Emergent BioSolutions Completes Sale of RSDL® (Reactive Skin Decontamination Lotion) Kit to SERB Pharmaceuticals for $75 Million

Rhea-AI Summary

Emergent BioSolutions Inc. (NYSE: EBS) has sold its RSDL® (Reactive Skin Decontamination Lotion) kit to SERB Pharmaceuticals for $75 million, with an additional $5 million milestone payment potential. The deal includes SERB acquiring Emergent's leased manufacturing facility in Hattiesburg, Mississippi, along with site-based employees and product inventory. Emergent's Winnipeg facility will continue to supply bulk lotion to SERB under a long-term agreement.

This sale is part of Emergent's multi-year plan to reduce debt and improve financial health. The company expects to decrease its debt by over $150 million in 2024 through various measures, including this divestment. The proceeds will help reduce or eliminate Junior Capital Raise requirements under Emergent's amended credit facility, which has been extended to September 29, 2024.

Positive

• Sale of RSDL® kit for $75 million with potential additional $5 million milestone payment
• Expected debt reduction of over $150 million in 2024
• Long-term supply agreement for bulk lotion from Winnipeg facility
• Potential elimination of Junior Capital Raise requirements

Negative

• Divestment of a product line and manufacturing facility
• Loss of revenue stream from RSDL® kit sales

Insights

Financial Analyst

The sale of RSDL® to SERB Pharmaceuticals for $75 million is a significant move for Emergent BioSolutions (EBS). This transaction, along with the potential $5 million milestone payment, represents a substantial cash infusion for the company. The deal's impact on EBS's financials is multifaceted:

• Immediate debt reduction: The proceeds will help EBS decrease its debt by over $150 million in 2024, a important step in improving its financial health.
• Operational streamlining: By divesting RSDL® and the Baltimore-Camden facility, EBS is executing its multi-year plan to focus on core operations.
• Long-term revenue stream: The supply agreement for bulk lotion ensures a continued, albeit likely smaller, revenue stream from RSDL®.

However, investors should note that while this sale provides short-term financial relief, it also means EBS is parting with a revenue-generating asset. The company's future growth and profitability will depend on how effectively it reinvests these funds and executes its streamlined strategy. The extension of the Junior Capital Raise requirement to September 2024 provides EBS with more breathing room, but also indicates ongoing financial pressures.

Market Research Analyst

This transaction reflects broader trends in the pharmaceutical industry:

• Consolidation: Larger companies like SERB are acquiring specialized products to expand their portfolios.
• Focus on core competencies: EBS's divestment aligns with a trend of companies streamlining operations to concentrate on their primary strengths.
• Government contracts: The mention of U.S. and allied governments as key customers underscores the importance of government contracts in the defense and public health sectors.

For investors, this deal highlights the value of specialized pharmaceutical products in the market. RSDL®'s $75 million price tag, plus potential milestone payment, suggests strong demand for niche, mission-critical products. The transaction also demonstrates the liquidity of such assets, which can be important for companies needing to raise capital quickly. However, the sale's necessity points to ongoing challenges in the biotech sector, where companies often struggle to balance innovation with financial stability. EBS's situation serves as a cautionary tale for investors in this volatile industry, emphasizing the importance of robust financial management alongside product development.

Legal Expert

From a legal perspective, this transaction presents several noteworthy aspects:

• Simultaneous signing and closing: This suggests a well-prepared deal with minimal contingencies, likely reducing legal risks associated with prolonged closing periods.
• Employee transfer: The transition of site-based employees to SERB requires careful handling of employment contracts and potential labor law implications.
• Long-term supply agreement: This arrangement necessitates robust contractual safeguards to ensure consistent quality and supply, as well as clear dispute resolution mechanisms.
• Regulatory compliance: Given RSDL®'s use in military and public health contexts, the deal likely required regulatory approvals, possibly including review by agencies overseeing national security interests.

The transaction's structure, involving both asset sale and ongoing supply relationship, demonstrates sophisticated legal planning. However, investors should be aware that such complex arrangements can sometimes lead to future disputes or unforeseen liabilities. The mention of Covington & Burling LLP as legal counsel suggests EBS sought top-tier legal advice, which is prudent given the transaction's complexity and the company's financial stakes. Overall, the legal aspects of this deal appear well-managed, potentially mitigating risks for both EBS and its investors.

GAITHERSBURG, Md., July 31, 2024 (GLOBE NEWSWIRE) -- Today, Emergent BioSolutions Inc. (NYSE: EBS) announced the sale of RSDL^® (Reactive Skin Decontamination Lotion) kit to SERB Pharmaceuticals, a global pharmaceutical company, for a purchase price of approximately $75 million. In addition, SERB will pay Emergent a $5 million payment upon achievement of a milestone related to the sourcing of a certain component of RSDL^®. The transaction has signed and closed simultaneously. 

In addition, SERB will acquire and maintain operations of Emergent’s leased manufacturing facility in Hattiesburg, Mississippi, and several site-based employees who support RSDL^® will join SERB. SERB will also acquire the RSDL^® product inventory as part of the transaction and will assume certain related contracts. Emergent’s Winnipeg facility will continue to manufacture and supply bulk lotion to SERB under a long-term supply agreement between the two companies.

