Emergent BioSolutions Inc. - Annual Report: 2010 (Form 10-K)

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

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

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

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

Title of Each Class	Name of Each Exchange on Which Registered
Common stock, $0.001 par value per share	New York Stock Exchange
Series A junior participating preferred stock purchase rights	New York Stock Exchange

PART I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Removed and Reserved
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
PART III
Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions, and Director Independence
Item 14.	Principal Accountant Fees and Services
PART IV
Item 15.	Exhibits and Financial Statement Schedules
	Signatures
	Exhibit Index

§	our ability to perform under our contracts with the U.S. government for sales of BioThrax® (Anthrax Vaccine Adsorbed), our FDA-approved anthrax vaccine, including the timing of deliveries;

§	our plans for future sales of BioThrax, including our ability to obtain new contracts or modifications to existing contracts with the U.S. government;

§	our plans to pursue label expansions and improvements for BioThrax;

§	our ability to perform under our development contract with the U.S. government for our product candidate PreviThraxTM (Recombinant Protective Antigen Anthrax Vaccine, Purified);

§	our ability to perform under our contract with the U.S. government to develop and obtain regulatory approval for large-scale manufacturing of BioThrax in Building 55, our large-scale vaccine manufacturing facility in Lansing, Michigan;

§	our plans to expand our manufacturing facilities and capabilities;

§	the rate and degree of market acceptance of our products and product candidates;

§	the success of preclinical studies and clinical trials of our product candidates and post-approval clinical utility of our products;

§	our ongoing and planned development programs, preclinical studies and clinical trials;

§	our ability to identify and acquire or in-license products and product candidates that satisfy our selection criteria;

§	our ability to successfully integrate and develop the products or product candidates, programs, operations and personnel of any entities or businesses that we acquire, including those of Trubion Pharmaceuticals, Inc., which we acquired in October 2010;

§	the potential benefits of our existing collaborations and our ability to selectively enter into additional collaborative arrangements;

§	the timing of and our ability to obtain and maintain regulatory approvals for our products and product candidates;

§	our commercialization, marketing and manufacturing capabilities and strategy;

§	our intellectual property portfolio; and

§	our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.

Products

Disease	Product or Product Candidate	Description	Development Stage
Anthrax	BioThrax	Only FDA-approved vaccine for pre-exposure prevention of anthrax disease	Marketed
	NuThrax*	Pre-exposure prophylactic vaccine	Phase I
	PreviThrax*	Pre/post-exposure prophylactic vaccine	Phase II
	Anthrivig*	Human immunoglobulin therapeutic	Phase I/ II
	Thravixa*	Fully human monoclonal antibody therapeutic	Phase I
	Double-mutant rPA vaccine*	Pre/post-exposure prophylactic vaccine	Preclinical
Tuberculosis	MVA-85A	Prophylactic recombinant TB vaccine	Phase II
Typhoid	Typhella	Prophylactic vaccine	Phase II
Influenza	Multivalent, cross-protective pandemic influenza vaccine	Prophylactic vaccine	Preclinical
	Pandemic H5 influenza MAb	Monoclonal antibody therapeutic	Preclinical
Rheumatoid Arthritis	SBI-087	Humanized anti-CD20 SMIP therapeutic	Phase II
Systemic lupus erythematosus	SBI-087	Humanized anti-CD20 SMIP therapeutic	Phase I
Chronic lymphocytic leukemia	TRU-016	Humanized anti-CD37 SMIP therapeutic	Phase I/ II
Non-Hodgkin's lymphoma	TRU-016	Humanized anti-CD37 SMIP therapeutic	Phase I

Inhalational anthrax is the most lethal form of anthrax. We believe that aerosolized anthrax spores are the most likely method to be used in a potential anthrax bioterrorism attack. Inhalational anthrax has been reported to occur from one to 43 days after exposure to aerosolized spores. Initial symptoms of inhalational anthrax are non-specific and may include sore throat, mild fever, cough, malaise, or weakness, lasting up to a few days. After a brief period of improvement, the release of anthrax toxins may cause an abrupt deterioration in the health of the infected person, with the sudden onset of symptoms, including fever, shock and respiratory failure as the lungs fill with fluids. Hemorrhagic meningitis is common. Death often occurs within 24 hours of the onset of advanced respiratory complications. The fatality rate for inhalational anthrax is estimated to be between 45% and 90%, depending on whether aggressive, early treatment is provided.

§	state and local governments, which we expect may be interested in these products to protect emergency responders, such as police, fire and emergency medical personnel;

§	foreign governments, including both defense and public health agencies;

§	non-governmental organizations and multinational companies, including transportation, critical infrastructure services and security companies;

§	the U.S. Postal Service; and

§	health care providers, including hospitals and clinics.

