Q4 2020 Maravai LifeSciences Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome Tomorrow by Life Sciences, Q4, 'twenty 'twenty earnings Conference call.
At this time all participants are in a listen only mode. After the speaker presentation that will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero I would now like to hand the conference over it.
To your house Senior Director Investor Relations, Deborah hard Madam you may begin.
Thank you Latif and good afternoon, everyone. Thanks for joining us on our first quarterly earnings call as a public company on today's call. We will cover our financial results and business highlights from our fourth quarter and full year, 'twenty 'twenty and will provide financial guidance for 2021.
Our CEO Karl Hall will first provide a business update and our CFO, Kevin hurting will review, our financial results and guidance, our President Eric Charter is joining us along with Carlin Kevin to answer questions. Following the prepared remarks as a reminder, the forward looking statements that we make during this call.
Including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ.
Additional information concerning these risk factors is included in the press release, we issued earlier today as well as those that are more fully described in our filings with the SEC today's comments reflect our current views, which could change as a result of new information future events or other factors and the company does not obligate.
Eight or commit itself to update these forward looking statements, except as required by law.
During this call we will be using non-GAAP measurements, a certain results and then providing guidance reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to the month I website and also available on the SEC website the metrics that we have.
I'll be discussing in today's call include net income adjusted EBITDA and income tax expense and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to GAAP measures, but are intended to better enable investors to benchmark. Our current results against historical performance and the performance.
If our peers now I'll turn the call over to Carl.
Thank you Deb and good afternoon, everyone I'd like to take a moment to welcome our newest group of investors Tomorrow.
As Deb said this is our first earnings announcement as a public company and we are very pleased to have you with US. In addition, I would like to take this opportunity to extend my personal thanks to each and every member of the moral of our team who together have positioned us to make meaningful contributions to the battle against the COVID-19 pandemic.
Without them and their sustained efforts, we would not be speaking with you here today, but.
But what are you of introduction for those of you New Tomorrow void, we provide reagents and services focused on high growth markets and cell and gene therapies vaccines and biologic drug manufacturing.
Apply our solutions to other life Sciences companies, we're positioned nicely to benefit from multiple tier ones that are affecting the sector from early discovery through clinical trials, all the way to the commercialization of health care products.
Our customers include the top 20 global biopharmaceutical companies as well as emerging Biopharma and life Science research companies, leading academic research institutions and molecular diagnostic companies.
All of this resulted in our exceptional performance in 2020 with full year revenues of $284.1 million representing growth of 98.5% over 2019.
Kevin will take you through the details of our financial performance in just a moment.
With that let me explain a bit more about each of our businesses and their current focus.
Our train length biotechnology subsidiary as a leader in messenger RNA synthesis supporting a large number of vaccine and therapeutic programs, most notably with our co transcriptional capping technology clean cap, which has become critical to the successful scale up of manufacturing capacity for.
Mrna vaccines and therapeutics, including several COVID-19 mrna vaccines.
Clean cap is a novel chemical capping analogue that optimizes the cap structure of an mrna molecule and provides for the improved stability of and protein expression by the mrna itself.
The many advantages of clean cap include high capping efficiencies of greater than 94%.
Yields have usable messenger RNA simplified manufacturing processes.
As well as reductions in the unwanted activation of the body's innate immune system.
Clean cap enables our customers to produce large quantities of mrna drugs substance reliably and more quickly.
Clean cap is provided to customers in one of three ways.
First as a standalone chemical component that is purchased as either a research grade or customer specified GMP grade product.
It can be incorporated into an M or RNA construct as a custom service offered by more reward or as a catalog item <unk>.
Finally clean cap can also be incorporated into a GMP grade custom mrna solution provided at scale to our biopharma and vaccine customers.
As you can see from the results. We released today 2020 was a year of exceptional growth profitability and transformation for more volume.
Well, we are very pleased by these results. It is not lost on us that much of the that performance has been driven by the work we're doing to help address a global health crisis that has had such a devastating impact. Upon so many we are extremely proud of our contributions to the fight against the pandemic.
And of our ability to scale our operations to meet the explosive demand we're seeing for our products.
You can be assured that we will continue to work diligently to support all of these public health efforts in the future.
We and others in the field believe that the intense worldwide efforts to develop mrna vaccines for the COVID-19 pandemic have helped to accelerate the development of mrna applications of all stripes and by several years. The rapid success of these pandemic mrna programs has Val.
All of the data the therapeutic modality that is built around messenger RNA not only for use in COVID-19, vaccines and any potential boosters that may be needed to address variance of the virus, but also as a platform technology for seasonal flu and other infectious disease vaccines along with <unk>.
So and gene therapeutics.
COVID-19 vaccination programs remain a significant immediate opportunity for more of I can clean cap and we expect demand to continue to increase during 2021 as vaccine manufacturers scale production as additional mrna vaccine programs received regulatory authorization.
For us and as modified vaccines are developed to address multiple new strains of the virus overtime.
While the definitive clinical research is still very much underway, it's becoming increasingly likely that a periodic booster shot to counter threats from emerging strains of Sars cov, two or from waning natural immunity will be an important part of the public health toolbox for some time to come.
As a vaccine platform technology mrna has demonstrated its unique ability to be rapidly and accurately modified as the virus evolves. We expect to be an important part of these new and modified programs being developed by our existing clean cap customers.
