Q4 2020 Emergent BioSolutions Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the emergent Bio solutions fourth quarter 2020 earnings Conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
I'd now like to hand, the conference over to management. Please go ahead.
Thank you Catherine and good afternoon, everyone. My name is Bob Burrows VP of Investor Relations for the company.
Thank you for joining us today as we discuss the operational and financial results for the fourth quarter and 12 months ended December 31 2020.
As is customary today's call is open to all participants in the call is being recorded and is copyrighted by emergent bio solutions. In addition to today's press release Theres a series of slides accompanying this webcast available to all webcast participants.
Turning to slides three and four during today's call, we may make projections and other forward looking statements related to our business future events, our prospects from future performance. These forward looking statements are based on our current intentions beliefs and expectations regarding future events.
Any forward looking statements speaks only as of the date of this conference call and except as required by law, we do not undertake to update any forward looking statement to reflect new information events or circumstances investors should consider this cautionary statement as well as the risk factors identified in our periodic reports filed with the SEC when evaluating our forward looking statements.
During today's call. We may also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding emergent is operating performance.
Please refer to the tables found in today's press release regarding our use of adjusted net income adjusted EBITDA and adjusted gross margin and the reconciliations between our GAAP financial measures and these non-GAAP financial measures.
Turning to slide five the agenda for today's call will include Bob Kramer, President and Chief Executive Officer, who will comment on the current state of the company and Rich Lindahl, Chief Financial Officer, who will speak to the financials from <unk> in full year 2020, as well as our forecast for 2021.
This will then be followed by a Q&A session, where additional members of the senior team are present and available as needed.
Finally for the benefit of those who may be listening to replay of the webcast. This call was held and recorded on February 18 2021.
Since then emergent may have made announcements related to topics discussed during today's call and with that introduction I would now like to turn the call over to our President and CEO, Bob Kramer, who segment begins with slide six Bob.
Thank you Bob and good afternoon to everyone. Thank you for joining with US This afternoon.
Excellent start on slide seven I'd like to start the call today by recognizing the extraordinary efforts of the entire emergent team over the course of 2020 in spite of the significant challenges created by the pandemic, we maintained our focus on the business.
This is Matt not only working on the production of COVID-19 vaccine candidates, but also innovating with the development of novel Polyclonal COVID-19 treatments.
All the while continuing to protect lives against a broad range of public health threats, including the worsening opioid epidemic.
Our focus and strong execution on mission, absolutely would not have been possible without the incredible contributions of the entire emergent team that is now more than 2300 employees strong and I'm pleased to report that it has resulted in the strongest year in our 22 year history.
As you know in early January we provided a 2021 financial forecast with total revenues of $2 billion and adjusted EBITDA of $780 million both at the mid point, which we are reaffirming today.
Our current five year strategic plan targets $2 billion in revenue by 2024 with a significant growth in our business. During last year 2020, we're now reevaluating our long term objectives and expect to provide an update later this year.
For the majority of my prepared remarks today I want to focus on four key aspects of our current business all of which we believe have important potential implications for the continued growth of the company.
So turning to slide eight first our key priority is to address the immediate need stemming from COVID-19 pandemic.
We're playing a critical role in the fight against COVID-19, with the development and manufacturing of clinical and commercial materials across our three <unk> service pillars for a variety of customers, most notably Johnson and Johnson Astrazeneca as well as a number of other biotech.
Innovators, including the newest publicly announced partnerships with Humana, Jen and Providence Therapeutics.
In addition, we are developing our own innovative COVID-19 treatments based on our proprietary validated hyper immune platforms.
With multiple Corona virus strains emerging data suggests that the disease spreads more easily and quickly which could further burden health care resources and potentially lead to an uptick in both hospitalizations and deaths as a consequence, we believe that vaccination and the development of effective.
Treatments will be needed for many years to come.
As part of the Arsenal of treatments that will be needed to combat. This long term threat scientists early on identified the potential value of having polyclonal treatments and the likely case a virus mutation to address this need emergent is focused on the rapid deployment of our polyclonal plasma derived.
Treatment based on her validated hyper immune platform.
As a reminder, our COVID-19, human hyper immune or Covid H I G product candidate contains concentrated consistent amounts of polyclonal antibodies directed against Sars Covid, two and is manufactured using plasma from healthy donors with.
Elevated levels of neutralizing antibodies. These.
These antibodies have undergone additional purification and safety steps for viral removal using our proven manufacturing platform that currently supports several FDA approved products.
As the a polyclonal treatment Covid AIG contains many different antibodies that can bind to the virus at multiple sites. So its efficacy may be less impacted by strained variability or emergence of resistance. Unlike monoclonal antibodies that bind to a single site.
We believe this may ultimately provide an advantage as a treatment and could deliver a meaningful impact to treat COVID-19 patients Covid AIG is currently being evaluated as a treatment for hospitalized patients in a phase III clinical trial led by NIH.
Trial also known as insight 13 has an expected data readout within the next two months and assuming the data is positive we would file an application for emergency use authorization for this candidate thereafter.
