Emergent BioSolutions, Inc.

EBS Details

Emergent BioSolutions, Inc. (NYSE: EBS) operates as a life sciences company focused on developing a clinical portfolio of novel solutions addressing accidental, deliberate and naturally occurring public health threats (PHTs). The company currently has ten innovative products across its three main business divisions: Vaccination, Medicines, and Medical Devices. In addition, it operates a service business unit, contract development and manufacturing organization (CDMO), which manufactures drugs for pharmaceutical and biotechnology industries, the US Government (USG), and other non-Governmental organizations. As of November 04, 2021, the company's market capitalization stood at USD 2.83 billion.

Latest News:

• Phase 3 Trial for CHIKV VLP: On October 15, 2021, the company stated that it commenced the phase 3 clinical trial for testing the safety and immunogenicity of its investigational chikungunya virus (CHIKV) virus-like particle (VLP) vaccine candidate, CHIKV VLP.

Q3FY21 Results:

• Decline in Topline: EBS reported a 14.59% decline in its total revenues to USD 329.0 million in Q3FY21 (ended September 30, 2021) compared to USD 385.2 million in Q3FY20, owing to a 78.89% decline in sales of AV7909 (Anthrax vaccines) and a 73.52% reduction in revenue from the CDMO segment.
• Incurring Losses: It recorded a net loss of USD 32.7 million in Q3FY21 vs. a net income of USD 39.5 million in Q3FY20.
• Balance Sheet Position: As of September 30, 2021, the company had cash and cash equivalents of USD 403.8 million and total debt of USD 848.9 million.

Key Risks:

• Customer Concentration Risk: As of Q2FY21, EBS generates a major chunk of its revenue from AV7909 and ACAM2000 (Smallpox vaccine) sales to the USG. Hence, its financial health is significantly dependent on the continuing contractual relationship with the USG.
• Regulatory Risk: The biotechnology industry is highly regulated, and its participants are subject to strict regulatory norms, both within and outside the US, non-observance of which could delay, recall, or even suspension of prior approvals.

Outlook:

• Revenue Estimates: In its Q3FY21 release, EBS stated that it expects its FY21 revenue to range between USD 1.70 – 1.80 billion, with a gross margin of 54% to 56%.
• EBITDA & Net Income: Adjusted EBITDA for the period is estimated to range from USD 500 to 550 million, and the forecasted adjusted net income range is USD 315 – 350 million.

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 has surged 10.36% in the past week and is currently leaning towards the lower end of its 52-week range of USD 43.75 to USD 127.20. The stock is currently trading below its 50 and 100 DMA levels, and its RSI Index is at 53.43. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 50.38.

Considering the significant uptick in the stock price in the short period, disappointing Q3FY21 results, and associated risks, we recommend a "Sell" rating on the stock at the closing price of USD 52.61, down 0.04% as of November 04, 2021.

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

* All forecasted figures and industry information have been taken from REFINITIV.