Q3 2021 Maravai LifeSciences Holdings Inc Earnings Call
Good day and thank you for standing by welcome to the Q3 2021 Marathon Lifesciences earnings Conference call. At this time all participants are in a listen only mode. After the speakers presentations there'll be a question and answer session to ask a question during that session you'll need to press star one on your <unk>.
Telephone please.
Please be advised that today's conference is being recorded and if you require any assistance during the call. Please press stars zero.
I would not like to handle <unk> conference over to your speak today Ms. Deborah Heart MS Heart you may begin.
Okay. Okay. Good afternoon, everyone. Thanks for joining us on our third quarter 2021 earnings call. Our press release and the fact that company today's call I posted on my website and are available at W. W. W. Dot investors that my life Dot com and the financial information.
And the result.
On today's call, we will cover a financial results and business highlight and will provide updated financial guidance.
As you can see on slide to Carlo first provide you with a business update and Kevin will review, our financial results and guidance within open the call for questions. Following the prepared remarks.
On slide three reminds you the forward looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ.
Additional information concerning these risk factors is included in the press release, we issued earlier today as well as those that are more fully described in our various filings with the M. C. C. Today's comments reflect our current views, which could change as a result of the new information future events or other factors and the company does not obligate or commit.
Itself to update before with looking statements, except as required by law.
During this call we will be using non-GAAP measurements of certain of our results and then providing guidance reconciliations of gap to non-GAAP financial measures are included in the press release that we you should this afternoon, which is posted to tomorrow I website, and that's filed in our 8-K with the F C C and available through Edgar.
The metrics, we will be discussing in today's call include net income.
Just to be better income tax expense and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to get measures that are intended to better enable investors to benchmark. Our current results against historical performance and the performance of peers.
Now I'll turn the call over to Carl.
Well, thank you and good afternoon, everyone. We appreciate having you join us for a cold too.
Before we get started with the third quarter results I'd like to let you know that today, we publisher and Audrey environmental social and governance report highly.
Highlighting what we've accomplished today in a long term commitment to creating a sustainable future.
A report touches on many of the themes, we value and the impact our culture has on our business performance.
You can find the report on the investors section of our website.
We look forward to engaging with you on how we continue to integrate E. S. G principles into our operating decisions on solid five you'll see some of the highlights from the report.
Router organization, we think an extra state I believe by using ethical business practices.
Sure safety efficiency and social responsibility in a manner that protects our employees communities shareholders and the environment.
I'm, particularly proud of our team for actively embracing and enhancing inclusion and diversity initiatives and of the fact that we were recently added to the State Street Global Advisors diversity index.
We recognize we are in the early portion of a continuous journey and we look forward to periodically sharing updates on our progress.
Now, let's turn to our third quarter on slide six I'd like to remind you that our third quarter results include two months contribution from our protein detection business, which was divested effective September 2nd.
Moreover, I had another super solid quarter growing 133% compared to the prior year, reaching $204.8 million in revenue.
Are trailing 12 month revenue reached a record high of $669.1 million.
Our adjusted EBITDA of $156 million grew 169% of the prior year.
Our top line performance and consistent profitability resulted in adjusted diluted earnings per share of 44 cents per share.
Cash at the end of September was $547.9 million in total gross that was $545.5 million, bringing us to a positive net cash position for the first time in more of a as history.
We have had an incredible year in our first calendar year as a public company as our numbers will test.
It is clear that momentum continues to build across our global customer base is M. R. In a research and development progresses to the forefront of modern medicine.
Turning to slide seven growth of nucleic acid production in particular remains very robust or nucleic acid production business had revenue of $182.9 million up to 170% year over year.
Men for clean cap mrna continues to be strong in all areas clean cap reagents themselves and custom mrna construct using both our development and G. M. P services.
We of course see significant clean cap demand related to the development and production of mrna COVID-19 vaccines. Our customers are working diligently to both increase the global supply of the initial vaccines.
And to prepare for potentially emerging variance, let's get into this on a little more detail.
Well, let me begin by saying that we strongly believe will continue to see durable demand for clean cap for the foreseeable future for a number of the reasons cited on slide eight.
First just under 40% of the global population has been fully vaccinated as of this week means.
Meaning that more than half the people in the world are still in need of the primary vaccine.
Second vaccine labels are expanding to younger populations, including ages five to 11 as is now occurring in the United States.
Third there are increasing recommendations worldwide for the use of a third dose of vaccine is so cold booster.
Just yesterday Pfizer asked the F D a to extend the booster authorization to all adults.
And now there are growing calls to use mrna vaccines to complement an initial adenovirus or viral vector vaccine such as from J&J or astrazeneca.