Our second clinical program is also underway to evaluate COVID-19 AIG as a post exposure prophylaxis to prevent infection and the individuals at risk of exposure.
Over the last 18 months, we are also rapidly introduced and scaled up the infrastructure and processes to support our CMO service offerings. Our vision for this business has always been more than just maintaining a pandemic response capability.
From day, one we've positioned our CMO as a multi purpose set of offerings for both pharma and biotech innovators and government and NGL partners across multiple sites and multiple technologies.
Biologics manufacturing is an exacting process that requires specialized equipment disciplined processes and our highly trained staff and typically it takes years the timelines related to COVID-19 have been.
Substantially compressed with everything occurring in less than one year.
This pandemic has highlighted the growing mammalian and viral vaccines market and shown that service providers must have durable scalable and compliant manufacturing infrastructures immersion has been able to thrive in this environment, our differentiated <unk> value proposition has been valid.
By our eight and counting CDM O COVID-19 partnerships and our growing pipeline and portfolio, we've carved out a leading position as a tier one biologics CMO organization.
As you may know owning and controlling our own manufacturing capacity and capabilities has always been a critical strategic importance to us, particularly for biologics. We unlike most stand alone <unk> bring the expertise from manufacturing and handling some of the most.
Complex biologic products in the world and the experience of having to operate in challenging rapid response situations in partnership with the U S government.
Like most embedded <unk>. This is not a utilization play rather it's a strategic set of offerings across three service pillars, and five platform technologies and we have specifically built a service business with that in mind.
All of this has driven expansion of our manufacturing capabilities, both organically and through M&A over the last decade, and spurred us to create a dedicated C. D flow business unit four years ago we.
We feel that decision has been validated particularly over the course of this pandemic as it has accelerated our position as a tier one biologic option for outsourcing decisions and we expect our <unk> business to continue to be a significant contributor to our future growth in <unk>.
Pension.
As we've seen with COVID-19, public health emergencies can cause significant disruption they are unpredictable and you need to prepare in advance to that end I would like to recognize the foresight of the U S government and its investment in preparedness efforts as you know we've partnered with the U S government throughout our.
22 year history, an important example of this partnership was the 2012 expansion of our Bayview facility in Baltimore that was co funded by the U S government and subsequently used to address the Zika and Ebola outbreaks.
Now playing a primary role in response to COVID-19, where we're producing drug substance from both J&J as well as astrazeneca under multiyear CMO agreements.
As critical and successful as our partnership with a U S. Government has been we can and need to do more to expand preparedness efforts across a broad range of public health threats. The bipartisan Commission on Biodefense and its most recent report emphasize that being prepared means not only being <unk>.
Prime to respond to viral outbreaks like Sars Covid, two but also other threats like anthrax smallpox botulism and many others.
Further it recognize the importance of substantial investments to broaden the options available for our rapid response in advance to combat novel threats when they arise.
The U S government continues to stockpile, our preparedness medical countermeasures, including <unk> 2087, 909 buyer tracks back Anthro sale racks, you vacuum Mab and <unk> and will continue to work with them on the development of new medical countermeasures.
Across a variety of biologic and chemical threats.
Turning to slide nine now the opioid crisis as you well know it's been significantly worsened by the pandemic preliminary data from our CDC shows overdoses up 18% as of May of 2020, and sobering Lee over 81000 drug overdose.
Deaths in the 12 month period, ending May 2020, the largest number of drug overdose deaths for a 12 month period ever recorded.
In its latest health alert the CDC recommended expanding that provision and use of naloxone and overdose prevention education to combat the opioid epidemic as a result, it's been essential for us to make sure that there is enough narcan nasal spray available to reverse overdoses are.
<unk> worked tirelessly in 2020 to ensure that our 6000 plus public interest customers have had an uninterrupted supply of narcan nasal spray and thats been made available to patients and their caregivers. Despite the disruption of a number of our normal communication.
Reach and awareness channels, we remain as committed as ever to combating this terrible crisis head on.
Finally, as you all know the travel sector has been significantly disrupted through the course of the pandemic and our travel health business is no exception. However, we continue to believe that as we get through the pandemic global travel will resume and the health and safety of travelers will be of ever greater importance and focus.
We plan to reintroduce vivo, chief and <unk> to the market as travel resumes and we will also continue to invest in R&D efforts in this area, most notably with our chicken Goodyear DLP vaccine candidate, which we expect to begin a phase III clinical trial later this year in <unk>.
Over the course of last year, our unique and diversified business model has exhibited both its strength as well as durability. Despite a very challenging environment and we expect this to continue well into the future I'm very encouraged that prospects for continued growth and for continuing to expand our.
<unk> and reach in terms of patients and customers.
Going to stop here and turn the call over to rich, who will do a deeper dive into the financial performance of the company both for the fourth quarter as well as total year 2020 rich.
Thank you Bob.
Good afternoon, everyone and thank you for joining the call.
I'll start on slide 11.
I am pleased to report that emergent finished 2020 in a position of unprecedented strength.
Our team is executing sharply across the entire enterprise, even as the world remains challenged by the COVID-19 pandemic.
