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Shares of Emergent BioSolutions EBS have more than doubled in market cap so far this year, outperforming the industry’s 13% decline, as seen in the chart below. This surge in stock price started earlier this year after management announced several strategic changes to enhance profitability and stabilize its financial position. During the same period, the stock has also outperformed the broader Medical sector and the S&P 500. It is currently trading above its 200-day moving average.
EBS Stock Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Let’s delve into the company’s strengths and weaknesses to better understand how to play the stock amid this price surge.
Emergent’s Strategic Plan to Save $80M Annually in Costs
In May, management unveiled a new operational plan to drive long-term growth. As part of this plan, EBS announced several strategic operational changes, which included consolidating operations, closing the manufacturing facilities in Baltimore and Rockville, and reducing the workforce by 300.
Emergent also stated that it will focus on its core products, including medical countermeasures (MCMs) and Narcan nasal spray, while centralizing operations in Winnipeg, Canada, and Lansing, MI. A new Chief Science Officer role has been added to support strategic priorities as the company explores alternatives for other sites.
The company’s CEO Joe Papa emphasized the importance of stabilizing operations and strengthening the balance sheet to ensure sustainable success. Through the above actions, management targets annual savings of about $80 million in operational costs.
Cash Generation & Debt Reduction Drive EBS Stock
The intent behind Emergent’s execution plan seems clear – generate cash to increase profitability and reduce the company’s overall debt. During the year, management secured several contracts from the U.S. government (USG) to deliver millions of doses of its marketed products. These include contracts for Cyfendus (anthrax vaccine), ACAM2000 (smallpox vaccine), VIGIV (for treating complications to smallpox vaccination), BAT (for botulism) and Ebanga (for ebola).
Emergent has improved its financial health by selling facilities for $37 million and resolving a $50 million contract dispute with pharma giant J&J JNJ. It has also completed the sale of the RSDL kit to SERB Pharmaceuticals for $75 million.
The company also strengthened its financial position by securing a new $250 million term loan from Oak Hill Advisors, extending debt maturity to August 2029. The proceeds were used to repay its prior credit facility (which was set to mature in May 2025), while excess funds added cash to the balance sheet.