I am neutral on Emergent BioSolutions Inc. (EBS), as its cheap valuation is largely offset by weak performance in its business, and lack of catalysts for the foreseeable future.
Emergent BioSolutions is an American multinational life sciences company with headquarters in Gaithersburg, Maryland.
The company offers biopharmaceutical products, including vaccines and antibody therapeutics that address public health threats, as well as bio-defensive medical devices. (See Emergent stock charts on TipRanks)
Strengths
Emergent BioSolutions showed strong second-quarter results, and the company announced it would continue to play an important role in public health safety through investment and innovation.
The company has recently entered into a five-year contract with Providence Therapeutics to support Providence’s COVID-19 messenger RNA vaccine development.
In the coming year, Emergent will create tens of millions of PTX-COVID 19-B drug products, as well as batches of its formulated bulk drug substance that can yield hundreds of millions of more doses for global pandemic relief.
Recent Results
Emergent BioSolutions announced total revenue of $397.5 million in the second quarter of 2021, missing Zack’s consensus estimate of $415.73 million.
Net sales revenue for its NARCAN Nasal Spray increased $33.4 million year-over-year, bringing revenue to $106.2 million. The increase is largely due to an increased number of sales in the U.S. public interest and commercial retail markets, and growth in sales to Canadian customer channels.
Anthrax vaccines, however, showed a decrease of $80.8 million, resulting in revenue of $51.5 million. ACAM2000 (smallpox vaccine) showed a decrease of $70 million, both of which were largely driven by the timing of deliveries to the U.S. government.
Contract Development and Manufacturing Services (CDMO) revenue, on the other hand, increased $118.3 million year-over-year. Contract and Grants revenue was consistent as compared with the same quarter in the previous year. In addition, the company’s gross margin decreased $97 million as compared with the previous year’s quarter.
Aside from these financial results, Emergent BioSolutions is also supporting the U.S. government’s smallpox preparedness efforts under contract options of $182 million for ACAM2000 and $56 million for VIGIV (for the treatment of complications from smallpox vaccine).
The company is also supporting the government of Canada for anthrax preparedness efforts by delivering Anthrasil through March 2023. The company has also been allowed by the FDA to resume its Johnson & Johnson (JNJ) COVID-19 vaccine production activities.
Emergent BioSolutions maintained its full-year revenue guidance in the range of $1.7 billion to $1.9 billion, and the company expects its CDMO revenue to be between $765 and $875 million. For the next quarter, the company expects its total revenue to be between $400 and $500 million.
Valuation Metrics
Emergent BioSolutions stock looks reasonably attractive here, as its enterprise value to forward EBITDA is just 6.2x, and its price to forward normalized earnings is a mere 6.4x.
Wall Street’s Take
From Wall Street analysts, Emergent BioSolutions earns a Moderate Buy analyst consensus, based on one Buy rating assigned in the past three months.
The average Emergent Biosolutions price target of $92 puts the upside potential at 81.1%.
Summary and Conclusion
Emergent BioSolutions looks like an interesting opportunity as a value investment in the pharmaceutical space.
Its valuation multiples are very low, so if the company can even just sustain its current earnings power over time, the stock should generate attractive long-term returns.
However, it does face headwinds as some of its products are facing declining demand, and only one Wall Street analyst covers the stock at the moment, indicating that the stock is not generating a lot of interest among big name investors.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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