The company's financial outcomes during both the fourth quarter and full year of 2020 reflect the substantial strength and durability of our diversified business as evidenced by record total revenues profitability and operating cash flow.
Our balance sheet is in excellent shape with the liquidity and financial flexibility to pursue opportunistic investments and assets capabilities and capacity to drive incremental returns on capital.
As a consequence, we enter 2000 22021 confident that we will deliver another year of strong growth as we further extend our impact on the state of global preparedness and response to public health threats.
With that please turn to slide 12, and let's first look at the details of our fourth quarter performance.
Highlights include total revenues of $583 million, an increase of $223 million or 62% versus the prior year.
Adjusted EBITDA of $291 million, an increase of $157 million or 117% versus the prior year.
And adjusted net income of $199 million, a $116 million or 140% improvement versus the prior year.
Breaking down quarterly revenue into its components, let's first review the elements of our product sales.
<unk> 2000, and sales were $129 million as we resolved the timing delay discussed on our third quarter call and continued deliveries to the United States strategic National stockpile under the latest option exercise from health and human services.
Anthrax vaccine sales were $116 million, reflecting once more the strong delivery volumes associated with the transition from <unk> to 87, nine and nine in the strategic National stockpile a process that we now anticipate will return to more normalized historical levels in the coming year.
Narcan nasal spray sales were $77 million driven by ongoing strong and durable demand for this critical drug device combination product.
Overdose reversal.
Other product sales were $19 million, primarily reflecting sales of bats, and our STL.
We also had significant growth in C. D M OS services as revenues increased to $199 million in the quarter.
This level of performance reflects the continuing contribution from the approximately $1 $5 billion of initial contract value related to COVID-19 secured last year, most notably our landmark public private partnership with BARDA in support of vaccine manufacturing.
As well as the tech transfer and commercial supply agreements with Johnson, <unk> Johnson and Astrazeneca.
Importantly, we also continue to win new projects and extend existing projects.
And with the inclusion of Humana, Jim and Providence Therapeutics in the first quarter of 2021, we have now secured eight C. D. M O COVID-19 partnerships with the most recent highlighting our ability to provide <unk> services from our Winnipeg, Manitoba, Canada facility.
Looking beyond revenue. The quarterly results also include net R&D expense of $17 million or 3% of adjusted revenue, reflecting discretionary development investments across our vaccines therapeutics and devices R&D pipelines.
SG&A spend of $82 million or 14% of total revenues, an increase of 14% over the prior year and reflecting ongoing hiring to support our growth.
And combined product and C D and low gross margin on an adjusted basis of 69%, reflecting the impact of overall product mix as well as improved contribution from CD and low services.
Turning to slide 13.
In today's press release, we also provide updates to two C. D. M. One metrics that we introduced on our last earnings call.
First we secured $53 million of new contracts during the fourth quarter.
Second the opportunity funnel was $689 million as of December 31.
Accordingly from a second half of 2020, we secured about $113 million of new business via new projects and existing project extensions and the opportunity funnel increased from $475 million to $689 million.
You will also note that we introduced a third CD ammo business metric <unk> backlog, which was $134 billion as of December 31.
<unk> backlog represents the remaining unrealized value of all contracts that are in place as of a given date.
<unk> backlog replaces our previous secured portfolio metric as we believe it provides a more useful way to assess the ongoing growth of the business.
Now, let's turn to slide 14, and ruble review of the full year.
Our financial performance for the 12 months of 2020 was equally strong driven by all the factors just discussed for the fourth quarter.
Key 2020 highlights include.
Total revenues of $1, five 6 billion, an increase of $449 million or 41% compared to 2019.
CMO services revenue of $451 million, an increase of $371 million compared to 2019, reflecting our first full Europe active commercialization is accelerated by the significant contribution of new business wins with both innovators and the U S government related to COVID-19 response.
Combined product and <unk> adjusted gross margin of 67%.
R&D investment of $235 million in our pipeline, which we view as potential sources of future organic growth.
Net R&D expense of $90 million, reflecting the substantial risk mitigation.
Contract grant and other non dilutive funding.
SG&A expense of $303 million or 19% of total revenue as compared to 25% in the prior year as we continue to scale our business to support our growth.
And all time highs in profitability with adjusted EBITDA of $630 million or 41% of total revenues and adjusted net income of $424 million or 27% of total revenues.
Now please turn to slide 15 per a review of our balance sheet and cash flow.
We again ended the quarter in the strongest liquidity position in the company's history with $621 million in cash from $231 million of accounts receivable, bringing current liquid assets to over $850 million.
We also had undrawn revolver capacity of $600 million.
Our net debt position at year end 2020 was $264 million and as a result, we ended the year with a ratio of net debt to adjusted EBITDA of less than one times.
Our cash flow highlights include 2020 operating cash flow of $536 million, which is also the strongest in our history and reflects the cash generation capability of our diversified mix of products and services.
We spent $141 million on gross capital expenditures and when factoring in third party reimbursements. The net capex for the year was $99 million.