Multiple recent industry developments bode well for the accelerating momentum we are already seeing within our nucleic acid production business.
The rapid expansion of manufacturing capacity for COVID-19 vaccines has involved multiple new large scale commercial partnerships some of which would have been quite hard to imagine pre pandemic.
Examples include Novartis, and Sanofi have been contracted by Pfizer and beyond Tech to support their recently revised 'twenty 'twenty. One production goal of 2 billion vaccine doses up from our previous target of 1.3 billion doses.
Pure vac and buyer have joined forces to accelerate the production and global distribution of the first generation <unk> COVID-19 vaccine with expectations to begin shipments by the end of 2021.
Pure Vac, and Glaxosmithkline announced a parallel effort to expand the production of that first generation vaccine further by over 100 million doses. During 2021, while beginning the immediate joint development of a multivalent second generation vaccine intended to address.
Future virus mutations.
And finally, we have this morning's announcement about Merck supporting Johnson and Johnson with their vaccine program.
Pfizer's project Lightspeed is reducing the manufacturing time needed to produce a COVID-19 vaccine batch from 110 days to an average of just 60 days, allowing for an increase in weekly U S production from 5 million to 10 million doses in March within their existing facilities.
Sure.
Rypien regulatory review is now progressing rapidly the email just initiated a rolling review of the vaccine candidate. The Rolling review will assess the vaccines efficacy and immunogenicity as the data become available speeding the final decision process for an eventual marketing authorization.
Various recent comments from industry leaders, including the Ceos of Pfizer and Johnson <unk> Johnson have highlighted the potential need for Covid vaccine boosters similar to seasonal flu shots for the foreseeable future.
And our partners at Pfizer and beyond Tech are taking the necessary steps and engaging in the appropriate conversations with regulators to be in a position to develop and seek authorization for an updated mrna vaccine or booster once the strain that significantly reduces the protection provided by.
The existing vaccines is identified.
The FDA just last week issued guidance concerning the much more limited clinical testing that they will require for such modifications to the existing COVID-19 vaccines.
Moreover, the significant investments made in vaccine development have paved the way for mrna is use in other areas. As we are seeing a resumption of activity in a number of mrna therapeutic programs that were paused at various points last year. These.
These programs include cell and gene therapies addressing other high value unmet clinical needs such as immuno oncology vaccines enzyme replacement therapies immunotherapy or car T treatments and recently emerging gene editing approaches.
We are well positioned to serve our biopharma customers throughout the explosively growing mrna field.
Across a wide range of clinical programs for multiple different diseases.
In addition to Covid vaccines and therapeutic GMP service programs that utilize clean cap today.
We have also worked with over 400 customers, who have used our clean cap technology in support of their own research and preclinical work.
Our nucleic acid production business also includes Glenn research, which provides a wide range of reagents used in the synthesis of DNA and RNA.
Glen supplies of reagents to researchers and thus getting diverse genetic diseases and disorders companies developing new genetic therapies, and molecular diagnostics and life Science OEM partners, who incorporate Glenn research offerings into their products.
Biopharmaceutical customers are increasingly relying on outside parties to provide important inputs and services for their clinical research and manufacturing programs or development driving growth for those suppliers with unique capabilities and the ability to manufacture at an appropriate scale and level of care.
Quality to support these customer programs.
We believe that a rare combination of scientific capabilities.
Rytary technology, and the requisite investment in manufacturing and quality systems positions us well for continued growth.
To ensure our ability to stay ahead of demand and be a trusted partner to our customers. We made significant investments in 2019, and 2020 to expand our nucleic acid manufacturing capacity expanding initially to five dedicated manufacturing suites to produce materials under customers.
Specify GMP conditions. In addition, our three new clean cap manufacturing suites, and three new plasmid DNA manufacturing suites are now up and operational as of the first quarter of 2021, allowing us to supply our customers with much needed clean cap reagents and D.
N a plasmid for their own mrna gene editing or cell therapy programs.
Turning to biologics safety testing Cigna technologies is a global leader in providing critical assays for detect detecting impurities during biotherapeutic process development and commercial manufacturing.
This technology is used to ensure the safety of the biologics manufacturing process and the drug products themselves.
We are known for our quality consistency and for the broad menu of kits. We have available we saw strong demand for all categories of these assays, especially for our host cell protein Elisa kits.
Our HCP antibodies are proprietary and therefore can only be supplied by us.
We believe that prior to the nature of our Knowhow and the longstanding quality reputation of our products has solidified our long term customer relationships here.
Our Mark via acquisition in early 2020 is now fully integrated as part of the biologic safety testing segment, and we expect that all contribute to growth beginning in the 'twenty to 'twenty two time frame.
Turning to protein detection or Victor Laboratories' brand provides research products for labeling and detecting proteins and cell and tissue samples are protein detection assays have been recognized for their performance for over 40 years, and we continue to innovate as we see a large and growing need for the accurate.
Characterization of protein expression patterns and tissue samples during early research.
While our protein detection business was negatively impacted last year by Covid related lab closures, we expect to return to 2019 revenue levels. During 2021 as scientists and academics continued to return to their laboratories full time.
Finally, I'd like to comment briefly on the M&A landscape as you know we built our business by acquiring established and emerging companies with strong scientific foundation, and our target markets and done by investing in their systems processes and people in order to accelerate their growth and <unk>.
