could be costly to us and negatively impact our business.

We also depend on certain single-source suppliers for materials and services necessary for the manufacture of BioThrax and our product candidates. A disruption in the availability of such materials or services from these suppliers could require us to qualify and validate alternative suppliers. If we are unable to locate or establish alternative suppliers, our ability to manufacture our products could be adversely affected and also could cause us to fail to satisfy customer orders or contractual commitments, lead to a termination of one or more of our contracts, lead to delays in our clinical trials or result in litigation or regulatory action against us, any of which could be costly to us and otherwise harm our business.

FDA approval is required for the release of each lot of BioThrax. We will not be able to sell any lots that fail to satisfy the release testing specifications. We must provide the FDA with the results of potency testing before lots are released for sale. We have one mechanism for conducting this potency testing that is reliant on a unique animal strain for which we have no alternative. In developing alternatives, we may face significant regulatory hurdles. In the event of a problem with this strain, if we have not developed alternatives, we would not be able to provide the FDA with required potency testing.

In addition, under our contracts with HHS to deliver doses of BioThrax, we are responsible for shipping BioThrax at a prescribed temperature range during shipping, and variations from that temperature range could result in loss of product and could adversely affect our profitability. Delays, lot failures, shipping deviations, spoilage or other loss during shipping could cause us to fail to satisfy customer orders or contractual commitments, lead to a termination of one or more of our contracts, lead to delays in our clinical trials or result in litigation or regulatory action against us, any of which could be costly to us and otherwise harm our business.

Disruption at, damage to or destruction of our manufacturing facilities could impede our ability to manufacture BioThrax, which would harm our business, financial condition and operating results.

We currently rely on our manufacturing facilities at a single location in Lansing, Michigan for the production of BioThrax. Any interruption in manufacturing operations at this location could result in our inability to satisfy the product demands of our customers. A number of factors could cause interruptions, including:

·	equipment malfunctions or failures;

·	technology malfunctions;

·	work stoppages or slow downs;

·	protests, including by animal rights activists;

·	damage to or destruction of the facility;

·	regional power shortages; or

·	product tampering.

As our equipment ages, it will need to be replaced. Replacement of equipment has the potential to introduce variations in the manufacturing process that may result in lot failures or manufacturing shut-down, delay in the release of lots, product recalls, spoilage or regulatory action.

In addition, providers of bioterrorism countermeasures could be subject to an increased risk of terrorist activities. For example, the U.S. government has designated our Lansing facility as a facility requiring additional security to protect against potential terrorist threats to the facility. Any disruption that impedes our ability to manufacture and ship BioThrax in a timely manner could reduce our revenues and materially harm our business, financial condition and operating results.

If the company on which we rely for filling BioThrax vials is unable to perform these services for us, our business may suffer.

We have outsourced the operation for filling BioThrax into vials to a single company. Our contract with this company expires on December 31, 2010. We have not established internal redundancy for our filling functions; however, we have identified and contracted with an additional provider that we believe can handle our filling needs. Before this additional provider can perform filling services for us, it must be qualified and licensed by the FDA. Such qualification and licensure may require use of a significant number of doses of BioThrax for consistency lots and stability testing that we may not be able to sell in the future once testing is complete. If our existing BioThrax filler is unable to perform filling services for us, we would need to obtain FDA approval of our potential substitute filler, engage, qualify and license an alt ernative filling company or develop our own filling capabilities. Any new contract filling company or filling capabilities that we acquire or develop will need to be approved by the FDA. Identifying and engaging a new contract filling company or developing our own filling capabilities and obtaining FDA approval could involve significant time and cost. As a result, we might not be able to deliver BioThrax orders on a timely basis and our revenues could decrease.

Our business may be harmed if we do not adequately forecast customer demand.

The timing and amount of customer demand is difficult to predict. We may not be able to scale-up our production quickly enough to fill any new customer orders on a timely basis. This could cause us to lose new business and possibly existing business. For example, we may not be able to scale-up manufacturing processes for our product candidates to allow production of commercial quantities at a reasonable cost or at all. Furthermore, if we overestimate customer demand, or choose to commercialize products for which the market is smaller than we anticipate, we could incur significant unrecoverable costs from creating excess capacity. In addition, if we do not successfully develop and commercialize any of our product candidates, we may never utilize the production capacity that we expect to have available.

If third parties do not manufacture our product candidates in sufficient quantities and at an acceptable cost or in compliance with regulatory requirements and specifications, the development and commercialization of our product candidates could be delayed, prevented or impaired.

We currently rely, or plan to rely, on third parties to manufacture the supplies of some or all of our vaccine and therapeutic product candidates that we require for preclinical and clinical development. Any significant delay in obtaining adequate supplies of our product candidates could adversely affect our ability to develop or commercialize these product candidates. For example, in 2008 the initial manufacturer of our anthrax monoclonal therapeutic product candidate informed us it was discontinuing contract manufacturing operations and we were forced to secure alternative manufacturing resources.

In addition, we expect that we will rely on third parties for a portion of the manufacturing process for commercial supplies of product candidates that we successfully develop, including fermentation for some of our vaccine product candidates, plasma fractionation and purification and contract fill and finish operations, and we rely on those manufacturers to comply with a wide variety of rules and regulations. If our contract manufacturers are unable to scale-up production to generate enough materials for commercial launch, if manufacturing is of insufficient quality, or if the costs of manufacturing are prohibitively high, the success of those products may be jeopardized. For example, we are currently evaluating manufacturing alternatives for Typhella in countries in which we believe manufacturing costs will be economical. Our current a nd anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our ability to develop product candidates and commercialize any products that receive regulatory approval on a timely and competitive basis.

We operate under short-term supply agreements with a number of third party manufacturers that are not obligated to accept any purchase orders we may submit. If any third party terminates its agreement with us, or otherwise fails to fulfill our purchase orders, we would need to rely on alternative sources or develop our own manufacturing capabilities to satisfy our requirements.

If alternative suppliers are not available or are delayed in fulfilling our requirements, or if we are unsuccessful in developing our own manufacturing capabilities, we may not be able to obtain adequate supplies of our product candidates on a timely basis. A change of manufacturers would require review and approval by the FDA and the applicable foreign regulatory agencies. This review and approval may be costly and time consuming. There are a limited number of manufacturers that operate under cGMP requirements and that are both capable of manufacturing for us and willing to do so.

We currently rely on third parties for regulatory compliance and quality assurance with respect to the supplies of our product candidates that they produce for us. We also will rely for these purposes on any third party that we use for production of commercial supplies of product candidates that we successfully develop. Manufacturers are subject to ongoing, periodic, unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure strict compliance with cGMP regulations and other governmental regulations and corresponding foreign standards.

We cannot be certain that our present or future manufacturers will be able to comply with cGMP regulations and other FDA regulatory requirements or similar regulatory requirements outside the U.S. We do not control compliance by manufacturers with these regulations and standards. If we or these third parties fail to comply with applicable regulations, sanctions could be imposed on us, which could significantly and adversely affect supplies of our product candidates. The sanctions that might be imposed include:

·	fines, injunctions and civil penalties;

·	refusal by regulatory authorities to grant marketing approval of our product candidates;

·	delays, suspension or withdrawal of regulatory approvals, including license revocation;

·	seizures or recalls of product candidates or products;

·	operating restrictions; and

·	criminal prosecutions.

If, as a result of regulatory requirements or otherwise, we or third parties are unable to manufacture our product candidates at an acceptable cost, our product candidates may not be commercially viable.

Our use of hazardous materials, chemicals, bacteria and viruses requires us to comply with regulatory requirements and exposes us to significant potential liabilities.

Our development and manufacturing processes involve the use of hazardous materials, including chemicals, bacteria, viruses and radioactive materials, and produce waste products. Accordingly, we are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, distribution, storage, handling, disposal and recordkeeping of these materials. We are also subject to a variety of environmental laws in Michigan regarding underground storage tanks. One such tank on our Lansing campus has leaked in the past. The State of Michigan removed the tank, continues to monitor the situation and has agreed to indemnify us for any resulting liabilities. In the event that the State of Michigan does not indemnify us, or if our insurance does not cover the exposure of any remediation that may be necessary, we may be required to spend significant amounts on remediation efforts. In addition to complying with environmental and occupational health and safety laws, we must comply with special regulations relating to biosafety administered by the Centers for Disease Control and Prevention, or CDC, HHS and the DoD.

The Public Health Security and Bioterrorism Preparedness and Response Act and the Agricultural Protection Act require us to register with the CDC our possession, use or transfer of select biological agents or toxins that could pose a threat to public health and safety, to animal or plant health or to animal or plant products. This legislation requires increased safeguards and security measures for these select agents and toxins, including controlled access and the screening of entities and personnel, and establishes a comprehensive national database of registered entities.

We also are subject to export control regulations governing the export of BioThrax and technology and materials used to develop and manufacture BioThrax and our product candidates. These laws and regulations may limit the countries in which we may conduct development and manufacturing activities. If we fail to comply with environmental, occupational health and safety, biosafety and export control laws, we could be held liable for fines, penalties and damages that result, and any such liability could exceed our assets and resources. In addition, we could be required to cease immediately all use of a select agent or toxin, and we could be prohibited from exporting our products, technology and materials or we could be suspended from the right to do business with the U.S. government.

Our insurance policies may not adequately compensate us for all liabilities that we may incur in the event of unanticipated costs, exposing us to potential expense and reduced profitability.

We hold a number of insurance policies in an effort to protect ourselves against extraordinary or unanticipated costs. Our general liability and excess insurance policies provide for coverage up to annual aggregate limits of $12 million, with coverage of $1 million per occurrence and $2 million in the aggregate for general liability and $10 million per occurrence and in the aggregate for excess liability. Both policies exclude coverage for liabilities relating to the release of pollutants. We do not currently hold insurance policies expressly providing for coverage relating to our use of hazardous materials other than storage tank liability insurance for our Lansing facility with coverage of $1 million per occurrence and $2 million annual aggregate limit and a $25,000 per claim deductible. We hold product liabili ty and clinical trial liability insurance policies for our commercial products and each clinical trial we are conducting in amounts we deem appropriate.

These policies are subject to deductibles, exclusions and coverage limitations. Circumstances may arise where we face liabilities that are not covered by these policies, or where our coverage is not adequate, which may expose us to significant liabilities and significantly and adversely affect our business or financial position.

Risks Related to Product Development

Our business depends significantly on our success in completing development and commercialization of our product candidates at acceptable costs. If we are unable to commercialize these product candidates, or experience significant delays or unanticipated costs in doing so, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources in the development of our vaccines and therapeutic product candidates. In addition to BioThrax sales, our ability to generate near term revenue is dependent on the success of our development programs, on the U.S. government’s interest in providing development funding for or procuring our product candidates, on the interest of non-governmental organizations in providing grant funding for development of our product candidates and on the commercial viability of those product candidates. The commercial success of our product candidates will depend on many factors, including accomplishing the following in an economical manner:

·	successful development, formulation and cGMP scale-up of biological manufacturing that meets FDA requirements;

·	successful development of animal models;

·	successful completion of non-clinical development, including studies in approved animal models;

·	the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

·	successful completion of clinical trials;

·	receipt of marketing approvals from the FDA and equivalent foreign regulatory authorities;

·	procurement of our biodefense product candidates prior to FDA approval;

·	establishing commercial manufacturing processes of our own or arrangements with contract manufacturers;

·	manufacturing stable commercial supplies of product candidates, including materials based on recombinant technology;

·	launching commercial sales of the product candidate, whether alone or in collaboration with others; and

·	acceptance of the product candidate by potential government customers, physicians, patients, healthcare payors and others in the medical community.

If, as a result of the foregoing factors or otherwise, we are prevented from developing and commercializing a product candidate in an economically acceptable manner, that product program may be adversely affected and the commercial success of the product candidate may be harmed. For example, we recently agreed to extend the commencement date of the commercial term for manufacture of our anthrax immune globulin therapeutic product candidate. We are currently in negotiations with Talecris for a longer-term resolution regarding commercial production; however, in the event that we are not able to negotiate a satisfactory resolution we may be required to explore other options for our anthrax immune globulin program that could result in less favorable commercial success for this product candidate, or no commercial success at all.

We will not be able to commercialize our product candidates if our preclinical development efforts are not successful, our clinical trials do not demonstrate safety or our clinical trials or animal studies do not demonstrate efficacy.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct extensive preclinical studies and clinical trials to establish proof of concept, safety and efficacy of our product candidates.Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete, and the outcome of such trials is uncertain. Success in preclinical testing and early clinical trials does not ensure that later clinical trials or animal efficacy studies will be successful, and interim results of a clinical trial or animal efficacy study do not necessarily predict final results. For example, in December 2008, we and Sanofi Pasteur determined that the joint efforts of our collaboration related to our meningitis B product development program had not identified a viable product cand idate, which effectively ended most development activities under this collaboration

We expect to rely on FDA regulations known as the “animal rule” to obtain approval for certain of our product candidates. The animal rule permits the use of animal efficacy studies together with human clinical safety and immunogenicity trials to support an application for marketing approval. These regulations are relatively new, and we have limited experience in the application of these rules to the product candidates that we are developing. It is possible that results from these animal efficacy studies may not be predictive of the actual efficacy of our vaccine and therapeutic product candidates in humans. If we are not successful in completing the development and commercialization of our vaccine and therapeutic product candidates, or if we are significantly delayed in doing so, our business will be materially harmed.

