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What changed in Embecta Corp.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Embecta Corp.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+295 added−274 removedSource: 10-K (2024-12-11) vs 10-K (2023-11-29)

Top changes in Embecta Corp.'s 2024 10-K

295 paragraphs added · 274 removed · 217 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

39 edited+6 added−10 removed27 unchanged
Biggest changeThe primary materials that make up our pen needles and insulin syringes are cannula, plastic resin, adhesive, needle lubricants, rubber stoppers and packaging material. We purchase most of these and other materials from a single or limited number of sources for various reasons, including quality assurance, cost-effectiveness, and continuity of supply, among others.
Biggest changeWe purchase most of these and other materials from a single or limited number of sources for various reasons, including quality assurance, cost-effectiveness, and continuity of supply, among others. In connection with the Separation, we entered into a cannula supply agreement with BD, whereby BD sells to us cannulas for incorporation into our pen needles and syringes.
In the case of sole sourced parts, we manage risk through holding inventory ourselves and at our suppliers' facilities to ensure continuity of supply and lower the risk of disruption. 1 Research and Development Our strategy seeks to update and develop enhanced technology for our portfolio of current and future products by focusing on patient unmet needs and market expansion.
In the case of sole sourced parts, we manage risk through holding inventory ourselves and at our suppliers' facilities to ensure continuity of supply and lower the risk of disruption. Research and Development Our strategy seeks to update and develop enhanced technology for our portfolio of current and future products by focusing on patient unmet needs and market expansion.
Printed copies of these materials, this Annual Report on Form 10-K, and Embecta’s reports and statements filed with, or furnished to, the SEC, may also be obtained, without charge, by contacting the Corporate Secretary, Embecta, 300 Kimball Dr., Suite 300, Parsippany, New Jersey 07054, telephone 862-401-0000.
Printed copies of these materials, this Annual Report on Form 10-K, and Embecta’s reports and statements filed with, or furnished to, the SEC, may also be obtained, without charge, by contacting the Corporate Secretary, Embecta Corp., 300 Kimball Dr., Suite 300, Parsippany, New Jersey 07054, telephone 862-401-0000.
The cannula supply agreement will be terminable by BD without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than ten years from the Separation. However, in the event of a change of control of Embecta, BD has the right to terminate the cannula supply agreement in its sole discretion.
The cannula supply agreement will be terminable by BD without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than ten years from the Separation. However, in the event of a change of control of Embecta, BD has the 3 right to terminate the cannula supply agreement in its sole discretion.
Subsequent to the Separation, BD retained ownership of all cannula production activities and the associated intellectual property rights of BD and its subsidiaries relating to cannula, the manufacture thereof and other critical cannula-related technology. The design and formulation of certain materials and components is proprietary and the intellectual property rights may be owned exclusively by one party.
Subsequent to the Separation, BD retained ownership of all cannula production activities and the associated intellectual property rights of BD and its subsidiaries relating to cannula, the manufacture thereof and other critical cannula-related technology. 1 The design and formulation of certain materials and components is proprietary and the intellectual property rights may be owned exclusively by one party.
Agreements that Embecta entered into with BD that govern aspects of Embecta's relationship with BD following the Separation include, but are not limited to: • Transition Services Agreements ("TSA") - Pursuant to the TSA, and the related Logistics Services Agreement (“LSA”), Embecta and BD and their respective affiliates provide each other, on an interim, transitional basis, various services, including, but not limited to, information technology, procurement, quality and regulatory affairs, medical affairs, tax and treasury services, distribution logistics, and shared services infrastructure support for order-to-cash, source-to-pay, and record-to-report (collectively, the “Interim Business Continuity Processes”).
Agreements that Embecta entered into with BD that govern aspects of Embecta's relationship with BD following the Separation include, but are not limited to: • Transition Services Agreements ("TSA") - Pursuant to the TSA, as amended, and the related Logistics Services Agreement, as amended (“LSA”), Embecta and BD and their respective affiliates provide each other, on an interim, transitional basis, various services, including, but not limited to, information technology, procurement, quality and regulatory affairs, medical affairs, tax and treasury services, distribution logistics, and shared services infrastructure support for order-to-cash, source-to-pay, and record-to-report (collectively, the “Interim Business Continuity Processes”).
Embecta will pay BD (i) reimbursable costs, including all shipping costs, selling costs, general administration costs, costs of goods, research and development services costs, and other income and expenses related solely to the diabetes care business, that are incurred by BD directly, as allocated costs or as costs payable to a third party and (ii) a monthly administrative fee of 1.0% of net revenue (which will increase to 1.25% of net revenue after January 1, 2024). • Other agreements that Embecta entered into with BD include, but are not limited to, an employee matters agreement, an intellectual property matters agreement, local support services agreements, certain other manufacturing arrangements and a process services agreement and lease agreement for a manufacturing facility location in Holdrege, Nebraska.
Embecta pays BD (i) reimbursable costs, including all shipping costs, selling costs, general administration costs, costs of goods, research and development services costs, and other income and expenses related solely to the diabetes care business, that are incurred by BD directly, as allocated costs or as costs payable to a third party and (ii) a monthly administrative fee of 1.0% of net revenue (which increased to 1.25% of net revenue after January 1, 2024). • Other agreements that Embecta entered into with BD include, but are not limited to, an employee matters agreement, an intellectual property matters agreement, local support services agreements, certain other manufacturing arrangements and a process services agreement and lease agreement for a manufacturing facility location in Holdrege, Nebraska.
Such services provided pursuant to the TSA were to terminate no later than April 1, 2024, 24 months following the Separation, and such services provided pursuant to the LSA were to terminate no later than January 1, 2024, which BD has agreed to extend through March 31, 2024.
Such services provided pursuant to the TSA were to terminate no later than April 1, 2024, 24 months following the Separation, and such services provided pursuant to the LSA were to terminate no later than January 1, 2024, which BD had agreed to extend through March 31, 2024.
We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. As we approach our 100-year centennial, we believe that our products have become one of the most widely recognized and respected brands in diabetes management throughout the world.
We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. Building on our 100-year centennial, we believe that our products have become one of the most widely recognized and respected brands in diabetes management throughout the world.
Embecta shall pay BD a return of 1.5% to 2.0% of net revenue for each territory. • Cannula Supply Agreement - Embecta and BD entered into a cannula supply agreement whereby BD sells to Embecta cannulas for incorporation into Embecta's existing syringes and pen needles, safety syringes and safety pen needles, and products currently under development.
Embecta paid BD a return of 1.5% to 2.0% of net revenue for each territory. • Cannula Supply Agreement - Embecta and BD entered into a cannula supply agreement whereby BD sells to Embecta cannulas for incorporation into Embecta's existing syringes and pen needles, safety syringes and safety pen needles, and products currently under development.
While no single patent or patent family is material to our business, our pen needle and syringe products contain features that are protected by a portfolio of utility and design patents, including features related to safety, comfort and ease of use.
While no single patent or patent family is material to our business, our pen needle and syringe products contain features that are protected by a portfolio of utility and design patents and pending patent applications, including features related to safety, comfort, ease of use, and visual features.
The distribution agreements will each continue until either (1) certain governmental approvals needed to distribute products in the defined territory are obtained and order-to-cash processes and other services of the Company for such territory are migrated to an alternative commercial arrangement between the parties or (2) the applicable services are transitioned to a third-party distributor or independently performed by Embecta, but in any event no longer than the maximum term of two 3 years, except certain such agreements may be extended in connection with the Extension.
The distribution agreements each continued until either (1) certain governmental approvals needed to distribute products in the defined territory were obtained and order-to-cash processes and other services of the Company for such territory were migrated to an alternative commercial arrangement between the parties or (2) the applicable services were transitioned to a third-party distributor or independently performed by Embecta, but in any event no longer than the maximum term of two years, except certain such agreements may be extended in connection with the Extension.
Human Resources ("HR") As of September 30, 2023, we had approximately 2,200 regular employees globally (which includes deferred closing countries), with approximately 925 employees in the United States. Our talented employees are an integral reason for our standing as one of the world's leading diabetes care companies.
Human Resources ("HR") As of September 30, 2024, we had approximately 2,100 regular employees globally (which includes deferred closing countries), with approximately 900 employees in the United States. Our talented employees are an integral reason for our standing as one of the world's leading diabetes care companies.
Our operations are subject to, and affected by, regulations of medical devices promulgated by federal, state and local authorities in the United States, including the FDA, and other regulatory authorities with jurisdiction over our foreign operations.
Our operations are subject to, and affected by, regulations of medical devices promulgated by federal, state and local authorities in the United States, including the U.S. Food and Drug Administration ("FDA"), and other regulatory authorities with jurisdiction over our foreign operations.
As of September 30, 2023, we had about 250 trademark registrations in the United States and in various foreign countries in which we conduct business, as well as about 200 trademark applications pending worldwide. Embecta owns, and BD provides Embecta a license to use, intellectual property rights necessary to operate our business.
As of September 30, 2024, we had about 400 trademark registrations in the United States and in various foreign countries in which we conduct business, as well as about 85 trademark applications pending worldwide for our core injection business. Embecta owns, and BD provides Embecta a license to use, intellectual property rights necessary to operate our business.
Where possible, we anticipate these factors in product development and planning processes. These agencies possess the authority to take various administrative and legal actions against us, such as product recalls, product seizures and other civil and criminal sanctions. International sales of our products are subject to foreign government regulations, which may vary substantially from country to country.
These 2 agencies possess the authority to take various administrative and legal actions against us, such as product recalls, product seizures and other civil and criminal sanctions. International sales of our products are subject to foreign government regulations, which may vary substantially from country to country.
What we do at Embecta is personal to Embecta employees, and our HR practices are designed to enable our employees in fulfilling our mission of helping people with diabetes. Diversity, Equity & Inclusion Embecta engages a workforce that reflects the communities where we operate. Our workforce, including our leadership team, and our board of directors, includes diverse members and teams.
What we do at Embecta is personal to Embecta employees, and our HR practices are designed to enable our employees in fulfilling our mission of helping people with diabetes. 4 Diversity, Equity & Inclusion Embecta engages a workforce that reflects the communities where we operate.
Our products compete across a continuum of therapies and administration modalities designed to manage diabetes. We face competition and innovation from both new and existing companies pursuing new delivery devices, injection technologies, drugs, and therapeutics for the treatment of diabetes.
Our products compete across a continuum of therapies and administration modalities designed to manage diabetes. We face competition and innovation from both new and existing companies pursuing new delivery devices, injection technologies, drugs, and therapeutics for the treatment of diabetes. Companies with whom we currently compete in the diabetes drug injection business include Novo Nordisk, HTL-Strefa, and Terumo Medical Corporation.
We estimate that our products are used by more than 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
We estimate that our products are used by more than 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes. We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices.
Our mission of developing and providing solutions to make life better for people living with diabetes helps us attract potential employees interested in making a difference to the world.
Our mission of developing and providing solutions to make life better for people living with diabetes helps us attract potential employees interested in making a difference to the world. We focus on providing a personalized experience from the moment an employee considers joining the Embecta team.
For existing and potential new products, failure to comply with ongoing regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies, which may include warning letters that require corrective action, fines, injunctions, rescissions of previously granted clearances and/or approvals and other penalties. 2 We maintain robust FDA Quality System Regulation and ISO Quality Systems that establish standards for our product design, manufacturing, and distribution processes, inclusive of Current Good Manufacturing Practices.
For existing and potential new products, failure to comply with ongoing regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies, which may include warning letters that require corrective action, fines, injunctions, rescissions of previously granted clearances and/or approvals and other penalties.
Companies with whom we currently compete in the diabetes drug injection business include Novo Nordisk, HTL-Strefa, Terumo Medical Corporation, and Ypsomed. We also compete with providers of insulin pumps and other insulin administration devices. We compete in the marketplace based on a number of factors, including product quality, clinical innovation, price, service, reputation and commercial excellence.
We also compete with providers of insulin pumps and other insulin administration devices. We compete in the marketplace based on a number of factors, including product quality, clinical innovation, price, service, reputation and commercial excellence.
We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our conventional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today.
Our conventional pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications. We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal.
We have three manufacturing sites located in Ireland, the United States and China. We believe that these manufacturing sites enable us to efficiently and consistently produce high-quality, safe and reliable products. We distribute our products through a variety of channels, including retail, hospitals, pharmacies and other institutional channels.
We believe that these manufacturing sites enable us to efficiently and consistently produce high-quality, safe and reliable products. We distribute our products through a variety of channels, including retail, hospitals, pharmacies and other institutional channels. Our commercial team and distribution networks enable us to reach a broad base of customers across the globe.
Embecta is barred from taking any action, or failing to take any action, where such action or failure to act adversely affects or could reasonably be expected to adversely affect the tax-free status of the distribution and certain related transactions or result in certain other taxes to BD, for all relevant time periods.
Embecta is barred from taking any action, or failing to take any action, where such action or failure to act adversely affects or could reasonably be expected to adversely affect the tax-free status of the distribution and certain related transactions or result in certain other taxes to BD, for all relevant time periods. • Logistics Services Agreement - Embecta and BD entered into the LSA whereby BD provides Embecta with certain order-to-cash and logistics services to support certain commercial operations for a maximum term of two years, which BD had agreed to extend pursuant to the Extension.
The majority of our United States and foreign patents for individual products are in force for twenty years from the initial filing date. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
In addition to selling pen needles, syringes and safety devices, we seek to promote advances in diabetes care through thought leadership, and engagement with the diabetes community, healthcare providers and other stakeholders. To foster connection with and offer support to people with diabetes, we launched our diabetes care app in 2018, which has been downloaded more than 600,000 times.
In addition to selling pen needles, syringes and safety devices, we seek to promote advances in diabetes care through thought leadership, and engagement with the diabetes community, healthcare providers and other stakeholders.
Regulation Changes in legislation or government policies, including with respect to licensing, health information privacy and data privacy and healthcare costs, reimbursement, coverage and access, can have a material impact on our worldwide operations.
BD grants Embecta a license to use such intellectual property rights on the terms and conditions set forth in an intellectual property matters agreement, which are described under “Agreements Related to the Separation.” Regulation Changes in legislation or government policies, including with respect to licensing, health information privacy and data privacy and healthcare costs, reimbursement, coverage and access, can have a material impact on our worldwide operations.
We are not aware of any pending third-party claims or challenges that would be expected to materially affect the patent protection of these products or technologies. As of September 30, 2023, we held about 750 patents in the United States and in various foreign countries in which we conduct business, as well as about 130 patents pending.
Generally, patent protection for these products and technologies is sought in the United States, Canada, Europe, China and Japan. We are not aware of any pending third-party claims or challenges that would be expected to materially affect the patent protection of these products or technologies.