Span the application for their technologies.
Going forward, we will continue to seek a balance between driving substantial organic growth and opportunistic acquisitions that meet our stringent financial and operational requirements.
Let me now ask Kevin to cover our fourth quarter and 2020 performance in some more detail and to provide our initial guidance for 2021 Kevin.
Thank you Carl and good afternoon, everyone first I'd like to Echo Karl's remarks, and thank all of our employees and business partners for their tireless commitment and efforts over the last year. It is through these efforts that we have become a strong company we are today.
Now I will review our financial results for the fourth quarter and full year of 2020 and provide our financial guidance for the full year of 2021.
As you have seen in our press release. This afternoon, we delivered strong financial performance for both the fourth quarter and full year of 2020, our Q4 revenues of $98 4 million, representing a 173, 5% reported growth from Q4 2019.
For the full year of 2020, we reported record revenue of $284 1 million. This year over year increase of $141 million represents 98, 5% annual revenue growth.
Operationally, we continue to prioritize key areas of investment in the company, we made important capital investments in our San Diego nucleic acid production manufacturing site with a significant portion of our spend dedicated to increasing overall production capacity quality systems and automation.
We are also continuing to invest meaningfully in our infrastructure to support long term growth through investments in further enhancing our it systems and security our quality systems and processes, our environmental health and safety programs and our global supply chain efforts now to provide more insights into our overall financial performance.
As Carl mentioned earlier and as shown in our press release, our nucleic acid production business fueled the most significant portion of the revenue growth for the fourth quarter and the year.
Our new class nucleic acid production segment represented 79% of the company's total revenue in the fourth quarter and 73% for the full year compared to 51% for the full year of 2019.
Clean cap revenue to support only our COVID-19 vaccine customers was $51 4 million in the fourth quarter of 2020 and was $99 3 million for the full year of 2020, showing the accelerated demand we saw in the second half of the year.
Our biologic safety testing business contributed 14% of the company's revenue in Q4 and 19% for the full year. This business grew by 21, 8% in the quarter and 23, 6% in the year driven by the ongoing market growth of biologic drug development programs and the high quality and breadth of our host cell protein Elisa kits.
Our protein detection business accounted for 7% of revenue for the fourth quarter and 8% for the full year of 2020.
Now moving onto our statement of operations are.
Our GAAP based net income before the amount attributable to Noncontrolling interests was $14 5 million for the fourth quarter of 2020 and was $78 8 million for the full year of 2020 <unk>.
Adjusted EBITDA, a non-GAAP measure was $64 4 million for Q4, and $169 2 million for the full year of 2020 compared to $13 9 million for Q4, 2019 and $62 million.
The prior year. This is a 363% increase for the quarter and 173% increase year over year. This overall full year increase in adjusted EBITDA of $107 million was primarily driven by overall sales volume leverage and margin improvements from our nucleic acid production business.
Our cash and cash equivalents, which are both GAAP metrics totaled $236 million at December 31, 2020.
With a year end cash balance of $236 million $550 million in long term debt and our trailing 12 month adjusted EBITDA of $169 million, we exit the year with a three three times gross debt to adjusted EBITDA ratio and one nine times net debt to adjusted EBITDA ratio.
We continue to have a strong balance sheet and cash flows and these factors along with the $180 million available on our Undrawn credit revolver combined with the growth that we see for 2021 that I'll talk to you next continues to provide us with the strategic flexibility to make investments to fuel organic growth, while also actively evaluating M&A opportunities.
Now moving to our 2021 guidance.
Because of the restructuring of the company associated with the November IPO in the up sea structure that was put in place, we will not be referring back to or attempting to reconcile historical GAAP EPS our share count information as it is not consistent with our current structure moving forward.
Today, we are setting our 2021 full year revenue guidance at $580 million to $630 million, reflecting growth in the range of 104% to 122% included in that range is our estimate for 2021 clean cap revenues directly attributable to COVID-19 vaccine customers.
We are estimating at 370 million to $400 million.
Because of the continually evolving demand for clean cap as well as the inherent choppiness in supporting our gene and cell therapy customers through their multiple manufacturing cycles, we will not be providing individual quarterly breakouts of revenues at this stage. However, we expect Q1 2021 total revenues to be up sequentially in the range of 30%.
<unk> to 35% over our reported Q4 2020 total revenues.
For background on how we established revenue guidance, our largest customers are generally under master supply agreements in which they provide us with rolling forecast out for several quarters that are further supported by binding pose that may go out for several months on top of that we had forecasted funnel for our GMP suites, which are used to mainly support builds for our customers nucleic acid therapy.
Programs based on these factors our 2021 revenue guidance is based on a good degree of forward visibility.
Based on those revenue expectations, we expect our adjusted EBITDA, a non-GAAP measure to be in the range of 350 million to $390 million, which at the midpoint of that range represents growth of 119% and an implied adjusted EBITDA margin percentage of 61% when applied to the midpoint of.
Our 2021 revenue range.
Adjusted fully diluted EPS and non-GAAP measure is expected to be in the range of 80 to 90 per fully diluted and fully converted share.
Adjusted fully diluted EPS is based on the assumption that all class B shares are converted to class a shares which results in a forecasted fully diluted share count of approximately 260 million shares for the full year of 2021.
