Q2 2021 Emergent BioSolutions Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the emergent Bio solutions second quarter 2021 financial results Conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star 1 on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Mr. Bob Burrows Investor Relations Officer for the company. Please proceed.
Thank you Michelle and good afternoon.
Session. Thank you for joining us today as we discuss the operational and financial results for the second quarter of 2021.
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. There is a series of slides accompanying this webcast available to all webcast participants.
Turning to slides 3 and for during today's call, we may make projections and other forward looking statements related to our business future events, our prospects or future performance.
These forward looking statements are based on our current intentions beliefs and expectations regarding future events any forward looking statements speak 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 of 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.
Initial measures that of all involve adjustments to GAAP figures in order to provide greater transparency regarding emergence of operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net income and adjusted EBITDA and the reconciliations between our GAAP financial measures and these non-GAAP financial measures.
GAAP on you to slide 5 the agenda for today's call will include.
Bob Kramer, President and Chief Executive Officer, who will comment on the currency of the company and Rich Lindahl, Chief Financial Officer, who will speak to the financials for <unk> 'twenty, 1 as well as the forecast for full year 'twenty, 1 including guidance on <unk> 'twenty, 1 total revenue.
Revenues for this will be followed by a Q&A session, where additional members of the executive leadership team are present and available as needed.
Finally for the benefit of those who may be listening to the replay of the webcast. This call was held and recorded on July 29, 2021. Since then emergent may have made announcements related to the topics discussed during today's call and.
To introduction of I'd now like to turn the call over to Bob Who's comments begin with slide 6 Bob.
Thank you Bob and good afternoon, everyone. Thanks for joining us on the call. This afternoon.
Today I'd like to spend some time talking about the progress we've made at our baby of site and then talk more broadly about the health of the overall business.
And our continuing dedication and focus on public health threats on.
Our second quarter performance reinforces the strength of our strategy and we are maintaining our overall guidance for 2021 rich.
Rich will go over in more detail those numbers in a few minutes.
My comments of summarized across.
And with that 6 and 7 in the deck accompanying the call.
Turning first to our efforts to produce COVID-19 vaccines.
Been a great deal of attention paid to emergent <unk> history as a public health threats company with a leadership role in working with the U S government on Biodefense.
When.
<unk> truck America turned to emergent because of our history and unique capabilities, while millions of COVID-19 vaccine doses that we manufactured our currently protecting people around the world we face serious challenges along the way.
We didn't always live up to expectations, including.
Including those that we set for ourselves.
However, we have learned some important lessons, which are allowing us to improve our operations and at the same time strengthening America's public health response for the future the.
The FDA inspection of Bayview earlier, this year identified a number of areas for improvement.
When the power of along with Johnson <unk> Johnson, we established a comprehensive robust quality improvement plan, which includes facility improvements capability building and deployment of enhanced tools and controls.
We review of this plan with the agency and immediately began its implementation.
We also made additional investments during the quarter and quality compliance and operations. All of this work is in order to satisfy both ourselves as well as J&J and demonstrate to the FDA and we've achieved the level of sustainable compliance that will allow us to resume production.
<unk> we've.
We've made significant progress toward this goal and as we announced earlier today, we received the green light from the FDA to resume production at the site, which will continue to be the subject of routine inspections by the FDA.
The emergent team has shown remarkable resilience and I want to think.
Them for staying focused on delivering on our commitments to patients and customers. They know at the end of the day, that's what matters most.
I also want to recognize our strategic partners and particularly the strong collaboration with our J&J colleagues, we continue to work closely with them and the FDA.
As previously manufactured batches of COVID-19 drug substance are released and added to the J&J is emergency use authorization, helping protect tens of millions of lives around the globe.
We're awfully proud of both of these accomplishments the hard work and investments that we've made.
If you over the last decade in particular, the last few months are starting to pay off.
In addition, we continue to work collaboratively with Astrazeneca to complete all documents related to their drug substance. So they and the U S government can make decisions regarding the disposition of this.
And Vale.
Moving more broadly to our overall business. We're in year 2 of our 2020 through 2020 for strategic plan and continue to make meaningful progress against that plan.
So let's start with our core medical countermeasure business, our work supporting the U S government's.
Maturities to protect the American public against smallpox anthrax and other category a biologic agents remains stable with respect to our smallpox franchise in the second quarter of the U S. Government has exercised and funded the next term extension for <unk>.
Prey of thousand under our 10 year contract.
This option exercises valued at approximately $182 million and requires all doses to be delivered by the end of this calendar year.
This quarter, we also secured the next option exercise for our smallpox therapeutic.
<unk> IV product that at approximately $56 million.
For our next generation Anthrax vaccine candidate <unk> 7.909, we continue to engage with the government regarding the exercising the final option under the existing contract to procure additional.
It is for inclusion into the strategic national stockpile.
The current procurement contract for 80.799 was put in place in 2016 and facilitated procurement by the SNS starting in 2019, while we seek full approval by the FDA.
No we continue to make good progress toward our target of submitting our <unk> 799, BLA later this year.
In addition, we recently secured of procurement contract to supply of doses of and fulfill our polyclonal antibody therapeutic for trading in relation of anthrax.
Canadian government as part of their anthrax preparedness strategy.
On the R&D front in addition to our anticipated BLA filing for <unk> 70, 909, we advanced the number of our medical countermeasure programs and I'd like to highlight 2 of them.
Specifically, we continue.
New work on our Covid <unk> candidate, which is being developed in collaboration with NIAID and BARDA in the U S Department of defense as an early treatment option to address at risk COVID-19 populations Covid <unk> leverages, our polyclonal hyper immune platform.
To the can continues to show neutralizing activity against variance of Sars Covid 2 virus in in vitro models, we anticipate in the near term the initiation of the phase III study led by NIAD assessing the effect of hyper immune <unk> on patient populations.
<unk> not yet progressed to severe disease to determine of progression can be impacted.
In addition, we recently obtained approval for our <unk> auto injector from the Belgian regulatory authority.
Several years ago through interactions with various governments around the world we identified their need.
Need to have auto injectors available in case of nerve agent attacks and as a result, we invested in building that capability achieving this first approval from our auto injector platform is a key milestone in the maturity of our auto injector platform.
Moving next to our contract development.
The of manufacturing business or CMO.
When we first laid out in our last 2 day plan. The goal is to leverage further our drug manufacturing network of 9 sites to provide development services drug substance and drug product services to a diverse customer base.
And then we obviously have seen significant growth related to the pandemic, which was unanticipated unanticipated at the time, but beyond COVID-19, we continue to see strong interest from current and potential clients and are winning new clients and projects in all 3 service pillars, those being development services.
<unk> drug substance and drug product and drug packaging interest is coming from small mid and large companies as well as governments and other organizations.
Rich will provide detailed information on new business, the backlog and are rolling opportunity funnel funnel.
But I'd like to emphasize that even though we expect variation quarter to quarter as we grow the business the growth over the 2019 baseline in our strategic plan is considerable.