Finally, we can also foresee the need for an annual booster or periodic maintenance vaccine recommendation as the pandemic moves into an and in the next phase overtime.
In fact here in the U S. The federal health guidelines already recommend a fourth those for those who are immuno compromised, which should be administered six months. After they received their third those.
As most of you know by now we have solid forward looking visibility into the revenues for clean cap that are provided to COVID-19 vaccine manufacturers under formal supply agreements.
As we look at that book, a clean cap orders already in hand, and that are included in our preliminary 2000.
22 guidance, we now have P. O's for over three quarters of the expected 20 twenty-two COVID-19 queen-cup revenue.
Therefore, our current expectation is that our COVID-19 related clean cap revenue will increase in 2022 by somewhere between five and 10% use.
Using the midpoint of a revised 2021 gardens for Covid related clean cap that would imply further revenue growth of roughly 25 million to $50 million attributable to COVID-19 clean cap in 2022.
No. It seems apparent from all of the market activity that we saw last Friday, but some investors hold the view about vaccine revenue durability that is somewhat at odds with the one I just outlined for Ya.
All I can tell you is it our guidance is based on quite tangible things those Ford P. OS that I referred to for example.
We clearly see a bit of a disconnect here that I'd like to dive further into.
And in fact, the public health response to a pandemic as disruptive as this one requires a multi pronged approach that includes effective diagnostics therapeutics and vaccines tax.
<unk>, which has been in the news recently is a treatment to be administered once someone has already contracted the virus.
We don't necessarily see any connection between the development of a potentially beneficial anti viral therapy and the number of vaccine doses that will be administered overtime.
Protect against acquiring and spreading that same virus.
These are really two different things and quite likely will exist at two dramatically different price points.
Let me give you an historical example on slide nine we.
We have a pretty good precedent to refer to here with the seasonal flu and tamiflu.
Tamiflu was introduced to a great deal of fanfare back in 1999.
Its effectiveness at reducing flu complications hospitalizations and deaths.
In at risk patients was well established.
It shorten the duration of the disease and many patients and also lessened its severity and others sounds familiar.
Its first major tests came during the H, one N one or swine flu pandemic of 2009 2010 as you'll see on this slide.
During the Bachelor Lucy's and 114 million doses of flu vaccine or distributed in the U S.
That was also the peak year of Tamiflu sales worldwide at over $3 billion as I recall the.
The very next year when there was a somewhat starcross universal H one N. One specific vaccination campaign in the U S.
The number of flu vaccines administered hit a then record hundred and 55 million doses, which we can think of is a pandemic style vaccination hi <unk>.
Since the slight retreat and the number of vaccines. The following year as flu return to a more normal endemic phase demand for vaccines has increased consistently.
In 2020 to 2021, the U S distributed almost 194 million flu vaccines.
70% increase in the decade following that original H, one N one pandemic.
And throughout that entire decade, there was an affordable approved treatment for the flu widely available.
One did not substitute for the other.
As an aside I should also note that the number of flu test taken annually in the U S increased 2.5 fold during the period from just 2010 to 2015. According to the C. D C.
So it's quite reasonable for us to recognize the diagnostic tests effective anti virals and vaccines will all continue to be elements of our public health response to Covid.
And while each of US on this call probably can't wait to grab a blister pack of packs loaded to keep on our backpacks as we travel that will in no way substitute for being fully vaccinated as the most effective way for society to combat this disease.
Now turning to slide 10, and are non COVID-19 related pipeline.
Although the current large scale COVID-19 vaccine demand overshadows much of the progress we're seeing with non COVID-19 related mrna programs. The pipeline for these non COVID-19 related vaccines and therapeutics is impressive.
All told over 85% of our M. R. In a development customers using clean cap are working on non COVID-19 programs that range from vaccines for oncology influenza and other infectious diseases.
Two mrna therapeutics for again oncology monoclonal antibody based therapies and protein an enzyme replacement therapies.
As mrna technology has now been proven out we're also seeing more active G. M. P mrna programs entering the clinic, which provides us with the opportunity to provide additional GNP services.
The majority of these programs are still in phase one so the capacity investments that we are currently making and then we outline for you on our last call will allow us to support this demand and to transition to phase two clinical material and beyond over the next few years we.
We expect continued growth in the broader vaccine and therapeutic pipeline as mrna focused R&D accelerates in real time.
To wrap up the nucleic acid production highlights were seeing very strong growth in the base nucleic acid business beyond just darko that vaccine clean cap sales. This base business, which consists of custom Oligos N T P's plasmids Standalone messenger RNA.
