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

Good afternoon, everyone. I'm Matt Sykes, the life science tools and diagnostics analyst at Goldman Sachs, and I have the pleasure of welcoming the management team from Maravai LifeSciences with us this afternoon. We have Carl Hull, the Chief Executive Officer; and Kevin Herde, the Chief Financial Officer. Carl, Kevin, thanks so much for joining us. I appreciate you having -- you guys coming here.

Hey, Matt, it's good to see you.

Great. Maybe Carl, I'll turn it over to you first, just to kind of set the stage a little bit for us. Talk about some of the key highlights of Maravai and what investors really should be top of mind for them as they continue to look at Maravai.

Well, look, simply put, Maravai is a life sciences company that provides tools to other life sciences companies and respirators that enable them to do their work and their discovery. These tools take several different forms. Our largest business is nucleic acid manufacturing for a variety of applications. We are also a specialist in the manufacturer of messenger RNA, which becomes critically important to our story, as you'll -- we'll talk about here in a few moments. Another form -- tool that we provide is kits for biologics safety testing. These are the kits that are used to detect contaminants that can be introduced during the manufacturing process for biologic drugs and also very rapidly growing, a highly profitable business. And finally, some of our other products include kits used to examine and detect proteins in tissue samples but not for human clinical purposes, but instead for academic research purposes. So that just gives you a quick overview of the lines of business that we're in. We're in a period of hyper growth, as you may know, and that hyper growth is presenting us with a number of new opportunities.

Great. That's really helpful. Maybe we can start on nucleic acids and CleanCap and COVID, specifically. I know it's been a big topic of discussion for you guys. But can you just talk about sort of the need and timing for boosters and/or modifications for the COVID vaccine? And maybe give us your views on this dynamic and how it will impact Maravai.

Yes. Well, look, we believe that the numerous emerging variants of the virus that are being seen, or probably the best and most sustainable case for a long-term COVID booster market coming into existence. And whether a particular variant that we're looking at today becomes globally dominant or not is almost impossible to predict, but you're seeing it happen, and it's happened multiple times so far. So governments are, I think, rightly focused on preparing for this risk by trying to get modified vaccines prepared and on the shelf in case they are needed to go after an escape variant as they turn these things. And we're already seeing news reports of governments building that requirement into their supply contracts. And I think it's the ability of our customers to really rapidly reengineer their mRNA platforms that allows the mRNA technology to be the best possible choice if you do have to rapidly modify the variant. I think you saw that there were a couple of candidate variant vaccines available for clinical testing within 6 weeks of the discovery of the variant in the wild. And so we don't know exactly how this is going to play out long term, just it's super hard to predict with all the variables in play. But what we think is going to occur is that you'll need to modify the existing vaccines in the event of a variant escape. And so that's going to be one cause for reinoculation in the future. But more importantly, and this is much more of a traditional booster kind of concept, you're going to have to administer additional doses of a vaccine, whether the original one or a modified one, in order to maintain the immune response that is necessary to protect the population. So that basically means it's going to be kind of like booster shots that we've received for various diseases at various times. The frequency is yet to be determined, but you're seeing waning immune response at about 6 months after the completion of the first course of the vaccine -- or I'm sorry, the complete course of whatever vaccine you're taking. And scientists and clinicians believe that, that will imply that you'll be looking at maybe every 12 to 18 months needing a booster. There's also a chance the boosters themselves work against variants, which is another area that's being researched pretty heavily right now.

Got it. And this is a related question, but the question we get all the time is just the durability of your COVID revenue stream, and maybe you can talk a little bit about it. You addressed it pretty head on at your most recent quarterly earnings call, but I think it's worthwhile to maybe hear your views on the durability of this revenue stream for Maravai.

