Recro Pharma, Inc.

Good day, ladies and gentlemen, and welcome to the RECRO fourth quarter and year-end 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to hand the conference over to Stephanie Diaz of RECRO's Investor Relations Group. Please go ahead.

Thank you. Hello and thank you for joining us. On today's call, we have David Enloe, President and CEO, and Ryan Lake, Chief Financial Officer. Today, we'll be providing an overview of RECRO's contract development and manufacturing business, including updates on corporate activities and financial results for the quarter and year ended December 31st, 2021. After our prepared remarks, we will welcome your questions. Before we begin, I'd like to caution that comments made during this conference call today, March 1st, 2022, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the current beliefs of the company, which involve a number of assumptions, risks, and uncertainties. Actual results could differ from these statements, and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations, on our corporate website at RecroCDMO.com. With that, I'll turn the call over to David Edelow, Recro's President and CEO.

Thank you, Stephanie, and thank you to everyone who has dialed in and to those who are participating today via webcast. and I'm on slide three now of the accompanying deck. One year ago, I hosted my first earnings call as Recro's new CEO, having been on board less than three months. At that time, I announced a new strategic vision for the company comprised of four areas of focus for 2021, including expansion and diversification of Recro's customer base, strengthening of our balance sheet position in order to better support both organic and inorganic growth, augmentation of our leadership as well as restructuring our operational organization, and finally, continuing to upgrade and expand our capabilities and facilities to support growing customer demand. I had great optimism at that time, and I'm very pleased to report that we've made great progress with each of these goals during 2021. Our success over the last year has placed the company on a new and exciting trajectory for 2022. I will provide a review of our 2021 achievements, as well as our vision for 2022, following an overview of our Q4 and full year financial results. For that, I'll turn the call over to Ryan.

Thank you, David. Good afternoon, everyone. Before I begin, in addition to the brief financial overview I'll provide on the call today, additional details on our financial results for the fourth quarter and full year ended December 31st, 2021, are included in our press release issued prior to this call and in our Form 10-K, which will be on file with the SEC. Turning now to Slide 4, I'll begin with an overview of our financial results for the fourth quarter. Revenues for the quarter ended December 31, 2021, were $22.3 million. This represents a 125 percent increase compared to revenues of $9.9 million recorded during the prior year period. The increase of $12.4 million was primarily the result of increases in revenue due to the acquisition of irises, higher revenues from our non-legacy business, as well as higher revenue from our legacy commercial business due to timing of customer orders in 2020, which resulted in much lower sales in the fourth quarter of 2020. Cost of sales for the quarter ended December 31, 2021. was $15.7 million compared to $12.5 million for the comparable period of 2020. The increase of $3.2 million was primarily due to costs from the San Diego facility due to the acquisition of irises and higher product and clinical material sales offset by increased production volumes. Selling general and administrative expenses for the fourth quarter were $5.3 million compared to $4 million recorded in the 2020 period. The increase of $1.3 million was primarily related to deal and integration costs related to the acquisition of IRASIS and administrative expenses associated with our San Diego team offset by lower public company costs and stock-based compensation expense. As a result of our integration and reorganization, effective October 1, 2021, certain expenses associated with employees who now support our multi-site organizational structure and operations are classified in selling general and administrative expenses. Prior to October 1st, 2021, these employees supported our plant operations and were classified in cost of sales. Interest expense was $3.5 million for the three months ended December 31st, 2021. a decrease compared to $4.4 million for the comparable period of 2020. The decrease of $0.9 million was primarily due to reduced term loan borrowings under the credit agreement with Ethereum, as well as an overall decrease in the rate of interest on our term loans under the credit agreement. This decrease was partially offset by an increase in interest from the seller's note, which was a component of the IRS's acquisition purchase price. For the quarter ended December 31, 2021, the company recorded a net loss of $2.4 million, or $0.04 per diluted share, as compared to a net loss of $11.7 million, or $0.48 per diluted share, for the comparable period of 2020. EBITDA, as adjusted for the period, was $3.2 million, compared to $0.3 million in the prior year periods. I will now provide an overview of our financial results for the full year 2021. Moving to slide five, revenue for the year ended December 31st, 2021 was $75.4 million, a 13% increase compared to $66.5 million for the same period in 2020. the increase of 8.9 million in revenue was primarily the result of increased revenues due to the acquisition of IRASIS, as well as higher revenues from our non-legacy business, including revenue from a commercial product tech transfer project. Despite the discontinuation of two commercial product lines by our commercial partners announced in the first quarter of 2020, our legacy commercial business has remained relatively flat in 2021 compared to 2020, as our other commercial products saw growth in 2021 compared to 2020, rebounding from lower volumes in 2020 due to the impacts of the market from COVID-19. Cost of sales for the year end of December 31, 2021, was $55.6 million compared to $54.1 million for the same period in 2020. The cost of sales increase of one and a half million was primarily due to costs from the San Diego facility due to the acquisition of viruses and is partially offset by lower costs due to the prior year reduction in force and certain employment incentive tax credits in 2021. Selling general administrative expenses for the year ended December 31st, 2021 were 18.4 million compared to 18.1 million for the same period in 2020. The increase of 0.3 million was primarily related to deal and integration costs related to the acquisition of irises and administrative expenses associated with the addition of our San Diego team, offset by lower public company costs and stock-based compensation expense. Interest expense was 15.1 million and 19.2 million during the years ended December 31st, 2021 and 2020, respectively. The decrease of $4.1 million was primarily due to reduced term loan borrowings under the credit agreement with Ethereum, as well as an overall decrease in the rate of interest on our term loans under the credit agreement. This decrease was partially offset by an increase in interest from the seller's note, which was a component of the IRS's acquisition purchase price. For the year ended December 31st, 2021, RECRO reported a net loss of $11.4 million or $0.26 per diluted share compared to a net loss of $27.5 million or $1.16 per diluted share for the comparable period in 2020. EBITDA as adjusted for the period was $16.6 million compared to $14 million in the prior year period. Our cash and cash equivalents as of December 31st, 2021 were $25.2 million compared to $23.8 million as of the end of the prior fiscal year. This concludes my financial overview. For those interested in reviewing our non-GAAP reconciliations, please see slide 15 in this slide deck. I will now turn the call back over to David for an update on operations and achievements during the period.

