Image source: Getty Images.

What happened

Emergent Biosolutions (EBS 8.05%) is up almost 14% at 3:27 p.m. EDT Friday after announcing that the company was given a multi-year contract from the Biomedical Advanced Research and Development Authority (BARDA) to develop a next-generation anthrax vaccine, NuThrax. The biodefense company also provided an update on its dealings with the Centers for Disease Control and Prevention (CDC) for its current anthrax vaccine, BioThrax.

So what

Both announcements were expected this month and shouldn't come as much of a surprise to investors. Of course, being the last day of the month, investors were probably a little worried about the lack of news. BioThrax makes up a big chunk of Emergent's revenue, which will eventually be replaced by whichever company BARDA picked for the next-generation version. Fortunately, Emergent Biosolutions emerged on top.

The BARDA contract calls for Emergent Biosolutions to be paid $200 million to develop NuThrax and to deliver 2 million doses to the Strategic National Stockpile. Based on the current time frame of development, Emergent Biosolutions thinks the FDA could authorize NuThrax for emergency use as early as 2018, which would result in deliveries starting in 2019. The contract also allows the government to buy an additional 7.5 million to 50 million doses of NuThrax, valued at $255 million to $1.4 billion. And the government has the option to ask for a post-marking clinical trial that would garner Emergent Biosolutions another $48 million.

Emergent's current contract with the CDC for BioThrax ends Friday. During its second quarter earnings release, management said the agency hadn't planned to buy the 4.2 million doses, worth $122 million, remaining under the current contract, but that seems to have changed and the government will now buy those remaining doses that will be delivered by Nov. 30.

The contract renewal was supposed to be finished by now, but Emergent and the CDC are still negotiating terms of the deal. Reading between the lines, it wouldn't make sense for the CDC to buy the remaining doses under the old contract unless the CDC thought the price under the new contract would be higher than the old contract. (Of course, this is the government we're talking about, so saving money may not be the most important issue.)

Now what

Emergent will remain a little risky until the new contract with the CDC is in place. Fortunately, since the biotech has the only FDA-approved anthrax vaccine, the government doesn't have any other options. The only real question is how much the government is willing to pay and how many doses it wants to buy between now and when NuThrax is ready for stockpiling.