The net income included in the adjusted fully diluted EPS has been adjusted to eliminate any net income or loss attributable to noncontrolling interests. As a result of the assumed full conversion of class B shares for class a shares. Additionally, our adjusted fully diluted EPS, excluding certain adjustments that do not reflect our core operations are based on our.
Adjusted effective tax rate range of 24% to 26%.
Now as it relates to certain adjustments to get to our non-GAAP adjusted EBITDA range, we see the following items in 2021.
Interest expense between 30 million and $35 million depreciation and amortization also between $30 million and $35 million.
And adjusted tax rate of 24% to 26%.
And lastly, we expect equity based compensation, which we show as a reconciling items from GAAP to non-GAAP adjusted EBITDA to be 10 million to $12 million in 2021 I.
I would like to note that our Q4 2020 results had approximately $21 5 million and equity based compensation tied primarily to the vesting of certain performance based units within the pre IPO LLC structure that was above the normal run rate for this noncash expense line item.
For 2021, we expect to invest an estimated 20 to 25 million for capital expenditures, including approximately $5 million to complete the last planned phase of our San Diego facility expansion.
As you can see we've successfully scaled the organization in the midst of tremendous growth we delivered a record year of performance in 2020, including making substantial investments in the company to further support our continued success.
Our 2021 guidance is a reflection of these investments our view of continued strong growth and the overall strength of our business model.
I'll now turn it back to Carl for some final remarks.
Thanks, very much Kevin.
Before we wrap up and turn to questions I'd like to provide some very high level perspective on 2022 and beyond.
We arent ready to provide guidance for 2022, yet we are seeing customers already booking production capacity for the first half of that year.
As Kevin just mentioned, we have a direct line of sight into the bulk of clean cap demand for 2021, which continues to grow.
And our 2022 outlook is starting to build nicely with additional mrna vaccines coming to market and the expansion of our strong existing partnerships with industry leaders and mrna therapeutics.
It is our belief that COVID-19, vaccinations will continue to be needed for years to come in order to address new strains of the virus that emerge as selective evolutionary pressure is created by partially completed immunization programs.
This suggests that we should expect COVID-19 to become either an endemic disease or similar to seasonal influenza, requiring multipronged and ongoing public health interventions.
We expect that mrna vaccines will continue to be very relevant if not essential to those interventions. Unfortunately, the science is now telling us that our initial high hopes of this being a one and done vaccination effort are unlikely to be realized anytime soon.
We have all learned a lot about viruses infectious diseases critical care PPE diagnostics and vaccines in the past 14 months. It's time now to apply that knowledge to comprehensive public health programs that aim to successfully eliminate.
New COVID-19 infections in all communities across the globe.
I would now like to turn the call back over to Latif to open the line for your questions. Thanks.
Thank you Sir as a reminder to ask a question you will need to press star one on your touch tone telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Te Savant.
Morgan Stanley Your question please.
Hi, guys good evening and congrats on the solid performance out of the gate here.
So one one quick question for you Carl.
Your updated 'twenty, one guide seems to suggest an incremental 650 million doses or so versus the 750 million that at least we had in our model that comes to about $1 4 billion doses for 'twenty. One first of all is that in the right Zip code.
And if so how should we juxtapose that versus the comments you made on bion tax goal of 2 billion doses for 'twenty, one as well as potentially some upside from <unk> towards year end.
Yeah, well thanks for the question to Jos.
I think what we're dealing with here is a question of apples and oranges.
I know that the models are out there that look at consumption by unit, a vaccine and what the dose.
<unk> two in terms of revenue for us we do it from the opposite direction. We are actually looking at the orders that we have on the books today from our customers and the projections that they have given us for their future demands. So to the degree that there is a difference between the output of the model and that order book.
It's really a function both of timing and calculations and other things like that so I'll never be able to reconcile those adequately for you, but I can just tell you that we're guiding to what our customers tell us they're going to buy from us.
Got it very helpful.
And then in terms of just.
The ongoing steady state consumption of the vaccine here it is.
Still early days and as you know your comments around the likelihood of a booster shot and the virus, becoming endemic and so on.
How should we think about sort of a normalized run rate.
And in sort of 'twenty, two and beyond I mean, the question that we've been getting obviously is around now you've had this nice pull forward in 'twenty, one, but what does it mean for an.
An ongoing run rate for clean cap in 'twenty, two 'twenty three and 'twenty four.
Yeah very good question, it's going to depend on the evolution right.
As the virus evolves to the degree that it evolves in a way that escapes the existing vaccine protections that are provided then youre going to have to modify it that could be something that happens once in a year. It could be something that happens. Once every three years, you just don't know, but that's going to be the catalyst for changing.
As in the vaccine and thus the frequency of the Reinoculation programs I think the other issue is this whole question of waning immunity.
And we really don't know yet how durable the immune responses from our completed two dose vaccine or even a single dose vaccine. It's thought to be good but we don't have a lot of experience under our belt. So to the degree that that happens in the absence of the antibodies is indicative.
Perhaps ineffective immune response that will also drive the frequency of repeat inoculations. So my honest answer too is I don't know, but we're thinking and our customers seem to be signaling that you're going to see some reinoculation every 12 to 18 months.
Got it very helpful.
