Emergent BioSolutions, Inc - Company Overview

drawerbeamerBiotechnology

Dec 6, 2012 (4 years and 8 months ago)

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Charles Chen | Richard Wang | Patrina Kittipoomvong | Ying-Min (Ryan) Weng
Thursday, April 14, 2011

Emergent BioSolutions, Inc. (NYSE:EBS)
Presentation Outline
Presentation Outline

Company Overview

Industry Overview

Performance Analysis and Stock Valuation

Sector
: Bioenergy

Industry:
Healthcare

About the company
:

A biopharmaceutical company

Manufactures and sells vaccines and immune-related therapeutics

Manufacturing facilities in Lansing, Michigan and Baltimore,
Maryland

Products and markets by production segments
:

BioDefense Division: develops and sells
anthrax vaccine called
Bio Thrax to government for protection against potential agents
of bio-terror or bio-warfare. It receives government grants for
product development.

BioSciences Division: commercial vaccines and antibody
therapies for use against infectious diseases
Company Overview
Company Overview


- General
- General



Revenue drivers:

Derived substantially all of the product revenues from sales of BioThrax to the
U.S. Department of Defense and the Department of Health and Human Services

Project BioShield, which was signed into law in 2004, mandates that the government
maintain large stockpiles of BioThrax. Emergent is the only company with the size,
expertise and facilities to make tens of millions of doses.

Government grants to provide development funding or to conduct clinical studies of the
product candidates

Biomedical Advanced Research and Development Authority 

National Institute of Allergy and Infectious Disease

Also grant funding provided by collaboration partners such as Sanofi Pasteur
Company Overview
Company Overview


- Revenue
- Revenue


Company Overview
Company Overview
- Financial Performance (Cont
- Financial Performance (Cont
’d)
’d)




Basic Financials 2006 through 2010
Company Overview
Company Overview
- Upcoming products
- Upcoming products




Product candidates as of 2010
Disease
Product or Product Candidate
Description
Development
Stage
Anthrax
BioThrax
Only FDA-approved vaccine for pre-
exposure prevention of anthrax disease
Marketed
 
NuThrax*
Pre-exposure prophylactic vaccine
Phase I
 
PreviThrax*
Pre/post-exposure prophylactic vaccine
Phase II
 
Anthrivig*
Human immunoglobulin therapeutic
Phase I/ II
 
Thravixa*
Fully human monoclonal antibody
therapeutic
Phase I
 
Double-mutant rPA vaccine*
Pre/post-exposure prophylactic vaccine
Preclinical
Tuberculosis
MVA-85A
Prophylactic recombinant TB vaccine
Phase II
Typhoid
Typhella
Prophylactic vaccine
Phase II
Influenza
Multivalent, cross-protective
pandemic influenza vaccine
Prophylactic vaccine
Preclinical
 
Pandemic H5 influenza MAb 
Monoclonal antibody therapeutic 
Preclinical 
Rheumatoid Arthritis
SBI-087
Humanized anti-CD20 SMIP therapeutic
Phase II
Systemic lupus
erythematosus
SBI-087
Humanized anti-CD20 SMIP therapeutic
Phase I
Chronic lymphocytic
leukemia
TRU-016
Humanized anti-CD37 SMIP therapeutic
Phase I/ II
Non-Hodgkin's lymphoma
TRU-016
Humanized anti-CD37 SMIP therapeutic
Phase I
Company Overview
Company Overview
- Acquisitions/Joint Ventures/Recent
- Acquisitions/Joint Ventures/Recent
developments
developments



J anuary 2005 - entered into a two-year collaboration agreement to develop
a botulinum vaccine with the British-based Health Protection
Agency (HPA).

J une 2005 - acquired UK-based Microscience, Ltd., which focuses on
commercial vaccines

J une, 2006 – entered into JV with sanofi pasteur, the vaccines business of
the sanofi-aventis Group to develop new vaccine for Meningitis B.