A failure of one or more of our clinical trials or animal efficacy studies can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial or animal efficacy study process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

·	regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;

·	we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials, or we may abandon projects that we expect to be promising, if our preclinical tests, clinical trials or animal efficacy studies produce negative or inconclusive results;

·	we might have to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;

·	regulators or institutional review boards may require that we hold, suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements;

·	regulators may determine that service providers we use in the conduct of a clinical trial are precluded from providing such services;

·	the cost of our clinical trials could escalate and become cost prohibitive;

·	any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the product not commercially viable;

·	we may not be successful in recruiting a sufficient number of qualifying subjects for our clinical trials; and

·	the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics.

In addition, because some of our current and future vaccine product candidates contain live attenuated viruses, our testing of these vaccine product candidates is subject to additional risk. For example, there have been reports of serious adverse events following administration of live vaccine products in clinical trials conducted by other vaccine developers. Also, for some of our current and future vaccine product candidates, we expect to conduct clinical trials in chronic carriers of the disease that our product candidate seeks to prevent. There have been reports of disease flares in chronic carriers following administration of live vaccine products.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if our clinical trials are not well designed, if we are unable to successfully complete our clinical trials or other testing, or if the results of these trials or tests are not positive, we may:

·	be delayed in obtaining marketing approval for our product candidates;

·	obtain approval for indications that are not as broad as intended; or

·	not be able to obtain marketing approval.

Our product development costs will also increase if we experience delays in testing, are required to conduct additional testing, or experience delays in product approval. Significant clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates.

Under the Project BioShield Act, the Secretary of HHS can contract to purchase countermeasures for the SNS prior to FDA approval of the countermeasure in specified circumstances. Project BioShield also allows the Secretary of HHS to authorize the emergency use of medical products that have not yet been approved by the FDA. However, our product candidates might not be selected by the Secretary under this authority. Moreover, this authority could result in increased competition for our products and product candidates.

Risks Related to Commercialization

If we fail to achieve significant sales of BioThrax to customers in addition to the U.S. government, our opportunities for growth could be harmed.

An element of our business strategy is to establish a market for sales of BioThrax to customers in addition to the U.S. government. These potential customers include foreign governments and state and local governments, which we expect will be interested in BioThrax to protect emergency responders such as police, fire and emergency medical personnel, multinational companies, non-governmental organizations and hospitals.

The market for sales of BioThrax to customers other than the U.S. government is undeveloped, and we may not be successful in generating meaningful sales of BioThrax to these potential customers. To date, we have made only modest sales to these customers. In particular, we have supplied small amounts of BioThrax directly to several foreign governments. In 2007, 2008 and 2009, our sales of BioThrax to customers other than the U.S. government represented a small portion of our revenue. If we fail to significantly increase our sales of BioThrax to these customers, our business and opportunities for growth could be materially harmed.

Government regulations may make it difficult for us to achieve significant sales of BioThrax to customers other than the U.S. government. For example, many foreign governments require licensure of BioThrax in their jurisdiction before they will consider procuring doses. Additionally, we are subject to export control laws imposed by the U.S. government. Although there are currently only limited restrictions on the export of BioThrax and related technology, the U.S. government may decide, particularly in the current environment of elevated concerns about global terrorism, to increase the scope of export prohibitions. These prohibitions could limit our sales of BioThrax to foreign governments and other foreign customers. In addition, U.S. government demand for an anthrax vaccine may limit supplies of BioThrax available for sale to non-U.S. government customers. For exa mple, our efforts to develop domestic commercial and international sales may be impeded by the DoD’s right under the Defense Production Act to require us to deliver more doses than we currently anticipate. Furthermore, the DoD’s sale of BioThrax to foreign governments under the Foreign Military Sales program has had and may continue to have an adverse effect on our ability to sell BioThrax internationally.

Our ability to meet any potential increased demand that develops for sales of BioThrax to customers other than the U.S. government depends on our available production capacity. We use substantially all of our current production capacity at our FDA-approved manufacturing facility in Lansing, Michigan to manufacture BioThrax for current sales to U.S. government customers. Additionally, we have constructed a large-scale manufacturing facility at our Lansing campus that is available for production of BioThrax, subject to final qualification and validation activities. To prepare for the event that we obtain significant orders for BioThrax from customers other than the U.S. government that cannot be accommodated by our existing facilities, we may explore additional manufacturing alternatives that would enable us to increase our manufacturing capacity and, as a result, allow us to increase sales of BioThrax to customers other than the U.S. government. If we are successful in this effort, it could be several years until a facility is qualified and validated and able to produce saleable vaccine. If we are unsuccessful in this effort, our opportunities for growth could be limited.

Laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and require us to develop and implement costly compliance programs.

As we continue to expand our operations outside of the United States, we must comply with numerous laws and regulations relating to international business operations. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enfo rced primarily by the U.S. Department of Justice. The Securities and Exchange Commission, or SEC, is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments by third parties to hospitals in connection with clinical studies and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. China is an example of one jurisdiction in which we are contemplating future expansion where we will need to exercise caution to ensure our compliance with the FCPA.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding presence outside of the United States will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trad ing securities on United States exchanges for violations of the FCPA’s accounting provisions.

The commercial success of BioThrax and any products that we may develop will depend upon the degree of market acceptance by the government, physicians, patients, healthcare payors and others in the medical community.

Any products that we bring to the market may not gain or maintain market acceptance by potential government customers, physicians, patients, healthcare payors and others in the medical community. In particular, our biodefense vaccine and therapeutic products and product candidates are subject to the product criteria that may be specified by potential U.S. government customers. The product specifications in any government procurement request may prohibit or preclude us from participating in the government program if our products or product candidates do not satisfy the stated criteria.

In addition, notwithstanding favorable findings regarding the safety and efficacy of BioThrax by the FDA in its final ruling in December 2005, the Government Accountability Office reiterated concerns regarding BioThrax in Congressional testimony in May 2006 that it had previously identified beginning in 1999. These concerns include the then-licensed six-dose regimen and annual booster doses, questions about the long-term and short-term safety of the vaccine, including how safety is affected by gender differences, and uncertainty about the vaccine’s efficacy against inhalational anthrax. Continued reiteration of these concerns could have a detrimental effect on the market’s acceptance of BioThrax.

The use of vaccines carries a risk of adverse health effects. The adverse reactions that have been associated with the administration of BioThrax include local reactions, such as redness, swelling and temporary limitation of motion in the inoculated arm, and systemic reactions, such as headache, fever, chills, nausea and general body aches. In addition, some serious adverse events have been reported to the vaccine adverse event reporting system database maintained by the CDC and the FDA with respect to BioThrax, including diabetes, heart attacks, autoimmune diseases, including Guillian Barre syndrome, lupus, multiple sclerosis, lymphoma and death. None of these events have been causally linked to the administration of BioThrax. The report of any adverse event to the vaccine adverse event reporting system database is not proof that the vaccine caused such event.

If any products that we develop do not achieve an adequate level of acceptance, we may not generate material revenues from sales of these products. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

·	the prevalence and severity of any side effects;

·	the efficacy and potential advantages over alternative treatments;

·	the ability to offer our product candidates for sale at competitive prices;

·	the relative convenience and ease of administration;

·	the willingness of the target patient population to try new products and of physicians to prescribe these products;

·	the strength of marketing and distribution support; and

·	the sufficiency of coverage or reimbursement by third parties.

Political or social factors, including related litigation, may delay or impair our ability to market BioThrax and our biodefense product candidates and may require us to spend time and money to address these issues.

Products developed to treat diseases caused by or to combat the threat of bioterrorism are subject to changing political and social environments. The political and social responses to bioterrorism have been highly charged and unpredictable. Political or social pressures or changes in the perception of the risk that military personnel or civilians could be exposed to biological agents as weapons of bioterrorism may delay or cause resistance to bringing our products to market or limit pricing or purchases of our products, which would harm our business.

In addition, substantial delays or cancellations of purchases could result from protests or challenges from third parties. Furthermore, lawsuits brought against us by third parties or activists, even if not successful, require us to spend time and money defending the related litigation. The need to address political and social issues may divert our management’s time and attention from other business concerns. For example, between 2001 and 2006, members of the military and various activist groups who oppose mandatory inoculation with BioThrax petitioned the FDA and the federal courts to revoke the license for BioThrax and to terminate the DoD program for the mandatory administration of BioThrax to military personnel. Although the DoD has prevailed in those challenges to date, the actions of these groups have created negative publici ty about BioThrax.

Additional lawsuits, publicity campaigns or other negative publicity may adversely affect the degree of market acceptance of, and thereby limit the demand for, BioThrax and our biodefense product candidates. In such event, our ability to market and sell such products may be hindered and the commercial success of BioThrax and other products we develop will be harmed, thereby reducing our revenues.

We have a small sales and marketing group. If we are unable to expand our internal capabilities or enter into agreements with third parties, we may be unable to generate revenue from product sales to customers other than the U.S. government.

To achieve commercial success for any approved product, we must either develop our own sales and marketing capabilities or outsource these functions to third parties. We currently market and sell BioThrax through a small, targeted sales and marketing group. We plan to continue to do so and expect that we will use a similar approach for sales to the U.S. government of any other biodefense product candidates that we successfully develop. However, to increase our sales of BioThrax to state and local governments and foreign governments and create an infrastructure for future sales of other biodefense products to these customers, we plan to expand our sales and marketing organization, which will be expensive and time consuming.

We may not be able to attract, hire, train and retain qualified sales and marketing personnel to build a significant or effective sales and marketing force for sales of biodefense product candidates to customers other than the U.S. government or for sales of our commercial product candidates. If we are not successful in our efforts to expand our internal sales and marketing capability, our ability to independently market and sell BioThrax and any other product candidates that we successfully develop will be impaired. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed as a result of FDA requirements or other reasons, we would incur related expenses too early relative to the product launch. This may be costly, and our investment would be lost if we cannot retain our sales and marketing personnel.

We face substantial competition, which may result in others developing or commercializing products before or more successfully than we do.

The development and commercialization of new vaccine and therapeutic products is highly competitive. We face competition with respect to BioThrax, our current product candidates and any products we may seek to develop or commercialize in the future from pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research institutions that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Our competitors may develop products that are safer, more effective, have fewer side effects, are more convenient or are less costly than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. We believe that our most significant competitors in the area of vaccine and therapeutics are a number of pharmaceutical companies that have vaccine programs, including Merck & Co., GlaxoSmithKline, Sanofi Pasteur, Pfizer, and Novartis, as well as smaller more focused companies engaged in vaccine and therapeutic development, such as Aeras, Crucell, Cangene, Human Genome Sciences, Soligenix, Dynport Vaccine Company, Elusys, Bavarian Nordic and PharmAthene.

Any vaccine and therapeutic product candidate that we successfully develop and commercialize is likely to compete with currently marketed products, including antibiotics and antiviral drugs, and with other product candidates that are in development for the same indications. In many cases, the currently marketed products have well known brand names, are distributed by large pharmaceutical companies with substantial resources and have achieved widespread acceptance among physicians and patients. In addition, we are aware of product candidates of third parties that are in development, which, if approved, would compete against product candidates for which we intend to seek marketing approval.

Although BioThrax is the only anthrax vaccine approved by the FDA for the prevention of anthrax infection, the government is funding the development of new products that could compete with BioThrax, and could eventually procure those new products in addition to, or instead of, BioThrax, potentially reducing our BioThrax revenues. We also face competition for our biodefense product candidates. For example, HHS has awarded a development and SNS procurement contract to a competitor for an anthrax immune globulin therapeutic and is assisting this company in its production efforts by providing it with BioThrax doses that we delivered for placement into the SNS so that the competitor can immunize donors and obtain plasma for the competitor’s anthrax immune globulin therapeutic product candidate. HHS has awarded another development and SN S procurement contract to another competitor for an anthrax monoclonal antibody as a post-exposure therapeutic for anthrax infection.

Numerous companies have vaccine product candidates in development that would compete with any of our commercial product candidates for which we are seeking to obtain marketing approval. One oral typhoid vaccine and one injectable typhoid vaccine are currently approved and administered in the U.S. and Europe. The Aeras Global Tuberculosis Vaccine Foundation is developing or supporting the development of five tuberculosis vaccine product candidates in addition to ours, any of which could present competitive risks.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through competing for government funding and through collaborative arrangements with large and established companies. These companies also compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring products, product candidates and technologies complementary to, or necessary for, our programs or advantageous to our business.

Legislation and contractual provisions limiting or restricting liability of manufacturers may not be adequate to protect us from all liabilities associated with the manufacture, sale and use of our products.

Provisions of our BioThrax contracts with the U.S. government and federal legislation enacted to protect manufacturers of biodefense and anti-terrorism countermeasures may limit our potential liability related to the manufacture, sale and use of BioThrax and our biodefense product candidates. However, these contractual provisions and legislation may not fully protect us from all related liabilities.