A messenger RNA with clean cap and clean cap demand for non Covid vaccine applications grew approximately 50% for the nine month period.
Now turning to slide 11, or biologics safety testing business, which support high growth markets and so on gene therapy vaccines and biologics drug manufacturing.
<unk> reset the global gold standard and wholesale protein and process related impurity analytics, along with offering innovative viral clearance solutions that ensure the safety of biopharmaceutical products.
Our third quarter revenue of $16.6 million and B S T.
Is up 18% from last year with year to date growth of 29%.
All regions, North America, Europe, and a pack delivered strong growth, including 49% year to date growth in the Asia Pacific region, which has become a focal point for Biosimilar development.
And B S. T. We see strength from both are Biopharma M. C. D. M O activities with an increase in the number of drugs in preclinical development and in clinical trials. We saw strong demand for all categories of kids drink order from generic whose sole protein assays to other elisa into.
Charity detection kits to custom H C. P assay development and to a final mass spectrometry based services that promote the use of R. H C. P cats.
This business is extremely sticky as most biopharma companies will keep using the same qualified as eight cats as their drugs move through the development process and into commercial manufacturing.
Biologic safety testing continues to be a very attractive space for more of I, we plan to continuously innovate scale, our offerings insure superior technical support and offer the highest quality services and products and the most comprehensive catalog of products to meet our customers needs.
Moving on to slide 12.
Will be hosting our first investor R&D day on January 20th and Hope you can all join us for this virtual event.
Double be providing more details and registration information as we get a little closer.
We look forward to and engaging event and to introducing you to other members of the more of a team.
Turning now to slide 13, I'll ask Kevin to cover our third quarter performance, along with our updated guidance for 2021 and to provide our initial revenue expectations for 2022, Kevin.
Thank you call. Good afternoon, everyone I'm happy to reveal our financial results for the third quarter nine months of 2021 and to provide our advice financial guidance for the balance ear I will also discuss in more detail. Our initial revenue guidance for 2022, let's start on slide 14.
As you have seen in our press release. This afternoon I Q3 revenues at $204.8 million represented 133% reported growth Q3 of 2020.
Beginning with GAAP numbers.
Our net income before the amount attributable to Noncontrolling interest was 132.8 million for the third quarter of 2021.
Income from operations was $156 $9 million in the quarter operating margin was 77%.
After backing out the gain on the sale of our protein detection segment, our GAAP operating margin was 71%.
Turning to slide 15.
Digested EBITDA non-GAAP measure was 156 million for Q3 compared to 57.8 million for Q3 2020.
This represents 170% increase year over year are adjusted EBITDA margin was 76% up from the 66% in Q2 2020 and consistent with our most recent 76% margin in Q2 2021.
Increase the adjusted EBITDA, you'll be it was primarily driven by our overall sales volume increases and margin improvements from a nucleic acid production business.
Onto slide 16.
So we present basic EPS fully diluted EPS and adjusted fully diluted EPS, our basic EPS as net income of trivial dark class a shares divided by the weighted average class a shares are fully diluted EPS. It was net income prior turn on controlling interest divided by the weighted average for both class A&D shares.
And other dilutive security such as equity awards adjusted fell into the EPS equals adjusted net income divided by the weighted average of both glass A&P shares and other securities are basic and fully diluted EPS for decor for 46 cents and 45 cents well adjusted diluted EPS. It was 44 cents.
For sure.
As you can see now and slide 17, we have continued to have an exceptionally strong balance sheet and cash for us our cash and cash equivalents, which are GAAP metrics totaled 548 million at September 30th 2021 are strong EBITDA performance led to robust suggested free cash for for the quarter of $153 eight.
Million dollars, we defined adjusted free cash flow and gap measure and adjusted EBITDA less capital expenditures.
At the end of the quarter, we had 545.5 million in gross longterm that prior to unamortized debt issuance costs.
With $547 $9 million in cash and trailing 12 month adjusted EBITDA $487 million, we had a record low 1.1 times gross debt to adjusted EBITDA ratio and are below zero times on a net basis.
Our our best balance sheet continued strong cash flows and overall debt capacity give us the financial flexibility to make both organic and inorganic investments that will drive innovation they'll capacity dress customer needs and contribute to long term growth.
Now to provide some insights into our businesses segment financial performance for the quarter I'll turn to slide 18.
As Karl mentioned earlier or nucleic acid production business field. The most significant portion of the revenue growth for the third quarter.
Nucleic acid production represented 89% of the company's total revenue in the quarter and generated $150 6 million and adjusted EBITDA can declare.
