Emergent BioSolutions (EBS:BUY) BioThrax sales disappoint in Q2:16, leading to revenue decline and net loss.

12-AUG-16 – Emergent BioSolutions (EBS:BUY) BioThrax sales disappoint in Q2:16, leading to revenue decline and net loss. Current BioThrax contract expires in September and CDC confirms intent to award EBS follow-on five-year contract for 29.4 million doses. EBS completes spin-off of bioscience business, thus making company the only large pure play in biodefense. We reiterate our BUY rating and $40 price target.

Q2:16 Highlights

Biodefense revenues down 36% to $48.3 million due to lower BioThrax sales. CDC indicates it will procure less than the 4.2 million doses remaining (approximate value of $122 million) on the current BioThrax contract expiring this September.
New follow-on BioThrax contract commencing in September covers procurement of 29.4 million doses over a five year period.
HHS issues RFP for next-generation anthrax vaccine, calling for purchase of initial 2.0 million doses and potential additional procurement of 12 million up to 25 million doses.
Bioscience business spin-off positions EBS for significant EBITDA pick-up from elimination of G&A, R&D and marketing costs related to this business.
EBS has approximately $333 million cash and recently authorized a $50 million share repurchase.
We reduced our estimates due to poor near-term visibility for BioThrax sales, but maintain our BUY rating and $40 price target.

PRIMARY RISKS

EBS has relied on its anthrax vaccine BioThrax for more than 50% of sales and derives nearly all of its Biodefense revenues from U.S. government contracts.