August 2006 – acquired Vivacs GmbH for commercial vaccines

May 2008 – acquired patents and processes of VaxGen for anthrax
vaccine 

Feb 2009 - granted a license to distribute anthrax vaccine BioThrax
in India

Aug 2010 – entered into a joint venture with
Temasek Life Science
Ventures to
develop, manufacture, and commercialize human
vaccine against influenza

Strengths

Serves the US government: Sales of the anthrax vaccine are almost
exclusively to the Department of Defense and the Department of Health and
Human Services for the US Strategic National Stockpile

National repository of antibiotics, vaccines,
chemical antidotes, antitoxins and other critical medical equipment and
supplies for national emergency.

Growing international presence:

Drug Controller General of India granted license to sell anthrax vaccine
in India in 2009.

Promising BioScience business: JV with Temasek to develop and
commercialize influenza vaccine in South East Asia.

Strong cash position

Operating cash inflow increase by 226% to $100 mil in 2010 from $31
mil in2009

Enhanced operating efficiencies

Compared to 2009, 2010’s SG&A increased 3.3%, COGS increased
1.8% with an increase in sales by 15.8%
Company Overview
Company Overview
- SWOT Analysis
- SWOT Analysis



Weaknesses

High customer concentration

98.8% of the revenue comes from sales to government

Stringent regulatory compliance

Pre-marketing regulation: clinical trials and other studies have to be
carried out before Food and Drug Administration (FDA) may grant
permission to market products

Post –marketing regulation: FDA recordkeeping requirements,
advertising and promotion restrictions following discovery of new
problems, etc

 
Foreign Regulation: e.g. marketing regulation by the European Union
subject to ethics committee opinion
Company Overview
Company Overview
- SWOT Analysis (Cont
- SWOT Analysis (Cont
’d)
’d)



Opportunities

Market for
BioThrax in the Middle East, India, Australia, Europe and
several countries in Southeast Asia

Political unrest in Egypt, Barain, Lybia, ongoing concern with stability in
the Middle East and the Korean Peninsula and constant threats to US and
its overseas troops will require huge medical supplies from biomedical
and drug manufacturing companies

Threat of influenza and its mutations to civilians will increase global
demand for human vaccines.

Threats

Loss of government contracts because of competitive bidding

Loss from fixed priced contracts in the event of raising cost of products

Infringement of company’s
intellectual property rights and trade secrets

Use of hazardous materials, chemicals, bacteria and viruses requires
compliance with regulatory requirements and exposure to significant
potential liabilities.
Company Overview
Company Overview
- SWOT Analysis (Cont
- SWOT Analysis (Cont
’d)
’d)



The biotechnology and pharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis
on proprietary products.

Face potential competition from many different sources:

Commercial pharmaceutical and biotechnology companies

academic institutions

government agencies

private and public research institutions

Major competitors:

Merck & Co. (MRK)

GlaxoSmithKline (GSK)

Pfizer (PFE)

Novartis
Company Overview
Company Overview
- Competitors
- Competitors


Merck & Co. (NYSE:MRK)

Market Cap:$102B, Revenue in 2010: $46B

Founded in 1891, headquartered in Germany


The company operates in 59 countries across the
world.

It offers prescription and patented drugs

Sells Consumer health care products through
wholesale and retail drug, food chain, and mass
merchandiser outlets in the united states and Canada.
GlaxoSmithKline (NYSE:GSK)

Market Cap:$99B, Revenue in 2009: $46B

Headquartered in the UK with offices in over 100
countries

One of the few pharmaceutical companies researching
both medicines and vaccines for the WHO’s three
priority diseases-HIV/AIDS, tuberculosis and malaria.