82% adjusted EBITDA margin in this business continues to reflect the value of our unique products as well as the efficiencies in the scale of operations at our state of the art Lada reach manufacturing facility.
Clean cap revenues from COVID-19 vaccine customers for approximately $131 million in the third quarter 2021.
Or biologic safety testing business contributed 8% of the company's revenue in the third quarter.
Revenues from our sickness branded products, which comprise virtually all of the segments business or $16.6 million in the quarter Esther.
This demand is driven by the increasing number of biologics and Biosimilar drug development programs in the overall strength in depth of our product portfolio and surfaces hour.
Our biologic safety testing business deliberate 13.6 million, an adjusted EBITDA in the quarter and looking at this business on a year to date basis or biologic safety testing business has grown 28.7% in the prior year nine month period.
Strong revenue growth not only reflects demands for a core HCP in light of cats.
Greater than 40% growth in our service offerings, which demonstrates are expanding capabilities within the segment.
Lastly, the customer segments be continue.
We serve continue to reflect evolutions in the broader market with the C. D. M O channel growing said nicotine significantly to.
To direct sales and through our channel partners.
This growth is especially exciting as we're seeing demand for our broader offerings, including H K 293, H G. P. L is that S F nine.
Cap HCP a license for scaled at a manufacturing along with endonuclease G. D. P. N D. S airlines it for measuring other process related impurities.
Are protein detection business, which we divested to Thompson Street in early September represented less than 3% of revenues for the quarter and at $2 million less than 2% of our adjusted EBITDA.
Corporate expenses that were not included in the segment related adjusted EBITDA totals or $10.2 million and a quarter relatively flat from the Q2 2021 levels of $9.6 million.
Now moving to slide 19 in our update 2021 guidance.
Today, we are raising our 2021 full year revenue guidance to $770 million to $780 million up from our prior guidance of $745 million to $770 million, a $17.5 million increase at the midpoint incur.
Included in our overall total revenue range is our estimate for 2021 clean cap revenues directly attributable to a COVID-19 vaccine customers, which we are now estimating at 520 $525 million for the year up to 20 at $22.5 million at the midpoint from our prior guidance.
His total revenue guidance for the full year of 2021 reflects the expectation of around 25% annual growth for a biologic safety testing business.
This guidance also reflects that I've got strep, the protein detection business and the loss of that modest revenue contribution, which will remain at the reported $19 million for 2021.
Given the relatively small contribution a protein detection tomorrow that as a whole we are not planning on presenting pro forma results with him at that this segment.
This update against at the midpoint implies that the total nucleic acid production segment revenues will be around $699 for 2021.
We can see we continue to see good momentum in traction across our offerings here with strong crinkling tap demand coming from outside of the major COVID-19 programs as well as including initial orders for non Covid vaccine development.
Further our blue chip customer base of genius out there I'd be companies represented an exciting mid to long term opportunity as a validation of mrna as a development platform is feeling rapid second growth extremely busy here and very excited about our role as a key contributor to these new mrna platforms for the foreseeable future.
As discussed on our last call. Our revenue guidance is based in large part on our largest customers rolling forecast that extend out for several quarters and a further supported in the near term by by any purchase orders, which may go out for several months.
On top of that we have a forecast final Fry GMP suites that are used mainly to support builds for our customers to click as a therapeutic programs based on these factors are revenue guidance here comes with a considerable degree of forward visibility, but still may be certain to subject since quarterly fluctuations.
Based on those revenue expectations, we have updated our internal forecasts and our guidance for other key financial metrics.
We expect our non-GAAP adjusted EBITDA and non-GAAP measure to be in the range of $570 million to $575 million, which at the mid point of the range represents growth of 239% of the prior year and and applied adjusted EBITDA margin percentage of 74% at the midpoint of 2021 revenue range.
As we've highlighted in last call. We are continuing to look to make organic investments and our R&D and commercial organizations and we continue to expand our basement place to meet record customer demand.
Adjusted fully diluted EPS and I'm gap measure is expected to be in the range of $1.48 to $1.52 per share for 2021.
The increase in our guidance here is directly tied to our revenue growth and overall margin expansion.
This implies EPS for the fourth quarter of around 34 to 38 cents per share.
Let's move to slide 20.
Adjusted fully diluted EPS is based on the assumption that all class B shares I compared it to class a shares which results in a forecast it fell into the chair count have around 258 to 259 million for the full year of 2021.
The net income included in our justice relate to the EPS has been adjusted to eliminate any net income or loss of tribute within Noncontrolling interests. As a result of the full conversion of class B shares to class a shares. Additionally, our justice only WPS, including certain adjustments that do not reflect our corporations are based on an adjusted effective tax rate.
