Emergent BioSolutions, Inc.

EBS Details

Emergent BioSolutions, Inc. (NYSE: EBS) is a multinational life sciences firm that offers a portfolio of innovative products and solutions to civilian and military populations that address accidental and naturally occurring Public Health Threats (PHTs). It has ten items in its product portfolio (including vaccinations, medicines, and medical devices) that account for most of its revenue. The firm also earns money by collaborating with other pharmaceutical companies and the US government to provide contract development and manufacturing organization (CDMO) services. As of September 24, 2021, the company's market capitalization stood at USD 2.89 billion.

Acquiring New Contract: On September 14, 2021, EBS and Province Therapeutics, Canada's top mRNA vaccine firm, signed a five-year CDMO services deal to develop its mRNA COVID-19 Vaccine Candidate, PTX-COVID19-B. In 2022, EBS will manufacture tens of millions of doses of the PTX-COVID19-B drug product, and batches of PTX-COVID19-B formulated bulk drug substance, potentially providing hundreds of millions of more doses for global populations in need of pandemic relief. The agreement value to EBS is estimated to be USD 90 million, including manufacturing services, global supply chain studies, and investments in equipment and facilities.

Investigation Against EBS: Shuman, Glenn & Stecker, a Denver legal firm, stated on September 21, 2021, that it is examining potential lawsuits against some EBS officers. The lawsuit stems from EBS's quality control issues at its COVID-19 vaccine production plant in Baltimore, Maryland, which resulted in the loss of Johnson & Johnson and AstraZeneca vaccine doses.

H1FY21 Results: The company reported a 25.15% increase in its total revenues to USD 740.5 million during H1FY21 (ended June 30, 2021) compared to USD 587 million during H1FY20, primarily due to an increase in sales of NARCAN Nasal Spray and CDMO services. However, the company reported a slight decline in H1FY21 net income to USD 74.3 million from USD 80.0 million reported in H1FY20. As of June 30, 2021, the company had cash and cash equivalents of USD 447.5 million, with total debt amounting to USD 854.0 million.

Key Risks: EBS presently derives a significant portion of its income from the sale of AV7909 and ACAM2000 to the US Government (USG) and has traditionally derived a significant portion of its revenue through USG's procurement of BioThrax. Therefore, if USG dramatically reduces its demand for AV7909, BioThrax, or ACAM2000, the company's revenue and cash flow might be significantly impacted. In addition, the recently filed class-action lawsuit comprises a legal risk.

Outlook:

FY21 and Q3FY21 Guidance (Source: Investor Update, July 29, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

EBS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: EBS' share price declined 47.14% in the past twelve months and made a fresh 52 week low today. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 23.61, indicating an oversold zone. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 64.01. Considering the significant dip in the stock price, strong track record, market dominance in the PHT space, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 52.39, down 2.69% as of September 24, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.