Maravai LifeSciences Holdings, Inc. (MRVI) Earnings Call Transcript & Summary

All right. Great. Thanks. Good afternoon, everybody. Thank you for joining us. Welcome to the Jefferies 2021 Virtual Global Healthcare Conference. I'm Brandon Couillard. I cover the life science tools and diagnostics sector here at the firm. Very pleased to have Maravai LifeSciences with us at the conference for the first time this year. And joining us for this fireside conversation, CFO, Kevin Herde. For those of you who are listening to the webcast through the online portal, please feel free to submit a question in the question box or e-mail me directly, and we'll do our best to work it into the conversation. So Kevin, thanks for being here.

Yes, you bet. Happy to be here, Brandon.

Before we sort of dive into the business, I first want to start with President and Co-Founder, Eric Tardif's announced retirement a few weeks ago, which caught me by surprise. You've obviously known Eric a long time, go way back to the Gen-Probe days. Had this been in the works for some time? I mean, he's relatively young. I hope I can retire when I'm 51. Yes, I also view him as pretty instrumental in terms of leading M&A and corporate strategy, building a portfolio. You, Eric, and Carl has certainly been kind of a team for a long time. What can you -- help tell us about that?

Sure. Yes. Certainly, nothing in the works for a long time, and 100% Eric's personal decision. He's -- we've had a lot of success together, not at -- just Maravai, but when we worked together at Hologic and then obviously at Gen-Probe as well, where we all met for the first time and worked together. He's -- just the time in his life where he has the opportunity to literally get out of what he's been doing for his whole life. And he's relocating and building a home and wants to get into philanthropy and other interests. And it's 100% on his own terms, and that's the way he wants it. And it's been great working with him. I think also, just trying to get inside of his head a little bit. And what we've done here is, a lot of things he was responsible for, we've really built up over the last 6 months to a year. So we have a great new COO of our Protein Detection business, which he was responsible for. We've brought in additional resources in corporate and business development. We brought in a Vice President of Marketing, which he was also overseeing. So a lot of the functions that he was doing on a day-to-day basis really have brought -- he had brought in some really good leaders and done that knowledge transfer. And I don't know if that was part of his plan or what have you, but he's leaving us here at the end of this month certainly in great shape. And we certainly obviously thank him, not only for the efforts he did to help start Maravai and get us to where we are today, but also all the work we've done together in the life science industry along with Carl over the past 15 years. So he'll be missed on a day-to-day basis, but he'll certainly always be a friend.

Okay. Jumping into the business, I'd like to start off with the big topic around CleanCap specifically. For those that may be less familiar with the Maravai story, given you're relatively young in the public markets, just explain what CleanCap is, the value proposition and kind of how it stacks up in terms of other alternative methods for capping mRNA like enzymatic approaches.

So CleanCap is a proprietary product for us. It's a reagent that uses a co-transcriptional capping methodology and adds a natural cap structure to a naked mRNA molecule. So all mRNA molecules need to be capped to stabilize them, preserve the mRNA once it's administered. And at this scale that we're working on with vaccines, you either go down a co-transcriptional chemical approach or an enzymatic approach capping method. For example, Moderna uses an enzymatic capping method. And it's really driven by whatever the mRNA platform was at the time you had when you started working on the COVID-19 vaccine. So we think the CleanCap is ideal, and our customers have loved it just because it eliminates that additional step, an enzymatic capping step. Since it's applied during the co-transcriptional phase of the manufacturing process, that helps to maximize yield, capping efficiency and process improvements and efficiencies overall. Certainly, a very well thought-out IP strategy here, very well IP-protected. And again, our customers love it. It's just got -- it's received great results and just part of it -- it's part of the product. So you can't flip it out without having to resubmit and go through the additional clinical trials to validate it. So it's an incremental -- instrumental part of the Pfizer vaccine, the BioNTech vaccine, or CureVac and other mRNA customers that are driving our revenue and demand for this product.

In terms of the outlook for COVID-related CleanCap revenues, can you just kind of walk us through your assumptions? We've walked this number up several times, okay, like in recent periods. I think for this year, you're talking something like $440 million, $470 million of just COVID-related CleanCap revenues. Just kind of help us understand what's embedded in terms of your assumptions for that.

Sure. Yes, sure. Looking back, and we've been public for a little over 6 months now. And when we first went public and when we were developing our -- the initial views on the company back in the late third quarter, early fourth quarter of last year, we had demand from our customers. And that's really what informs our capacity planning as well as our guidance. And that demand basically takes the form of a forward-looking 12-month forecast that we work with them on the contracts that we have to make sure we can plan effectively. It's locked in for basically the next 6 months and is supported then by POs and shipment schedules over the next quarter. And what we had at that time was the demand from our major vaccine customers, primarily the 3-way agreement we have with Pfizer and BioNTech for the COVID-19 rollout, certainly CureVac being the next-largest customer of ours as it relates to the COVID-19 vaccine we had. That demand in hand looking forward roughly a year and used that to inform sort of our views. Since that time, both after our fourth quarter and then after our first quarter, the demand we had, using that same process, in hand was substantially higher than we had at those other points and it has led us to increase our guidance in line with that. And it's really been driven by the commercial success that they've had, certainly, in rolling out the vaccine and certainly the continued opportunities they have. And their bullishness as far as the total capacity they're going to have and the doses they're going to be able to create, not only here in 2021, but if you certainly look at the investments they're making on capacity and their statements, they see more output next year, in 2022. And what we've seen historically is that the demand for CleanCap will follow that as well.