These investments are targeted at a variety of capacity and capability expansions that we have previously discussed.
Lastly, free cash flow, which we define as operating cash flow less capex was $395 million in 2020.
In summary, our accelerating operating and financial momentum positions us to capture additional growth and operating leverage across the coming year as we execute on our growth strategy and deliver solutions to address global public health threats.
Please turn to slide 16 per a review of our 2021 forecast.
As detailed in today's press release, we are reaffirming the guidance for 2021 that we announced on January 10th which is as follows.
Total revenues in a range of $1 95 billion to $2 5 billion.
Anthrax vaccines in a range of $280 million to $310 million.
<unk> 2000, and a range of $185 million to $205 million.
Narcan nasal spray and a range of 305 million to $325 million.
<unk> services revenue in a range of $925 million to $965 million.
Adjusted EBITDA of $750 million to $810 million and adjusted net income of $475 million to $525 million.
Other key assumptions for 2021 include gross margin of approximately 65% on a GAAP basis.
Capital expenditures net of reimbursements of between 8% to 9% of total revenues.
Continued progress across our development pipeline programs, including one or more phase III starts and one BLA filing.
RFP and follow on procurement contract with HHS related to Raxibacumab are anthrax monoclonal monoclonal therapeutic for inclusion in this in the SNS.
And no generic entrant against Narcan nasal spray until the until the conclusion of the appeal, which is expected in the second half of 2021.
We are also providing first quarter 'twenty, one total revenue guidance of $330 million to $370 million, which at the midpoint represents approximately 18% of our total revenues for 2021 in line with historical patterns.
And lastly, please turn to slide 17 for some summary comments.
We delivered exceptional financial results from 2020 and are poised for continued growth in 2021.
We have built a strong and resilient business with the capabilities capacity and financial strength needed to deliver preparedness and response solutions to a wide range of public health threats.
Our employees have risen to the challenge as we stepped up meaningfully to confront the crisis brought on by the COVID-19 pandemic and.
And we have proven that our durable business model plays a critically important role in protecting and enhancing lives across the globe.
Our journey continues and we go.
That completes my prepared remarks, and I'll now turn the call over to the operator to begin the Q&A session.
Operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Our first question comes from Brandon Folkes with Cantor Fitzgerald. Your line is open.
Hi, Thanks for taking my question and congratulations on another good quarter.
Maybe yes.
Just see what you can say about this but you know.
I think we see.
In sum total coming out.
J&J vaccine and you're having a few million doses.
In March and I think yes, I see your <unk> guidance as well.
Granted on January earnings call and so did they reaffirm.
They target of supplying 100 million doses like June. So maybe is there anything you can comment in terms of.
If there are any manufacturing challenges.
As just part of the AD.
Good day.
Non table that was initially and then.
Maybe secondly, I'll just wrap this thing because it supposed to see day by related but thank you for the backlog and opportunities final I think that's very helpful.
Any color you can give around capacity utilization maybe of the one three.
And then.
And this opportunity funnel.
Could you add that on top of this $1 3 billion without additional capacity.
And if I'm correct up yet recognize the one to three years. Thank you.
Thanks, Brandon I appreciate the question and thanks for joining the call.
Let me say a few things about the first question related to J&J in our.
Collaboration agreement with them and then I'll ask cite Hussein who runs the <unk> business unit to comment a little bit about that backlog metric and the capacity question you raised Brandon.
So just as a reminder to everyone.
Our two key deliverables to J&J and it goes for Astrazeneca as well as.
As we've stated before our pretty clear first.
We were to have established a large scale manufacturing infrastructure.
And tech transfer their candidates to this infrastructure to our bayview facility outside of Baltimore.
During 2020 and early into 2021 and that is essentially complete.
Commitment or obligation if you will is to manufacture and supply drug substance for their vaccine candidates.
In support of their global supply chain goals, which they had been pretty open about in terms of the number.
And we're right online Brendan with doing that timing wise as well as capability for both J&J and Astrazeneca.
Specific to J&J.
You know what they said in terms of their short term goal is to provide as many as 100 million doses to the U S government in the first half of 2021, and we're right on schedule to to support that so thats really all of the update.
Other than to say and acknowledge that.
Companies like emergent and many other companies.
Have done yeoman's work over the last.
10 to 12 months and bringing this additional capacity online and being on the verge of literally being able to make available hundreds of millions of doses of multiple vaccine candidates and we couldnt I couldnt be more proud of our team who has played a critical role in doing that.
And maybe with that side I'll turn it over to you and let you talk a little bit about the backlog and the capacity portion of Brandon's question.
Absolutely. Thank you Bob and thank you Brandon for the question so.
Touch on both of those starting off first on capacity.
So as we've said our CMO services utilizes a network of multiple development and manufacturing facility. So we look at capacity across the entire network.
Currently of our network of nine sites five or C. D M O revenue generating.
These five revenue generating site, our bayview drug substance facility is highly utilized but our other four revenue generating facilities have available capacity.
And they have been rapidly onboarding new projects.
As the part of the new business that we've been winning between new projects and existing project extensions.