Range of 28% to 24%.
The effective tax rate right the effective tax rate, reflecting some forecast improvement based on the geographical distribution, how about growing revenue base.
As it relates to the certain other judgements needed to get to a non-GAAP adjusted EBITDA range. We see the following items in 2021 interest expense between $34 million, and 35 million depreciation and amortization between $28 million and $29 million and adjust the tax rate of 23 per cent to 24% equity based on.
Opposition, which we chose a reconciling item from gap to non-GAAP EBITDA to be between $11 million and 12 million and for 2021, we expect to invest an estimated 15 million to $20 million for capital expenditures less than 3% of total revenues.
A reconciliation of net income to gape, EBITDA and then from gap EBITDAR to adjusted EBITDA is presented in our press release today. In addition, our segment related information will be detailed in our Form 10-Q, which we plan to file in the coming days.
Now turning to slide 21.
You'll see our initial revenue expectations for calendar 2022.
While we don't intend to provide detailed guidance for 2022 on this call nor do we want to set a precedent to always provide future your guidance on our third quarter call. We did want to provide a current view on the top line based on initial orders from our major customers revenue of $840 million to $880 million in two two.
In 2022 and plant growth of 14% at the midpoint of our guidance when adjusted for the editor of the protein detection business.
As Karl mentioned, we see clean cap demand for covered vaccines in 2022, increasing between 5% and 10% over the 2021 level as.
As it relates to other components of annual guidance will plan to provide more detailed banks for 2022 in the first part of next year.
Our third quarter with another solid quarter of operational strategic and financial execution B continues to part the strong COVID-19 vaccine demand for our core business focused on organic expansion and support our customers with quality products on time to support their businesses.
Now before I turn the call back to Carl I also wanted to state that our supply chain remains solid in support of our products our investment in our supply chain activities and our quality systems have physician as well for business continuity with no present issues. We are fortunate that our company has been built from a series of U S based acquisitions that have a long and.
Strong relationships with their legacy vendor and customer basis. These relationships that only deepened over the period Morvai ownership.
75% of our year to date inventory purchases have been sourced from companies in the U S, which also mitigates global supply and logistic risks.
As we look forward to wrapping up 2021 of the next seven weeks and turn our eyes to 2022, we see Europe continued growth across our core segments of focus on key capacity expansion activities and increase in R&D investment and innovation to drive long term growth combine those items with industry, leading EBITDA in free cash flow margins.
A strong and flexible balance sheet and a stable of customers that are looking to reshape vaccine and cell and gene therapy markets. It's clearly evident that matter of ice in a great position.
To conclude my remarks, the team here has focused primed and ready to continue support every pacing base of customers with our strong suite of products and services now I'll turn it back to call for some final remarks on slide 23.
Well, thanks, Kevin so to wrap up we feel great about the entire business and we're pleased to be adjusting our 2021 guidance upwards for revenues adjusted EBITDA and E. P S significantly and to be introducing 2022 revenue guidance for growth of approximate.
Only 14% of the mid point after adjusting for the divestiture of our protein detection business.
This overall growth in 2022 includes strong continued underlying core growth and our nucleic acid production and biologic safety testing businesses.
As well as increasing queen-cup demand for vaccine programs.
From COVID-19 vaccines to vaccines for influenza malaria and TB to sell and gene therapies battling cancer. The transformative impact mrna will have on global human health is only accelerating.
We <unk> are proud of the key role that our customers partners and employees are playing in making that happen.
As our customers programs advance into later stage clinical volumes or commercialization, we see our growth is not only being stable, but also potentially accelerating as messenger RNA based therapies vaccines work their way more broadly into adopted health care practices.
I would now like to turn the call back over to Chris to open the line for your questions Chris.
Thank you Sir as a reminder to ask a question you will need to pass star one on your telephone to withdraw your question. Please press the pound key.
Oh first question comes from Matt Sikes of Goldman Sachs.
Mine is open.
Good afternoon call and Kevin Thanks for taking my questions Congrats on the quarter.
One question, we failed to quite a bit was has been on one of the slides you have at 60% of the world's population has got to be fully immunized and then Pfizer beyond text raw in sort of rest of world immunization as you continue to build capacity and they continue to manufacture vaccines.
What do you think sizes were all will be and sort of non U S. Not in Europe rest of world type immunization programs as we move forward into 22 and 23.
Yeah, a good question that.
You're asking me to prognosticate, a little bit so I'll qualify my answer with that I I think that pleasure is uniquely well position to give them their global reach and infrastructure to play in expanding role throughout throughout the world and the pandemic response, if you look at the scale and scope.