Thank you, Brian. At this time last year, we announced an ambitious plan for 2021. I believe it is fair to say that we successfully delivered on every element of our plan, and I'd like to provide an overview of these accomplishments. Our first goal was to expand and diversify the company's customer base. I'm pleased to announce that during 2021, our customer base more than tripled, a significant increase for a company our size. This achievement is the result of several factors, including our acquisition of IRISIS last August, which I'll address in greater detail later, as well as the efforts of the company's business development team, which was entirely reconstituted in 2021. In addition to top-line growth, this expansion gave Recro a significantly more diversified customer base, which is critical to limiting the revenue variability that can occur due to customer-specific or segment-specific issues. These customers span the full range of Recro's capabilities, from early clinical trial support to commercial manufacturing, highlighting the company's broad range of services and our ability to meet the needs of companies at any stage of the biopharmaceutical product lifecycle. Our second goal for 2021 was to strengthen the company's financial position in order to better support both organic and inorganic growth. Again, we made great progress in this regard. We began 2021 with the announcement that the company had successfully and significantly restructured our debt instrument with our finance partner, Ethereum. Through this restructuring, Recro successfully delivered a total of $25 million of debt from our balance sheet. In May of 2021, we further strengthened our balance sheet by raising gross proceeds of approximately $34.5 million through an oversubscribed underwritten public offering. When you combine the progress we made on our debt balance, the capital raise, and our increase in revenue and EBITDA during the year, we ended 2021 in a considerably stronger financial position than when we began. The third and fourth objectives for 2021 were to augment our leadership and restructure our operational organization, and finally, to continue upgrading and expanding our facilities and capabilities to support growing customer demand. During the first half of the year, we revamped our business development team and made two critical appointments to our board. The company also continued to enhance and upgrade our existing facilities and capabilities, increasing utilization of our high-potency suite as well as a new clinical trial packaging and labeling line. In both areas, the company executed according to plan. Bolstering our early successes during the year, Last summer, the company made a strategic move that substantially advanced each of our four objectives even further. In August 2021, Recro acquired Irisys, a San Diego-based CDMO with capabilities that greatly complement our own. Through this strategic combination, Recro further expanded and diversified our customer base, enhanced the stability of our revenues, and strengthened the company's financial positions. With the addition of the IRISIS team, the company broadened our CDMO leadership, experience, and talent, as well as our geographic footprint. The net result of the organic capital investments made in 2021, as well as the IRISIS acquisition, all combined with our already impressive commercial oral solid dose infrastructure and strong quality and regulatory track record, is a transformation of our company to a stronger and more versatile CDMO capable of attracting and efficiently servicing a broader range of customers in the U.S. and abroad. As shown in slide six, and referencing the diamond-shaped icons which represent the former Irises business, this acquisition significantly expanded our project work in early development through phase two. We see this segment as critical to our future growth, and I'll touch on that again a bit later in my comments. As a result of these achievements, the fourth quarter and full year 2021 were significantly stronger than the fourth quarter and full year of 2020, respectively. During the fourth quarter, the company recorded $22.4 million in revenue, our highest quarterly revenue since 2019. The company also achieved a significant increase of $3 million in EBITDA compared to the prior year quarter. Business development was also strong during the fourth quarter. As seen in slide seven, new business activity and wins dramatically increased in 2021 as compared to 2020, again, in large part due to the expansion and reconstitution of our BD team. During the period, we had a number of key highlights, including the execution of a commercial master services and supply agreement with Otsuka Pharmaceutical Company, through which we will be the U.S.