What happened
Shares of Emergent BioSolutions(NYSE: EBS) were tumbling 10.6% lower as of 11:29 a.m. ET on Tuesday. The decline came after S&P Global's S&P Dow Jones Indices announced that Advance Auto Parts will replace Emergent BioSolutions in the S&P SmallCap 600 index.
S&P Dow Jones Indices said that the change will be effective before the market opens on Friday, Aug. 25. The company's reason for the replacement was that "Emergent BioSolutions is no longer representative of the small-cap market space" while Avance Auto Parts is.
So what
Any exchange-traded funds (ETFs) or mutual funds that track the S&P SmallCap 600 will sell their positions in Emergent BioSolutions and buy shares of Advance Auto Parts. Such moves can cause downward pressure on Emergent's share price. But getting booted from the S&P SmallCap 600 is more of a result of Emergent BioSolutions' woes than a cause of them.
The company's business challenges have caused many investors to throw in the towel. Emergent's share price has plunged 64% so far this year and is down nearly 97% below the high set in 2020. Its market cap now stands at close to $220 million, low enough to spur S&P Dow Jones Indices to seek another member for its S&P SmallCap 600.
Now what
Emergent BioSolutions is taking steps to right the ship. The company announced earlier this month that it will focus on its core products going forward and deemphasize its contract development and manufacturing organization (CDMO) business. These moves could help turn things around, but it's too soon to predict if or when the stock will rebound.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool recommends Emergent BioSolutions. The Motley Fool has a disclosure policy.