Sticking with that theme, I think definitely, Carl gave a pretty upbeat, I would say, assessment as far as the durability of vaccine-related demand as you look out to next year. As the -- as COVID becomes endemic, capacity of your biggest customers is going up dramatically. And you've also got more vaccines that are directly come to market, including CureVac. Can you just talk about -- so that's kind of the anecdotal, right, piece of the equation. But to what degree do you have sort of firm orders in place that may stretch out into the first half of '22? And is that visibility stretched out even into the second half of next year at all?

Yes. We're working with our customers. Again, we work -- they provide rolling 12-month forecasts. So yes, we have visibility into the first half of next year. And we're working with them to try and say, "Hey, can you give us a -- peg that full year for us so we can make sure we're planning appropriately?" We're lucky in that we built this facility, think, back 2018, got online at the end of 2019. Spent a substantial amount of money creating kind of a state of the art, modern, highly automated facility for mRNA and related products like CleanCap, thinking that we were going to grow into that over a decade. And we've certainly accelerated that. We're probably at 60% capacity or so of this plant that can do just north of $1 billion, and rapidly chewing into that. And so we're looking at those options for our own capacity now going forward. I think the nice thing is, because of how we're working, you're right, we see this as more endemic. We see -- we still have a long way to go. Even in the United States, we're at 50%, depending on what demographic you pick. The rest of the world, there's still over 5.5 billion people that are eligible and have access to get the vaccine that haven't been vaccinated yet. So there's a lot of work to go to get the first -- the vaccine administered in the first 2-dose regimen for what we're offering -- our customers are offering. And that's going to take a while. And because of that, I think you see our customers making sure they have the capacity to deal with all of that initially. And that will stretch through 2022, probably well into 2023. And then be at a certain steady state, we do believe. And then be complemented by boosters or variants or, what we believe, is we're already starting to see this, stacking of additional mRNA vaccines as we really think mRNA is really -- will be the technology of choice for the future of vaccines. And you'll see that stacking and also adding to this additional capacity that's being created. So it won't be just be for COVID vaccines, we believe. There are already -- quickly advancing their seasonal flu vaccine program as well and have committed substantial dollars into the investment of other mRNA technologies going forward. So that's really exciting for us as one of their key suppliers.

Do you think that mRNA will sustainably remain the dominantly used modality for COVID vaccines?

Yes, I think it will just because natural -- it's efficacy, its safety and its natural coverage of variants versus other methods. We just get more widespread coverage of variants because of how it's engineered. So I see that being the case going forward, and I see that also applying to a lot of other indications just because of how effective the technology is. And now that it's getting more accepted, it's that we're standardizing the development process. We're standardizing and improving the manufacturing process and the supply chain. It's much more of a known quantity. And given how effective it is and how it could potentially address certain conditions that have been hard to address historically, I think it opens up the door. And you're seeing just a lot of excitement in and around its potential. It's always been there, going back decades. But now I think it's really ready for prime time, and it's going to stick.

What impact, if at all, do you think having official FDA approval, not just Emergency Use Authorization, will have on kind of the category? And as you look out into next year, not necessarily '23, but kind of the next 12, 18 months, is it too soon to be assuming that pricing for the vaccines would come down materially such that it could affect the unit economics of CleanCap?

Yes. So on the last question, our supply agreements are for bulk CleanCap at the kilogram level to our customers. And they have no end pricing dynamics to them. Meaning if the end unit price goes up 50% or down 50%, our economics don't change. And we have set prices and we're doing this in bulk. It's a key ingredient, but it's -- we're not tied into the economics of the end product at all. So from that perspective, nothing would change from our point of view. And then going back to the first part of that question, Brandon, could you recall what we were talking?

Yes. Just the significance of having a formal FDA approval stamp.

I don't think it changes much for us. I think probably, maybe socially or in people's minds, that maybe are on the fence or just waiting for more time to go buy for them to get their first dose of vaccine for whatever reason. It might have an incremental help there on the margins as far as penetration into the population of vaccines. But I think the FDA's process will run its natural course. It will be interesting to see from our perspective on the timing of other indications, seasonal flu and other things, that use the same technology platform or template. Hypothetically, those would follow a more traditional time line just given there's not an Emergency Use Authorization for those other indications. But that will be something we'll also be monitoring really closely with our customers. The good news is we are not capacity constrained. Again, we built this facility well ahead of this, not knowing it was coming. But obviously, we're in a great position to be able to support that demand and all demand across all the different channels and indications for -- that are needed for CleanCap, as well as the work we do in highly modified mRNAs for our gene and cell therapy companies.

Are you worried at all about potentially bumping up against that capacity ceiling, say, by the end of next year?

We're not at the moment, but we're already active. So we're active on looking at our own processes and process improvements on how we could potentially create even more yield to even increase that slightly more than $1 billion worth of output, right? Like I said, we're about 60% capacity right now. We are looking at other facility options. And that would include both organic and inorganic options, meaning we could build it, we could buy it, or we could buy a company with some or we could partner. And we're also looking at some of the dynamics with regards to geographical distribution of our footprint. Certainly, some of the commercial contracts for certain areas have a nationalistic sense in that, for example, if the EU wants so much of the supply chain to be in the EU, and certainly to help generate jobs and stimulate the economy and support the advances in health care tied to the vaccine more locally for them. And we're aware of that, and we're going to be working with our customers and with the governments to make sure that we have the time to be able to do that effectively. It's not something you can snap your fingers and do, and they understand that as well. So CleanCap, in our view, will continue to be manufactured here and likely elsewhere over time because of some of those factors.

Still with CleanCap, but in a non-vaccine sense. Can you just talk about the ramp and traction and level of activity in non-COVID programs? Any specifics you can mention and any chance you could size the revenue base for non vaccine-related CleanCap today?