In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials. We also sell safety insulin syringes, which have a sliding safety arm that can be activated with one-hand after the injection to help prevent needlestick exposure and injury during injection and disposal.
We also sell safety insulin syringes, which have a sliding safety arm that can be activated with one-hand after the injection to help protect healthcare workers from needlestick injuries.
Prior to marketing or selling most of our products, we must secure clearance or approval from the FDA and counterpart non-United States regulatory agencies. These regulatory controls, as well as any changes in agency policies, can affect the time and cost associated with the development, introduction and continued availability of new and existing products.
These regulatory controls, as well as any changes in agency policies, can affect the time and cost associated with the development, introduction and continued availability of new and existing products. Where possible, we anticipate these factors in product development and planning processes.
The Extension is conditioned upon BD obtaining a supplemental private letter ruling to the private letter ruling that it received in connection with the Separation and the distribution, in form and substance reasonably satisfactory to BD (the "Supplemental PLR"). • Distribution Agreements - Embecta and BD entered into distribution agreements for certain territories, principally in the Asia Pacific Region and Latin America, whereby a subsidiary of BD has been appointed as a distributor of Embecta or its relevant subsidiaries to support certain commercial operations of the diabetes care business on a transitional basis in these regions for a maximum of two years.
On March 28, 2024, BD granted a limited extension until November 1, 2024 of certain services under the TSA, LSA and other transaction documents in a limited set of markets (the "Extension") to support the Interim Business Continuity Processes. • Distribution Agreements - Embecta and BD entered into distribution agreements for certain territories, principally in the Asia Pacific Region and Latin America, whereby a subsidiary of BD was appointed as a distributor of Embecta or its relevant subsidiaries to support certain commercial operations of the diabetes care business on a transitional basis in these regions for a maximum of two years.
Corporate Responsibility ("CR") and Environmental, Social and Governance ("ESG") Embecta is in the process of developing a standalone multi-year strategy to advance its ESG initiatives. The focus in fiscal year 2023 was to evaluate Embecta’s global ESG risks and impacts. This evaluation phase commenced with a Sustainability Materiality Assessment and an internal review of the United Nations Sustainable Development Goals.
The focus in fiscal year 2024 was to evaluate Embecta’s global ESG risks and impacts. This evaluation phase commenced with a Sustainability Materiality Assessment and an internal review of the United Nations Sustainable Development Goals. Separately, the governance structures for managing ESG topics and updates were documented via the Company's Enterprise Risk Committee charter.
We intend to selectively pursue strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets. Global Operations Our global manufacturing and distribution network, together with our commercial team, enable us to produce and distribute our products to end users and healthcare providers in over 100 countries.
Global Operations Our global manufacturing and distribution network, together with our commercial team, enable us to produce and distribute our products to end users and healthcare providers in over 100 countries. We have three manufacturing sites located in Ireland, the United States and China.
The FDA and other regulatory agencies engage in periodic reviews and inspections of our quality systems, as well as product performance and advertising and promotional materials. As a medical device manufacturer and distributor, our manufacturing facilities and the facilities of our suppliers are subject to periodic inspection by the FDA, certain corresponding state agencies, and other regulatory bodies.
As a medical device manufacturer and distributor, our manufacturing facilities and the facilities of our suppliers are subject to periodic inspection by the FDA, certain corresponding state agencies, and other regulatory bodies. Prior to marketing or selling most of our products, we must secure clearance or approval from the FDA and counterpart non-United States regulatory agencies.
Our commercial team and distribution networks enable us to reach a broad base of customers across the globe. Raw Materials and Components We use a broad range of raw materials in the manufacture of our products. We purchase all our raw materials and certain components from third-party suppliers.
Raw Materials and Components We use a broad range of raw materials in the manufacture of our products. We purchase all our raw materials and certain components from third-party suppliers. The primary materials that make up our pen needles and insulin syringes are cannula, plastic resin, adhesive, needle lubricants, rubber stoppers and packaging material.
Separately, the governance structures for managing ESG topics and updates were documented via the Company's Enterprise Risk Committee charter. Embecta plans to provide an updated Sustainability Report during its 2024 fiscal year. Available Information Embecta maintains a website at www.embecta.com.
Embecta plans to provide an updated Sustainability Report during its 2025 fiscal year. Available Information Embecta maintains an official corporate website, which can be accessed at www.embecta.com.
Our commitment to DE&I is embedded in our values. We believe that employee diversity makes us better at identifying opportunities and solving problems. We are committed to creating and sustaining an environment where everyone brings their authentic selves to work, to help us fulfill our mission of helping people with diabetes.
We are committed to creating and sustaining an environment where everyone brings their authentic selves to work, to help us fulfill our mission of helping people with diabetes. Corporate Responsibility ("CR") and Environmental, Social and Governance ("ESG") Embecta has continued to stand up a standalone multi-year strategy to advance its ESG initiatives.
The diabetes care app serves as a channel for our support, education of and engagement with the diabetes community. In addition, we intend to continue to explore strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth.
In addition, we intend to continue to explore strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth and give us access to innovative technologies, complementary product lines, and new markets. Competition The diabetes care industry is highly competitive, subject to rapid change and significantly affected by new product introductions and innovation.
Removed
We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our conventional pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications.
Added
Our conventional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today. In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials.
Removed
In connection with the Separation, we entered into a cannula supply agreement with BD, whereby BD sells to us cannulas for incorporation into our pen needles and syringes.
Added
On November 22, 2024, the Company's Board of Directors approved a plan to discontinue internal and external investment in the research and development of its patch pump program. The Company will refocus its research and development strategy on its core business. Intellectual Property and Licenses Intellectual property is a strategic priority for our business.
Removed
As we develop these products we intend to apply for clearance from the United States Food and Drug Administration (the “FDA”) and similar regulatory authorities in jurisdictions outside of the United States. For example, we are currently working on developing an insulin patch pump focused on serving the needs of people living with Type 2 diabetes.
Added
As of September 30, 2024, we held about 670 patents in the United States and in various foreign countries in which we conduct business, as well as about 50 patents pending protecting our core injection business. The majority of our United States and foreign patents for individual products are in force for twenty years from the initial filing date.
Removed
We anticipate this insulin patch pump will have an increased reservoir size to hold more insulin and a simplified user interface compared to existing insulin patch pumps, and overall provide for an improved user experience. Intellectual Property and Licenses Intellectual property is a strategic priority for our business.
Added
We maintain robust FDA Quality System Regulation and ISO Quality Systems that establish standards for our product design, manufacturing, and distribution processes, inclusive of Current Good Manufacturing Practices. The FDA and other regulatory agencies engage in periodic reviews and inspections of our quality systems, as well as product performance and advertising and promotional materials.
Removed
In addition, potential features of our insulin patch pump technology currently under development and software we market to end users for managing diabetes are covered by a variety of patents and patent applications. Generally, patent protection for these products and technologies is sought in the United States, Canada, Europe, China and Japan.
Added
All distribution agreements in the Asia Pacific Region and Latin America terminated and expired in October 2024.
Removed
BD grants Embecta a license to use such intellectual property rights on the terms and conditions set forth in an intellectual property matters agreement, which are described under “Agreements Related to the Separation.” Competition The diabetes care industry is highly competitive, subject to rapid change and significantly affected by new product introductions and innovation.
Added
Our workforce, including our leadership team, and our Board of Directors, includes diverse members and teams. Our commitment to Diversity, Equity & Inclusion is embedded in our values. We believe that employee diversity makes us better at identifying opportunities and solving problems.
Removed
The service recipient may terminate any services by giving prior written notice to the provider of such services and paying any applicable wind-down charges.
Removed
However, BD has granted a limited extension until November 1, 2024 of certain services under the TSA, LSA and other transaction documents in a limited set of markets (the "Extension") to support the Interim Business Continuity Processes, subject to the condition in the next sentence.
Removed
In addition, during the period ending two years after the Separation, these covenants include specific restrictions on Embecta’s (i) discontinuing the active conduct of Embecta’s trade or business; (ii) issuance or sale of stock or other securities (including securities convertible into Embecta stock, but excluding certain compensatory arrangements); (iii) liquidating, merging, or consolidating with any other person; (iv) amending Embecta’s certificate of incorporation (or other organizational documents) or taking any other action, whether through a stockholder vote or otherwise, affecting the voting rights of Embecta common stock; (v) sales of assets outside the ordinary course of business; and (vi) entering into any other corporate transaction which would cause Embecta to undergo a 50% or greater change in its stock ownership. • Logistics Services Agreement - Embecta and BD entered into a logistics services agreement whereby BD provides Embecta with certain order-to-cash and logistics services to support certain commercial operations for a maximum term of two years, which BD has agreed to extend through March 31, 2024.
Removed
As a new company, we have the unique opportunity to integrate Environment, Social, Governance ("ESG") as well as Diversity, Equity & Inclusion ("DE&I") principles into the foundation of our HR practices. 4 We focus on providing a personalized experience from the moment an employee considers joining the Embecta team.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

110 edited+40 added−22 removed243 unchanged
Biggest changeA change in any of these factors could have an adverse impact on Embecta’s financial condition and results of operations. • Embecta may enter into strategic collaborations, in-licensing arrangements or alliances with third parties that may not result in the development of commercially viable products or the generation of revenue. • Embecta’s sales and marketing efforts rely upon independent distributors that are free to market products that compete with Embecta’s products, and if Embecta is unable to maintain or expand its network of independent distributors, its business could be materially adversely affected. • Embecta’s future growth is dependent in part upon the development of new products, and there can be no assurance that such products will be developed or be successful. • If the third parties on which Embecta relies to conduct its clinical trials and to assist it with pre-clinical development do not perform as contractually required or expected, or if market or clinical studies are unfavorable to its products in development, Embecta may not be able to obtain regulatory clearance or approval or commercialize its products. • Embecta may be unable to maintain strong relationships with physicians and other healthcare professionals which could adversely affect its business. • Embecta may not be able to successfully execute its acquisition strategy, which could adversely affect its financial condition and results of operations. • Embecta’s international operations subject it to certain business risks. • Embecta’s business and operations are subject to risks related to climate change. • Embecta's may be exposed to environmental, social and governance risks. • Embecta's intellectual property and proprietary technology are material to its business operations and are subject to infringement and other risks. • Breaches of Embecta’s information systems or cyberattacks could adversely affect our business. • A disruption at one of our facilities could adversely affect our business and operating results. • Insurance coverage may be inadequate or unavailable to cover any product liability losses we incur. • Embecta is subject to a number of restrictive covenants under its indebtedness, including customary operating restrictions and financial covenants, which could restrict Embecta’s ability to pay dividends or adversely affect its financing options and liquidity position. • Embecta is subject to risks associated with public health threats, such as the COVID-19 pandemic, which could have a material adverse effect on Embecta's financial condition and results of operations. 6 Risks Related to the Separation and Distribution from BD • Embecta has a limited history of operating as an independent company, and its historical financial information may not be a reliable indicator of its future results. • Since the Separation, Embecta’s financial profile has changed, and it is a smaller, less diversified company than BD prior to the Separation. • Embecta may not achieve some or all of the expected benefits of the Separation. • In order to conduct its operations and meet its financial reporting and other obligations, Embecta relies on certain services provided by BD pursuant to the transaction documents entered into with BD in connection with the Separation, including the TSA and the LSA.
Biggest changeA change in any of these factors could have an adverse impact on Embecta’s financial condition and results of operations. • Embecta may enter into strategic collaborations, in-licensing arrangements or alliances with third parties that may not result in the development of commercially viable products or the generation of revenue. • Embecta’s sales and marketing efforts rely upon independent distributors that are free to market products that compete with Embecta’s products, and if Embecta is unable to maintain or expand its network of independent distributors, its business could be materially adversely affected. • Embecta’s future growth is dependent in part upon the development of new products, and there can be no assurance that such products will be developed or be successful. • If the third parties on which Embecta relies to conduct its clinical trials and to assist it with pre-clinical development do not perform as contractually required or expected, or if market or clinical or other studies are unfavorable to its products in development, Embecta may not be able to obtain regulatory clearance or approval or commercialize its products. • Embecta may be unable to maintain strong relationships with physicians and other healthcare professionals which could adversely affect its business. • Embecta may not be able to successfully execute its acquisition strategy, which could adversely affect its financial condition and results of operations. • Embecta’s international operations subject it to certain business risks. • Embecta’s business and operations are subject to risks related to climate change. • Embecta's intellectual property and proprietary technology are material to its business operations and are subject to infringement and other risks. • Breaches of Embecta’s information systems or cyberattacks could adversely affect our business. • A disruption at one of our facilities could adversely affect our business and operating results. • Insurance coverage may be inadequate or unavailable to cover any product liability losses we incur. • Embecta is subject to a number of restrictive covenants under its indebtedness, including customary operating restrictions and financial covenants, which could restrict Embecta’s ability to pay dividends or adversely affect its financing options and liquidity position. • Embecta is subject to risks associated with public health threats, such as pandemics, which could have a material adverse effect on Embecta's financial condition and results of operations.
A substantial portion of Embecta’s revenue is derived from sales to a few customers. If these customers reduce the amount of product that they purchase from Embecta, reduce the amount that they are willing to pay for such products or increase charges to distribute such products, Embecta’s business, financial condition and results of operations could be adversely affected.
If these customers reduce the amount of product that they purchase from Embecta, reduce the amount that they are willing to pay for such products or increase charges to distribute such products, Embecta’s business, financial condition and results of operations could be adversely affected. A substantial portion of Embecta’s revenue is derived from sales to a few customers.
If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised due to failure to adhere to the clinical protocols or regulatory requirements or for other reasons, Embecta’s pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and Embecta may not be able to obtain regulatory clearance or approval for, or successfully commercialize, its products on a timely basis, or at all, and Embecta’s business and operating results may be adversely affected.
If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised due to failure to adhere to the protocols or regulatory requirements or for other reasons, Embecta’s pre-clinical development activities or clinical or other trials may be extended, delayed, suspended or terminated, and Embecta may not be able to obtain regulatory clearance or approval for, or successfully commercialize, its products on a timely basis, or at all, and Embecta’s business and operating results may be adversely affected.
Certain other countries have enacted the law changes and other countries are considering changes to their tax laws; the impact of the changes will go into effect for the Company beginning in fiscal year 2025. The Company is evaluating the impact of these proposed and enacted changes.
Certain countries have enacted the law changes and other countries are considering changes to their tax laws; the impact of the changes will go into effect for the Company beginning in fiscal year 2025. The Company is evaluating the impact of these proposed and enacted changes.
