Pharma IPO: Highlights from Emergent Biosolutions' S-1 Filing

Includes: EBSI, GSK, MRK, SNY, WYE
by: Evelyn Rubin

Yesterday, Emergent Biosolutions filed for an IPO with the SEC. Below are highlights excerpted from the company's S-1:

Proposed Ticker: (EBSI)

Underwriters: JP Morgan, Cowen & Co., HSBC.

Maximum Offering: $86.25 million

Business Overview (from S-1):

We are a biopharmaceutical company focused on the development, manufacture and commercialization of immunobiotics. Immunobiotics are pharmaceutical products, such as vaccines and immune globulins, that induce or assist the body’s immune system to prevent or treat disease. We operate in two business segments: biodefense and commercial. In our biodefense business, we develop and commercialize immunobiotics for use against biological agents that are potential weapons of bioterrorism. In our commercial business, we develop immunobiotics for use against infectious diseases with significant unmet or underserved medical needs.

Market Opportunity:
Defense Market:

The U.S. government is the principal source of worldwide biodefense spending. Most U.S. government spending on biodefense programs results from procurement of countermeasures by HHS, the Centers for Disease Control and Prevention, or CDC, and the DoD and development funding from the National Institute of Allergy and Infectious Diseases of NIH, or NIAID, and the DoD. In 2004, the Project BioShield Act became law, providing $5.6 billion in appropriations over ten years and authorizing the procurement of countermeasures for biological, chemical, radiological and nuclear attacks.

Commercial Market:

Vaccines have long been recognized as a safe and cost-effective method for preventing infection caused by various bacteria and viruses. Because of an increased emphasis on preventative medicine in industrialized countries, vaccines are now well recognized as an important part of public health management strategies. According to Frost & Sullivan, a market research organization, from 2002 to 2005, annual worldwide vaccine sales increased from $6.7 billion to $9.9 billion, a compound annual growth rate of approximately 14%. Frost & Sullivan estimates that the worldwide sales of vaccines will grow at a compound annual rate of approximately 10.5% from 2005 through 2012.

Financial Highlights: 2005 revenues were $130.7 million, the lion's share of which were from product sales, and $3 million originating from grants. BioThrax, the company's defense product, represented 97% of 2005 revenues. In 2004, the company recorded revenues of $83 million. Q1 2006 revenues were $12.2 million, down from $15.2 million in the same period of 2005. Operating income grew from $16.8 to $21.3 million between 2004 and 2005; for the first quarter of the year, the company recorded an operating loss of $9.4 million in 2006 compared with a small gain of $425k in 2005. The primary difference in the quarters was a dramatic increase in R&D spending. The company has $11 million of long-term debt.

Use of Proceeds:
To fund clinical and preclinical trials, and general corporate uses.

Key Competitors: GlaxoSmithKline (NYSE:GSK), Sanofi-Aventis (NYSE:SNY), Wyeth (WYE), Merck (NYSE:MRK).

Major Shareholders: The company's President, Chairman and CEO owns 99.6% of the company, and will continue to control the company post-IPO. There are oodles of interested party issues in this filing worth taking a look at. From the S1:

Because Mr. El-Hibri will be able to control the election of the members of our board, and because of his substantial control of our capital stock, Mr. El-Hibri will likely have the ability to delay or prevent a change of control of our company that may be favored by other directors or stockholders and otherwise exercise substantial control over all corporate actions requiring board or stockholder approval, including any amendment of our certificate of incorporation or by-laws. The control by Mr. El-Hibri may prevent other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.