And then one quick one on on clean cap sort of production capacity I mean, how future proved how do you I know you opened up the three suites here, but.
But beyond that I mean is there anything incremental you would need to do to deal with this unprecedented demand situation.
Kevin would you like to take a shot at that.
Yes, Sarah I'm happy to certainly the expansion we made here in San Diego included a lot of automation, a large scale waste management numerous manufacturing efficiencies, we continue to see improvements in that yield better utilization more efficiencies and certainly clean clean cap orders at large scale. So as we look at this today through our current lines of price.
And mix, we actually see a little higher capacity than we had previously projected now comfortable that we can support over $1 billion in revenue annually annually for a nucleic acid production out of the San Diego facility.
Perfect got it and then any early color you can share on the plasmid DNA launch I mean.
Obviously.
And since you guys have invested in that capacity you still have some of the competitors thermal had some maskil up their capital and to acquire Delphi et cetera. So it sounds like it's the.
The demand supply.
This equilibrium continues year.
Any early feedback on sort of customer traction.
Yes that this equilibrium is definitely still there and perhaps even growing based on the number of programs that are out there are customer reaction has been extremely positive too.
The capability to produce the plasmids for our integrated program, we have a couple of different and very exciting programs that were in sort of the mid stages of negotiation over to actually provide the soup to nuts capabilities that we had anticipated in the first place. So I'd say it's <unk>.
Tracking as expected or better.
Got it very helpful. Thanks, so much for the time this evening and congrats on the quarter guys.
Thank you.
Thank you. Our next question comes from Matt <unk> from Goldman Sachs. Your line is open.
Great. Thank you congrats on the quarter.
Thanks for taking my question. My first question was just.
I was just regarding the non COVID-19 related mrna therapy and vaccine work you guys talked a little bit about.
No.
The IPO about other programs you are involved with I'm just curious in terms of the number of those programs or the growth that you've seen there.
How can we think about that non COVID-19 related mrna therapy and vaccine work that you guys are doing.
Sure well look I think the pipeline there is growing and we're seeing a resumption of the programs that had been delayed due to the pandemic at various points of last year. So we're working with our customers to support the need for additional.
Infectious disease, but non COVID-19 vaccines.
We expect to see those programs accelerate here benefiting from the mrna COVID-19 work that's being done today.
I believe Pfizer mentioned recently in their conference call that they will use an mrna platform for their seasonal flu vaccine program.
Other examples include non Covid, a therapeutic products. Many of these are for rare conditions are orphan diseases that can incorporate clean cap examples of the disease States include OTC deficiency, glycogen storage disorders or.
Acute lymphocytic who bill.
Leukemia et cetera, so there's a bunch of those applications I can't really comment much further on those partnerships.
Unless the sponsors have disclosed publicly their own detailed production methods that generally doesn't happen in this hyper competitive field, but we have multiple of those programs continuing.
And we see a number of them in the clinic already with the vast majority of those being phase one.
Great. Thanks for that is very helpful.
And just on.
And when you look to 'twenty. One guide you had mentioned that you are baking in the assumptions from a number of customers on the company. The vaccine side I'm just wondering in terms of care back how we.
We should expect that to ramp up should it be sort of back half loaded or is there or is there some manufacturing taking place now that requires some purchase orders.
Increase in growth in purchase orders.
Let me think about helped us to answer that that's a little bit tough because it's probably getting into close to close.
Details about the relationship I would just say we have an excellent relationship with our partners a cure.
And working with them for a number of years prior to.
The onset of COVID-19, and we have pretty good visibility to.
To their program, they're obviously from their public announcements accelerating those efforts. So I think it is totally fair for you to expect to see impact from <unk> efforts in the first half of this year and if it skills anything like the relationship with Pfizer and beyond Tech then you will see that continue to ask.
Right in the back half of the year and beyond.
Thanks for that and just my last question on Biologics safety.
You guys have a pretty good competitive advantage in terms of the breadth of your generic test kit and far above some of your competitors have I'm. Just wondering have the competitive dynamics changed at all in that over the past few quarters or do you still find yourself in a pretty good position with that generic test kit.
No. They had they haven't changed one iota were continuing to see strong growth in that business.
As you can imagine a lot of the new therapeutic programs that are targeting COVID-19 themselves are now spooling up and utilizing our product based on legacy relationships. So.
It seems to be in a good spot.
Thanks, very much I appreciate it.
You bet.
Yes.
Thank you. Our next question comes from Brandon Couillard of Jefferies. Your line is open.
Hey, Thanks, good afternoon.
Hi, Brian.
Carl or Kevin as we think about the 'twenty one outlook can you help us with the phasing in terms of the first half versus second half in terms of dollars should we assume a fairly linear progression through the year and what would be.
The most.
Important upside or downside variables that we should consider that might steer you toward the low or high end of the revenue outlook.
Yes, I think Germany has got the best.
Yes, I think from a.
As we said in our prepared remarks, I think we're looking at the first quarter up 30% to 35% sequentially from Q4 on total revenues.
I think the business can get a little choppy as we start to go out.
So I think we're going to keep our quarterly gating at that level for now.
Certainly as it relates to clean cap, we had a solid fourth quarter, but it will be moving up meaningfully in the first quarter, but we don't see the first quarter of 2021 being the largest quarter for clean cap at this stage either so you have to take that into account when looking at the range that we're giving for the clean cap for Covid vaccine customers that we've put in.