The market price of Embecta common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: • actual or anticipated fluctuations in Embecta’s operating results, including those associated with the Interim Business Continuity Processes; • Embecta’s liquidity and ability to obtain additional capital, including the market’s reaction to any capital-raising transaction Embecta may pursue; • changes in earnings estimated by securities analysts or Embecta’s ability to meet those estimates; • the operating and stock price performance of comparable companies; • sales of substantial amounts of Embecta’s common stock, or the perception that substantial amounts of Embecta’s common stock may be sold, by stockholders in the public market; • changes to the regulatory and legal environment under which Embecta operates; • any negative decisions by the FDA or similar regulatory bodies inside and outside of the United States regarding Embecta’s products and product candidates; • actual or anticipated fluctuations in commodities prices; • analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage; • changes in the diabetes care landscape, including changes to consumer habits and market dynamics for means and methods of insulin delivery or alternative means of diabetes management without the use of insulin or by delaying the use of insulin; and • domestic and worldwide economic conditions.
The market price of Embecta common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: • actual or anticipated fluctuations in Embecta’s operating results, including those associated with the Interim Business Continuity Processes; • Embecta’s liquidity and ability to obtain additional capital, including the market’s reaction to any capital-raising transaction Embecta may pursue; • changes in earnings estimated by securities analysts or Embecta’s ability to meet those estimates; • the operating and stock price performance of comparable companies; • sales of substantial amounts of Embecta’s common stock, or the perception that substantial amounts of Embecta’s common stock may be sold, by stockholders in the public market; • changes to the regulatory and legal environment under which Embecta operates; • any negative decisions by the FDA or similar regulatory bodies inside and outside of the United States regarding Embecta’s products and product candidates; • actual or anticipated fluctuations in commodities prices; • analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage; 27 • changes in the diabetes care landscape, including changes to consumer habits and market dynamics for means and methods of insulin delivery or alternative means of diabetes management without the use of insulin or by delaying the use of insulin; and • domestic and worldwide economic conditions.
This significant amount of debt could potentially have important consequences to Embecta and its debt and equity investors, including: • requiring a substantial portion of its cash flow from operations to make interest payments; • making it more difficult to satisfy debt service and other obligations; • increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing; • increasing its vulnerability to general adverse economic and industry conditions; • reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business; • limiting Embecta’s flexibility in planning for, or reacting to, changes in its business and the industry; 24 • placing Embecta at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and • limiting Embecta’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.
This significant amount of debt could potentially have important consequences to Embecta and its debt and equity investors, including: • requiring a substantial portion of its cash flow from operations to make interest payments; • making it more difficult to satisfy debt service and other obligations; • increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing; • increasing its vulnerability to general adverse economic and industry conditions; • reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business; • limiting Embecta’s flexibility in planning for, or reacting to, changes in its business and the industry; • placing Embecta at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and • limiting Embecta’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.
Embecta’s amended and restated certificate of incorporation provides that, unless Embecta (through approval of the Board of Directors) consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action brought on behalf of Embecta, (2) any action asserting a 28 claim of breach of a fiduciary duty owed by any director or officer or other employee of Embecta to Embecta or Embecta’s stockholders, (3) any action asserting a claim against Embecta or any director or officer or other employee of Embecta arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the Delaware General Corporation Law (“DGCL”) or Embecta’s amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), (4) any action asserting a claim against Embecta or any director or officer or other employee of Embecta governed by the internal affairs doctrine, which is a conflict of laws principle which recognizes that only one state should have the authority to regulate a corporation’s internal affairs or (5) any action as to which the DGCL (as it may be amended from time to time) confers jurisdiction on the Court of Chancery of the State of Delaware.
Embecta’s amended and restated certificate of incorporation provides that, unless Embecta (through approval of the Board of Directors) consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action brought on behalf of Embecta, (2) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of Embecta to Embecta or Embecta’s stockholders, (3) any action asserting a claim against Embecta or any director or officer or other employee of Embecta arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the Delaware General Corporation Law (“DGCL”) or Embecta’s amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), (4) any action asserting a claim against Embecta or any director or officer or other employee of Embecta governed by the internal affairs doctrine, which is a conflict of laws principle which recognizes that only one state should have the authority to regulate a corporation’s internal affairs or (5) any action as to which the DGCL (as it may be amended from time to time) confers jurisdiction on the Court of Chancery of the State of Delaware.
Accordingly, certain historical financial information included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of 21 operations or cash flows that we would have achieved in previous fiscal years as a separate, publicly traded company during such periods or those that Embecta will achieve in the future primarily as a result of the factors described below: • Generally, prior to the Separation, Embecta’s working capital requirements and capital for its general corporate purposes, including capital expenditures and acquisitions, were historically satisfied as part of the corporate-wide cash management policies of BD.
Accordingly, certain historical financial information included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved in previous fiscal years as a separate, publicly traded company during such periods or those that Embecta will achieve in the future primarily as a result of the factors described below: • Generally, prior to the Separation, Embecta’s working capital requirements and capital for its general corporate purposes, including capital expenditures and acquisitions, were historically satisfied as part of the corporate-wide cash management policies of BD.
This indebtedness may adversely affect Embecta's ability to operate or grow its business or could have other material adverse consequences, including by: 20 • limiting Embecta's ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions; • limiting Embecta's ability to refinance its indebtedness on terms acceptable to Embecta or at all; • restricting Embecta's operations or development plans; • requiring Embecta to dedicate a significant portion of its cash flows from operations to paying amounts due under its indebtedness, thereby reducing funds available for other corporate purposes; • impeding Embecta's ability to pay dividends; • making Embecta more vulnerable to economic downturns; or • limiting Embecta's ability to withstand competitive pressures.
This indebtedness may adversely affect Embecta's ability to operate or grow its business or could have other material adverse consequences, including by: • limiting Embecta's ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions; • limiting Embecta's ability to refinance its indebtedness on terms acceptable to Embecta or at all; • restricting Embecta's operations or development plans; • requiring Embecta to dedicate a significant portion of its cash flows from operations to paying amounts due under its indebtedness, thereby reducing funds available for other corporate purposes; • impeding Embecta's ability to pay dividends; • making Embecta more vulnerable to economic downturns; or • limiting Embecta's ability to withstand competitive pressures.
The risks we face include, but are not limited to, the following: Risks Related to Embecta’s Business • The medical technology industry is very competitive. • Embecta generates a significant amount of its profits and cash flows from a few key products, and any events that adversely affect the sale or profitability of these products could have an adverse impact on Embecta’s sales, results of operations and cash flows. • Technological breakthroughs in diabetes treatment or prevention may reduce demand for Embecta’s products. • Embecta obtains components and raw materials for its products from third parties, including BD.
The risks we face include, but are not limited to, the following: 5 Risks Related to Embecta’s Business • The medical technology industry is very competitive. • Embecta generates a significant amount of its profits and cash flows from a few key products, and any events that adversely affect the sale or profitability of these products could have an adverse impact on Embecta’s sales, results of operations and cash flows. • Technological breakthroughs in diabetes treatment or prevention may reduce demand for Embecta’s products. • Embecta obtains components and raw materials for its products from third parties, including BD.
If such consents or approvals are not obtained, Embecta may not be entitled to the full benefit of such contracts, permits and other assets and rights, which could increase its expenses or otherwise harm its business and financial performance. • The closing of the Separation was deferred in certain jurisdictions, and may not occur at all in such jurisdictions, due to local regulatory requirements, which may adversely affect Embecta’s manufacturing, business, financial condition and results of operations. • Satisfaction of indemnification obligations following the distribution could have a material adverse effect on Embecta’s financial condition, results of operations and cash flows.
If such consents or approvals are not obtained, Embecta may not be entitled to the full benefit of such contracts, permits and other assets and rights, which could increase its expenses or otherwise harm its business and financial performance. • The closing of the Separation was deferred in certain jurisdictions, and may not occur at all in such jurisdictions, due to local regulatory requirements, which may adversely affect Embecta’s business, financial condition and results of operations. • Satisfaction of indemnification obligations following the distribution could have a material adverse effect on Embecta’s financial condition, results of operations and cash flows.
If our ESG practices fail to meet regulatory requirements or investor, customer, consumer, employee or other stakeholders' evolving expectations and standards in areas including environmental stewardship, support for local communities, Board of Directors and employee diversity, human capital management, 14 employee health and safety practices, product quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers may be unwilling to continue to do business with us.
If our ESG practices fail to meet regulatory requirements or investor, customer, consumer, employee or other stakeholders' evolving expectations and standards in areas including environmental stewardship, support for local communities, Board of Directors and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers may be unwilling to continue to do business with us.
It was a condition to the distribution that BD receive (i) a private letter ruling from the IRS, satisfactory to the BD Board of Directors, regarding certain United States federal income tax matters relating to the Separation and Distribution and (ii) an opinion of its outside tax counsel, satisfactory to the BD Board of Directors, regarding the qualification of the contribution of assets from BD to Embecta and the distribution, taken together, as a “reorganization” within the meaning of Sections 25 368(a)(1)(D) and 355 of the Code and such opinion has not been withdrawn or rescinded.
It was a condition to the distribution that BD receive (i) a private letter ruling from the IRS, satisfactory to the BD Board of Directors, regarding certain United States federal income tax matters relating to the Separation and Distribution and (ii) an opinion of its outside tax counsel, satisfactory to the BD Board of Directors, regarding the qualification of the contribution of assets from BD to Embecta and the distribution, taken together, as a “reorganization” within the meaning of Sections 368(a)(1)(D) and 355 of the Code and such opinion has not been withdrawn or rescinded.
Embecta may experience difficulties and delays inherent in manufacturing its products, such as failure of Embecta or its suppliers to comply with applicable regulations and quality assurance guidelines, which failures may lead to: manufacturing shutdowns or manufacturing delays; delays related to the construction of new facilities or the expansion of existing facilities; and other manufacturing or distribution problems, including changes in manufacturing production sites and limits to manufacturing capacity resulting from regulatory requirements, changes in types of products produced and physical limitations that could affect supply.
Embecta may experience difficulties and delays inherent in manufacturing its products, such as failure of Embecta or its suppliers to comply with applicable regulations and quality assurance guidelines, which failures may lead to: manufacturing suspensions, shutdowns or delays; delays related to the construction of new facilities or the expansion of existing facilities; and other manufacturing or distribution problems, including changes in manufacturing production sites and limits to manufacturing capacity resulting from regulatory requirements, changes in types of products produced and physical limitations that could affect supply.
The results of Embecta’s product development efforts may be affected by a number of factors, including Embecta’s ability to anticipate the needs of people with diabetes, successfully complete clinical trials, obtain regulatory clearance and approvals for its products, manufacture such products in a cost-effective manner, obtain appropriate intellectual property protection for such products, gain and maintain market acceptance of such products, secure distribution channels, and obtain access, coverage and reimbursement for such products.
The results of Embecta’s product development efforts may be affected by a number of factors, including Embecta’s ability to anticipate the needs of people with diabetes, successfully complete clinical and other trials, obtain regulatory clearance and approvals for its products, manufacture such products in a cost-effective manner, obtain appropriate intellectual property protection for such products, gain and maintain market acceptance of such products, secure distribution channels, and obtain access, coverage and reimbursement for such products.
However, notwithstanding that each of these communities has experienced a relative recovery in COVID-19 transmission and a lessening of restrictions related to COVID-19, a future outbreak of a public health threat, including COVID-19, at any of Embecta’s manufacturing sites in China, Ireland and/or the United States or in the surrounding communities, could lead to delays in the manufacturing of Embecta’s products, which could have a material adverse effect on Embecta’s business and results of operations.
However, notwithstanding that each of these communities has experienced a relative recovery in COVID-19 transmission and a lessening of restrictions related to COVID-19, a future outbreak of a public health threat, including COVID-19, at any of Embecta’s manufacturing sites in China, Ireland and/or the United States or in the surrounding communities, could lead to suspensions or delays in the manufacturing of Embecta’s products, which could have a material adverse effect on Embecta’s business and results of operations.
The historical financial results for the periods prior to the Separation reflect allocations of corporate expenses from BD for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. • Embecta’s business shared economies of scope and scale in costs, employees, vendor relationships and customer relationships with BD.
The historical financial results for the periods prior to the Separation reflect allocations of corporate expenses from BD for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. 22 • Embecta’s business shared economies of scope and scale in costs, employees, vendor relationships and customer relationships with BD.
However, the timing, declaration, amount and payment of any dividends will be within the discretion of Embecta’s Board of Directors, and will depend upon many factors, including Embecta’s financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of Embecta’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Embecta’s Board of Directors.
However, the timing, declaration, amount and payment of any dividends will be within the discretion of Embecta’s Board of Directors, and will depend upon many factors, 28 including Embecta’s financial condition, earnings, capital requirements of its operating subsidiaries, covenants associated with certain of Embecta’s debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets, and other factors deemed relevant by Embecta’s Board of Directors.
Embecta cannot predict at this time the full impact of the Affordable Care Act or other new legislation, agency priorities, rulemaking and healthcare reform measures from U.S. federal or state governments, foreign governments, or third-party payors that may be adopted or implemented in the future on Embecta’s financial condition, results of operations and cash 18 flows.
Embecta cannot predict at this time the full impact of the Affordable Care Act or other new legislation, agency priorities, rulemaking and healthcare reform measures from U.S. federal or state governments, foreign governments, or third-party payors that may be adopted or implemented in the future on Embecta’s financial condition, results of operations and cash flows.
Pricing under the cannula supply agreement is determined by BD based on several factors, including Embecta's yearly forecast, the cost of raw materials and other cost methodologies. The cannula supply agreement is terminable by BD without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than ten years from the Separation.
Pricing under the cannula supply agreement is determined by BD based on several factors, including Embecta's yearly forecast, the cost of raw materials and other cost methodologies. The cannula 8 supply agreement is terminable by BD without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than ten years from the Separation.
In the United States, both public and private payers continue to take aggressive steps to control their expenditures for medical devices by placing restrictions on how many and which brands of devices they will provide coverage for across the spectrum of available products. Important competitive factors include quality, price, price guarantees and demonstrated ability to supply markets.
In the United States, both public and private payers continue to take aggressive steps to control their expenditures for medical devices by placing restrictions on how many and which brands of devices they will provide coverage for across the spectrum of available products. Important competitive factors include quality, price, price and inflation guarantees and demonstrated ability to supply markets.
If these conflicts develop beyond these areas or further intensify, they could have an adverse impact on Embecta’s business operations in the EU, the Middle East or other affected areas. Embecta is continuing to monitor the situations in Ukraine, Israel and globally as well as assess their potential impact on Embecta’s business, including impacts to suppliers and customers.
If these conflicts develop beyond these areas or further intensify, they could have an adverse impact on Embecta’s business operations in the EU, the Middle East or other affected areas. Embecta is continuing to monitor the situations in Russia, Ukraine, Israel and globally as well as assess their potential impact on Embecta’s business, including impacts to suppliers and customers.