Deliver 1.4 billion vaccine doses to 179 countries in
2010
Novartis (NYSE:NVS)

Market Cap:$124B, Revenue in 2010: $52B

Founded in 1895 and is headquartered in Basel,
Switzerland

Operates in more than 140 countries across the globe

Four business divisions: pharmaceuticals, vaccines and
diagnostics, Sandoz(generic pharmaceuticals business
division), and consumer health.
Pfizer (Wyeth) (NYSE:PFE)

Market Cap:$163B, Revenue in 2010: $68B

Founded in 1894 and is headquartered in NY


The world's largest biopharmaceutical company

Completed the $68B acquisition of Wyeth in October
2009

Effective with the acquisition of Wyeth, Pfizer
reorganized its businesses into the following two
segments: biopharmaceutical and diversified (The
diversified products segment includes animal health
products, consumer healthcare products, nutrition
products)

Competitor financial performance for the year ended 12/31/2010
Company Overview
Company Overview
- Competitors
- Competitors


Company
Market
Cap
Total
Revenue
Net Profit
Margin
P/E
(ttm)
EPS
(ttm)
debt ratio
ROE
Merck &
Co.
102.67B
45,987,000
1.87%

119.54
0.28
48.60%
1.66%
GlaxoSmi
thKline
97.95B
45,810,000 
 
5.76%
38.87
1.04
76.66%
18.09%
Pfizer
162.60B
67,809,000
12.18%
20.00
1.02
54.97%
9.29%
Novartis
126.61B
51,561,000
19.00%
12.97
4.26
48.75%
15.67%
Emergent
BioSoluti
on
849.72M
286,171 
18.07%
15.52
1.59
26.15%
15.29%

Competitor stock performance over the past year
Company Overview
Company Overview
- Competitors
- Competitors



Management expects the foreseeable future to continue to derive
substantially all of the product sales revenues from the sales of BioThrax to
the U.S. government.

Focus on increasing sales of BioThrax to U.S. government customers, while
expanding the market for BioThrax to other international and domestic
customers and pursuing label expansions and improvements for BioThrax.

Established a marketing and sales capability targeting sales of biodefense
products to foreign governments, and augmented international efforts to
identify potential opportunities to sell BioThrax in the Middle East, India,
Australia, Europe and several countries in Southeast Asia

Also expects to increase sales and marketing resources to market and sell
commercial products for which the company retains commercialization or
co-commercialization rights in collaboration with leading pharmaceutical
and biotechnology companies such as Abbott
Company Overview
Company Overview
- Management discussion
- Management discussion



Rapidly advancing technologies

Intense competition

Strong emphasis on proprietary products

Industry structure:
-Basic research: government, universities, non-profit
organizations
-Development: refines the technologies or processes of
research into usable products
Biotechnology Industry Introduction
Biotechnology Industry Introduction


Biotechnology Industry outlook
Biotechnology Industry outlook
-market value
-market value

Market value: The global market grew 4% in 2009 to reach a value of
$200B

Market value forecast: In 2014, the market is forecast to have a value
of $318B, an increase of 58.5% since 2009
Source: Global Biotechnology from Datamonitor, May 2010, OneSource

Medical/Healthcare is the largest segment of global biotechnology
market, accounting for 66.2%

America accounts for 48.4% of global biotech market value
Biotechnology Industry outlook
Biotechnology Industry outlook
-market value
-market value
Source: Global Biotechnology from Datamonitor, May 2010, OneSource

R&D Expenditure
-As expenditure increase, development in the industry
advances, thereby boosting sales and demand for novel
products

Investor uncertainty
-often rely on venture capital for start-up funding

Legislative compliance requirements
-Any change in regulatory environment will create
volatility

Number of adults over 65 years old
-An aging population means that demand for medical
treatments will increase
Biotechnology Industry
Biotechnology Industry
-Key External Factors
-Key External Factors
Porter’s 5 Forces: Supplier
Power

Weak

Little differentiation between suppliers

Biotech firm’s value is driven by intellectual property
Bargainin
g power
of
Suppliers
Competitive
Rivalry
within an
industry
Bargainin
g power
of Buyers
Threat of New
Entrants
Threat of Substitute
Porter’s 5 Forces: Buyer Power