-based production site for a significant commercial product within Otsuka's portfolio. We are very pleased to expand our work with OSICA and believe this agreement highlights our ability to serve as a trusted U.S. supply source for developers of small molecule therapeutics. During the quarter, RECRO was also awarded a new development and manufacturing contract by the National Center for Advancing Translational Sciences, or NCATS, at the National Institutes of Health. Under the terms of this contract, the company will support CMC development of NES100, a microparticle dosage form of LENK that is prepared for the encapsulation of LENK in a patent-protected molecular envelope technology and delivered via a nasal spray device. In addition to providing early-stage development support, this project will utilize the company's sophisticated spray drying capabilities and we are very pleased to have been selected for this complex process. And subsequent to the quarter end, the company announced that it was awarded a new formulation development and GMP manufacturing contract from a key department of the U.S. government. Under terms of the new multi-year $1.5 million contract, the company will formulate, manufacture, and supply a topical dermal drug product containing a prescribed active pharmaceutical ingredient as well as a matching placebo for a planned cancer prevention clinical study. These activities will include analytical method development, formulation, GMP clinical trial manufacturing, packaging and labeling services to support the planned clinical trial, which is designed to evaluate the effects of chemoprevention with the investigational compound on the recurrence of basal cell carcinoma. Again, we believe this project showcases Recro's broad-ranging clinical trial services, as well as the company's unique formulation expertise. While we had a very strong fourth quarter, results for the full year 2021 were even more impressive, beginning with the company's year-over-year organic clinical new business revenue, which grew by 63%. When including the irises acquisition, this revenue growth increases to 147%. During the year, the company's gross margin improved by 7 percent from 19 percent in fiscal 2020 to 26 percent in fiscal 2021. And we expect this trend to continue to improve as we spread our cost structure over a larger client base. Also, EBITDA grew 19 percent in 2021 to 16.6 million from 14 million in 2020. Beyond our financial achievements in 2021, The company successfully expanded and diversified our customer base, significantly enhanced our leadership and team, optimized operations post-Irisys acquisition by creating business functions spanning our expanded footprint, and expanded and enhanced our facilities and capabilities on both coasts. And it's important to note that the company did this while continuing efforts to build increased sustainability into its operations. During the year, the company integrated its sustainability efforts into the combined organization and expanded its existing programs designed to reduce the company's environmental impact by building efficiencies in the utilization of materials, water, and energy consumption while minimizing waste. By any measure, 2021 was a very strong year for Recro. I would be remiss not to recognize our commercial manufacturing, supply chain, and quality teams for delivering our commercial products at a 100 percent on-time, in full, or ODIF level in our Gainesville facility. This is a remarkable accomplishment when you consider the numerous additional challenges the COVID pandemic presented. We believe the company is exceptionally well-positioned to tackle the goals we've established for 2022 and beyond. In 2022, the company will focus on a number of goals that we believe will further elevate Recro in the sector. On slide eight, this strategy includes executing segment-specific sales and marketing strategies, building stronger visibility and an updated identity for the organization, enhancing both our customers' and our employees' experience working with and for the company, and continuing to achieve growth and strengthen our financial position. This strategic mission is comprised of five key objectives. The first is to realign our sales strategy to be most successful in each of the specific market segments that we serve. And I'm on slide nine now. There are three discrete market segments that we are currently supporting. The commercial oral solid dose products, our legacy profit-sharing products such as Verapamil, and finally the early stage development clients whose programs we support. Our 2022 goals call for the development and execution of specific targeted sales strategies for each segment. The decision-making processes, key drivers, and ways we are measured by our customers are different enough for each of these three segments that we believe using this differentiated and focused approach will be most effective for our customer base, as well as maximize our ability to optimize our operational and resource prioritization. For example, While we now have a single company-wide quality system that we have successfully deployed across our footprint, we are committed to ensuring we use a risk-based, phase-appropriate approach to quality in order to most effectively manage early-stage clinical programs, commercial qualification batches, and in-market ongoing production. Additionally, our market intelligence during 2021 has highlighted an opportunity to completely refresh our brand in the biopharma market to more effectively communicate Recro's evolution as a partner to our clients as well to our people, both present and future. The historic perspective on Recro's skill sets, capabilities, and culture