Overall, the key takeaways that our <unk> business unit remained strong as the industry's demand for.
Logic manufacturing services continues to grow while we pursue of becoming an increasingly important service provider in support of pharma and biotech innovation.
Finally, a third pillar of our 2020 for strategy was to continue our focus on public health threats while diverse.
Diversifying our customer base beyond the U S government and I am pleased to report the continued progress on that front as well as you know the opioid crisis has been of public health threat and it's claimed far too. Many lies and made even worse by the pandemic.
As announced earlier this week, we're very proud.
For a variety of working with several nonprofits to help raise awareness of the risk of accidental opioid overdose through of months long public awareness campaign called reverse the silence.
In addition, as we have previously discussed the U S Circuit court of appeals that schedule of the oral argument.
Proud of the for Nokia in the U S appeal for August the second on the ongoing patent infringement litigation.
Based on this timing we believe the decision is likely by the end of the year.
Regardless of the outcome of the appellate court's ruling we continue to focus on the public health threat and our role as a provider of.
<unk> to address the opioid epidemic.
Continuing with the diversification of theme, while the travel space travel health space has been understandably challenging we continue to make good progress with building our development stage vaccine candidates.
We still expect to initiate a phase III trial.
While for our chikungunya virus DLP vaccine and true 2021.
In addition, and in support of this important development program, we recently announced positive 2 year persistence data from our phase II clinical study indicated that our vaccine candidate appears.
To generate a rapid and durable immune response, we intend to publish the results of the study in the near term.
We also plan to initiate a phase 1 study in late 2021 in early 2022 related to a number of vaccine candidates in the pipeline, including our shigella.
LASA and universal flu vaccine candidates.
As you can see we expect that the remainder of 2021 will be Disney for our product development teams, including clinical regulatory and quality as our pipeline continues to mature.
That wraps up my comments regarding the business overall.
On the personnel front, we recently issued an 8-K announcing the reorganization of my direct reports.
Rich Lindahl, our Chief Financial Officer, Karen Smith, our Chief Medical Officer, and Katie Stride, our Chief Human Resources Officer continue to report directly to me.
In addition, rounding out my direct reports Adam Havey. His role has been expanded to include overall responsibility for all of our business units as well as global manufacturing operations Mary <unk> role as the expanded to include a focus on operational excellence in addition to.
The current responsibility for our global quality and finally of tool surrounds role has been expanded to include the management of the global Communications and public affairs function as well as the global government Affairs team.
As part of this reorganization the role of executive Vice President for.
For our manufacturing and technical operations that had been held by Sean Kirk has been eliminated and consequently, Sean is leaving the company.
We are of deep appreciation for <unk> 18 years of service of emergent and wish him the very best for him and his family going forward. We believe this organization.
Ocean and reorganization of our management team allows us the best positioned for the long term success of the strategic plan.
To conclude as Youll hear from rich our second quarter results demonstrate that emergent business remains durable resilient and poised for growth we're.
<unk> with our 2020 for strategy and emergent is well positioned to play a meaningful role in strengthening our national public health threat preparedness.
Net continue to be proud of each member of the emergent team who come in to work every day focused on our mission to protect and enhance life.
On trial now ill turn the call over to rich, who took us take us through the detailed results for the second quarter rich.
Thank you Bob.
Good afternoon, everyone and thank you for joining the call.
I'll start on slide 9.
As you can see from today's earnings press release during the second quarter of 2010.
The 1 we had solid top line performance, which was consistent with our expectations. While our expenses were clearly impacted by financial ramifications associated with the situation at our Bayview facility, including direct costs associated with remediation efforts and inventory write downs as well as other cost to support and defend.
Great reputation.
Despite recent challenges we have continued to execute across all aspects of the business vaccines therapeutics devices and CMO.
The financial condition remains strong with the liquidity and financial flexibility to fund our operations and pursue opportunistic investments.
Our core and we remain steadfast in our unwavering commitment to supporting global preparedness and response to public health threats.
Ladies announcement that we are clear to resume manufacturing of Bayview is a testament not only to that commitment, but also to the strong teamwork and organizational discipline that have been hallmarks of this company throughout.
It's nearly 23 year history.
With that please turn to slide 10, and let's first look at the details of our second quarter performance.
A quick run through of key highlights include total revenues of $398 million on increase of $3 million versus the prior year and in line with our guidance and adjusted EBITDA of 50 million.
And adjusted net income of $18 million, both decreases versus the prior year due to a variety of 1 time and other expenses, which we will discuss in a moment.
Breaking down quarterly revenue into its components.
Anthrax vaccine sales were $52 million lower than the prior year due to timing of deliveries.
Narcan nasal spray sales were $106 million an increase over the prior year driven by continued strong demand for this critical drug device combination product for opioid overdose reversal across both the retail and public interest channels in the U S as well as increased Canadian sales.
Other product sales were 20.
Consistent with the prior year and CD of most services revenue came in at $191 million, an increase over the prior year and reflecting contributions from all 3 service pillars, primarily for our government and innovator partner's response to the COVID-19 pandemic.
As Bob noted in his remarks earlier in.
On July the U S government exercise of the next AGM 2000 contract option that is valued at $182 million. Accordingly, we now expect sales of <unk> 2000 to resume in the third quarter and to complete all related deliveries by the end of 2021.
Looking beyond revenue the quarterly results also.
The formula food cost of goods sold of $228 million.
A $98 million increase over the prior year and reflecting the increased costs associated with the substantial increase in the <unk> services revenues as well as $42 million of inventory write offs, which I will return to in a moment.
Gross R&D expense of 49 million.
Also on this.
Consistent with the prior year, reflecting our continued commitment to investing in our pipeline of development programs across our free product focused business units net.
Net R&D expense of $24 million or 6% of adjusted revenue consistent with the prior year SG.
SG&A spend of $91 million or 23.
Total revenues an increase over the prior year, and primarily reflecting the impact of higher costs to support and defend our corporate reputation.
And combined product and CD and low gross margin of $144 million for 39% of adjusted revenue on.
The decline of $97 million and reflecting.
Percentage of impact of $42 million of inventory write offs due to raw materials and in process batches of the Bayview facility that the company plans to discard as they were deemed unusable.
$43 million associated with the product and service revenue mix, which was weighted more heavily to lower margin products and services and.
And 12 million.
The <unk> associated with costs incurred to remediate and strength in manufacturing processes at our Bayview facility, many of which are temporary in nature.
Turning to slide 11, we will now review of our key <unk> metrics.
In the second quarter, we continued to obtain incremental contract awards, resulting in secured new business of 53 million.
Yes.
However, this outcome was significantly offset by $108 million of negative contract modifications.
As of June 30 of the backlog was $1.1 billion.
And lastly, as of June 30, the opportunity funnel was $672 million down from $807 million.
At March 31.
While the CD in low teens ongoing business prospecting and marketing initiatives continue to generate new opportunities for now we are removing potential opportunities that they view as all manufacturing activities of that facility are currently prioritized to support the J&J COVID-19 vaccine.
