Emergent BioSolutions' Blowout Quarter

I almost bought Emergent BioSolutions (EBS) today on the pullback to support (20 day moving average) to fill my 2 stock "government as customers" portfolio - but with earnings tonight I wanted to hold off. And what an earnings they are - EBS should be on Jimmy Cramer's radar any day now as a "buy buy buy". I really like this company because you get a biotech pipeline for the future, thrown on top of a "government as customer" Anthrax business today. Here was our original write up - thanks to whichever reader brought this little gem to our attention. [Oct 22: Readers Idea: Emergent BioSolutions]

• Total revenues for the third quarter and nine months of 2008 were $56.6 million and $142.8 million, respectively, an increase of 30 percent and 53 percent, respectively, over the prior year periods. (analysts at $46.8M - that's a 20%+ beat on revenue)
• Net income for the third quarter and nine months of 2008 was $10.4 million or $0.35 per share, and $19.2 million or $0.65 per share, respectively, in comparison to net income of $2.8 million or $0.10 per share, and a net loss of $4.8 million or $0.17 per share for the comparable periods in 2007. (analysts at $0.18 - that's a nearly 100% beat on EPS)
• Such performance was primarily driven by growth in sales of BioThrax® (Anthrax Vaccine Adsorbed), the company’s FDA licensed vaccine for the prevention of anthrax.
• Secured up to $58.5 million of government development contracts and grants to fund future work on selected anthrax and botulism product candidates; and
• “Our financial performance as reported today positions us well to achieve our objectives for year over year revenue growth and year end profitability. In addition, our recently signed contract with HHS for the delivery of 14.5 million additional doses of BioThrax for inclusion in the SNS provides us with revenue visibility through 3Q 2011. (visibility, visibility, visibility - precious in any market; pure gold in this market)
• This contract coupled with recently executed development agreements with the U.S. government allows us to position the company for continued growth through both acquisitions and progress in our product development programs. We have been able to advance our product pipeline candidates and add exciting new candidates and collaborations while tightly managing spending.

Some more detail

• For the third quarter of 2008, product sales, which consisted of sales of BioThrax to HHS, increased by $13.7 million, or 33 percent, to $55.5 million from $41.8 million for the comparable period of 2007. This increase was primarily due to a 34 percent increase in the average sales price per dose. (gotta love those government workers, allowing 34% price increases)
• For the third quarter of 2008, cost of product sales decreased by $0.9 million, or 8 percent, to $10.5 million from $11.4 million for the comparable period of 2007, primarily attributable to decreased costs associated with improved production yield. (so costs down but you can sell product for 1/3rd more - I like those metrics. Well not as a US taxpayer, but as an investor)
• Cash and cash equivalents at September 30, 2008 was $104.7 million compared to $105.7 million at December 31, 2007.

Outlook

• In light of the performance through the nine months of 2008, the company is updating its financial outlook for 2008. Specifically, management continues to anticipate full year total revenues of between $180 and $195 million. In addition, management is revising upwards its expectations for full year net income of between $21 and $25 million, or between $0.70 and $0.83 per basic share. Importantly, these projections do not reflect the potential acquisition of Protein Sciences Corporation. (analysts at 183M revenue but only 69 cents EPS - since they beat this quarter by 17 cents this means they are either slightly below analysts expectations for EPS for the back half of the year - or lowballing. I have not followed the company long enough to know but without any catalyst for margin compression later in the year it appears to be lowballing)

A stellar report. I'd be buying in after hours if I could but we can't do it here. Hopefully the market gives us a decent entry point. I almost bought that day it fell to the $13s two weeks ago, but it was one of those down 7-8% market days in which I was just disgusted buying anything on the long side. Almost, almost, almost. The chart is outstanding... but starting to get pricey at over 20x forward earnings. That said, what price do you pay for a customer who has bottomless pockets, doesn't flinch at 34% price increases (hey it's not our money anyway!) and never faces a credit crunch?

Disclosure: No position in fund; long Emergent BioSolutions in personal account

Comments

[Tim Hiteshew:]

Great analysis Mark. That is why I bought EBS over a year ago. The only question is if I should buy more or wait to see if the market pulls it back a little after the surge it will get after this stellar earnings report.

2008 Nov 06 05:46 PM