Our prepared remarks, and that's kind of where are we going to stop as far as the quarterly gating at this stage.
Got you and then on the plasma DNA for I understanding it's still very early into the launch, but I'm curious how will you measure success here near term and given the huge supply demand imbalance are you already thinking about adding additional capacity here and could you speak to kind of the revenue.
<unk> with the three suites that you just recently brought online thanks.
Yes, we will look at it you know we're pretty conservative as we project. So we have not baked in a lot of plasmid DNA only.
Revenues in our 2021 numbers. So I think it's fair to think of that as an area of potential upside as time develops but I'm going to measure success by capacity utilization, how many jobs do I have an occupied or the suites. That's how we'll look at it and I think realistically given the initial indications of interest.
We are spooling up jobs and performing jobs.
As we speak and that's the measure of success. So it just tells us that.
All the things that everyone has heard about shortages of plasmid continue to be true and when you see investments like Cadillac.
Making and Delphi.
Just confirms that further.
Super Thank you.
Thank you.
Yes.
Yeah.
Thank you. Our next question comes from Matt Larew, William Blair. Please go ahead.
Okay.
Hi, Hi, good afternoon, guys, probably wanted to follow up on your commentary around M&A.
How rapidly this market's progressing just how much bioprocess and demand is accelerating now how do you balance the idea.
The capability organically like plasmid, maybe leveraging your existing infrastructure, but might take some time to scale the maturity.
This is adding something a little more established really in the way you've built this business with trailing thickness spectra labs et cetera.
Yes, that's a great question, Eric do you want to take a shot at that.
Yes, sure I'd be happy too. So I think as we've told you and as we've discussed on the road in the past I think our activities in M&A have a lot to do with shoring up our strategic capabilities and really solidifying our position primarily in M&A and mrna rather and then followed by biologics and then protein detection and so we look very much at our capable.
<unk> and what we need to fill that pipeline and ultimately be able to provide a complete service offering and product offering to our customers. We obviously do the build versus buy analysis, and we absolutely factor and time to market.
In addition to that analysis. It really is about finding those differentiated capabilities out in the market that frankly, we couldnt build ourselves when it comes to just pure capacity, we certainly look at acquiring capacity and we look at building capacity, that's much more of a build versus buy but the majority of our M&A activity is centered on strategic moves that shore up our capabilities.
Yes that makes sense and then obviously, we spend a lot of time talking about the ramp up in infrastructure and manufacturing capacity.
Just curious as you think into 2021.
How you are thinking about ramping up the spend in terms of customer support customer engagements.
Building out a team disappointed obviously all of this increased demand that you're seeing and then maybe Kevin to the extent you can put any numbers around that that might be helpful too.
Yeah, I'll just offer a first comment and then turn it over to Kevin We certainly.
See the need to stay in close close touch with our customers throughout this period of hyper expansion their needs are changing day to day their forecasts are changing day to day and we have to be on top of that so that we can be that trusted partner.
But they they need right now we don't want to be the squeaky wheel in anybody's supply chain. So we are expanding into the resources that we have in all of those areas marketing customer support et cetera, we will spend more time on voice of customer about what customers' desires are we think there are some.
Obvious areas that we can and have been expanding in based on customers needs already expressed to us, but we want to get better and tighter with them in the very near future. So that will happen during 2021, Kevin.
Yes, I think we continue to see SG&A expenses, increasing on an absolute basis for some of those investments, but certainly less than revenue growth I think we will see them in the mid to high teens for 2021 with some specific increases in marketing as Karl just talked about to really inform some potential R&D decisions as well and certainly with.
Regards to increasing the public to support the public company costs that we'll have for a full year in 2021, we're still relatively light on R&D expenses as a percentage of revenue and I think the further input from our marketing organization the voice of the customer and working with some of our scientists will help to define some programs that we hope to invest in.
Organically as well going forward.
Okay that makes sense thanks, guys.
Q.
Thank you. Our next question comes from Catherine Schulte.
Baird Your line is open.
Hey, guys. Thanks for the questions.
First you're right.
Press release out last month of that in your issue patents for clean path.
Can you just talk through how you feel from an IP perspective.
Any new competitors coming to market with.
Increased excitement around mrna based vaccines and therapeutics.
Yeah that's.
An important point Kathryn.
The newest patents issued was our third pad here in the U S. It covers multiple advancements on the proprietary clean cap technology, and we think it further demonstrates our scientific leadership position here and figure out novel ways to enable this co transcriptional capping of mrna is so lets turned out.
That's important all of a sudden.
And it's turned out we've got a very good solution that meets the customers' needs there as they scale up some of these incredibly large.
Manufacturing operations for mrna so we're feeling pretty good about it and we believe that the IP.
Would encourage people to come to us first and that in fact is what's happening.
Alright got it and then on the M&A side.
And you have the type of or adjusted EBITDA margins that you do it it would be hard for an acquisition to be.
Not be margin dilutive. So can you just walk us through kind of what those financial.
Requirements are when you are looking at an asset and that type of leverage that you wouldn't be comfortable with.
Sure Eric do you want to do that one.
Yeah for sure look you're right that we have.
Margins that are hard to beat and it is hard to find M&A targets that would be.