As a reminder.
The opportunity funnel does not include any value associated with an extension of the commercial supply agreement with Johnson <unk> Johnson into years 3 to 5 of the existing contract.
On Slide 12, you can see the sequential trends in these metrics over the last for reporting periods, we remain committed to serving our existing customers.
Continue to execute on our marketing marketing initiatives with pharma biotech innovators across all 3 of our service pillars.
We look forward to making further progress on this important part of our business as we move forward from here.
Moving on to slide 13 for a review of our balance sheet and cash flow. We ended the second quarter in a strong liquidity.
In addition, with $448 million in cash and $262 million of accounts receivable, resulting in aggregate current liquid assets of nearly $710 million.
This compares with approximately $732 million of aggregate current liquid assets as of the end of the first quarter.
We also still have undrawn revolver capacity.
<unk> progressed under $600 million.
Finally at the end of the second quarter, our net debt position was $416 million and our ratio of net debt to trailing 12 month adjusted EBITDA remained below 1 times.
Please turn to slides 14, and 15 for a review of our 2021 forecast and associated key considerations.
The entrance.
As detailed in today's press release, we are reaffirming our 2021 outlook.
Fortunately, our 2021outlook takes into account of number of key considerations, which are listed in our earnings press release and remain largely unchanged from our first quarter update.
These considerations include no raxibacumab revenue until 2020.
To the.
The naloxone market remains competitive with at least 1 new entrant this year, but no generic entrant prior to the resolution of our patent litigation case.
And the successful manufacturing of J&J as COVID-19 vaccine at the view.
On that last point, the FDA Green light to restart production of the site, which we confirmed earlier today.
<unk> key milestone toward that end.
1 consideration that has been revised but our expectation for gross margin for the full year is now approximately 61% to 63% on a GAAP basis, a reduction of 200 basis points from the prior range of 63 of 65%.
This change reflects the impact of the Q2.
The 'twenty, 1 performance as well as expectations for the remainder of the year.
We anticipate that this lower gross margin will be offset by cost savings related to R&D and SG&A.
Lastly, we are providing third quarter total revenue guidance of $400 million for $500 million.
To conclude please.
For 2016 for some summary comments and.
In the second quarter 2021, we continue to deliver solid financial results that keep us on track with our full year outlook.
On a year to date basis, our revenues of $741 million represent approximately 41% of our full year 2021 forecasted total revenues at the midpoint a similar.
Weighting between first half on second half total revenues as has occurred in each of the last for years.
We remain confident in the strength of the business, which continues to be robust and resilient the capabilities capacity and financial strength needed to deliver preparedness and response solutions to a wide range of public health threats.
That completes my prepared remarks, and I'll now turn the call over to the operator that we can start the question and answer session operator.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number 1 on your telephone keypad again that star 1 for any questions.
As for just a moment to compile the Q&A roster.
And your first question is from the line of Brandon Folkes with Cantor Fitzgerald. Please go ahead.
Hi, Thanks for taking my questions and congratulations on all of the progress firstly on the.
<unk>.
Backlog.
Would you be able to just give some color around the 108 million negative contract modification, even if it's just the comment whether these of COVID-19 related or not.
And then along those lines.
Yeah can you comment at all the Fitbit any efforts to recover any revenue by J&J or border.
And then tick.
We will probably congratulations on the announcement. This morning can you just help us understand the difference between resuming manufacturing at value versus the rollout EUA for that facility does this have any impact at all on your ability to deliver to J&J or was it sort of.
Yes, I don't want.
To be flippant, but a bit more procedural and you have no limit you are now able to compete for for.
On the needs of J&J. Thank you.
Yeah, Brian and thanks for the for joining the call. Thanks for the series of questions. So.
I will tackle a couple of them and then I'll ask.
Ask rich to comment on specifically on your question about the the 108 adjustments.
So maybe first of all of your question about.
Attempts to recover in a money let me just hit that 1 square on our assumptions going forward in the guidance.
With that rich talked about and I talked about assume that we continue to execute against the the existing contracts that we have in place and we are.
Every expectation of being successful in doing so.
Your question, which is a good 1 around.
The resuming production versus <unk>.
Number of use authorization of authorization approval. So I think as you know up to now the FDA has approved the use of certain batches of material from J&J.
Under an exemption or an exception to their emergent.
Emergency use authorization and we expect that will continue.
As it relates to product that has already been manufactured going forward with I'll say new campaign production. There are a number of variables that would kind of go into that mix, Brandon, but just to be clear.
For.
Our the nature of our contract with J&J is that we get paid when we successfully manufacture drug substance. It really doesn't hinge on FDA approval of doses to be released to the public so with that rich can I ask you the comment on brandon's.
Emergency question regarding the 1 of the right number.
Yes, Thanks, Bob and thanks, Brandon for the question. So in terms of what drove the $108 million of contract modifications. The biggest component relates to the wind down of our work at debut with the with Astrazeneca.
But I would note that there were also a number of contract modification.
The firms with other clients that came about due to change orders in the ordinary course, so that's that gives a little more color on the 100 day.
Rich would you.
Just to confirm would you be able to say that that 108 did not come true outside of the Astrazeneca portion I guess through border or J&J.
Patients.
I think we're not going to confirm specifically, but I would say that under the under the contract as Bob said, our guidance assumes that we're going to fulfill the obligations that we have under our existing contracts.
No I think guy and I appreciate that I had to ask thank you for you, but there's a lot of good talent congratulations I know there's.
Please go ahead.
Thanks Brendan.
Your next question comes from the line of Jessica Fye with Jpmorgan. Please go ahead.
Hey, guys. Good afternoon. Thanks for.
For <unk>.
<unk>.
On.
The first 1.
Obviously considered updating you on.
The amount of waiting for some.
Or is that something we should still think about sort of coming for 1.
Yes, Jeff Thanks for joining the call. Thanks for the question. So you're exactly right. We are now kind of going through a process of.
We call our strategy refresh if you will adjust.
We're looking at the.
The principal assumptions that we've put together in the fall of 2019 for the 5 year period of 2020 through 2024, and making sure that those are still kind of valid assumptions. Obviously the business has gone through a bit of change over the last 15 to 18.
Yes.
And we hope to be able to update and provide some color either later this year or early next year at some type of of annual Investor Day.
Okay, Great and then the other question on Cogs.
On.
And then of the.
Changing the Cogs gross margin guidance.
There was the line in the press release.
The clicking along the lines of.
Many of the Inc.
GAAP income this quarter or expect it to the temporary I'm just curious if you could elaborate on which for which we're not.
Inventory write off volume.
Larry, but what else kind of is it isn't and should.
Should we.
In the trading that Youre changing 2021.
How should we think about the kind of residual impact costs.
The sustained 22 and beyond.
Great. Thanks, Rich you want to take that 1.
Sure.
In terms of things that were temporary you're right. The inventory write off is the biggest 1.
When we look at efforts to execute our quality enhancement plan there were a number of remediation costs.