The Public Readiness and Emergency Preparedness Act, or PREP Act, which was signed into law in December 2005, creates immunity for manufacturers of biodefense countermeasures when the Secretary of HHS issues a declaration for their manufacture, administration or use. A PREP Act declaration is meant to provide immunity from all claims under state or federal law for loss arising out of the administration or use of a covered countermeasure. Manufacturers are not entitled to protection under the PREP Act in cases of willful misconduct. Upon a declaration by the Secretary of HHS, a compensation fund is created to provide “timely, uniform, and adequate compensation to eligible individuals for covered injuries directly caused by the administration or use of a covered countermeasure.” The “covered injuries” to which the program applies are defined as serious physical injuries or death. Individuals are permitted to bring a willful misconduct action against a manufacturer only after they have exhausted their remedies under the compensation program. Therefore, a willful misconduct action could be brought against us if any individuals exhausted their remedies under the compensation program and thereby expose us to liability. In October 2008, the Secretary of HHS issued a PREP Act declaration identifying BioThrax and our anthrax immune globulin therapeutic product candidate as covered countermeasures. We do not know, however, whether the PREP Act will provide adequate protection or survive anticipated legal challenges to its validity.

In August 2006, the Department of Homeland Security approved our application under the Support Anti-Terrorism by Fostering Effective Technology Act, or SAFETY Act, enacted by the U.S. Congress in 2002 for liability protection for sales of BioThrax. The SAFETY Act creates product liability limitations for qualifying anti-terrorism technologies for claims arising from or related to an act of terrorism. In addition, the SAFETY Act provides a process by which an anti-terrorism technology may be certified as an “approved product” by the Department of Homeland Security and therefore entitled to a rebuttable presumption that the government contractor defense applies to sales of the product. The government contractor defense, under specified circumstances, extends the sovereign immunity of the U.S. to government contractors who manufacture a product for the government. Specifically, for the government contractor defense to apply, the government must approve reasonably precise specifications, the product must conform to those specifications and the supplier must warn the government about known dangers arising from the use of the product. Although we are entitled to the benefits of the SAFETY Act, it may not provide adequate protection from any claims made against us.

In addition, although our prior contracts with the DoD and HHS provided that the U.S. government would indemnify us for any damages resulting from product liability claims, our current contracts with HHS do not contain such indemnification, and we may not be able to negotiate similar indemnification provisions in future contracts.

Product liability lawsuits could cause us to incur substantial liabilities and require us to limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the sale of BioThrax and any other products that we successfully develop and the testing of our product candidates in clinical trials. For example, we have been a defendant in lawsuits filed on behalf of military personnel who alleged that they were vaccinated with BioThrax by the DoD and claimed damages resulting from personal injuries allegedly suffered because of the vaccinations. The plaintiffs in these lawsuits claimed different injuries and sought varying amounts of damages. Although we successfully defended these lawsuits, we cannot ensure that we will be able to do so in the future.

BioThrax is currently identified as a covered countermeasure under a PREP Act declaration issued in October 2008, which provides us with immunity with respect to the manufacture, administration or use of BioThrax. Under our prior BioThrax contracts with the DoD and HHS, the U.S. government agreed to indemnify us against claims by third parties for death, personal injury and other damages related to BioThrax, including reasonable litigation and settlement costs, to the extent that the claim or loss results from specified risks not covered by insurance or caused by our grossly negligent or criminal behavior. As required under our prior BioThrax contracts, we have notified the DoD of personal injury claims that have been filed against us as a result of the vaccination of U.S. military personnel with BioThrax and are seeking reimbu rsement from the DoD for uninsured costs incurred in defending these claims; however, the DoD has not acted on our requests for reimbursement. The collection process can be lengthy and complicated, and there is no guarantee that we will be able to recover these amounts from the U.S. government.

If we cannot successfully defend ourselves against future claims that our product or product candidates caused injuries and if we are not entitled to indemnity by the U.S. government, or if the U.S. government does not honor its indemnification obligations, we will incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

·	decreased demand for any product candidates or products that we may develop;

·	injury to our reputation;

·	withdrawal of clinical trial participants;

·	withdrawal of a product from the market;

·	costs to defend the related litigation;

·	substantial monetary awards to trial participants or patients;

·	loss of revenue; and

·	the inability to commercialize any products that we may develop.

We currently have product liability insurance for coverage up to a $15 million annual aggregate limit with a deductible of $75,000 per claim up to $375,000 in aggregate. The amount of insurance that we currently hold may not be adequate to cover all liabilities that may occur. Product liability insurance is difficult to obtain and increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. For example, from 2002 through February 2006, we were unable to obtain product liability insurance for sales of BioThrax on commercially reasonable terms. We do not believe that the amount of insurance we have been able to obtain for BioThrax is sufficient to manage the risk associated with the poten tial large-scale deployment of BioThrax as a countermeasure to bioterrorism threats. We rely on statutory protections in addition to insurance to mitigate our liability exposure for BioThrax.

If we are unable to obtain adequate reimbursement from governments or third party payors for any products that we may develop or to obtain acceptable prices for those products, our revenues will suffer.

Our revenues and profits from any products that we successfully develop, other than with respect to sales of our biodefense products under government contracts, will depend heavily upon the availability of adequate reimbursement for the use of such products from governmental and other third party payors, both in the U.S. and in other markets. Reimbursement by a third party payor may depend upon a number of factors, including the third party payor’s determination that use of a product is:

·	a covered benefit under its health plan;

·	safe and effective;

·	medically necessary;

·	appropriate for the specific patient;

·	cost-effective; and

·	neither experimental nor investigational.

Obtaining a determination that a product is covered is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to gain coverage.

Even when a payor determines that a product is covered, the payor may impose limitations that preclude payment for some uses that are approved by the FDA or comparable authorities but are determined by the payor to not be medically reasonable and necessary. Moreover, eligibility for coverage does not imply that any product will be covered in all cases or that reimbursement will be available at a rate that permits the health care provider to cover its costs of using the product.

We expect that the success of some of our commercial vaccine product candidates for which we obtain marketing approval will depend on inclusion of those product candidates in government immunization programs. Most non-pediatric commercial vaccines are purchased and paid for, or reimbursed by, managed care organizations, other private health plans or public insurers or paid for directly by patients. In the U.S., pediatric vaccines are funded by a variety of federal entitlements and grants, as well as state appropriations. Foreign governments also commonly fund pediatric vaccination programs through national health programs. In addition, with respect to some diseases affecting the public health generally, particularly in developing countries, public health authorities or non-governmental, charitable or philanthropic organizations fund the cost of vaccines.

Medicare Part B reimburses for physician-administered drugs and biologics based on the product’s “average sales price.” This reimbursement methodology went into effect in 2005 and has generally led to lower Medicare reimbursement levels than under the reimbursement methodology in effect prior to that time. The Medicare Part D outpatient prescription drug benefit went into effect in January 2006. Coverage under Medicare Part D is provided primarily through private entities, which act as plan sponsors and negotiate price concessions from pharmaceutical manufacturers.

Certain products we may develop may be eligible for reimbursement under Medicaid. If the state-specific Medicaid programs do not provide adequate coverage and reimbursement for any products we may develop, it may have a negative impact on our operations.

The scope of coverage and payment policies varies among third party private payors, including indemnity insurers, employer group health insurance programs and managed care plans. These third party carriers may base their coverage and reimbursement on the coverage and reimbursement rate paid by carriers for Medicare beneficiaries. Furthermore, many such payors are investigating or implementing methods for reducing health care costs, such as the establishment of capitated or prospective payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by health care providers. If third party payors do not provide adequate coverage or reimbursement for any products we may develop, it could have a negative effect on our revenues and results of operations.

In March 2010, Congress enacted sweeping legislation to reform the U.S. health care system. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, generally is intended to expand health care coverage to currently uninsured Americans and to limit the rate of increase in health care spending. The legislation contains a number of cost-containment measures that could adversely affect our operating results and our overall financial condition. For example, the legislation imposes an annual fee on branded prescription drug manufacturers, including biologics manufacturers, which will be allocated based on market share in the aggregate for certain government programs. In addition, the legislation creates a licensure pathway for biological products shown to be bios imilar to previously licensed biological reference products, and will permit litigation of patent infringement cases between patent owners and biosimilar manufacturers prior to biosimilar market entry. The legislation also establishes a program to phase out the coverage gap under Medicare Part D by 2020 through a combination of manufacturer discounts and federal subsidies, increases the rebates that pharaceutical manufacturers must pay to state Medicaid agencies, and creates an Independent Payment Advisory Board to recommend changes in Medicare payment rates.

We expect the reforms imposed by the new law to have a significant impact on our business and the entire life sciences industry. Until many of the provisions are implemented, however, the full impact of the legislation cannot be known.

Foreign governments tend to impose strict price controls, which may adversely affect our revenues.

In some foreign countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Proposed legislation may permit re-importation of drugs from foreign countries into the United States, including foreign countries where the drugs are sold at lower prices than in the United States, which could force us to lower the prices at which we sell any approved products and impair our ability to derive revenue from these products.

Legislation has been introduced into Congress that, if enacted, would permit more widespread re-importation of drugs from foreign countries into the U.S., which may include re-importation from foreign countries where the drugs are sold at lower prices than in the U.S. Such legislation, or similar regulatory changes, could decrease the price we receive for any approved products which, in turn, could adversely affect our operating results and our overall financial condition.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to sustain or expand our BioThrax operations or develop or commercialize our product candidates.

Our success depends on our continued ability to attract, retain and motivate highly qualified managerial and key scientific personnel. We consider Fuad El-Hibri, chairman of our Board of Directors and our chief executive officer, and Daniel J. Abdun-Nabi, a member of our Board of Directors and our president and chief operating officer, to be key to our BioThrax operations and our efforts to develop and commercialize our product candidates. Both of these key employees are at will employees and can terminate their employment at any time. We do not maintain “key person” insurance on any of our employees.

In addition, our growth will require us to hire a significant number of qualified scientific and commercial personnel, including clinical development, regulatory, marketing and sales executives and field sales personnel, as well as additional administrative personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we cannot continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or grow.

Additional Risks Related to Sales of Biodefense Products to the U.S. Government

Our business is subject to audit by the U.S. government and a negative audit could adversely affect our business.

U.S. government agencies such as the Defense Contract Audit Agency, or the DCAA, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards.

The DCAA also reviews the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including:

·	termination of contracts;

·	forfeiture of profits;

·	suspension of payments;

·	fines; and

·	suspension or prohibition from conducting business with the U.S. government.

In addition, we could suffer serious reputational harm if allegations of impropriety were made against us.

Laws and regulations affecting government contracts make it more costly and difficult for us to successfully conduct our business.

We must comply with numerous laws and regulations relating to the formation, administration and performance of government contracts, which can make it more difficult for us to retain our rights under these contracts. These laws and regulations affect how we conduct business with federal, state and local government agencies. Among the most significant government contracting regulations that affect our business are:

·	the Federal Acquisition Regulations, and agency-specific regulations supplemental to the Federal Acquisition Regulations, which comprehensively regulate the procurement, formation, administration and performance of government contracts;

·	the business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Act and the FCPA;

·	export and import control laws and regulations; and

·	laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

In addition, qui tam lawsuits have been brought against us in which the plaintiffs argued that we defrauded the U.S. government by distributing non-compliant doses of BioThrax. Although we ultimately prevailed in this litigation, we spent significant time and money defending the litigation. U.S. States, many municipalities and foreign governments typically also have laws and regulations governing contracts with their respective agencies. These domestic and foreign laws and regulations affect how we and our customers conduct business and, in some instances, impose additional costs on our business. Any changes in applicable laws and regulations could restrict our ability to maintain our existing contracts and obtain new contracts, which could limit our ability to conduct our bus iness and materially adversely affect our revenues and results of operations.

We rely on property and equipment owned by the U.S. government in the manufacturing process for BioThrax.

We have the right to use certain property and equipment that is owned by the U.S. government, referred to as government furnished equipment, or GFE, at our Lansing, Michigan site in the manufacture of BioThrax. We have the option to purchase all or part of the existing GFE from the U.S. government on terms to be negotiated with the U.S. government. If the U.S. government modifies the terms under which we use the GFE in a manner that is unfavorable to us, including substantially increasing the usage fee, or we are unable to reach an agreement with the U.S. government concerning the terms of the purchase of that part of the GFE necessary for our business, our business could be harmed. If the U.S. government were to terminate or fail to extend all BioThrax supply contracts with us, we potentially could be required to rent or purch ase that part of the GFE necessary for the continued production of BioThrax in our current manufacturing facility.

Risks Related to Regulatory Approvals

If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development and commercialization, including testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have limited experience in preparing, filing and prosecuting the applications necessary to gain regulatory approvals and expect to rely on third party contract research organizations and consultants to assist us in this process. Securing FDA approval requires the submission of extensive preclinical and clinical data, informat ion about product manufacturing processes and inspection of facilities and supporting information to establish the product candidate’s safety and efficacy. Our future products may not be effective, may be only moderately effective or may prove to have significant side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.

In the United States, BioThrax and our product candidates are regulated by the FDA as biologics. To obtain approval from the FDA to market our product candidates, we will be required to submit to the FDA a biologics license application, or BLA. Ordinarily, the FDA requires a sponsor to support a BLA with substantial evidence of the product’s safety and effectiveness in treating the targeted indication based on data derived from adequate and well controlled clinical trials, including Phase III safety and efficacy trials conducted in patients with the disease or condition being targeted. However, our biodefense product candidates require slightly different treatment. Specifically, because humans are rarely exposed to anthrax toxins under natural conditions, and cannot be intentionally exposed, statistically significant effective ness of our biodefense product candidates cannot be demonstrated in humans, but instead must be demonstrated, in part, by utilizing animal models before they can be approved for marketing. This is known as the FDA’s “animal rule”.