“For years, our colleagues have proudly manufactured, sold and distributed RSDL^® to many branches of the U.S. government to ensure military personnel safety and public health preparedness,” said Joe Papa, president and chief executive officer at Emergent. “SERB is a well-positioned global leader that is expected to continue to make RSDL^® readily available for the U.S. and allied governments.”

This transaction follows Emergent’s announcement to sell its drug product facility in Baltimore-Camden, as well as operational changes, which are key actions in its multi-year plan. The net proceeds from the sale of RSDL^® and the Baltimore-Camden facility will reduce or eliminate the Junior Capital Raise requirements under Emergent's amended credit facility, a requirement that was recently extended to September 29, 2024.

Papa continued, “As discussed on our recent quarterly earnings call, the decision to divest RSDL^® is driven by our efforts to significantly reduce Emergent’s total debt in 2024. Today, we expect to decrease our debt by more than $150 million through operating performance improvements, working capital reductions and product/asset divestments. We are keenly focused on stabilizing the financial health of the company to enable future sustainable growth and profitability.”

For Emergent, Evercore served as financial advisor, and Covington & Burling LLP served as legal counsel in connection with this transaction.

About RSDL^® (Reactive Skin Decontamination Lotion)
RSDL^® is an FDA-cleared device provided as kit consisting of a lotion impregnated sponge in a packet, it is intended to remove or neutralize chemical warfare agents from the skin. The RSDL^® kit was initially developed by Defence Research and Development Canada, an agency of the Canadian Department of National Defence, to prepare the Canadian forces for chemical warfare attacks. The U.S. Department of Defense became interested in RSDL^® and the military then filed with the United States Food and Drug Administration (FDA). The FDA 510(k) cleared RSDL in 2003. The European CE Mark, Australian Therapeutic Goods Administration and Israeli Ministry of Health approvals were later issued. The RSDL^® kit has been adopted by numerous militaries around the world with over 15 million packets of RSDL^® sold in over 30 countries. 

The Reactive Skin Decontamination Lotion is intended to remove or neutralize chemical warfare agents, and T-2 Toxin from the skin.

RSDL^® is for external use only. It should be used only if chemical warfare agent exposure is suspected and as directed. It is not for prophylactic use or whole body decontamination. An RSDL^® ingredient is absorbed through the skin and may cause adverse effects. Prolonged skin contact and contact with the eyes and mucous membranes must be avoided. RSDL^® may cause skin irritation and should be removed when conditions permit.

About Emergent BioSolutions 
At Emergent, our mission is to protect and enhance life. For 25 years, we’ve been at work defending people from things we hope will never happen—so we are prepared just in case they ever do. We provide solutions for complex and urgent public health threats through a portfolio of vaccines and therapeutics that we develop and manufacture for governments and consumers. We also offer a range of integrated contract development and manufacturing services for pharmaceutical and biotechnology customers. To learn more about how we plan to protect or enhance 1 billion lives by 2030, visit our website and follow us on LinkedIn, X, Instagram, Apple Podcasts and Spotify.

SAFE HARBOR STATEMENT
This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements, other than statements of historical fact, including statements regarding Emergent’s ability to achieve the objectives of the RSDL^® divestment, including achieving improvement in cost structure and performance by streamlining Emergent’s manufacturing network, and Emergent’s future results, and any other statements containing the words "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "future", "goal," "intend," "may," "plan," "position," "possible," "potential," "predict," "project," "should," "target", "will," "would," and similar expressions or variations thereof, or the negative thereof, are forward-looking statements. Forward-looking statements are based on our current intentions, beliefs and expectations regarding future events based on information that is currently available. We cannot guarantee that any forward-looking statement will be accurate. Readers should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from our expectations. Readers are, therefore, cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statement speaks only as of the date of this press release and, except as required by law, we do not undertake to update any forward-looking statement to reflect new information, events or circumstances.

There are a number of important factors that could cause our actual results to differ materially from those indicated by any forward-looking statements. Readers should consider this cautionary statement, as well as the risk factors and other disclosures included in our periodic reports filed with the U.S. Securities and Exchange Commission, when evaluating our forward-looking statements. 

Investor Contact:
Richard S. Lindahl
Executive Vice President, CFO
lindahlr@ebsi.com

Media Contact:
Assal Hellmer
Vice President, Communications
mediarelations@ebsi.com

FAQ

What is the value of Emergent BioSolutions' (EBS) sale of RSDL® kit to SERB Pharmaceuticals?

Emergent BioSolutions (EBS) sold its RSDL® kit to SERB Pharmaceuticals for $75 million, with an additional $5 million potential milestone payment.

How much debt does Emergent BioSolutions (EBS) expect to reduce in 2024?

Emergent BioSolutions (EBS) expects to decrease its debt by more than $150 million in 2024 through various measures, including the sale of RSDL® kit and other improvements.

What assets are included in Emergent BioSolutions' (EBS) sale of RSDL® to SERB Pharmaceuticals?

The sale includes the RSDL® kit, Emergent's leased manufacturing facility in Hattiesburg, Mississippi, site-based employees, product inventory, and certain related contracts.

Will Emergent BioSolutions (EBS) continue to manufacture RSDL® after the sale to SERB Pharmaceuticals?

Emergent BioSolutions' (EBS) Winnipeg facility will continue to manufacture and supply bulk lotion to SERB Pharmaceuticals under a long-term supply agreement.