Things like decontamination.
Some some work to update.
Operating procedures and documentation training of staff.
Things of that ilk, which really were more incurred on a onetime basis. Some may continue for a short for for a little bit longer but are not going to be.
Nessus.
And the magnitude they were in the second quarter for.
Persistently.
Some of the other costs were increased investment and additional staff as well to ensure that we had the ability to really execute our functions and processes at debut in <unk> of.
A cgmp comply.
<unk>, so that's really what what the differentiation is there.
In terms of our overall Cogs.
The guidance I mean, I think somewhere in that kind of low to mid <unk> area in terms of gross margin.
<unk> is not a bad assumption I mean, it's always going to depend on the mix.
Mix of products and services and.
And so we'll have to see how that evolves from year to year on overtime, but thats.
But overall fundamentally the business hasn't changed.
Okay great.
1 last 1 slightly related to the if any change in the way youre thinking about.
The company's need for Capex.
Capex investments going forward.
Yeah, I don't think so.
I don't think so just I think we continue to look for.
Particularly in the.
On the CMO area for opportunities.
Again the demand.
Clearly is there for the full portfolio of service offering that we have in our network. So we continue to look for opportunities there other than that I think it's the normal kind of course of roughly maintenance capex given our.
Man network facilities.
And normal investments in things like infrastructure and preparing the organization for continued growth.
Great. Thank you.
Thank you your.
Your next question comes from the line of Jacob Hughes with.
Non <unk> Securities. Please go ahead.
Hi, Thanks for taking my question.
On the on Narcan on the Narcan guidance based on the first first half I think of 180 million of revenue.
Assumes the deceleration in the back half of the year could you.
To provide some color on.
Your assumption there.
Sure Jacob Thanks for joining the call. So as you know and as you have kind of reconcile we had roughly.
$70.475 million of revenue for Narcan and Q1 are much stronger.
Well quarter in Q2 as rich commented on we.
We see some potential kind of tail winds going into Q3 and Q4.
We see strength overall in that part of the business.
We set our guidance accordingly, as the 3 of.
5 to $3.25 range.
And think debt.
<unk>.
We expect it to land within that range, but there are clearly some headwinds and some tailwind that could impact that but the.
On a bit conservative that's where we've landed the the revenue guidance for 2000.
<unk>.
Okay and then on.
The follow on rack the contract.
I mean has the RFP, the and issued yet and when do you think that could be awarded.
Previously you said, that's going to probably slip into next year, but could you provide an update on that.
Yes, the Jacobs, that's still our belief is that it will be a 2022 event.
So I think as we've commented on in the past we've taken any rack see revenue out of the guidance and forecast for 2021 and still expect that to occur next year.
Okay. Thanks very much.
Thank you.
Your next question comes from the line of <unk> Mackay with Chardan. Please go ahead.
Yes. Thanks.
2 questions. The first in terms of the <unk> pipeline.
Hum.
What.
Kind of pushback are you getting from potential customers given the the issues of debut.
Yes.
Okay. Thanks for joining the call. So as I included in my comments enriches as well.
Still see support and interest in the broad.
Rod service offering that we have throughout our network again as we've talked about.
Of the 9 sites that we have non network 5 of them are generating revenue today, and if you look and walk across the the.
For the development services the drug substance.
As well as the drug product capability that we have supporting as many as 5 different platform technologies, that's a pretty unique.
Product and capability offering that we have so we still see strong demand from small mid and large clients from clinical and commercial customers.
As government and strategic partners, so that business remains strong the interest is strong.
Again, admittedly, we need the get through this.
Bit of a firestorm and debut which were.
In goods in good place to go quickly.
But we again see continued strength in that CMO of business unit long term.
Okay.
For heavy civil.
Under the 2016 contract there were a number of options.
As you made the transition.
Customer of that product.
Can you remind us where we are in terms of remaining options and then of what point do we start thinking about of new supply agreements.
Yes.
Yes, so if you go back to.
In the second half of 2016.
<unk> that contract was structured in 2 pieces K there was a development piece for us.
Roughly $250 million.
And then there was a 1.2 of $1.3 billion dollar.
<unk>, if you will that was.
<unk> earmarked for their procurement of up to 50 million doses over the next 5 year period.
The SNS and BARDA began procuring.
799 under that second sleeve in 2019.
And that's our view.
Pat.
This next tranche of our next exercise will help bridge between now and when do we get for BLA approval.
And about a year and a half.
Okay.
And.
Does the agency's view.
On an approved product.
The difference then.
On what Youre currently buying under the.
The pre EUA in terms of.
Youre possible economics.
Yes.
Yes, I think when we put the the contract pricing in place in 2016.
We negotiated.
Thats really already been negotiated.
And I'm not anticipating a significant change from what was done 5 years ago.
Okay. Thanks.
And once again, if you do have a question. Please press Star then the number of 1 on your telephone keypad. Your next question comes from the line of Lisa Springer with singular research.
Research. Please go ahead.
Thank you good afternoon, and thank you for taking my question.
My question concerns of the amount of cash on the balance sheet I was wondering how likely are weighted see any M&A activity on the second half of the year end.
And what is the board's current thinking regarding share repurchases.
Yes, Thanks, Lisa for joining the call and thanks for the question. So I'll, let rich talk a little bit about the.
For the cash that we have on the balance sheet, but in terms of.
Its potential use of.
Go back to what we've said for many many years in terms of our.
Our priorities for.
Capital allocation, which is first obviously to support the working capital needs of the business next to invest in capital expenditures to support the execution of the strategy kind of third is M&A.
And then to the extent that there.
Excess cash and liquidity, we will consider every day as we have in the past programs like buyback. So in terms of M&A. We continue to look for and look at opportunities that are of strategic importance and fit with our overall strategy.
There is across all areas of the business vaccines therapeutics devices and CMO. So we continue the again active in looking at opportunities I think that what we've built over the last 5 years is very scalable and leverages <unk> toward additional assets.
But maybe with that rich you can talk a little bit about the cash on the balance sheet today.
Yes. So we are certainly sitting as I mentioned in my remarks on a very strong liquidity position as of as of June 30th both in terms of actual cash on the balance sheet accounts receivable.
As.
As well as access to our Undrawn revolver. So we certainly have the flexibility to pursue.
All of those options that Bob articulated and.
We will continue to maintain that solid position as we go forward.
Okay, well, thank you for the pellet.
Sure.
Thanks Felicia.
And I am showing there are no further questions at this time I will turn the call back over to you Mr. Perez.
Thank you Michelle.
With that ladies and gentlemen, we now conclude the call. Thank you for your participation. Please note an archived version of today's webcast as well as the PDF version of the slides.
Huge during today's call will be available later today and accessible through the investors landing page on the company website. Thank you all again and we look forward to speaking with all of you in the future Goodbye.
And this does conclude today's conference call you may now disconnect.