Although BioThrax is not currently approved by the FDA for post-exposure prophylaxis, we are pursuing a label expansion for this indication. We are also developing Anthrivig, an anthrax immune globulin therapeutic product candidate, and Thravixa, an anthrax monoclonal antibody therapeutic product candidate, both of which are designed for treatment of symptomatic patients. Several other companies also are developing post-exposure anthrax therapeutic products. We intend to progress the development of and pursue development and procurement contracts for both Anthrivig and Thravixa. We believe that anthrax therapeutics would be eligible to be procured by HHS under Project BioShield for inclusion in the SNS prior to receiving marketing approval, provided that the specific product candidate is deemed to be licensable.  BioThrax and BioThrax Related Programs

Reduced dosing schedule. In February 2010, we submitted a BLA efficacy supplement to the FDA to change the BioThrax dosing schedule from the current 0-, 1 - 6- 12- and 18-month schedule with annual boosters to a 0-, 1- and 6-month schedule with triennial boosters. The BLA supplement was primarily based on data from a clinical trial completed by the CDC in December 2009 to evaluate whether as few as three doses of BioThrax administered over six months, with booster doses up to three years apart, will confer an adequate immune response. In November 2010, the FDA sent us a complete response letter to our BLA efficacy supplement stating that it could not be approved because protection had not been demonstrated for the time after the last vaccination until the three-year booster vaccination. We expect to meet with the FDA in early 2011 to discuss the CDC trial findings and their applicability to our BLA supplement, and to establish a near-term plan for a reduced dosing schedule for BioThrax.

The CDC trial assessed 1,563 healthy civilian men and women between the ages of 18 and 61, randomized to one of six groups: Group A (original vaccination schedule of 0, 2, 4 weeks, and 6, 12, 18 months with annual boosters out to 42 months), Group B (same schedule as Group A, but all vaccinations given by intramuscular route), Group C (same as Group B, but with 2-week dose dropped), Group D (same as Group B, but with 2-week and 12- and 30-month doses dropped), Group E (same as Group B, but with 2-week and 12-, 19- and 30-month doses dropped), and the control group that received saline placebo.  According to the statistical analysis plan of the trial, a switch in the dosing schedule would be justified by demonstrated non-inferiority of immune response of the test arm with a modified vaccination schedule (Group C, D, or E) to the original approved schedule (Group A). The primary endpoints for comparison to determine non-inferiority were (1) geometric mean antibody titer, or GMT, (2) geometric mean antibody concentration, or GMC, and (3) the proportion of subjects achieving 4-fold increase in antibody titer after vaccination. Non-inferiority had to be demonstrated for all primary endpoints in order to support the use of specific regimens. In accordance with applicable regulatory guidance and the FDA’s recommendations to the CDC on trial design, all non-inferiority tests were done at the 0.025 significance level to insure that results were not due to random variation. A conclusion of non-inferiority, to be accepted by the FDA, required that the upper limits of 95% confidence intervals be less than 1.5 for GMT and GMC ratios (i.e. Group A/Group C, D, or E) and less than 0.1 for differences in proportions of subjects achieving 4-fold increase in antibody titer (i.e. Group A – Group C, D, or E).    In this trial, the immunogenicity for Group C, Group D, and Group E were all non-inferior to Group A for all primary endpoints. Additionally, the intramuscular route of administration resulted in significantly fewer adverse events when compared to the subcutaneous route for six of the eight solicited local (injection site) adverse events: warmth, tenderness, erythema, swelling, bruising and itching. Intramuscular administration resulted in a shorter duration of the adverse event than subcutaneous administration for the same six solicited adverse events. Few statistically significant differences were detected in the occurrence of systemic adverse events between the intramuscular treatment groups and the subcutaneous treatment group.

 

§

PreviThrax™ (Recombinant Protective Antigen Anthrax Vaccine, Purified). We are developing a recombinant form of the protective antigen protein as an anthrax vaccine, based on original development work at USAMRIID. PreviThrax contains purified recombinant protective antigen, or rPA, formulated with an aluminum hydroxide adjuvant and is designed to induce antibodies that neutralize anthrax toxins in a manner similar to BioThrax. PreviThrax has been the subject of two research and development grants from NIAID totaling approximately $100 million. It has also been evaluated in one Phase II clinical trial, but this trial did not achieve statistically significant results due to product stability issues. We believe these stability issues have since been resolved and that future trials will not be adversely affected by similar stability concerns. In September 2010, BARDA awarded us a contract valued at up to approximately $187 million to fund development activities related to process characterization and assay validation, as well as formulation and stability studies, with potential milestone-based options for completion of a Phase II clinical trial and non-clinical efficacy studies, process validation and consistency lot manufacture. We have completed several formulation studies and have initiated additional studies designed to determine the optimal dose presentation for PreviThrax.

§

Anthrivig™ (Human Anthrax Immunoglobulin). We are developing Anthrivig, a human anthrax immune globulin, or AIG, therapeutic product candidate, which is a polyclonal antibody therapeutic, designed as a treatment for patients who have been exposed to anthrax spores and who present with symptoms of anthrax disease. We expect that, if approved, Anthrivig would be prescribed as an intravenous infusion in conjunction with a regimen of antibiotics. We plan to rely on the FDA’s animal rule to support approval of Anthrivig, and to continue conducting non-clinical efficacy studies. In November 2010, BARDA requested that we submit a full proposal for late-stage development of Anthrivig, including all development activities through licensure. We submitted our proposal in January 2011 and expect to receive a response from BARDA in the second half of 2011. We are developing Anthrivig using plasma produced by healthy donors who have been immunized with BioThrax.

§

Thravixa™ (Fully Human Anthrax Monoclonal Antibody). We are developing Thravixa, a human monoclonal antibody therapeutic product candidate as an intravenous treatment for patients who present with symptoms of inhalational anthrax disease. Thravixa's development has been funded in part by BARDA under our contract with NIAID to support efficacy testing in non-clinical studies, the establishment of a cGMP manufacturing process and initial clinical evaluation. In August 2010, we commenced a randomized, double-blind, placebo-controlled, dose escalation Phase I clinical trial involving 50 healthy volunteers, designed to evaluate the safety and pharmacokinetics of Thravixa. The FDA granted our development program Fast Track Designation in October 2010, and Orphan Drug Designation in November 2010.

