ATML Earnings Action

Emergent BioSolutions Inc. (EBS) is a small cap biotech play that has gone vertical in the past five trading days - the intra-day low of $16.75 last Friday to an intra-day high of $23.10 this past Friday marks a 37.9% upswing. The ytd return of 347% is no less astounding. Having the federal government as a major customer can do that and securing a follow-on contract with the Department of Health and Human services for 14.5 million doses of an anthrax valued at $400 million through 2011 obviously helps. Its earnings execution has likewise been very good. Total revenues for the third quarter were $56.6 million, a 30% increase over the prior year period of $43.6 million primarily due to a nice 34% increase in the price per dose of BioThrax, the company’s FDA-licensed vaccine to prevent anthrax. The problem is that from a trading perspective, the stock looks overextended in the short run and the fact that Emergent BioSolutions filed a registration statement on Nov. 12 to sell up to $100 million of stock, debt securities and warrants at any time is something that could weigh on the stock. The news has been largely ignored by the market so far but it shouldn’t be given that the potential dilution could be significant - there are only 29.8 million shares outstanding, 14.06 million shares in the public float and daily average volume is just about half a million shares. And given the current share price, management might consider this an opportune time to raise some cash. Watch the tape carefully.