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Ladies and gentlemen, thank you for standing by and welcome to the emergent Bio solutions second quarter 2021 financial results Conference call. At this time, all participants lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need the press star 1 on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Mr. Bob Burrows Investor Relations Officer for the company. Please proceed.
Recede.
Thank you Michelle and good afternoon, everyone and thank you for joining us today as we discuss the operational and financial results for the second quarter of 2021.
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, there is a series of slides.
Slides accompanying this webcast available to all webcast participants.
Turning to slides 3 and for during today's call, we may make projections and other forward looking statements related to our business future events, our prospects or future performance.
These forward looking statements are based on our current intentions beliefs and expectations regarding future events.
Any forward looking statements speak 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.
You should consider this cautionary statement as well as of the risk factors identified in our periodic reports filed with the SEC when evaluating our forward.
These statements.
During today's call. We may also refer to certain non-GAAP financial measures out of all involve adjustments to GAAP figures in order to provide greater transparency regarding emergent operating performance. Please refer to the tables found in today's press release regarding our use of adjusted net income and adjusted EBITDA and the reconciliations between our GAAP.
<unk> measures and these non-GAAP financial measures.
Turning to slide 5 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 for <unk> 'twenty, 1 as well as the forecast for full year 'twenty 1.
Financial including guidance on <unk> 'twenty..1 total revenues. This will be followed by a Q&A session, where additional members of the executive leadership team are present and available as needed.
Finally for the benefit of those who may be listening to the replay of the webcast. This call was held and recorded on July 29, 2021. Since then emergent may have.
Made announcements related to the topics discussed during today's call and with that introduction of I'd now like to turn the call over to Bob Who's comments begin with slide 6.
Thank you Bob and good afternoon, everyone. Thanks for joining us on the call. This afternoon.
Today I'd like to spend some time talking about the progress we've made at our busiest sites and.
On more broadly about the health of the overall business and are continuing dedication and focus on public health threats.
Our second quarter performance reinforces the strength of our strategy and we are maintaining our overall guidance for 2021.
Rich will go over in more detail.
Those numbers in the Tms my comments of summarized across slides 6 and 7 in the deck accompanying the call.
Turning first to our efforts to produce COVID-19 vaccines theres been a great deal of attention paid to emergent history as a public health threats company with a leadership role and.
Working with the U S government on Biodefense.
When the pandemic struck America turned to emergent because of our history and unique capabilities, while the millions of COVID-19 vaccine doses that we manufactured our currently protecting people around the world we face serious challenges along the way.
We didn't always live up to expectations, including those that we set for ourselves. However, we have learned some important lessons, which are allowing us to improve our operations and at the same time, the strengthening America's public health response for the future.
The FDA inspection of Bayview earlier this year.
<unk> identified a number of areas for improvement.
Long with Johnson <unk> Johnson, we established the comprehensive robust quality improvement plan, which includes facility improvements capability building and deployment of enhanced tools and controls.
We review of this plan with the age.
Year and immediately began its implementation.
We also made additional investments during the quarter and quality compliance and operations. All of this work is in order to satisfy both ourselves as well as J&J and demonstrate to the FDA and we've achieved the level of.
Sustainable compliance that will allow us to resume production.
We've made significant progress toward this goal and as we announced earlier today, we received the green light from the FDA to resume production at the site, which will continue to be the subject of routine inspections by the FDA.
Agency of the emergent team has shown remarkable resilience and I want to thank them for staying focused on delivering on our commitments to patients and customers. They know at the end of the day Thats what matters most.
I also want to recognize on our strategic partners and particularly the strong collaboration with our J&J colleagues.
We continue to work closely with them and the FDA has previously manufactured batches of COVID-19 drug substance are released and added to J&J is emergency use authorization, helping protect tens of millions of lives around the globe.
We're awfully proud of both of these.
These accomplishments the hard work and the investments that we've made in bayview over the last decade in particular, the last few months are starting to pay off.
In addition, we continue to work collaboratively with Astrazeneca to complete all documents related to their drug substance, so they and the U S government.
<unk> can make decisions regarding the disposition of this material.
Moving more broadly to our overall business. We're in year 2 of our 2020 through 2020 for strategic plan and continue to make meaningful progress against that plan.
So let's start with our core medical countermeasures.
The business our work supporting the U S government's priorities to protect the American public against smallpox anthrax and other category a biologic agents remains stable with respect to our smallpox franchise in the second quarter of the U S government is exercise.
<unk> and funded the next term extension for <unk> 2000, under our 10 year contract.
This option exercises valued at approximately $182 million and requires all doses to be delivered by the end of this calendar year.
This quarter, we also secured the next option exercise.
<unk>.
For our smallpox therapeutic the I'd.
<unk> IV product value and approximately $56 million.
For our next generation Anthrax vaccine candidate <unk> 7.909, we continue to engage with the government regarding the exercising the final option.
Signed under the existing contract to procure additional doses for inclusion into the strategic national stockpile.
The current procurement contract for AVP 7 out of 9 was put in place in 2016 and facilitated procurement by the SNS starting in 2019.
<unk>, while we seek full approval by the FDA.
We continue to make good progress toward our target of submitting our <unk> 799, BLA later this year.
In addition, we recently secured of procurement contract to supply of doses of amphora sale or polyclonal antibody.
The <unk> therapeutic for trading in relation of anthrax to the Canadian government as part of their anthrax preparedness strategy.
On the R&D front in addition to our anticipated BLA filing for <unk> 799, we advanced the number of our medical countermeasure programs and I'd like to highlight.
Highlighting 2 of them.
Specifically, we continue work on our Covid <unk> candidate, which is being developed in collaboration with NIAID and BARDA in the U S Department of defense as an early treatment option to address at risk COVID-19 populations Covid HIV.
Images are polyclonal hyper immune platform and continues to show neutralizing activity against variance of Sars Covid 2 virus in in vitro models, we anticipate in the near term the initiation of the phase III study led by NIAD assessing the.
Effect of hyper immune <unk> on patient populations that have not yet progressed to severe disease to determine of progression can be impacted.
In addition, we recently obtained approval for our <unk> auto injector from the Belgian regulatory authority several years ago through interactions.
With various governments around the world we identified their need to have auto injectors available in case of nerve agent attacks and as a result, we invested in building that capability achieving this first approval from our auto injector platform is a key milestone in the maturity of our auto injector platform.
Moving next to our contract development and manufacturing business or CMO when.
When we first laid out in our last day plan. The goal is to leverage further our drug manufacturing network of 9 sites to provide development services drug substance.
Product services to a diverse customer base, we obviously have seen significant growth related to the pandemic, which was unanticipated unanticipated at the time, but beyond COVID-19, we continue to see strong interest from current and potential clients and are winning new clients and projects and.
And drove the service pillars, those being development services drug substance and drug product and drug packaging interest is coming from small mid and large companies as well as governments and other organizations.
Rich will provide detailed information on new business the.
<unk> and our rolling opportunity.
Funnel, but like to emphasize the even though we expect variation quarter to quarter as we grow the business the growth over the 2019 baseline in our strategic plan is considerable.