§

Double-mutant rPA vaccine. We are developing an anthrax vaccine product candidate based on a double-mutant form of rPA, or dmPA, combined with CpG 7909 and Alhydrogel, an aluminum hydroxide adjuvant. In September 2009, we received an award from NIAID under the American Recovery and Reinvestment Act that included funding for development of a dry powder formulation and for the manufacture of bulk drug substance and final drug product in a current cGMP environment. We are currently evaluating our required development efforts for this product candidate.

A Phase IIb trial in infants commenced in South Africa in the first half of 2009. Designed as a double-blind, randomized placebo-controlled evaluation of MVA85A/AERAS-485 for safety, immunogenicity and prevention of TB in BCG-vaccinated, HIV-negative infants, this trial is expected to include 2,784 infants. The trial is being conducted at a single site in South Africa and infants participating in this trial will be followed both for the development of tuberculosis and for adverse events. As of February 2011, over 2,000 subjects have been immunized and we currently expect this trial to conclude in 2012.

§

An open-label, non-placebo controlled, pilot study conducted in the United Kingdom in nine healthy adult volunteers. The purpose of this study was to evaluate the safety and immunogenicity of our vaccine product candidate. In this study, Typhella was immunogenic, eliciting both cell mediated and humoral immune responses, and well tolerated.

§

A double-blind, placebo controlled, single dose escalating Phase I clinical trial conducted in the United States in 60 healthy adult volunteers. The purpose of this trial was to evaluate the safety, tolerability and immunogenicity of three dose levels of our vaccine product candidate. In this trial, Typhella was immunogenic and well tolerated at all dose levels.

§

An open-label, non-placebo controlled, single dose Phase I clinical trial conducted in the United States in 32 healthy adult volunteers. The purpose of this trial was to evaluate the safety and immunogenicity of two different presentations of Typhella, one using bottled water and another using tap water for reconstitution before administration. We vaccinated 16 subjects with each presentation. Because the two presentations were similarly immunogenic and both were well tolerated by trial participants, we selected the tap water presentation for further development based on its relative convenience.

§

A single-blind, placebo controlled Phase I clinical trial of Typhella in Vietnam in 27 healthy adult volunteers using the dose and regimen established in our Phase I clinical trials in the United States. The Wellcome Trust provided funding for the Phase I trial in Vietnam. The purpose of the trial was to evaluate the safety and immunogenicity of Typhella when administered as a single oral dose in adults living in an endemic area. The primary immunogenicity endpoint for this trial was the proportion of trial participants with an immune response to Salmonella typhi following administration of a single oral dose of Typhella. Based on initial data from this trial, Typhella met the criterion for immunogenicity, with approximately 68% of subjects who received the vaccine product candidate mounting a humoral antibody response. Typhella was well tolerated by trial participants, with no serious adverse events reported.

§

A single-blind randomized, placebo controlled, Phase II clinical trial of Typhella in Vietnam in 151 healthy children between the ages of 5 and 14 years. A total of 101 children received Typhella and 50 children received placebo. This was our first trial involving a pediatric population. We conducted this trial in collaboration with the Wellcome Trust, Oxford University and the Hospital for Tropical Diseases, Ho Chi Minh City, Vietnam. The Wellcome Trust provided funding for this trial. The purpose of this trial was to evaluate the safety and immunogenicity of Typhella in children in an endemic area. The immunogenicity parameter for this trial was the percentage of trial participants with an immune response to Salmonella Typhi following administration of a single oral dose of Typhella. In this trial, 93% of the children receiving a vaccine dose developed an immune response as measured by increases in serum Salmonella Typhi LPS-specific IgG antibody levels, 94% of the children receiving a vaccine dose developed an immune response as measured by increase in serum Salmonella Typhi LPS-specific IgA antibody levels, and 97% of the children receiving a vaccine dose developed an immune response, which was statistically significantly greater than the percentage of children receiving placebo who developed an immune response. Typhella was well tolerated by trial participants, with no serious adverse events reported.

§

A randomized, double blind, placebo controlled, single dose, dose escalating Phase II clinical trial conducted in the United States in 187 healthy adult volunteers. The purpose of this trial was to determine the immunogenicity, safety and tolerability of the vaccine product candidate manufactured at a new facility at dose levels across the range of the proposed manufacturing potency specification. The primary immunogenicity endpoint for this trial was the proportion of trial participants with an immune response to Salmonella Typhi following administration of a single oral dose of Typhella. In this trial, the vaccine was immunogenic and well tolerated across the range of doses tested.

Influenza Therapeutic. Our Singaporean joint venture is also planning to develop monoclonal antibodies for the treatment of pandemic H5 influenza using our partner's monoclonal antibody technology. We anticipate that this therapeutic product candidate will offer broad protection against most circulating H5 influenza strains and will limit the ability of the influenza virus to mutate and escape therapy.