When it when it comes to the backlog and the opportunity funnel. So the backlog does take into account secured business that is spread across.
Our network of development and manufacturing sites, specifically the revenue generating sites that we've mentioned added those line.
The opportunity funnel.
Takes into account proposals that we had issued in discussions that we are in across those across that network of nine development and manufacturing site.
Alright.
Those are potential opportunities that if awarded would.
It would be additive to the backlog over the next one to three years.
Alright, Thank you very much about day.
Thank you. Our next question comes from Jacob Hughes with Wells Fargo Securities. Your line is open.
Hey, good afternoon Gary.
Can you hear you fine Jake thanks for joining.
Hey.
Just a couple of questions.
Thanks for the additional disclosure just on the backlog.
Is there a breakout or some directional commentary around COVID-19 versus non COVID-19 working out in the backlog.
Currently they've got Novavax announced.
A memorandum of understanding.
With a company called GAAP Gabby and I was just wondering if that was part of your.
Partnership with them and then finally.
Just on Narcan.
I think you reiterated the guidance, but some of the commentary around generic entry change versus what you indicated at the beginning of the year. So I was just trying to get some additional clarity on the share.
Thanks, Thanks for the question as Jacksonville.
I'll take the know Vivek question and comment also.
And then.
Seth I'll throw it back to you for the backlog question.
Jakes.
So I think first of all Jay when it comes to Novavax just to be really clear.
We did some early work.
With the Novavax COVID-19 vaccine candidate.
In the kind of the middle of 2022 Tech transfer that candidate into our Bayview facility.
And do some development later stage development work and then manufacture the the phase II clinical trial material for that candidate. They are now working with a number of other.
Contractors, both on drug substance as well as our final drug product services. So I really can't comment on exactly what theyre doing and with whom.
On the Narcan nasal spray question.
Again, I think we've been pretty clear of that.
Our guidance number for 2021.
Assumes as rich indicated as part of his prepared comments that there will be a generic.
Entrant as soon as the appeal process is complete well, we cant exactly say.
The month end date of that timing, but we expected in the second half and hence our revenue range for Narcan is predicated on.
On some generic entrant into that market in the second half of.
<unk> of this year.
Also note that.
As I said in my prepared remarks, Unfortunately, the opioid epidemic is getting more.
Critical not less the number of overdoses and unfortunately overdose related deaths is increasing.
So it's imperative even more so.
We.
Emergent make sure that we fulfill our commitment and obligation around education.
The individuals who are at risk of an opioid overdose.
We educate and most importantly, we make available as many units of Narcan as we can while we're doing that education process. So we're committed to that as we ever have been and it's it's it's making a difference so with that.
Side I'll, let you handle the backlog question that did Jake race.
Thank you Bob and thank you Jake for the question.
So first off with respect to the backlog.
I'll provide a further breakdown.
Of that number but what I can comment on is that the backlog is a mix of COVID-19 and non COVID-19, it's a mix of clinical and commercial scope projects.
It also includes a mixture of the two customer segments that we target one is pharma and biotech with small mid and large size.
Price innovators as well as governments and Ngos.
As a reminder, the CDN most services business continues to be indication agnostic.
And we deploy these services to a mix of Covid and non COVID-19 opportunities.
The critical thing from a COVID-19 standpoint is that it reiterate.
The importance of mammalian and viral vaccine technology platform within the industry.
Which are at the heart of our <unk> offerings.
Okay. Thanks for taking my questions guys.
Thanks Jake.
Our next question comes from Jessica Fye with Jpmorgan. Your line is open.
Hey, guys. Good evening, I hope, you're well I had another one on the CMO backlog.
Specifically, how does the backlog number of 134 billion reported today translate from the $1 8 billion of I think you are claiming established current portfolio.
That was reported with <unk>.
Are these metrics, representing the same thing and with about $200 million sort of converted to revenue recognized over the fourth quarter and about $50 million added to backlog in for Q, what else would have contributed to the $500 million decline. If they are representing the same concept.
Yes, Thanks Jess.
So side, maybe a combination of you enrich can kind of reconcile the numbers for Jeff.
Sure why don't I, why don't I take the first cut at that Bob and insight you can you can jump in and filling any gaps.
But Jeff first of all thanks for the question. So the secured portfolio represented.
The total number of contracts that had been secured and put in place.
Any change during any given period.
That the backlog is going to represent revenue that's been realized from those contracts. So that serves to reduce the backlog and then it will be increased by any contract value that has moved from the opportunity funnel into backlog itself. So it's.
It's really again representing.
An ongoing point in time.
Figure that that gives you the outlook for the next one to three years in terms of revenue generation potential of the <unk> business.
Can you help me bridge from the one eight to the 134 when it seems like there is $200 million of revenue recognized from struggling with so the one eight was a full year. So from the beginning of January.
And so you take the full $450 million of CD and low revenue that was recognized and subtract that from the one eight and then you add back in the.
Revenue new contracts business, that's been realized.
Okay. So then thinking ahead.
Just to make sure I understand with north of 900 million.
C D and low revenue set to be recognized this year, assuming here somewhere.