We intend to use the animal rule in pursuit of FDA approval for BioThrax as a post-exposure prophylaxis, our anthrax immune globulin therapeutic, our rPA anthrax vaccine, our anthrax monoclonal antibody therapeutic, our BioThrax dual adjuvant vaccine, and our double mutant rPA vaccine. We cannot guarantee that the FDA will permit us to proceed with licensure of any of our BioThrax related programs or our other product candidates under the animal rule. Even if we are able to proceed pursuant to the animal rule, the FDA may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies, refuse to approve our products, or place restrictions on our ability to commercialize those products.

The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Changes in the regulatory approval policy during the development period, changes in or the enactment of additional statutes or regulations, or changes in the regulatory review for a submitted product application, may cause delays in the approval or rejection of an application.

The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate.

Our products could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any vaccine and therapeutic product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory bodies. As an approved product, BioThrax is subject to these requirements and ongoing review.

These requirements include submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and recordkeeping. The FDA enforces its cGMP and other requirements through periodic unannounced inspections of manufacturing facilities. The FDA is authorized to inspect manufacturing facilities without a warrant or prior notice at reasonable times and in a reasonable manner.

After we acquired BioThrax and related vaccine manufacturing facilities in Lansing, Michigan in 1998 from the Michigan Biologic Products Institute, we spent significant amounts of time and money renovating those facilities before the FDA approved a supplement to our manufacturing facility license in December 2001. The State of Michigan had initiated renovations after the FDA issued a notice of intent to revoke the FDA license to manufacture BioThrax in 1997. The notice of intent to revoke cited significant deviations by the Michigan Biologic Products Institute from cGMP requirements, including quality control failures. In March 2007, the FDA notified us that our manufacturing facility license is no longer subject to the notice of intent to revoke.

After approving the renovated Lansing facilities in December 2001, the FDA conducted routine, biannual inspections of the Lansing facilities in September 2002, May 2004, May 2006, March 2008 and December 2009. Following each of these inspections, the FDA issued inspectional observations on Form FDA 483, some of which were significant. We responded to the FDA regarding the inspectional observations relating to each inspection and, where necessary, implemented corrective action. All observations from each of those inspections were successfully closed out. In December 2005, the FDA stated in its final order on BioThrax that at that time we were in substantial compliance with all regulatory requirements related to the manufacture of BioThrax and that the FDA would continue to evaluate the production of BioThrax to assure comp liance with federal standards and regulations. If in connection with any future inspection the FDA finds that we are not in substantial compliance with cGMP requirements, or if the FDA is not satisfied with the corrective actions we take in connection with any such inspection, the FDA may undertake enforcement action against us.

Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in:

·	restrictions on the marketing or manufacturing of a product;

·	warning letters;

·	withdrawal of the product from the market;

·	refusal to approve pending applications or supplements to approved applications;

·	voluntary or mandatory product recall;

·	fines or disgorgement of profits or revenue;

·	suspension or withdrawal of regulatory approvals, including license revocation;

·	shut down, or substantial limitations of the operations in, manufacturing facilities;

·	refusal to permit the import or export of products;

·	product seizure; and

·	injunctions or the imposition of civil or criminal penalties.

If our competitors are able to obtain orphan drug exclusivity for their products that are the same as our products, we may be precluded from selling or obtaining approval of our competing products by the applicable regulatory authorities for a significant period of time.

If one of our competitors obtains orphan drug exclusivity for an indication for a product that competes with one of the indications for one of our product candidates before we obtain orphan drug designation, and if the competitor’s product is the same drug as ours, the FDA would be prohibited from approving our product candidate for the same orphan indication unless we demonstrate that our product is clinically superior or the FDA determines that the holder of the orphan drug exclusivity cannot assure the availability of sufficient quantities of the drug. We have obtained orphan drug status from the FDA and in the European Union for our anthrax immune globulin therapeutic product candidate and in the European Union for our tuberculosis vaccine product candidate; however, none of our other products or product candidates has been des ignated as an orphan drug and there is no guarantee that the FDA will grant such designation in the future. Even if we obtain orphan drug exclusivity for one or more indications for one of our product candidates, we may not be able to maintain it. For example, if a competitive product that is the same drug or biologic as our product is shown to be clinically superior to our product, any orphan drug exclusivity we may have obtained will not block the approval of that competitive product.

The Fast Track designation for our product candidates may not actually lead to a faster development, regulatory review or approval.

We have obtained a Fast Track designation from the FDA for BioThrax as a post-exposure prophylaxis against anthrax infection and for our anthrax immune globulin therapeutic product candidate. However, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw a Fast Track designation if the FDA believes that the designation is no longer supported by data from our clinical development program. Fast Track designation does not guarantee that we will qualify for or be able to take advantage of the FDA’s expedited review procedures or that any application that we may submit to the FDA for regulatory approval will be accepted for filing or ultimately approved.

Failure to obtain regulatory approval in international jurisdictions could prevent us from marketing our products abroad.

We intend to have some or all of our products marketed outside the United States. To market our products in the European Union and many other foreign jurisdictions, we may need to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. With respect to some of our product candidates, we expect that a future collaborator will have responsibility to obtain regulatory approvals outside the United States, and we will depend on our collaborators to obtain these approvals. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval.

The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA. We and our collaborators may not be able to obtain regulatory approvals to commercialize our products in any market.

Risks Related to Our Dependence on Third Parties

We may not be successful in maintaining and establishing collaborations, which could adversely affect our ability to develop and commercialize our product candidates domestically and internationally.

For each of our product candidates, we plan to evaluate the merits of retaining commercialization rights or entering into collaboration arrangements with leading pharmaceutical or biotechnology companies or non-governmental organizations. We expect that we will selectively pursue collaboration arrangements in situations in which the collaborator has particular expertise or resources for the development or commercialization of our products and product candidates or for accessing particular markets.

If we are unable to reach agreements with suitable collaborators, we may fail to meet our business objectives for the affected product or program. We face, and will continue to face, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements, or the arrangements that we establish may not turn out to be productive or beneficial for us. The terms of any collaboration or other arrangements that we establish may not be favorable to us.

Any collaboration that we enter into may not be successful. For example, based on preclinical studies performed under a license agreement that we entered into with Sanofi Pasteur, both parties determined that the joint efforts had not identified a promising meningitis B vaccine product candidate and we mutually terminated the collaboration. Additionally, the success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. It is likely that our collaborators will have significant discretion in determining the efforts and resources that they will apply to these collaborations.

The risks that we are subject to in our current collaborations, and anticipate being subject to in future collaborations, include the following:

·	our collaboration agreements are likely to be for fixed terms and subject to termination by our collaborators in the event of a material breach by us;

our collaborators may have the first right to maintain or defend our intellectual property rights and, although we may have the right to assume the maintenance and defense of our intellectual property rights if our collaborators do not do so, our ability to maintain and defend our intellectual property rights may be compromised by our collaborators’ acts or omissions;

·	our collaborators may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability; or

·	our collaborators may decide not to continue to work with us in the development of product candidates.

Collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. Such terminations or expirations could adversely affect us financially and could harm our business reputation.

If third parties on whom we rely for clinical or non-clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates and as a result, our business may suffer.

We do not have the ability to independently conduct the clinical or non-clinical trials required to obtain regulatory approval for our products. We depend on independent clinical investigators, contract research organizations and other third party service providers to conduct the clinical and non-clinical trials of our product candidates and expect to continue to do so. We rely heavily on these third parties for successful execution of our clinical and non-clinical trials, but do not exercise day-to-day control over their activities. We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the r esults of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.

Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our product candidates. In addition, we encourage government entities and non-government organizations to conduct studies of, and pursue other development efforts for, our product candidates.

We expect to rely on data from clinical trials conducted by third parties seeking marketing approval for our product candidates. For example, our BLA supplement for a label expansion of BioThrax for a regimen of fewer doses is based on the results of a clinical trial conducted by the CDC. These government entities and non-government organizations have no obligation or commitment to us to conduct or complete any of these studies or clinical trials and may choose to discontinue these development efforts at any time. In addition, government entities depend on annual Congressional appropriations to fund these development efforts.

Risks Related to Our Intellectual Property

Protection of our intellectual property rights could be costly, and if we fail to protect them, our business could be harmed.

Our success, particularly with respect to our commercial business, will depend in large part on our ability to obtain and maintain protection in the U.S. and other countries for the intellectual property covering or incorporated into our technology and products. This protection is very costly. The patentability of technology in the field of vaccine and therapeutic development and other pharmaceuticals generally is highly uncertain and involves complex legal and scientific questions.

We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the duration of patent protection we may have for our products. Changes in patent laws or administrative patent office rules or changes in interpretations of patent laws in the U.S. and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection, or result in costly defense measures.

Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent applications. In addition, patents generally expire, regardless of their date of issue, 20 years from the earliest claimed non-provisional filing date. As a result, the time required to obtain regulatory approval for a pro duct candidate may consume part or all of the patent term. We are not able to accurately predict the remaining length of the applicable patent term following regulatory approval of any of our product candidates.

Our collaborators and licensors may not adequately protect our intellectual property rights. These third parties may have the first right to maintain or defend our intellectual property rights and, although we may have the right to assume the maintenance and defense of our intellectual property rights if these third parties do not do so, our ability to maintain and defend our intellectual property rights may be compromised by the acts or omissions of these third parties.

For example, we licensed an oligonucleotide adjuvant, CpG 7909, for use in our double mutant rPA product candidate and our BioThrax dual adjuvant vaccine product candidate from Coley Pharmaceutical Group, Inc., or Coley. Coley which was subsequently acquired by Pfizer Inc., is responsible for prosecuting, maintaining and defending these licensed patent rights. Coley notified us that a patent interference had been declared in the U.S. Patent and Trademark Office between our licensed patent and a third party patent application, which could result in revocation of the patent we have licensed. We may not know the outcome for a considerable period of time.

If we are unable to in-license any intellectual property necessary to develop, manufacture or sell any of our product candidates, we will not be successful in developing or commercializing such product candidate.

We expect that we may need to in-license various components or technologies, including, for example, adjuvants and novel delivery systems, for some of our current or future product candidates. We may be unable to obtain the necessary licenses on acceptable terms, or at all. If we are unable to obtain such licenses, we could be prevented or delayed from continuing further development or from commercially launching the applicable product candidate.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to a number of license agreements and expect to enter into additional license agreements in the future. For example, we consider our license from the Oxford-Emergent Tuberculosis Consortium for our tuberculosis vaccine product candidate to be material to our business. Our existing licenses impose, and we expect future licenses will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we might not be able to market any product that is covered by the licensed patents.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how, particularly as to our proprietary manufacturing processes. Because we do not have patent protection for BioThrax or the label expansions and improvements that we are pursuing for BioThrax, our only intellectual property protection for BioThrax, other than the BioThrax trademark, is confidentiality regarding our manufacturing capability and specialty know-how, such as techniques, processes and biological starting materials. However, these types of trade secrets can be difficult to protect. We seek to protect this confidential information, in part, with agreements with our employees, consultants and third parties.

These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.

If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business.

Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents and other intellectual property rights of third parties under which we do not hold licenses or other rights. Additionally, third parties may be successful in obtaining patent protection for technologies that cover development and commercialization activities in which we are already engaged. Third parties may own or control these patents and intellectual property rights in the U.S. and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement or other similar suit were brought against us or our collaborators, we or they could be forced to stop or delay development, manufacturing or sales of the product or product candidate that is the subject of the suit.

As a result of patent infringement or other similar claims, or to avoid potential claims, we or our collaborators may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms or if an injunction is granted against us. This could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the biotechnology and pharmaceutical industries. For example, Bavarian Nordic A/S has been active in seeking to protect its patents with respect to modified vaccinia Ankara virus, or MVA, including initiating patent infringement actions against various third parties. Many of these actions have been settled. Typically, patent infringement settlements are structured to specifically cover the alleged infringing product, and the settlement has no direct impact on other products in the field.

Our MVA platform technology is based in part on rights to certain MVA-related materials and technology that we acquired from the Bavarian State Ministry of the Environment and Public Health. To protect our interests, we have filed patent oppositions in the European Patent Office against four of Bavarian Nordic’s patents covering certain aspects of MVA technology, which remain pending. We routinely monitor the grant of further Bavarian Nordic European patents to determine whether any additional oppositions should be filed.

We are also a party to a trademark invalidation proceeding in the U.S. and certain foreign trademark offices. In addition, we may in the future become party to additional trademark invalidation or interference proceedings. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb signific ant management time.

Risks Related to Our Acquisition Strategy

Our strategy of generating growth through acquisitions may not be successful.

Since our inception we have pursued an acquisition strategy to build our business. We commenced operations in September 1998 through an acquisition of rights to BioThrax, vaccine manufacturing facilities at a multi-building campus on approximately 12.5 acres in Lansing, Michigan and vaccine development and production know-how from the Michigan Biologic Products Institute. We acquired a portion of our pipeline of vaccine and therapeutic product candidates through our acquisition of Microscience Limited in a share exchange in 2005 and our acquisitions of substantially all of the assets, for cash, of Antex Biologics, Inc. in 2003 and of ViVacs GmbH in 2006.

In the future, we may be unable to license or acquire suitable products or product candidates from third parties for a number of reasons. In particular, the licensing and acquisition of pharmaceutical and biological products is a competitive area. A number of more established companies are also pursuing strategies to license or acquire products in the vaccine and therapeutic field. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. Other factors that may prevent us from licensing or otherwise acquiring suitable products and product candidates include the following:

·	we may be unable to license or acquire the relevant technology on terms that would allow us to make an appropriate return on the product;

·	companies that perceive us to be their competitor may be unwilling to assign or license their product rights to us; or

·	we may be unable to identify suitable products or product candidates within our areas of expertise.