Of their operations the number of countries that they have shipped vaccine to already it really is quite impressive and so I think that as the landscape continues to unfold and as a size progressors. What we're finding is that the mrna modality and so that means pfizer be onto <unk>.
Is it's holding up quite well in terms of its performance some of the early issues with the supply chain or the the cold chain distribution are being mitigated or addressed and I think that right now people would say the best in class with vaccines are.
In fact, the messenger RNA vaccines, so with that backdrop I would say that we feel very fortunate that our longstanding customer beyond to partnered with Pfizer and the the situation because they're obviously extremely well position then I think if you look at the numbers that were just <unk>.
Those but both companies about their expected volumes next year looks to me like Pfizer expects to take about 75% of the mrna vaccine market for Covid and you're gonna have moderna at around 25 per cent.
Alright, thanks for that color Karl that's very helpful and are just uhm I. Appreciate you guys breaking out the the non covered related screencap customers being over 85% any additional color you can provide on sort of the growth you're seeing in our customer base the diversity across that customer base and how you feel the progress.
Making any sort of non covered related screencap.
Yeah, I mean, it's nothing short of amazing have COVID-19 not happened and we had seen this kind of growth that we're now seeing in the non Coca applications. I think we would have all been extremely pleasantly surprised and pleased with with that work. So right now I think you're seeing a bug.
Each of established players fully resume the programs that they have and play or that they have planned for prior to Covid and now you're also seeing a lot of new insurance into the market with different technologies different approaches that are trying to penetrate some of the specific opera.
Attunity that I outlined and so it is quite broad a widespread and probably unimaginable two years ago.
Great. Thank you for taking my questions for sure.
Thank you.
And next question.
<unk>.
Morgan Stanley.
Your line is open.
Hey, guys Uhm, good evening and thanks for the time yeah.
Oh Joy paint, an oral anti viral being compliments rather than a substitute for vaccines I think that's a good point, but every once in a while we get the question is that a <unk> cap uptake of the vaccine for booster is or perhaps among the anti vax overpopulation and to some extent.
Can't even emerging market. So just curious just to get your take on on on that side of some aspect of the dynamic.
Yeah can you just let me think about that for a second.
I am sure that there is some segment of the population that will be much more reassured.
Taking a proven existing.
Anti viral like we're talking about here rather than taking a vaccine, but how big is that sure of the the global population number one I don't know number two we seem to have hit a threshold in many developed countries of around anywhere from 20 to 10.
85% of people not being really enthusiastic about taking a vaccine in the first place. So I don't know that it's gonna cause any more resistance when might've been there before that period of time I'm just not sure. But then if you look at the the cost and it's my <unk>.
Point about different price points, you're talking about vaccines now that can cost in the range of 20 to $30. Each goes and I believe the merc anti virals were priced at around $700 for a course of therapy.
Uhm I, just don't see from public health point of view, how a 30 541 cost improvement ratio that doesn't address the actual underlying spread of the virus is a viable substitute.
Got it that's helpful. And then but then I recently had a bit of a manufacturing how can a hiccup they've lowered.
Sales range and enter your point, you expect Kaiser to sort of take a a medium over 75% Shadows M. I may have a vaccine market opportunity next year could this represent an upside for teen kept me at I'll or does that already sort of captured into your 5% to 10% growth forecast.
422 for the for the <unk>.
Well I think that given the the news about Maduro is.
Is relatively late breaking it seems unlikely to me that that was ever fully digested or folded into the forecast that we have received from our customers. Yet so there might be some potential upside there I think time will tell but again, we go back to the fact that we're working off of orders.
Not projections.
Got it very helpful. And then one final one for Kevin Kevin can you give us a sense of underlying EBITDA margins for the nucleic acid production business. If you were to back South Dakota contribution.
And what does segment margins in your mind looked like in steady state for that business over the medium term.
Yeah, I mean, we haven't guided to sort out the EBITDA margins, excluding the Covid contribution you know I think that clean cap, whether it's for color vaccines or for other products is very high so there's a bit of a put and take their with regards to those two items.
They'll say and we've been I think the mid point of our guidance here is around 74%, we've been very consistent around that level uhm over the last few quarters and moving forward here. We are continuing to look at a couple of things uhm that will that will put some pressure on that that would be the increase in our day spend increasing commercial and then.
The additional facilities that will be bringing up incrementally over the course of next year with our Flanders facility and the new home for a biologic safety testing business, which will collectively probably add me around $6 million to $7 million of annual expense that having been said the leverage we get our fixed cost base, but the act of our growing knees.