Hollister-Stier Laboratories LLC, or Hollister-Stier, performs contract filling for BioThrax at its FDA-approved facility located in Spokane, Washington. Hollister-Stier has agreed to meet all of our firm purchase orders for contract filling of BioThrax based on a good faith annual estimate that we provide prior to each calendar year and to accommodate fill requests in excess of our annual estimate, subject to its available production capacity. Under the agreement we executed with Hollister-Stier in December 2010, Hollister-Stier will provide filling services for BioThrax during an initial five-year period commencing January 1, 2011, which we may extend in our discretion for two additional two-year renewal periods.  Additionally, we are obligated to utilize Hollister-Stier for 75% of our BioThrax filling requirements during the term of the agreement.  We have also entered into an agreement for contract filling operations with JHP Pharmaceuticals, LLC, which must now be qualified and licensed by the FDA to fill BioThrax at its facilities.

         Talecris Biotherapeutics, Inc. has agreed to perform plasma fractionation and purification and contract filling of Anthrivig at its FDA-approved facilities located in Melville, New York and Clayton, North Carolina. Subject to limited exceptions, we have agreed to obtain all manufacturing requirements for Anthrivig exclusively from Talecris. While our agreement with Talecris remains in effect, Talecris has agreed not to market, sell or acquire any competing product that contains anthrax immune globulin as an active ingredient. We have agreed to pay Talecris mid-single digit royalties on net sales on a country-by-country basis for commercial product manufactured by Talecris. Our contract with Talecris expires December 31, 2014, and we have the option to extend the term for an additional five-year period upon notice to Talecris at least 12 months prior to the expiration of the initial term. Our contract with Talecris initially provided for the commencement of commercial manufacturing activities as of January 1, 2010, after which we would have been obligated to purchase a significant amount of source plasma per year for a five-year term.  Because Anthrivig is not currently ready for commercial-scale manufacturing, we recently agreed to extend commencement of the commercial term to July 31, 2011 and are in negotiations with Talecris for a longer-term resolution regarding commercial production.  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.  Under the existing agreement, after three years following initiation of commercial manufacturing, either party may terminate the contract upon two years’ advance notice. We have the right to terminate the contract, under specified circumstances, including if we discontinue our production of anthrax immune globulin source plasma or the development of Anthrivig.

§	the need for significant, long-term investment in research and development;

§	the importance of manufacturing capacity, capability and specialty know-how, such as techniques, processes and biological starting materials; and

§	the high regulatory burden for prophylactic products, which generally are administered to healthy people.

§

BioThrax. Although BioThrax is the only product approved by the FDA for human use for the prevention of anthrax infection, we face potential competition for the supply of anthrax vaccines to the U.S. government. Various agencies of the U.S. government are providing funding to our competitors for development of an anthrax vaccine based on recombinant protective antigen. In addition, the United Kingdom Health Protection Agency, or HPA, manufactures an anthrax vaccine for use by the government of the United Kingdom. Other countries may also have anthrax vaccines for use by or in development for their own internal purposes.

§

PreviThrax. PharmAthene is currently developing a rPA based anthrax vaccine and has submitted a response to a Broad Agency Announcement, or BAA, for rPA vaccine development. BARDA cancelled its Request for Proposal, or RFP, for the procurement of rPA vaccines in favor of this BAA. BARDA has awarded a modification to an existing development contract to PharmAthene to fund the development of their rPA vaccine. Vaxin and Panacea are also developing rPA vaccines.

§	BioThrax related programs and double-mutant rPA vaccine. PharmAthene is currently developing a rPA based anthrax vaccine as well as a third-generation anthrax vaccine.

§

Anthrivig and Thravixa. Cangene is currently developing an anthrax immune globulin therapeutic based on plasma collected from military personnel who have been vaccinated with BioThrax; Human Genome Sciences is developing a monoclonal antibody to Bacillus anthracis, referred to as ABthrax™, as a post-exposure therapeutic for anthrax infection; Elusys Therapeutics is developing a monoclonal antibody to Bacillus anthracis, known as Anthim™, as a pre-exposure and post-exposure prophylaxis against anthrax infection, as well as an active treatment of disease; and PharmAthene and Medarex are collaborating to develop a human antibody to Bacillus anthracis, known as Valortim™, to protect human cells from damage by anthrax toxins. The FDA has granted Fast Track designation and orphan drug status for ABthrax and Valortim. HHS awarded development and procurement contracts to Human Genome Sciences and Cangene to supply their anthrax therapeutics for evaluation of efficacy as a post-exposure therapeutic for anthrax infection.

§

Tuberculosis vaccine. The Aeras Global Tuberculosis Vaccine Foundation is developing or supporting the development of five tuberculosis vaccine product candidates, one of which is in a Phase II clinical trial, and the rest of which are either in Phase I clinical trials or close to commencing Phase I clinical trials. The Aeras Global Tuberculosis Vaccine Foundation is also the sponsor of the Phase IIb clinical trial of our tuberculosis vaccine product candidate.

§

Influenza vaccine. Seasonal and pandemic influenza vaccines produced using conventional egg-based manufacturing methodologies have been licensed and are being sold in both the United States and internationally by GlaxoSmith Kline, Novartis, MedImmune and others. Several flu vaccine manufacturers are transitioning the production of their seasonal and pandemic vaccines from egg-based processes to cell culture in an effort to increase supply of these products. These cell culture-based products are in various stages of advanced development. New influenza vaccines containing HA, antigens and/or other flu antigens produced using recombinant DNA technology and/or incorporate adjuvants are also under development. Some of these second generation flu vaccine candidates are in clinical development.

§

Typhella.  One oral typhoid vaccine and one type of injectable typhoid vaccine are currently approved and administered in the United States and Europe for the prevention of typhoid. In addition, combination vaccines are available for the prevention of hepatitis A and typhoid infections. Antibiotics typically are used to treat typhoid after infection. Vi-conjugable injectable vaccines are also in development.