In addition, we expect competition for acquisition candidates in the vaccine and therapeutic field to increase, which may result in fewer suitable acquisition opportunities for us as well as higher acquisition prices. If we are unable to successfully obtain rights to suitable products and product candidates, our business, financial condition and prospects for growth could suffer.

If we fail to successfully manage any acquisitions, our ability to develop our product candidates and expand our product candidate pipeline may be harmed.

As part of our business strategy, we intend to continue to seek to obtain marketed products and development stage product candidates through acquisitions and licensing arrangements with third parties. The failure to adequately address the financial, operational or legal risks of these transactions could harm our business. Financial aspects of these transactions that could alter our financial position, reported operating results or stock price include:

·	use of cash resources;

·	higher than anticipated acquisition costs and expenses;

·	potentially dilutive issuances of equity securities;

·	the incurrence of debt and contingent liabilities, impairment losses or restructuring charges;

·	large write-offs and difficulties in assessing the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount that must be amortized over the appropriate life of the asset; and

·	amortization expenses related to other intangible assets.

Operational risks that could harm our existing operations or prevent realization of anticipated benefits from these transactions include:

·	challenges associated with managing an increasingly diversified business;

·	prioritizing product portfolios;

·	disruption of our ongoing business;

·	difficulty and expense in assimilating and integrating the operations, products, technology, information systems or personnel of the acquired company;

·	diversion of management’s time and attention from other business concerns;

·	inability to maintain uniform standards, controls, procedures and policies;

·	the assumption of known and unknown liabilities of the acquired company, including intellectual property claims;

·	challenges and costs associated with reductions in work force; and

·	subsequent loss of key personnel.

If we are unable to successfully manage and integrate our acquisitions, our ability to develop new products and continue to expand our product pipeline may be limited.

Risks Related to Our Common Stock

Fuad El-Hibri, chief executive officer and chairman of our Board of Directors, has significant influence over us, including through his ability to control the election of the members of our Board of Directors, and could delay or prevent a change of control.

Mr. El-Hibri has the ability to control the election of the members of our Board of Directors through his ownership interests among our significant stockholders. As of July 30, 2010, Mr. El-Hibri was the beneficial owner of approximately 36% of our outstanding common stock. Because Mr. El-Hibri has significant influence over the election of the members of our board, and because of his substantial control of our capital stock, Mr. El-Hibri will likely have the ability to delay or prevent a change of control of us that may be favored by other directors or stockholders and otherwise exercise substantial control over all corporate actions requiring board or stockholder approval, including any amendment of our certificate of incorporation or by-laws. The control by Mr. El-Hibri may prevent other stockholders from infl uencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us.

Provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or other changes in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management.

These provisions include:

·	the classification of our directors;

·	limitations on changing the number of directors then in office;

·	limitations on the removal of directors;

·	limitations on filling vacancies on the board;

·	limitations on the removal and appointment of the chairman of our Board of Directors;

·	advance notice requirements for stockholder nominations for election of directors and other proposals;

·	the inability of stockholders to act by written consent;

·	the inability of stockholders to call special meetings; and

·	the ability of our Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval.

The affirmative vote of holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal the above provisions of our certificate of incorporation. The affirmative vote of either a majority of the directors present at a meeting of our Board of Directors or holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal our by-laws.

In addition, Section 203 of the General Corporation Law of Delaware prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns or within the last three years has owned 15% or more of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or prevent a change in control of us.

Our stockholder rights plan could prevent a change in control of us in instances in which some stockholders may believe a change in control is in their best interests.

Under a rights agreement that establishes our stockholder rights plan, we issue to each of our stockholders one preferred stock purchase right for each outstanding share of our common stock. Each right, when exercisable, will entitle its holder to purchase from us a unit consisting of one one-thousandth of a share of series A junior participating preferred stock at a purchase price of $150 in cash, subject to adjustments.

Our stockholder rights plan is intended to protect stockholders in the event of an unfair or coercive offer to acquire us and to provide our Board of Directors with adequate time to evaluate unsolicited offers. The rights plan may have anti-takeover effects. The rights plan will cause substantial dilution to a person or group that attempts to acquire us on terms that our Board of Directors does not believe are in our best interests and those of our stockholders and may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares.

Our stock price is volatile and purchasers of our common stock could incur substantial losses.

Our stock price has been, and is likely to continue to be, volatile. From November 15, 2006, when our common stock first began trading on the New York Stock Exchange, through July 30, 2010, our common stock has traded as high as $27.00 per share and as low as $4.40 per share. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:

·	the success of competitive products or technologies;

·	results of clinical trials of our product candidates or those of our competitors;

·	decisions and procurement policies by the U.S. government affecting BioThrax and our biodefense product candidates;

·	regulatory developments in the U.S. and foreign countries;

·	developments or disputes concerning patents or other proprietary rights;

·	the recruitment or departure of key personnel;

·	variations in our financial results or those of companies that are perceived to be similar to us;

·	market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’ reports or recommendations;

·	general economic, industry and market conditions; and

·	the other factors described in this “Risk Factors” section.

We do not anticipate paying any cash dividends in the foreseeable future.

We currently intend to retain our future earnings, if any, to fund the development and growth of our business. Our current and any future debt agreements that we enter into may limit our ability to pay dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.

A significant portion of our total outstanding shares may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. For example, we have filed a registration statement that would permit us to issue up to $100 million in common stock. Moreover, holders of an aggregate of approximately 10.5 million shares of our common stock outstanding as of July 30, 2010 have the right to require us to register these shares of common stock under specified circumstances.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

Not applicable.

Use of Proceeds

Not applicable.

Purchases of Equity Securities

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

The exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EMERGENT BIOSOLUTIONS INC.

By: /s/ Fuad El-Hibri

Fuad El-Hibri

Chief Executive Officer and

Chairman of the Board of Directors

(Principal Executive Officer)

Date: August 5, 2010

By: /s/ R. Don Elsey

R. Don Elsey

Sr. Vice President Finance, Chief Financial

Officer and Treasurer

(Principal Financial and Accounting Officer)

Date: August 5, 2010

EXHIBIT INDEX

Exhibit Number	Description
10.1	Consulting Services Agreement, effective April 1, 2010, between the Registrant and The Hauer Group (Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010 (File No. 001-33137)
10.2#	Consulting Agreement, effective April 7, 2010, between the Registrant and Denise Esposito
10.3#	Letter Agreement and Release, dated April 7, 2010, between the Registrant and Denise Esposito
10.4#	Amended and Restated Board Compensation Program for Outside Directors
31.1	Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)
31.2	Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

# Filed herewith

EX-10.2 2 ex102.htm ex102.htm

EXHIBIT10.2

CONSULTING AGREEMENT

This Consulting Agreement (“Agreement”), effective as of April 7, 2010 (“Effective Date”), is made by and between Emergent BioSolutions Inc. (“Emergent”), with a principal office at 2273 Research Blvd., Suite 400, Rockville, MD 20850, and Denise Esposito (“Consultant”). Emergent and Consultant are hereinafter referred to individually as “Party” or collectively as the “Parties”. The Parties hereby agree as follows:

1. Services; Performance Standards. Consultant agrees to perform services (“Services”) for Emergent as set forth in Exhibit A. Services shall be provided in accordance with the terms of this Agreement, any specific requirements as mutually agreed in writing, and best industry standards applicable thereto. Consultant shall (a) provide the facilities and supplies necessary to perform Services unless otherwise specified, (b) report to the authorized contact(s) identified in E xhibit A or such other person(s) as Emergent or its Affiliates may designate from time to time in writing, and (c) provide Emergent with deliverables and reports described in Exhibit A, or such other reports as Emergent or its Affiliates may from time to time request. “Affiliate” shall mean any direct or indirect, current or future subsidiary of a Party, or any other entity controlled by, under common control with, or which controls such Party. “Control” shall mean direct or indirect possession of at least fifty percent (50%) of another entity’s voting equity (or other comparable interest for a non-corporation), or the power to direct or cause the direction of the management or policies of such entity whether through ownership of securities, by contract or otherwise.

2. Payment. Emergent shall compensate Consultant for Services rendered as set forth in Exhibit A based on invoices submitted by Consultant and in accordance with the terms of this Agreement, provided that no invoice shall be required for payment of the retainer set forth in Exhibit A. All invoices shall reference the Emergent Accounting Codes designated in Exhibit A, and, if Consultant bills on an hourly basis, be accompanied by a timesheet signed by the Parties that details the hours worked. Invoices shall be payable within forty-five (45) days of receipt by Emergent. Payment of an invoice shall be in full compensation for the corresponding Services performed unless expressly otherwise agreed in writing by the Parties. Consultant shall not receive employee benefits (such as paid vacation, sick leave or any insurance benefits) from Emergent even if Consultant is physically situated at Emergent’s offices. Consultant shall be fully responsible for payment of all income taxes, social security taxes, and for any other taxes or payment which may be due and owing by Consultant as the result of fees or amounts paid to it by Emergent under this Agreement, and Consultant shall indemnify and hold harmless Emergent from and against any such tax or payment.

3. Expenses. Emergent shall reimburse Consultant for out-of-pocket expenses reasonably incurred in the performance of Services in addition to the compensation detailed in Exhibit A. Consultant shall submit monthly invoices detailing and categorizing expenses incurred during the immediately preceding month and shall provide supporting documentation as reasonably required by Emergent. Expenses shall not be marked up and shall not exceed fifteen percent (15%) of Maximum Compensation for the applicable invoice period without prior written pre-approval by Emergent. All travel must be in accordance with the Emergent Corporate Travel, Food an d Lodging Policy. This Agreement relates to the provision of Services only, and Consultant shall not purchase equipment, goods, software or other tangible or intangible property for which it will seek reimbursement from Emergent without Emergent's express, prior written authorization.

4. Confidential Information. Consultant acknowledges that this Agreement creates a confidential relationship between the Parties, and that, in order to perform the Services, Consultant or its members, principals, directors, shareholders, officers, employees, agents, affiliates and advisors (collectively, “Representatives”) may need to have access to certain commercially valuable, proprietary, and non-public information that Emergent considers to be Confidential Information. “Confidential Information” means any and all written, oral, electronic, graphic or other information relating directly or indirectly to Emergent or the business, products, markets, customers, suppliers, condition (financial or otherwise), operations, assets, liabilities, results of operations, cash flows or prospects of Emergent that is delivered, disclosed or furnished by or on behalf of Emergent to Consultant or its Representatives, whether before, on or after the Effective Date hereof, or which Consultant or its Representatives otherwise learns or obtains, through observation or through analysis of such information, and shall also be deemed to include all notes, analyses, compilations, studies, forecasts, interpretations or other documents prepared by Consultant or its Representatives to the extent such material contains, reflects or is directly based upon, in whole or in part, such information. Confidential Information may include, without limitation, t echnical information, business plans, identification or characterization of biological or other materials, results and/or design of experiments or preclinical or clinical testing, know-how, trade secrets, methods, methodologies, designs, specifications, clinical protocols, data, inventions, improvements, intellectual properties, devices, processes, procedures, financial analysis, accounting policies and procedures, employee staffing, employee compensation and benefits, manuals and marketing and advertising strategies disclosed directly or indirectly by Emergent to Consultant (whether prepared by Emergent, its advisors or otherwise). Consultant agrees to keep confidential and not, without the prior written consent of Emergent, publish, disclose to any third party or use (except for purposes of performance under this Agreement) any Confidential Information. The obligations of this paragraph do not pertain to information which is generally known or hereafter becomes generally known to the public through no faul t of Consultant or which is disclosed by Consultant with the written approval of Emergent. Consultant shall return all Confidential Information to Emergent upon completion of the corresponding Services hereunder or upon Emergent’s request. Consultant shall be entitled to disclose Confidential Information as required by applicable law, regulation or court order only to the extent necessary to comply therewith; provided, however, Consultant shall, if reasonably practicable, provide Emergent an opportunity to seek to prevent disclosure of, or to obtain a protective order for, such Confidential Information by giving advance written notice of such required disclosure; provided further, that Consultant shall make such required disclosures in consultation with Emergent and shall cooperate with Emergent in connection with efforts to obtain any protective order or other remedy.

5. Ownership of Work. Consultant shall promptly disclose to Emergent in writing all data, information, documents, materials and inventions relating to or arising out of Services, and agrees that all right, title, and interest in and to the foregoing shall belong to and be the property of Emergent. Consultant hereby assigns all its rights in the foregoing to Emergent and agrees, without further payment by Emergent, to make any further assignments and execute all documents necessary to effect Emergent's title thereto in all countries of the world. All documents and materials prepared by Consultant in the performance of Services constitute works-for-hire and s hall belong to and be the exclusive property of Emergent, and shall be surrendered by Consultant to Emergent upon request.

6. Independent Contractor. With respect to the subject matter hereof, the Parties are and remain independent contractors. This Agreement shall not be deemed to create an employer/employee relationship, joint venture, partnership, association, or agency between the Parties. Consultant is not authorized to incur or create any obligation (express or implied) on behalf of Emergent or to bind Emergent in any manner whatsoever.