Accretive to our margins certainly I think we don't really look at margin as a calculation when we're doing the math. We're looking at return on invested capital for example, and the impact on our earnings over time.
So it's not really a margin percentage calculation that we do we are very mindful of keeping our margins where we are.
But I think really our target right now is on acquiring strategic assets, rather than trying to do financial modeling or financial engineering by acquiring assets. So we have great organic growth. We've got great margins really the focus in M&A is on strategic capabilities.
And in terms of the leverage Kevin you might want to address that one.
Sure I mean, with our net debt just over $300 million and our projected adjusted EBITDA for 2021 that puts us about one times net leverage it.
For the 20 looking forward to 2021, obviously, that's something we're very comfortable with we certainly feel we can take on more debt if needed for the right asset and we're also with cash on hand, and our immediate liquidity with our Undrawn revolver.
I like to be in a position to assess and act quickly either.
More organic investments in our in our product lines or through M&A. So we like the flexibility that our balance sheet affords us.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Erin Wright of Credit Suisse. Your line is open.
Great. Thanks.
Clean Cathy can you maybe.
Visibility on the clean cash revenue, but I'm, just trying to frame maybe the level of conservatism in your guidance or other factors that you need to consider even relative to what's been publicly disclosed that Bam from Barrington.
Has there been any sort of changes in underlying relationships or the revenue recognition or other factors that would help us reconcile with everything and just to clarify does your guidance.
Meaningful contribution from relationships outside of Pfizer Covid vaccine.
Okay.
Okay sure let me see if I can hit those maybe in reverse order. Yes. There are other relationships outside of Pfizer clean cap. So considerable number of them in fact, they do contribute materially to our estimates for the full year and you are right that we do tend to be conservative when we put together our forecast.
But we don't sandbag intentionally we just are realistic and gimlet eyed about what do we know what is our degree of probability of confidence in that particular projection and what what could go wrong and we sort of go through a fairly systematic way of digesting all of those data points and coming coming up.
With a combined forecast you won't see us putting out something that's moon and the stars that we havent area chance of meeting, but at the same time, we think we're being realistic based on what we know today now the one qualifier I would offer to you is that the situation does change sometimes it seems like.
On a daily basis, so our customers are figuring out what they need.
As they go and I think as you could imagine with the complex supply chains that are being <unk>.
Multiple supply chains that are involved here.
A customer is looking at a particular problem being constraint and gives all of their other vendors projections based on that constraint being in place once they fix that constrained they rethink it and look at it and move on to what the next problem child is and our objective is not to be the problem child.
Okay.
And then you mentioned 2022 in your remarks is potentially shaping up nicely here what are you referring to on that tiny largely COVID-19.
Related work or outside of Covid are across the board carry higher fees.
Yeah.
Yeah. There is two elements one is the COVID-19 related work and that just reflects the growing sentiment that there will be repeat vaccinations needed.
It will be enduring so I think that gives us greater degree of confidence in what the 2022.
Opportunity may will be versus what was known even as recently as four months ago at the time of the IPO. The second contributor there is just a better understanding of the therapeutic pipeline. These resumed programs and the time line that these resumed programs would be on and.
A bunch of that because obviously these development timelines are not COVID-19 super.
Super accelerated those look like they could come into play significantly in 2022 as well.
Okay, great. Thank you.
Thank you.
Okay.
Thank you. Our next question comes from Dan Brennan of UBS. Your line is open.
Great. Thank you. Thanks for taking the question I guess first question was I know it was asked earlier.
What is your capacity for doses on Covid clean gas did you disclose that earlier in the call.
We did not Kevin indicated that we feel comfortable that our ability to produce and support over $1 billion in annual revenue on clean cap is is we're comfortable with that.
Got it Okay, and then and then coming back to 'twenty. Two if you don't mind I believe when we were looking at a comedy, but we were thinking or the company was thinking about an annual dosing regimen in the out years, which I guess, where we're getting centered on now today with all the variants out there. So maybe just another follow up on the 22 outlook. So when you talk you're pleased with how things are progressing.
Could you give us any sense about.
Some of the committed orders maybe in hand or just.
Please try to frame what pleased would mean given the range of outcomes that we could see in 'twenty, two so without giving a specific number.
Get Directionally, how we think about that 22 outlook.
Yes.
That's a tough one.
Realistically we.
We're not projecting a specific variant becoming the dominant one with globe and now we know that there's going to have to be a new vaccine by X date.
We are realizing how fast the rollout of the existing vaccines is growing or not growing depending on where you are.
Recognizing them the delta at the people, who haven't yet been vaccinated or completely vaccinated and then.
Thinking about the number of potential doses.
That could come from.
Change being required and those changes are breaking down into one or two areas I kind of alluded to it one is a true modification of the underlying vaccine sequence and there.
It looks like if you see a variant that you have to change for the regulators globally are going to have you on an expedited path to get that product authorized it into People's arms. So that's one element of it and then the other elements are or the other approach is as far as their and beyond Tech just announced their study of via.
Impact of yet a third dose so initial dosage with two boosters, what does that do to your immune response to variants and those are things that are driving potential demand in 2022 and beyond.
Great and then maybe you talked about.
Yes tremendous interest I think you called it a transformation yourself when the mrna class just given the success so far of the ammonia vaccines.