Strong

Key buyers are healthcare providers and B2B end-
users

Some successful products are produced by only one
company
Bargainin
g power
of
Suppliers
Competitive
Rivalry
within an
industry
Bargainin
g power
of Buyers
Threat of New
Entrants
Threat of Substitute
Porter’s 5 Forces: New Entrants

Weak, High barriers

Specialization creates barriers

Requires huge amount of funding
Bargainin
g power
of
Suppliers
Competitive
Rivalry
within an
industry
Bargainin
g power
of Buyers
Threat of New
Entrants
Threat of Substitute
Porter’s 5 Forces: Substitutes

Moderate

Patent protection stops the threat of alternative drugs
and chemicals for a period of time

Lack of government control in some countries
Bargainin
g power
of
Suppliers
Competitive
Rivalry
within an
industry
Bargainin
g power
of Buyers
Threat of New
Entrants
Threat of Substitute
Porter’s 5 Forces: Rivalry

Moderate

More than 1,000 firms in North America, and top 1%
make the majority of the revenue

Companies can differentiate their products by targeting
an area
Bargainin
g power
of
Suppliers
Competitive
Rivalry
within an
industry
Bargainin
g power
of Buyers
Threat of New
Entrants
Threat of Substitute
Multiples analysis
4/13/2011
Company Name
Share Price
Forward P/E
P/S
P/B
EV/EBITDA
Merck & Co., Inc. (NYSE:MRK)
$33.47
8.7x
2.2x
1.9x
6.9x
GlaxoSmithKline PLC Common Stoc (NYSE: GSK )
$40.50
10.1x
2.2x
7.1x
6.6x
Novartis AG Common Stock (NYSE: NVS )
$55.27
9.8x
2.5x
2.0x
9.2x
Pfizer, Inc. Common Stock (NYSE: PFE )
$20.46
9.0x
2.4x
1.9x
7.1x
Summary Statistics
Forward P/E
P/S
P/B
EV/EBITDA
High
10.1x
2.5x
7.1x
9.2x
Low
8.7x
2.2x
1.9x
6.6x
Median
9.4x
2.3x
2.0x
7.0x
Mean
9.4x
2.3x
3.2x
7.4x
Emergent Biosolutions, Inc. Com (NYSE: EBS )
Share Price
Forward P/E
P/S
P/B
EV/EBITDA
$24.68
19.7x
3.0x
2.3x
8.5x
Estimate EPS
Revenue PS
BPS
EBITDA (M)
1.3
9.0
10.6
86.9
Total debt (M)
Total cash (M)
Shares O/S (M)
47.4
171.1
35.1
Emergent relative price per share
Average price
Forward P/E
P/S
P/B
EV/EBITDA
High
33.96
$

