Emergent Biosolutions (EBS) is a global life sciences company focused on providing to civilian and military populations specialty products and services that address accidental, intentional and naturally emerging public health threats, explain Tom Bishop, small cap expert and editor of BI Research.
The company manufactures and commercializes medical counter measures that address two categories of threats. One is infectious diseases (like Ebola, Zika, and even smallpox).
The other addresses CBRN threats — Chemical, Biological (such as anthrax), Radiological and Nuclear. Emergent is both the #1 medical provider of vaccines and #1 provider of antibody therapeutics to the strategic national stockpile. It’s good to know there are companies like this around.
Emergent previously announced an agreement to acquire PaxVax, which has two approved vaccines for cholera and typhoid fever, for $270 million in cash. It is expected to add $70-90 million to revenues in 2019 and become accretive by year end 2019.
In late August, Emergent announced another acquisition, this one in the very timely and higher profile area of the opioid crisis. It acquire Adapt Pharma (for $635 million) and its flagship product NARCAN (naloxone HCI) the only nasal spray used for the emergency treatment of opioid overdose. Few national health threats are currently more in the public eye.
This is expected to generate $200 to $220 million in revenue and be accretive to adjusted net income and EBITDA in 2019 and Emergent feels confident that with its skill set it can grow the business from there. (For example, only about 5% of high schools and colleges carry NARCAN.)
This is especially so given this year’s federal budget includes $4.6 billion to fight the opioid crisis, which is $3.3 billion more than last year — and $1 billion of this is to go to the states to help manage the crisis.
The 2019 consensus of 5 analysts vaulted from $2.63 as of 9/12 to $3.60. This compares to $2.39 forecasted for 2018 (and $1.90 tabled in 2017). However, there is a high estimate of $4.70 in there, so taking that out we’d still be at $3.23, 35% growth over 2018.
Still, a leap in the 2019 consensus from $2.63 to $3.23 in a few days last week is pretty spectacular and likely accounts for the stock strength lately. In all, we are talking about 40%+ revenue growth next year, explaining the 34% increase in 2019 EPS estimates. Meanwhile EBS is trading at a very reasonable 20.6 times 2019 EPS of $3.23. Buy.