In line with the guidance out of that $1 3 billion backlog.
It seems like that would leave about $400 million of kind of locked in business for the CMO in the future beyond which you would have to kind of secure more business from the funnel is that the right way to think about it.
That is right, yes, and then and as <unk> indicated we are working.
Working hard and securing new business as we move through the year.
We'll continue to update you each quarter in terms of the amount of new business that has been secured each quarter.
Okay perfect and.
And maybe just last one on the numbers.
Mentioned that at the midpoint of the first quarter revenue guidance that comes out to about 18% of the flow here protection can you just talk about which revenue lines. In particular are you expect to be more backend weighted.
Yes so.
Couple of things there. So if you look at kind of the first quarter per.
Performance last year versus this year Theres there are similar patterns on a year over year basis.
Across the portfolio.
With the exception of CMO, which is which we expect to be meaningfully higher in the first quarter than it was in the first quarter of last year.
The the medical countermeasure products products related to anthrax vaccines, and hence an ATM 2000.
Are the ones that are going to be a little bit lower in the first quarter than you saw in the fourth quarter of last year and so.
And the reasons for that on a cam being as we mentioned in the prepared remarks, we have fulfilled the last option exercise. So so we are working towards another option exercise per ATM 2000, which we fully expect to obtain here.
Consistent with the long term commitment of the 10 year contract that we signed back in 2019, and then with the anthrax vaccines.
Some seasonality in the in the production and delivery patterns that is consistent here.
With prior years as well and so so youll see a similar type of pattern unfold there.
And I think rich you commented on but just I think you all should expect that 2021 will have a similar similar quarterly revenue cadence.
To what we've had for the last four or five years, which is roughly 40% in the first half 60% in the second half and as rich said the midpoint of that Q1 revenue number of 18% is right in line with what we were last year as well as the last couple of years or so.
As hard as we tried to remove some of the lumpiness it tends to stick with us.
Yeah.
Okay, Great and maybe if I could just follow up on I think it was brandon's question from the beginning related related to J&J timing.
Within the CMO business, and just kind of quarter to quarter.
Variability is.
Is that a factor in.
Yeah.
In the kind of quarterly cadence CMO revenue or should we think of that revenue line as being fairly stable over the course of 2021.
Yes, rich you want to comment on that and then I would just remind remind you, Jeff and Brendan and everyone else that.
For 2021.
We're operating against a couple of.
CMO contracts, including.
The task order with HHS.
As well as the commercial supply agreements with AZ and J&J, which are more.
Say production slot driven as opposed to dose driven so.
Back to Brandon's question, if folks are.
Thinking that our revenue for C. D M O is.
Overlaid tied to the delivery of doses by J&J or AZ.
That's probably not the best way to think about it.
And so to answer your question Jess I think on balance we do expect a smoother.
And more level pattern of revenue and CMO.
Having said that there is.
Some.
Some ramping as well that is occurring as we go through the year. So.
So there will be.
First quarter is likely to be a little bit less for the full year then than the other quarters of the year.
I did want to also just go back and make one additional comment to our backlog and opportunity funnel conversation.
Just to make sure it's clear.
That the opportunity funnel does not include any any potential value of the extensions of the existing commercial service agreements with either J&J or astrazeneca. So so those are additional potential opportunities that are not captured in the opportunity funnel as we sit here today.
Got it thanks, so much for taking my question.
Thanks Jess.
Thank you. Our next question comes from Dana Flanders with Guggenheim. Your line is open.
Great. Thank you very much for the questions.
The first is I was wondering if you could just elaborate a little bit on your Covid <unk> program, which I know you mentioned Bob in your prepared remarks, I'm wondering if you could just help frame for people kind of the dataset.
But you are expecting here shortly and just the level of benefit you are hoping to show.
And then how you see that fitting into the treatment paradigm potentially.
And I guess also kind of the amount of data you would expect to see different strains as.
As well and then I have a follow up.
Okay, great, so I'm going to introduce and invite Dr. Laura <unk>, who runs our therapeutics business unit and.
His shepherding this critically important.
HIV treatment to answer the questions and so Laura if you could weigh in here that would be great.
Okay. Thank you and thanks for the questions Dana.
I'll try to add a little bit of extra color from the remarks that Bob included you can probably tell that our trial that was in collaboration with NIH day insight 13 trial has finished its recruitment. So we're sort of in that successful stages getting too.
The data soon and we'll be looking at the opportunity to move for it than to EUA and that data set that we'll be seeing this was a trial that was run with with NIH with the number of hyper immune products in it so that there'll be a combined dataset as well as individual datasets for each product and.
What we were looking for you know this is hospitalized patients. So it is looking at patients that are further through the course of the disease. So within 12 days of symptoms.
And it uses an ordinal scale, so looking at meaningful benefit across some of the.
The factors that contribute to the disease outcome. So.
The hospital, whether theyre on respiratory support whether they're in ICU and looking for a meaningful shifts so that there's less time in hospital or a faster recovery for those patients.
In terms of.