$12.6
$22.1
$74.9
$26.3
Low
17.57
$

$10.8
$20.0
$19.7
$19.7
Median
18.50
$

$11.7
$20.9
$20.6
$20.8
Mean
22.13
$

$11.7
$21.0
$33.9
$21.9
DuPont Analysis
Tax Burden
Interest Burden
Operating Profit Margin
Asset Turnover
Leverage
ROE
2006
59.96%
98.73%
25.21%
64.10%
172.06%
16.46%
2007
63.73%
108.75%
18.09%
66.88%
159.80%
13.40%
2008
64.61%
106.97%
16.76%
61.40%
145.87%
10.37%
2009
75.03%
84.93%
20.82%
68.12%
141.37%
12.77%
2010
70.47%
90.72%
28.26%
57.20%
133.93%
13.84%
DuPont Analysis
FCF Analysis
Cash Flows ($ Million)
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Free Cash Flow
Net Income
64.32
75.94
86.28
95.05
118.16
155.31
185.16
Depreciation & Amortization
4.84
5.06
5.11
5.16
5.19
5.22
5.10
Gross Cash Flow
$69.16
$80.99
$91.39
$100.21
$123.35
$160.54
$190.25
- (minus)
Changes in Accounts Receivable
$9.82
$12.98
$17.29
$18.89
$21.87
$22.51
$23.44
Changes in Inventories
$2.60
$3.44
$4.58
$5.00
$5.79
$5.96
$6.21
Changes in Deferred income taxes
$2.25
$2.45
$2.35
$2.40
$2.37
$2.39
$2.38
Changes in prepaid expense
($0.59)
$0.07
$0.15
($0.12)
$0.03
$0.02
($0.02)
+ (plus)
Changes in Current portion of long-term debt and capital lease obligation
($10.37)
$1.07
$0.87
$0.54
$0.63
($1.40)
$0.36
Changes in Accounts payable
$5.19
$6.86
$9.14
$9.99
$11.56
$11.90
$12.39
Changes in Accrued expenses and other current liabilities
$5.17
$6.83
$9.10
$9.94
$11.51
$11.84
$12.33
Changes in Unearned Revenue
($4.84)
($0.72)
$0.14
$0.25
$0.41
$0.47
($0.72)
Total Change in Net Working Capital
$14.10
$4.16
$5.26
$5.70
$6.37
$8.53
$6.92
Operating Cash Flow
$55.06
$76.83
$86.14
$94.51
$116.98
$152.00
$183.34
Capital Expenditures (Additions to PP&E)
30.00
28.46
26.85
28.44
27.92
27.74
28.03
Free Cash Flow
25.06
48.37
59.29
66.07
89.06
124.27
155.30
Pr esent  Value of  FCF
2011
2012
2013
2014
2015
2016
2017
Discount f actor
1.12
1.26
1.42
1.59
1.79
2.01
2.25
PV of Unlevered Free cash f low
22.3
38.3
41.8
41.5
49.8
61.9
68.9
Forecast
Forecast
Valuation
Risk-Free Rate
3.44%
Market Risk Premium
6.95%
Beta
0.91
Additional Risk Premium (customer risk)
3.00%
CAPM
12.76%
Goal-Post k(e)
12.76%
k(d)
6.79%
% Equity
94.5%
% Debt
5.5%
Tax Rate
35.0%
WACC
12.31%
Pr esent  Value of  FCF
2011
2012
2013
2014
2015
2016
2017
Discount factor
1.12
1.26
1.42
1.59
1.79
2.01
2.25
PV of Unlevered Free cash flow
22.3
38.3
41.8
41.5
49.8
61.9
68.9
Forecast
Terminal Value
Discount Rate
17.55%
Terminal Growth/ Perpetuity Rate
4.00%
Free cash flow (2018)
161.5
Terminal value
1,192.1
PV of terminal value
528.9
Enterprise value
853.6
Equity Value Caculation
Cacluation of net debt:
Current portion of LT and ST debt
17.2
Long term debt
30.2
Convertible debt
0.0
Minority interest
4.1
Convertible preferred stock
0.0
Less: Cash
169.0
Less: short-term Investments
0.0
Net debt
-117.5
Total Firm Value
853.6
Equity Value
806.2
Shares outstanding
31.8
Equity value / Share
25.37
Sensitivity Analysis
G
r
o
w
t
h

R
a
t
e
25.37
10.81%
11.31%
11.81%
12.31%
12.81%
13.31%
13.81%
3.00%
26.25
25.50
24.77
24.07
23.40
22.74
22.11
3.50%
26.93
26.16
25.42
24.70
24.00
23.33
22.68
4.00%
27.67
26.87
26.11
25.37
24.65
23.96
23.29
4.50%
28.46
27.64
26.85
26.09
25.35
24.64
23.95
5.00%
29.31
28.47
27.65
26.87
26.10
25.37
24.66
WACC
Sensitivity analysis
Recommendation

Watchlist
Method
Weight
Valuation
DCF Valuation
70%
$25.37
Multiples valuation
30%
$22.13


Weighted Valuation:
$24.40
-10%
$21.96
Valuation
$24.40
+10%
$26.84
Recommended Action:
Watchlist