Investors and prospective investors should consider the risks described below and the information 7 contained under the caption “Cautionary Statements Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Cautionary Statements Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Competition for experienced employees, particularly for persons with specialized skills, can be intense. Embecta’s ability to recruit such talent will depend on a number of factors, including compensation and benefits, work location and work environment. If Embecta cannot effectively recruit and retain qualified executives and employees, its business could be adversely affected.
Competition for experienced employees, particularly for persons with specialized skills, can be intense. Embecta’s ability to recruit such talent will depend on a number of factors, including compensation and benefits, work location and work 17 environment. If Embecta cannot effectively recruit and retain qualified executives and employees, its business could be adversely affected.
If any strikes or other work stoppages occur, or if additional employees become represented by a union, a disruption of Embecta’s operations and higher labor costs could result. Labor relations matters affecting Embecta’s suppliers of products and services could also adversely affect Embecta’s business from time to time. 17 Embecta is subject to extensive regulation.
If any strikes or other work stoppages occur, or if additional employees become represented by a union, a disruption of Embecta’s operations and higher labor costs could result. Labor relations matters affecting Embecta’s suppliers of products and services could also adversely affect Embecta’s business from time to time. Embecta is subject to extensive regulation.
The summary below provides an overview of many of the risks and uncertainties we encounter that are described in this Annual Report on Form 10-K that could materially and adversely affect Embecta’s business, financial condition or results of operations. An investment in our common stock involves a variety of risks and 5 uncertainties.
The summary below provides an overview of many of the risks and uncertainties we encounter that are described in this Annual Report on Form 10-K that could materially and adversely affect Embecta’s business, financial condition or results of operations. An investment in our common stock involves a variety of risks and uncertainties.
Despite Embecta’s security measures, however, its information technology and infrastructure may be vulnerable to attacks by increasingly sophisticated intruders or others who try to cause harm to or interfere with its normal use of its systems. They are also susceptible to breach due to employee error, malfeasance, or 16 other disruptions.
Despite Embecta’s security measures, however, its information technology and infrastructure may be vulnerable to attacks by increasingly sophisticated intruders or others who try to cause harm to or interfere with its normal use of its systems. They are also susceptible to breach due to employee error, malfeasance, or other disruptions.
In addition, Embecta will be required to closely collaborate with its customers, and ensure the proper changes, modifications, system inputs, supply chain logistics, administration, and adjudication operations are properly transitioned within the customer’s internal infrastructure, processes and systems, in order to successfully achieve the transition.
In addition, Embecta will be required to closely collaborate with its customers, and ensure the proper changes, modifications, system inputs, supply chain logistics, administration, and adjudication operations are properly transitioned within the customer’s internal infrastructure, 24 processes and systems, in order to successfully achieve the transition.
If Embecta is unable to obtain required consents or approvals, it may be unable to obtain the benefits, permits, assets and contractual commitments that are intended to be allocated to Embecta as part of its Separation from BD, and Embecta may be required to seek alternative arrangements to obtain services and assets that may be more costly and/or of lower quality.
If Embecta is unable to 26 obtain required consents or approvals, it may be unable to obtain the benefits, permits, assets and contractual commitments that are intended to be allocated to Embecta as part of its Separation from BD, and Embecta may be required to seek alternative arrangements to obtain services and assets that may be more costly and/or of lower quality.
These include large companies with multiple product lines and non-traditional entrants such as technology companies, some of which may have greater financial and marketing resources than Embecta in the United States or other markets, as well as smaller, more specialized companies.
These include large companies with multiple product lines and non-traditional entrants such as technology companies, some of 7 which may have greater financial and marketing resources than Embecta in the United States or other markets, as well as smaller, more specialized companies.
Any technological breakthroughs in diabetes prevention or treatment could decrease demand for Embecta’s products and have a material adverse effect on its business or results of operations. 8 Embecta obtains components, services and raw materials for its products from third parties, including BD.
Any technological breakthroughs in diabetes prevention or treatment could decrease demand for Embecta’s products and have a material adverse effect on its business or results of operations. Embecta obtains components, services and raw materials for its products from third parties, including BD.
If Embecta fails to maintain these formulary positions or reduces prices on its 10 products to maintain these formulary positions, it could adversely affect Embecta’s results of operations. In addition to the evolving payer market that continues to put price pressure on Embecta’s products, new competitors have emerged.
If Embecta fails to maintain these formulary positions or reduces prices on its products to maintain these formulary positions, it could adversely affect Embecta’s results of operations. In addition to the evolving payer market that continues to put price pressure on Embecta’s products, new competitors have emerged.
In addition, even if Embecta submits an application to the FDA for clearance, there is no assurance that such clearance will be obtained or that Embecta will be able to market and sell such products successfully. New product development requires significant investment in research and development.
Even if Embecta submits an application to the FDA for clearance, there is no assurance that such clearance will be obtained or that Embecta will be able to market and sell such products successfully. New product development requires significant investment in research and development.
Any such failure to perform or a reduction or interruption in supply could have a material adverse effect on Embecta’s business and operations. 9 Embecta may experience difficulties and delays in the manufacturing of its products or sterilization operations, and any such difficulties and delays could adversely affect Embecta’s business.
Any such failure to perform or a reduction or interruption in supply could have a material adverse effect on Embecta’s business and operations. Embecta may experience difficulties and delays in the manufacturing of its products or sterilization operations, and any such difficulties and delays could adversely affect Embecta’s business.
In preparing its financial statements, Embecta estimates the amount of tax that will become payable in each of these jurisdictions and significant judgement is required in determining our worldwide provision for income taxes.
In preparing its financial statements, Embecta estimates the amount of tax that will 15 become payable in each of these jurisdictions and significant judgement is required in determining our worldwide provision for income taxes.
The closing of the Separation was deferred in certain jurisdictions, and may not occur at all in such jurisdictions, due to local regulatory requirements, which may adversely affect Embecta’s manufacturing, business, financial condition and results of operations.
The closing of the Separation was deferred in certain jurisdictions, and may not occur at all in such jurisdictions, due to local regulatory requirements, which may adversely affect Embecta’s business, financial condition and results of operations.
Access to these products is largely defined by the availability and size of government reimbursement, or, in a limited number of countries, the ability of manufacturers to negotiate reimbursement directly with insurance companies.
Access to these products is largely defined by the availability and size of government reimbursement, or, in a limited number of countries, the ability of manufacturers to negotiate reimbursement 10 directly with insurance companies.
Embecta relies on third parties, such as contract research organizations, medical institutions, clinical investigators, contract laboratories and other third parties, to conduct some of its clinical trials, human factors studies and pre-clinical investigations.
Embecta relies on third parties, such as contract research organizations, medical institutions, clinical investigators, contract laboratories and other third parties, to conduct some of its studies, including clinical trials, human factors studies and pre-clinical investigations.
In addition, events beyond Embecta's control, including prevailing economic, financial, and industry conditions, could affect Embecta's ability to satisfy applicable financial covenants, and Embecta cannot assure you that it will satisfy them.
In addition, events beyond Embecta's control, including prevailing economic, financial, and industry 21 conditions, could affect Embecta's ability to satisfy applicable financial covenants, and Embecta cannot assure you that it will satisfy them.
These exclusive forum provisions will apply to all covered actions, including any covered action in which the plaintiff chooses to assert a claim or claims under federal law in addition to a claim or claims under Delaware law.
These 29 exclusive forum provisions will apply to all covered actions, including any covered action in which the plaintiff chooses to assert a claim or claims under federal law in addition to a claim or claims under Delaware law.
If Embecta does not successfully execute on its acquisition strategy, it could adversely affect its financial condition and results of operations. 12 Embecta’s international operations subject it to certain business risks.
If Embecta does not successfully execute on its acquisition strategy, it could adversely affect its financial condition and results of operations. Embecta’s international operations subject it to certain business risks.
In some instances, competitors, including pharmaceutical companies, also offer, or are attempting to develop, alternative therapies, including oral anti-diabetic drugs, GLP-1s and GLP-1 combination products, for disease states (including diabetes) that may be delivered without a medical device, such as pen needles. Lower cost producers have also created pricing pressure, particularly in emerging markets.
In some instances, competitors, including pharmaceutical companies, also offer, or are attempting to develop, alternative therapies, including oral and once-weekly anti-diabetic drugs, GLP-1s and GLP-1 combination products, for disease states (including diabetes) that may be delivered without a medical device, such as pen needles. Lower cost producers have also created pricing pressure, particularly in emerging markets.
Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain customers and end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers and revenue, all of which could adversely affect its financial conditions and results of operations.
Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain customers and end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers and revenue, all of which could adversely affect its financial condition and results of operations.
These adverse events could include a decrease in the demand for such products, the pressure to decrease the price of such products, any increase in costs of manufacturing such products or other supply chain disruptions, increased availability of competitive products, increased competition from the introduction of new products related to the treatment of diabetes or removal from the market of these products for any reason.
These adverse events could include a decrease in the demand for such products, the pressure to decrease the price of such products, any increase in costs of manufacturing such products or other supply chain disruptions, increased availability and marketability of competitive products, increased competition from the introduction of new products related to the treatment of diabetes or removal from the market of these products for any reason.
Regardless of the level of insurance coverage or other precautions taken, damage to Embecta’s facilities may have a material adverse effect on is business, financial condition and results of operations. Insurance coverage may be inadequate or unavailable to cover any product liability losses Embecta incurs.
Regardless of the level of insurance coverage or other precautions taken, damage to these facilities may have a material adverse effect on is business, financial condition and results of operations. Insurance coverage may be inadequate or unavailable to cover any product liability losses Embecta incurs.
The departure of the United Kingdom from the European Union (“EU”) (commonly known as “Brexit”) on January 31, 2020 created uncertainties affecting business operations in the United Kingdom, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products 13 Embecta sells in these markets.
The departure of the United Kingdom ("U.K.") from the European Union (“EU”) (commonly known as “Brexit”) on January 31, 2020 created uncertainties affecting business operations in the United Kingdom, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products Embecta sells in these markets.
With or without insurance, damage to Embecta’s facility, manufacturing equipment, inventory or other property or to any of its suppliers, may have a material adverse effect on Embecta’s business, financial condition and results of operations.
With or without insurance, damage to Embecta’s facilities, manufacturing equipment, inventory or other property or to any of its suppliers, may have a material adverse effect on Embecta’s business, financial condition and results of operations.
Embecta will continue to engage in the process of creating its 23 own, or engaging third parties separate from BD to provide, systems and services to replace many of the systems and services that BD currently provides to Embecta once the TSA, the LSA and other transaction agreements, or any extension thereto, expires or is terminated including, for example, information technology infrastructure, enterprise resource planning and other systems, logistics, employee, customer, vendor and accounting support services, distribution and regulatory support and services and accounting and reporting systems.
Embecta will continue to engage in the process of creating its own, or engaging third parties separate from BD to provide, systems and services to replace many of the systems and services that BD currently provides to Embecta once the transaction agreements, or any extension thereto, expires or is terminated including, for example, information technology infrastructure, enterprise resource planning ("ERP") and other systems, logistics, employee, customer, vendor and accounting support services, distribution and regulatory support and services and accounting and reporting systems.
Once the TSA, the LSA, and other transaction agreements, or any extension thereto, expire or terminate, if Embecta is unable to extend or replace the services that BD currently provides to it under the TSA, the LSA and other transaction agreements, until it is able to extend such services, complete the steps necessary to perform these services itself or otherwise materially replace these services on substantially similar terms and conditions, Embecta may not be able to effectively operate its business or maintain effective financial and management controls and reporting systems.
Once all the transaction agreements, or any extension thereto, expire or terminate, if Embecta is unable to extend or replace the services that BD currently provides to it under these transaction agreements, until it is able to extend such services, complete the steps necessary to perform these services itself or otherwise materially replace these services on substantially similar terms and conditions, Embecta may not be able to effectively operate its business or maintain effective financial and management controls and reporting systems.
In addition, political tensions between the United States and China have escalated in recent years. Rising political tensions could reduce trade, investment and other economic activities between the two major economies. Any of these factors could have a material adverse effect on Embecta’s business, prospects, financial condition and results of operations.
In addition, political tensions between the United States and China and certain other countries have escalated in recent years between and among these countries. Rising political tensions could reduce trade, investment and other economic activities between the two major economies. Any of these factors could have a material adverse effect on Embecta’s business, prospects, financial condition and results of operations.
Embecta’s manufacturing sites in China, Ireland and the United States, where Embecta manufactures a significant amount of products, largely avoided any significant disruption due to the COVID-19 pandemic.
For example, Embecta’s manufacturing sites in China, Ireland and the United States, where Embecta manufactures a significant amount of products, largely avoided any significant disruption due to the COVID-19 pandemic.
In addition, for the fiscal year ended September 30, 2023, direct gross sales to the five largest retail pharmacies for Embecta’s products together represented approximately 14% of Embecta’s worldwide gross sales.
In addition, for the fiscal year ended September 30, 2024, direct gross sales to the five largest retail pharmacies for Embecta’s products together represented approximately 14% of Embecta’s worldwide gross sales.
These events could adversely affect Embecta’s operations and our financial performance. Embecta's business could be negatively impacted by evolving regulations, policies and expectations relating to environmental, social and governance (ESG) initiatives, setting related goals, collecting data and disclosing related information. There is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters.
These events could adversely affect Embecta’s operations and our financial performance. 14 Embecta's business could be negatively impacted by evolving regulations, policies and expectations relating to ESG initiatives, setting related goals, collecting data and disclosing related information. There is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters.
If Embecta is unable to extend the services on the terms contemplated by the Extension or replace the services that BD currently provides to it on terms that are at least as favorable to Embecta as the terms on which BD is providing these services, or if BD otherwise terminates any of the services, Embecta’s business, financial condition and results of operations may be materially adversely affected.
If Embecta is unable to extend the services on similar terms or replace the services that BD currently provides to it on terms that are at least as favorable to Embecta as the terms on which BD is providing these services, or if BD otherwise terminates any of the services, Embecta’s business, financial condition and results of operations may be materially adversely affected.
Political or financial instability, currency fluctuations, the outbreak of pandemics such as COVID-19, labor unrest, transport capacity and costs, port security, supply chain disruptions, wars, weather conditions, natural disasters, or other events that could slow or disrupt port activities and affect foreign trade are beyond Embecta’s control and could materially disrupt its supply of product from any of these locations, increase its costs, and/or adversely affect its results of operations.
Political or financial instability, currency fluctuations, the outbreak of pandemics, labor unrest, transport capacity and costs, port security, supply chain disruptions, wars, weather conditions, natural disasters, or other events that could slow or disrupt 20 port activities and affect foreign trade are beyond Embecta’s control and could materially disrupt its supply of product from any of these locations, increase its costs, and/or adversely affect its results of operations.
Further, following the COVID-19 pandemic there may be increased pressure for United States medical device companies to reduce dependency on China for their supply chain and reevaluating nearshoring strategies. Embecta takes precautions to ensure that its third-party contractors and logistics entities safeguard Embecta’s assets, including insurance, health and safety protocols, and off-site storage of computer data.
Further, there may be increased pressure for United States medical device companies to reduce dependency on China for their supply chain and reevaluating nearshoring strategies. Embecta takes precautions to ensure that its third-party contractors and logistics entities safeguard Embecta’s assets, including insurance, health and safety protocols, and off-site storage of computer data.
In addition, if future clinical trials fail to support the efficacy or safety of Embecta’s current or future products or if the data obtained from such studies are unfavorable or inadequate to support satisfactory conclusions about Embecta’s current or future products, Embecta’s sales may be adversely affected and may have a material adverse effect on its business, financial condition and results of operations.
In addition, if future clinical trials fail to support the efficacy or safety of Embecta’s current or future products or if the data obtained from those and other studies are unfavorable or inadequate to support satisfactory conclusions about Embecta’s current or future products, Embecta’s commercialization efforts or sales may be adversely affected and may have a material adverse effect on its business, financial condition and results of operations.
Embecta currently has approximately $1,636 million in aggregate principal amount of indebtedness outstanding as of September 30, 2023 (not including undrawn commitments of $500 million under its revolving credit facility). Embecta may also incur additional indebtedness in the future.
Embecta currently has approximately $1,601 million in aggregate principal amount of indebtedness outstanding as of September 30, 2024 (not including undrawn commitments of $500 million under its revolving credit facility). Embecta may also incur additional indebtedness in the future.
The closing of the transfer of certain assets related to the Diabetes Care Business in certain jurisdictions, including China, Mexico, and Italy, as contemplated by the Separation and Distribution Agreement did not occur at the Separation and may not occur due to local regulatory requirements.
The closing of the transfer of certain assets related to the Diabetes Care Business in certain jurisdictions, including India, as contemplated by the Separation and Distribution Agreement did not occur at the Separation and may not occur due to local regulatory requirements.
In addition to the risks discussed elsewhere, other risks associated with doing business internationally, include, but are not limited to: • political instability and actual or anticipated military or political conflicts; • trade protection measures and barriers, such as tariffs, and import and export licensing and control requirements; • negative consequences from changes in or interpretations of tax laws; • difficulty in establishing, staffing and managing international operations; • difficulties associated with foreign legal systems, including increased costs associated with enforcing contractual obligations in foreign jurisdictions; • changes in regulatory requirements; • adapting to the differing laws and regulations, business and clinical practices, and consumer preferences in foreign markets; • difficulties in managing foreign relationships and operations, including any relationships that we establish with foreign partners, distributors or sales or marketing agents; and • difficulty in collecting accounts receivable and longer collection periods.
These and other factors may adversely impact its ability to pursue its growth strategy in these regions. 12 In addition to the risks discussed elsewhere, other risks associated with doing business internationally, include, but are not limited to: • political instability and actual or anticipated military or political conflicts; • trade protection measures and barriers, such as tariffs, and import and export licensing, control and compliance requirements; • negative consequences from changes in or interpretations of tax laws; • difficulty in establishing, staffing and managing international operations; • difficulties associated with foreign legal systems, including increased costs associated with enforcing contractual obligations in foreign jurisdictions; • changes in regulatory requirements; • adapting to the differing laws and regulations, business and clinical practices, and consumer preferences in foreign markets; • difficulties in managing foreign relationships and operations, including any relationships that we establish with foreign partners, distributors or sales or marketing agents; and • difficulty in collecting accounts receivable and longer collection periods.
It is not possible to predict the short- and long-term implications of this conflict, which could include but are not limited to further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, supply chain challenges and adverse effects on currency exchange rates and financial markets.
It is not possible to predict the short- and long-term implications of this conflict, which could include but are not limited to further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, supply chain challenges, adverse effects on currency exchange rates and financial markets and disruption to its supplier, channels to market or customers.
For the fiscal year ended September 30, 2023, McKesson Corporation, Cardinal Health and Cencora, Embecta’s three largest distributors, together represented approximately 40% of Embecta’s worldwide gross sales.
For the fiscal year ended September 30, 2024, McKesson Corporation, Cardinal Health and Cencora, Embecta’s three largest distributors, together represented approximately 41% of Embecta’s worldwide gross sales.
A significant amount of Embecta’s inventories of finished goods is stored in distribution centers around the world, but primarily in various distribution centers in the United States and Europe. Embecta takes precautions to safeguard its facilities and data infrastructure.
A significant amount of Embecta’s inventories of finished goods are stored in distribution centers around the world, but primarily in various distribution centers in the United States, Europe and Asia. Embecta takes precautions to safeguard these facilities and data infrastructure.
A number of companies and medical researchers are pursuing new ways to deliver insulin to patients, including insulin administration technologies that do not require the use of a needle, or to treat diabetes without the use of insulin or by delaying the use of insulin, such as oral anti-diabetic drugs, GLP-1s and GLP-1 combination products.
A number of companies and medical researchers are developing and commercializing new ways to deliver insulin to patients, including insulin administration technologies that do not require the use of a needle, that reduce the frequency of insulin administration, or that treat diabetes without the use of insulin or by delaying the use of insulin, such as oral and once-weekly anti-diabetic drugs, GLP-1s and GLP-1 combination products.
Embecta is subject to risks associated with public health threats, such as the COVID-19 pandemic, which could have a material adverse effect on Embecta's financial condition and results of operation. Embecta is subject to risks associated with public health threats, such as the COVID-19 pandemic.
Embecta is subject to risks associated with public health threats, such as pandemics, which could have a material adverse effect on Embecta's financial condition and results of operation. Embecta is subject to risks associated with public health threats, such as pandemics.
Risks Related to Embecta’s Common Stock • The price and trading volume of Embecta’s common stock may be volatile, and stockholders could lose all or part of their investment in Embecta. • Embecta cannot guarantee the timing, amount or payment of any dividends on its common stock. • Anti-takeover provisions could enable Embecta’s Board of Directors to resist a takeover attempt by a third-party and limit the power of its stockholders. • Embecta’s amended and restated certificate of incorporation designates the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Embecta stockholders, which could discourage lawsuits against Embecta and its directors and officers.
Risks Related to Embecta’s Common Stock • The price and trading volume of Embecta’s common stock may be volatile, and stockholders could lose all or part of their investment in Embecta. • The material weakness in our internal control over financial reporting that has been identified and our ability to remediate such material weakness. • Embecta cannot guarantee the timing, amount or payment of any dividends on its common stock. • Anti-takeover provisions could enable Embecta’s Board of Directors to resist a takeover attempt by a third-party and limit the power of its stockholders. • Embecta’s amended and restated certificate of incorporation designates the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Embecta stockholders, which could discourage lawsuits against Embecta and its directors and officers.
Embecta’s business may be adversely affected by work stoppages, union negotiations and labor disputes. As of September 30, 2023, only certain employees, all outside of the United States and representing approximately 35% of our headcount (approximately 17% of those employees are in deferred closing countries), are represented by various unions, works council and other collective bargaining groups.
Embecta’s business may be adversely affected by work stoppages, union negotiations and labor disputes. As of September 30, 2024, only certain employees, all outside of the United States and representing approximately 35% of our headcount, are represented by various unions, works council and other collective bargaining groups.
To the extent Embecta or third parties (including BD) are unable to sterilize Embecta’s products, whether due to lack of capacity, increased demand, regulatory requirements or changes or otherwise, Embecta may be unable to transition sterilization to other sites or modalities in a timely or cost effective manner, or at all, which could have an adverse impact on Embecta’s business.
To the extent Embecta or third parties (including BD) are unable to sterilize Embecta’s products, whether due to lack of capacity, increased demand, regulatory requirements or changes or otherwise, Embecta may be unable to transition sterilization to other sites or modalities in a timely or cost effective manner, or at all, which could have an adverse impact on Embecta’s business. 9 A substantial portion of Embecta’s revenue is derived from sales to a few customers.
Any such delays, or any failure to meet these requirements could adversely impact our business in the EU and other non-EU regions that tie their product registrations to EU conformity requirements. Healthcare reform may have a material adverse effect on Embecta’s financial condition and results of operations. Political, economic and regulatory developments have effected fundamental changes in the healthcare industry.
Any such delays, or any failure to meet 18 these requirements could adversely impact our business in the EU and other non-EU regions that tie their product registrations to EU conformity requirements. Healthcare reform may have a material adverse effect on Embecta’s financial condition and results of operations.
Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers or revenue, all of which could adversely affect its financial condition and results of operations. • Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers or revenue, all of which could adversely affect its financial condition and results of operations. • Embecta has incurred debt obligations that could adversely affect its business and profitability and its ability to meet other obligations. • Embecta may be affected by significant restrictions under the tax matters agreement, including on its ability to engage in certain corporate transactions for a two-year period after the Separation Date, in order to avoid triggering significant tax-related liabilities. • Embecta may be held liable to BD if it fails to perform under its agreements with BD. • There could be significant income tax liability if the Separation or certain related transactions are determined to be taxable for United States federal income tax purposes. • The transfer to Embecta of certain contracts, permits and other assets and rights may require the consents, approvals of, or provide other rights to, third parties and governmental authorities.
If Embecta is unable to extend the services on similar terms or replace the services that BD currently provides to it on terms that are at least as favorable to Embecta as the terms on which BD is providing these services, or if BD otherwise terminates any of the services, Embecta’s business, financial condition and results of operations may be materially adversely affected. • Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers or revenue, all of which could adversely affect its financial condition and results of operations. • Embecta has incurred debt obligations that could adversely affect its business and profitability and its ability to meet other obligations. • Embecta may be affected by significant restrictions under the tax matters agreement in order to avoid triggering significant tax-related liabilities. • Embecta may be held liable to BD if it fails to perform under its agreements with BD. • There could be significant income tax liability if the Separation or certain related transactions are determined to be taxable for United States federal income tax purposes. • The transfer to Embecta of certain contracts, permits and other assets and rights may require the consents, approvals of, or provide other rights to, third parties and governmental authorities.
In response to perceived increases in health care costs in recent years, there have been, and continue to be, proposals by the federal government, state governments, regulators, and third-party payors to control these costs and, more generally, to reform the U.S. health care system.
Political, economic and regulatory developments have effected fundamental changes in the healthcare industry. In response to perceived increases in health care costs in recent years, there have been, and continue to be, proposals by the federal government, state governments, regulators, and third-party payors to control these costs and, more generally, to reform the U.S. health care system.
This may impact oil production capacity, oil prices, and disruptions in supply chain and shipping routes in the Middle East. These impacts may further cause increases in resin costs, as well as energy costs.
These disruptions have led to supply chain delays and price increases and may impact future oil production capacity, oil prices, and disruptions in supply chain and shipping routes in the Middle East. These impacts may further cause increases in resin costs, as well as energy costs.
In addition, the recent hostilities in Israel could develop to have a more widespread economic and geopolitical affect in the Middle East and Europe, and/or economic sanctions between or among countries, as well as general geopolitical issues in the Middle East.
In addition, the hostilities in Israel and the Middle East, including attacks on shipping vessels in the Red Sea, could develop to have a more widespread economic and geopolitical affect in the Middle East and Europe, and/or economic sanctions between or among countries, as well as general geopolitical issues in the Middle East.
Embecta’s ability to generate profits and operating cash flow depends largely upon the continued profitability of its key products, such as its pen needles and syringes. For example, for the fiscal year ended September 30, 2023, sales of pen needles (including both conventional and safety pen needles) accounted for $912 million, or 81%, of total net revenues.
Embecta’s ability to generate profits and operating cash flow depends largely upon the continued profitability of its key products, such as its pen needles and syringes. For example, for the fiscal year ended September 30, 2024, sales of pen needles accounted for approximately $844 million, or 75%, of total net revenues.
Department of the Treasury’s Office of Foreign Assets Control, and the Bureau of Industry and Security at the U.S. Department of Commerce, administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, and transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions.
Department of Commerce, administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, and transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions.
Embecta may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (1) the ongoing transition and separation activities may demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Embecta’s 22 business; (2) Embecta may be more susceptible to market fluctuations, and other adverse events than if it were still a part of BD because Embecta’s business is less diversified than BD’s businesses prior to the completion of the Separation; (3) as a standalone company, Embecta may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those BD obtained prior to completion of the Separation; (4) the Separation may require Embecta to pay costs that could be substantial and material to its financial resources, including accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management and personnel new to Embecta, tax costs and costs to separate information systems, including its enterprise resource planning systems; (5) under the terms of the tax matters agreement that Embecta entered into with BD, it is restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free to BD and BD shareholders, or could result in certain other taxes to BD, and these restrictions may limit us for a period of time from pursuing certain strategic transactions and equity issuances or engaging in other transactions that might increase the value of its business; and (6) the contractual arrangements between Embecta and BD are on less favorable terms than the prior existing intercompany arrangements from which Embecta benefited, and such arrangements may be inadequate to provide for the ongoing operation and growth of Embecta’s business.
Embecta may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (1) the ongoing transition and separation activities may demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Embecta’s business; (2) Embecta may be more susceptible to market fluctuations, and other adverse events than if it were still a part of BD because Embecta’s business is less diversified than BD’s businesses prior to the completion of the Separation; (3) as a standalone company, Embecta may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those BD obtained prior to completion of the Separation; (4) under the terms of the tax matters agreement that Embecta entered into with BD, it is restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free to BD and BD shareholders, or could result in certain other taxes to BD,; and (6) the contractual arrangements between Embecta and BD are on less favorable terms than the prior existing intercompany arrangements from which Embecta benefited, and such arrangements may be inadequate to provide for the ongoing operation and growth of Embecta’s business.
If the United States Federal Reserve continues to raise the benchmark interest rate, then Embecta would expect the interest expense on its variable rate debt to increase in fiscal 2024. To the extent Embecta borrows under its revolving credit facility, it will also be subject to risks related to changes in interest rates.
If the United States Federal Reserve decides to raise the benchmark interest rate, then Embecta could experience higher interest expense on its variable rate debt in fiscal year 2025. To the extent Embecta borrows under its revolving credit facility, it will also be subject to risks related to changes in interest rates.
Although operations in Russia, Ukraine and Israel do not currently constitute a material portion of Embecta’s business, a significant escalation or further expansion of the conflicts’ current scope or related disruptions to the global markets could have a material adverse effect on Embecta’s results of operations. The U.S.
Although operations in Russia, Ukraine and Israel do not currently constitute a material portion of Embecta’s business nor has Embecta assessed that the hostilities have had a material effect on its financial position or results of operations, a significant escalation or further expansion of the conflicts’ current scope or related disruptions to the global markets could have a material adverse effect on Embecta’s results of operations.