Overall, the key takeaways that our <unk> business.
The <unk> unit remains strong as the industry's demand for biologics manufacturing services continues to grow while we pursue of becoming an increasingly important service provider in support of pharma and biotech innovation.
Finally, a third pillar of our 2020 for strategy was.
<unk> continue our focus on public health threats, while diversifying our customer base beyond the U S government and I am pleased to report the continued progress on that front as well.
As you know the opioid crisis has been of public health threat and has claimed far too many lines and made even worse by the.
The sticky Mick <unk>.
As announced earlier this week, we're very proud to be working with several nonprofits to help raise awareness of the risk of accidental opioid overdose through of months long public awareness campaign called reverse the silence.
In addition, as we have previously discussed the.
The U S Circuit Court of Appeals has scheduled the oral argument for Narcan in the U S appeal for August the second on the ongoing patent infringement litigation based.
Based on this timing we believe the decision is likely by the end of the year for.
Regardless of the outcome of the appellate court's ruling we continue to focus.
On the public health threat, and our role as a provider of solutions to address the opioid epidemic.
Continuing with the diversification theme, while the travel space travel health space has been understandably challenging we continue to make good progress with building our development stage vaccine candidates.
We still.
Expect to initiate a phase III trial for our chikungunya virus <unk> vaccine and true 2021.
In addition, and in support of this important development program, we recently announced positive 2 year persistence data from our phase II clinical stuff.
It's the indicated that our vaccine candidate appears to generate a rapid and durable immune response, we intend to publish the results of the study in the near term.
We also plan to initiate a phase 1 study in late 2021 in early 2022 related to a number of vaccine.
Seen candidates in the pipeline, including our Shigella, LASA and universal flu vaccine candidates.
As you can see we expect that the remainder of 2021 will be Disney for our product development teams, including clinical regulatory and quality as our pipeline continues to mature.
Study that wraps up my comments regarding the business overall on the personnel front. We recently issued an 8-K announcing the reorganization of my direct reports.
Rich Lindahl, our Chief Financial Officer, Karen Smith, our Chief Medical Officer, and Katie Stride, our chief Human resources.
Sources Officer continue to report directly to me and.
In addition, rounding out my direct reports Adam Havey role has been expanded to include overall responsibility for all of our business units as well as global manufacturing operations Mary <unk> role has been expanded to include.
The focus on operational excellence. In addition to current responsibility for our global quality and finally of tool surrounds role has been expanded to include the management of the global Communications and public affairs function as well as the global government Affairs team.
As part of.
This reorganization the role of executive Vice President for manufacturing of technical operations that had been held by show on Kirk has been eliminated and consequently, Sean is leaving the company.
We are of deep appreciation for Sean's 18 years of service of emergent and wish him the very best.
For him and his family going forward, we believe this organization and reorganization of our management team allows us the best positioned for the long term success of the strategic plan to.
To conclude as Youll hear from rich our second quarter results demonstrate that emergent business remains <unk>.
Durable resilient and poised for growth we're on track with our 2020 for strategy and emergent is well positioned to play a meaningful role in strengthening our national public health threat preparedness net.
On that continue to be proud of each member of the emergent team who come in to work every.
Day focused on our mission to protect and enhance life.
I'll now turn the call over to rich, who took us take us through the detailed results for the second quarter rich.
Thank you Bob.
Afternoon, everyone and thank you for joining the call.
I'll start on slide 9.
As.
As you can see from today's earnings press release during the second quarter of 2021, we had solid top line performance, which was consistent with our expectations. While our expenses were clearly impacted by financial ramifications associated with the situation at our baby facility, including direct costs associated with remediation efforts and inventory.
Write downs as well as other cost to support and defend our corporate reputation.
Despite recent challenges we have continued to execute across all aspects of the business vaccines therapeutics devices and CMO.
<unk> financial condition remains strong with the liquidity and financial.
The flexibility to fund our operations and pursue opportunistic investments.
We remain steadfast in our unwavering commitment to supporting global preparedness and response to public health threats.
Today's announcement that we are clear to resume manufacturing of Bayview is a testament not only to that commitment, but also to the strong teamwork.
<unk> work and organizational discipline that have been hallmarks of this company throughout its nearly 23 year history.
With that please turn to slide 10, and let's first look at the details of our second quarter performance.
Quick run through of key highlights include.
Total revenues of $398 million on increase of $3 million versus the prior.
Year and in line with our guidance and adjusted EBITDA of $50 million and adjusted net income of $18 million, both decreases versus the prior year due to a variety of 1 time and other expenses, which we will discuss in a moment.
Breaking down quarterly revenue into its components anthrax vaccine sales were 52 million.
Lower than the prior year due to timing of deliveries.
Narcan nasal spray sales were $106 million an increase over the prior year driven by continued strong demand for this critical drug device combination product for opioid overdose reversal across both the retail and public interest channels in the U S.
As well as increased Canadian sales.
Other product sales were $24 million consistent with the prior year and CD of most services revenue came in at $191 million, an increase over the prior year and reflecting contributions from all 3 service pillars, primarily for our government and innovator partner's response to the COVID-19.
The pandemic.
As Bob noted in his remarks earlier in July the U S government exercise of the next AGM 2000 contract option that is valued at $182 million. Accordingly, we now expect sales of <unk> 2000 to resume in the third quarter and to complete all related deliveries by the end of 2020.
Looking beyond revenue the <unk>.
Quarterly results also include cost of goods sold of $228 million a.
A $98 million increase over the prior year and reflecting the increased costs associated with the substantial increase in the <unk> services revenues as well as $42 million of inventory write offs, which I will return to in a moment.
Gross R&D expense of $49 million consistent with the prior year, reflecting our continued commitment to investing in our pipeline of development programs across our 3 product focused business units net.
The net R&D expense of $24 million or 6% of adjusted revenue consistent with the prior year.
<unk>.
At the end of $91 million or 23 percentage of total revenues an increase over the prior year and primarily reflecting the impact of higher costs to support and defend our corporate reputation.
And combined product and CD low gross margin of $144 million for 39% of adjusted revenue.
<unk> client of $97 million, and reflecting the impact of $42 million of inventory write offs due to raw materials and in process batches of the Bayview facility that the company plans to discard as they were deemed unusable.
The $43 million associated with the product and service revenue mix, which was weighted more heavily to lower.
On the products and services and.
And $12 million associated with costs incurred to remediate and strength of manufacturing processes at our Bayview facility, many of which are temporary in nature.
Turning to slide 11, we will now review of our key <unk> metrics.
In the second quarter, we continued to obtain incremental contract award.
Woods, resulting in secured new business of $53 million.
However, this outcome was significantly offset by $108 million of negative contract modifications.
As of June 30 of the backlog was $1.1 billion.
And lastly, as of June 30, the opportunity funnel was 670.
The margin and dollars down from $807 million at March 31.
While the <unk> team's ongoing business prospecting and marketing initiatives continue to generate new opportunities for now we are removing potential opportunities of debut as all manufacturing activities of that facility are currently prioritized to support the J&J COVID-19.