7. Term; Termination. This Agreement is effective as of the Effective Date and shall continue in effect for twelve (12) months thereafter or until the Agreement otherwise terminates under this Section (“Term”); provided, however, that in the event that any amendment thereto is then pending, the Term shall be automatically extended until the Services to be provided under such amendment are completed. This Agreement shall terminate upon the expiration of the Term or the first to occur of (a) the date Emergent provide s Consultant with written notice that this Agreement is being terminated for “cause” where Consultant: (i) commits any act of embezzlement, theft or fraud against Emergent; (ii) is convicted of a felony or any crime involving moral turpitude, whether or not related to Services; (iii) commits any act of gross negligence or willful misconduct; or (iv) breaches the representations, warranties or covenants contained in this Agreement; or (b) the date on which either Party terminates the Agreement for convenience on not less than thirty (30) days’ prior written notice. Upon termination of this Agreement, neither Party shall have further liability to the other Party, except for Emergent’s obligation for payment in accordance with the terms of this Agreement for Services provided prior to the termination date. The provisions of Sections 2 – 5, 7, and 9 – 12, shall survive the expiration or termination of this Agreement for any reason.

8. Representations and Warranties. In addition to any other representations and warranties set forth in this Agreement, Consultant represents and warrants that Consultant: (a) will perform Services in a competent, diligent and workmanlike manner consistent with the expected industry standards of professional conduct; (b) has not ever been debarred, and any Consultant representative who provides any portion of the Services has not been debarred, pursuant to the United States Food, Drug and Cosmetic Act, or been excluded from any federal health care program (including Medicare or Medicaid), and Consultant will notify Emergent immediately if any of the foregoing occurs; (c) will perform Services for Emergent and has been advised of the restrictions and obligations set forth in this Agreement, including without limitation, the requirements of confidentiality and compliance with laws; (d) has full power to enter into and fully perform this Agreement and has the full and unrestricted right to disclose to Emergent any information Consultant makes available to Emergent under this Agreement; and (e) in the event Consultant is employed by a third party, Consultant has verified that the Services do not present a conflict with Consultant’s primary employment and that Consultant has the right and authority to authority to enter into this Agreement and to comply with the requirements of Section 5 (Ownership of Work).

9. Compliance with Laws. Consultant shall perform its duties and responsibilities hereunder in accordance with the highest standards of ethical business conduct and not engage in any acts or activities that are illegal or that may adversely affect or reflect upon the business, integrity or goodwill of Emergent. Consultant shall take no action that it believes might cause (or be construed as causing) Emergent to be in violation of international, federal, state or local laws or regulations, or Emergent’s policies and procedures. Consultant further agrees, to the extent applicable to performan ce of the Services, to abide by the Emergent BioSolutions Code of Conduct and Business Ethics policy as posted from time to time on the company’s website. Without limiting the generality of the foregoing, Consultant represents, warrants and agrees that Consultant will: (a) comply with all applicable laws, rules and regulations, including those governing employment practices (including employee recruiting and hiring), anti-bribery, anti-corruption and anti-gratuities laws or other similar laws; (b) comply with Emergent stated policies and procedures generally applicable to parties operating at Emergent’s offices, including those governing safety, health, harassment, and discrimination; (c) prohibit its staff or any representatives from involvement with the payment or giving of anything of value, either directly or indirectly, to an official of any government, political party or official thereof, any candidate for foreign political office, or any official of an international organization , for the purpose of influencing an act or decision in its official capacity, or inducing that official to use influence with any government, to assist Emergent in obtaining or retaining business for or with, or directing business to, any person, or for obtaining an improper advantage; and (d) certify in writing, at such times as may be requested by Emergent, that Consultant and its Representatives understand, have complied with and are in compliance with the foregoing. Consultant will immediately advise Emergent if Consultant should learn of or have reason to believe that there has been a violation of any of the foregoing undertakings.

10. Export Control Restrictions. Each Party acknowledges that, in the course of exchanging Confidential Information, it may desire to have access to certain information about the production and/or development of materials that is subject to export controls by the U.S. Department of Commerce and requires a specific license from that agency before such technology can be transferred outside the United States or disclosed in the United States to nationals of other countries (unless such individuals have been granted U.S. citizenship, permanent residence, or asylee status) (“Controlled Technology”). Each Party agrees that Controlled Technology will not be transferred or “released” (as that term is defined in Title 15 CFR Sect. 734.2(b)(3)) to the other Party unless and until the disclosing Party notifies the prospective receiving Party that such information constitutes Controlled Technology and the prospective receiving Party agrees in writing to receive such Controlled Technology, and that any such ultimate disclosure or “release” shall be provided under a license or as may be otherwise authorized by the laws of the United States.

11. Dispute Resolution. All disputes or claims arising hereunder that cannot be resolved by the Parties shall be submitted to non-binding mediation for a period of thirty (30) days, which may be extended by written agreement of the Parties. If such dispute is not resolved through mediation or otherwise within the specified period, either Party may pursue remedies available to it at law or in equity, subject to the terms of this Agreement.

12. Restriction on Insider Trading. Emergent BioSolutions Inc. is a publicly traded company on the New York Stock Exchange. Consultant acknowledges the existence of laws and regulations prohibiting “insider trading,” including the purchase or sale of securities of a company while in the possession of material information that has not been generally disclosed in the marketplace. Consultant acknowledges and agrees that, to the extent that material nonpublic information of Emergent BioSolutions Inc. or its Affiliates is shared with Consultant to enable Consultant to perform the Services, Consultant covenants and agrees that it will not engage in insider trading or disclose such information to any third parties.

13. Force Majeure. Neither Party shall be liable for delay or failure in the performance of any of its obligations under this Agreement if and to the extent such delay or failure is due to circumstances beyond the reasonable control of such Party, including but not limited to fires, floods, explosions, accidents, acts of God, war, riot, strike, lockout or other concerted acts of workers, acts of government and shortages of materials. The Party claiming force majeure shall use its commercially reasonable efforts to eliminate or prevent the cause so as to continue performing its obligations under this Agreement. During such time that the ev ent of force majeure causes such a delay or failure of performance, this Agreement and the Parties’ obligations and responsibilities under it shall be deemed suspended until the event of force majeure ceases.

14. Miscellaneous Provisions.

(a) Non-Waiver. No delay by or omission of any Party in exercising any right, power, privilege, or remedy shall impair such right, power, privilege, or remedy or be construed as a waiver thereof.

(b) Remedies. The rights and remedies provided in this Agreement are cumulative and are not exclusive of other rights or remedies provided by law.

(c) Notices. Any notice hereunder shall be given by first class mail, express mail, or facsimile (followed by confirmation), addressed to the Parties at the addresses given in the preamble of this Agreement, or to such other address as a Party may later designate in writing to the other Party. Notice of any legal action, claim or other legal matter given by Consultant to Emergent shall be directed to Emergent’s General Counsel at 2273 Research Boulevard, Rockville, Maryland, USA 20850.

(d) Use of Name. Neither Party shall use the name, tradename or trademark of the other Party in a press release, advertising, publicity or promotional activity without the prior written consent of the other Party.

(e) Severability. In the event that any section or any part of a section of this Agreement should be declared void, invalid, or unenforceable by any court of law, for any reason, such a determination shall not render void, invalid, or unenforceable any other section or any part of any other section of this Agreement and the remainder of this Agreement shall remain in full force and effect.

(f) Headings. Headings and titles of parts and sections are for convenience only and have no interpretative significance.

(g) Assignability. This Agreement may not be assigned by Consultant without Emergent’s prior, express written consent. Emergent may, without Consultant’s written consent, assign and transfer this Agreement to any Affiliate, in which event Consultant agrees to continue to perform the duties and obligations according to the terms hereof to or for such assignee or transferee of this Agreement.

(h) Amendments. No modification or amendment to this Agreement shall be effected by or result from the receipt, acceptance, signing or acknowledgement of any purchase order, quotation, invoice, shipping document or other business form containing terms or conditions different from those set forth in this Agreement, and all such additional terms and conditions are hereby specifically rejected by both Parties.

(i) Governing Law and Jurisdiction. This Agreement and its interpretation shall be governed by the laws of the State of Maryland without reference to its conflict of law or choice of law provisions. Any action commenced by a Party to enforce the terms of this Agreement must be brought in the courts of the jurisdiction where the Services were primarily delivered hereunder, and the Parties hereby irrevocably consent to the jurisdiction and venue of such courts to enforce the terms of this Agreement. The Parties expressly waive any right that they have or may have to a jury trial of any dispu te arising out of or in any way related to this Agreement, or any breach thereof.

(j) Integration; Counterparts; Signatures. This Agreement (including any corresponding exhibits) constitutes the entire agreement of the Parties, supersedes all prior discussions, negotiations and understandings verbal and written, if any, and may only be amended or modified by a written agreement signed by both Parties. In the event of a conflict between the terms of this Agreement and the terms of any Exhibit or attachment hereto, or any proposal, quotation or any Consultant documentation, the terms of this Agreement shall prevail. This Agreement may be signed in multiple id entical copies, each of which shall be deemed to be an original copy, and each facsimile or electronic copy shall constitute a legally binding, enforceable document. Electronic signatures shall not be an acceptable means of execution unless both Parties have agreed in writing to the format and standard of such signature.

(k) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

IN WITNESS WHEREOF, Emergent and Consultant have entered into this Agreement as of the Effective Date.

Emergent BioSolutions Inc.

By: /s/Jay G. Reilly

Name: Jay G. Reilly

Title: Acting General Counsel

Date: April 28, 2010

Denise Esposito

By: /s/Denise Esposito

Date: April 28, 2010

Exhibit A

SERVICES

Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Agreement.

1. Description of Services: Consultant shall cooperate fully with Emergent in the defense or prosecution of any litigation currently pending or that may be brought in the future against or on behalf of Emergent, whether before a state or federal court, in an arbitral forum or before a state or federal agency, related to the litigation against Protein Sciences Corporation, or any investigation relating to Emergent, if, in the judgment of Emergent or its counsel, your assistance or cooperation is needed due to your personal involvement in or knowledge about the circumstances to which the litigation or investigation relates. These Services shall include, but not be limited to, being available to meet with counsel to prepare Emergent’s claims or defenses, to prepare for trial, arbitration, discovery or an administrative hearing and to act as a witness when requested by Emergent at reasonable times designated by Emergent. Consultant shall notify Emergent promptly in the event that Consultant is served with a subpoena or is asked to provide a third party with information concerning any actual or potential complaint or claim against Emergent, dispute with Emergent or investigation or inquiry relating to Emergent.

2. Reports: Consultant shall provide the Emergent Representative with such reports as requested by Emergent from time to time.

3. Fees: In consideration for the Services, Emergent shall pay Consultant (a) a retainer of $6,500.00, and (b) for any specific Services as mutually-agreed in writing, an additional fee at a rate of $300.00 per hour.

4. Invoicing and Payment: Invoices shall be sent to and payments made in accordance with the terms of the Agreement, and the following shall apply:

Manner/Location for Payments: First-class mail to Consultant business address

Accounting Codes (Must be noted on invoices for payment to be processed):

G/L No.: 650081 Cost Center: 10070

Emergent Address for Invoices:

Emergent BioSolutions Inc.

2273 Research Blvd., Suite 400

Rockville, MD 20850

Attn: Accounts Payable

5. Expenses: Reimbursable in accordance with the terms of the Agreement.

6. Contacts: Consultant Notices: Denise Esposito

Emergent Representative: Jay Reilly

EX-10.3 3 ex103.htm ex103.htm

EXHIBIT 10.3

April 7, 2010

Denise Esposito, Esquire

c/o Paul F. Mickey, Jr., Esquire

Steptoe & Johnson LLP

1330 Connecticut Avenue, NW

Washington, DC 20036-1765

Re: Letter Agreement and Release

Dear Denise:

This Letter Agreement sets forth the terms and conditions of the agreement between you and Emergent BioSolutions Inc. (the “Company”) with respect to your separation from the Company. If you accept the terms of this Letter Agreement, please sign and return it to Donald N. Sperling, Esquire at Stein Sperling et al., 25 West Middle Lane, Rockville, Maryland 20850, no later than 5 pm on April 28, 2010.

You are advised to consult with an attorney of your choosing before signing this Letter Agreement, and you may take up to 21 days to do so. If you sign the Letter Agreement, you may change your mind and revoke your acceptance during the seven-day period after you have signed it by notifying Donald N. Sperling, Esquire in writing. If you timely sign and return this Letter Agreement, and do not revoke your signature within the seven-day period after you sign it, the following terms and conditions will become binding:

1. Termination of Employment – The parties agree that your employment with the Company ended as of March 12, 2010 (the “Termination Date”). Effective as of the Termination Date, you no longer hold your positions as SVP, Legal Affairs and General Counsel; Chief Legal Officer; Secretary; or any other positions as an employee, officer and/or director of the Company or any of the Company’s subsidiaries.

2. Severance and Compensation – You and the Company agree that your separation from the Company constitutes a qualifying event under the Severance Plan and Termination Protection Program (the “SPTPP”). The Company agrees to provide you with the severance benefits described in the SPTPP and you agree to be bound by the conditions and obligations of the SPTPP. Accordingly, the Company will pay or provide you with the following compensation and other payments, less appropriate deductions for federal and state withholding and other applicable taxes and any lawfully authorized or required payroll deductions, in full satisfaction of the s everance benefits payable under the SPTPP and in consideration for this Letter Agreement:

a.	$315,016.00 which represents your annual base salary in effect as of the Termination Date;

b.	$27,571.78 for 2010 pro rata target annual bonus calculated as follows: $315,016.00 (2010 base salary) x 45% (2010 bonus opportunity) x 19.45% (portion of year calculated from January 1 – March 12, 2010);

c.	$8,362.50 in lieu of the Company match to your 401(k) contributions calculated as follows: $6,300 representing the balance of the maximum matching contribution for 2010 plus $2,062.50 representing the matching contribution for 2011 based on the same maximum amount ($8,250.00);

d.	Extended health benefits for you and your eligible dependants for twelve (12) months after the Termination Date, except where the provision of such benefits would result in a duplication of benefits provided by a subsequent employer; and

e.	Reimbursement of the premiums for your current level of life insurance coverage for twelve (12) months after the Termination Date.

