What: Emergent BioSolutions (NYSE:EBS) is down 19% at 2:40 p.m. EDT after announcing that the U.S. Department of Health and Human Services (HHS) issued solicitation notices to buy more of its BioThrax anthrax vaccine and potentially NuThrax, Emergent BioSolutions' next-generation anthrax vaccine.
So what: The announcement that the company is in the final stages of having a contract in place is good news, but it was widely expected based on conversations Emergent BioSolutions previously had with the Centers for Disease Control and Prevention (CDC). "We are extremely pleased that the CDC has now confirmed its intention to award a follow-on BioThrax procurement contract on October 1, 2016," Daniel Abdun-Nabi, president and CEO of Emergent BioSolutions, said in a statement last month.
The reason Emergent BioSolutions is down today appears to be the number of doses the government wants to buy. The contract calls for buying 29.4 million doses of BioThrax over the next five years. Under the current five-year contract, Emergent BioSolutions had delivered about 39 million of 44.75 million doses through the first quarter of the year. The CDC has said that it will buy more BioThrax in the second and third quarter, but will fall short of ordering the full allotment. Wherever the total ends up, 29.4 million doses is considerably less than the 40 million or so doses Emergent BioSolutions has sold over the last five years.
While the number of BioThrax doses the government will buy is down, there's potential to sell it NuThrax as well. HHS plans to buy two million doses of a next-generation anthrax vaccine, with potential to purchase an additional 12 million, and up to 25 million dose regimens over the five-year contract.
If you do the math, 29.4 million doses of BioThrax plus 27 million of NuThrax is more than what's being purchased under the current contract, but NuThrax sales aren't as guaranteed -- the NuThrax contract is only at the "request for proposal" stage while the BioThrax contract is already set up as the "sole source." And there's the potential for only 14 million doses to be purchased under the contract, which would result in sales at about the same level as the current contract. Plus, NuThrax hasn't been approved by the FDA yet, so there's a risk that the phase 3 trials aren't successful and the sales never come to fruition.
Now what: While the number of BioThrax doses the U.S. plans to buy may have been less than investors were hoping for, it's possible Emergent BioSolutions can make up for that by selling the vaccine to other countries. And there's potential to sell NuThrax in the future, potentially at a higher price, although Emergent hasn't disclosed that yet.