Could you give us a sense of how we should be thinking about a tissue based nucleic acid non COVID-19 business in 'twenty, one like what what kind of baked in there.
If we think about like what this opportunity.
'twenty one.
How would you how would you characterize kind.
Kind of a steady state normalized growth rate for the non COVID-19 related opportunities that marni. Thank you.
Kevin do you want to take a shot of thought or you want me to.
Yeah.
When you look at our business and you look at the mid points of our guidance.
Particularly given the mid point of the COVID-19 vaccine clean cap related revenue as you see the remaining business growing roughly 20% and thats across the three segments, excluding the impact from the Covid vaccine virus and clean cap and I think that's very consistent with some of the underlying market trends that we've been seeing particularly where we performed.
Biologics and then in nucleic acid production, certainly the protein detection business being a low single digit grower from a market perspective.
And that 20% because I know historically, you've been nucleic acid business grew 30% and $17 26, 30. So I mean the growth rate certainly has been above that level I'm. Just wondering as we look out given the excitement and efficacy and success. So far of mrna just how we might think about without giving a specific number just how do we think about this.
And our opportunity and what it means for I'm wondering into Maryland.
Well look I would say this that I think the 20% and the rest of the business is a blend of the three different units that Kevin was talking about and when you look at the historical numbers you do have to remember that there was clean cap in those numbers, albeit not for COVID-19 related purposes. So.
Also a little bit of apples and oranges I would say this that we've thought about our Sam pretty carefully and spell that out.
At the time of the IPO and how large that market is and I do think in the broader all ago nucleic acid business.
We would expect growth rate outside of some of the stuff to be in the mid twenties and and I think we've come up with 28% Sam increase that may have included clean cap, but it will be a little bit higher than the other areas.
Great. Thank you.
Thank you I appreciate it.
Yes.
Thank you. Our next question comes from Michael <unk> Bank of America. Your question. Please.
Hey, Thanks for taking the question and thanks for squeezing me in.
Wanted to ask just wants the big picture one at the end a lot of the topics have been covered but I want to go back to sort of.
Queen cap broader adoption and some of the longer term growth opportunities in the space.
If we.
Obviously clean cap, you're already working with a number of leading pharma and biotech customers Pfizer bion take care of that.
A number of others, you've disclosed but there are other prominent leaders in mrna therapeutics on utilizing that technology. So I'm just wondering over the last three six months as Pfizer biotech success and.
And their vaccine program has become more and more prominent.
Has gone a lot more attention are you have you have and have taken steps in terms of penetration into some of these other customers I guess.
In other words I'm just wondering on.
Whether clean capital.
Be the dominant cabin method for future programs, even beyond your existing customers I realize it's a very long adoption cycle with new technology, but I'm, just curious with your ability to penetrate into that basis Ben.
Yeah that is a very important point look we have seen a number of new customers concourse early in their own therapeutic development programs now because of our involvement in some of the vaccine related work that's ongoing and have caught them early so I think theres, a greater market awareness of the <unk>.
The fits of utilizing clean cap as part of your early phase.
Work.
And we are aggressively marketing our capabilities to companies early off so that it's not a disruptive change to their own plans and methods now in fairness. The other side of that is anybody who's making COVID-19 vaccines using mrna and if they are you using enzymatic capping which is the alternative method here.
They're not going to change to clean cap overnight it would be a re registration and a very very big change at a time when nobody wants anything to change just so they can keep up with demand. So we're not expecting to see vaccine programs changed methodologies either towards us or away from us.
Yeah.
Alright, thank you.
Thank you appreciate it.
Operator, we have time for.
I'm sorry, we have time for one more question I think.
Okay.
Our next question comes from the line of Dan <unk> of Stifel. Your line is open.
Hey, guys. Thanks, Hey, Karl Thanks for getting me in here I, just I wanted to ask about the capacity expansion in January if I remember correctly that.
That was for clean cap and small molecule I'm just curious whether you found the need to sort of borrow from the small molecule side in order to get you where you need it to be for vaccines or were you able to build out on both there.
Yeah.
Lines that we use for clean cap and small other small molecule work are relatively fungible. So we can move them as demand requires but so we haven't Rob Peter to pay Paul on this one the other thing that came online in the first quarter is the plasma sweep which.
Entirely distinct from those.
Yes, Okay, if I could sneak one more in.
Yes.
Last year, when we were going through the process you had talked about being.
Sort of locked in with fixed mrna vaccine providers and that there were three additional ones that I think we're just sort of sitting out there as potential it sounds like there could be other.
There's there so I'm wondering if you would just be sort of willing to update us on where that tally of.
I am firmly committed customers lies at the moment.
We think that's how he is still representative of what's going on and.
If we have material developments, where there's a significant program that makes progress, we'd probably disclose that in the future points, but I would say no major changes right now.
Okay very good thank you.
Alright, Thank you very much we appreciate it.
Thank you at this time I would like to turn the call back over to Debra Hart for closing remarks Madam.
Great. Thank you thanks, everyone for joining us today I did want to let you know we will be participating at the Cowen Health Care Conference Tomorrow March 3rd and we'll also be at the Keybanc capital markets Life Science in Med Tech Investor Forum on March 23rd both presentations can be accessed via live or replay of patent tomorrow by Investor Relations website.
So feel free to contact me with any questions and we look forward to updating you during the course of 2021. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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