Emergent BioSolutions: What, me worry?
There are terrorist attacks, and then there’s bioterrorism: deadly spores and killer bacteria. Reaching for the red phone of germ warfare is Emergent BioSolutions, Inc. (Nasdaq:EBS), developer of an immunobiotic arsenal to fight infectious diseases.
No, this is not the world Alfred E. Neuman, gap-toothed cover boy of Mad Magazine, would have envisioned 50 years ago. Yes, it is perfect for EBS, the Rockville, Md.-based company that focuses on making products against category “A” biological agents, those that the Centers for Disease Control say pose the greatest possible threat to public health. In addition to focusing on immunobiotics, EBS seeks to acquire late-stage product candidates, mitigate costs through government funding and third-party support, and fund development through cash flow.
Leading EBS’ biodefense portfolio is BioThrax, the only FDA-approved vaccine for anthrax infection. EBS also has next generation anthrax vaccine product candidates in preclinical and Phase I development, and it’s working on an anthrax immune globulin that treats anthrax disease after toxins have been released into the body — a situation for which there are now no approved treatments. EBS is battling on the fear front of botulism as well: it has products in pre-clinical development for treatment of and vaccines for the botulinum toxin.
The United States government buys virtually all of the BioThrax EBS can make. The company is the sole-source contractor with the U.S. Department of Health and Human Services (HHS) for supply of BioThrax for the Strategic National Stockpile. In September of last year, EBS signed a new three-year BioThrax contract with HHS worth up to $448 million — a contract that helps to solidify the company’s forward revenues.
EBS also sells BioThrax to the Department of Defense (DoD) for immunization of military personnel. Demand from the DoD — which is pursuing a collaborative arrangement with the HHS to use stockpiled doses of BioThrax — is expected to increase due to its mandatory vaccination program. HHS also has said it would like to have sufficient anthrax vaccines in its stockpile to treat 25 million people in a post-exposure scenario.
Although next-generation anthrax vaccine efforts are ongoing, “we believe that BioThrax will continue to be the only FDA-approved anthrax vaccine through 2013, the last year of funding under the current BioShield law,” said analysts at WBB Securities in a January note. EBS has been improving BioThrax, raising the bar for a new competitor. Progress toward shelf-life extension, post-exposure prophylactic administration and a three-dose regimen could increase demand for BioThrax for the SNS, they said.
But there’s more to worry about than anthrax, a stubborn, naturally occurring bacteria carried by spores and found throughout the world. Or botulism, an often fatal disease caused by botulinum toxins that come from bacteria found in waters and soils around the globe. Take typhoid, for instance, or hepatitis B, group B strep, meningitis or chlamydia. These are the targets of EBS’ commercial portfolio of vaccines — all of which are in the pre-clinical to phase 2 development.
Revenue from the commercial portfolio is still a ways in the future — indeed, this business has incurred a loss in each of the past three years. EBS may have a fine brew of cootie-busters but, so far, just BioThrax is paying off.
With BioThrax providing substantially all of EBS’ sales, total revenues grew 20% to $183 million in fiscal 2007 through Dec. 31. Net income was $0.79 per share, down from $0.99 the previous year as costs of product sales, research and development, and SG&A rose. Net income was $22.9 million in 2007 and $22.8 million in 2006.
For 2008, the company looks for total revenues to rise to $180 to $195 million and for net income in excess of $20 million. Analysts think there is the possibility for additional sales.
“Anticipated 2008 revenues relate mostly to BioThrax sales under the company’s $448 million contract with HHS,” said analysts at Cowen and Company, who give EBS an “outperform” rating. “Should DoD procure additional doses of BioThrax (likely in cooperation with HHS), 2008 revenues could exceed the upper end of guidance.”
EBS closed Thursday at $8.53, at the lower end of its 52-week range from $4.40 to $15.02, giving it a market capitalization of just under $253.8 million. Based on the average earnings estimates of the three analysts who follow the company, EBS is trading at value: its price-earnings multiple is 10 times 2008 expectations and 7 times the 2009 forecast.
Risks to EBS include its reliance on the U.S. government as sole buyer of BioThrax. Any changes in regulations, bidding processes, pricing and funding to purchase BioThrax could hurt results. Debt also may limit cash flow available to put into the business: as of Dec. 31, EBS had $57.9 million principal amount of debt outstanding, and a remaining borrowing availability of $3.2 million under a revolving line of credit. EBS says in its annual report that it may seek to raise “substantial external debt financing to provide additional financial flexibility.”
Still, considering that EBS is expected to have expanded production capacity by 2009 and its pipeline of biodefense and commercial vaccines, “we remain confident in our 2009 earnings estimate of $1.18 per share,” said the analysts at WBB Securities. They raised their rating to a “strong buy” from a “buy” and expect a 12-month target of $13.75.
Pipeline dreams can become nightmares. Let’s just hope EBS doesn’t have to pick up the phone.
About the Author
Contributing author Jennifer Allen has two decades of experience as a writer and editor, mainly as a financial wire service correspondent.
Read More
(click a star)
Enter comment: