Emergent BioSolutions Getting Back Into Covid-19 Vaccine Space: What This Will Mean for the Company’s Business Going Forward (ANALYSIS)

Last Updated on July 30, 2021

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The U.S. Food and Drug Administration has authorized a big step for Emergent BioSolutions (NYSE: EBS) back into the Covid-19 vaccine space.

Last year, Emergent entered into contracts both with Johnson & Johnson and with AstraZeneca to produce ingredients for both of their vaccines. Both companies had come up with vaccines with similar adenovirus-based formulas. 

Emergent received millions of dollars in subsidies, including $27 million in monthly “reservation” payments so its facility would be ready for this use as called upon.   

Unfortunately, there was an incident earlier this year — at some time prior to April 16 — at the company’s Baltimore, Maryland plant that resulted in the contamination and thus the spoilage of 15 million vaccine doses.

Due to the contamination, described as “human error,” the plant thereafter stopped making anything for AstraZeneca and Johnson & Johnson, at the government’s request, took over production there. 

Emergent has now announced that it will resume operations at what it calls, after the Baltimore neighborhood, the Bayview plant. 

The Importance of Johnson & Johnson’s Vaccine

It has “worked closely with FDA and J&J to address quality concerns” and has brought operations “up to FDA’s exacting standards,” said the statement. The CEO of Emergent BioSolutions, Robert Cramer, called the resumption of manufacturing “a key milestone” in the continuing effort to “bring this global pandemic to an end.”   

Johnson & Johnson’s vaccine has particular importance in the struggle against Covid-19 because it involves only one dose. People who are reluctant to take the vaccine may more easily be persuaded to take the one shot and be done than to take the shot and make an appointment to come back later to take it again. And, of course, reaching the marginally persuadable may be important to the public health goal of “herd immunity” for whole populations. 

When the FDA first approved the emergency use of Johnson & Johnson’s vaccine, it was with the understanding that the doses were only to be used within three months of production. For several reasons, including the trouble at the Bayview plant, there arose a concern that this would lead to the expiration of many of the available doses. 

The FDA has extended the shelf life twice: to four and a half months, and then again, on July 28, to six months.  

Emergent BioSolutions Took a Hit on the Stock Market
Emergent BioSolutions has taken a big hit as a consequence of the contamination at Bayview. Photo credit: Shutterstock.com

Other Emergent BioSolutions Revenue Streams

Emergent BioSolutions does have other lines of business. Notably, its recent filings with the Securities and Exchange Commission indicate that the Biomedical Advanced Research and Development Authority (BARDA) is interested in procuring doses of an anthrax vaccine it manufactures, known as AV7909, even though AV7909 has not yet been approved by the FDA.

Anthrax is a disease spread by bacterial spores, and — this is the reason for BARDA’s interest — it is readily weaponized. 

Emergent BioSolutions also has a profitable line of medical devices, such as ARCAN nasal spray, a needle-free means of delivering naloxone, valuable for the emergency treatment of known or suspected opioid overdoses. ARCAN has been approved by both the FDA and Health Canada. 

Nonetheless, Emergent has taken a big hit as a consequence of the contamination at Bayview. One way of measuring this is the drop in revenue. In the second quarter of 2020, Emergent’s revenue was $298 million. In the second quarter of 2021, when it took this hit, Emergent’s revenue was one-third less: $190.9 million

Very Good News for Emergent BioSolutions

To put matters simply, the FDA’s decision is very good news for Emergent BioSolutions. Its stock price has already reflected as much. This illustrates an old axiom, “buy on the rumor, sell on the news.” The value to be derived from good news is often priced into a stock before the good news happens, or at least before it is announced.  

The price of EBS was consistently above $90 in March. By the end of April, though, it was down to $61.

The price reached a low of $56.61 in late May. It has since then slowly shown some recovery on the expectation that it would eventually get off the bench to which the FDA consigned it. 

Now that that has happened Friday’s stock activity shows very little change in value. There was an intra-day high of $67.23, but the price soon lost that gain. It closed at $65.90, just two-thirds of a dollar above the previous day’s close.