are somewhat outdated, as are those of Iris'. We look forward to sharing our new company name, logo, and look in the coming weeks and believe it will provide a more accurate reflection of who we are and where we are going as a company. The second objective during 2022, which will continue from the groundwork laid in 2021, is to optimize our organizational structure and expand our capabilities. Following the acquisition of Irisys, the company formed an integration team, which is focusing on 15 discrete work streams to ensure all synergies and opportunities are being captured and optimized. We've created strong synergies and efficiencies in our sales and marketing, quality and regulatory systems, human resources and people engagement practices, environmental health and safety policies, business systems, and operational excellence processes. This work will continue into 2022. We will also continue to enhance our current capabilities and expand our operations to accommodate our growing customer base and attract new customers. As we announced last week, we are making great progress with the first of these offering expansions, our aseptic fill finish and lyophilization capabilities. As of today, the dedicated suite is very near completion, and final validation and commissioning activities are underway. Our third goal in 2022 is to further improve our customer experience. While Recro has long enjoyed its reputation as a high-quality partner, we believe that there is always room to improve. In the year ahead is our goal to strengthen our client interactions, create unparalleled trust, and establish valuable partnerships from process development through commercialization. It is also important that, where it makes sense, we harmonize the experience our clients have at each of our sites. We have effective approaches to client communications and project management, and we want to deploy those approaches consistently across our organizations. And while our customers are critical to our success, the same can be said of our outstanding team at Recro. In 2022, we aspire to establish an industry-leading employee experience and corporate culture. As our employees drive our success, it is our goal to create an inspiring, flexible, and rewarding experience for everyone at Recro. In doing so, we believe we will strengthen both recruitment, employee engagement and retention, leading to a better workplace, better performance, and better outcomes for our clients and for our company's financial performance. And finally, during 2022, the company will continue to take steps to improve its financial strength. As part of this, we will continue to carefully manage our cash, work to reduce our debt, and engage in a consistent and transparent fashion with the investment community. With respect to our debt, we have engaged in several projects to explore non-core assets such as real estate owned, which can be monetized in order to pay down our debt in a non-dilutive way. 2021 was a good year. Given the momentum we have created, I am confident in our ability to meet the goals established for the year ahead. And I'm very pleased to announce that we are projecting revenue of between $90 and $95 million for the full year of 2022, representing year-over-year growth of between 20 and 26%. This year-over-year top-line growth can be further appreciated when you consider that our legacy products, namely the Verapamil program, while very profitable for us, is anticipated to be basically flat. Looking at slides 10 through 12, this point is best illustrated in this series of slides, which shows the progression of growth from 2018 to present. As you can see, Recro was highly dependent upon the revenue generated from only a few legacy products in 2018, with advances in organic growth beginning to have an impact in 2021. However, when you take the irises acquisition into consideration, we are now significantly less dependent upon the revenue from legacy products, with multiple new clinical programs driving growth. As a result, in 2021, we successfully diversified our customer revenues such that the share of our legacy business has been reduced from over 90 percent to approximately 70 percent of our business. And looking ahead to 2025 and beyond, we expect this trend to continue. Looking at slide 13 now, so for us to achieve the growth we are projecting, our non-legacy business needs to grow by approximately 30 to 50 percent year-over-year, assuming full-year IRIS sales in 2021. This is obviously well above industry growth rates and represents the momentum we've built the past several quarters. I'm now on slide 14. As with last year, we have laid out an ambitious plan for the year ahead, and like last year, our team is working diligently, taking the steps required to meet expectations and beyond. We believe that the achievements of 2021 clearly demonstrate our ambition and ability to execute as we met and exceeded each of our goals in 2021. Looking ahead, we plan to leverage our expanded expertise, our enhanced service offerings, our dedicated team, and our improved financial position to elevate our company to become a leading growth CDMO. This concludes my prepared remarks for today. We can now open up the call for questions. Operator?