The severance benefits described in subparagraphs (a) through (e) above are payable only if this Letter Agreement becomes irrevocable. The severance payments described in subparagraphs (a) through (c) of this Section 2 will be paid out provided that you have not exercised your right to revoke this Letter Agreement as follows: $175,475.14 on September 13, 2010 and $29,245.86 shall be paid to you on the same date of each of the six (6) consecutive months thereafter. Because you are a specified employee within the meaning of Section 409A(2)(B)(i) of the Internal Revenue Code (the “Code”), no amounts shall be paid to you pursuant to subparagraphs (a) through (c) until that date which is six (6) months and one (1) day after your “separation from service” within the meaning of Section 409A(a)(2)(A)(i). In the event the United States Food and Drug Administration (“FDA”) requires you to divest or liquidate your right to receive severance payments under this agreement as a condition of employment with the FDA, the Company agrees to consider your request to accelerate any remaining installments hereunder to the extent permitted in accordance with Treasury Regulation Section 1.409A-3(j)(4)(iii) and in a manner consistent with any agreement between you and the FDA ethics office. The health benefits described in subparagraph (d) of this Section 2 will be paid directly on your behalf.

In addition, you are entitled to the following payments, regardless of whether you sign and return this Letter Agreement, and you agree that you have received such payments:

·	$109,633.68 which represents your bonus for calendar year 2009;

All earned but unpaid salary and accrued but unused paid time off earned during the 2010 calendar year through the Termination Date, at your current base salary of $315,016.00, less all applicable employment taxes and other withholding pursuant to federal and state regulations. Such payments have been made in the normal payroll period following the Termination Date; and

·	Reimbursement for any unreimbursed reasonable business expenses that you incurred before the Termination Date, which will be paid within thirty days of submission of the required expense reports and supporting documentation.

3. Release - In consideration of the payment of the severance benefits described in Section 3(a) of the SPTPP and in Sections (a) through (e) of Paragraph 2 above, you hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company and all affiliates, subsidiaries, and parent companies and their respective owners, officers, directors, employees, and agents (each in their individual and corporate capacities), and all employee benefit plans and plan fiduciaries (hereinafter, the "Released Parties") from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreemen ts, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys' fees and costs), of every kind and nature that you ever had or now have against any or all of the Released Parties, including, but not limited to, any and all claims arising out of or relating to your employment with and/or separation from the Company, including, but not limited to, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Rehabilitation Act of 1973, 29 U.S.C. § 701 etseq., Executive Order 11246, Executive Order 11141, the Maryland Fair Employment Practices Act, Md. Ann. Code art. 49B, § 1 et seq., the Maryland Anti-Discrimination Act (96 DLR A-2, 5/17/01), the Maryland Regulations on Anti-Discrimination Relating to Persons with Disabilities, Md. Regs. Code tit. 14, § 03.02.01 et seq., the Maryland Equal Pay Law, Md. Code Ann., Lab. & Empl. § 3-301 et seq. all as amended, all as amended, all claims arising out of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), all as amended, all common law claims including, but not limited to, actions in defamation, intentional and negligent infliction of emotional distress, misrepresentation, fraud, wrongful discharge and breach of contract, all cl aims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or equity compensation, all claims with respect to any bonus or other incentive compensation with respect to a sale of the Company or any affiliate thereof or to any termination protection pay under the SPTPP, and any claim or damage arising out of your employment with and/or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that nothing in this Letter Agreement prevents you from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission or a state fair employment practices agency (except that you acknowledge that you may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding). To implement a full and complete release and discharge, you expressly acknowledge that this Release is intended to include in its effect, without limitation, all claims you do not know or suspect to exist in your favor at the time of execution of this Release. You agree that this Release contemplates the extinguishment of any such claim or claims.

4. Confidentiality; Continuing Obligations - You acknowledge and reaffirm your obligation to maintain the confidentiality of all non-public information concerning the Company and its affiliates that you acquired during the course of your employment with the Company. You reconfirm and agree that you remain bound by the terms and conditions of the Non-Disclosure and Invention Assignment Agreement that you signed on December 2, 2004 and the Confidentiality and Non-Solicitation Agreement that you signed on the same date. You further acknowledge the continuing effect of the obligations set forth in Exhibit I to the letter dated Augu st 11, 2006 by which you elected to participate in the SPTPP and you hereby agree to comply with such obligations for a period of twelve (12) consecutive months after the Termination Date (instead of the six (6) month period set forth therein).

5. Return of Company Property - You confirm that you have returned to the Company in good working order all Company property including, but not limited to, keys, files, records, books, manuals, lists, printouts, and any other documents (and copies thereof), equipment (including, but not limited to, computer hardware, software and accessories, printers, wireless handheld devices, zip drives, diskettes, flashdrives, cellular phones, pagers, etc.), Company identification, Company vehicles, Company confidential and proprietary information and any other Company-owned property that is in your possession or control. You further confirm that you have left intact and agree to leave intact all electroni c Company documents, including, but not limited to, those that you developed or helped to develop during your employment, except for those electronic Company documents that you deleted in accordance with the Company’s written records management policy. You also confirm that you have cancelled all accounts for your benefit, if any, in the Company’s name, including, but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts.

6. Compensation; Loans - You acknowledge and agree that you have received all payments to which you are entitled for all services rendered to date in conjunction with your employment and that no other compensation, including salary, bonuses, or severance payments or benefits pursuant to any plan, policy or practice, are owed to you, other than those described herein. You also represent that you do not have any outstanding loans, advances, or extensions of credit under which you are or may be liable to the Company or its affiliates.

7. Non-Disparagement - You understand and agree that you shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer of the Company or to any other person or entity regarding the Company or any of its stockholders, directors, officers, employees, agents or representatives or about the Company’s business affairs and financial condition. The Company agrees that it shall not make any false, disparaging or derogatory statements about you to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer o f the Company or to any other person or entity.

8. Cooperation - You agree to cooperate fully with the Company in the defense or prosecution of any litigation currently pending or that may be brought in the future against or on behalf of the Company, whether before a state or federal court, in an arbitral forum or before a state or federal agency, or any investigation relating to the Company, if, in the judgment of the Company or its counsel, your assistance or cooperation is needed due to your personal involvement in or knowledge about the circumstances to which the litigation or investigation relates. Your full cooperation in connection with such litigation or investigation shall include, but not be limited to, being available to meet with counsel to prepare the Company’s claims or defenses, to prepare for trial, arbitration, discovery or an administrative hearing and to act as a witness when requested by the Company at reasonable times designated by the Company. In consideration for such cooperation, the Company agrees to pay you at your reasonable and customary hourly rate as authorized in advance by the Company. For the purposes of any payments made to and retained by you pursuant to this Section 8, you acknowledge that you shall be treated as an independent contractor and not as an employee. You further acknowledge and agree that the company shall not be liable for any withholding taxes, including, without limitation, worker's compensation, unemployment insurance, employers' liability, employer's FICA, social security, or other withholding tax for payments made and retained by you pursuant to this Section 8. All such costs shall be your responsibility. You agree that you will notify the Company promptly in the event that you are served with a subpoena or in the event that you are asked to provide a third party with information concerning any actual or potential complaint or claim against the Company, dispute with the Company or investigation or inquiry relating to the Company. You agree to maintain the confidentiality of all non-public information concerning the Company and its affiliates that you acquire during the course of your engagement with the Company pursuant to this Section 8. Notwithstanding the foregoing, any services that you provide to the Company in connection with the litigation against Protein Sciences Corporation shall be compensated in accordance with the terms and conditions of that certain Consulting Agreement effective April 7, 2010, between you and the Company.

9. References – You agree to copy Paula Lazarich on all reference requests to the Company. The Company will thereafter respond to any such reference request by providing the inquiring party with confirmation of your dates of employment, positions held, salary, and other information as you and Company may agree in writing. You acknowledge that no representative of the Company is authorized to provide a further reference on behalf of the Company. You further acknowledge and agree that to the extent any employee of the Company provides a personal reference for you, you will not make or threaten to make any claim or to take any other action against such Comp any employee based on or relating to such personal reference.

10. Amendment - This Letter Agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This Letter Agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

11. Tax Provision – In connection with the severance benefits provided to you pursuant to this Letter Agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such severance benefits under applicable law. You acknowledge that you are not relying upon advice or representation of the Company with respect to the tax treatment of any of the severance benefits set forth herein.

12. Section 409A - This Letter Agreement shall be interpreted to ensure that the payments made to you are exempt from, or comply with, Section 409A of the Code; provided, however, that nothing in this Letter Agreement shall be interpreted or construed to transfer any liability for any tax (including a tax or penalty due as a result of a failure to comply with Section 409A) from you to the Company or to any other individual or entity.

13. Waiver of Rights - No delay or omission by the Company in exercising any right under this Letter Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion.

14. Validity - Should any provision of this Letter Agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Letter Agreement.

15. Confidentiality - To the extent permitted by law, you understand and agree that you and your agents and representatives shall maintain as confidential the terms and contents of this Letter Agreement, and the contents of the negotiations and discussions resulting in this Letter Agreement, and shall not disclose such terms, contents, negotiations or discussions except to the extent required by federal or state law or as otherwise agreed to in writing by the Company or as specifically disclosed by the Company in any public disclosure or public filing. You are to advise any such person with whom you have discussed this Letter Agreement of the existence and requirements of this conf identiality provision, and you shall instruct any such person that he/she shall not disclose the existence of this Letter Agreement or its terms to any other person. Disclosure by you to any other person or entity in violation of the provisions of this Letter Agreement shall be deemed to be a breach of this Letter Agreement.

16. Nature of Agreement - You understand and agree that this Letter Agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

17. Indemnification - The Company agrees that you are not releasing any claims you may have for indemnification under state law, the charter, articles, or by-laws of the Company and/or its affiliates, or under the Indemnity Agreement with the Company, which you signed on January 26, 2005, or any applicable insurance policy providing directors’ and officers’ coverage; provided, however, that (i) the Company’s execution of this Agreement is not a concession or guaranty that you have any such rights to indemnification, (ii) this Agreement does not create any additio nal rights to indemnification, and (iii) the Company retains any defenses it may have to such indemnification or coverage.

18. Accrual of Benefits. The parties acknowledge and agree that, following the Termination Date, you shall not receive or accrue any benefits other than those described herein and those required by law, including but not limited to paid time off, insurance, holiday pay, or other benefits as provided by the Company.

19. No Workplace Injury. You acknowledge that you have suffered no workplace injuries during your employment by the Company and its affiliates. You agree that, as of the date of this Letter Agreement, you were able to perform the essential functions of your job.

20. Acknowledgments - You acknowledge that you have at least 21 days to consider this Letter Agreement and that the Company hereby advises you in writing to consult with an attorney of your own choosing prior to signing this Letter Agreement. You understand that you may revoke this Letter Agreement for a period of seven days after you sign this Letter Agreement by notifying Donald N. Sperling, Esquire in writing, and the Letter Agreement shall not be effective or enforceable until the expiration of this seven-day revocation period. You understand and a gree that by entering into this Letter Agreement, you are waiving any and all rights or claims you might have under the Age Discrimination in Employment Act, as amended by the Older Workers Benefits Protection Act, and that you have received consideration beyond that to which you were previously entitled.

21. Voluntary Assent - You affirm that no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this Letter Agreement and that you fully understand the meaning and intent of this Letter Agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this Letter Agreement with an attorney. You further state and represent that you have carefully read this Letter Agreement understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign your name of your own free act.

22. Applicable Law - This Letter Agreement shall be interpreted and construed by the laws of the State of Maryland, without regard to conflict of laws provisions.

23. Dispute Resolution - The parties agree to first submit any claims against the other party or against any directors, officers, employees, agents or representatives of the Company or its affiliates, relating in any way to this Letter Agreement, to your retention by or services for the Company, to the termination of such retention or services, or to any or all other claims that one party might have against the other party, including, without limitation, claims for employment or other discrimination under any federal, state or local law, regulation, ordinance or executive order to nonbinding mediation. Only after the completion of such nonbinding mediation efforts may either party initiate legal proceedings against the other party. Notwithstanding the foregoing, either party may institute legal proceedings against the other party for claims for injunctive relief related to Paragraphs 4, 5, 7, and 15 herein. The parties hereby irrevocably submit to and acknowledge and recognize the exclusive jurisdiction of the courts of the State of Maryland, or if appropriate, a federal court located in Maryland (which courts, for purposes of this Letter Agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this Letter Agreement or the subject matter hereof, except as otherwise provided herein.