The 2 million vaccine as a reminder, the opportunity funnel does not include any value associated with an extension of the commercial supply agreement with Johnson <unk> Johnson into years 3 to 5 of the existing contract.
On Slide 12, you can see the sequential trends on these metrics over the last for reporting periods.
19, and committed to serving our existing customers and continue to execute on our marketing marketing initiatives with pharma biotech innovators across all 3 of our service pillars.
We look forward to making further progress on this important part of our business as we move forward from here.
Moving on to slide 13 for a review of our balance sheet and cash.
Low we ended the second quarter in a strong liquidity position with $448 million in cash and $262 million of accounts receivable, resulting in aggregate current liquid assets of nearly $710 million.
This compares with approximately $732 million of aggregate current liquid assets as of the end of the first quarter.
We were we also still have undrawn revolver capacity of just under $600 million.
Finally at the end of the second quarter, our net debt position was $416 million and our ratio of net debt to trailing 12 month adjusted EBITDA remained below 1 times.
Please turn to slides 14, and 15 for a review of our 2000.
On forecast and associated key considerations.
As detailed in today's press release, we are reaffirming our 2021 outlook importantly, our 2021 outlook takes into account of number of key considerations, which are listed in our earnings press release and remain largely unchanged from our first quarter update.
These considerations.
The 20 with no raxibacumab revenue until 2022.
Naloxone market remains competitive with at least 1 new entrant this year, but no generic entrant prior to the resolution of our patent litigation case.
The successful manufacturing of J&J as COVID-19 vaccine at the view on.
On that last point, the FDA is green light to restart.
Including the site, which we confirmed earlier today is a key milestone towards that end.
1 consideration that has been revised but our expectation for gross margin for the full year is now approximately 61% to 63% on a GAAP basis, a reduction of 200 basis points from the prior range of 63 of 65%.
Production of this change reflects the impact of the Q2.2021 performance as well as expectations for the remainder of the year.
We anticipate that this lower gross margin will be offset by cost savings related to R&D and SG&A.
Lastly, we are providing third quarter total revenue guidance of $400 million for $500 million.
<unk>.
To conclude please turn to slide 16 for some summary comments.
In the second quarter 2021, we continue to deliver solid financial results that keep us on track with our full year outlook on.
On a year to date basis, our revenues of $741 million represent approximately 41% of our full year 2021 forecasted.
Total revenues at the midpoint, a similar weighting between first half on second half of total revenues as has occurred in each of the last for years.
We remain confident in the strength of the business, which continues to be robust and resilient with the capabilities capacity and financial strength needed to deliver preparedness and response solutions to.
So a wide range of public health threats.
That completes my prepared remarks, and I'll now turn the call over to the operator that we can start the question and answer session operator.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number of wine on your telephone keypad.
Again that star 1 for any questions, we will pause for just a moment to compile the Q&A roster.
And your first question is from the line of Brandon Folkes with Cantor Fitzgerald. Please go ahead.
Hi, Thanks for taking my questions and congratulations on all of the progress.
Firstly on the CDM on backlog.
Would you be able to just give some color around the $108 million negative contract modification, even if it's just the comment whether these are kind of it related or not.
And then along those lines yes.
Can you comment at all the therapy.
Any efforts to recover any revenue.
By J&J or border.
And then secondly.
Congratulations on the announcement. This morning can you just help us understand the difference between resuming manufacturing at value versus the rollout EUA for that facility does this have any impact at all on your ability to deliver to J&J.
J J or was it sort of.
Yes, I don't want to be flippant, but a bit more procedural and you have noted now able to complete the purple.
The needs of J&J. Thank you.
Yeah, Brian and thanks for the for joining the call and thanks for the series of questions. So.
I'll tackle a couple of them and then I'll ask rich to comment on specifically on your question about the the.
108 adjustments so maybe first of all your question about.
The attempts to recover in a mind, let me just hit that 1 square on.
Our assumptions going forward in the guidance numbers that rich talked about and I talked about and assume that we continue to execute against the existing contracts that we have in place and we have every expectation of being successful in doing so.
Your question, which is a good 1 around.
Kind of resuming production versus emergency use authorization of authorization approval. So I think as you know up to now the FDA has approved the use of certain batches of material from J&J.
Under an exemption.
On and or an exception to their emergency use authorization and we expect that will continue.
As it relates to product that has already been manufactured going forward with I'll say new campaign production. There are number of variables that would kind of go into that.
That mix, Brandon, but just to be clear.
Our the nature of our contract with J&J is that we get paid when we successfully manufacture drug substance. It really doesn't hinge on FDA approval of doses to be released to the public so with that rich.
Can I ask you to comment on Brandon's first question regarding the the 1 of the late number.
Yes, Thanks, Bob and thanks, Brandon for the question. So in terms of what drove the $108 million of contract modifications. The biggest component relates to the wind down of our work of debut with that with Astrazeneca, but.
I'd note.
Note that there were also a number of contract modifications with other clients that came about due to change orders in the ordinary course, so that's that gives a little more color on the 100 day.
Rich would you.
Just to confirm would you be able to say that at 108 did not come true outside of the Astrazeneca portion.
I guess 2 border or J&J.
I think we're not going to confirm specifically, but I would say that under the under the contract with Bob said our guidance.
<unk> that we're going to fulfill the obligations that we have under our existing contracts.
No I think that and I appreciate that I had to ask thank you for your body.
There's a lot of good balance congratulations on already there's a lot of work this quarter.
Thanks Brendan.
Your next question comes from the line of Jessica Fye with Jpmorgan. Please go ahead.
Hey, guys. Good afternoon. Thanks for.
For taking my question.
On.
Maybe just first 1.
I think previously considered updating you on churn guidance at some point. This year is that something we should still think about FERC I mean for 1.
Sure.
Yes, Jeff Thanks for joining the call. Thanks for the question so.
You're exactly right. We are now kind of going through a process of.
We call our strategy refresh if you will just where we're looking at.
The principal assumptions that we've put together in the fall of 2019 for the 5 year period of 2020 through 2024, and making sure that those are still kind of valid assumptions, obviously the business has gone through.
On a bit of change over the last 15 to 18 months.
And we hope to be able to update and provide some color either later this year or early next year at some type of annual Investor day.
Okay, Great and then the other question on Cogs.
<unk>.
And then of the.
Changing the Cogs per gross margin guidance.
There was the line in the press release.
Clicking along the lines of.
Many of the items impacting Cogs this quarter or expect it to the temporary I'm just curious if you can elaborate on.
Which for which we're not like the inventory write off volume.
Larry, but what else kind of is in and should.
Should we.
In the changing that Youre changing 2021.
How should we think about the kind of residual impact.
Say in 'twenty, 2 and beyond.
Great. Thanks, Rich you want to take that 1.
Sure. So in terms of things that were temporary you're right. The inventory write off is the biggest 1 when we look at our efforts to execute our quality enhancement plan there were a number of remediation costs.
