What happened

Shares of Emergent BioSolutions (NYSE:EBS) were falling 10.3% as of 11:45 a.m. EDT on Tuesday. The drop came after Johnson & Johnson announced that it had paused its late-stage study of coronavirus vaccine candidate JNJ-78436735 because of an unexplained illness with one participant. In July, Emergent BioSolutions signed a five-year deal with J&J to manufacture its lead COVID-19 vaccine candidate.

So what

Today's sell-off of Emergent BioSolutions could very well be an overreaction. There's a good chance that Johnson & Johnson's pause of its late-stage study will only be temporary, with no effect on Emergent's manufacturing of JNJ-78436735.

Vaccine bottles

Image source: Getty Images.

Adverse reactions in clinical studies aren't out of the ordinary. So far, there haven't been enough details released to know what to make of the issue that caused J&J to pause its phase 3 study.

Sure, it's possible that the investigation of the unexplained illness with one participant in J&J's clinical trial of its coronavirus vaccine candidate could lead to bigger worries about JNJ-78436735. If that happened, Emergent's manufacturing contract would potentially be jeopardized. However, it's way too early to assume that the situation will deteriorate in such a negative way for both companies.

Now what

Emergent BioSolutions' shares could remain volatile until more information is available about the potential safety issue in J&J's late-stage study of JNJ-78436735. However, the healthcare stock could also enjoy a big rebound if the study resumes quickly.