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Emergent (EBS) Gains 86.1% in a Year's Time: Here's Why

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Shares of Emergent BioSolutions, Inc. (EBS - Free Report) have soared 86.1% over a year, outperforming the industry’s decline of 4.7%. Here we analyze the factors that led to the rally.

 

Emergent’s spin-off of its Biosciences business into a separate publicly traded company, Aptevo was a positive for the company. While Aptevo focuses on oncology and hematology, Emergent continues to work on public health threats specifically chemical, biological, radiological, nuclear and explosive threats as well as the emerging infectious diseases.

The spin-off resulted in a reduced cost with enhanced profit. Cash flow and operating margins are improving due to the elimination of Aptevo-related R&D, sales, marketing and G&A costs within the Biosciences business.

Emergent is working on returning value to shareholders in the form of share buybacks, post the spin-off. Meanwhile, the company’s financially strong position should also allow it to pursue strategic mergers & acquisitions (M&A) that can diversify business.

Moreover, Emergent’s sound capital base should enable the company to execute its business plan and help it achieve the 2020 financial and operational goals. The company expects revenues to hit $1 billion by 2020 with a net income CAGR (2016-2020) of more than 20%, driven by existing products and services, new product launches and product and business acquisitions.

The company is targeting six products in clinical or advanced development by 2020. Emergent expects EBITDA to cross $350 million by 2020.

Emergent is developing a next generation anthrax vaccine candidate, NuThrax for post-exposure prophylaxis of anthrax disease, which is in advanced stages of development. The company expects to initiate a phase III study in early 2018 for the candidate. It is intended to be a two-dose regimen which will give increased speed to protection, implying fewer doses accompanied by more rapid protection. Therefore, NuThrax is addressing a number of the improvements that the United States’ government is looking for in terms of protecting civilians who might be exposed in a post-exposure setting.

Emergent is working on expanding its manufacturing capacity to increase the production of BioThrax. In August 2016, Emergent gained FDA approval for the manufacture of BioThrax in Building 55, the company’s large-scale manufacturing facility. As BioThrax is Emergent’s main product, approval of the new manufacturing facility is a huge boost.

We note that BioThrax enjoys Orphan Drug status in the United States for the post-exposure setting. This status makes it eligible to enjoy seven years of marketing exclusivity in the United States through November 2022. The company believes that Building 55 could also support the manufacture of NuThrax also.

 

Zacks Rank and Stocks to Consider

Emergent carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same space worth looking at are RegeneronPharmaceuticals (REGN - Free Report) , Enanta Pharma (ENTA - Free Report) and Ligand Pharmaceuticals (LGND - Free Report) . All of themsport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron’s earnings per share estimates have moved up from $18.67 to $18.68 for 2018 in the last 30 days. The company pulled off a positive earnings surprise in three of the last four quarters, with an average beat of 9.15%.

Enanta Pharma delivered a positive earnings surprise in three of the last four quarters, with an average beat of 373.1%. The company’s shares have surged 186.9% over a year.

Ligand’s earnings per share estimates have moved up $3.78 to $4.20 from $4.75 to $5.32 for 2018 and 2019, respectively, over the last 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.88%. The company’s shares have rallied 51% over a year.

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