 

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. In addition, our competitors may independently develop similar technologies or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors. We may become subject to patent interference proceedings or claims that our products infringe or violate the intellectual property rights of third parties. Moreover, we may not be able to obtain patent term extensions for the patents that claim its marketed products, or the patent term extensions that it obtains may not be sufficiently broad enough to preclude competitors from commercializing or making similar competing products. Also, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent. Furthermore, although we may seek patent term extension or a supplementary protection certificate for a given patent with respect to an approved product, it is possible that it will not be awarded or that it will be awarded for a period of time that does not significantly extend the patent life.  We also rely on trade secrets relating to manufacturing processes and product development to protect our business. Because we do not have patent protection for BioThrax or for the label expansions and improvements that we are pursuing for BioThrax, our only intellectual property protection for BioThrax, aside from 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, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

We may terminate the license agreement upon 60 days advance written notice if any clinical trial of the licensed product is suspended or terminated for safety reasons or upon 90 days advance written notice if a clinical trial for an infant indication within the development plan agreed by the parties does not meet predetermined criteria for success.  We may terminate the license agreement upon 12 months advance written notice at any time after we receive the final results in writing from the Phase IIb clinical trial of the licensed product in infants.  We and OETC each have the right to terminate the license agreement following the occurrence of a material uncured breach by the other party.

 

§	laboratory and preclinical tests, including animal testing;

§	submission to the FDA of an IND which must become effective before clinical trials may begin;

§	completion of human clinical trials and other studies evaluating the safety and efficacy of the proposed product for each intended use;

§	FDA inspection of facilities in which the product is manufactured, processed, filled, packed and held to determine compliance with cGMP; and

§

submission to the FDA and approval of a new drug application, or NDA, in the case of a drug, or a BLA containing, among other things, preclinical, nonclinical and clinical data;  proposed labeling; and information to demonstrate that the product will be safe and effective (in the case of an NDA) or safe, pure and potent (in the case of a BLA), and manufactured to appropriate standards of identity, purity and quality.

Furthermore, study subjects must provide informed consent for their participation in a clinical trial. The FDA, the IRB, or the sponsor may suspend a clinical trial at any time on various ground, including a finding that the study subjects are being exposed to an unacceptable health risk or that the proposed clinical trials will not yield sufficient data to support licensure or approval of the product.

 

§	In a Phase I clinical trial, the drug or biologic is initially administered into healthy human subjects or subjects with the target condition and tested for safety, dosage tolerance, absorption, distribution, metabolism and excretion.

§	In a Phase II clinical trial, the drug or biologic is administered to a limited subject population to identify possible adverse effects and safety risks, and preliminary information related to the efficacy of the product for specific targeted diseases, dosage tolerance and optimal dosage.

§

A Phase III clinical trial is undertaken if a Phase II clinical trial demonstrates that a dosage range of the drug has the potential to be effective and appears to potentially have an acceptable safety profile. In a Phase III clinical trial, the drug or biologic is administered to an expanded population, often at geographically dispersed clinical trial sites, to further evaluate the dosage amount(s), clinical efficacy, and safety. Prior to commencing Phase III clinical trials many sponsors elect to meet with FDA officials to discuss the conduct and design of the proposed trial or trials.

The sponsor of a product designated as being in a Fast Track drug development program may engage in early communication with the FDA, including timely meetings and early feedback on clinical trials, and may submit portions of an application on a rolling basis rather than waiting to submit a complete application. Products in Fast Track drug development programs also may receive priority review or accelerated approval, under which an application may be reviewed within six months after a complete NDA or BLA is accepted for filing or sponsors may rely on a surrogate endpoint for approval, respectively. The FDA may notify a sponsor that its program is no longer classified as a Fast Track development program if the Fast Track designation is no longer supported by emerging data or the designated drug development program is no longer being pursued.

§	recordkeeping requirements;

§	periodic reporting requirements;

§	cGMP requirements related to all stages of manufacturing, testing, storage, packaging, labeling and distribution of finished dosage forms of the product;

§	reporting of adverse experiences with the product; and

§	advertising and promotion restrictions.

§	restrictions on the marketing or manufacturing of a product;

§	Warning Letters or Untitled Letters from the FDA asking us, our collaborators or third party contractors to take or refrain from taking certain actions;

§	withdrawal of the product from the market;

§	FDA’s 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;

§	refusal to permit the import or export of products;

§	product seizure; and

§	injunctions or the imposition of civil or criminal penalties.

§	the agent for which the countermeasure is designed can cause serious or life-threatening disease;

§	the product may reasonably be believed to be effective in detecting, diagnosing, treating or preventing the disease;

§	the known and potential benefits of the product outweigh its known and potential risks; and

§	there is no adequate alternative to the product that is approved and available.

Changing Legal and Regulatory Landscape

  The European Union operates a similar system to encourage the development and marketing of medicinal products for rare diseases. Applications for orphan designations are submitted to the EMEA and reviewed by a Committee on Orphan Medicinal Products, or COMP, comprising representatives of the member states, patient groups and other persons. The final decision is made by the European Commission.

§	develop and implement biosafety, security and emergency response plans;

§	restrict access to select agents and toxins;

§	provide appropriate training to our employees for safety, security and emergency response;

§	comply with strict requirements governing transfer of select agents and toxins;

§	provide timely notice to the government of any theft, loss or release of a select agent or toxin; and

§	maintain detailed records of information necessary to give a complete accounting of all activities related to select agents and toxins.

 

Personnel

§	the commitment of substantial time and attention of management and key employees to the preparation of bids and proposals for contracts that may not be awarded to us;

§	the need to accurately estimate the resources and cost structure that will be required to perform any contract that we might be awarded;

§	the possibility that we may be ineligible to respond to a request for proposal issued by the government;

§	the submission by third parties of protests to our responses to requests for proposal that could result in delays or withdrawals of those requests for proposal; and

§

if our competitors protest or challenge contract awards made to us pursuant to competitive bidding, the potential that we may incur or could suffer expenses or delays, and that any such protest or challenge would result in the resubmission of bids based on modified specifications, or in termination, reduction or modification of the awarded contract.

Our principal customer for BioThrax is the U.S. government. We anticipate that the U.S. government will also be the principal customer for any other biodefense products that we successfully develop. Over its lifetime, a U.S. government program may be implemented through the award of many different individual contracts and subcontracts. The funding of some government programs is subject to Congressional appropriations, generally made on a fiscal year basis even though a program may continue for several years. Our government customers are subject to political considerations and stringent budgetary constraints. For example, the sale of most of the doses of BioThrax supplied under our most recent procurement contract with HHS was subject to the annual appropriations process. Additionally, our government-funded development contracts typically consist of a base period of performance followed by successive option periods for performance of certain future activities.  The value of these optional services, which options are exercisable in the sole discretion of the government, may constitute the majority of the total value of the underlying contract. If levels of government expenditures and authorizations for biodefense decrease or shift to programs in areas where we do not offer products or are not developing product candidates, our business, revenues and operating results may suffer.

 

§	procurement integrity;

§	export control;

§	government security;

§	employment practices;

§	protection of the environment;

§	accuracy of records and the recording of costs; and

§	foreign corrupt practices.

§	terminate existing contracts, in whole or in part, for any reason or no reason;

§	unilaterally reduce or modify contracts or subcontracts, including equitable price adjustments;

§	cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

§	decline to exercise an option to renew a contract;

§	exercise an option to purchase only the minimum amount, if any, specified in a contract;

§	decline to exercise an option to purchase the maximum amount, if any, specified in a contract;

§	claim rights to products, including intellectual property, developed under the contract;

§	take actions that result in a longer development timeline than expected;

§	direct the course of a development program in a manner not chosen by the government contractor;

§	suspend or debar the contractor from doing business with the government or a specific government agency;

§	pursue criminal or civil remedies under the False Claims Act and False Statements Act; and

§	control or prohibit the export of products.

§	requiring us to dedicate a substantial portion of any cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;

§	increasing the amount of interest that we have to pay on debt with variable interest rates if market rates of interest increase;

§	increasing our vulnerability to general adverse economic and industry conditions;

§	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

§	placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

As of December 31, 2010, we had $171.0 million of cash, cash equivalents and investments. 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 level of participation of collaborative partners in our development programs, including those recently acquired in our acquisition of Trubion Pharmaceuticals, Inc., or Trubion;

§	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 Building 55, our large-scale manufacturing facility in Lansing, Michigan, the build out of our new 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 market acceptance and sales growth of any of our products or product candidates upon regulatory approval;

§	the extent to which our growth generates increased administrative costs;

§	the extent to which we lend money to, and are 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 or technologies;

§	the effect of competing technological and market developments; and

§	the extent to which we become obligated to make cash payments in connection with our acquisition of Trubion related to the contingent value rights we issued to former holders of Trubion common stock that are not offset by corresponding cash inflows from our collaborative partners.

§	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.

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, or third party manufacturers with whom we may contract, 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.

§	limitations on our ability to schedule production with contract suppliers when needed to supply clinical trials;

§	reliance on contract suppliers for legal and regulatory compliance and quality assurance;

§	lack of obligation by a contract supplier to accept a purchase order;

§	contract supplier’s insistence on exclusivity, minimum or maximum levels of supply and related restrictions on our ability to increase or decrease supply, including provisions whereby we pay a penalty if we fail to order a minimum amount;

§	breach of agreements by contract suppliers; and

§	termination, price increases, or non-renewal of agreements by contract suppliers, based on other business priorities, at times that are costly or inconvenient for us.

§	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.

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

  Our research and development and manufacturing processes involve the use of hazardous materials, including chemicals, bacteria, viruses and radioactive materials, and produce waste products. Accordingly, we, the third parties that conduct clinical trials on our behalf, and the third parties that manufacture our product candidates 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, including those regarding underground storage tanks. One such tank on our Lansing, Michigan 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.

 

§	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 with one of our contract manufacturers to extend the commencement date of the commercial term for manufacture of Anthrivig.  We are currently in negotiations with that contract manufacturer 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.

 

§	regulators or institutional review boards may not authorize us, or our collaborators, 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;

§	we or a collaborative partner may experience delay in beginning the clinical trial;

§	we may experience competition in recruiting clinical investigators;

§	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;

§	regulatory requirements, policy and guidelines could change;

§	we may experience limitations in our ability to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials;

§	we or our collaborators may fail to adequately manage the increasing number, size and complexity of our clinical trials;

§	any or all of our collaborators, the FDA and foreign regulatory agencies may interpret data differently;

§	third parties conducting and overseeing the operations of our clinical trials may fail to perform their contractual or regulatory obligations in a timely fashion;

§	we may not be successful in recruiting a sufficient number of qualifying subjects for our clinical trials or may experience delays in patient enrollment and variability in the number and types of patients available for 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.