As a reminder, to ask a question, please press star 1 on your touchtone telephone. Again, that's star 1 on your touchtone telephone to ask a question. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jacob Johnson of Stevens. Your line is open.

Hey, good afternoon. David, a couple of questions on the sales side and some of the new initiatives there. Maybe first on the differentiated sales strategy between the legacy business, kind of early stage development work and tech transfer. That seems to make a ton of sense to me. In terms of operationally, how large of a change is that for your sales team and how hard and how do you kind of drive that approach?

Yeah, thanks for the question, Jacob. There are, I would say, some subtle but very specific differences in approach that we need to take. We've got some expertise that we've added to the team in anticipation of this market stratification work that we intended to set forth here as we move forward. And so we've been able to add expertise here. We have expertise in the clinical trial services area. We have expertise in the commercial oral solid dose area. We have expertise in the early development CDMO space. And so, you know, it's about how those proposals ought to be prepared, what sort of diligence is required for quality audits with clients in those different spaces. And quite frankly, also who the decision makers are in organizations, depending on where they are with those programs. And so, you know, those sound like major shifts. I think we're prepared for it, but we're spending a lot of time talking about how we orient the entire organization towards that. We've been able to add a new director of project management coming in from a major CDMO organization. who will oversee all project management across the entire organization and appreciates and understands the differences in those sorts of programs. So it's an important part of our business strategy and one I feel confident with respect to the way we're moving forward. Got it.

And then you mentioned, I think, a couple times a lot of the new hires on the business development side. Obviously, it takes some time for those people to get ramped. Can you just talk about where where your business development team is in terms of kind of being familiar with Recro's offerings and being familiar with their target customers?

Yeah, so we've spent a lot of time. So the team is in place, has been in place, not quite, but essentially a year plus minus, depending on the individual. And I'll say that what we've talked about in the past is that We believe it took several quarters for that level of traction to be gained to ensure success. And we're definitely seeing the fruits of that right now with respect to the opportunity, the size of opportunities, meaning the number of them, and also the types of opportunities. So there's been a lot of training done in San Diego to make sure that everybody understands those capabilities. in a completely different way than before and it's a very timely question because there is a gathering of those same people in project management and everybody else right now with a different sales training event now focused on rolling out this strategy. So I feel like that the team is up to speed and they're rolling and they're working well together And I should also say for anybody that I can confirm that being able to be back in person in front of clients while we often can't go to their offices, but still being able to meet with them offsite somewhere does accelerate the quantity and quality of conversations that we're able to have about programs. Got it.

And just one last one for me. Just going back to the sales strategy, you outlined tech transfer and second source opportunities as kind of one of the key areas there. Can you just talk about how large those opportunities usually are, how many of them there are, like how many shots on goal there are for you in that space, and then, you know, are those low probability events when you go after them, or are they easier to win? I'm just kind of curious what that opportunity set looks like.

