Emergent Biosolutions Inc (NYSE: EBS) Tuesday announced a follow-on U.S. government contract for its smallpox vaccine, ACAM2000.
There had been widespread investor concern around the delay in this contract, which has now come in at a much larger size than expected, according to Wells Fargo.
Wells Fargo’s David Maris upgraded the rating on Emergent Biosolutions from Market Perform to Outperform while raising the price target from $61 to $64.
The size of the latest US government contract for Emergent Biosolutions’ ACAM2000 is approximately $2 billion over 10 years, while expectations had been around $450 million over 10 years, in-line with the previous contract size, Maris said in the upgrade note.
A meeting with CEO Bob Kramer and Bob Burrows from Investor Relations provided clarity into the structure of the contract, the analyst mentioned. He explained that there would be a one-year base period of performance, worth about $170 million, followed by nine option years.
Maris expects the government to procure about 18 million doses of ACAM2000 per annum upon option exercise, priced at $9.40 per dose. The procurement size is likely to increase by 3-3.5% every year through the end of the contract period.
Maris estimates ACAM2000 to contribute revenues of $175 million in 2020 and for this to grow at approximately 3.5% annually through 2025.
Shares of Emergent Biosolutions had spiked almost 4% to $51.99 at the time of publishing on Wednesday morning.
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