§	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.

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.

§	our ability to provide acceptable evidence of safety and efficacy;

§	the prevalence and severity of any side effects;

§	availability, relative cost and relative efficacy of alternative and competing 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;

§	publicity concerning our products or competing products and treatments; and

§	the sufficiency of coverage or reimbursement by third parties.

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 publicity 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.

 
 

§	potential difficulties in recruiting, training and retaining adequate numbers of effective sales and marketing personnel;

§	the potential that the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities could be delayed, resulting in us incurring related expenses too early relative to the product launch and causing personnel retention issues;

§	our limited experience in the commercialization of pharmaceutical products other than BioThrax;

§	difficulties in establishing an effective distribution network, including entering into marketing and distribution agreements with third parties on acceptable terms;

§	the inability of sales personnel to obtain access to or persuade adequate numbers of potential government customers to purchase our products and physicians to prescribe our products;

§	the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

§	unforeseen costs and expenses associated with creating a sales and marketing organization.

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.  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.  With respect to oncology and autoimmune disease, our competitors include Amgen, Pfizer, Takeda, Centocor Ortho Biotech, Merck, Mitsubishi Tanabe, Abbott, Eisai, Bristol-Myers Squibb, UCB, Otsuka, Roche, Chugai, Genentech, Biogen Idec, Spectrum Pharmaceuticals, Inc., Bayer Schering AG, GSK, Genzyme, Cephalon Oncology and Genmab.

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

§	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.

§	a covered benefit under its health plan;

§	safe, effective and medically necessary;

§	appropriate for the specific patient;

§	cost-effective; and

§	neither experimental nor investigational.

  We expect that the success of some of our biosciences 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.

Our future revenues and profitability will be adversely affected if third party payors do not sufficiently cover and reimburse the cost of future drug products we may market.  If these entities do not provide coverage and reimbursement for our products, or if they provide an insufficient level of coverage and reimbursement, our products may be too costly for use, and physicians may not prescribe them or may prescribe them less frequently.  In this manner, levels of reimbursement for drug products by government authorities, private health insurers and other organizations, such as Health Maintenance Organizations, may have a material adverse effect on our business, financial condition, cash flows and results of operations.

  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.

 

§	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; and

§	amortization expenses related to other intangible assets.

§	challenges associated with managing an increasingly diversified business;

§	prioritizing product portfolios;

§	disruption of our pre-acquisition business;

§	greater administrative burdens and operating costs;

§	difficulty and expense in assimilating and integrating the operations, products, technology, information systems, culture or personnel of the acquired entities or businesses;

§	potential loss of key collaborators;

§	entering markets in which we have limited or no direct experience;

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

§	difficulty in implementing uniform standards, controls, procedures and policies;

§	the assumption of known and unknown liabilities of the acquired entities or businesses, including intellectual property claims;

§	increased exposure to uncertainties inherent in developing and commercializing new products;

§	impairment of acquired intangible assets as a result of technological advances or worse-than-expected clinical results or performance of the acquired company or the partnered assets;

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

§	potential loss of key personnel.

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

§	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.

§	termination of contracts;

§	forfeiture of profits;

§	suspension of payments;

§	fines; and

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

§	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 business and materially adversely affect our revenues and results of operations.

 

 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.

§	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.

 

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 and data review. 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, or may include different or additional risks. 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. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in another jurisdiction, including approval by the FDA.  For example, in 2010 the United Kingdom Medicines and Healthcare products Regulatory Authority, or MHRA, informed us that a provision of the European Pharmacopoeia may prevent licensure of our TB vaccine product candidate in the European Union unless such provision can be interpreted in a manner consistent with our product candidate’s manufacturing process, despite the fact that the FDA had provided recent guidance to the contrary. We are continuing to work with the MHRA and outside advisors to clarify the provision but we cannot be certain that our efforts will be successful, which could preclude our ability to commercialize this product candidate in the European Union. We and our collaborators may not be able to obtain regulatory approvals to commercialize our products in any market.  The failure to obtain regulatory approval in foreign jurisdictions could materially harm our business.

 

§	we may not be able to control the amount and timing of resources that our collaborators devote to the development or commercialization of product candidates;

§

our collaborators may delay clinical trials, design clinical trials in a manner with which we do not agree, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new version of a product candidate for clinical testing;

§	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;

§

our collaborators may decide not to pursue further development and commercialization of products and product candidates resulting from the collaboration, or may elect to discontinue research and development programs, which could delay development and increase the cost of developing our product candidates;

§	our collaborators may not commit adequate resources to the marketing and distribution of any future products, limiting our potential revenues from these products;

§	we may experience difficulties in the day-to-day activities required by collaboration including close and frequent communications between several different teams, technology transfer and a collaborative sharing of responsibilities;

§	disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;

§	our collaborators may experience financial difficulties;

§	business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations; and

§	our collaborators could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors.

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.

 

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, we know that other entities have filed patent applications in various jurisdictions that relate to several areas in which we are developing products.  Some of these patent applications have already resulted in patents and some are still pending.  If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us in Europe, the U.S. and elsewhere claiming damages and seeking to enjoin manufacturing and marketing of the affected products.  Further, 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 product 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.

§	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.