Youre very <unk> question. This is an interesting question and certainly an evolving landscape and we are seeing a number of variants come up with Covid and this isn't unexpected but certainly there is a mixture as we see different strains of the virus emerged so the trial was <unk>.
International trial.
Did it run in the number of sites and countries and so we will be looking at that data set to trying to understand if there may be some data reflective of different day in but we're not expecting a clinical data set to be able to sort of tease that out.
I will say, we have collaborations ongoing to test the product against variance and I think this will be an important data set to understand how that how a polyclonal product can help to address this additional challenge.
So hopefully I answered your question, but let me know if I missed anything Dana.
Okay, no that was great.
Thank you and then just as a follow up on the Anthrax franchise can you just.
Comment on timing of when you would expect.
To get a new contract in place and price expectations.
Yes Dana.
Yes, I think as we've talked about the.
<unk>.
For the strategic National stockpile from <unk> to AB 709, <unk>, we started in two.
2019, and it really kind of kicked into higher gear. In 2020, we will continue to execute in 2021, I think our expectation is that the phase three clinical trial for AVP seven nine will likely run through the end of this year.
2021, and we'll be sharing that data, obviously with the government and we will.
I'll start some discussions around the the follow on contract for.
Perhaps in the second half of this year or first half of next year I think we've been pretty clear about what the pricing expectations are from our prior conversations and as you know initially.
We negotiated a slightly lower price per dose for AB 799 versus virus racks, given the EU a nature of the use and as well as the fact that the U S. Government had committed a fair amount of development capital to co develop that product so.
All will be taken into consideration when we sit down and talk to them about the longer term contract.
Okay, and if I could just squeeze in one last quick one Richard I know you just mentioned that the commercial options with easy and J&J are not assumed or not included in that opportunity Trinity funnel.
And I assume those kind of discussions are ongoing but just wondering if theres any kind of trigger points that we should think about for potential extension of those commercial contracts I think easy and if I'm not mistaken just goes through.
2021 as it is now so just wondering if you could frame that for us. Thanks.
Sure and so these contracts as you as you recognized.
Johnson <unk> Johnson as a five year contract.
Now the first two years of being committed.
And then Astrazeneca has a three year contract with the first year only being committed at this point in time.
Clearly as we are planning for production in the facilities.
There is that there is a point in time at which.
We need to obtain commitments for that capacity.
Thats available.
And so with a sufficient lead time.
In advance of.
When that would otherwise be available that's when those discussions would commence so we will certainly keep you posted if and when we have additional information to provide you on that front.
Okay. Thank you.
Thank you. Our next question comes from Keith Mackay with Chardan. Your line is open.
Yes. Thanks.
So rich you gave us.
And estimates for gross margin for the year and specific to see the low activities.
As you move more into the.
Drug substance or some of your contract.
We expect that to be to.
To remain at the higher end of what we would see from CDMA low.
Next question is.
How should we think about.
OWS activity.
Hum.
As it pertains to scheduling the slots as Bob mentioned with your commitments to J&J and easy.
Yeah.
So I just want to make sure I understand the question. So how should we how should we think about available.
Drug substance capacity as it relates to those contracts.
Well just yet just the activities youre performing under those contracts that are going to produce the gross margin guidance that you gave us how.
How do we think about with the <unk>.
OWS activities layer in to what you're already committed to doing poorer J&J in AC.
So.
If what you're asking is how does the.
How does the BARDA task quarter relate to all of that.
Certainly there is still an element of the task order that remains in play for 2021.
As you know there were two components there.
Of the $628 million task order, there would be a reservation fee.
Which.
It's being amortized monthly from May of 2020 through December 31, So there is a portion of revenue.
<unk> two.
To both revenue and gross margin in 'twenty, one and then there was reimbursement for certain capital expenditures as we invest in expanding the capabilities and capacity primarily in Rockville, but also in.
In our Camden facility.
So.
Those are those in combination with the production activities under the other two commercial service agreements.
Our all influencing along with other business that we continue to produce outside of those contracts.
All of that is combining to influence the margins in 2021.
Okay.
Switching to the follow on contracts.
Starting with HCM options is.
Covid impacting the ability to conduct and secure.
Agreement on the exercise of the option.
Yes cancer Great question.
We haven't seen.
Any evidence of a slowdown or a delay or a deep prioritization.
<unk> kind of business as usual in that medical countermeasure part of our business. So we're not expecting any any delay there.
Okay, and then for <unk>.
Bob.
I know.
They're looking to move.
Move forward with the next contract there so.
Guiding is the expectation you said.
Cure that late second half or.
Can you help us out.
The timing of that if you can give us a little more clarity.
Sure so.
It will all be driven by the U S government initiating.
The request for proposal process to which we will quickly respond.
And then it will follow the normal <unk>.
Back in force.
<unk> with the U S government and contract negotiations, it's really difficult to predict.
With any level of precision.
The exact timing, but our expectation is that the RFP will come out.
We will respond.
We will be engaged in contract negotiations during this year 2021.
We expect to put the new contract in place this year.
Okay. Thanks.
Sure. Thank you.
