Amid a slew of shareholder lawsuits, a Congressional investigation, insider-trading allegations, and negative press surrounding its improperly manufactured coronavirus vaccine, it shouldn't surprise anyone to hear that over the past three years, Emergent BioSolutions (EBS 9.68%) has seen its shares fall by 90%.
With all of that in the rearview mirror, it's reasonable that some investors are now wondering if the only way things can go is up.
And now that Emergent's valuation is cheaper than practically everything else's on the market, those investors might be right. But before you rush to buy this stock, let's evaluate the company's opportunities in the future.
There's not much reason to get excited about this stock
Emergent is a nontraditional biotech that is involved in a hodgepodge of activities, including working as a contract development and manufacturing organization (CDMO) for other biopharmaceuticals, and manufacturing the doses of vaccines like the smallpox jab that aren't in wide demand but are requested by the federal government for biosecurity.
In the early phases of the pandemic, it also manufactured doses of the coronavirus shots from Johnson & Johnson and AstraZeneca.
Beyond that, it's developing a number of vaccines against infectious diseases, nearly all of which are in the earliest stages of clinical development, and none of which are likely to generate much in the way of sales if they're eventually commercialized.
While it's true that there will always be a low level of demand for products like its anthrax vaccine and its antidote injector to treat nerve gas exposure, the existing demand (hopefully and probably) largely stems from older doses expiring unused in federal stockpiles.
The only real glimmer of promise is in its Narcan nasal spray, an emergency treatment for opioid overdose, which it has marketed over the counter (OTC) since late March of this year. In the first quarter, Narcan brought in more than $100 million, up 8% from a year ago. But that doesn't exactly make for a compelling growth thesis on its own, even if it's reasonable to assume that Narcan sales will pick up now that it no longer requires a prescription to purchase.
Nor is its actual performance in recent history much to write home about. Its CDMO business, which could potentially be a source of reliable services revenue under the right conditions, shrank 75% compared to a year ago, bringing in only $15 million. Since early June 2013, its quarterly revenue only rose by 100%, reaching $165 million, and since 2022, it's been unprofitable.
The valuation is dirt cheap, but it's hard to see how its fortunes could start to change
In summary, there are not exactly a bunch of sound reasons to buy Emergent BioSolutions in its current form. Management's stated priorities for 2023 and beyond appear to be solely concerned with meeting OTC Narcan demand and juicing more sales.
The company is also looking to work with its lenders to give it more time to pay back its $1.4 billion in debt, which shareholders can interpret as being not-great news.
The silver lining of this stock is that its valuation is extremely low. Its price-to-sales (P/S) ratio is 0.4, whereas its price-to-book (P/B) multiple is 0.3. The implication is that the market's expectations for Emergent's growth are in the dumps, and by the looks of it, rightfully so. Nonetheless, it's hard to frame the company as being a bargain.
In 2022, it burned nearly $150 million in cash. Its $430 million in cash and equivalents and its cozy and long-running relationship with the federal government mean that it won't go out of business anytime soon.
But there simply aren't any levers to pull for it to succeed other than significant sales of Narcan. And on average, Wall Street analysts are calling for a scant 3.7% in revenue growth for 2023, and only 1% on top of that for 2024. So there is really not anything big to hope for in the near term.
With all of that in mind, Emergent BioSolutions is a stock to avoid. If you own its shares, it might even be worth offloading them and free up capital for an investment with better prospects.
