Wells Fargo Upgrades Emergent Biosolutions After Smallpox Vaccine Announcement

Emergent Biosolutions Inc EBS Tuesday announced a follow-on U.S. government contract for its smallpox vaccine, ACAM2000.

There had been widespread investor concern around the delay in this contract, which has now come in at a much larger size than expected, according to Wells Fargo.

The Analyst

Wells Fargo’s David Maris upgraded the rating on Emergent Biosolutions from Market Perform to Outperform while raising the price target from $61 to $64.

The Thesis

The size of the latest US government contract for Emergent Biosolutions’ ACAM2000 is approximately $2 billion over 10 years, while expectations had been around $450 million over 10 years, in-line with the previous contract size, Maris said in the upgrade note.

A meeting with CEO Bob Kramer and Bob Burrows from Investor Relations provided clarity into the structure of the contract, the analyst mentioned. He explained that there would be a one-year base period of performance, worth about $170 million, followed by nine option years.

Maris expects the government to procure about 18 million doses of ACAM2000 per annum upon option exercise, priced at $9.40 per dose. The procurement size is likely to increase by 3-3.5% every year through the end of the contract period.

Maris estimates ACAM2000 to contribute revenues of $175 million in 2020 and for this to grow at approximately 3.5% annually through 2025.

Price Action

Shares of Emergent Biosolutions had spiked almost 4% to $51.99 at the time of publishing on Wednesday morning.

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