Yeah, I mean, there's a – If you look at FDA manufacturing approvals, you can see that there are a greater number of approvals than there are new drugs being approved. There are site transfers that are being approved. I don't want to even give a percentage, but it's a measurable piece of activity. And so the types of opportunities we're looking at, we do need to make sure, some of them that we hear about are very small. And so, quite frankly, the economic impetus for the drug owner to make that transfer or to have a second source is very low. I mean, it's a very long payback to be able to do that. And then there are a few of them that we've encountered and had an opportunity to bid on, which are very large, right? And they would completely consume our capacity. But there is a subset that's in the slot where we can be supportive and it would be meaningful for us, but it would not absorb everything that we have with respect to capacity. So, you know, I would say that there is enough of a population that we should expect to see some success. And, again, I want to emphasize the types of conversations that we have with the sponsors for those sorts of programs are very different types of supply chain-related conversations than, you know, an earlier program where we're really investing in the science and the technical solutions. Got it. That makes sense.

Congrats on all the progress in 2021. I'll leave it there.

Thank you. Thank you. Our next question comes from Matt Hewitt of Craig Harlem Capital. Your line is open.

Good afternoon. Thank you for taking the questions. Maybe first off, how should we be thinking about the revenue and gross margin cadence this year in relation to your guidance? Is there any impact from COVID and Q4 and early Q1 that means it might be more back half-weighted? Or just help us understand how you're thinking about the cadence of the year.

Thanks for the question, Matt. This is Ryan. So I would say generally we are not giving quarter-by-quarter guidance, but just full-year guidance. We feel, you know, obviously really good about the guidance that we gave today, 90 to 95 million, and, you know, feel that we're well-positioned in the market with our long-standing commercial history and robust capabilities to capture that growth, you know, in the marketplace. You know, our development revenue or non-legacy business is expected to increase 30% to 50%, assuming the full-year IRSIS revenues, and, you know, low single-digit percentage increase in our legacy business. So overall, you know, the revenue growth rate is like 18% to 14%. uh for the business and we think we have really good line of sight for uh the the non-legacy or the development revenue portion especially with you know the 24 million in backlog that we have ending the year and i mean our our pipeline has never been stronger in terms of the backlog we have in terms of the the open proposals we have with customers what we're able to sign during 2021 so It's exciting for us. So the other, I think, comment to your question is with regard to gross margins. We're expecting gross margins to remain in the mid-20% range. The 2021 gross margins were a bit high, taking into consideration the incentive tax credits that we received during 2021. So with the additional hiring that we have projected in 22, we're seeing a benefit of higher revenues and increased utilization in terms of our anticipated gross margins that are more than offsetting the incentive tax credits that we received during 2020. And then just from an overall EBITDA perspective, we're projecting roughly $16 to $18 million in EBITDA and excluding the incentive tax credit, that's about a 40% increase compared to 2021 EBITDA, excluding those COVID-related incentive tax credits. You know, some of the puts and takes there are really that the EBITDA guidance takes into account, you know, almost, you know, 18 million or so and higher revenue. The related cost absorption associated with that and is offset by some of the non-recurring COVID-related incentive tax credits, as well as increased spend related to hiring and inflation because we were running really lean in 2021.

Got it. That's helpful. Thank you. And then maybe just a follow-up on some of the sales team feedback that you provided. What is the headcount today for that team? And how is that – I just want to make sure I understand this correctly. Is the team split up by those three different segments, or is each salesperson – are they out kind of selling to all three segments?

Yeah, this is David. Hi, Matt. I would say that we hired subject matter expertise to be spread and diversified across those offerings, but there's absolutely an expectation and it's happening that conversations on all of our offerings are being held by any of our BD reps with the clients with whom they interact. And then obviously as soon as it gets a little bit more detailed and technical, we're bringing in the scientific talent or the other sales folks. So we've seen several opportunities where our existing clients on the GMP clinical trial material front Some of these new clients we've been able to add over the past couple of years are now coming back to us to talk about clinical trial services, so packaging, labeling, distribution, and it's a nice add-on. And so in those cases, the sales members are working in tandem to bring a combined solution.