Thank you. Our next question comes from Boris <unk> with Cowen Your line is open.
Great. Thanks for squeezing me in.
Net of questions have been already answered. So I just wanted to maybe probe a little further into the <unk> business.
How does the margin I'm just curious in these future and potential future sitting from a revenue compare to margin that you observe in 2020, and then kind of in a similar context are you seeing more competition as seed ammo business now and going forward than there was in 2020.
Yes, Boris great questions. Thanks for joining the call. So rich you want to respond to the margin per.
<unk> of course is the question and then maybe side you kind of weigh in on the low level of the competitive landscape for some of these contract opportunities in the funnel.
Sure. Thanks.
Thanks, Bob and thanks for us for the question.
So the way, we think about gross margin from the C D and low business on a normalized basis.
On a go forward basis would be approximately 45% or potentially better CD and low gross margins.
That would not come into play in all likelihood until until 2022 or beyond depending on.
Based on the fact that in 2021, we are getting.
Some support and lift to the.
The gross margin profile from the.
From the BARDA task order as we've highlighted and discussed in prior conversations.
Gotcha and on the competitive side.
Yeah. Thanks, Thanks, Boris for the further question so on the competitive landscape side.
What we've seen is across our technology platforms and certainly.
The acceleration of our credibility as a viable and reliable tier one biologic CDMA option.
There continues to be.
More demand.
Out there than available capacity from credible tier one biologic <unk> option.
Option.
Outsourcing decision so right now we see ourselves in a leading position from a competitive landscape and our value proposition that Bob had mentioned in his prepared remarks, where.
Where we take into account the best of both worlds from a pure play CDN melon and embedded E BMO.
Has been very well received in the discussions to date with them with potential new opportunities.
Got you and my last question also on the <unk> space. When you outlined these numbers backlog numbers. For example does that include any additional costs that would need to be made to invest in a facility to accommodate the specific requirements or would that be on top of that and whoever they are.
The other side of the contract with pay for it.
Yes, so I think in general for us that the opportunity the backlog.
<unk> represents the remaining value that we have yet to be recognized the opportunity funnel.
Right now.
$689 million number.
I think.
That represents the.
The revenue opportunity for <unk>.
Contracts that we are competing on.
It does not address I think potential additional capital expenditure that we might have to invest or getting reimbursed on are from from the from the other side. So hopefully that helps a little bit I know it doesn't exactly answer your question.
<unk>.
Got you, Okay, well, thanks, Paul for the answer that I'm sure.
Thank you.
Again, if you would like to ask a question press. The Star then the one key on your Touchtone telephone. Our next question comes from Lisa Springer with singular research. Your line is open.
Thank you for taking my question.
Given the company is very strong balance sheet and unused.
Borrowing density I'm wondering how likely it is we're going to see some return to M&A in 2021.
And if we might see acquisitions in the Covid space.
Yeah. Thank you Lisa for joining and thank you for the question.
I think we in general as we've talked about with analysts and investors a little over a year ago, we remain.
Keen on looking at strategic assets.
Where we can build upon or establish new leadership positions across the niche markets of the large public health threat market, where we think we can best compete in whether that's in the areas of vaccines or therapeutics or devices or even the CMO space. So.
We remain very active in assessing and doing diligence on opportunities.
So.
Again, it all is fact dependent upon kind of evaluation expectations of the seller, but we continue to see interesting opportunities across all four business units.
To build and to scale those leadership positions.
In addition to that we remain interested in looking at.
Development candidate opportunities for purposes of building a durable robust pipeline of development candidates that will also help fuel our growth well into the future. So it'll be a combination of both of those activities Lisa.
Could we see the company acquiring more manufacturing capacity.
I think thats always a possibility.
Lisa, but I think as I've and my colleagues have talked about.
Sometimes given the unique nature of our infrastructure.
As well as the technology platforms, and our three pillars of the service offering.
It might be more economical for us to to build rather than buy so I think we will continue to evaluate all options for growing net <unk> business unit.
Okay, well, thank you and congratulations on a very good year.
Thanks Lisa.
<unk>.
Thank you and I'm showing no further questions in the queue I would like to turn the call back to Mr. Burrows for any closing remarks.
So Bob maybe before you do that I just wanted to clarify one thing about the narcan guidance for this year.
And that is first and foremost as you all know we are appealing the Teva litigation decision and we are mounting a very strong appeal and we are.
Making every effort to to turn that back in our favor. So I just wanted to make sure that that was clear number one number two our guidance does assume that there will be competition in 2021.
The earliest that that there could be any generic competition would be if and only if we were to lose the appeal process and that's what is implied by the commentary that we made both in the press release as well as on the scripted call. So I just wanted to make sure that that was clear.
Terrific. Thanks, Thanks rich.
Thanks, everybody and with that ladies and gentlemen, we now conclude the call.
For your participation and please note an archived version of today's webcast as well as a PDF version of the slides using.
During today's call will.
He will be available later today and accessible through the investors landing page on the company website. Once again, thanks, everybody and we look forward to speaking with all of you in the future Goodbye.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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Yes.
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This growth.
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