24. Entire Agreement - This Letter Agreement contains and constitutes the entire understanding and agreement between the parties hereto with respect to your severance benefits and the settlement of claims against the Company and cancels and supersedes all previous oral and written negotiations, agreements and commitments in connection therewith. Nothing in this Paragraph, however, shall modify, cancel or supersede any of the documents referenced herein except that your continuing obligations under Exhibit I to the letter dated August 11, 2006 shall be modified by Paragraph 4 herein. Notwithstanding the foregoing, the Cons ulting Agreement between you and the Company effective April 7, 2010 shall not be modified, canceled or superseded by this Letter Agreement.

* * * * *

If you are in agreement with the terms of this Letter Agreement, please sign the Agreement on Page 7 and return it to Donald N. Sperling, Esquire at Stein Sperling et al., 25 West Middle Lane, Rockville, Maryland 20850. The Agreement must be signed and returned to Donald N. Sperling, Esquire no later than 5pm on April 28, 2010.

If you choose not to timely sign and return this Letter Agreement, or if you timely revoke your acceptance of it in writing, you will not receive the severance benefits described in Sections (a) through (e) of Paragraph 2, above. Regardless of whether you sign and return this Letter Agreement, or if you sign it but timely revoke your acceptance, you are entitled to receive unpaid salary and accrued but unused paid time off earned during the 2010 calendar year through the termination of your employment, less all applicable employment taxes and other withholdings pursuant to federal and state regulations, and reimbursement of outstanding business expenses.

If you have any questions about the matters covered in this Letter Agreement, please contact Donald N. Sperling, Esquire at 301-838-3202.

Sincerely,

/s/Paula Lazarich

Paula Lazarich

Vice President Human Resources

NOTE: THIS LETTER AGREEMENT CONTAINS A GENERAL RELEASE OF CLAIMS. PLEASE READ IT CAREFULLY BEFORE SIGNING BELOW.

I hereby agree to the terms and conditions set forth above. I have been given at least 21 days to consider the terms set forth in this Letter Agreement, and I have chosen to execute it on the date below. I agree and intend that this Letter Agreement is a binding agreement between the Company and me if I do not revoke my acceptance within seven days of my execution of the document.

/s/Denise Esposito_ 4/28/10

Denise Esposito Date

Please execute and return to return it to Donald N. Sperling, Esquire at Stein Sperling et al., 25 West Middle Lane, Rockville, Maryland 20850, no later than 5pm on April 28, 2010.

EX-10.4 4 ex104.htm ex104.htm

EXHIBIT 10.4

Amended and Restated Board Compensation Program

for Outside Directors

Effective May 20, 2010

Annual Retainers

·	Annual cash retainer of $20,000 for each Outside Director

·	Lead Director receives an additional annual cash retainer of $15,000

·	Audit Committee Chair receives an additional annual cash retainer of $20,000

·	Audit Committee members (other than the Chair) receive an additional annual cash retainer of $5,000

·	Compensation Committee Chair receives an additional annual cash retainer of $15,000

·	Compensation Committee members (other than the Chair) receive an additional annual cash retainer of $3,000

·	Nominating and Corporate Governance Committee Chair receives an additional annual cash retainer of $15,000

·	Nominating and Corporate Governance Committee members (other than the Chair) receive an additional annual cash retainer of $3,000

Meeting Fees

·	Board meeting fees of $1,500 for in-person attendance, $500 for telephonic attendance

·	Committee meeting fees of:

o	$1,500 for in-person attendance of Audit Committee meetings, and $500 for telephonic attendance

o	$1,000 for in-person attendance of Compensation Committee meetings, and $300 for telephonic attendance

o	$1,000 for in-person attendance of Nominating and Corporate Governance Committee meetings, and $300 for telephonic attendance

Equity awards as follows:

	No. of Stock Options	No. of RSU’s	Total Shares
Initial Election Award	10,800	5,400	16,200
Annual Award	7,200	3,600	10,800

For purposes of this Program:

1. Outside Director shall mean any individual that is not an Inside Director and meets the definition of “outside director” as it may be amended from time to time under Section 162(m) the Internal Revenue Code of 1986, as amended, and the rules and regulation thereunder;

2. Lead Director shall mean the Independent Director selected by a majority of the Independent Directors, pursuant to the Corporate Governance Guidelines.

3. Inside Director shall mean any individual who is also an officer or employee of the Corporation or any of its affiliates.

4. Independent Director shall mean any individual who qualifies as an “independent director,” pursuant to the Corporate Governance Guidelines.

The determination of whether or not an individual is an Outside Director, Inside Director or Independent Director (and in the case of an Outside Director whether or not the grant of an option was necessary to attract such individual to join the Board) shall be made by the Board of Directors in its sole and absolute discretion at any time prior or subsequent to the date on which the individual is appointed or elected to the Board of Directors.

Approved By Board of Directors

June 14, 2007

EX-31.1 5 ex311.htm ex311.htm

Exhibit 31.1

CERTIFICATION

I, Fuad El-Hibri, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Emergent BioSolutions Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to he designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information, and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2010

/s/Fuad El-Hibri

Fuad El-Hibri

Chief Executive Officer

EX-31.2 6 ex312.htm ex312.htm

Exhibit 31.2

CERTIFICATION

I, R. Don Elsey, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Emergent BioSolutions Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information, and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2010

/s/R. Don Elsey

R. Don Elsey

Chief Financial Officer

EX-32.1 7 ex321.htm ex321.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Emergent BioSolutions Inc. (the "Company") for the three and six months ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Fuad El-Hibri, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2010

/s/ Fuad El-Hibri

Fuad El-Hibri

Chief Executive Officer

EX-32.2 8 ex322.htm ex322.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Emergent BioSolutions Inc. (the "Company") for the three and six months ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, R. Don Elsey, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2010

/s/ R. Don Elsey

R.Don Elsey

Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2010

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Delaware	14-1902018
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2273 Research Boulevard, Suite 400
Rockville, Maryland	20850
(Address of Principal Executive Offices)	(Zip Code)

Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II. Other Information
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Removed and Reserved
Item 5.	Other Information
Item 6.	Exhibits
	Signatures
	Exhibit Index

Emergent BioSolutions Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)

	June 30,			December 31,
	2010			2009
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	102,193		$	102,924
Restricted cash		215			215
Accounts receivable		45,765			54,872
Inventories		17,116			13,521
Note receivable		10,000			10,000
Deferred tax assets, net		2,637			1,870
Income tax receivable, net		8,788			2,574
Prepaid expenses and other current assets		7,732			7,838
Total current assets		194,446			193,814

Property, plant and equipment, net		136,839			131,834
Assets held for sale		12,930			13,960
Deferred tax assets, net		399			3,894
Other assets		1,133			1,187

Total assets	$	345,747		$	344,689

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	20,300		$	17,159
Accrued expenses and other current liabilities		1,137			1,570
Accrued compensation		11,580			14,926
Indebtedness under line of credit		-			15,000
Long-term indebtedness, current portion		12,186			5,791
Deferred revenue		241			255
Total current liabilities		45,444			54,701

Long-term indebtedness, net of current portion		36,910			44,927
Other liabilities		1,350			1,246
Total liabilities		83,704			100,874

Commitments and contingencies		-			-

Stockholders’ equity:
Preferred stock, $0.001 par value; 15,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized, 31,196,209 and 30,831,360 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		31			31
Additional paid-in capital		127,349			120,492
Accumulated other comprehensive loss		(1,641	)		(1,476	)
Retained earnings		134,482			122,152
Total Emergent BioSolutions Inc. stockholders' equity		260,221			241,199
Noncontrolling interest in subsidiary		1,822			2,616
Total stockholders’ equity		262,043			243,815
Total liabilities and stockholders’ equity	$	345,747		$	344,689

Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	(Unaudited)						(Unaudited)
Revenues:
Product sales	$	55,872		$	69,330		$	94,725		$	131,008
Contracts and grants		6,266			3,861			14,213			6,702
Total revenues		62,138			73,191			108,938			137,710

Operating expenses:
Cost of product sales		11,076			10,428			18,584			25,796
Research and development		18,602			20,680			38,524			36,590
Selling, general and administrative		17,649			19,373			33,841			35,348
Income from operations		14,811			22,710			17,989			39,976

Other income (expense):
Interest income		376			305			764			605
Interest expense		(2	)		(6	)		(7	)		(10	)
Other income (expense), net		6			(10	)		(2	)		(34	)
Total other income (expense)		380			289			755			561

Income before provision for income taxes		15,191			22,999			18,744			40,537
Provision for income taxes		5,757			9,748			7,392			17,114
Net income		9,434			13,251			11,352			23,423
Net loss attributable to noncontrolling interest		374			1,591			979			2,538
Net income attributable to Emergent BioSolutions Inc.	$	9,808		$	14,842		$	12,331		$	25,961

Earnings per share - basic	$	0.32		$	0.49		$	0.40		$	0.86
Earnings per share - diluted	$	0.31		$	0.48		$	0.39		$	0.83

Weighted-average number of shares - basic		31,097,445			30,271,317			30,989,308			30,227,948
Weighted-average number of shares - diluted		31,900,000			30,949,612			31,666,976			31,202,275

Emergent BioSolutions Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
	Six Months Ended
	June 30,
	2010			2009
	(Unaudited)
Cash flows from operating activities:
Net income	$	11,352		$	23,423
Adjustments to reconcile to net cash provided by (used in) operating activities:
Stock-based compensation expense		3,363			2,250
Depreciation and amortization		2,646			2,507
Deferred income taxes		3,437			1,340
Non-cash development expenses from joint venture		185			4,088
(Gain) loss on disposal of property and equipment		(29	)		35
Provision for impairment of long-lived assets		1,029			3,818
Excess tax benefits from stock-based compensation		(709	)		(513	)
Changes in operating assets and liabilities:
Accounts receivable		9,107			(30,544	)
Inventories		(3,595	)		6,945
Income taxes		(6,214	)		8,219
Prepaid expenses and other assets		159			1,112
Accounts payable		4,151			(1,149	)
Accrued compensation		(3,346	)		(1,418	)
Accrued expenses and other liabilities		(329	)		103
Deferred revenue		(14	)		246
Net cash provided by operating activities		21,193			20,462
Cash flows from investing activities:
Purchases of property, plant and equipment		(8,631	)		(9,094	)
Net cash used in investing activities		(8,631	)		(9,094	)
Cash flows from financing activities:
Proceeds from borrowings on line of credit		15,000			30,000
Principal payments on long-term indebtedness and line of credit		(31,621	)		(31,625	)
Issuance of common stock subject to exercise of stock options		2,784			1,134
Excess tax benefits from stock-based compensation		709			513
Net cash provided by (used in) financing activities		(13,128	)		22

Effect of exchange rate changes on cash and cash equivalents		(165	)		(355	)

Net increase (decrease) in cash and cash equivalents		(731	)		11,035
Cash and cash equivalents at beginning of period		102,924			91,473
Cash and cash equivalents at end of period	$	102,193		$	102,508

	2006 Plan					2004 Plan
	Number of Shares			Weighted-Average Exercise Price		Number of Shares			Weighted-Average Exercise Price		Aggregate Intrinsic Value
Outstanding at December 31, 2009		3,485,499		$	12.72		130,082		$	7.52
Granted		755,553			15.87		-			-
Exercised		(324,849	)		8.22		(40,000	)		3.50
Forfeited		(122,366	)		14.04		-			-
Outstanding at June 30, 2010		3,793,837		$	13.71		90,082		$	9.30	$	13,961,578
Exercisable at June 30, 2010		1,552,650		$	11.65		90,082		$	9.30	$	9,002,373

	Number of Shares			Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2009		-		$	-	$	-
Granted		377,645			15.91
Vested		-			-
Forfeited		(6,740	)		15.91
Outstanding at June 30, 2010		370,905		$	15.91	$	6,060,588

	Reportable Segments
(in thousands)	Biodefense		Commercial			All Other			Total
Six Months Ended June 30, 2010
External revenue	$	108,938	$	-		$	-		$	108,938
Net income (loss) to Emergent BioSolutions Inc.		35,370		(18,668	)		(4,371	)		12,331
Assets		213,405		23,340			109,002			345,747
Six Months Ended June 30, 2009
External revenue	$	137,710	$	-		$	-		$	137,710
Net income (loss) to Emergent BioSolutions Inc.		57,508		(23,939	)		(7,608	)		25,961
Assets		196,629		23,430			106,326			326,385

	Emergent		Noncontrolling
(in thousands)	BioSolutions Inc.		Interest			Total
Stockholders' equity at December 31, 2009	$	241,199	$	2,616		$	243,815
Non-cash development expenses from joint venture		-		185			185
Net income (loss)		12,331		(979	)		11,352
Other		6,691		-			6,691
Stockholders' equity at June 30, 2010	$	260,221	$	1,822		$	262,043

Product Candidate/Manufacturing	Funding Source	Award Date		Amount (Up to)	Performance Period
Anthrax immune globulin therapeutic	NIAID		9/2007	$9.5 million	9/2007 — 12/2011
Recombinant botulinum vaccine	NIAID		6/2008	$1.8 million	6/2008 — 5/2011
BioThrax dual adjuvant vaccine	NIAID		7/2008	$2.8 million	7/2008 — 6/2013
Anthrax monoclonal antibody therapeutic	NIAID/BARDA		9/2008	$24.3 million	9/2008 — 8/2012
BioThrax dual adjuvant vaccine	NIAID/BARDA		9/2008	$29.7 million	9/2008 — 9/2011
Double mutant recombinant protective antigen anthrax vaccine	NIAID		9/2009	$4.9 million	9/2009 — 8/2011
Large-scale manufacturing for BioThrax	BARDA		7/2010	$106.9 million	7/2010 — 9/2014