Yes. I think the real question you're getting at there, Matt, is actually what's the durability of the mRNA revenue stream at Maravai, right? It's not just related to COVID, although that's the one immediate application today that's dominating the news. So let's get the bad news out of the way first. Unfortunately, we expect COVID to become an endemic disease that's going to be with us for a long time to come. And I think it's going to require those same kind of public health interventions that we use against other respiratory diseases. So that's going to include periodic vaccination, or as we just discussed, revaccination as we go forward. That's the bad news. I think the team at BioNTech earlier today or maybe earlier, if you're meeting this week, described their view of 3 different phases where you're going to have to use vaccine perhaps slightly differently. The first one they call was the pandemic phase, which is where we still are; the second, they call the booster phase; and finally, they call the endemic phase. And that kind of segue makes sense to us. And I think you're going to see the vaccines play a slightly different but important role in each of those phases. The other thing that I think goes to the durability question is really the fact that the ultimate share of the market for COVID vaccines that's going to be held by mRNA vaccines has likely just shot up incredibly from the original expectations. I think it was an early view on the world public health community that you were going to see simple-to-store, simple-to-use, single-dose regimens be the dominant player in the developing world, where much of the population is. But in fact, we're seeing mRNA being used much more than was expected. Great example was yesterday's announcement by the White House. The U.S. is buying 500 million doses of Pfizer BioNTech vaccine and donating that to COVAX for the developing world. So I think mRNA is going to touch many more people's lives than we originally inspected, and that's a good thing. We've still got over 6 billion people to vaccinate. And finally, I'd say that there's been this huge investment in mRNA technology as a platform, and we're beginning to see it being applied in lots of ways that were not anticipated, all of which represent growth opportunities. So as an example here, Pfizer raised their R&D guidance for this year, as I recall, by $600 million simply because of the number of new programs that we're going to be working on using messenger RNA. I mean that's a rather stunning 1-party change, but it's happening all across the industry. So I think more and more industry experts are predicting that mRNA will be the preferred platform for a lot of future vaccines and especially for those that have proven resistant to other vaccine strategies. So examples there would be RSV, a virus that affects most of our kids at some point in their lives but can be quite deadly. HIV has resisted any vaccine approaches for the last 40 years. And then, of course, separate from that is seasonal flu. And I think it's fair to say that the race for an mRNA-based seasonal flu vaccine is well underway right now. So as you sit there and think about all of those things, that's kind of the new news. But you don't want to forget about the original applications of mRNA technology in therapeutics, which included immuno-oncology and rare diseases. In the immuno-oncology field, we're looking really, quite frankly, at cancer vaccination strategies that are individualized that make use of mRNA as part of what they do. And then in the rare disease field, all of the high-value, long-term, ultimately, very devastating diseases that were originally targeted, and most were rare diseases like enzyme replacement therapies and glycogen storage disorder treatments, many of those programs were clinical programs last year. They were in their early stage. They got paused because you couldn't get access to these patients during the pandemic, and now they're resuming. So I look at all those factors, and I say the durability of mRNA revenues for us is likely to be longstanding and quite significant.

Got it. Carl, I think it's really helpful. Maybe I'm going to drop in a question from the audience to see if it's something that you guys would know. Does Maravai generate revenue when Pfizer or others donate free doses?

Our revenue is generated when our customers manufacture mRNA.

Got it. And in terms of the approval for 12- to 15-year olds, I think it was happening like right after we had the last earnings call. How could that expand either the amount or duration of vaccines, in your mind? And have you factored -- I don't remember if you can factor that into any guidance or anything like that.

Yes. I mean, look, when we do the guidance, I'll let Kevin explain a little bit about how we get to the numbers that we get to. But you've got to believe that this is really an encouraging development from a public health point of view. I think that, if I recall correctly, 20% of the global population is under the age of 16. And so having an unvaccinated reserve of that size out there is not a desirable thing. So I think we'll make good progress there. And it looks like the vaccine trials for even younger children, maybe down to peds and infants, are underway as well. So that's super cool. But Kevin, maybe you can comment a little bit about how we build our projections.

Yes, happy to, Carl. Yes, so for us, we're really working very closely with the supply chains for our vaccine customers. And this goes back, going back to the fourth quarter of last year when we started to give some initial guidance as we were coming public, we've seen that be a steady increase in demand. And I think that's been great execution by our partners. And again, they provide us with forward-looking forecasts. And that process has evolved, and it's in a really good place right now. They provide us forecast going out 12 months. We lock that in as we get closer on, and we really lock in those POs. We use that supply chain input, which informs our guidance and how we plan the business. And that is very locked into mass quantities and kilogram quantities of CleanCap that we ship to them. And we recognize the revenue when we ship them that product. We don't have back-end of variable economics related to price points or as we said previously, if they plan to give things away or address emerging markets that way, we're providing the bulk CleanCap based upon their supply chain orders. We have good visibility of that going out 12 months or several quarters, feel very solid about the guidance that we've given. And that guidance has gone up pretty consistently with our customers' demand for the product as they continue to execute commercially.

Perfect. Kevin, that's very helpful. Let's move on from COVID for a little bit and just focus on CleanCap specifically. You guys have talked about the competitive advantage it has in terms of yield versus other technologies. But could you talk about the potential innovations in the capping space? And how is CleanCap positioned longer term from a competitive standpoint?

Sure. It's clear that the established benefits of CleanCap include greater capping efficiency itself, which leads to the greater yields that you mentioned. So any further improvements that we can come up with along those lines would be highly valuable to our customers and highly valued by those customers as well. But also remember that in the human body, the cap itself is essential to allow the successful production of the proteins that you're trying to introduce, whether they're replacement proteins or trying to defeat a protein. And so the enhanced versions of CleanCap that can actually improve mRNA translation into proteins are a prime focus of our R&D efforts.