Does this next year should help to tip off for some of those investments so margin stability as we look forward I think as a as a fairly reasonable assumption with some of the key investments that were consciously making in our cost structure for longer term correct.
<unk>. Thank you.
Thank you.
And next we have Dan Hey, yes default.
Mine is open.
Afternoon, guys. Thanks for the questions Carl to your point on Pfizer's recent comments. They had a couple of ideas of data around just in terms of expectations for vaccines I think they had talked about the plan being to ship 1.7 million doses next year, but it also sounds like they're they're thinking that that 4 billion dollar sorry that for.
Billion dose number.
The production gull, and it's something that you referenced on the last call. So the guide for clean Cat for Kovac Green cap.
How should we think about that and what that's based on or what that looks like and how that aligns with the Pfizer outlook. I mean, I know you just said that you base your view on orders and not a projection, but it would just be helpful to square away you know, how what you're thinking jives with what they're thinking.
Hearing hearing silence.
File will take cellar part of that question I'm, sorry, Kevin I was on mute my apologies.
Well I have all of your debt. So look at that we can never square the circle for you. So I apologize for that in advance the way I would think about it as Pfizer is moving on to sort of the next phase of the vaccination program, you're going to see a mix shift next year I'm sure that they will be selling.
Much more product to the developing world. So those are lower.
Economic output countries that will be receiving product at cost.
Or the countries that are kind of in between that and the western markets that were predominant this year as a result anything that tries to tie the dollar projections back to to that would have to account for that mix in price, which I understand is a fairly significant difference.
So that would be the first thing I would say and then the second is the.
The orders even as they are communicated.
By our customers and their competitors, they're expected order volumes sometimes take.
Weeks or months to to work through their supply chain and get into the actual orders that we see so the history here has been won a fairly consistent increases in volume not going the other way I don't know if that's responsive to you.
Yep that's helpful. Okay, but maybe just following on that point I'm curious as if the visibility or the timing or the size.
Of the Queen-cup orders and sort of changed over time is that something that plays into the order book for you.
Do you just find that there's a little bit more up in the air.
More that's up in the air in terms of timing or what you might have coming to you in 90 days time.
No actually I think it's the other way around we have seen only larger demands coming in overtime as the production processes are stabilized and we see greater certainty going out for a longer period of time today in terms of number of months of orders on hand.
Okay Super Thank you very much you bet.
Thank you.
And actually have Catherine <unk>.
B at Yahoo.
Your line is open.
Hey, guys. Thanks for the questions I guess first last Carter I think he broke out the number of Screencaps supply agreement that you had signed that were enacted negotiation director and she can you give us an update on rainstorm taxable.
Kevin do you want to go.
Yeah, certainly yeah, I mean, it's not a metric that we're necessarily going to be updating every quarter I can tell you that that overall population has grown in the advancement of kind of those funnels has grown as well, meaning we've gone from term sheets to more active negotiations and certainly sign more deals and we had movie part those numbers previously.
<unk>.
Our our commercial team remains extremely dizzy.
Across this customer base and and not only is.
Pleased with the way that funnel is maturing and continuing to grow but it's also the excitement in and around the number of programs, which each of those contracts potentially serve for each of our customers and that's that's the thing that will also give us.
Greater opportunities for long term success and some of these programs sticking with them already and clean cap over time.
Okay, and then I pop out the television related Screencap revenue that looks like a nucleic acid production business increased about 40% sequentially. So what what are the key drivers that it'd be split between nine correct clean captain on the other components that that sounds neat.
Yeah, there's there's a variety of things and I think the non Covid. Queen-cup is is in next kind of larger bucket of products, there and where do you get into this being a little bit hard to do.
Nice out perfectly as we do something cap, both as a standalone reagent incorporated with modified mrna so combination products as well as Standalone clean cap and then stand on all of those chemistry's demand for intermediaries and other raw materials. So it continues to be very nice growth across the portfolio.
I would say and this is still very broad based as far as customers are concerned, meaning and we're not necessarily seeing one customers program get ahead of the whole population. It still continues to be pretty broad based.
Lot of people still in discovery in early stage, one, but we are starting to see I would say the most significant part of this bill is starting to come from Queen cap demand for non COVID-19 applications across some of those vaccine targets that Carl previously articulated star.
Starting to ramp up and that's that's something we've been working with our customers on and to get more visibility on as you know our clean cap products are not target specific so if we ship.
Certain amount kilograms to a customer, which we believe was intended for a product program exit could go to program why they don't necessarily need to order it differentiate their orders that way, but we're certainly trying to work with them and understanding and non COVID-19 or is just covered piece and then the piece that's related to specific programs that they have versus other X.