The success of Embecta’s international operations also depends, in part, on its ability to make necessary infrastructure enhancements to, among other things, its production facilities and sales and distribution networks. These and other factors may adversely impact its ability to pursue its growth strategy in these regions.
The success of Embecta’s international operations also depends, in part, on its ability to make necessary infrastructure enhancements to, among other things, its production facilities and sales and distribution networks.
In the future, your percentage ownership in Embecta may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that Embecta will grant to its directors, officers and employees. Embecta employees will have stock-based awards granted from time to time based on various employee benefit plans.
Your percentage of ownership in Embecta may be diluted in the future. In the future, your percentage ownership in Embecta may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that Embecta will grant to its directors, officers and employees.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Embecta's corporate headquarters is located in Parsippany, New Jersey, USA. The Company also maintains secondary regional headquarters at leased office facilities in Eysins, Switzerland and Shanghai, China. The Company has a global research and development center in a leased office/lab facility located in Andover, Massachusetts, USA.
Biggest changeItem 2. Properties. Embecta's corporate headquarters is located in Parsippany, New Jersey, USA. The Company also maintains secondary regional headquarters at leased office facilities in Eysins, Switzerland, Shanghai, China and Singapore. The Company has a global research and development center in a leased office/lab facility located in Andover, Massachusetts, USA.
Embecta has three manufacturing facilities located in Ireland, the United States, and China which occupy an aggregate of approximately 800,000 square feet of floor space.
Embecta has three manufacturing facilities located in Ireland, the United States, and China which occupy an aggregate of approximately 800,000 square feet of space.
Removed
Due to certain regulatory requirements resulting in the delay of the local closing of the Separation in China, BD and its respective subsidiaries have agreed to hold the relevant Embecta assets in China for the use and benefit of Embecta and its respective subsidiaries entitled to such assets in this location and to manage and operate this business on behalf of Embecta in the ordinary course of business in accordance with the past practice of the Diabetes Care Business.
Removed
Embecta and BD have agreed to defer this local affiliate closing at this location to the time when such regulatory approvals are received.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. As of September 30, 2023, we were not a party to or subject to any material proceedings.
Biggest changeWe accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. As of September 30, 2024, we were not a party to or subject to any material proceedings.
Item 4. Mine Safety Disclosures. Not applicable. 29 PART II.
Item 4. Mine Safety Disclosures. Not applicable. 31 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSince the Dow Jones U.S. Select Medical Equipment Index was presented in the prior year, it has also been presented in the current year for comparison purposes. The graph assumes an investment of $100 on April 1, 2022 through the last trading day of the year ended September 30, 2023.
Biggest changeThe graph assumes an investment of $100 on April 1, 2022 through the last trading day of the year ended September 30, 2024. The calculation of cumulative stockholder return includes reinvestment of dividends in the common stock and in each index. The performance shown is not necessarily indicative of future performance.
This number does not include beneficial owners who hold Embecta's common stock in nominee or "street name" accounts through brokers or banks. During the fiscal year ended September 30, 2023, Embecta did not repurchase any of its outstanding common stock. Dividends 1.
This number does not include beneficial owners who hold Embecta's common stock in nominee or "street name" accounts through brokers or banks. During the fiscal year ended September 30, 2024, Embecta did not repurchase any of its outstanding common stock. Dividends 1.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Embecta’s common stock is listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol "EMBC". As of October 31, 2023, there were approximately 6,900 stockholders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Embecta’s common stock is listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol "EMBC". As of October 31, 2024, there were approximately 6,500 stockholders of record.
On November 21, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend is payable on December 15, 2023 to stockholders of record at the close of business on December 4, 2023.
On November 21, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on December 15, 2023 to stockholders of record at the close of business on December 4, 2023. 2.
On August 8, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on September 13, 2023 to stockholders of record at the close of business on August 25, 2023. 5.
On August 9, 2024, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on September 13, 2024 to stockholders of record at the close of business on August 27, 2024. 5.
On February 14, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on March 13, 2023 to stockholders of record at the close of business on February 27, 2023. 3.
On February 9, 2024, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on March 15, 2024 to stockholders of record at the close of business on February 28, 2024. 3.
On May 12, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on June 13, 2023 to stockholders of record at the close of business on May 29, 2023. 4.
On May 9, 2024, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on June 14, 2024 to stockholders of record at the close of business on May 28, 2024. 4.
Performance Graph The following graph compares the cumulative total stockholder returns for the period from the Separation Date of April 1, 2022 to September 30, 2023 for (i) Embecta's common stock; (ii) the Nasdaq Composite Index; (iii) the Dow Jones U.S.
The dividend is payable on December 18, 2024 to stockholders of record at the close of business on December 6, 2024. 32 Performance Graph The following graph compares the cumulative total stockholder returns for the period from the Separation Date of April 1, 2022 to September 30, 2024 for (i) Embecta's common stock; (ii) the Nasdaq Composite Index; and (iii) the S&P Smallcap 600 Health Care Index.
The calculation of cumulative stockholder return includes reinvestment of dividends in the common stock and in each index. The performance shown is not necessarily indicative of future performance. 30 Unregistered Sales Of Equity Securities And Use Of Proceeds We did not sell any unregistered equity securities during the three months ended September 30, 2023. Item 6. [ Reserved ]
Unregistered Sales Of Equity Securities And Use Of Proceeds We did not sell any unregistered equity securities during the three months ended September 30, 2024. Item 6. [ Reserved ]
On December 20, 2022, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on January 11, 2023 to stockholders of record at the close of business on December 30, 2022. 2.
On November 26, 2024, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock.
Removed
Select Medical Equipment Index which is comprised of medical equipment companies; and (iv) the S&P Smallcap 600 Health Care Index. For the year ended September 30, 2023, the Company has elected to present the S&P Smallcap 600 Healthcare index for its peer group comparison. The Company believes that the holdings of this index more accurately reflect its peer companies.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

49 edited+32 added−22 removed42 unchanged
Biggest changeThe credit agreement and the indentures for the 5.00% Notes and the 6.75% Notes contain customary financial covenants, including a total net leverage ratio covenant, which measures the ratio of (i) consolidated total net debt to (ii) consolidated earnings before interest, taxes, depreciation and amortization, and subject to other adjustments, must meet certain defined limits which are tested on a quarterly basis in accordance with the terms of the credit agreement and indentures governing the 5.00% Notes and the 6.75% Notes.
Biggest changeThe following is a summary of Embecta's total debt outstanding as of September 30, 2024: Term Loan $ 901.3 5.00% Notes 500.0 6.75% Notes 200.0 Total principal debt issued $ 1,601.3 Less: current debt obligations (9.5) Less: debt issuance costs and discounts (26.5) Long-term debt $ 1,565.3 The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows: 2025 $ 9.5 2026 9.5 2027 9.5 2028 9.5 2029 863.3 Thereafter 700.0 Certain measures relating to our total debt outstanding as of September 30, 2024 were as follows: Total debt $ 1,574.8 Short-term debt as a percentage of total debt 0.6 % Weighted average cost of total debt 6.8 % 39 The credit agreement and the indentures for the 5.00% Notes and the 6.75% Notes contain customary financial covenants, including a total net leverage ratio covenant, which measures the ratio of (i) consolidated total net debt to (ii) consolidated earnings before interest, taxes, depreciation and amortization, and subject to other adjustments, must meet certain defined limits which are tested on a quarterly basis in accordance with the terms of the credit agreement and indentures governing the 5.00% Notes and the 6.75% Notes.
The increased scrutiny by regulators on healthcare spending, which accelerated in light of the COVID-19 pandemic, along with a shift towards volume-based procurement and group purchasing organizations, which generally values lower cost over product features, benefits and quality, have placed significant pressure on Embecta to lower price in both developed and emerging markets.
In addition, the increased scrutiny by regulators on healthcare spending, which accelerated in light of the COVID-19 pandemic, along with a shift towards volume-based procurement and group purchasing organizations, which generally values lower cost over product features, benefits and quality, have placed significant pressure on Embecta to lower price in both developed and emerging markets.
A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25% per annum . As of September 30, 2023, no amount has been drawn on the Revolving Credit Facility. Additionally, Embecta has outstanding $200.0 million of senior secured notes (the "6.75% Notes"), which carry an interest rate of 6.75% and are due February 2030.
A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25% per annum. As of September 30, 2024, no amount has been drawn on the Revolving Credit Facility. Additionally, Embecta has outstanding $200.0 million of senior secured notes (the "6.75% Notes"), which carry an interest rate of 6.75% and are due February 2030.
The Company conducts business and files tax returns in numerous jurisdictions based on its interpretation of tax laws and regulations. In evaluating the Company’s tax provision, the Company establishes a reserve for uncertain tax positions 39 unless such positions are determined to be more likely than not of being sustained upon examination based on the technical merits.
The Company conducts business and files tax returns in numerous jurisdictions based on its interpretation of tax laws and regulations. In evaluating the Company’s tax provision, the Company establishes a reserve for uncertain tax positions unless such positions are determined to be more likely than not of being sustained upon examination based on the technical 42 merits.
Additional disclosures regarding our accounting for income taxes are provided in Note 14 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Cautionary Statements Regarding Forward-Looking Statements This Annual Report on Form 10-K contains statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995 and other securities laws.
Additional disclosures regarding our accounting for income taxes are provided in Note 15 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Cautionary Statements Regarding Forward-Looking Statements This Annual Report on Form 10-K contains statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995 and other securities laws.
The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable and may affect our business. Results of Operations For a discussion of Results of Operations of fiscal year 2022 compared to fiscal year 2021 see our Annual Report on Form 10-K for the year ended September 30, 2022.
The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable and may affect our business. 35 Results of Operations For a discussion of Results of Operations of fiscal year 2023 compared to fiscal year 2022 see our Annual Report on Form 10-K for the year ended September 30, 2023.
Such risks and uncertainties include, but are not limited to: • Competitive factors that could adversely affect Embecta’s operations, including adoption of new drug therapies for treatment of diabetes, new product introductions by Embecta’s competitors, the development of new technologies, lower cost producers that create pricing pressure and consolidation resulting in companies with greater scale and market presence than Embecta. • The risk that Embecta is unable to extend the TSA, the LSA, and other transaction agreements or replace the services, including the Interim Business Continuity Processes, that BD currently provides to it on substantially similar terms as the terms on which BD is providing these services or that BD terminates such services. • Any failure by BD to perform its obligations under the various separation agreements entered into in connection with the Separation and distribution, including the cannula supply agreement. • Any events that adversely affect the sale or profitability of one of Embecta’s key products or the revenue delivered from sales to its key customers. • Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier arrangements and relationships, and the potential adverse effects of any disruption in the availability of such items. • Changes in reimbursement practices of governments or private payers or other cost containment measures. • The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates, as well as regional, national and foreign economic factors, including inflation, deflation, and fluctuations in interest rates, and their potential effect on its operating performance. • The impact of changes in United States, federal laws, and policy that could affect fiscal and tax policies, healthcare and international trade, including import and export regulation and international trade agreements.
Such risks and uncertainties include, but are not limited to: • Competitive factors that could adversely affect Embecta’s operations, including adoption of new drug therapies for treatment of diabetes, new product introductions by Embecta’s competitors, the development of new technologies, lower cost producers that create pricing pressure and consolidation resulting in companies with greater scale and market presence than Embecta. • The risk that Embecta is unable to replace the services, including the Business Continuity Processes, that BD currently provides to it on substantially similar terms as the terms on which BD is providing these services under the transaction agreements or that BD terminates such services. • Any failure by BD to perform its obligations under the various separation agreements entered into in connection with the Separation and distribution, including the cannula supply agreement. • Any events that adversely affect the sale or profitability of one of Embecta’s key products or the revenue delivered from sales to its key customers. • Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier arrangements and relationships, and the potential adverse effects of any disruption in the availability of such items. • Embecta’s ability to obtain clearance from the FDA of any product, to market and sell such products successfully, to anticipate the needs of people with diabetes, and future business decisions by Embecta and its competitors. • Changes in reimbursement practices of governments or private payers or other cost containment measures. • The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates, as well as regional, national and foreign economic factors, including inflation, deflation, and fluctuations in interest rates, and their potential effect on its operating performance. • The impact of changes in United States, federal laws, and policy that could affect fiscal and tax policies, healthcare and international trade, including import and export regulation, tariffs, and international trade agreements.
For periods prior to April 1, 2022, the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K included certain assets and liabilities that were historically held at the BD corporate level, but are specifically identifiable or otherwise allocable to the Diabetes Care Business.
For periods prior to April 1, 2022, the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K include certain assets, liabilities, revenues, and expenses that were historically held at the BD corporate level, but are specifically identifiable or otherwise allocable to the Diabetes Care Business.
All statements that reflect Embecta’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth and cash flows) and statements regarding Embecta’s strategy for growth, future product development, regulatory clearances and approvals, competitive position and expenditures.
All statements that reflect Embecta’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth and cash flows), restructuring expenses and charges, and statements regarding Embecta’s strategy for growth, future product development, anticipated product and regulatory clearances, approvals, and launches, competitive position and expenditures.
Decentralization of Chronic Care. Many countries are facing an aging population and a rapidly growing number of people living with diabetes. While healthcare investments in certain regions continue to grow, there is an increased burden on physicians and longer wait times for patients.
Many countries are facing an aging population and a rapidly growing number of people living with diabetes. While healthcare investments in certain regions continue to grow, there is an increased burden on 34 physicians and longer wait times for patients.
Impairment expenses During the year ended September 30, 2023, the Company recorded impairment charges of $2.5 million related to the abandonment of certain manufacturing equipment in China that is no longer in use that were inherited as part of the spin from BD.
During the year ended September 30, 2023, the Company recorded impairment charges of $2.5 million related to the abandonment of certain manufacturing equipment in China that is no longer in use that was inherited as part of the Separation from BD.
In particular, tariffs or other trade barriers imposed by the United States or other countries could adversely impact its supply chain costs or otherwise adversely impact its results of operations. • Any new pandemic, such as COVID-19, or any geopolitical instability on Embecta’s business, including disruptions in its operations and supply chains. 40 • New or changing laws and regulations affecting Embecta’s domestic and foreign operations, or changes in enforcement practices, including laws relating to healthcare, environmental protection, trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations) and licensing and regulatory requirements for products. • The expected benefits of the Separation from BD. • Risks associated with indebtedness and our use of indebtedness available to us. • The risk that ongoing dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Embecta's estimates of these costs. • The impact of the Separation on Embecta's businesses and the risk that the full Separation may be more difficult, time-consuming or costly than expected, including the impact on its resources, systems, including enterprise resource planning, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. • The risk that we may not complete strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth or strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets.