§	the success of competitive products or technologies;

§	results of clinical trials of our product candidates or those of our competitors and success in our research and development programs;

§	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;

§	public concern as to the safety of drugs developed by us or others;

§	announcements of issuances of common stock or acquisitions by us;

§	the announcement and timing of new product introductions by us or others;

§	termination or delay of development program(s) by our collaborative partners, or delay in achievement of collaboration milestones;

§	announcements of technological innovations or new therapeutic products or methods by us or others;

§	acts or omissions of our licensees, collaborators and suppliers;

§	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 or other external factors, such as disaster or crisis; and

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

 

 

 

Location	Use	Segment	Approximate square feet	Owned/leased
Lansing, Michigan	Manufacturing operations facilities, office space and laboratory space	Biodefense	214,000	Owned
Baltimore, Maryland	Future manufacturing facilities and office and laboratory space	Biosciences	56,000	Owned
Gaithersburg, Maryland	Office and laboratory space	Biodefense	48,000	Owned
Wokingham, England	Office and laboratory space	Biosciences	29,000	Leases expire 2016
Seattle, Washington	Office and laboratory space	Biosciences	51,000	Leases expire 2013
Rockville, Maryland	Office space	Biodefense/Biosciences	33,000	Lease expires 2016
Munich, Germany	Office and laboratory space	Biosciences	16,000	Lease expires 2015
Frederick, Maryland	Held for sale	Biosciences	290,000	Owned

Class-action Litigation Related to Trubion Pharmaceuticals Acquisition.  On August 17, 2010, two class action lawsuits were filed in the Superior Court of Washington, King County, or State Court, against Trubion Pharmaceuticals, Inc., or Trubion, its board of directors, and us, or collectively, the Defendants, alleging in summary that, in connection with the proposed merger of Trubion with a subsidiary of ours, or the Acquisition, the members of the Trubion board of directors breached their fiduciary duties by conducting an unfair sale process and agreeing to an unfair price. Both complaints also claim that Trubion and us aided and abetted the Trubion board of directors in its breach of fiduciary duties. On September 9, 2010, the actions were consolidated into a single action, or State Action.  On October 1, 2010, the plaintiffs in the State Action served on the Defendants a consolidated amended class action complaint, or Amended Complaint. The Amended Complaint alleges, among other things and in addition to the matters alleged in the initial complaints, that the Defendants omitted material information from the Proxy Statement/Prospectus.  On October 4, 2010, a class action lawsuit was filed in the U.S. District Court for the Western District of Washington against the Defendants, or Federal Action and, collectively with the State Action, the Actions, which makes allegations related to the Acquisition that are substantially similar to those matters alleged in the Amended Complaint, includes additional allegations regarding purported violations of the federal securities laws and seeks substantially similar relief.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
Year Ended December 31, 2010
High		$	17.24			$	17.30			$	19.98			$	23.93
Low		$	13.22			$	14.11			$	14.86			$	17.10
Year Ended December 31, 2009
High		$	27.00			$	15.31			$	19.95			$	18.25
Low		$	12.23			$	9.15			$	12.09			$	12.36

		Year Ended December 31,
(in thousands, except share and per share data)		2010				2009				2008				2007				2006
Statements of operations data:
Revenues:
Product sales		$	251,381			$	217,172			$	169,124			$	169,799			$	147,995
Contracts and grants			34,790				17,614				9,430				13,116				4,737
Total revenues			286,171				234,786				178,554				182,915				152,732
Operating expenses (income):
Cost of product sales			47,114				46,262				34,081				40,309				24,125
Research and development			89,295				74,588				59,470				53,958				45,501
Selling, general & administrative			76,205				73,786				55,076				55,555				44,601
Purchased in-process research and development			-				-				-				-				477
Total operating expenses			212,614				194,636				148,627				149,822				114,704
Income from operations			73,557				40,150				29,927				33,093				38,028
Other income (expense):
Interest income			832				1,418				1,999				2,809				846
Interest expense			-				(7	)			(47	)			(71	)			(1,152	)
Other income (expense), net			(1,023	)			(50	)			134				156				293
Total other income (expense)			(191	)			1,361				2,086				2,894				(13	)
Income before provision for income taxes			73,366				41,511				32,013				35,987				38,015
Provision for income taxes			26,182				14,966				12,055				13,051				15,222
Net income		$	47,184			$	26,545			$	19,958			$	22,936			$	22,793
Net loss attributable to noncontrolling interest			4,514				4,599				724				-				-
Net income attributable to Emergent BioSolutions Inc.		$	51,698			$	31,144			$	20,682			$	22,936			$	22,793
Earnings per share — basic		$	1.63			$	1.02			$	0.69			$	0.79			$	0.99
Earnings per share — diluted		$	1.59			$	0.99			$	0.68			$	0.77			$	0.93
Weighted average number of shares — basic			31,782,286				30,444,485				29,835,134				28,995,667				23,039,794
Weighted average number of shares — diluted			32,539,500				31,375,305				30,458,098				29,663,127				24,567,302
		As of December 31,
(in thousands)			2010				2009				2008				2007				2006
Balance Sheet Data:
Cash and cash equivalents		$	169,019			$	102,924			$	91,473			$	105,730			$	76,418
Working capital			167,774				139,113				98,866				88,649				82,990
Total assets			500,319				344,689				290,788				273,508				238,255
Total long-term liabilities			51,039				46,173				37,418				46,688				35,436
Total stockholders’ equity			373,561				243,815				199,349				171,159				138,472