Tori option, so and I think that again the growth, it's pretty broad pretty pretty well spread across our customer base. So we're not really necessarily concentrating any event nucleic acid production growth outside of COVID-19 into any particular customer.
Yeah, and Catherine I'd also highlight the growing demand from the the exact same customers who've been buying <unk> queen-cup promos for other applications for the building blocks or the inputs that are used in their own synthesis program. So if they're doing it in house.
And those raw materials that we currently use ourselves are in high demand the ability to produce those reliably at high quality standards has been noticeably increasing demand here over the last couple of quarters.
Mmk. Thank you.
You bet.
Thank you.
Next we have John Taliban Uhm UBS your line is open.
Hi, Thanks for taking my question.
Yeah, the city talk a little bit on constant capital deployment, you know the company has around $550 million cash.
Pretty unlevered.
What are the can you talk a little bit on the priorities there across share repurchase M&A and capacity expansion.
Yeah, certainly I mean, it is a great deposition that we are in the strength of our balance sheet and the flexibility I think we see our ability to execute on all fronts at the same time that doesn't always happen in any given period, but.
Panic investment as we articulate last quarter with the facility expansions that continues to be something we're focused on certainly we have piano capacity you that as well.
From there.
The next priority and frankly, a parallel priority has always been looking at inorganic opportunities will continue to be extremely active there.
We can continue to watch bring something meaningful across the line and we're focused in the nucleic acid production segment.
<unk> dominantly first and then certainly biologic safety testing as well, they're just pure asset so much for tracking in that space. So that is certainly a big focus of ours as well as far as other applications of capital deployment with regards to either that capacity leverage Chevy purchasing other financing activities I think we're going.
To continue to focus on the first two.
And see what we shake out I think the other items will be something we'll revisit in 2022 based on the outcome of the first two investments.
Thanks, and I guess I appreciate the color earlier on the supply chain.
Are there any areas that you're seeing that maybe inflationary pressure of pricing pressure and can you talk about maybe the company's ability on being able to pass along these price increases to customers.
Yeah, certainly I think at this stage, we have benefited by such an increase in volume from where we were two years ago and such an increase in Formalising, our operations really professionalizing some of our negotiation tactics and trying to bringing up multiple vendors to compete against each other we've seen pretty good.
Pricing decreases on a per unit basis with some of our maintenance pets and that's again volume driven as much of the life science businesses can be and so that's been very helpful to US right. There uhm, we do not see specific.
Price increases right now affecting our colleagues profile as it relates to passing things along now there's certain items that we've seen a more of a catalog type business.
That we can pass along some small percentage of the increases but those have been in the low single digits historically as far as what we passed on as far as pricing increases to offset any cost increases that we have again, primarily to some of our smaller product claims.
Got it thanks for taking my question again, congrats on the card.
Thank you Joe.
Thank you.
Next we have Paul ninth Keybanc.
Your line is open.
Hey, guys Carl could you talk about your obviously successful with these <unk>.
Non COVID-19 earlier early stage customers.
What are they saying about clean cap versus alternatives.
Is it is it a preferred technology or what are they saying they like about clean cap.
Yeah, I think John I'm, sorry, Paul when people come to us in early stages, they've already made a decision about kind of the the design of the construct that they want and they're trying to see you can in fact, you synthesize and then after that can in fact work so.
I think people have already made a decision at that point that they probably are in favor of queen-cup, that's why they're coming to us to get those kind of strokes made initially.
And so I think it's just it is really a question of preference a lot of this has to do with you know what are the examples that you have out there of systems that have performed well and they just.
Imitating that basically.
And what should we assume.
Kevin for the the the the quality control business for growth next year, what's your assumption there.
Yeah, we didn't parse that out I mean look I I would say that we obviously there will be about 25%. This year the market historically there has been in the low to mid teens.
So that's kind of a two different areas to different goalposts party, but we didn't we didn't break out 22 guidance for that two segments of this day.
Okay. Thanks.
Thank you.
Thank you.
Next we have Matt Liberal of William Blair. Your line is open.
Hi, good afternoon, and I just wanted to follow up to that to pulse first question. So call you alerted that can investments.
Across the space and mrna and I assume that most customers who are working.
Q as in Queen kept before are still using clean cap, but as a new programs that has gotten funded have you had opportunities to win new customers or a new non-catholic programs housing stared and has anything changed in the landscape.
Hesitantly or in terms of preference for co transcriptional versus push transcriptional Kevin technologies.
Well on the latter.