In particular, tariffs or other trade barriers imposed by the United States or other countries could adversely impact its supply chain costs or otherwise adversely impact its results of operations. 43 • Any future impact of pandemics or geopolitical instability on Embecta’s business, including disruptions in its operations and supply chains. • New or changing laws and regulations affecting Embecta’s domestic and foreign operations, or changes in enforcement practices, including laws relating to healthcare, environmental protection, trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations) and licensing and regulatory requirements for products. • The expected benefits of the Separation from BD. • Risks associated with indebtedness and our use of indebtedness available to us. • The risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Embecta's estimates. • The impact of the Separation on Embecta's businesses and the risk that the Separation may be more difficult, time-consuming or costly than expected, including the impact on its resources, systems, including ERP, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. • The expectations related to the costs, profitability, timing and the estimated financial impact of, and charges associated with, the Restructuring Plan. • The risk that we may not complete strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth or strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets. • The risks associated with the material weakness identified in our internal control over financial reporting and our ability to remediate such material weakness.
Net cash used for financing activities was primarily attributable to: Dividend payments (34.4) Payments on long-term debt (9.5) Payments related to tax withholding for stock-based compensation (3.6) Payments on finance lease (1.2) Net cash provided by financing activities $ (48.7) 38 Contractual Obligations Our contractual obligations as of September 30, 2023, which require material cash requirements in the future, consist of purchase obligations and lease obligations.
Net cash used for financing activities was primarily attributable to: 41 Dividend payments (34.5) Payments on long-term debt (34.6) Payments related to tax withholding for stock-based compensation (3.0) Payments on finance lease (1.3) Net cash used for financing activities $ (73.4) Contractual Obligations Our contractual obligations as of September 30, 2024, which require material cash requirements in the future, consist of purchase obligations and lease obligations.
These assets were previously included as a component of Machinery, equipment and fixtures within Property, Plant and Equipment in our Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K. The impairment charges are recognized within Impairment expense in the Consolidated Statements of Income.
These assets were previously included as a component of Machinery, equipment and fixtures within Property, Plant and Equipment in our Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K.
As we approach our 100-year centennial, we believe that our products have become one of the most widely recognized and respected brands in diabetes management throughout the world. We estimate that our products are used by more than 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
In the 100-year history of our business, we believe that our products have become some of the most widely recognized and respected brands in diabetes management in the world. We estimate that our products are used by approximately 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
Embecta owes BD a service fee calculated as 0.1% of annual revenues related to countries subject to the agreement, in exchange for the services provided by BD pursuant to the Factoring Agreements.
Factoring Agreements In conjunction with the Separation, we entered into Factoring Agreements (the "Factoring Agreements") with BD. Embecta owed BD a service fee calculated as 0.1% of annual revenues related to countries subject to the Factoring Agreements, in exchange for the services provided by BD pursuant to the Factoring Agreements.
For the years ended September 30, 2023 and 2022, our Consolidated Statements of Income are as follows: 2023 2022 Revenues $ 1,120.8 $ 1,129.5 Cost of products sold 370.9 354.6 Gross Profit 749.9 774.9 Operating expenses: Selling and administrative expense 341.3 294.8 Research and development expense 85.2 66.9 Impairment expense 2.5 58.9 Other operating expenses 99.4 44.7 Total Operating Expenses 528.4 465.3 Operating Income 221.5 309.6 Interest expense, net (107.0) (46.2) Other income (expense), net (8.8) (6.8) Income Before Income Taxes 105.7 256.6 Income tax provision 35.3 33.0 Net Income $ 70.4 $ 223.6 Net Income per common share: Basic $ 1.23 $ 3.92 Diluted $ 1.22 $ 3.89 Year Ended September 30, 2023 Summary (on a comparative basis) Key financial results for the year ended September 30, 2023 were as follows: • Revenue decreased by $8.7 million to $1,120.8 million from $1,129.5 million; • Gross profit decreased by $25.0 million to $749.9 million, compared to $774.9 million.
For the fiscal years ended September 30, 2024 and 2023, our Consolidated Statements of Income are as follows: 2024 2023 Revenues $ 1,123.1 $ 1,120.8 Cost of products sold 387.9 370.9 Gross Profit 735.2 749.9 Operating expenses: Selling and administrative expense 365.1 341.3 Research and development expense 78.8 85.2 Impairment expense — 2.5 Other operating expenses 124.5 99.4 Total Operating Expenses 568.4 528.4 Operating Income 166.8 221.5 Interest expense, net (112.3) (107.0) Other income (expense), net (10.3) (8.8) Income Before Income Taxes 44.2 105.7 Income tax provision (34.1) 35.3 Net Income $ 78.3 $ 70.4 Net Income per common share: Basic $ 1.36 $ 1.23 Diluted $ 1.34 $ 1.22 Year Ended September 30, 2024 Summary (on a comparative basis) Key financial results for the year ended September 30, 2024 were as follows: • Revenue increased by $2.3 million to $1,123.1 million from $1,120.8 million; • Gross profit decreased by $14.7 million to $735.2 million, compared to $749.9 million.
Operating expenses in 2023 and 2022 were as follows: Increase (Millions of dollars) 2023 2022 2023 vs. 2022 Selling and administrative expense $ 341.3 $ 294.8 $ 46.5 % of revenues 30.5 % 26.1 % Research and development expense $ 85.2 $ 66.9 $ 18.3 % of revenues 7.6 % 5.9 % Impairment expense $ 2.5 $ 58.9 nm Other operating expense $ 99.4 $ 44.7 $ 54.7 nm = not meaningful Selling and administrative expenses Our selling and administrative expenses increased by $46.5 million, or 15.8%, to $341.3 million for the year ended September 30, 2023 as compared to $294.8 million for the year ended September 30, 2022.
Operating expenses in 2024 and 2023 were as follows: Increase (Millions of dollars) 2024 2023 2024 vs. 2023 Selling and administrative expense $ 365.1 $ 341.3 $ 23.8 % of revenues 32.5 % 30.5 % Research and development expense $ 78.8 $ 85.2 $ (6.4) % of revenues 7.0 % 7.6 % Impairment expense $ — $ 2.5 nm Other operating expense $ 124.5 $ 99.4 $ 25.1 nm = not meaningful Selling and administrative expenses Our selling and administrative expenses increased by $23.8 million, or 7.0%, to $365.1 million for the year ended September 30, 2024 as compared to $341.3 million for the year ended September 30, 2023.
Our business traces its origins to 1924, when BD developed the first dedicated insulin syringe. Since then, we have built a world-class organization with a unique manufacturing supply chain and commercial footprint.
Our business traces its origins to 1924, when BD developed the first dedicated insulin syringe. Since then, we have built a world-class organization with a unique manufacturing, supply chain and commercial footprint. 33 We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices.
As of September 30, 2023, we were in compliance with all of such covenants. The credit agreement and the senior secured are secured by substantially all assets of Embecta and each subsidiary guarantor, subject to certain exceptions.
As of September 30, 2024, we were in compliance with all of such covenants. The credit agreement and the senior secured notes are secured by substantially all assets of Embecta and each subsidiary guarantor, subject to certain exceptions. In September 2024, the Company made a discretionary prepayment of $25.0 million on the Term Loan.
Contractual obligations due within the next twelve months approximate $141 million related to purchase commitments and $9 million related to lease obligations. Critical Accounting Policies The following discussion supplements the descriptions of our accounting policies contained in Note 3 to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Financial Statements and Supplementary Data.
Critical Accounting Policies The following discussion supplements the descriptions of our accounting policies contained in Note 3 to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Financial Statements and Supplementary Data.
See "Liquidity and Capital Resources" below and Note 12 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further description of our long-term debt.
See "Liquidity and Capital Resources" below and Note 13 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further description of our long-term debt. Other income (expense), net Other income (expense), net was $(10.3) million and $(8.8) million for the years ended September 30, 2024 and 2023, respectively.
We also sell safety insulin syringes, which have a sliding safety shield that can be activated with one-hand after the injection to help prevent needlestick exposure and injury during injection and disposal. 31 We primarily sell our products to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients or use the products to deliver insulin injections to patients.
We also sell safety insulin syringes, which have a sliding safety shield that can be activated with one-hand after the injection to help prevent needlestick exposure and injury during injection and disposal.
We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our conventional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today.
Our pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications. We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal.
Access to Capital and Credit Ratings In November 2023 and June 2023, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings of Ba3 and B+, respectively.
Access to Capital and Credit Ratings In May 2024 and June 2024, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings. Our Moody's Investors Services credit rating is B1 and our Standard & Poor's Rating Services credit rating is B+.
Purchase obligations are enforceable and legally binding obligations for purchases of goods and services which include inventory purchase commitments. Over the next several years, we expect to incur significant costs associated with information technology infrastructure as we continue to transition to our own systems.
Purchase obligations are enforceable and legally binding obligations for purchases of goods and services which include inventory purchase commitments. Over the next several years, we expect to incur material costs associated with operating and maintaining our information technology infrastructure. Lease obligations include lease agreements for which a contract has been signed even if the lease has not yet commenced.
In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials.
Our traditional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today. In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials.
Introduction of new drugs and increased penetration of oral anti-diabetic drugs (e.g., SGLT-2s), GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. New drug therapies in development are targeted to challenge the current diabetes treatment paradigm, including insulin use. Insulin therapy in developed markets continues to transition to infusion pumps.
Introduction of new drugs and increased penetration of oral and once-weekly anti-diabetic drugs (e.g., SGLT-2s), GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products.
As of November 29, 2023, there is no material impact to our business operations and financial performance in Ukraine and Israel. The full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions.
However, the full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor these conflicts and assess the related restrictions and other effects on our business.
The decrease in revenues was primarily driven by $26.5 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar and a $1.9 million decrease in contract manufacturing related to sales of non-diabetes products to BD. This was partially offset by $19.7 million of favorable changes in price and volume.
This was partially offset by $14.5 million of unfavorable changes in volume, $6.1 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar, $4.6 million of unfavorable gross-to-net adjustments primarily attributed to the recognition of incremental Italian payback accruals resulting from two July 22, 2024 rulings by the Constitutional Court of Italy, and a $0.2 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD.
The primary sources and uses of cash that contributed to the $4.4 million decrease were: September 30, 2022 Cash and cash equivalents balance $ 330.9 Cash provided by operating activities 67.7 Cash used for investing activities (26.5) Cash used for financing activities (48.7) Effect of exchange rate changes on cash and cash equivalents 3.1 September 30, 2023 Cash and cash equivalents balance $ 326.5 Net cash provided by operating activities was primarily attributable to: Net income $ 70.4 Non-cash adjustments related to depreciation and amortization, impairment of property, plant and equipment, stock-based compensation, and deferred income taxes 77.3 Increase in accounts payable and accrued expenses 7.9 Decrease in trade receivables 7.0 Increase in inventories (28.8) Increase in amounts due from/due to Becton, Dickinson and Company (23.2) Increase in prepaid expenses and other (14.2) Decrease in income and other net taxes payable (12.6) Increase in other assets and liabilities, net $ (16.1) Net cash provided by operating activities $ 67.7 The increase in accounts payable and accrued expenses is primarily due to increases in net liabilities for deferred closing entities, which was offset by our annual incentive bonus payment in January 2023.
The primary sources and uses of cash that contributed to the $52.3 million decrease were: September 30, 2023 Cash and equivalents and restricted cash balance $ 326.5 Cash provided by operating activities 35.7 Cash used for investing activities (15.8) Cash used for financing activities (73.4) Effect of exchange rate changes on cash and equivalents and restricted cash 1.2 September 30, 2024 Cash and equivalents and restricted cash balance $ 274.2 40 Net cash provided by operating activities was primarily attributable to: Net income $ 78.3 Non-cash adjustments related to depreciation and amortization, plant and equipment, stock-based compensation, and deferred income taxes 5.1 Change in in accounts payable and accrued expenses 60.0 Change in trade receivables (174.7) Change in inventories (16.5) Change in amounts due from/due to Becton, Dickinson and Company 58.9 Change in prepaid expenses and other 39.5 Change in income and other net taxes payable 13.2 Change in other assets and liabilities, net (28.1) Net cash provided by operating activities $ 35.7 Update to the unaudited Consolidated Statements of Cash Flows Reported in Earnings Release On November 26, 2024, we furnished a Current Report on Form 8-K that included as an exhibit a press release announcing our financial results for the fourth fiscal quarter and the fiscal year ended September 30, 2024 (the “Earnings Release”).
Gross profit as a percent of revenue was 66.9%, as compared to 68.6% in the prior year comparative period; • Operating income decreased by $88.1 million to $221.5 million from $309.6 million; and • Net income decreased by $153.2 million to $70.4 million from $223.6 million. 33 Revenues Our revenues decreased by $8.7 million, or 0.8%, to $1,120.8 million for the twelve months ended September 30, 2023 as compared to revenues of $1,129.5 million for the twelve months ended September 30, 2022.
Gross profit as a percent of revenue was 65.5%, as compared to 66.9% in the prior year comparative period; • Operating income decreased by $54.7 million to $166.8 million from $221.5 million; and • Net income increased by $7.9 million to $78.3 million from $70.4 million.
The increase in other assets and liabilities, net is primarily due to costs capitalized associated with the implementation of our new ERP system. All other movements related to working capital were due to timing of payments and receipts of cash in the ordinary course of business.
The change in income and other net taxes payable was primarily due to the timing of required tax payments. The change in other assets and liabilities, net is primarily due to costs capitalized during fiscal 2024 associated with the implementation of our ERP system.
Other income (expense), net Other income (expense), net decreased by $2.0 million to $(8.8) million for the year ended September 30, 2023 as compared to $(6.8) million for the year ended September 30, 2022. The costs incurred primarily relate to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor.
The change in Other income (expense), net year over year is driven by higher losses due to unfavorable impacts from foreign exchange in the year ended September 30, 2024 offset by lower amounts paid to BD for income taxes incurred in deferred jurisdictions where BD is considered the primary obligor in the current period compared with the year ended September 30, 2023.
We will continue to monitor and respond to the conflicts and assess the related restrictions and other effects on our business. See Item 1A of this Annual Report on Form 10-K for further details.
See Item 1A of this Annual Report on Form 10-K for further details.
These ratings remain unchanged from the initial published ratings from January 2022. 37 Cash and cash equivalents were $326.5 million as of September 30, 2023 as compared to $330.9 million as of September 30, 2022.
Cash and equivalents and restricted cash were $274.2 million as of September 30, 2024 as compared to $326.5 million as of September 30, 2023.
Revenues by geographic region are as follows: 2023 2022 United States $ 601.4 $ 600.3 International 519.4 529.2 Total $ 1,120.8 $ 1,129.5 Cost of products sold Cost of products sold increased by $16.3 million, or 4.6%, to $370.9 million for the year ended September 30, 2023 as compared to $354.6 million for the year ended September 30, 2022.
