Variable interest entities

8. Variable interest entities

In July 2008, the Company entered into a collaboration with the University of Oxford (“Oxford”) and certain Oxford researchers to conduct clinical trials to advance a vaccine product candidate for tuberculosis, resulting in the formation of the Oxford-Emergent Tuberculosis Consortium (“OETC”). The Company has a 51% equity interest in OETC and controls the OETC Board of Directors. In addition, the Company has certain funding and service obligations related to its investment. In July 2011, the Company entered into an intercompany loan agreement with OETC, under which the Company agreed to provide OETC with a loan of up to $14.0 million to fund future clinical and development costs for the tuberculosis vaccine product candidate. The loan value can be increased to up to $23.0 million at the sole discretion of the Company. The loan bears interest at the rate of 8% per annum. Principal and interest on the outstanding balance will be due and payable in December 2014 or upon occurrence of either an event of default or the closing of a debt or equity financing by OETC that results in net proceeds equal to or in excess of $30.0 million in a single transaction or a series of related transactions. Under the terms of the loan, OETC is required to comply with certain non-financial covenants. As of March 31, 2012, there have been no draws under this loan. The Company evaluates its variable interests in OETC on a quarterly basis and has determined that it is the primary beneficiary as it has the power to direct the activities of OETC that most significantly impact OETC’s economic performance and will absorb the majority of expected losses. Accordingly, the Company consolidates OETC. As of March 31, 2012 and 2011, respectively, assets of $506,000 and $413,000 and liabilities of $1.8 million and $513,000 related to OETC were included within the Company’s consolidated balance sheet. During the three months ended March 31, 2012 and 2011, respectively, OETC incurred net losses of $2.4 million and $3.6 million of which $1.2 million and $1.8 million is included in the Company’s consolidated statement of operations.

In conjunction with the establishment of OETC, the Company granted a put option to Oxford and certain Oxford researchers whereby the Company may be required to acquire all of the OETC shares held by Oxford and the Oxford researchers at the fair market value of the underlying shares. This put option is contingent upon the satisfaction of a number of conditions that must exist or occur subsequent to the granting by the European Commission of marketing authorization for the OETC-sponsored vaccine product candidate for tuberculosis. The Company accounts for the put option in accordance with the accounting provisions related to derivatives and distinguishing liabilities from equity. In accordance with these provisions, the Company has determined that the put option had a de minimis fair value as of March 31, 2012.

In July 2010, the Company entered into a collaboration with Temasek Life Sciences Ventures Pte Limited to advance the development of monoclonal products for worldwide prophylaxis or treatment of infection caused by existing or anticipated future pandemic influenza strains via a hemagglutinin-based medical countermeasure, resulting in the formation of EPIC Bio Pte Limited (“EPIC”). The Company has a 60% equity interest in EPIC and controls the EPIC Board of Directors. The Company evaluates its variable interests in EPIC on a quarterly basis and has determined that it is the primary beneficiary as it has the power to direct the activities of EPIC that most significantly impact EPIC’s economic performance and will absorb the majority of expected losses. Accordingly, the Company consolidates EPIC. As of March 31, 2012 and 2011, respectively, assets of $546,000 and $1.9 million and liabilities of $214,000 and $423,000 related to EPIC were included within the Company’s consolidated balance sheet. During the three months ended March 31, 2012 and 2011, respectively, EPIC incurred net losses of $99,000 and $24,000, of which $59,000 and $14,000 is included in the Company’s consolidated statement of operations.

The following is a summary of the stockholders’ equity attributable to the Company and the noncontrolling interests:

	Emergent			Noncontrolling
(in thousands)	BioSolutions Inc.			Interests			Total
Stockholders' equity at December 31, 2011	$	414,246		$	2,482		$	416,728
Non-cash development expenses from variable interest entities		-			1,212			1,212
Net loss		(6,829	)		(1,193	)		(8,022	)
Other		2,177			-			2,177
Stockholders' equity at March 31, 2012	$	409,594		$	2,501		$	412,095

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

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