Got it. And then maybe talking about just the nucleic acid segment in general. Obviously, a large part has been driven by COVID, we've talked about that. But could you talk about the progress you've made in some of the non-COVID-related programs? And specifically, mRNA, I mean you walked through earlier about all the different -- the validation of the mRNA platform and all the different potential indications it can be used for. Maybe talk about some of the progress you've made in non-COVID-related mRNA programs for nucleic acids and CleanCap.

Sure. Well, our non-COVID programs are definitely growing. If you look at the total overall growth rate of Maravai pre-COVID, we're in the sort of 20% range. And there's nothing that COVID has done here except to accelerate some of those growth areas for us. So we're working primarily with our customers right now on -- in the non-COVID areas on the other infectious disease vaccines that I mentioned earlier. It's clear that there is an intense amount of effort to get the flu candidates up and into the clinic as soon as possible. I believe Pfizer mentioned in their last call that they plan to have their mRNA flu vaccine in the clinic in the third quarter of this year. So you can imagine that's a top priority for a number of our customers. On the non-therapy -- I'm sorry, non-COVID therapeutic side that we were alluding to with some of the rare orphan diseases, those programs have resumed after going through their own pauses last year, or their sponsors have turned their attention back to the core business. And we have good visibility to the future demand for our cleanroom services that are used for those therapeutic programs, and that's continuing to build. And then finally, just as an example of some exciting stuff that's going on all around us, we were involved recently in some work that was just published in Nature by David Liu and his team. And the exciting use of mRNA as part of the base editing technology is just super cool because you're able to use mRNA to help you edit one errant base in a gene. And in the animal model that they've chosen, they're trying to repair sickle cell genes. And as you can imagine, the sickle cell problem globally is one of massive morbidity. And as a result of that, we've seen some very promising new approaches that take mRNA in directions that we didn't even think about.

Got it. And then you recently launched a plasmid DNA business beginning of this year. Can you talk about the progress you've made? And maybe help us understand the long-term size and opportunity for this business for you guys.

Yes. Well, we're certainly pleased with the early progress that we're seeing there. This allows us to provide sort of soup-to-nuts capability for our customers who want to design and produce a custom mRNA construct. You need the plasmid DNA as the input into that process. And it's clearly the tightest part of the supply chain right now for many of our customers. So our ability to produce GMP-grade plasmid is essential to helping them move their mRNA programs forward. That was kind of our strategic rationale. And as such, I don't think we're thinking of it as a huge revenue contributor in and of itself. Instead, we're thinking of it as a huge help to our existing customers that will give us greater share of the wallet.

Understood. Understood. And maybe let's talk about the biologic safety business. We continue to think this is a highly attractive business, 80% EBITDA margins. You've had strong growth, especially recently. Could you talk about the competitive advantages that you have in this area? And do you think those margins are sustainable over time?

Well, I'll ask Kevin to comment on the latter part of the question. I'll just tell you that you're spot on. This is a super exciting business and has always been so for us. What differentiates us here is that our kits are the most sensitive in specific kits that are out there, and they meet the expectations of regulators all over the world. So when a customer is doing a biologics development program, the safety testing that goes on includes the host-cell protein and other impurities profile. And we work very, very closely with these customers during process development. Then the tests that are used as a result of that work are then written into the spec for the product and lot released in the future. So it becomes an ongoing annuity. And the customers come to us because of the breadth of our menu, because of that regulatory acceptance and because of our ability to provide them really specialized customer support on the technical and scientific questions. We also offer a range of services that are lab testing services that you could think of as being confirmatory in nature, which are also valuable. And Kevin, do you want to talk about sustainability of margins?

Yes. It's been a really high-margin business for us for a while just because of the excellence in the product. And the thing we have here working for us is really high retention of customers as well. I mean this is a business, when we look in through our business intelligence systems, that we have tremendous repeat customers. We do not lose a lot of customers because of the excellence of the product performance and the breadth of the offering. These kits, as Carl mentioned, are really seen as gold standards. And they allow our customers to get great results at good price points compared to the overall cost of biologics and biosimilars. And we continue to see new customers come on board. Again, I think it's important when you're looking at these programs and you're looking at the shortage of really skilled labor that some of these companies might have that they want to apply those people towards their core development and not towards in-process QC test developments. We fill that gap for them, fill it at a reasonable price point with great performance, and that has our customers coming back over and over and allows us to maintain really nice margin. And then we've been complementing that with more and more impurities, things like protein A or endonuclease, and as Carl said, additional services as they potentially reflex to mass-spec services or other things as we help them through some of our consulting and some of the other value-added services we have. So a great margin business. It's been that way for a while, and we see it as being very sustainable because of those attributes.