Cost of products sold Cost of products sold increased by $17.0 million, or 4.6%, to $387.9 million for the year ended September 30, 2024 as compared to $370.9 million for the year ended September 30, 2023.
Net cash used for investing activities was primarily attributable to $26.5 million of capital expenditures during the year to support further expansion of our business and operations.
All other movements related to working capital were due to timing of payments and receipts of cash in the ordinary course of business. Net cash used for investing activities was comprised of capital expenditures of $15.8 million for the fiscal year to support our business and operations.
Maturities of our finance lease and operating lease liabilities as of September 30, 2023 by fiscal year are as follows: Finance Lease Operating Leases Total 2023 3.6 5.6 9.2 2024 3.7 3.6 7.3 2025 3.7 2.8 6.5 2026 3.8 2.2 6.0 2027 3.9 2.1 6.0 Thereafter 36.2 11.2 47.4 Total lease payments $ 54.9 $ 27.5 $ 82.4 Factoring Agreements In conjunction with the Separation, we entered into Trade Receivable Factoring Agreements (the "Factoring Agreements") with BD.
Leases Maturities of our finance lease and operating lease liabilities as of September 30, 2024 by fiscal year are as follows: Finance Lease Operating Leases Total 2024 3.7 6.2 9.9 2025 3.7 3.4 7.1 2026 3.8 1.8 5.6 2027 3.9 1.8 5.7 2028 3.9 1.7 5.6 Thereafter 32.3 7.3 39.6 Total lease payments $ 51.3 $ 22.2 $ 73.5 For additional information related to our leases, refer to Note 18 within the Notes to Consolidated Financial Statements of this Form 10-K.
Separation from BD Pursuant to the Separation and Distribution Agreement, the Separation from BD was completed on April 1, 2022.
We primarily sell our products to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients or use the products to deliver insulin injections to patients. Separation from BD Pursuant to the Separation and Distribution Agreement, the Separation from BD was completed on April 1, 2022.
Cost of products sold as a percentage of revenues were 33.1% for the year ended September 30, 2023 as compared to 31.4% for the year ended September 30, 2022. The increase in cost of products sold between periods was primarily driven by the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead.
Cost of products sold as a percentage of revenues were 34.5% for the year ended September 30, 2024 as compared to 33.1% for the year ended September 30, 2023.
Principal amounts repaid under the Term Loan may not be reborrowed by us.
Principal amounts repaid under the Term Loan may not be reborrowed by us. T he Company may from time to time voluntarily prepay the Term Loan in whole or in part without premium or penalty subject to certain exceptions.
As we continue to stand-up various corporate functions as a stand-alone publicly-traded company, we expect to incur costs associated with the same type of activities in fiscal year 2024, however, we currently expect the amount of those costs to be less in fiscal year 2024 as compared to fiscal year 2023.
These costs also include certain severance costs related to the optimization of certain business functions as we transition to being a stand-alone entity. We expect the amount of those costs to be less in fiscal year 2025 as compared to fiscal year 2024.
This was offset by an increase in interest income of $8.8 million as a result of amounts held in interest bearing accounts and money market funds.
This was partially offset by an increase in interest income from amounts held in interest bearing accounts and money market funds. We are unable to predict future Federal Reserve interest rate decisions and the impact to interest expense on our variable rate debt.
The increase year over year was primarily driven by an increase in compensation and benefit costs due to increased headcount attributed to the Separation and Embecta becoming a stand-alone publicly-traded company.
The increase year over year was primarily driven by an increase in compensation and benefit costs due to increased headcount on average in the current period in addition to increased outbound freight and warehousing costs. This was partially offset by lower TSA and LSA costs incurred from BD in the current year period.
To date we have been able to successfully mitigate this disruption and provide uninterrupted supply to our customers by increasing our inventory levels and taking other measures. 32 We continue to monitor and respond to the escalating conflict in Ukraine and the associated sanctions and other restrictions. We also are monitoring and responding to the Israel-Hamas war.
To date we have been able to successfully mitigate this disruption and provide uninterrupted supply to our customers by increasing our inventory levels and taking other measures. In December 2023, we submitted our first 510(k) premarket filing to the FDA for our proprietary disposable insulin delivery system. In September, 2024, we announced that we received 510(k) clearance from the FDA.
Interest expense, net Interest expense, net increased to $107.0 million for the year ended September 30, 2023, from $46.2 million for the year ended September 30, 2022 primarily as a result of debt having been outstanding for a longer period of time for fiscal year 2023 as compared to fiscal year 2022 and higher interest rates on our variable rate debt.
Other operating expenses are as follows: Twelve months ended September 30, 2024 2023 Costs related to the Separation $ 118.2 $ 98.3 Amortization of cloud computing arrangements 6.3 — Other — 1.1 Total $ 124.5 $ 99.4 Interest expense, net Interest expense, net increased to $112.3 million for the year ended September 30, 2024, from $107.0 million for the year ended September 30, 2023 primarily as a result of higher interest rates on our variable rate debt which is attributable to increases in SOFR that impacted our Term Loan.
These assets were previously included as a component of Construction in progress within Property, Plant and Equipment in our Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K. The impairment charges are recognized within Impairment expense in the Consolidated Statements of Income.
The updated amounts for these line items are included in the audited Consolidated Statements of Cash Flows included in the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Lease obligations include lease agreements for which a contract has been signed even if the lease has not yet commenced. As of September 30, 2023, total payments due for purchase obligations and lease obligations aggregate to approximately $227 million and $82 million, respectively, and will be expended over the next several years.
As of September 30, 2024, total payments due for purchase obligations and lease obligations aggregate to approximately $211 million and $74 million, respectively. Contractual obligations due within the next twelve months approximate $112 million related to purchase commitments and $10 million related to lease obligations.
Removed
We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our conventional pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications.
Added
We face significant pricing pressures from competitors in the pen needle and insulin syringe categories who not only can provide competitive products at lower costs, but also provide payors and customers with more choices for formulary partners in these categories.
Removed
The increase was also driven by higher costs associated with the Cannula Supply Agreement with BD post Separation. We intend to continue to work to improve productivity to help partially offset these increased costs.
Added
New drug therapies, including weekly insulin, are targeted to challenge the current diabetes treatment paradigm, including the frequency insulin is dosed (weekly vs. daily injections) and amount of insulin used. Additionally, insulin therapy in developed markets continues to transition to infusion pumps. Decentralization of Chronic Care.
Removed
Also contributing to the increase period over period were costs incurred attributed to the LSA with BD whereby BD provides Embecta with certain order-to-cash and logistics services to support certain commercial operations. 34 Research and development expenses Our research and development expenses increased by $18.3 million, or 27.4%, to $85.2 million for the year ended September 30, 2023 as compared to $66.9 million for the year ended September 30, 2022.
Added
On November 22, 2024, the Company's Board of Directors approved a plan to discontinue internal and external investment in the research and development of our patch pump program. As a result of this decision, we will undergo an organizational restructuring (the "Restructuring Plan").
Removed
The increase was primarily attributed to increased investment in new products which includes our insulin patch pump as well as amounts paid in connection with a collaboration arrangement. For details on the collaboration arrangement refer to Note 5 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Added
In addition, we intend to discontinue our commercial operation plans for the insulin delivery system, including the previous intended limited launch. We estimate that we will incur approximately $25 million - $30 million in pre-tax cash-based charges primarily associated with employee severance payments and benefits related to the workforce reduction.
Removed
During the year ended September 30, 2022, the Company recorded impairment charges of $58.9 million related to the abandonment of certain manufacturing production lines in the United States that are no longer expected to be completed.
Added
We expect that the majority of the restructuring charges related to the workforce reduction will be incurred in the first quarter of fiscal year 2025 and that the implementation of the workforce reduction, including cash payments, will be substantially complete by the end of the second quarter of fiscal year 2025.
Removed
Other operating expenses We incurred other operating expenses of $99.4 million and $44.7 million for the years ended September 30, 2023 and 2022, respectively. The costs incurred primarily relate to accounting, auditing, and legal services, including costs to establish certain stand-alone corporate functions and other costs associated with the abandonment of certain manufacturing production lines discussed above.
Added
We estimate that we will incur approximately $10 million - $15 million of additional pre-tax non-cash charges related to asset impairments and asset write-offs. These preliminary estimates may be revised following the completion of the ongoing analysis of the expected additional pre-tax non-cash charges associated with the implementation of the Restructuring Plan.
Removed
During the year ended September 30, 2023, the Company recorded approximately $5.6 million of severance costs related to the optimization of certain business functions. These costs were primarily recorded in the U.S. and severance costs were not material to any comparable prior year periods presented.
Added
The estimates of the pre-tax cash charges and additional charges that we expect to incur in connection with the Restructuring Plan, and the timing thereof, are subject to a number of assumptions and actual amounts may differ materially from estimates.
Removed
If the United States Federal Reserve maintains interest rates at these levels, or continues to raise the benchmark interest rate, then we would expect the interest expense on our variable rate debt to increase in fiscal year 2024 as compared to fiscal year 2023.
Added
In addition, we may incur other pre-tax cash charges or additional charges not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Restructuring Plan.
Removed
Income tax provision The increase in the Company's effective income tax rate for fiscal year 2023 as compared to fiscal year 2022 was primarily due to the establishment of a valuation allowance against interest expense carryforwards in the U.S., an increase in U.S. tax on foreign earnings primarily because of limitations on the utilization of foreign tax credits and higher withholding taxes on unremitted foreign earnings; partially offset by increased tax benefits from non-taxable items and change in geographical mix of earnings.
Added
On March 28, 2024, we entered into (i) a second amendment (the “TSA Amendment”) to the TSA, dated as of March 31, 2022 and previously amended as of July 1, 2022 by and between Embecta and BD, and (ii) a second amendment (the “LSA Amendment”) to the LSA, dated January 1, 2022 and previously amended as of November 20, 2023, by and between Embecta and BD.
Removed
In addition, for fiscal year 2023 the Company recorded a tax benefit for the establishment of net deferred tax assets incurred in connection with the ongoing separation of the Diabetes Care Business from BD partially offset by a return to provision adjustment from the prior year.
Added
Pursuant to the TSA and the LSA, originally entered into in connection with the Separation, Embecta and BD and their respective affiliates provide each other, on an interim, transitional basis, the Business Continuity Processes.
Removed
As of September 30, 2023, the Company has recorded deferred taxes on the undistributed earnings of foreign subsidiaries. The vast majority of these taxes were accrued, in part, because the Company does not meet certain holding period requirements for stock ownership.
Added
Under the TSA Amendment and the LSA Amendment, BD granted Embecta, among other things, a limited extension until November 1, 2024 of certain services in a limited set of markets to support the Business Continuity Processes. We continue to monitor the conflict in Ukraine and the associated sanctions and other restrictions.
Removed
During fiscal year 2024, the Company anticipates that it will meet these requirements at 35 which time approximately $18.0 million of the accrued balance as of September 30, 2023 will be recorded as a reduction to income tax expense.
Added
We also are monitoring the Israel-Hamas war and Houthi attacks on commercial shipping vessels and other naval vessels. As of December 11, 2024, there is no material impact to our business operations and financial performance as a result of the aforementioned conflicts.
Removed
LIQUIDITY AND CAPITAL RESOURCES For discussion on Liquidity and Capital Resources pertaining to the fiscal years 2022 and 2021 see our Annual Report on Form 10-K for the year ended September 30, 2022.
Added
Revenues Our revenues increased by $2.3 million, or 0.2%, to $1,123.1 million for the year ended September 30, 2024 as compared to revenues of $1,120.8 million for the year ended September 30, 2023. The increase in revenues was primarily driven by $27.7 million associated with favorable changes in price.
Removed
The following is a summary of Embecta's total debt outstanding as of September 30, 2023: Term Loan $ 935.8 5.00% Notes 500.0 6.75% Notes $ 200.0 Total principal debt issued $ 1,635.8 Less: current debt obligations (9.5) Less: debt issuance costs and discounts (32.4) Long-term debt $ 1,593.9 36 The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows: 2023 $ 9.5 2024 9.5 2025 9.5 2026 9.5 2028 9.5 Thereafter 1,588.3 Certain measures relating to our total debt outstanding as of September 30, 2023 were as follows: Total debt $ 1,603.4 Short-term debt as a percentage of total debt 0.6 % Weighted average cost of total debt 7.1 % Leases In conjunction with the Separation, we entered into a lease agreement with BD pursuant to which the Company would lease approximately 278,000 square feet of manufacturing space and equipment at BD's manufacturing facility in Holdrege, Nebraska for an initial term of ten years.
Added
The increase in cost of products sold was primarily driven by the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead, the impact of negative year-over-year manufacturing variances primarily attributable to 36 the as planned temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market, and unfavorable impacts due to foreign exchange rates.
Removed
The lease is classified as a finance lease. The Company has an option to extend the lease term for an additional period of up to five years. On April 1, 2022, we entered into a real estate lease for a new Corporate Headquarters located in Parsippany, New Jersey, United States.
Added
We intend to continue to work to improve productivity to help partially offset these increased costs. This was partially offset by the impact of profit in inventory adjustments as a result of inventory that was sold to external customers that was manufactured in anticipation of our ERP system and other Business Continuity Processes that went live during fiscal 2024.
Removed
The lease commenced during the second quarter of fiscal year 2023 and has an initial term of ten years. The lease is classified as an operating lease.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed3 unchanged
Biggest changeThe interest rate is set at 300 basis points over the SOFR, with a 0.50% SOFR floor. Based on our outstanding borrowings at September 30, 2023, a 100 basis points change in interest rates would have impacted interest expense on the Term Loan by $9.4 million on an annualized basis.
Biggest changeThe interest rate is set at 300 basis points over SOFR, with a 0.50% SOFR floor. Based on our outstanding borrowings at September 30, 2024, a 100 basis points change in interest rates would have impacted interest expense on the Term Loan by $9.0 million on an annualized basis.
As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 15, Financial Instruments and Fair Value Measurements of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information.
As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 16, Financial Instruments and Fair Value Measurements of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information.
Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged. Interest Rate Risk Debt - Our interest rate risk as of September 30, 2023 relates primarily to our Term Loan.
Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged. Interest Rate Risk Debt - Our interest rate risk as of September 30, 2024 relates primarily to our Term Loan.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 3, 12 and 15 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, and is incorporated herein by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 3, 13 and 16 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, and is incorporated herein by reference.
To the extent we borrow on our revolving credit facility, we will also be subject to risks related to changes in SOFR. Refer to Note 12 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information. 41
To the extent we borrow on our revolving credit facility, we will be subject to risks related to changes in SOFR. Refer to Note 13 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information. 44

Other EMBC 10-K year-over-year comparisons