Things like the contamination.
Some some work to update.
Operating procedures and documentation training of staff.
Things of that ilk, which really were more incurred on a onetime basis. Some may continue for a short for free.
Cost of little bit longer, but are not going to be.
Necessarily in the magnitude they were in the second quarter persist.
Persistently.
Some of the other costs were increased investment and additional staff as well to ensure that we had the ability to really execute our functions and processes at debut.
For our.
Cgmp compliant manner, so that's really what.
What the differentiation is there.
In terms of our overall Cogs guidance, I mean, I think somewhere in that kind of low to mid sixties area in terms of gross margin.
<unk>, Inc is not a bad assumption I mean, it's always going to depend on the mix of products and services.
And so we'll have to see how that evolves from year to year on overtime, but thats.
But overall fundamentally the business Hasnt changed.
Okay, Great and maybe just.
1 last 1 slightly related to the if any change.
Is the way youre thinking about the cash.
The need for Capex investments going forward.
Yes, well I don't think so.
I don't think so just I think we continue to look.
Particularly in the.
On the CMO area for opportunity.
Of these.
Again, the demand clearly is there for the full portfolio of service offering that we have in our network. So we continue to look for opportunities there.
Other than that I think it's the normal kind of course of.
Of roughly maintenance Capex, given our 9 network facilities.
And normal investments in things like infrastructure and preparing the organization for continued growth.
Great. Thank you.
Thank you.
Your next question comes from the line of Jacob Hughes with Wells Fargo Securities. Please go ahead.
Hi, Thanks for taking my question on.
On the on Narcan on the Narcan guidance based on the first first half I think of $180 million of revenue.
In terms of deceleration in the back half of the year could you provide some color on your assumption there.
Sure Jacob Thanks for joining the call. So as you know and as you have kind of reconcile we had roughly.
$70.475 million.
Assume new for Narcan in Q1, a much stronger quarter in Q2 as rich commented on.
We see some potential kind of tail winds going into Q3 and Q4.
We see strength overall in the.
Net part of the business.
And for Us.
And we've set our guidance accordingly at the $3.5 to $3.25 range.
Thank debt.
Again.
We expect it to land within that range, but there are clearly some headwinds and some tailwind that could impact that but.
Being.
This conservative that's where we've landed the the revenue guidance for 2021.
Okay and then on.
The follow on racks of your contract.
Has the RFP, then issued yet and when do you think that could be awarded and I know previously you said thats going to probably slipped.
The big next year, but could you provide an update on the.
Yes, Jacob that's still our belief is that it will be of 2022 event. So I think as we've commented on in the past we've taken any rack see revenue out of the guidance and forecast for 2000.
'twenty, 1 and still expect that to occur next year.
Okay. Thanks very much.
Thank you.
Your next question comes from the line of <unk> Mackay with Chardan. Please go ahead.
<unk>.
Yes. Thanks.
2 questions.
And the first in terms of the CMO pipeline.
What kind of pushback are you getting from potential customers given the the issues of debut.
Yes.
Okay. Thanks for joining the call. So as I included in my comment.
Comments enriched as well, we still see support and interest in the broad service offering that we have throughout our network again as we've talked about.
The of the 9 sites that we have non network 5 of them are generating revenue today and if you look.
And walk across the.
The development services, the drug substance as well as the drug product capability that we have supporting as many as 5 different platform technologies, that's a pretty unique.
Product and capability offering that we have so we still see.
Strong demand from small mid and large clients from clinical and commercial customers government and strategic partners. So that business remains strong the interest is strong.
Again, admittedly, we need the get through this.
A bit of a firestorm.
And Dave you, which were.
In goods in good place to go quickly.
But we again see continued strength in that CMO of business unit long term.
Okay and for.
The 87.
Under the 2016.
<unk> contract.
The number of options.
As you made the transition to that product can you remind us where we are in terms of remaining options and then of what point do we start thinking about of new supply agreements.
Yes.
Yes.
No.
If you go back to.
In the second half of 2016 that contract was structured in 2 pieces K. There was a development piece worth roughly $250 million.
And then there was a 1 point.
0.2 of $1.3 billion dollar.
Please if you will that was earmarked for their procurement of up to 50 million doses over the next 5 year period.
On the SNS and BARDA began procuring.
799.
<unk> under that second sleeve in 2019.
And it's our view that the.
The next tranche of our next exercise will help bridge between now and when we get for BLA approval.
And about a year and a half.
Yes.
Okay.
And.
Does the agency view.
An approved product any different than what youre currently buying under the <unk>.
The pre EUA in terms of.
Okay.
Your possible economics.
<unk>.
Yes.
Yes, I think when we put the the contract pricing in place in 2016.
We negotiated.
Both the development as well as the procurement.
Terms, we're going to be case of that.
Thats really already been negotiated and I'm not anticipating any significant change from what was done 5 years ago.
Okay. Thanks.
And once again, if you do have a question please press star.
For the number of wine on your telephone keypad. Your next question comes from the line of Lisa Springer with singular research. Please go ahead.
Thank you good afternoon, and thank you for taking my question.
My question concerns the amount of cash on the balance sheet I was wondering how likely are we to see any M&A activity on the second.
Half of the year.
And what is the board's current thinking regarding share repurchases.
Yes, Thanks, Lisa for joining the call and thanks for the question.
I'll, let rich talk a little bit about the.
For the cash that we have on the balance sheet, but in terms of.
Its potential.
And I'll go back to what we said for many many years in terms of our.
The priorities for cash.
Capital allocation, which is first obviously to support the working capital needs of the business next to invest in capital expenditures to support the.
<unk> of the strategy kind of.
Third is M&A.
And then to the extent that there is excess cash and liquidity, we will consider as we have in the past programs like buyback.
So in terms of M&A, we continue to look for.
And look at opportunities that are of strategic importance and fit with our overall strategy across all areas of the business vaccines therapeutics devices and CMO. So we continue the again active in looking at opportunities.
I think that what we've built.
<unk> 5 years is very scalable and leverages <unk> toward additional assets, but maybe with that rich you can talk a little bit about the cash on the balance sheet today.
Yes. So we are certainly sitting as I mentioned in my remarks on a very strong liquidity position as of as.
The 30th both in terms of actual cash on the balance sheet accounts receivable.
As well as access to Undrawn revolver. So we certainly have the flexibility to pursue.
All of those options that Bob articulated and.
We will continue to maintain that solid.
The agenda for the go forward.
Okay, well, thank you for the pellet.
Sure.
Thanks Lisa.
Yes.
And I am showing there are no further questions at this time I will turn the call back over to you Mr. Perez.
Thank you Michelle.
With that ladies and gentlemen, we now conclude the call.
Thank you for your participation. Please note an archived version of today's webcast as well as the PDF version of the slides used during todays call will be available later today and accessible through the investors landing page on the company website. Thank you all again and we look forward to speaking with all of you in the future Goodbye.
And this does conclude today's conference.
You may now disconnect.