Got it. And then maybe one last one, and then I'll hop into the queue. Regarding all of the progress, I mean, I was looking back at even just your August slide deck compared to where you're at today, obviously a tremendous amount of, or tremendous increase in the number of opportunities in your pipeline. But as we think about some of those newer opportunities, you signed the contract, how quickly does that, do those, you know, turn into revenues? I mean, I would imagine there's a pretty big variation, but on average, once you sign the contract, are you typically, especially on the development side, are you able to get those started within a quarter or two, or do some take much longer than that? Thank you.

Thanks for the question, Matt. So I would say generally, yes, it takes about three to six months on average, but it really depends on the client, their API availability, and how quickly they're ready to get started.

Got it. Thank you.

Thanks, Matt. Thank you. Our next question comes from Christine Raines of William Blair. Your question, please.

Hi. Yes. Congrats on the quarter and good afternoon. I was just hoping to get some color on the Atsuko tech transfer, if you have any updates there. Do you still expect commercial product production in the second half of 2022 and

have you seen any expansion opportunities beyond that hi christine thanks for the question this is ryan so we're still on track with the registration matches with the expected completion by the end of the first half of 2022 we expect to be in manufacturing the commercial quantities either late in 22 or in uh early 23 really depends on That's when they're, I think, anticipating to receive approval back. So that's when, you know, there would be kind of a subsequent entering the market thereafter. But we continue to build a very strong relationship with Atsuka and believe that we're delivering on all of their expectations.

Great. That's helpful. And then my second one is just on the core legacy product portfolio, it seems like it's, you're in hangers pretty well in terms of like the ADHD and hypertension products. Are you still seeing ADHD script prop volumes depressed from pre pandemic levels? Is there any potential upside there? And are you seeing any risk binary? Are you pretty comfortable with stability there?

Yeah, so I would say that the ADHD levels are still below a baseline from pre-COVID. But just looking at the 52-week kind of trend of scripts, they do show recovery. And, you know, pediatric volumes got an end-of-year boost, I would say. So, you know, we think that's trending positively. As it relates to you know, Teva and verapamil-SOR, you know, Teva, you know, continues to remain steady and has actually picked up about 10% market share, bringing them to about 60% of the overall Borapimil-SR capsule market. So we view that as a positive. We also believe that, you know, Beatrice's focus has been on biosimilars and complex generics, and you probably saw they announced earlier this week a deal with Biocon to purchase Beatrice's biosimilars business and shift in their strategic attention. So, you know, this is, you know, at least what they said was a first in a series of asset sales. And we view those activities as an opportunity and potential for us for either additional product rationalization by them or could be positive for us on a number of levels.

Great, thanks. And then just one last one for me. How are you feeling in terms of wage and inflationary cost pressures? I heard you say those are baked into 2022 guidance, but any more color you can give there in terms of how your supply chain is faring would be great.

Yeah, I mean, let me just say, this is David, Christine. You know, it's certainly – it is top of mind for us. And so we're embracing the fact that there are going to be some increased costs, particularly on the labor side. And we are very committed to remaining competitive in the market because one of the real competitive advantages we have, quite frankly, in the market is the stronger than expected tenure from our company with respect to our scientific and manufacturing staff, and that's something that's very important to our clients. So we're going to stay out ahead of that and remain competitive, and those wages obviously are rising. We expect that our clients expect that the prices are going to go up, and we are having those sorts of discussions with our clients as we need to anticipate receiving more for the services that we're performing. We're not going to be able to subsidize their development program by not raising our prices while our prices are being raised to us. So it's something that we're being very assertive about, spending time on, and frankly, accessing external expertise as a leadership team to really understand the other nuances of operating a business in an inflationary environment, which a lot of people in our company and everybody's company have never experienced before.

Great. Thanks for the call there.

Sure. Thank you. At this time, I'd like to turn the call back over to David Enloe for closing remarks. Sir?

Many thanks to all of our clients. supply chain and other service providers and partners, and particularly to our excellent RECRO team members for an exceptional 2021. We look forward to many great achievements in the year ahead. Thank you again to everybody for participating today and for your continued support of RECRO.

This concludes today's conference call. Thank you for participating. You may now disconnect.